Apparently Learning Nothing from the Fannie Mae-Freddie Mac Disaster, the Obama Administration Wants to Subsidize Banks to Make More Dodgy Loans

Let’s assume you didn’t understand how a garbage disposal worked and, for whatever reason, you decided to stick your arm in one and turn it on. You would do some serious injury to your hand.

The rest of us would wonder what motivated you to stick your arm down the drain in the first place, but we would feel sympathy because you didn’t realize bad things would happen.

But if you then told us that you were planning to do the same thing tomorrow, we would think you were crazy. Didn’t you learn anything, we would ask?

Seems like a preposterous scenario, but something very similar is now happening in Washington. The Obama Administration is proposing to once again put the economy at risk by subsidizing banks to give mortgages to people with poor credit.

“Let’s party like it’s 2006!”

Even though we’re still dealing with the economic and fiscal damage caused by the last episode of government housing subsidies!

Here are some of the unbelievable details from a report in the Washington Post.

The Obama administration is engaged in a broad push to make more home loans available to people with weaker credit…officials say they are working to get banks to lend to a wider range of borrowers by taking advantage of taxpayer-backed programs — including those offered by the Federal Housing Administration — that insure home loans against default. Housing officials are urging the Justice Department to provide assurances to banks, which have become increasingly cautious, that they will not face legal or financial recriminations if they make loans to riskier borrowers who meet government standards but later default.

Brings to mind the famous saying from George Santayana that, “Those who cannot remember the past are condemned to repeat it.”

But what’s especially amazing – and distressing – about this latest scheme is that “the past” was only a couple of years ago. Or, to recall my odd analogy, one of our hands is still mangled and bleeding and we’re thinking about putting our other hand in the disposal.

Some people understand this is a nutty idea.

…critics say encouraging banks to lend as broadly as the administration hopes will sow the seeds of another housing disaster and endanger taxpayer dollars. “If that were to come to pass, that would open the floodgates to highly excessive risk and would send us right back on the same path we were just trying to recover from,” said Ed Pinto, a resident fellow at the American Enterprise Institute.

What’s also discouraging is that the government already is deeply involved in the housing market – even though this is an area where there is no legitimate role for the federal intervention.

Deciding which borrowers get loans might seem like something that should be left up to the private market. But since the financial crisis in 2008, the government has shaped most of the housing market, insuring between 80 percent and 90 percent of all new loans, according to the industry publication Inside Mortgage Finance. It has done so primarily through the Federal Housing Administration, which is part of the executive branch, and taxpayer-backed mortgage giants Fannie Mae and Freddie Mac, run by an independent regulator.

So I guess the goal is to have taxpayers on the hook for 100 percent of loans.

“Don’t worry, it’s not our money”

Anybody want to guess whether this will end well?

By the way, this is bad policy even if we somehow avoid a new bubble and big taxpayer losses. Even in a”best case” scenario, the federal government will be distorting the allocation of capital by discouraging business investment and subsidizing residential real estate.

And as shown in this powerful chart, that will have adverse consequences for wages and living standards.

The part of the article that most nauseated me was a quote from the head bureaucrat at the Federal Housing Administration.

“My view is that there are lots of creditworthy borrowers that are below 720 or 700 — all the way down the credit-score spectrum,” Galante said. “It’s important you look at the totality of that borrower’s ability to pay.”

Gee, isn’t that nice that Ms. Galante thinks there are lots of borrowers with good “totality” measures? But here’s an interesting concept. Why doesn’t she put her money at risk instead of making me the involuntary guarantor on these dodgy loans?

I’ve already said on TV that we should dump Fannie Mae and Freddie Mac in the Potomac River. And I’ve  argued that the entire Department of Housing and Urban Development should be razed to the ground.

But perhaps this cartoon best shows the consequences of the Obama Administration’s new subsidy scheme.

P.S. We also should get rid of housing preference in the tax code. Our economy should cater to the underlying preferences of consumers, not the electoral interests of politicians.

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Minimum Wage, Maximum Foolishness

Should the federal government make life more difficult for low-skilled workers?

I hope everyone will emphatically say “NO!”

Heck, most people understandably will think you’re crazy for even asking such a preposterous question.

But some of those people will also think that it’s a good idea for politicians in Washington to make low-skilled workers less attractive to employers by raising the minimum wage.

I often ask such people whether they are more likely to buy a Big Mac if McDonald’s raises the price by 24 percent. They say they are less likely.

I then ask them if they are more likely to buy a car if GM increases the price of a Buick by 24 percent. They say less likely, of course.

But they seem to have a blind spot when I ask them whether employers will be more likely or less likely to hire low-skilled workers when the government increases the cost of those workers by 24 percent.

I explain further in this interview for Yahoo! Finance.

The interviewer, by the way, seems to be economically illiterate.

He apparently believes that we can reduce inequality by pricing poor people out of the job market. He also blames companies for sitting on piles of cash, presumably unaware that firms only will invest if there are profitable opportunities.

At one point, I delicately state that one of his questions “betrays a certain lack of historical knowledge,” which is a polite way of saying “you’re either lying or you have no idea what you’re talking about.”

Ultimately, I try to help him understand by comparing fast-growing economies such Hong Kong and Singapore, which have relatively low burdens of government, with slow-growth economies such as France and Italy, where politicians ostensibly seek to “help” people with various forms of intervention.

I’m not sure I made any progress, so feel free to suggest other ways of convincing skeptics that freedom is better than statism.

Anyway, for those who want more information, this video explains the underlying economics of the minimum wage. We also have plenty of evidence (see here and here) that unemployment rose following the most recent hike in the minimum wage.

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The Perverse Unintended Consequences of Anti-Discrimination Laws

I recently wrote about the pinheads at the Equal Employment Opportunity Commission, who are threatening legal action against companies that are leery about hiring people with criminal records.

Now some states and cities are making it illegal to discriminate against those that have been unemployed for a long period of time.

Unlike special legal status for ex-cons, this sounds reasonable. After all, we all would like to help the long-term unemployed break free of the chains of government dependency.

But sometimes good intentions generate undesirable effects. I explain in this Fox Business News debate that companies will do their best to avoid even interviewing the long-term unemployed if they have to worry about potential legal pitfalls whenever they make a hiring decision.

I also explain that businesses have no incentive to engage in unjustified discrimination. After all, that would imply a willingness to deliberately sacrifice profit in pursuit of some irrational bias.

But as Walter Williams has succinctly argued, some forms of discrimination make sense.

And if there are two applicants who otherwise seem to have equal qualifications for a certain job, but one has been out of work for more than 12 months, it’s only logical that the employer will think that a lengthy stint of sitting on a couch does not suggest great habits.

Which is why Obama’s policy of never-ending unemployment benefits is so misguided. People get lured into long-term unemployment and there is both anecdotal evidence (check out these stories from Michigan and Ohio) and empirical evidence (here, here, and here) showing this unfortunate impact.

Heck, even Paul Krugman and Larry Summers have admitted that you get more unemployment when you subsidize joblessness.

So you won’t be surprised to know that I’ve dispensed some tough love on this topic as well.

P.S. This cartoon does a very effective job of showing the consequences of paying people not to work.

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Which Nation Has the Most Per-Capita Government Spending on Healthcare: France, Italy, the United States, Sweden, Canada, Greece, or the United Kingdom?

What government spends the most on health care?

• Is it Canada or the United Kingdom, which are famous (or, if these stories are any indication, infamous would be a better description) for single-payer healthcare systems?
• Is it Sweden, the home of the cradle-to-grave welfare state?
• Or France, the land of the world’s most statist people?
• How about Italy or Greece, nations that have spent themselves into fiscal crisis?

Nope, nope, nope, and nope.

The United States spends more money, on a per-capita basis, than any of those countries. Here’s a chart from a Forbes analysis prepared by Doug Holtz-Eakin and Avik Roy.

There are three big reasons why there’s more government-financed healthcare spending in the United States.

1. Richer nations tend to spend more, regardless of how they structure their healthcare systems.

2. As you can see at the 1:18 mark of this video, the United States is halfway down the road to a single-payer system thanks to programs such as Medicare and Medicaid.

3. America’s pervasive government-created third-party payer system leads to high prices and costly inefficiency.

So what’s the moral of the story? Simple, notwithstanding the shallow rhetoric that dominates much of the debate, the United States does not have anything close to a free-market healthcare system.

That was true before Obamacare and it’s even more true now that Obamacare has been enacted.

Indeed, it’s quite likely that many nations with “guaranteed” health care actually have more market-oriented systems than the United States.

Avik Roy argues, for instance, that Switzerland’s system is the best in the world. And the chart above certainly shows less direct government spending.

And there’s also the example of Singapore, which also is a very rich nation that has far less government spending on healthcare than the United States.

If you read the Avik Roy articles linked above, and also this study by my Cato colleague Mike Tanner, you’ll see that there’s no perfect system.

Our challenge is that it’s very difficult to put toothpaste back in a tube. Thanks to government programs and backdoor intervention through the tax code, the United States healthcare system is nowhere close to a free market (with a few minor exceptions such as cosmetic surgery and – regardless of what you think of the procedure – abortion).

Yes, I think entitlement reform can make things better, though fixing Medicare and Medicaid should be seen as a necessary but not sufficient condition. As I show in this post, we would simply move a little bit in the right direction on the spectrum between markets and statism.

Tax reform could solve another part of the problem by removing the bias for over-insurance, which presumably would lead people to pay out of pocket and use insurance for large, unexpected costs.

Fundamental tax reform is also the best way to improve the healthcare system. Under current law, compensation in the form of fringe benefits such as health insurance is tax free. Not only is it deductible to employers and non-taxable to employees, it also isn’t hit by the payroll tax. This creates a huge incentive for gold-plated health insurance policies that cover routine costs and have very low deductibles. …Shifting to a flat tax means that all forms of employee compensation are taxed at the same low rate, a reform that presumably over time will encourage both employers and employees to migrate away from the inefficient over-use of insurance that characterizes the current system. For all intents and purposes, the health insurance market presumably would begin to resemble the vastly more efficient and consumer-friendly auto insurance and homeowner’s insurance markets.

In other words, as this poster suggests, government is the problem and less government is the solution.

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The Tax Code Shouldn’t Steer Capital to State and Local Governments at the Expense of Private Investment

I’m a proponent of a pro-growth and non-corrupt tax code.

I mostly write and talk about the flat tax, though I’d be happy to instead accept a national sales tax if we could somehow get rid of the 16th Amendment and replace it with something so ironclad that even Justices such as John Roberts and Ruth Bader Ginsburg couldn’t rationalize that the income tax was constitutional.

But since there’s no chance of any good tax reform with Obama in the White House, there’s no need to squabble over the best plan. Instead, our short-term goal should be to educate voters so that we create a more favorable intellectual climate for genuine reform in 2017 and beyond.

That’s why I’ve argued in favor of lower tax rates and shared the latest academic research showing that tax policy has a significant impact on economic performance.

But tax reform also means getting rid of the rat’s nest of deductions, credits, exemptions, preferences, exclusions, shelters, loopholes, and other distortions in the tax code.

Why? Because people should make decisions on how to earn income and how to spend income on the basis of what makes economic sense, not because they’re being bribed or penalized by the tax code. That’s just central planning through the back door.

And if you don’t think this is a problem, I invite you to peruse three startling images, each of which measures rising complexity over time.

1. The number of pages in the tax code.
2. The number of special tax breaks.
3. The number of pages in the 1040 instruction booklet.

Today’s Byzantine system is good for tax lawyers, accountants, and bureaucrats, but it’s bad news for America. We need to wipe the slate clean and get rid of this corrupt mess.

But as I explain in this appearance on Fox Business News, we won’t make progress until we control the burden of government spending and unless we make sure that deductions are eliminated only if we use every penny of revenue to lower tax rates.

I’ve previously explained why it’s okay to get rid of itemized deductions for mortgage interest, charitable contributions, and state and local tax payments.

Let’s now take a moment to explain why the internal revenue code shouldn’t be artificially steering capital toward state and local governments at the expense of private investment.

Under current law, there’s no federal income tax imposed on interest from municipal bonds. No matter how rich you are, Uncle Sam doesn’t tax a penny of the interest you receive if you use your wealth to lend money to state and local governments.

Should the tax code steer money to Detroit politicians?

This “muni-bond exemption” has two unfortunate effects.

• It makes it easier and cheaper for state and local governments to incur debt, thus encouraging more wasteful spending by cities such as Detroit and states such as California.
• By making the debt of state and local governments more attractive than private business investment, the loophole undermines long-term growth by diverting capital to unproductive uses.

The politicians at the state and local level certainly understand what’s at stake. They’re lobbying to preserve this destructive tax break. Here are some excerpts from a story in the New York Times.

