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Posts Tagged ‘IMF’

If some special-interest lobbies give money so that a left-wing group can propose something like a value-added tax to finance bigger government, that’s no surprise.

And if a bunch of subsidy recipients donate money to Barack Obama or some other statist politician because they hope for new programs, that’s also standard procedure in DC.

I’ll fight these initiatives, of course, but I don’t get overly upset when these things happen.

What does drive me crazy, though, is when proponents of big government want to use my money to subsidize left-wing activism.

This is why I’m against taxpayer handouts for groups such as Planned Parenthood and AARP. If they want to endorse bigger government, get voluntary contributions to push that destructive agenda.

All I ask is that you don’t coerce me to subsidize statism.

I get especially upset when international bureaucracies use my money to push for bigger government. And it the past few days, the International Monetary Fund (IMF) and Organization for Economic Cooperation and Development (OECD) have delivered a one-two punch for statism.

And they used our money!

The IMF advocated for more government in their recent survey of the United States.

The recent expansion of Medicaid and the increase in health insurance coverage have been concrete steps whose effect on poverty and health outcomes should become more evident over time. An expansion of the Earned Income Tax Credit—to apply to households without children, to older workers, and to low income youth—would be another effective tool to raise living standards for the very poor. …the minimum wage should be increased. …Action is also needed to achieve a sustained increase in both Federal and State spending on infrastructure paid for by…additional revenues, and an expansion of financing sources… The Federal gas tax should be significantly increased. …Some progress has already been made…through implementation of the Affordable Care Act… Addressing the expected depletion of the social security trust fund will require…increases the ceiling on taxable earnings for social security… In addition, the U.S. should introduce a broad-based carbon tax and move toward the introduction of a Federal-level VAT.

Keep in mind, by the way, that the IMF already has endorsed a giant energy tax on American consumers, as well as a value-added tax.

Though, to be fair, they’re not discriminating against Americans. The IMF has a long track record of pushing for bad policy in other nations.

Meanwhile, the statists at the OECD also are pushing for a wide range of bad policies.

The report encourages close cooperation between businesses and government… The Survey highlights that income inequality is high in the United States. …While this cannot be improved easily, the report praises reforms recently adopted or being considered: health care reform will help vulnerable families access high-quality care; OECD Carbon Obamadealing with mental health will help reduce job loss and disability; preschool education would be a good investment in children’s future and help middle-class parents; and paid maternity leave would help working women. …The OECD recommends introducing an adequate pricing of greenhouse gas emissions and supporting innovation in energy saving and low carbon technology.

Unsurprisingly, the OECD endorses a panoply of tax hikes to enable a bigger and more bloated public sector.

Act toward rapid international agreement and take measures to prevent base erosion and profit shifting… Make the personal tax system more redistributive… The federal government could…develop a social insurance programme for paid leave for all workers funded by a small increase in the payroll tax… Taxing the extraction of non-renewable resources offers the potential to raise revenue… Increase reliance on consumption taxation.

The OECD favors higher taxes for everyone, so it’s not as if they’re targeting Americans.

But it’s nonetheless irritating when a bunch of pampered international bureaucrats take money from American taxpayers and then use those funds to produce “research” calling for even higher tax burdens.

Especially when those bureaucrats are exempt from the income tax!!!

And keep in mind that this isn’t the first time that the OECD has acted as a public relations team for Obama’s statist agenda.

P.S. The one silver lining to the dark cloud of the IMF is that the bureaucrats inadvertently generated some very powerful evidence against the VAT.

P.P.S. And the OECD accidentally produced some data showing the poor results of governments schools in the United States, so that’s a bit of consolation as well.

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In the battle of ideas, supporters of capitalism and economic liberty sometimes face an uphill climb because of a perception of heartlessness.

When companies get in trouble, we’re the mean people who don’t want to give bailouts.

When workers are laid off, we’re the Scrooges who don’t want perpetual unemployment checks.

And when some workers aren’t earning much money, we’re the scoundrels who don’t want to boost the minimum wage.

Our “problem” is that we care about good results rather than good intentions. Motivated by the wisdom of Frederic Bastiat, we look at indirect effects and long-run consequences. And this is why we routinely reject statist proposals.

The challenge, of course, is educating others so that they understand that small government and free markets are the best way of providing more opportunity and better lives – particularly for those on the lower rungs of the economic ladder.

This is why I was very happy to see this new video from Learn Liberty. It basically explains the process of “creative destruction” to show how progress and prosperity are undermined when politicians try to “protect jobs.”

I also like the video because it makes the point that our living standards are the result of how much we produce, not the number of jobs.

In other words, we don’t want people employed for the sake of being employed. We want them doing things that add value to the economy.

government-job-cartoonThat’s one of the reasons why many government jobs are wasteful. People who could be creating wealth are instead imposing costs.

But let’s shift back to the topic of “creative destruction.” In my speeches, I’ll sometimes make the point that progress can be painful. Consider these examples:

The invention of the light bulb was very bad news for the candle making sector.

The invention of the automobile was a grim development for the horse and buggy industry.