Mr. Firestine [of Montgomery County, MD] is on the front lines of a lobbying campaign by local and state governments, bond dealers, insurers and underwriters that is trying to pre-empt any attempt to limit or even kill the tax exemption. …At present, the federal government forgoes about $32 billion a year in taxes by exempting the interest that investors earn from municipal bonds. …The National Commission on Fiscal Responsibility and Reform, known as the Simpson-Bowles commission, has suggested taxing all municipal bond interest, not just the interest paid to people in the top bracket. …Officials of some other government groups, like the New York City Housing Development Corporation, have formed a coalition with Wall Street groups like the Bond Dealers of America to lobby on the issue. But there is the sense of an uphill battle. …Capping the tax exemption would cause high-bracket taxpayers to look for higher-yielding investments, he said, and the county would have to offer more interest to lure them back.

Based on the last sentence in the excerpt, I gather we’re supposed to think it would be bad news if we got rid of this tax preference and taxpayers shifted more of their money to private-sector investments.

Needless to say, that’s misguided. Only in the upside-down world of Washington do people think it is smart to create tax preferences that lead to more wasteful spending by state and local governments, while simultaneously imposing punitive forms of double taxation on saving and investment in the private sector.

By the way, this shouldn’t be an ideological issue. If this amazing chart is any indication, leftists who want workers to enjoy more income should be clamoring the loudest for a tax system that doesn’t tilt the playing field against capital formation.

P.S. While simplicity is a good goal for tax policy, you will understand why it shouldn’t be the only goal if you check out this potential Barack Obama tax reform plan.

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Defending Cato from the Predictably Inaccurate Ramblings of Paul Krugman

Writing for the New York Times, Paul Krugman has a new column promoting more government spending and additional government regulation. That’s a dog-bites-man revelation and hardly noteworthy, of course, but in this case he takes a swipe at the Cato Institute.

The financial crisis of 2008 and its painful aftermath…were a huge slap in the face for free-market fundamentalists. …analysts at right-wing think tanks like…the Cato Institute…insisted that deregulated financial markets were doing just fine, and dismissed warnings about a housing bubble as liberal whining. Then the nonexistent bubble burst, and the financial system proved dangerously fragile; only huge government bailouts prevented a total collapse.

Upon reading this, my first reaction was a perverse form of admiration. After all, Krugman explicitly advocated for a housing bubble back in 2002, so it takes a lot of chutzpah to attack other people for the consequences of that bubble.

He likes cats, so he’s not all bad

But let’s set that aside and examine the accusation that folks at Cato had a Pollyanna view of monetary and regulatory policy. In other words, did Cato think that “deregulated markets were doing just fine”?

Hardly. If Krugman had bothered to spend even five minutes perusing the Cato website, he would have found hundreds of items by scholars such as Steve Hanke, Gerald O’Driscoll, Bert Ely, and others about misguided government regulatory and monetary policy. He could have perused the remarks of speakers at Cato’s annual monetary conferences. He could have looked at issues of the Cato Journal. Or our biennial Handbooks on Policy.

The tiniest bit of due diligence would have revealed that Cato was not a fan of Federal Reserve policy and we did not think that financial markets were deregulated. Indeed, Cato scholars last decade were relentlessly critical of monetary policy, Fannie Mae, Freddie Mac, Community Reinvestment Act, and other forms of government intervention.

Heck, I imagine that Krugman would have accused Cato of relentless and foolish pessimism had he reviewed our work  in 2006 or 2007.

I will confess that Cato people didn’t predict when the bubble would peak and when it would burst. If we had that type of knowledge, we’d all be billionaires. But since Krugman is still generating income by writing columns and doing appearances, I think it’s safe to assume that he didn’t have any special ability to time the market either.

Krugman also implies that Cato is guilty of historical revisionism.

…many on the right have chosen to rewrite history. Back then, they thought things were great, and their only complaint was that the government was getting in the way of even more mortgage lending; now they claim that government policies, somehow dictated by liberals even though the G.O.P. controlled both Congress and the White House, were promoting excessive borrowing and causing all the problems.

I’ve already pointed out that Cato was critical of government intervention before and during the bubble, so we obviously did not want government tilting the playing field in favor of home mortgages.

It’s also worth nothing that Cato has been dogmatically in favor of tax reform that would eliminate preferences for owner-occupied housing. That was our position 20 years ago. That was our position 10 years ago. And it’s our position today.

I also can’t help but comment on Krugman’s assertion that GOP control of government last decade somehow was inconsistent with statist government policy. One obvious example would be the 2004 Bush Administration regulations that dramatically boosted the affordable lending requirements for Fannie Mae and Freddie Mac, which surely played a role in driving the orgy of subprime lending.

And that’s just the tip of the iceberg. The burden of government spending almost doubled during the Bush years, the federal government accumulated more power, and the regulatory state expanded. No wonder economic freedom contracted under Bush after expanding under Clinton.

But I’m digressing. Let’s return to Krugman’s screed. He doesn’t single out Cato, but presumably he has us in mind when he criticizes those who reject Keynesian stimulus theory.

…right-wing economic analysts insisted that deficit spending would destroy jobs, because government borrowing would divert funds that would otherwise have gone into business investment, and also insisted that this borrowing would send interest rates soaring. The right thing, they claimed, was to balance the budget, even in a depressed economy.

Actually, I hope he’s not thinking about us. We argue for a smaller burden of government spending, not a balanced budget. And we haven’t made any assertions about higher interest rates. We instead point out that excessive government spending undermines growth by undermining incentives for productive behavior and misallocating labor and capital.

But we are critics of Keynesianism for reasons I explain in this video. And if you look at current economic performance, it’s certainly difficult to make the argument that Obama’s so-called stimulus was a success.

But Krugman will argue that the government should have squandered even more money. Heck, he even asserted that the 9-11 attacks were a form of stimulus and has argued that it would be pro-growth if we faced the threat of an alien invasion.

In closing, I will agree with Krugman that there’s too much “zombie” economics in Washington. But I’ll let readers decide who’s guilty of mindlessly staggering in the wrong direction.

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What’s the Difference Between Romneycare and Obamacare?

That’s a trick question, of course, as illustrated by this biting Henry Payne cartoon.

But let’s look at one of the commonalities of Romneycare and Obamacare – higher premiums, thanks to mandates and third-party payer.

Here’s a quick look at what’s been happening to premiums in Massachusetts.

The same thing is already happening with Obamacare, as explained in a Wall Street Journal column by Merrill Matthews and Mark Litow.

The congressional Democrats who crafted the legislation ignored virtually every actuarial principle governing rational insurance pricing. Premiums will soon reflect that disregard—indeed, premiums are already reflecting it. …Guaranteed issue incentivizes people to forgo buying a policy until they get sick and need coverage (and then drop the policy after they get well). While ObamaCare imposes a financial penalty—or is it a tax?—to discourage people from gaming the system, it is too low to be a real disincentive. The result will be insurance pools that are smaller and sicker, and therefore more expensive.

How bad will it be? Well…

Many actuaries, such as those in the international consulting firm Oliver Wyman, are now predicting an average increase of roughly 50% in premiums for some in the individual market for the same coverage. …Arizona, Arkansas, Georgia, Idaho, Iowa, Kentucky, Missouri, Ohio, Oklahoma, Tennessee, Utah, Wyoming and Virginia will likely see the largest increases—somewhere between 65% and 100%. Another 18 states, including Texas and Michigan, could see their rates rise between 35% and 65%.

Which is why 2014 is the “Year of the Snake” in more places than just China.

If you like Ramirez cartoons, you can see some of my favorites here, here, here, here, and here.

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Obama’s Hidden $236 Billion Tax Hike

Obama imposed a big tax hike last year.

But I’m not talking about the fiscal cliff and the President’s class-warfare trophy of higher tax rates on those evil rich people. That happened this year.

Instead, I’m referring to the increase in the regulatory burden.

Here are some excerpts from a report in The Hill.

The Obama administration issued $236 billion worth of new regulations last year… The analysis from the American Action Forum, led by former Congressional Budget Office Director Douglas Holtz-Eakin, found that the administration added $216 billion in rules and more than $20 billion in regulatory proposals in 2012. Complying with those rules will require an additional 87 million hours of paperwork, the report said. The group put the total price tag from regulations during Obama’s first term at more than $518 billion. …The Environmental Protection Agency racked up the most in regulatory costs last year, according to the report, issuing $172 billion worth of rules. Regulations from the healthcare reform law tacked an additional $20.1 billion in costs onto the economy.

This isn’t pocket change. Indeed, $236 billion is almost four times as much money – measured annually – as Obama’s tax hike. And the vast majority of that burden will be borne by ordinary citizens, not just the so-called rich.

But the article includes a very important caveat.

Though the study lists the costs of regulations, it does not calculate any benefits that might have resulted from them.

That’s an important point, which is why it would be nice if the government engaged in some honest cost-benefit analysis. Some regulations impose modest costs and generate meaningful benefits. Mandating that cars include seat belts would be a good example.

But other regulations impose costs far in excess of potential benefits, such as all the red tape accompanying Obamacare, the regulatory tsunami of Dodd-Frank, and the never-ending plethora of EPA rules.

Many people complain about the high cost of regulation. Heck, I’m one of them. I’ve shared some very disturbing numbers about the burden of red tape.

• Americans spend 8.8 billion hours every year filling out government forms.
• The economy-wide cost of regulation is now $1.75 trillion.
• For every bureaucrat at a regulatory agency, 100 jobs are destroyed in the economy’s productive sector.

But maybe it’s time to step back and look at the bigger picture. More specifically, we should ask whether there is an alternative to government regulation. John Stossel says yes, arguing that private markets are remarkably effective in protecting consumers without the involvement of government.

He starts his column by noting that the regulatory nightmare is getting worse.

The bureaucrats never stop. There are now more than 170,000 pages of federal regulations.

But then he explains that private rules are just like regulation, but without a role for clumsy and ineffective government.

It is scary to think about a world without regulation. Intuition leads us to think that without government we’d be victims of fraud… But our intuition is wrong. Consider this: An entire sector of the economy operates almost entirely without government controls. Complete strangers exchange big money there every day. It’s the Internet. It does have regulation, just not government regulation.

He mentions the innovative private regulation of companies such as PayPal and eBay.

PayPal invented a new form of regulation. “They developed a private fraud detection system, where they used computers to say, ‘This might be fraudulent,’ and then it would send it to a human to investigate that.” That dramatically reduced fraud, and PayPal thrived. EBay’s business model is also threatened by fraud. How can a buyer trust that, say, a seller will actually deliver a $25 pack of baseball cards and that the cards will be what he claims they are? In theory, you could sue; but in practice, our legal system is too slow and costly for that. So eBay came up with self-regulation: The buyers rate the sellers.

And he also explains how stock markets originally relied on private forms of regulation.

Did you know that stock markets began without government regulation? …the first stock exchanges developed in London in the 1700s: “Government refused to enforce all but the most simple contracts. Nevertheless, brokers figured out how to do short sales, futures contracts, options contracts — even though none was enforceable by law.” They came up with private enforcement. “They traded in coffeehouses. And after a while, they decided: ‘Let’s enforce rules within this coffeehouse. If you default, you’re going to get kicked out of the coffeehouse, and we’re going to call you a lame duck.’”

Unfortunately, the trend is for more government, even though much of red tape produced by Washington doesn’t pass the cost-benefit test.

Years of consumer reporting have taught me that such private regulation is better for consumers than the piles of rules produced by our bloated government. Worse, government’s micromanagement stifles innovation. Companies now invest in lawyers and “compliance officers,” rather than engineers and creators.

John’s column is music to my ears. I wrote an entire article for Townhall based on the premise that “the profit motive creates mutually reinforcing oversight” to protect the interests of consumers.

In other words, private companies don’t maximize profits by poisoning, killing, mistreating, and abusing their customers. And even if they thought that was a means of getting rich, other private companies such as banks and insurance companies would have a profit-maximizing incentive to stop bad behavior.

That doesn’t mean there’s no role for government. Even a libertarian system, for instance, would have a legal system enabling people to get compensation when they suffer losses because of negligence.

The question before us, though, is whether the pendulum has swung too far in favor of command-and-control regulation from Washington.

To answer, let’s close this post with some examples of regulatory idiocy from government bureaucracies.

• Putting a store out of business for selling toy guns.
• Regulations making it difficult for trucking firms to weed out drunk drivers.
• Year-long sting operations by federal milk police.
• Rules harassing coffee shops with bikini-clad sales staff.
• OSHA requirements for expensive safety harnesses for people working 11 feet off the ground.
• Rules from the EEOC for “pee-shy” employees.
• The IRS making banks put foreign tax law above US tax law.

Does anyone think the private sector would impose rules like this?