The invention of the personal computer devastated typewriter companies.

In every case, these inventions made society much richer, but they also caused the destruction of thousands of jobs and bankrupted many firms. These were very real tragedies for certain people.

With the benefit of hindsight, however, we know that it was good that this “creative destruction” took place. We even know that the descendents of the candle makers, buggy builders, and typewriter producers are better off because our economy is so much more productive.

Just as the video explains that we’re much better off because 90 percent of the population no longer has to work on farms.

Yet we’re still faced with the paradox that supporters of capitalism are called heartless even though we’re the ones that support policies that create wealth and lift people from poverty.

P.S. On a separate topic, I criticized the World Bank in 2012 for putting together a “tax effort” scorecard that gave nations higher scores for heavier tax burdens.

Well, international bureaucracies must be in love with higher taxes (probably because they’re exempt from having to pay tax) and you won’t be surprised to learn that the International Monetary Fund has now published a similar report.

The nation that gets the highest score (i.e., the nation with the worst tax system) is Italy, with an average of almost 99 percent, though France (97 percent) is probably very envious and I wouldn’t be surprised if they asked for a recount.

The nation with the lowest “tax effort” is Guinea-Bissau, with a “failing” grade of about 32. I doubt this means they have a good tax system. I suspect it simply means nobody complies and the government doesn’t expend much “effort” on trying to collect.

Among developed nations, Singapore got the lowest score, with an average of 38. Which means, of course, that they have a very good tax system.

Though there were no grades for places such as Hong Kong, Liechtenstein, Monaco, and the Cayman Islands, so the report is not complete.

The United States, for what it’s worth, got a 70. So we’re not nearly as bad as countries such as France and Italy. But we’re much more onerous that Singapore.

We also have a higher “tax effort” than officially communist nations such as China and Vietnam. Gee, I guess that means we can be proud of the IRS, huh?

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When you support limited government and individual freedom, you don’t enjoy many victories. Particularly if you’re relying on the U.S. Senate.

But it occasionally happens.

The Senate held firm and stopped Obama from getting a fiscal cliff tax hike at the end of 2010.

The Senate overwhelmingly voted against a VAT.

The Senate unanimously rejected a Greek bailout.

To be sure, some of these votes were merely window dressing, but it’s still better to have symbolic victories rather than symbolic defeats.

Today, however, I want to report on a real victory against statism. The Senate Majority Leader, Harry Reid, has been forced to give up on his effort to ram through an expansion of IMF bailout authority as part of legislation giving money to Ukraine.

This is the second time that this White House initiative has been blocked.

Here are some blurbs from a report in Politico.

Senate Majority Leader Harry Reid will drop a provision to reform the International Monetary Fund from a bill to help Ukraine… Reid acknowledged that while the Ukraine package would likely have passed the Senate, it was “headed to nowhere” in the GOP-led House. …the administration did not hide its disappointment Tuesday afternoon over the removal of the IMF language. “We are deeply disappointed by the news that Republican opposition has forced the Senate to remove the [IMF] reforms from the Ukraine assistance package,” said Treasury Department spokeswoman Holly Shulman. …Backers of including the IMF reforms in the Ukraine deal note that it will help boost the organization’s lending capacity. …The United States is the lone holdout country that has not ratified the IMF deal, which was struck more than three years ago. But many congressional Republicans have raised concerns about potential taxpayer risk with the IMF agreement.

It goes without saying that the IMF won’t give up, and the Obama Administration is still pushing to expand the international bureaucracy’s bailout authority.

The battle will continue. Lew and ObamaIn preparation for the next skirmish, Desmond Lachmann at AEI debunks the White House’s empty talking points.

Next week, Treasury Secretary Jack Lew will make his case before the House Financial Service Committee for linking IMF reform to U.S. bilateral aid for Ukraine. If the past is any guide, he will do so by putting forward a set of disingenuous arguments in favor of his case. …The principal argument that Secretary Lew must be expected to make is that IMF quota reform is essential for large-scale IMF Ukrainian financial support. This argument glosses over the fact that under the IMF’s lending policy under “exceptional circumstances”, which has been resorted to on many occasions since the 1994 Mexican tequila crisis, the amount that the IMF can lend a country bears little relation to the size of that country’s IMF quota.  …Ukraine is reportedly currently seeking around a U.S. $15 billion IMF economic adjustment loan. If Mr. Lew were to be candid, he would inform Congress that such an amount represents only around 800 percent of Ukraine’s present IMF quota or less than half the amount of quota that the IMF recently committed to several countries in the European economic periphery. He would also inform Congress that the IMF presently has more than U.S. $400 billion in uncommitted loanable resources. This would make the IMF’s prospective loan to Ukraine but a drop in the IMF’s large bucket of available resources even without IMF reform.

Lachmann goes on to make additional points, including the fact that IMF bailouts create very real financial risks for American taxpayers.

The U.S. Treasury never tires of assuring Congress that large-scale IMF lending poses no risk to the US taxpayer. It bases its argument on the fact that the IMF enjoys preferred creditor status and that to date no major country has defaulted on its IMF loans. However, the Treasury conveniently glosses over the fact that IMF loan repayment experience with past IMF lending on a small scale might not be a good guide to what might happen on IMF loans of an unprecedentedly large scale. To understand that there now might be a real risk to the US taxpayer from IMF lending, one only need reflect on the IMF’s current Greek lending experience. Greece’s public debt is now mainly officially owned and it amounts to over 175 percent of GDP. It is far from clear that the European Central Bank will go along with the idea that the IMF enjoys senior status over the ECB in terms of Greece’s loan repayments.

His point about risks to taxpayers is right on the mark. In effect, the IMF is like Fannie Mae and Freddie Mac. For years, defenders of intervention in the housing market argued those government-created entities didn’t cost a penny. Then they suddenly cost a lot.

The same will happen with the IMF.

Lachmann closes by asking the right question, which is whether there’s any reason to expand the IMF’s authority.

I think that’s the real issue. And to answers that question, let’s go to Mark Hendrickson’s column in Forbes.

He starts by noting that the IMF has “re-invented” itself to justify its existence, even though it supposedly was created for a world – which no longer exists – of fixed exchange rates.

Bureaucracies are masters of mission creep. They constantly reinvent themselves, cleverly finding ways to expand in size, scope, power, and budget. The IMF has perfected this art, having evolved from its original purpose of trying to facilitate orderly currency exchange rates as countries recovered from World War II to morphing into a global busybody that makes loans—with significant strings attached—to bankrupt governments.

And what do we get in exchange for being the biggest backer of IMF bailouts?

What has the American taxpayer received in return for billions of dollars siphoned through the IMF to deadbeat governments? Nothing but ill will from abroad. First, the IMF’s policy of lending millions, or billions, to fiscally mismanaged governments is counterproductive: Such bailouts help to prop up inept and/or corrupt governments. Second, bailouts create moral hazard, inducing private corporations and banks to lend funds to poor credit risks, confident that IMF funds will make them whole. Third, typical IMF rescue packages demand…higher taxes in the name of balancing the budget.

It would be far better, Professor Hendrickson explains, if reckless governments had to immediately accept the market’s judgement whenever they overspent.

…it doesn’t take expert economists to figure out when a government is overspending. Markets will discipline spendthrift governments by ceasing to make funds available to them until they institute needed reforms. Without a bailout fairy like the IMF, government leaders will quickly learn that if they wish the government to remain viable, they must spend within available means. By telling governments what they “have” to do when it’s obvious they need to make those reforms anyhow, the IMF gives the recipient government a convenient scapegoat. It blames the pain of austerity on meddlesome foreigners, and since the U.S. is perceived as the real power in the IMF, we get painted as the bad guys. The bottom line: IMF use of our tax dollars buys us a ton of resentment from abroad.

He also points out that the IMF makes a habit of suggesting bad policy – even for the United States.

the IMF has waged war against American taxpayers and workers. Last October, the IMF released a paper suggesting both higher tax rates (mentioning a “revenue-maximizing” top marginal tax rate of around 60 percent) and possibly the confiscation of a sizable percentage of private assets to restore fiscal balance to the federal government. The IMF also has been one of the leading forces discouraging “tax competition” between countries. …It is using American tax dollars to lobby the American government to increase the flow of tax dollars from our Treasury to the IMF. We shouldn’t be surprised, then, that the IMF released a report on March 13 warning of the perils of “income inequality,” and suggesting tax increases and wealth redistribution as ways by which Uncle Sam might address the problem.

So what’s the bottom line?

If the IMF really wanted to improve the economic prospects of the world’s people, it would recommend reductions in government spending and taxation. Indeed, the overwhelming evidence is that vigorous economic growth is highly correlated with a country’s government shrinking as a share of GDP. What are the chances that the IMF will ever advocate such policies? Not very, as we realize that the IMF’s very existence depends on government taxes. …In a better world, there wouldn’t be an IMF. For the present, though, the best we can hope for is for enough members of Congress to understand that the IMF’s interests are opposed to those of the American people and to refuse any requests that the IMF makes for increased funding.

The Wall Street Journal is more measured in its rhetoric, but it basically comes to the same conclusion.

Republicans are reluctant to grant more leverage to European countries, which they blame for relaxing rules on Greece’s bailout in order to rescue the continent’s banks. …An internal audit last week also found that the fund’s growth forecasts were “optimistic” for countries like Greece and Ukraine that were granted larger loans under its “exceptional access” framework. Republicans fear the IMF is becoming a discount borrowing window for spendthrift governments trying to postpone reforms. IMF economic advice is often lousy—raise taxes and devalue… Congress ought to debate whether the IMF has outlived its usefulness as it evolves from a tool for Western interests into a global check-writing bureaucracy.

Amen. Which is why the United States should shut the Treasury door to the IMF. If other nations want to subsidize bad policy and promote bigger government, they can do it with their own money.

P.S. Here’s a list of other IMF transgressions against good public policy (all partially backed by American taxpayers).

Endorsing government cartels to boost tax and regulatory burdens.