Remember, if government is the answer, you’ve asked a very strange question.

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Bailout Nation

I have a serious question for readers. What’s worse, bailouts for government or bailouts for the private sector?

Yes, both are bad, but is it worse to bail out a bankrupt entitlement program, such as Social Security, or it is worse to bail out an industry, such as the financial sector?

To bail out the housing sector, or to bail out Medicare? Fannie and Freddie, or GM and Chrysler?

All these examples involve huge amounts of money, and both private-sector and public-sector bailouts have perverse long-run effects, but which is worse?

And don’t forget there are lots of other bailouts in our future, as discussed on this interview for Fox Business News.

The interview took place before Christmas, but the topic is even more relevant today since the budget season is about to begin.

Most of the discussion was about government agencies and programs that may get more handouts, though bailouts for the Federal Housing Administration and the Pension Benefit Guaranty Corporation would be indirect bailouts for big business and housing.

So we’d get the worst of all worlds, more government spending and more cronyism.

Or, as they call it in Washington, a win-win situation.

But I call it legal corruption.

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The Reverse Midas Touch of Government

Since I’m an out-of-the-closet libertarian, it goes without saying that I’m not favorably disposed to government intervention. As far as I’m concerned, Washington’s an inherently corrupt town filled with people seeking unearned wealth.

But even if I didn’t have any underlying philosophical or moral principles, I think I would still favor small government.

Why? Because just about everything government does turns into a bloody cluster-you-know-what, so there’s also a utilitarian case for libertarianism.

I discuss the reverse Midas touch of government with John Stossel.

The theme of Stossel’s show, by the way, was looking at how good intentions lead to bad results. I actually think that’s too optimistic.

Most government intervention is driven by sordid insider scheming, not good intentions. The politicians merely pretend they have noble-sounding goals when peddling their manure to the public.

But regardless of the goals, the result is still the same.

I point out that if the burden of government spending grows faster than the private economy (sort of Obama’s Golden Rule rather than Mitchell’s Golden Rule), bad things inevitably will happen.

Other points from the interview:

• Green energy programs led to Solyndra-style scandals.
• Pro-housing policies led to a destructive bubble.
• Special tax preferences led to a monstrous tax code.
• Welfare programs trap people in poverty.

I suppose a more interesting program would be to identify things that the government does intelligently and effectively.

Any suggestions?

P.S. According to Greek mythology, anything Midas touched turned into gold. But since the fable also says that this blessing turned into a curse, perhaps this post should have been titled the “The Midas Touch of Government” rather than “The Reverse Midas Touch of Government.” But since I’m already trying to restore the good name of Robin Hood, I’m going to leave it to others to decide how to characterize Midas.

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While Much of America Suffers with Stagnation, Washington’s Political Class Is Having a Very Merry Christmas

In large part because of an excessive burden of government, the American economy is suffering European-style stagnation, with even the Washington Post now confessing that growth far below the long-run trend.

This helps explain why job creation has been so dismal in recent years, with more than twenty million Americans out of work, underemployed, or dropped out of the workforce.

But there is one pocket of enormous prosperity in America. It will warm your heart to know that our overlords in Washington are living the life of Riley.

Here are some of the highlights of a remarkable Reuters expose about the fat cats of big government, starting with the huge gap between the insider elite and the poor.

In the town that launched the War on Poverty 48 years ago, the poor are getting poorer despite the government’s help. And the rich are getting richer because of it. The top 5 percent of households in Washington, D.C., made more than $500,000 on average last year, while the bottom 20 percent earned less than $9,500 – a ratio of 54 to 1. That gap is up from 39 to 1 two decades ago. It’s wider than in any of the 50 states and all but two major cities.

One small but important correction in the previous excerpt. As I have noted many times, the “poor are getting poorer” because of “the government’s help.”

The article then explains that a lot of the redistribution in Washington is from taxpayers to a pampered elite.

…in the years since President Lyndon Johnson took aim at poverty in his first State of the Union address, there has been an increasingly strong crosscurrent: The government is redistributing wealth up, too – especially in the nation’s capital. …Two decades of record federal spending and expanding regulation have fostered a growing upper class of federal contractors, lobbyists and lawyers in the District of Columbia area. …Direct spending by the federal government accounts for 40 percent of the area’s $425 billion-a-year economy. …Roughly 15 cents of every dollar from the entire federal procurement budget stays in or around the government’s hometown, said Stephen S. Fuller, director of the Center for Regional Analysis at George Mason University. Last year, that was about $80 billion out of $536 billion in procurement spending, he said. The 15 percent share is far greater than the region’s 2 percent portion of the U.S. population. “We’re seeing an enormous transfer of wealth from taxpayers to the Washington economy,” said Fuller.

And all this spending leads to an elitist class of cronyists, politicians, contractors, bureaucrats, and lobbyists. No wonder the DC area is home to some of the richest counties in America.

But unlike other well-to-do areas, the wealth in DC is rarely accumulated by honest means.

Instead, it’s the result of perverse form of redistribution to big-government insiders. Check out these horrifying details.

Washington-area workers with incomes above $100,000 rose to 22 percent of the workforce, up from 14 percent in 1990, adjusted for inflation, a Reuters analysis of Census data found. …there are 320,000 federal jobs in the Washington area. Within the District of Columbia, 55 percent pay $100,000 or more. …Nearly 13,000 lobbyists registered with the government last year and reported $3.3 billion in fees, or about $260,000 per lobbyist. That’s 22 percent more lobbyists and 37 percent more inflation-adjusted revenue per lobbyist than in 1998… Times are flush for Washington lawyers as well. The number of attorneys in the area has risen 44 percent, twice the national rate, to 41,000 since 1999. Their average income, adjusted for inflation, rose 35 percent to $156,000.

I guess we know who’s having a merry Christmas.

All these rich bureaucrats, lobbyists, politicians, cronyists, and contractors certainly are living the good life, as revealed in a Washington Post story on the “Region’s Rising Wealth.” Here are some sordid excerpts.

…the D.C. region already has a reputation as one of the most affluent in the country. But the area is fast emerging as a home to the truly rich as well. High-end luxury retailers are responding. Brands such as Aston Martin are expanding their operations into the area — betting, for instance, that there will be plenty of customers who can afford the $280,000 sports car James Bond drives in the movies. …Already there are 500 Aston Martin owners in the area with the potential for more.

I’ve already shared an interview with Andrew Ferguson by Reason TV that should make all taxpayers upset. Why should ordinary taxpayers be coerced to subsidize Washington’s high-flying parasite economy?

Redistribution is a bad thing in most circumstances. But when you redistribute from poor to rich, that’s utterly perverse.

Well, thanks to profligacy by Bush and Obama, that’s exactly what’s happened.

The region’s top one percent of households make more than a half million dollars yearly — far more than the national average for the one percent, according to a study of Census data by Sentier Research, an Annapolis-based data analysis firm. And these top earners — many of whom are from dual-income households and benefit from federal contracting — weathered the recession better than their counterparts in some other metropolitan areas and the nation. More are moving beyond comfortable affluence to a much higher standard of living. “What is unique to D.C. is that there has been a change in the complexion of wealth here. There didn’t used to be much of this ultra-high-net-worth business here and now there is,” said Susan Traver, the regional president of BNY Mellon Wealth Management.

But everyone in the rest of America at least can go to sleep tonight with a warm and fuzzy feeling of joy, knowing that our money has created such comfortable lives for the political elite.

Milton Pedraza, the CEO of the Luxury Institute, a research and consulting firm, said that purveyors of luxury goods are drawn to the area because it has…a stable economy bolstered by the federal government. Government contracting, where some local entrepreneurs and business owners amassed their fortunes, has been a key driver of the region’s economy for three decades. A third of the region’s gross regional product still comes from federal spending… “Let’s face it . . . the only place with money during the recession was Washington, D.C.,” Pedraza said.

Perhaps we should make a slight correction in the previous excerpt. After all, shouldn’t it read “America suffered a recession because the only place with money was Washington, DC.”

Let’s wrap this up. A few years ago, I issued this video about overpaid bureaucrats.

But I now realize my mini-documentary only scratches the  surface. Yes, there are too many paper-pushers on the government payroll, and of course they get far too much compensation.

But what about unofficial government workforce of over-paid contractors? And all the lobbyists, consultants, and cronyists that exist only because we have a bloated federal government?

Our nation is being seriously damaged by this corrupt system, and I fear that the outcome will be Argentinian-style decline.

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Time to Get Rid of Tax Preferences for Housing in the Internal Revenue Code

Even though I knew some people would call me Scrooge, I wrote a few days ago about why we should get rid of the tax deduction for charitable contributions in exchange for lower tax rates.

Simply stated, I’m a big advocate of fundamental tax reform, and I would like to scrap the corrupt internal revenue code and replace it with a simple and fair flat tax.

Needless to say, that also means getting rid of tax preferences for housing. I make the case against the home mortgage interest deduction in this interview on the Fox Business Network.

Since a short TV interview doesn’t allow much time for a detailed and wonky analysis of tax policy, this is a good time to explain why tax reform doesn’t really change the tax treatment of housing. But also I’ll explain why it is a big change.

I realize that makes me sound like a politician, talking out of both sides of my mouth, but bear with me.

One of the key principles of tax reform is that there no longer should be any double taxation of income that is saved and invested. As you can see in this chart, people who live for today and immediately consume their after-tax income are basically spared any additional layers of tax. But if you save and invest your after-tax income (which is very good for future growth and necessary to boost workers’ wages), then the government tries to whack you with several additional layers of tax.

The solution is a system that taxes income only one time. And that means all saving and investment should be treated the way we currently treat individual retirement accounts. If you have a traditional IRA (or “front-ended” IRA), you get a deduction for any money you put in a retirement account, but then you pay tax on the money – including any earnings – when the money is withdrawn.

If you have a Roth IRA (or “back-ended” IRA), you pay tax on your income in the year that it is earned, but if you put the money in a retirement account, there is no additional tax on withdrawals or the subsequent earnings.

From an economic perspective, front-ended IRAs and back-ended IRAs generate the same result. Income that is saved and invested is treated the same as income that is immediately consumed. From a present-value perspective, front-ended IRAs and back-ended IRAs produce the same outcome. All that changes is the point at which the government imposes the single layer of tax.

So why am I boring you with all this arcane tax info? Because the home mortgage interest can be considered as a front-ended IRA involving more than one party. The interest paid by the homeowner is deductible, and the interest received by the mortgage company is taxable.

Under a flat tax, the system gets switched to something akin to a back-ended IRA. The homeowner no longer deducts the interest and the recipient of the interest no longer pays tax.

Some of you may be thinking that this is a good deal for financial institutions, but a ripoff for homeowners. But here are two very important points.

• First, homeowners that already have mortgages presumably would be grandfathered, thus allowing them to continue taking the deduction. They made a contract under the old rules and shouldn’t have the rug pulled out from under them.
• Second, people taking out new mortgages would benefit since mortgage interest would get the same tax treatment now reserved for tax-free municipal bonds. And because there’s no federal income tax on municipal bonds, that means there’s no tax wedge built into the interest rate.

In other words, homeowners or homebuyers in the new system won’t be able to deduct mortgage interest, but they’ll benefit from lower interest rates. Six of one, half dozen of another.

So why, then, is the housing lobby against the flat tax?

In part, they don’t know what they’re talking about. But what about the smart ones, the ones who understand that there’s no meaningful change in the after-tax cost of getting a mortgage in a flat tax world? Why are they opposed to tax reform.

The answer is very simple. They understand that housing isn’t directly affected by a flat tax, but they are very concerned about the indirect impact. More specifically, they understand that the flat tax eliminates all forms of double taxation in the tax code, and that would mean a level playing field.

In other words, the housing sector is now taxed rationally, and other investments are taxed punitively. Under a flat tax, by contrast, all would be taxed rationally.  So the housing sector would lose its relative advantage. 

So if your industry or sector is the beneficiary of a tilted playing field, then it’s understandable that you’ll be worried about tax reform even if there’s no real change in how you get taxed.

And I suspect the impact of tax reform wouldn’t be trivial.

To get an idea about the potential impact, let’s look at some academic research. Professor Dale Jorgenson of Harvard and another economist from Yonsei University in South Korea estimate that most of the economic benefit of tax reform occurs because capital shifts out of owner-occupied housing and into business investment.

…progressivity of labor income taxation is another major source of inefficiency in the U.S. tax system. This produces marginal tax rates on labor income that are far in excess of average tax rates. A high marginal tax rate results in a large wedge between the wages and salaries paid by employers and those received by households. A proportional tax on labor income would equalize marginal and average tax rates and would sharply curtail the losses in economic efficiency due to high marginal rates. An important challenge for tax reform is to eliminate the barriers to efficient capital allocation arising from ―double‖ taxation of assets held in the corporate sector and the exclusion of owner-occupied housing from the tax base… If both income taxes and sales taxes are replaced by a Flat Tax, and a lump sum tax is used to compensate for the revenue shortfall, the welfare gains are very substantial, $5,111.8 billion U.S. dollars of 2011 for HR and $5,444.3 billion for AS. …Our overall conclusion is that the most substantial gains from tax reform are associated with equalizing tax burdens on all assets and all sectors and eliminating the progressive taxation of labor income… We have shown that the most popular Flat Tax proposals would generate substantial welfare gains.

I don’t pay much attention to the estimates in the study about an extra $5 trillion-plus of wealth. That number is very sensitive to the structure of the model and the underlying assumptions.

But I do agree that tax reform will generate big benefits and that much of the gain will occur because there will be less tax-induced over-investment in housing and more growth-generating investment in business capital.

But as I note in the interview, that’s a good thing. It means more prosperity for the American people and a more competitive American economy.

Government shouldn’t be trying to lure us into making economically irrational decisions because of tax or regulatory interventions. Didn’t we learn anything from the Fannie Mae-Freddie Mac fiasco?

The clowns in Washington have been mucking around in the economy for decades and they keep making things worse. Perhaps, just for a change of pace, we should try free markets and small government and see what happens.

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We Need More Growth and Prosperity to Boost Charitable Contributions, not Bribery in the Tax Code

I’m a strong believer in fundamental tax reform. We need a system like the flat tax to improve economic performance.

No tax system is good for growth, of course, but the negative impact of taxation can be reduced by lowering marginal tax rate(s), eliminating double taxation of saving and investment, and getting rid of loopholes that encourage people to make decisions for tax reasons even if they don’t make economic sense.

While the general public is quite sympathetic to tax reform and would like to de-fang the IRS, there are three main pockets of resistance.

1. The class-warfare crowd is opposed to the flat tax for ideological reasons. They want high tax rates and punitive double taxation – even if the government winds up collecting less money.
2. The lobbyists and special interest groups also are opposed to tax reform, along with the politicians that they cultivate. The tax code is a major source of political corruption, after all, and there would be a lot fewer opportunities to game the system and swap loopholes for political support if the 72,000 page tax code was tossed in a dumpster.
3. Beneficiaries of certain tax preferences such as the mortgage interest deduction, the charitable deduction, and the state and local tax deduction are worried about tax reform, either because they are taxpayers who utilize the preferences or because they represent interest groups that benefit because the government has tilted the playing field.

This post is designed to allay the fears of this third group, specifically the folks who worry that tax reform might be bad news for charities.

The Wall Street Journal today published a pro-con debate on the charitable deduction. As you might expect, my role is to argue in favor of a simple and fair system that would eliminate all tax preferences.

Here’s some of what I wrote on the charitable deduction, beginning with the key point that economic growth is key because the biggest determinants of charitable giving are disposable income and net wealth.

…the best way to help charities is to boost economic growth, which leaves people with more money to donate. And I think the best way to do that is to replace our current system with a simple and fair flat tax. …I don’t think there’s a compelling argument for the charitable deduction. …Over the decades, there have been major changes in tax rates and thus major changes in the tax treatment of charitable contributions. At some points, there has been a big tax advantage to giving, at others much less. Yet charitable giving tends to hover around 2% of U.S. gross domestic product, no matter what the incentive.

The final sentence in the above excerpt is key. The value of a tax deduction is determined by the tax rate. So in 1980, when the top tax rate was 70 percent, it only cost 30 cents to give $1 to charity. By 1988, though, the top tax rate was down to 28 percent, which means that the cost of giving $1 had jumped to 72 cents.

Yet charitable giving rose during the 1980s. Why? Because Reagan implemented reforms – such as lower tax rates – that produced a healthier economy.

Some may wonder whether the example I just cited is appropriate since it focuses on the tax rate (and therefore the value of the tax deduction) for upper-income taxpayers.

But there’s a good reason for that choice. The charitable deduction overwhelmingly goes to the rich.

Upper-income households are the biggest beneficiaries of the deduction, with those making more than $100,000 per year taking 81% of the deduction even though they account for just 13.5% of all U.S. tax returns. The data are even more skewed for households with more than $200,000 of income. They account for fewer than 3% of all tax returns, yet they take 55% of all charitable deductions.

I’m not against rich people, or against them lowering their tax liabilities. But I do want a tax system that generates more prosperity because that’s good news for the entire economy – including the nonprofit sector.

Speaking of which, I think tax-deductible groups will become better and more efficient without the deduction.

Charities, meanwhile, get fatter and lazier because of that dynamic. Think of all the exposés in recent years about charities that devote an overwhelming share of their budgets to administrative costs and marketing expenses. No system will create perfect nonprofit groups, but cutting back or cutting out the deduction would break the cycle of inefficiency that now exists.

My debating partner is Diana Aviv, the head of Independent Sector, which is basically a trade associate in DC for charities. Here are the most relevant excerpts from her piece.

…more than 80% of those who itemized their tax returns in 2009 claimed the charitable deduction and were responsible for more than 76% of all individual contributions to charitable organizations.

That’s all fine and well. What she’s basically saying is that almost all rich people itemize and those rich people get the lion’s share of the benefit from the deduction.

But that’s not the key issue. What matters is whether the deduction makes  a big difference for the amount that people contribute. Diana addresses that point.

According to a 2010 Indiana University survey, more than two-thirds of high-net-worth donors said they would decrease their giving if they did not receive a deduction for donations.

I don’t put complete faith in public opinion data, but let’s assume that this poll is a completely accurate snapshot of how rich people think they would react. But let’s balance that off with the real-world evidence from the 1980s, which shows that rich people gave more money in the 1980s after Reagan cut tax rates and dramatically lowered the value of the tax deduction.

I’m not saying the lower tax rates caused the increase in giving, but I am saying that the lower tax rates and other reforms helped boost the economy. And I’m saying that rich people gave more to charity because they had more income and more wealth.

I also can’t resist a comment about this excerpt.

Finally, there’s another important consideration. The charitable deduction is unique in that it’s a government incentive to sacrifice on behalf of the commonweal. Unlike incentives to save for retirement or buy a home, it encourages behavior for which a taxpayer gets no direct, personal, tangible benefit.

Huh?!? Diana’s entire article is based on the notion that people need to be bribed in order to contribute, yet she simultaneously says that taxpayers get “no direct, personal, tangible benefit.”

Let me close by tying this debate to the fiscal cliff negotiations. There is some discussion of capping itemized deductions as a way of extracting more money from the rich. That creates a bit of a quandary. Here’s something else I wrote for my part of the debate.

I don’t want to give more revenue to Washington. That’s like putting blood in the water with hungry sharks around. But if politicians are going to extract more money from the private sector anyway, reducing or eliminating the deduction is much less damaging to growth than imposing higher marginal tax rates.

That being said, that type of change – while not as bad for the economy – probably would have a negative impact on charitable giving.

My argument is that real tax reform can benefit the nonprofit sector because the loss of the deduction is more than offset by the pro-growth impact of lower tax rates, less double taxation, etc.

But if all politicians are doing is limiting the deduction as part of a money grab, then nonprofits get some pain and no gain.

Incidentally, this is why the nonprofit community should join the rest of us in fighting against an ever-climbing burden of government spending. If we don’t rein in Leviathan, it’s just a matter of time before politicians get rid of the deduction as part of a relentless search for more revenue.

I think it would be better for nonprofits – and for the rest of us – if we limit the size and scope of government and enact a tax system that produces the kind of prosperity that is beneficial for all sectors of the economy.

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A Case Study of How Interest Groups “Milk” the Public

Since I want to shut down the Department of Agriculture, that obviously means getting rid of the various subsidy programs that line the pockets of politically connected agri-businesses.

To get an idea of how these corrupt programs operate, I strongly encourage you to read Paul Moreno’s column in National Review. Here’s a sampling of his expose on dairy subsidies, starting with some history.

…Dairy farmers were pioneers in interest-group politics. They have long been adept at using the power of government… The dairy lobby’s first target was margarine… Dairy farmers organized to drive oleo from the market. They claimed that oleo was harmful — manufactured, they charged, from “dead horses, dead hogs, dead dogs, mad dogs, and drowned sheep.” They alleged that an “oleo trust” was not only driving dairy farmers to the wall, but also impairing the marriage market, because “women are no longer a necessary adjunct to the farmer lads to help them create wealth, owing to the oleo-cotton-oil-soap-fat combine.” …The dairymen finally got Congress to enact a two-cent-per-pound excise tax on oleo in 1886. This was the first time that Congress had used its internal taxing power for regulatory purposes, rather than to raise revenue. …Organized dairy’s next target was “filled milk.” This was skim milk to which vegetable oil was added to give the texture of whole milk. Although it provided all of the protein and most of the vitamins of whole milk at a much lower price (and with fewer cardiovascular hazards), the dairy lobby claimed that it was unhealthful. They even resorted to racism, noting that cow’s milk was a pillar of Western civilization, superior to the “oriental” menace of coconut oil. Congress prohibited the shipment of filled milk in interstate commerce in 1923.

But some of those forms of intervention are ancient history, only interesting to those of us who study the corrupt nexus of big government and various sleazy interest groups.

But Paul explains how the current morass of dairy subsidies came about.

Milk baths are good for the skin, but bad for the wallet

Perhaps the most egregious exercise of dairy power was a New York State law of 1933 that declared that milk was a business “affected with a public interest” and allowed the state to set dairy prices. The New York board set 9 cents per quart as the minimum retail price of milk. A Rochester grocer, Leo Nebbia, was prosecuted for selling two quarts of milk and a loaf of bread for 18 cents. Why, in the midst of the distress and privation of the early 1930s, did New York want to raise the price of milk? The idea was that this would raise the income of dairy farmers, who would then purchase more industrial goods, thus stimulating the economy. The Supreme Court accepted this reasoning, giving state governments virtually unlimited power to enact economic regulations. Such counterintuitive trickle-up economic theory helped to turn the 1929 recession into the prolonged Great Depression. Ever since, the federal government has been trying to keep small dairy farmers in business through an elaborate price-support system.

Isn’t that just wonderful. The politicians justified a corrupt form of intervention by citing the crackpot theory of Keynesian economics.

Sort of reminds me of clueless Nancy Pelosi saying the best way to create jobs was paying people not to work.

With every passing day, I realize this famous poster is actually an understatement.

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Right-to-Work Laws Shouldn’t Exist, so Why Am I Happy about What Happened in Michigan?

I was very critical of the General Motors bailout since it largely was designed to give undeserved special benefits to the UAW union. I’m also very down of teacher unions because they sabotage reforms that would help poor children trapped in failed government schools.

And I’m definitely opposed to the excessive pay and benefits that politicians grant to bureaucrats in exchange for votes and money from government employee unions (as cleverly depicted in this great Michael Ramirez cartoon).

So why, then, do I have mixed feelings about the recently enacted right-to-work law in Michigan?

Here’s some of what I wrote almost 25 years ago for the Villanova Law Review, beginning with my general philosophy on the role of government in labor markets.

…government should not interfere with certain personal decisions, including the freedom of employers and employees to contract freely, unfettered by labor regulations. …My position is one of strict neutrality. The government should not take side in employer-employee issues. …this is a question of property rights. If another person owns a business, I do not have a right to interfere with his choices as to what he does with his property – so long as he does not interfere with my rights of life, liberty, and property.

That’s all fine and well. Standard libertarian boilerplate, one might even say, and I’ve certainly expressed these views on television (see here, here, and here).

But then I explore some implications. If you believe in a system based on property rights and private contracts, then right-to-work laws are an unjust form of intervention.

…a property rights perspective also would reject so-called right-to-work laws which infringe upon the employers’ freedom of contract to hire only union members which is something employers may wish to do since it can lower transactions costs. …Some would argue that nobody should be forced to join a union as a condition of employment. The relevant issue in this instance, however, is not whether one can be forced to join a union, because a person cannot; if he does not like the union, he can refuse the job. The real issue is whether a business and its employees should have the freedom to choose to sign contracts which have union membership as a condition of employment.

All that being said, I’m glad Michigan just enacted a right-to-work law. I know it’s not ideal policy, but my rationale is that most government labor laws (such as the National Labor Relations Act and the Norris–La Guardia Act) tilt the playing field in favor of unions.

So until that glorious day when we get government out of labor markets, I view right-to-work laws as a second-best alternative. They’re a form of intervention that partially compensates for other forms of intervention.

A good analogy is that I don’t like tax loopholes, but I like the fact that they enable people to keep more of the money they earn. The ideal system, of course, would be a simple and fair flat tax. But in the absence of real reform, I don’t want politicians to get rid of preferences if it means they get more of our money to waste. Deductions should only be eliminated if they use every penny of additional revenue to lower tax rates.