Trying to undermine flat tax systems in Albania and Latvia.

Encouraging a “collective response” to over-spending in welfare states.

Pushing for higher tax burdens in Greece.

Seeking the same destructive policy in Cyprus.

Advocating for more centralization and bureaucratic rule in Europe.

Urging higher taxes in El Salvador.

Supporting “eurobonds” so that taxpayers from other nations can subsidize the profligacy of welfare states such as Greece, Italy, and Spain.

Pushing an energy tax that would mean $5,500 of added expense for the average American household.

Reflexively endorsing every possible tax increase.

Aiding and abetting Obama’s “inequality” agenda with disingenuous research.

And remember, these pampered bureaucrats get lavishly compensated and don’t have to pay tax on their bloated salaries.

P.P.S. But let’s be fair to the IMF. The bureaucrats have given us – albeit unintentionally – some very good evidence against the value-added tax.

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It’s not easy being a libertarian, particularly if you follow public policy.

Thomas Jefferson almost certainly was right when he wrote that “The natural progress of things is for liberty to yield, and government to gain ground.”

Heck, just look at how small government used to be in the developed world compared to where it is now. Public sectors used to consume only about 10 percent of economic output during the 1800s when nations became rich, but now the burden of government spending averages more than 40 percent of GDP.

And if you really want to get depressed, then look at the long-run fiscal forecasts for the United States and other industrialized countries. Things are going to get worse. Much worse.

Most nations are heading toward a Greek-style fiscal crisis. And while the United States is in better shape than many European welfare states today, our long-run outlook is actually worse according to the International Monetary Fund.

Even the Bank for International Settlements and Organization for Economic Cooperation and Development agree with the IMF’s grim prognosis.

Speaking of the IMF, let’s discuss some very bad news. It’s about Albania, so it may not seem very important, but it’s quite symbolic of the destructive impact of international bureaucracies.

As you can see from this Reuters report, the IMF basically bribed Albania to get rid of its flat tax.

“The IMF staff and the authorities reached an agreement on the IMF supporting their economic programme with financial assistance which could be delivered over a period of three years under an extended fund facility with access of about 300 million euros,” the IMF’s mission chief, Nadeem Ilahi, told reporters. …The three-month-old Socialist government will scrap a flat tax of 10 percent in the next fiscal year in January and raise the corporate tax to 15 percent from 10 percent. Also, the income tax for high-earners will rise to rates of 13 percent and 23 percent from 10 percent currently. …”The package of economic policies … supported by the IMF programme should make Albania an economy that is reforming, is open to foreign investors. … A lot of the reforms the authorities are planning are consistent with what the European Union has been asking for,” Ilahi said.

So think about what this means. The IMF is hurting global growth by distorting the allocation of capital. It’s hurting Albanian growth by enabling more government spending. And it’s hurting Albanian growth by forcing higher tax rates.

And then the IMF bureaucrat in charge, Mr. Ilahi, actually has the nerve to assert that all this bad policy will make Albania “open to foreign investors.” Yeah, sure. Investors are always flocking to nations that are actively increasing the burden of government. I guess that’s why France is such an economic dynamo and Hong Kong is suffering from stagnation…at least according to the IMF model anyway.

Keep in mind, by the way, that Mr. Ilahi (like all international bureaucrats) gets a tax-free salary! So I guess we shouldn’t be too surprised that he is completely clueless about the real-world impact on the destructive policies he has foisted upon Albania.

By the way, Albanian politicians are not exactly blameless. They doubled government spending over the past 10 years, with outlays climbing from less than 200 million leks in 2003 to more than 400 million leks this year.

And then these profligate politicians decided to throw their taxpayers under the bus in exchange for a pile of additional loot from the IMF.

The real victims are the people of Albania. They suffered decades of communist enslavement. But even after the collapse of the Soviet Empire, they’ve never enjoyed a free-market, small-government economy. But with the flat tax, they had at least one pro-growth policy.

Now they don’t even have that.

P.S. The IMF is an equal-opportunity proponent of bad policy. The tax-free bureaucrats have advocated lots of tax hikes on Americans, including a value-added tax, a financial transactions tax, and class-warfare tax rate increases. Oh, and let’s not forget they urged a giant energy tax on American consumers. IMF KevorkianIt’s nice to know that the bureaucrats are so industrious at developing policies to hurt the United States when American taxpayers underwrite the biggest share of the IMF budget.

P.P.S. But I don’t want to be unfair. The IMF did provide – albeit by accident – very powerful evidence showing why the United States should not have a value-added tax. So I guess that was one useful thing the bureaucrats did, even if it wasn’t their intention. And the bureaucracy has published some good studies about the economic benefits of reducing government spending and others warning that tax increases can be self defeating.

P.P.P.S. Since this has been a depressing post, let’s close by noting that the IMF doesn’t always succeed. The bureaucrats unsuccessfully tried to pressure Latvia into abandoning the flat tax.

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If there was a special award for chutzpah, the easy winner would be the bureaucrats at the International Monetary Fund. These pampered bureaucrats get lavishly compensated and don’t have to pay tax on their bloated salaries.