Returning to what happened in Michigan, let’s close with an amusing cartoon that mocks Obama’s dismal record on jobs.

P.S. Since I’ve written something that might appeal to union bosses, I feel the need to compensate. So feel free to enjoy some good cartoons mocking unionized bureaucrats by clicking here, here, here, and here.

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Who Should Be Blamed for the Rising Cost of College?

Notwithstanding the title of this post, perhaps nobody deserves blame.

Sometimes, a good or service rises in price solely as a result of changes in supply and demand. And if the price of something climbs because of market forces, then it’s merely a reflection of unfettered exchanges between buyers and sellers.

But politicians and bureaucrats often distort market forces with subsidies. And even though consumers ostensibly benefit when government helps to pay for something, intervention can have very costly consequences.

I’ve already shared an amazing chart and a very powerful video to help explain how government subsidies in health care have created a third-party payer problem that has resulted in rapidly rising prices and considerable inefficiency in that sector.

Well, the good intentions of government also are causing problems for higher education.

Here’s a superb video from Learn Liberty, explaining why college expenses are skyrocketing.

The first part of the video shows that a college degree has become more valuable, so it’s understandable that the relative price of higher education has risen.

But then, beginning at about 1:55, the video discusses the role of subsidies. Echoing points I’ve made in the past, the professor explains how subsidies have simply generated higher prices. In other words, colleges have captured all the benefits, not students.

Business Week recently published a story that provides some glaring example of how universities have wasted all the additional money. Here are some remarkable excerpts.

“I have no idea what these people do,” says the biomedical engineering professor. Purdue has a $313,000-a-year acting provost and six vice and associate vice provosts, including a $198,000-a-year chief diversity officer. Among its 16 deans and 11 vice presidents are a $253,000 marketing officer and a $433,000 business school chief. The average full professor at the public university in West Lafayette, Ind., makes $125,000. The number of Purdue administrators has jumped 54 percent in the past decade—almost eight times the growth rate of tenured and tenure-track faculty. “We’re here to deliver a high-quality education at as low a price as possible,” says Robinson. “Why is it that we can’t find any money for more faculty, but there seems to be an almost unlimited budget for administrators?” …Purdue is typical: At universities nationwide, employment of administrators jumped 60 percent from 1993 to 2009, 10 times the growth rate for tenured faculty. “Administrative bloat is clearly contributing to the overall cost of higher education,” says Jay Greene, an education professor at the University of Arkansas. In a 2010 study, Greene found that from 1993 to 2007, spending on administration rose almost twice as fast as funding for research and teaching at 198 leading U.S. universities. …Trustees at the University of Connecticut are reviewing administrative salaries at the school’s main campus in Storrs, following a controversy over the compensation of the school’s former police chief, who received $256,000 annually—more than New York City’s police commissioner. …Mitch Daniels, a fiscal hawk who will become [Purdue's] president when his term expires in January…says he wants to take a look at administrative costs that he suspects are “marbled” throughout the university—beginning with his office. In anticipation of his arrival in January, and without his knowledge, the school renovated the president’s 4,000-square-foot suite. The cost was $355,000, enough to send 15 Indiana residents to Purdue for a year.

Wow. Reminds me of this post about politically correct featherbedding at the University of California at San Diego. I can see why college administrators like this system. But it’s definitely bad news for students who get stuck on a treadmill of higher tuition and more debt.

P.S. At 2:18, the video has a discussion of how subsidies lead to higher costs, which then leads to more demands for additional subsidies. Hmmm…bad government policy leads to more bad government policy. Seems like there’s a term for that phenomenon.

P.P.S. I highly recommend the Learn Liberty videos. Here’s one on protectionism, one on the legality of Obamacare, and here’s another about how excessive federal spending is America’s real fiscal problem.

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The Link Between High Tax Rates and Corruption

I’ve been very critical of Obama’s class-warfare ideology because it leads to bad fiscal policy. But perhaps it is time to give some attention to other arguments against high tax rates.

Robert Samuelson, a columnist for the Washington Post, has a very important insight about tax rates and sleaze in Washington.

His column is mostly about Obama’s anti-tax reform agenda, but it includes this very important passage.

…many politicians support tax breaks for favored groups (the elderly, the poor, small business) and causes (homeownership, attending college, “green” industries). This enhances their power. The man who really pronounced the death sentence for the Tax Reform Act of 1986 was Bill Clinton, who increased the top rate to 39.6 percent rather than broadening the base. As the top rate rose, so did the value of generating new tax breaks. Ironically, many of the people who complain the loudest about Washington influence-peddling and lobbying are the same people who support higher tax rates, which stimulate more influence-peddling and lobbying.

The last sentence is key. Higher tax rates are good news for the politicians, interest groups, bureaucrats, and lobbyists that dominate Washington.

Here’s a simple example. Let’s pretend we have a modest tax rate of 20 percent. Now imagine you are part of an industry with $200 million in profits and you want a special tax break. How much are you willing to pay to get that loophole?

Well, with a 20 percent tax, the most you can save (assuming the loophole is huge and you wipe out all your tax liability) is $40 million.

So how much would you spend on lobbyists, campaign contributions, etc, in order to get that loophole? That’s hard to answer, because it would require some estimate of the probability of success. But one thing we can safely assume is that the industry would never spend more than $40 million.

But let’s now assume you live in a world with 50 percent tax rates. Does that change the incentive for influence peddling in Washington? Of course it does. The industry’s tax bill is now $100 million, so it now has an incentive to spend up to that amount to get special treatment.

So now let’s consider a couple of additional hypothetical questions.

• First, imagine you’re a lobbyist. Do you think you will get more business if tax rates are high, or if tax rates are low?
• Second, imagine you are a politician. Do you think you will get more campaign contributions if tax rates are high, or if tax rates are low?

The answers are obvious, and so are the implications. Yes, higher tax rates are bad for growth and competitiveness. And, yes, they are unfair and discriminatory.

But they also foment and encourage sleaze in D.C., and that’s something that honest leftists should hate as much as the rest of us.

For more information, here’s my video on the link between big government and corruption, including a section on how a loophole-ridden tax system benefits Washington insiders.

And here’s the video on the flat tax, which explains why low tax rates are good for economic performance.

Both videos have good information (at least I like to think), but kudos to Samuelson for drawing an important link between high tax rates and corruption.

P.S. Robert Samuelson is hard to pin down on the philosophical spectrum. He’s written very good columns denouncing Obama’s manipulation of welfare statistics and criticizing the President’s flirtation with the value-added tax. But he’s also had a couple of columns where he identifies a very real problem, but fails to reach the right conclusion, including this piece that should have been an argument for Austrian economics and this piece on health care inefficiency that should have pinned the blame on third-party payer.

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The French Version of a Pot Calling the Kettle Black, or Maybe the other Way Around

There are some races you don’t want to win.

I’m glad, for instance, that Greece instead of America is winning the race to fiscal collapse (though both the BIS and OECD predict the U.S. faces a bigger long-run challenge).

And I’m happy that California is farther down the path to chaos and meltdown than my state of Virginia (as illustrated by this amusing cartoon).

So you will understand that I am worried when a French socialist defends bad economic policy by saying that his country is copying the United States.

Here are some excerpts from a CNBC report about Obama being a role model for Hollande’s economic team.

“He’s not nearly as socialist as I am”

The French politician who said Indian steel company ArcelorMittal should leave the country has told CNBC that his government is only acting like U.S. President Barack Obama. Industry Minister Arnaud Montebourg, a member of the governing Socialist party, caused controversy last week when he said that the Indian company, which employs close to 20,000 people in France, should leave after it said it would have to close down a factory. The French government announced on Thursday that it could nationalize the factory in question… The news raised the specter of the nationalizations of the early 1980s, which were instigated by Hollande’s predecessor Francois Mitterrand. Montebourg told CNBC after a meeting with trade unions in Paris: “Barack Obama’s nationalized…” Montebourg brushed off comparisons with that era. He said: “It’s a very good sign to send out (to investors). Nationalizing is a very modern step to take. Especially when you not only nationalize losses but profits as well, when you make public/private partnerships. This is our strategy. …He declined to answer a question about comments from Mayor of London Boris Johnson, who told Indian businessmen earlier this week to come to London instead of France.

I don’t actually think we’re as bad as France, and the rankings from both Economic Freedom of the World and the Index of Economic Freedom both show the United States with more economic freedom.

But a good overall score doesn’t mean that one nation is better than another in all regards. The United States still ranks above Sweden, even though the Swedes have implemented school choice and personal retirement accounts. And America still ranks above the Slovak Republic, even though that country (at least for now) has a simple and fair flat tax.

So maybe Monsieur Montebourg is right about the U.S. being a trendsetter for bad industry nationalization policy. Gee, what a high honor. I guess this is what it means to be called ugly by a frog.

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Disaster Relief Is Not a Responsibility of the Federal Government

If you read through Article I, Section VIII, of the Constitution, it says nothing about Congress having the power to subsidize or pay for disaster relief.

But I realize very few people care about the Constitution, so I’m going to make a utilitarian argument against Federal Emergency Management Agency (FEMA) and other forms of federal involvement in natural disasters.

Best of all, I don’t really need to do any heavy lifting. Someone else already has put together a very strong indictment, using Dauphin Island in Alabama as a case study.

Here are some excerpts from a great bit of reporting and analysis in the Austin Statesman, except in the second sentence I would replace “inertia” with “stupidity.”

Congratulations, you’re subsidizing the luxury vacation homes of the rich

Even in the off season, the pastel beach houses lining a skinny strip of sand here are a testament to the good life. They are also a monument to the generosity, and perhaps to the inertia, of the federal government… The western end of this Gulf Coast island has proved to be one of the most hazardous places in the country for waterfront property. Since 1979, nearly a dozen hurricanes and large storms have rolled in and knocked down houses, chewed up sewers and water pipes and hurled sand onto the roads. Yet time and again, checks from Washington have allowed the town to put itself back together. Across the nation, tens of billions of tax dollars have been spent on subsidizing coastal reconstruction in the aftermath of storms, usually with little consideration of whether it actually makes sense to keep rebuilding in disaster-prone areas. If history is any guide, a large fraction of the federal money allotted to New York, New Jersey and other states recovering from Hurricane Sandy — an amount that could exceed $30 billion — will be used the same way. Tax money will go toward putting things back as they were, essentially duplicating the vulnerability laid bare by the hurricane.  …Like many other beachfront towns, [Dauphin Island] has benefited from the Stafford Act, a federal law that taps the U.S. Treasury for 75 percent or more of the cost of fixing storm-damaged infrastructure, like roads and utilities. At least $80 million, adjusted for inflation, has gone into patching up this one island since 1979 — more than $60,000 for every permanent resident. That does not include payments of $72 million to homeowners from the highly subsidized federal flood insurance program.

Conservatives often complain about welfare programs that pay single mothers to have children out of wedlock. That’s a legitimate complaint since the welfare state has failed both poor people and taxpayers. But they should apply the same analysis and apply even more moral outrage to handouts that encourage rich people to keep rebuilding in disaster-prone areas.

And there’s no question that federal handouts and giveaways are a driving force. You also won’t be surprised that one of America’s worst Presidents also has a role in this story.

Dauphin Island is a case study in the way the federal subsidies have enabled repetitive risk taking. Orrin Pilkey, an emeritus professor at Duke University who is renowned for his research in coastal zones, described the situation there as a “scandal.” The island, four miles off the Alabama coast, was for centuries the site of a small fishing and farming village reachable only by boat. But in the 1950s, the Chamber of Commerce in nearby Mobile decided to link it to the mainland by bridge and sell lots for vacation homes. Then Hurricane Frederic struck in 1979, ravaging the island and destroying the bridge. President Jimmy Carter flew over to inspect the damage. Rex Rainer, the Alabama highway director at the time, recalled several years later that the president “told us to build everything back just like it was and send him the bill.” With $33 million of federal money, local leaders built a fancier, higher bridge that encouraged more development in the 1980s. Much of that construction occurred on the island’s western end, a long, narrow sand bar sitting only a few feet above the Gulf of Mexico. “You can always look back and say, ‘Maybe we shouldn’t have done that,’ ” said Mayor Jeff Collier, who noted that many of the decisions were made before he took office more than a decade ago. “But we can’t turn the clock back.”

I have just one message for Mayor Collier. I don’t care about your damn clock. Your people should be free to rebuild, but don’t ask me to pay for it.

We do have a tiny bit of good news to report, thanks to libertarians and some of their allies.

A coalition in Washington called SmarterSafer.org, made up of environmentalists, libertarians and budget watchdogs, contends that the subsidies have essentially become a destructive, unaffordable entitlement. …This argument might be gaining some traction. Earlier this year, Congress passed changes to the federal flood insurance program that are supposed to raise historically low premiums and reduce homeowner incentives for rebuilding in the most hazardous areas.

But we need to do more than get rid of federal flood insurance subsidies.

Less widely known about than flood insurance are the subsidies from the Stafford Act, the federal law governing the response to emergencies like hurricanes, wildfires and tornadoes. It kicks in when the president declares a federal disaster that exceeds the response capacity of state and local governments. Experts say the law is at least as important as the flood program in motivating reconstruction after storms. In the same way flood insurance shields families from the financial consequences of rebuilding in risky areas, the Stafford Act shields local and state governments from the full implications of their decisions on land use. Under the law, the federal government committed more than $80 billion to disaster recovery from 2004 to 2011, according to a report from the Government Accountability Office. While billions of dollars went to relieve immediate suffering, including cash payments to families left homeless by storms, nearly half of the money was spent helping state and local governments clean and restore damaged areas and rebuild infrastructure.

Finally, I can’t resist sharing this one last excerpt from the story.

People here have formed strong emotional attachments to their island. “There’s a lot of wildlife and a lot of bird life, and it’s just a great place to relax,” said Jay Minus, a lawyer in Mobile who owns two homes on the western end. “You can sit on the porch and watch the dolphins swim past your house.”

Gee, I’m overjoyed that Mr. Minus has a nice view of dolphins. But it strikes me as very perverse that ordinary taxpayers around America are getting raped so this representative of the top 1 percent can enjoy nice views.

This is obviously a perfect example of where my ethical bleeding heart rule should apply.

So what’s the answer? Simple, end the federal government’s role, including getting rid of FEMA. Shikha Dalmia of the Reason Foundation explains why in the Washington Examiner.

A New York Times editorial declared that the impending storm proved that the country needs FEMA-style “Big Government” solutions more than ever. Salon, New Republic and other liberal outfits heartily agreed. Why do liberals love FEMA so much? Certainly not for its glorious track record. Rather, FEMA has been a great vehicle for expanding the welfare state. …So how did the new and improved FEMA perform post-Sandy, a storm for which it had lots of advance warning? Not so well. It didn’t set up its first relief center until four days after Sandy hit — only to run out of drinking water on the same day. It couldn’t put sufficient boots on the ground to protect Queens residents from roving looters. The Red Cross — on whom FEMA depends for delivering basic goods — left Staten Island stranded for nearly a week, prompting borough President Jim Molinaro to fume that America was not a Third World country. But FEMA’s most egregious gaffe was that it arranged for 24 million gallons of free gas for Sandy’s victims, but most of them couldn’t lay their hands on it.

What’s most amazing is that FEMA doesn’t even play a role in emergency response, even though the politicians and bureaucrats always imply that the Agency exists to be a rapid-relief “first responder.”

But if you think FEMA’s inability to provide rapid relief subverts the core reason for its existence, think again. A few days after the Times’ valentine, FEMA head W. Craig Fugate told the newspaper that the agency’s rapid response role is really a fallacy. “The general public assumes we are part of the response team that will be there the first couple of days,” he said. But it is really designed to deal with disasters several days after the fact. How does FEMA do that? By indiscriminately writing checks — a task at which it evidently excels.

Yes, we finally find something FEMA does with considerable skill. It can waste money.

FEMA administrator Elizabeth Zimmerman testified before Congress last year that between 2005 and 2009, 14.5 percent of the agency’s $10 billion-plus disaster aid budget was handed to people who didn’t qualify. The agency tried to get 154,000 of these people to return the money (on average, each had received about $5,000), but they filed a class action lawsuit forcing FEMA to pay them a multimillion settlement. And it forgave the debt of every one with an income below $90,000. …The bigger problem is not with who gets FEMA money, but why. Less than a sixth of Alabama’s $566 million allotment after Katrina financed legitimate government functions such as debris removal, repairing damaged infrastructure and restoring public utilities. The rest was all handouts: food stamps, subsidies for trailer homes and low-interest loans for small businesses. The FEMA website is already advertising goodies for Sandy victims, including 26 weeks of unemployment benefits and up to $200,000 worth of low-interest loans for home repairs not covered by insurance. In addition, it wants to hand out $2 million loans to small businesses and nonprofits (of all sizes) experiencing “cash flow problems.” Farmers and ranchers could likewise qualify for $500,000 in loans to cover production and property losses. Anyone in Sandy’s path can latch on to the FEMA teat. This is not disaster relief but disaster socialism. It is one thing for the government to provide emergency housing, health care and food; it is quite another to compensate victims for every loss. If people knocked down by a storm deserve such federal largesse, why not open the coffers to anyone who suffers a car crash, a death in the family or a broken heart?

Or what if your house burns down? We instinctively know it would be stupid for the government to pay people to rebuild their houses after a fire because then they’ll decide it no longer makes sense to be responsible.

So why, then, does it make sense to subsidize irresponsibility on a broader scale? Particularly when it encourages people to make decisions that could place their lives in danger.

The bottom line is that the federal government shouldn’t take over roles that are better handled by the private sector (such as market-priced homeowner’s insurance) or state and local government (such as emergency response and infrastructure repair and maintenance).

FEMA does more harm than good. It encourages passivity on the part of both people in the private sector and state and local government officials. It’s damaging to the national character when people learn an entitlement mentality and sit around waiting for the federal government to give them freebies.

And how can anyone forget the spectacular incompetence of Louisiana Governor Kathleen Blanco and New Orleans Mayor Ray Nagin during and after Katrina in 2005. Both of them seemed to think it was appropriate to curl up in fetal positions and let Uncle Sam do their jobs.

P.S. I can think of two exceptions to the notion that there should be no federal involvement in disaster relief. First, Washington has a legitimate role in disasters resulting from foreign attack. So some sort of involvement after the 9-11 attacks was appropriate. Second, even a curmudgeon like me wouldn’t get bent out of shape about short-run emergency response. FEMA obviously doesn’t do that, so I’m thinking hypothetically. Perhaps if a hurricane hit a community and a nearby military base had heavy equipment that could help with the immediate clean-up.

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Price Controls Are Exacerbating the Damage of Hurricane Sandy

Price controls are a spectacularly foolish idea, and that’s true whether they’re imposed by thugs such as Hugo Chavez in Venezuela or bureaucrats at the Department of Health and Human Services.

That’s why one of the 20th Century’s economic heroes is Ludwig Erhard, who unleashed the post-war German miracle by abolishing the price controls imposed by the allied powers.

Notwithstanding all this history, politicians oftentimes can’t resist doing the wrong thing, as you can see from this new Reason TV video.

A simple explanation for the stupidity of politicians is that there are more consumers than gas station owners. But I also think this is an example of their illiteracy about what Bastiat referred to as the seen and the unseen.

I hope you’re familiar with Reason TV, by the way. If not, you should peruse the great work they do. Some of my favorites include:

• Featuring Andrew Ferguson on the parasite economy of Washington, DC.
• Contemplating the absurdity of anti-obesity campaigns from the compulsive big spenders in government.
• Exploring the evil of Communism.
• The fight to break up the failed government school monopoly, over the objection of a teacher unions and a morally corrupt “civil rights” establishment.
• A much-needed victory over tyrannical thugs at the Environmental Protection Agency.
• Exposing bloated bureaucracy in California.
• A case study showing why the so-called stimulus was a wasteful failure.
• The despicable impact of urban renewal.
• Victory over revenue cameras installed by greedy local governments.
• Singing about the brutal War on Drugs.
• Why statists hate the idea of private money.
• High-speed rail and other boondoggles.
• The inspirational life of Walter Williams.
• Hillary Clinton’s economic illiteracy.
• On pilgrims and property rights.
• Richard Epstein discusses his former colleague, Barack Obama.
• How Obama resuscitated libertarianism.
• A silver lining from Hurricane Katrina.
• The filming of Atlas Shrugged.
• Why the Terminator failed as Governor.

And if you enjoy humor, here are some more great videos from Reason TV:

• Mocking Ms. Fluke, the 30-year old upper-middle-class student who wants the rest of us to subsidize her birth control.
• Merry Christmas from the Transportation Security Administration.
• Fun with the TSA the other 364 days of the year.
• A touching farewell to the 100-watt light bulb.
• A nanny-of-the-month contest.

Feel free to share these examples with friends and colleagues.

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A Confession from my College Years that Will Displease Feminists

Since I’ve already semi-admitted to criminal behavior in my youth, it’s time for another confession.

I was recently watching football with a fraternity brother who mentioned that he found some old newspaper clippings about a certain…um…incident from way back in 1979.

Here’s the story from the local newspaper. Since I openly admitted my role in the “attack” and mentioned the danger of government intervention, I like to think that this is evidence that I was genetically libertarian and precociously self-aware.

I realize that there are alternative hypotheses, involving words like “jerk” and “troublemaker,” but surely that couldn’t be the correct explanation.

And here’s what the student newspaper wrote about the episode.

It’s been so long that I don’t remember suffering any repercussions. From reading the articles, I gather the leftists made a complaint to the Interfraternity Council. I’d like to say I prevailed in a knock-down, drag-out fight with the establishment, culminating in an inspirational speech akin to the Otter scene in Animal House.

But back in those days, the complaint was probably placed in the circular file.

Nowadays, I would probably get suspended or expelled – even though all I did was march with a sign for about 100 yards.

Though I didn’t get official permission to participate in the parade from the university bureaucracy. Fortunately, the statute of limitations on that reckless and dangerous offense presumably has expired.

P.S. On the specific issue of the Equal Rights Amendment, the actual language of the proposal wasn’t offensive, but I greatly feared what it would mean once leftist judges decided it gave them carte blanche to start imposing quotas, instituting comparable worth, and otherwise interfering with the right of private contract.

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Supporters Urge Romney to Announce that He Intends to Reverse the Statist Policies of Obama…and Bush

People in the political world say that President Obama threw Secretary of State Clinton under the bus in an attempt to protect himself from political fallout from Libya.

I don’t follow those issues, so I can’t comment about the veracity of that charge, but I find it very interesting that some conservatives are urging Mitt Romney to throw former President George W. Bush under the bus.

More specifically, they’re urging him to condemn Bush’s statism and to attack Obama for continuing Bush’s failed policies.

Since I’ve attacked Bush for expanding the burden of government spending and reducing economic freedom, this resonates with me.

Phil Kerpen of American Commitment nails the issue in a column for Fox News.

Romney’s biggest missed opportunity in the second debate wasn’t on Libya…he should have connected the dots between Obama and Bush to illustrate the accurate point that on the most significant dimensions of economic policy, Obama has accelerated Bush’s policy errors rather than reversing them. In the crucible of the 2008 financial crisis, President Bush famously remarked that “I chucked aside my free-market principles .” He was referring to TARP, his infamous big bank bailout. Obama supported the bill and voted for it. …On government spending, it’s the same story. Bush racked up one of the most disastrous records of out-of-control spending and debt the country had ever seen. Every aspect of the federal budget jumped under Bush. …Obama came in and continued spending recklessly. Bush’s $152 billion stimulus bill failed and so did Obama’s $821 billion stimulus bill. Bush flushed $25 billion in bailout funds to Chrysler and General Motors, and Obama added another $20 billion before finally recognizing that the companies would inevitably file for bankruptcy. All of the pre-bankruptcy bailout dollars were lost. …On the biggest economic policy questions, the Bush/Geithner/Bernanke approach is almost indistinguishable from the Obama/Geithner/Bernanke approach. It hasn’t worked. Obama’s failed policies of the present are all too similar to Bush’s failed policies of the past.

Amen. Bush was a statist, period.

Peter Wallison of the American Enterprise Institute made similar points in an article for the Weekly Standard.

Obama’s claim that Bush’s policies caused the recession resonates with American voters. Almost four years after George W. Bush left office, polls show the American people continue to blame him—more than Obama—for the recession that created today’s dismal economic conditions. Throughout the fall and in their debates, it’s a sure thing that Obama will continue to argue that Romney is just another George W. Bush. How can Romney respond? …Romney should not deny Bush’s error. Although Clinton began the process of forcing low mortgage underwriting standards, Bush continued and enhanced it. Instead, Romney should point out that the government should never have been in the housing finance business, and that he will eliminate Fannie and Freddie to restore a functioning housing market—something Obama has failed to do in almost four years.

But here’s where I disagree with Kerpen and Wallison, or at least where I would add a big caveat to their analysis. What makes them think that Romney would be any different that Bush or Obama?

This post highlights a few of Romney’s policies that would undermine free markets and expand the public sector.

If all one cares about is whether politicians have an “R” or a “D” after their names, then my concerns don’t matter.

But if you’re actually interested in making America a better place, then policy matters a lot.