IMF Compensation

The gold-plated fringe benefits include “your spouse/partner may join you on official travel at Fund expense.”

You would think this would make them a bit sensitive to the notion that it’s hugely hypocritical of them to propose big tax hikes when they have a special exemption.

But they have no shame. The international bureaucracy is making a renewed push for higher taxes all over the world.

You can read the actual IMF report, but the UK-based Guardian does a very good job of summarizing the important details.

The key takeaway is that the bureaucrats are telling governments to make the VAT more onerous (a standard IMF recommendation) and to raise other taxes as well.

…the current fiscal monitor…suggests there are ways of raising extra tax revenue, beyond the fund’s long-term support for broadening the tax base through the wider application of VAT.

And what are those other taxes? Well, the IMF is very promiscuous when urging the confiscation of other people’s money.

First, it supports the idea of a financial activities tax, which would be levied on the wages and profits of financial institutions. This would be the equivalent of levying VAT on financial services, which are currently exempt. …Second, the IMF thinks it is time to do something about an international tax system… Instead of a race to the bottom where countries compete with each other to offer the lowest rate of corporate tax, it urges co-operation.

Yes, you read correctly. The IMF wants a big tax hike on the financial services sector. I guess we’re supposed to believe that will strengthen banks or something like that.

And it wants to end tax competition so that greedy governments can more easily increase the tax burden on businesses.

Cartels are supposed to be a bad thing, but they suddenly become acceptable when governments get together and conspire on ways to rig the system in favor of higher taxes. That’s been an ongoing project for the OECD (another statist international organization filled with untaxed bureaucrats), and I guess the IMF wants to get in on the action.

But the most remarkable part of the IMF report is the endorsement of punitive class-warfare taxes.

Finally, the fund comes out in favour of having a long hard look at whether those on the highest incomes should pay more. In some countries, the US in particular, the IMF research suggests the rich are substantially under-taxed. …It compared the current tax rate paid by highest earners with the tax rate that would maximise revenue…the fund concluded the top rate of tax that maximised income was 60%, it was careful to set a range for each country studied.

For all intents and purposes, the IMF wants to turn back the clock and return to 1970s-style confiscatory tax levels. Top tax rates of 60 percent, no problem. Payroll tax rates of 30 percent, sounds great! Value-added tax burdens of 25 percent, peachy keen!!

“The IMF is right! It’s time to raise taxes”

The IMF’s message seems to be that the entire world should become France.

To be fair, however, at least the IMF acknowledges that the revenue-maximizing tax rate is less than 100 percent. Mon Dieu, they’re acknowledging the Laffer Curve! This means they’re not as far to the left as the bureaucrats at the Joint Committee on Taxation. I guess this is what people mean when they talk about damning with faint praise.

P.S. Just in case this isn’t enough evidence against the IMF, here are some more examples of the bureaucracy’s statist work.

So while I’m normally critical of Republicans for being timid, they deserve some praise for recently blocking even more subsidies for the IMF.

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I have given the left credit many times for clever humor, even when their satiric efforts target libertarians.

Well, it’s time to give the left credit again. I don’t know whether to call this satire, humor, or if I should just lump it in the catch-all category of social commentary, but it is effective. It’s visually powerful and leaves a clear message.

Even the small touches are clever, including Bush and the Pope on the TV, as well as the IMF sticker on the IV pole (though I’m surprised, given the bureaucracy’s statist track record, that the left thinks the IMF is the enemy).

But I’m not sharing this image out of pure appreciation for effective imagery. I also think it reveals two themes of left-wing thought, one foolish and the other legitimate.

1. The foolish theme is that rich nations are rich because poor nations are poor. This is the same mentality that you find among leftists such as Obama, who assume that rich people in America are rich because they somehow deprived the poor.

2. The accurate theme is that bigwigs sometimes use the coercive power of government to obtain unearned wealth. And in some cases, that unearned wealth comes from corrupt deals with politicians from third-world governments.

I address both of these points in this interview, pointing out that true capitalism generates an expanding economy so that the rich and poor both benefit, but that cronyism enables the politically well-connected to rip off taxpayers and/or consumers.

If we want to promote liberty, it would help to enlist the help of those leftists who legitimately want to make the world a better place (as opposed to the union thugs, political hacks, grievance mongers, and others who use statism as a racket to achieve wealth and power).

We need to educate the honest left about why they’re wrong about the first theme and why we’re on their side regarding the second theme.

The challenge is to teach them that good intentions sometimes don’t lead to good results, so that we can fix the mentality displayed in this cartoon.

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Every day brings more and more evidence that Obamanomics is failing in Europe.  I wrote some “Observations on the European Farce” last week, but the news this morning is even more surreal.

Compared to his foolishness on tax policy, Hollande is a genius when it comes to determining what time it is.

Let’s start with France, where I endorsed the explicit socialist over the implicit socialist precisely because of a morbid desire to see a nation commit faster economic suicide. Well, Monsieur Hollande isn’t disappointing me. Let’s look at some of his new initiatives, as reported by Tax-News.com.