I’ll close with a final point. I have no idea whether Romney is a closet statist or a closet Reaganite. All I’m saying is that, if Romney wins, people who value limited government and freedom should begin working on November 7 to take whatever steps are necessary to prevent Romney from becoming another RINO such as Bush or Nixon.

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The Higher-Education Version of the Government-Screws-Up-Everything Chronicles

I’ve previously shared an amazing chart that shows how more government spending on public schools has yielded zero positive results.

Well, it seems that government spending on colleges and universities also leaves a lot to be desired.

Three academics investigated the relationship between higher-education spending and economic performance and it turns out that this perverse form of redistribution from poor to rich is counterproductive. Here’s the key sentence from the abstract.

Results from a series of fixed-effects regressions using a 1992-2002 panel of state-level data indicate that increased spending on higher education generally exhibits a relatively large negative effect on private sector employment or gross state product growth when the increase in education spending is financed through own-source revenue.

Yet Obama and most of the other politicians in Washington want to increase the subsidies for colleges and universities – even though the macroeconomic effects are dismal.

But I guess that doesn’t matter since politicians seem more concerned about creating more comfortable lives for unproductive professors and bloated school bureaucracies.

By the way, let’s not forget that students also suffer. As the federal government has squandered more money on higher education, colleges and universities have responded by jacking up tuition and fees, leaving more and more students deeply in debt.

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No Matter How Hard He Tries, Obama Will Never Be as Bad as FDR

I’ve explained on many occasions that Franklin Roosevelt’s New Deal was bad news for the economy. And the same can be said of Herbert Hoover’s policies, since he also expanded the burden of federal spending, raised tax rates, and increased government intervention.

So when I was specifically asked to take part in a symposium on Barack Obama, Franklin Roosevelt, and the New Deal, I quickly said yes.

I was asked to respond to this question: “Was that an FDR-Sized Stimulus?” Here’s some of what I wrote.

President Obama probably wants to be another FDR, and his policies share an ideological kinship with those that were imposed during the New Deal. But there’s really no comparing the 1930s and today. And that’s a good thing. As explained by Walter Williams and Thomas Sowell, President Roosevelt’s policies are increasingly understood to have had a negative impact on the American economy. …what should have been a routine or even serious recession became the Great Depression.

In other words, my assessment is that Obama is a Mini-Me version of FDR, which is a lot better (or, to be more accurate, less worse) than the real thing.

To be sure, Obama wants higher tax rates, and he has expanded government control over the economy. And the main achievement of his first year was the so-called stimulus, which was based on the same Keynesian theory that a nation can become richer by switching money from one pocket to another. …Obama did get his health plan through Congress, but its costs, fortunately, pale in comparison to Social Security and its $30 trillion long-run deficit. And the Dodd-Frank bailout bill is peanuts compared to all the intervention of Roosevelt’s New Deal. In other words, Obama’s policies have nudged the nation in the wrong direction and slowed economic growth. FDR, by contrast, dramatically expanded the burden of government and managed to keep us in a depression for a decade. So thank goodness Barack Obama is no Franklin Roosevelt.

The last sentence of the excerpt is a perfect summary of my remarks. I think Obama’s policies have been bad for the economy, but he has done far less damage than FDR because his policy mistakes have been much smaller.

“Hey, don’t sell me short. Just wait to see how much havoc I can wreak if reelected!”

Moreover, Obama has never proposed anything as crazy as FDR’s “Economic Bill of Rights.” As I pointed out in my article, this “would have created a massive entitlement state—putting America on a path to becoming a failed European welfare state a couple of decades before European governments made the same mistake.”

On the other hand, subsequent presidents did create that massive entitlement state and Obama added another straw to the camel’s back with Obamacare.

And he is rigidly opposed to the entitlement reforms that would save America from becoming another Greece.

So maybe I didn’t give him enough credit for being as bad as FDR.

P.S. Here’s some 1930s economic humor, and it still applies today. And I also found this cartoon online.

And here’s a good Mini-Me image involving Jimmy Carter. I wasn’t able to find one of Obama and FDR.

If anybody has the skill to create such an image, please send it my way.

P.P.S. The symposium also features an excellent contribution from Professor Lee Ohanian of UCLA.

And from the left, it’s interesting to see that Dean Baker of the Center for Economic and Policy Research basically agrees with me.

But only in the sense that he also says Obama is a junior-sized version of FDR. Dean actually thinks Obama should have embraced his inner-FDR and wasted even more money on an even bigger so-called stimulus.

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John Stossel Exposes the Fraud of Government Job Training Programs

There have been lots of studies showing that there’s no benefit to job training programs. People who sign up with these government schemes are not more likely to either get jobs or to earn more money.

Heck, even the New York Times was forced to acknowledge that these programs are a costly failure.

To really understand how these programs operate, John Stossel put together an investigative mission. The results excerpted below would be funny, other than the fact that taxpayers are getting ripped off and people are getting lured into lives of dependency.

“There are no jobs!” That is what people told me outside a government “jobs center” in New York City. …I sent four researchers around the area. They quickly found 40 job openings. Twenty-four were entry-level positions. One restaurant owner told me he would hire 12 people if workers would just apply. It made me wonder what my government does in buildings called “job centers.”

So Stossel sent one of his interns to investigate.

Here’s what she found: “First I went to the Manhattan Jobs Center and asked, “Can I get help finding a job?” They told me they don’t do that. ‘We sign people up for food stamps.’ I tried another jobs center. They told me to enroll for unemployment benefits.” So the “jobs” centers help people get handouts. Neither center suggested people try the 40 job openings in the neighborhood.

I shudder to think how many people walking in off the streets get hooked on government dependency. It’s disgusting that the government is encouraging people to ride in the wagon instead of getting jobs.

But Stossel’s intern was told not to give up.

My intern persisted: “I explained that I didn’t want handouts; I wanted a job. I was told to go to ‘WorkForce1,’ a New York City program. At WorkForce1, the receptionist told me that she couldn’t help me since I didn’t have a college degree. She directed me to another center in Harlem. In Harlem, I was told that before I could get help, I had to come back for an 8:30 a.m. ‘training session.’” Our government helps you apply for handouts immediately, but forces you through a maze if you want to work.

Amazingly, the intern was told to show up at 8:30 when the building didn’t open ’til 9:15. But, again, she was under orders to keep going.

Workforce1 directed 30 of us into a room where we were told that WorkForce1 directs candidates to jobs and provides a resource room with ‘free’ phone, fax and job listings and helps people apply for unemployment insurance and disability handouts. This seemed like the only part of the presentation when people took notes. “One lady told me that she comes to WorkForce1 because it helps her collect unemployment. One asked another, ‘What do you want to do?’ The second laughed, ‘I want to collect!’ One told me, ‘I’ve been coming here 17 months; this place is a waste of time.’

The intern, following orders, refused to take the dependency option that the bureaucrats kept offering. She finally got results…sort of.

“Finally, I met with an ‘adviser.’ …she scheduled an interview at Pret, a food chain that trains employees. At Pret, I learned that my ‘interview’ was just a weekly open house, publicized on the company’s website. Anyone could walk in and apply. Workforce1 offered no advantage. Despite my ‘scheduled interview,’ I waited 90 minutes before meeting a manager. He told me that WorkForce1 had ‘wasted my time, as they always do.’ He said, ‘They never call, never ask questions.’ He prefers to hire people who seek out jobs on their own, like those who see Pret ads on Craigslist.’”

The last comment in the excerpt makes a lot of sense. If you’re hiring people, it makes a lot of sense to choose those who show the initiative to seek out positions rather than those who come through some sort of government program that teaches them first and foremost to be a moocher.

Here are some concluding thoughts from Stossel’s column.

It’s easier to get welfare than to work. The government would rather sign me up for welfare than help me find work. America has taxpayer-funded bureaucracies that encourage people to be dependent. They incentivize people to take “free stuff,” not to take initiative. It was easier to find job openings on my own. The private market for jobs works better than government “job centers.” …Job training does help — when employers do it. But government does everything badly. …America now has 47 federal jobs programs. They fail. Yet politicians want more. They always want more.

That’s the problem. The politicians always gravitate to “solutions” that means more government intervention, more government dependency, and more government spending.

One would think that honest left wingers would look at the research, understand that these programs hurt people, and recognize that the right approach is free markets and limited government.

But they don’t, which suggest that there are no honest leftists. Or maybe there aren’t any smart and honest leftists. Because all they ever do is come up with ideas that make this satirical poster a reality.

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Assuming You’re Intellectually Lazy, there’s a Very Strong Argument for Command-and-Control Regulation

Even though I’m a fiscal policy economist, I often get hit with questions on other topics. This frequently happens when I’m overseas and I’m put in the position of defending every nuance of free market policy.

I don’t mind pontificating on other issues, but I get frustrated with myself for sometimes not having the specific knowledge to make the best possible case. I was recently asked, for instance, whether the private sector was capable of protecting the health and safety of workers.

I knew enough to discuss the overall cost of regulation, the amount of valuable time diverted to comply with red tape, and some of the research on regulation and job creation.

Moreover, I made the generic argument about how employers have a profit-maximizing incentive to protect the health and safety of their workforce.

But when the person asserted to me that the creation of the Occupational Safety and Health Administration (OSHA) was followed by safer workplaces, all I could do was mumble something about the sun doesn’t rise because roosters crow and that we would need hypotheticals and counterfactuals.

Fortunately, I work at the Cato Institute where there are experts about almost every policy issue, so I was able to track down some analysis about OSHA in the Cato Handbook for Congress.

This then led me to the National Safety Council, where I discovered that the person who was asking me about regulation was correct. As seen in this chart, workplace deaths have fallen significantly since OSHA was created.

There is a discontinuity in the data in 1992 because of a change in methodology, but I’ll stipulate that this doesn’t weaken in any way the argument that the creation of OSHA was followed by lower death rates in the workplace.

But it also turns out that my cop-out response about roosters and sunrises was right on the mark.

Let’s now look at the same chart, but this time we will include data going all the way back to 1933. What we find is that the workplace deaths were falling before OSHA and they continued to fall after OSHA.

Now for some caveats. This chart doesn’t prove OSHA is completely ineffective. Moreover, I”m sure there were state-based workplace regulations in effect in the pre-OSHA era, and I assume the federal government also had some health and safety regulations as well, perhaps through the Labor Department.

My argument is simply the more limited hypothesis that regulations impose considerable costs, which should be taken into account, and that businesses have a profit-maximizing incentive to promote health and safety in the workplace, which is increasingly important as society becomes richer.

So let me put the onus back on the pro-regulation crowd. Given the charts above, shouldn’t there be some sort of obligation to show that regulation has had a positive impact, particularly when costs are added to the equation.

And don’t give me a lazy argument about “even if we save just one life,” because I’ve already shown that a heavy regulatory burden can have a deadly impact.

P.S. Let’s also remember that OSHA generates some bone-headed regulatory choices, such as the crazy example recounted by Dave Barry and this nutty bit of regulatory excess uncovered by my colleague Walter Olson.

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Another Dismal Assessment of Obamanomics: United States Drops to 7th in WEF’s Global Competitiveness Index

Every year, I look forward to the annual releases of both Economic Freedom of the World and the Index of Economic Freedom. With their comprehensive rankings, these two publications enable interested parties to compare nations and see which countries are moving in the right direction.

As an American, I’m ashamed to say that these publications also show which nations are moving in the wrong direction. And the United States ranks poorly by this metric, having dropped from 3rd place to 10th place since 2000 according to Economic Freedom of the World.

The U.S. also has dropped to 10th place in the Index of Economic Freedom, and is now ranked only as a “mostly free” nation.

Some people dismiss these pieces of data because the two rankings are considered to reflect a pro-free market bias.

But the folks at the World Economic Forum surely can’t be pigeonholed as a bunch of small-government libertarians, and the WEF’s Global Competitiveness Report shows the same trend.

The United States took the top spot in the WEF’s Global Competitiveness Index as recently as 2007 and 2008, but then dropped to 2nd place in 2009.

I think Bush bears the full blame for that unfortunate development. But the decline has continued in recent years, and Obama deserves a good part of the blame for the drop to 4th place in 2010.

The U.S. then fell to 5th place last year, in part because of horrible scores for “Wastefulness of Government Spending” (68th place) and “Burden of Government Regulation” (49th place).

Given this dismal trend, I opened the just-released 2012 Report with considerable trepidation. And my fears were justified. The United States has now dropped to 7th place.

Here is some of what was said about America.

The United States continues the decline that began a few years ago, falling two more positions to take 7th place this year. Although many structural features continue to make its economy extremely productive, a number of escalating and unaddressed weaknesses have lowered the US ranking in recent years. …some weaknesses in particular areas have deepened since past assessments. The business community continues to be critical toward public and private institutions (41st). In particular, its trust in politicians is not strong (54th), perhaps not surprising in light of recent political disputes that threaten to push the country back into recession through automatic spending cuts. Business leaders also remain concerned about the government’s ability to maintain arms-length relationships with the private sector (59th), and consider that the government spends its resources relatively wastefully (76th). A lack of macroeconomic stability continues to be the country’s greatest area of weakness (111th, down from 90th last year).

For people who like to look at the glass as being 1/10th full, the U.S. does beat Portugal (116ht place) in the score for macroeconomic stability.

Here are a few additional highlights. Or lowlights might be a better word.

• The U.S. scores 42nd in property rights, behind Namibia and Uruguay.
• The U.S. ranks 59th in government favoritism, behind Guinea and Bolivia.
• The U.S. scores 76th in wastefulness in government spending, behind Mali and Nicaragua.
• The U.S. also is 76th in the burden of government regulation, behind Kenya and Thailand.
• The U.S. scores 69th in extent of taxation, behind Gambia and Ethiopia.
• The U.S. ranks 103rd for total tax rate, behind Greece (!) and Philippines.

Now time for some caveats. The WEF report is based on survey results, for better or worse, and it also probably is best characterized as a measure of the attitudes of the business community rather than an estimate of economic freedom.

Regardless of limitations, though, it is a good publication. As such, it is downright embarrassing to see the U.S. fare so poorly in key indices – particularly when third-world nations score better.

We know that small government and free markets are the keys to prosperity. Bush took us in the wrong direction, however, and Obama is repeating his mistakes.

So don’t be surprised to see the American score decline further as additional reports are issued.

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Welcome Instapundit readers. Thanks, Glenn. Since the declining score in the U.S. is partly due to poor fiscal policy, you may want to peruse this video primer on the size of government.

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Fed Critics Should Worry about More than Easy Money and Inflation

If people are criticizing the Federal Reserve, it’s overwhelmingly likely that they are focused on the central bank’s poor conduct of monetary policy.

And there’s plenty to criticize, as documented in this video featuring Professor George Selgin.

I also have a video, explaining how central banks arose and noting that private markets were responsible for money in the past and could fulfill that role in the future (John Stossel also has weighed in on that topic)

It’s important to understand, however, that the Fed’s powers – and its ability to cause mischief – are not limited to monetary policy.

Let’s look at some excerpts from a Wall Street Journal column by John Cochrane, a Cato adjunct scholar and professor at the University of Chicago. We’ll start with a look at the expanded powers of the Federal Reserve.

We are used to thinking that central banks’ main task is to guide the economy by setting interest rates. …Since the 2008 financial crisis, however, the Federal Reserve has intervened in a wide variety of markets, including commercial paper, mortgages and long-term Treasury debt. At the height of the crisis, the Fed lent directly to teetering nonbank institutions, such as insurance giant AIG, and participated in several shotgun marriages, most notably between Bank of America and Merrill Lynch. …Many Fed officials, including Fed Chairman Ben Bernanke, see “credit constraints” and “segmented markets” throughout the economy, which the Fed’s standard tools don’t address. …In his speech Friday in Jackson Hole, Wyo., Mr. Bernanke made it clear that “we should not rule out the further use of such [nontraditional] policies if economic conditions warrant.”

But are these developments good or bad? Professor Cochrane is worried.

…the Fed has crossed a bright line. …an agency that allocates credit to specific markets and institutions, or buys assets that expose taxpayers to risks, cannot stay independent of elected, and accountable, officials. In addition, the Fed is now a gargantuan financial regulator. Its inspectors examine too-big-to-fail banks, come up with creative “stress tests” for them to pass, and haggle over thousands of pages of regulation.

And he provides an example of what happens when the Fed no longer is bound by the rule of law.

A revealing example of where we are going emerged last spring, admirably documented on the Fed’s website. Using its bank-regulation authority, the Fed declared that the banks that had robo-signed foreclosure documents were guilty of “unsafe and unsound processes and practices”—though robo-signing has nothing to do with the banks taking too much risk. The Fed then commanded that the banks provide $25 billion in “mortgage relief,” a simple transfer from bank shareholders to mortgage borrowers—though none of these borrowers was a victim of robo-signing. The Fed even commanded that the banks give money to “nonprofit housing counseling organizations, approved by the U.S. Department of Housing and Urban Development.” …you can see where we are going: Hey, nice bank you’ve got there. It would be a shame if the Consumer Financial Protection Bureau decided your credit cards were “abusive,” or if tomorrow’s “stress test” didn’t look so good for you. You know, we’ve really hoped you would lend more to support construction in the depressed parts of your home state.

This is both outrageous and worrisome. It’s outrageous because there is no legal authority for this form of coerced redistribution. But it’s worrisome because the Fed is seeking to things that should be well outside its mandate, such as dictating the actions of the financial sector and engaging in cronyism.

This doesn’t mean we’re suddenly as corrupt and inefficient as Argentina, but it does mean that we’re drifting in that direction. And don’t think it’s impossible. Argentina used to be a rich nation before the statists took control.

We’re already making similar mistakes in other areas, as evidenced by the green energy scam. Now it’s happening with the Fed. Next thing you know, you’ll wake up one day speaking Greek, Italian, or Spanish.

P.S. Shifting back to monetary policy, here’s Julie Borowski’s Fed-bashing video (she also narrated this video on the third-party payer problem), and here’s the famous “Ben Bernank” video.

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Time to Start the Countdown for France’s Fiscal Crisis

I’m a bad person. I know it’s not nice to take joy in the misery of others, but I can’t help but smile when I see a story about bad news in France.

In my defense, this is not because of hostility to French people, who have always been friendly to me. Instead, France has become the global symbol of statism (particularly since Sweden has been moving in the right direction). The French, for instance, are increasingly infamous for class-warfare tax policy and onerous levels of intervention.

And since it’s my job to promote liberty, I’ll confess that it’s easier for me to convince non-French policy makers that free markets and small government are the right approach when there’s more evidence that statism is failing in France.

So why am I smiling? Well, France wasn’t doing so well under the de facto socialist Nicolas Sarkozy, and it seems that things are looking even worse now that the de jure socialist Francois Hollande is in charge.

Here’s some of what Reuters recently reported.

“It’s always time for a tax hike!”

The French are bleaker about their country’s future than at any time since 2005, a new poll showed on Saturday, with 68 percent saying they are “rather” or “very” pessimistic… Hollande’s government has been reeling from unemployment at a 13-year high and a rash of job cuts in recent weeks at top employers like carmaker Peugeot and retailer Carrefour. The government launched a plan this week to create 150,000 state-sponsored jobs for youth. Only 34 percent of those surveyed were confident in the government’s ability to battle unemployment, and just 20 percent expect the government to be able to improve their buying power. …The poll found that the pessimism extended even to 58 percent of Socialist party supporters.

I’m wondering when the pessimism will spread to investors. France recently lost its triple-A credit rating, but the rating agencies don’t do a good job, so I think it’s much more important to look at the prices of credit default swaps.

In other words, how much does it cost for an investor to insure debt from the French government? According to this CNBC site, France isn’t viewed as being as creditworthy as nations such as Switzerland, Germany, and the United States, but it is closer to those countries than it is to Spain, Italy, or Portugal.

This is just a guess on my part, but I think France is reaching the point where investors are suddenly going to get concerned about the government’s ability to fulfill its promises.

If Hollande follows through on his threat to impose a “patriotic” 75-percent tax rate, for example, that could be the trigger that makes the bond market a lot more skittish. Particularly since it will result in fewer rich people in France.

I’ve already written about French entrepreneurs and investors leaving the country because of Hollande’s class-warfare tax agenda. It’s gotten so bad that even Hollywood types are packing their bags.

Actor Johnny Depp has moved out of France and returned to America because he didn’t want to become a permanent French resident and pay income tax there. …Depp has now moved his family out of France after government officials asked him to become a permanent resident, as he feared he would end up paying tax in both countries. He tells Britain’s The Guardian newspaper, “…France wanted a piece of me. They wanted me to become a permanent resident. Permanent residency status – which changes everything. They just want… Dough. Money… ” Depp goes on to explain that if he spends more than 183 days a year in France he will have to pay income tax in both Europe and America, adding, “So you essentially work for free.”

Wow, complaining that he doesn’t want to “work for free.” What is he, some sort of radical libertarian from the Tea Party?

But he may want to chat with fellow tax-averse actor Jon Lovitz before moving back to America. Obama’s class-warfare agenda isn’t as bad as what Hollande is trying to impose, but it’s not Hong Kong or the Cayman Islands either.

P.S. Here’s a very good Chuck Asay cartoon about the French economy.

P.P.S. In a few areas, France has better policy than the United States.

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Almost All Nations Are Heading for Collapse, but Greece Is Special (in a Bad Way)

I wrote yesterday that the United Kingdom is doomed because there isn’t a political party with the vision or courage to restrain the welfare state.

At various points, I’ve also expressed pessimism about the future of France, Germany, Italy, Spain, Ireland, and even the United States.

Simply stated, almost all western nations suffer from the same toxic combination of dependency, demographic decline, and poorly structured entitlement programs.

But some nations are heading in the wrong direction more rapidly than others, and Greece is best example (perhaps I should say worst example?) of a country that is careening toward catastrophe.

It’s such a basket case that I’m not sure whether the politicians or the people deserve the lion’s share of the blame.

•  The politicians deserve blame because they treat public office as a tool for self-enrichment and self-aggrandizement, largely by steering taxpayer money to friends, cronies, contributors, and supporters. Sometimes they do this in a search for votes. Sometimes in a search for cash.
•  The people deserve blame because they view the state as a magical source of freebies and they see no economic or moral problem with using a coercive government to steal from fellow citizens. They realize the system is corrupt, which is why they seek to evade taxes, but that doesn’t stop them from trying to live at the expense of others.

In a best-case scenario, this type of dysfunctional system reduces prosperity. But when the number of people mooching off the state reaches a critical mass (as illustrated by these two cartoons), then you get societal meltdown.

Which is a good description of what’s happening in Greece.

And even when the government is on the verge of collapse and there’s pressure for reform, the political elite somehow figure out how to screw things up.

The latest example is the possible creation of “special economic zones.” When I first glanced at the story excerpted below, I thought this meant the Greek government was going to create something akin to “enterprise zones” featuring lower tax rates and less red tape.

Because I’m a supporter of the law applying equally to everybody, I’m not a big fan of such policies. I want to reduce the burden of government, of course, but I want that approach for entire countries, not just a handful of areas selected by politicians.

But at least the concept is good, right?

Not when Greek politicians are involved. They have taken the worst features of enterprise zones and combined them with the worst features of redistributionism. Here’s some of the story from Ekathimerini.

The government is paving the way for negotiations with the European Commission regarding the creation of special economic zones (SEZ) in Greece, Development Minister Costis Hatzidakis confirmed on Tuesday in Athens. …“SEZ will give a boost to the basis of the real economy,” said Hatzidakis, reiterating that the existing labor legislation will be fully respected. ..This forms part of the 10-point priority plan Hatzidakis announced yesterday aimed at boosting growth. Changes to the investment incentives law and the fast-track regulations will be completed within the next 15 days. The bill to be prepared will include subsidies of up to 80 percent for smaller companies… Public-private partnerships will be used for bolstering regional growth.

So the zones will keep all the bad labor laws, but provide big subsidies and create “public-private partnerships” (i.e., cronyism).

I hate to sound negative all the time, but that sounds precisely like the kind of nonsense that put Greece in a ditch to begin with.

To be fair, the article does talk about targeted tax relief and accelerated procedures for dealing with red tape. But that’s not exactly good news. Targeted tax cuts are a form of discrimination and they create an environment favorable to lobbying and corruption. And while it seems like good news to approve licenses more quickly, why not just get rid of bureaucratic hurdles? After all, this is the country (this is not a joke) that requires stool samples from entrepreneurs seeking to set up online companies.

It’s very hard to have any optimism after reading this type of story. Greece surely is an example of statism run amok, but let’s return to the point I made above about almost all other western nations heading in the same direction. Greece may be closest to the fiscal cliff, but the rest of us are driving in the same direction.

And if you think this is overheated rhetoric (yes, I’m prone to hyperbole), check out these dismal numbers from the Bank for International Settlements and the Organization for Economic Cooperation and Development.

P.S. The BIS and OECD numbers show that the United States is in worse shape – in the long run – than every European welfare state. I assume this is largely based on assumptions of health care spending rising more rapidly in America. The bad news is that this is a reasonable assumption (thanks to our third-party payer problem). The good news is that we can easily solve the problem with a combination of entitlement reform (which deals with a direct cause of third-party payer) and tax reform (which deals with an indirect cause of third-party payer).

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