The French Minister responsible for Parliamentary Relations Alain Vidalies has recently conceded that EUR10bn (USD12.7bn) is needed to balance the country’s budget this year, to be achieved notably by means of implementing a number of emergency tax measures. …The government plans to abolish the exemption from social contributions applicable to overtime hours, expected to yield a gain for the state of around EUR3.2bn, and to subject overtime hours to taxation, predicted to realize approximately EUR1.4bn in additional revenues. Other proposed measures include plans to reform the country’s solidarity tax on wealth (ISF), to cap tax breaks at EUR10,000, to impose a 3% tax on dividends and to increase inheritance tax as well as the tax on donations. …French President Hollande announced plans during his election campaign to reform ISF. Holland intends to restore the wealth tax scale of between 0.55% and 1.8%, in place before the former government’s 2011 reform, to be applied on wealth in excess of EUR1.3m. Currently a 0.25% rate is imposed on net taxable wealth in excess of EUR1.3m and 0.5% on net taxable assets above EUR3m.

France already has the highest tax burden of any non-Scandinavian nation, so why not further squeeze the productive sector. That’s bound to boost jobs and competitiveness, right? And more revenue as well!

In reality, the Laffer Curve will kick in because France’s dwindling productive class isn’t going to passively submit as the political jackals start looking for a new meal.

But while France is driving into a fiscal cul-de-sac, Italian politicians have constructed a very impressive maze of red tape, intervention, and regulation. From the Wall Street Journal, here is just a sampling of the idiotic rules that paralyze job creators and entrepreneurs.

Once you hire employee 11, you must submit an annual self-assessment to the national authorities outlining every possible health and safety hazard to which your employees might be subject. These include work-related stress and stress caused by age, gender and racial differences. …Once you hire your 16th employee, national unions can set up shop, and workers may elect their own separate representatives. As your company grows, so does the number of required employee representatives, each of whom is entitled to eight hours of paid leave monthly to fulfill union or works-council duties. …Hire No. 16 also means that your next recruit must qualify as disabled. By the time your firm hires its 51st worker, 7% of the payroll must be handicapped in some way, or else your company owes fees in kind. …Once you hire your 101st employee, you must submit a report every two years on the gender-dynamics within the company. This must include a tabulation of the men and women employed in each production unit, their functions and level within the company, details of their compensation and benefits, and dates and reasons for recruitments, promotions and transfers, as well as the estimated revenue impact. …All of these protections and assurances, along with the bureaucracies that oversee them, subtract 47.6% from the average Italian wage, according to the OECD. …which may explain the temptation to stay small and keep as much of your business as possible off the books. This gray- and black-market accounts for more than a quarter of the Italian economy. It also helps account for unemployment at a 12-year high of 10%, and GDP forecast to contract 1.3% this year.

You won’t be surprised to learn that the unelected Prime Minister of Italy, Mr. Monti, isn’t really trying to fix any of this nonsense and instead is agitating for more bailouts from taxpayers in countries that aren’t quite as corrupt and strangled by red tape.

Monti also is a big supporter of eurobonds, which make a lot of sense if you’re the type of person who likes co-signing loans for your unemployed alcoholic cousin with a gambling addiction.

But let’s not forget our Greek friends, the one from the country that subsidizes pedophiles and requires stool samples from entrepreneurs applying to set up online companies.

The recent elections resulted in a victory for the supposedly conservative party, so what did the new government announce? A flat tax to boost growth? Sweeping deregulation to get rid of the absurd rules that strangle entrepreneurship?

You must be smoking crack to even ask such questions. In addition to whining for further handouts from taxpayers in other nations, the Wall Street Journal reports that the new government has announced that it won’t be pruning any bureaucrats from the country’s bloated government workforce.

Greece’s new three-party coalition government on Thursday ruled out massive public-sector layoffs, a move that could help pacify restive trade unions… The new government’s refusal to slash public payrolls and its demands to renegotiate its loan deal comes just as euro-zone finance ministers meet in Luxembourg to discuss Greece’s troubled overhauls—and possibly weigh a two-year extension the new government is seeking in a bid to ease the terms of the austerity program that has accompanied the bailout. …Cutting the size of the public sector has been a top demand by Greece’s creditors—the European Union, European Central Bank and International Monetary Fund—to reduce costs and help Greece meet its budget-deficit targets needed for the country to get more financing. So far, Greece has laid off just a few hundred workers and failed to implement a so-called labor reserve last year, which foresaw slashing the public sector by 30,000 workers.

Gee, isn’t this just peachy. Best of all, thank to the International Monetary Fund, the rest of us are helping to subsidize these Greek moochers.

And speaking of the IMF, I never realized those overpaid bureaucrats (and they’re also exempt from tax!) are closet comedians. They must be a bunch of jokers, I’ve concluded, because they just released a report on problems in the eurozone without once mentioning excessive government spending or high tax burdens.

The tax-free IMF bureaucrats do claim that “Important actions have been taken,” but they’re talking about bailouts and easy money.

The ECB has lowered policy rates and conducted special liquidity interventions to address immediate bank funding pressures and avert an even more rapid escalation of the crisis.

And even though the problems in Europe are solely the result of bad policies by nations governments, the economic pyromaniacs at the IMF also say that “the crisis now calls for a stronger and more collective effort.”

Absent collective mechanisms to break these adverse feedback loops, the crisis has spilled across euro area countries. Contagion from further intensification of the crisis—including acute stress in funding markets and tensions involving systemically-important banks—would be sizeable globally. And spillovers to neighboring EU economies would be particularly large. A more determined and forceful collective response is needed.

Let’s translate this into plain English: The IMF wants more money from American taxpayers (and other victimized producers elsewhere in the world) to subsidize the types of statist policies that are described above in places such as France, Italy, and Greece.

I’ve previously explained why conspiracy theories are silly, but we’ve gotten to the point where I can forgive people for thinking that politicians and bureaucrats are deliberately trying to turn Europe into some sort of statist Dystopia.

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I’m not a big fan of international bureaucracies, mostly because they always seem to promote bad policy such as higher tax rates.

To add insult to injury, the bureaucrats who work at these organizations have created very comfortable lives for themselves while the rest of us pick up the tab, as documented here and here.

But the ultimate insult is that the overpaid and pampered bureaucrats receive tax-free salaries while they jet-set around the world pushing for higher taxes.

Yes, you read correctly. They demand higher taxes for everyone else, but their bloated salaries are exempt!

Here’s some of what the UK-based Guardian just reported about the head of the IMF.

“Taxes for thee, but not for me”

Christine Lagarde, the IMF boss who caused international outrage after she suggested in an interview with the Guardian on Friday that beleaguered Greeks might do well to pay their taxes, pays no taxes, it has emerged. As an official of an international institution, her salary of $467,940 (£298,675) a year plus $83,760 additional allowance a year is not subject to any taxes. …Lagarde, 56, receives a pay and benefits package worth more than American president Barack Obama earns from the United States government, and he pays taxes on it. The same applies to nearly all United Nations employees.

To make matters worse, these globe-trotting bureaucrats have figured out all sorts of ways of padding their pay.

Base salaries range from $46,000 to $80,521. Senior salaries range between $95,394 and $123,033 but these are topped up with adjustments for the cost of living in different countries. A UN worker based in Geneva, for example, will see their base salary increased by 106%, in Bonn by 50.6%, Paris 62% and Peshawar 38.6%. Even in Juba, the capital of South Sudan, one of the poorest areas of the world, a UN employee’s salary will be increased by 53.2%. Other benefits include rent subsidies, dependency allowances for spouses and children, education grants for school-age children and travel and shipping expenses, as well as subsidised medical insurance. For many years critics have complained that IMF, World Bank, and United Nations employees are able to live large at international taxpayers’ expense.

So how do these bureaucrats justify their lavish salaries and gold-plated benefits?

Officials from the various organisations have long maintained that the high salaries are a way of attracting talent from the private sector. In fact, most senior employees are recruited from government posts.

Kudos to the Guardian for exposing this nonsense, particularly the fraudulent claim that lavish compensation packages are need to attract and retain these incompetent bureaucrats.

But let me add to the Guardian’s analysis. In a recent email exchange with several people, I addressed this issue, specifically commenting on whether the head of the IMF, Ms. Lagarde, should get a giant salary because she could earn more money in the private sector. I wrote that there were two responses to this assertion.

1. She has genuine skills as a wealth creator. In which case, we should force her out of the IMF as soon as possible so her talents can be used productively rather than destructively.

2. She can get big bucks by trading on her connections and entering the world of corporatism. Work for KPMG, or the Carlyle Group, or some other entity that specializes in getting favorable deals for the elite. That’s not the private sector.

In either case, her salary in her current position should be zero. Unless we think she should be paid the value of her marginal product, in which case she probably owes the world’s taxpayers several hundred billion dollars.

In other words, it doesn’t matter whether Ms. Largarde’s ability to earn lots of money is the result of genuine ability or cronyism. Since the IMF is pursuing bad policy, her value in that position is below zero.

My Cato colleague Richard Rahn was correct when he wrote that it is the ultimate hypocrisy for tax-free bureaucrats to lobby for higher taxes on the rest of us.

And that’s why defunding these parasitic international bureaucracies is not just good fiscal policy and good economic policy, it’s also the morally just policy.

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I don’t like the international bureaucrats at the IMF, and I don’t like the corrupt politicians of Greece, so for whom do I cheer if there’s a fight between those two groups?

Ideally, both sides will lose (which is also my view of the European fight between Keynesians and tax increasers).

You’ll understand when you read about the recent remarks by Christine Lagarde, the head of the International Monetary Fund. Here’s what the UK-based Guardian reported.

IMF chief Christine Lagarde’s uncompromising description of Greeks as rampant tax-dodgers has provoked a furious reaction in Athens less than a month before the crisis-hit country heads to the polls. With Greece mired in ever-worsening recession, with cutbacks and tax rises, the IMF managing director was rounded on by almost the entire political establishment. In an interview with the Guardian, Lagarde said she had more sympathy for victims of poverty in sub-Saharan Africa than Greeks hit by the economic crisis. “As far as Athens is concerned, I also think about all those people who are trying to escape tax all the time. All these people in Greece who are trying to escape tax.” Evangelos Venizelos, the Greek socialist leader, who met Lagarde several times as finance minister, accused her of “insulting” Greeks. “Nobody has the right to humiliate the Greek people during the crisis, and I say this today specifically addressing Ms Lagarde … who with her stance insulted the Greek people.”

So what should we think of this fight?

Well, I agree with Lagarde that the people of sub-Saharan Africa are more deserving of sympathy. After all, the Greek people repeatedly voted to steal money from their fellow citizens by using the coercive power of government, so it’s hard to feel much sympathy for people who thought that scam could continue indefinitely.

Though, to be fair, the people in sub-Saharan Africa would probably make the same venal choices if they had democracy.

Top IMF Moocher

On the other hand, I am nauseated by Lagarde’s comments about tax evasion. She is one of the world’s biggest leeches, with annual compensation of more than $550,000 that is diverted from the productive sector of the economy. And, adding insult to injury, her bloated salary is tax free. So we have the grotesque spectacle of a pampered international bureaucrat whining and moaning that ordinary people aren’t paying enough tax.

Keep in mind, by the way, that the tax burden in Greece is more than 40 percent of economic output (see annex table 26), which (at least to normal people) shows that the problems is that the Greek government is spending far too much.

Leading Greek Kleptocrat

Then we have the sniveling comments of Greece’s former socialist finance minister, who says the Greek people have been “insulted.” Well, they should be insulted. And mocked. And berated. After all, these are the people who voted for one kleptocrat government after another.

These are the people who thought it was a good idea to elect governments that made insane decisions such as choosing to subsidize pedophiles and imposing a regulatory requirement to collect stool samples from entrepreneurs setting up online companies.

I think “a pox on both your houses” was a line in one of Shakespeare’s plays. But wherever it comes from, it sums up my view of this spat between the IMF and Greece. The only good decision for the United States would be to back away and not be involved. Unfortunately, the Obama Administration wants American taxpayers on the hook for the reckless overspending of foreign politicians.

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I’ve written many times about the foolishness of bailing out profligate governments (or, for that matter, mismanaged banks and inefficient car companies).

Bailouts reward bad past behavior, encourage bad future behavior, and make the debt bubble bigger – thus increasing the likelihood of deeper economic problems. At the risk of stating the obvious, there’s a reason for the second word in the “moral hazard” phrase.

But I’m not surprised that politicians continue to advocate more bailouts. The latest version is the “eurobond,” sometimes referred to as “fiscal liability sharing.”

It doesn’t matter what it’s called, though, since we’re talking about the foolish idea of having Germany (with a few other small nations chipping in) guaranteeing the debt of Europe’s collapsing welfare states. Here’s how the New York Times described the issue.

When European leaders meet on Wednesday to discuss the troubles of the euro zone, France’s president will press the issue of euro bonds, his finance minister said in Berlin on Monday. …Pierre Moscovici, France’s newly appointed finance minister, traveled to Berlin for talks with his counterpart, Wolfgang Schäuble. In a news conference after the closed-door meeting, both characterized the exchange as friendly and productive, but Mr. Moscovici acknowledged that the two men, and their governments, had real differences of opinion over pooling obligations to use the credit of the strongest European countries to prop up the weaker ones, an approach achieved through euro bonds.

The good news is that the German government is opposed to this idea.

Steffen Kampeter, was much more forthcoming in reiterating German opposition to any such proposal. Mr. Kampeter called the joint bonds “a prescription at the wrong time with the wrong side effects,” in an interview with German public radio. “The government has repeatedly made clear that collective state borrowing — that is, euro bonds — are no way to overcome the current crisis,” said Georg Streiter, a spokesman for Ms. Merkel on Monday. “It is still the case that the government rejects euro bonds.” …German policy makers say, euro bonds would be comparable to the United States’ agreeing to pay off Mexico’s debts, almost like a blank check for nations that are in trouble for overspending in the first place. “Euro bonds are not where the keys to heaven lie,” said Michael Hüther, director of the Cologne Institute for Economic Research, because it would “mix up risk” and act as a disincentive for less competitive economies to reform.

The bad news is that the Germans support other bad policies instead.

Ms. Merkel has signaled flexibility on some of Mr. Hollande’s ideas, including more financing for the European Investment Bank and redirecting unspent European Union funds to try to fight unemployment.

And even when Merkel opposes bad policies, she indicates she will change her mind if one bad policy is mixed with another bad policy!

…the German government is staunchly opposed to euro bonds until deeper integration and harmonization of budgetary and public spending policies have been achieved.

If Ms. Merkel genuinely believes that political and fiscal union will solve Europe’s problems, she’s probably ingesting illegal substances. Centralization of European government will have the same unfortunate pro-statist impact as centralization of American government in the 1930s and 1960s.

Integration and harmonization simply means voters in the rest of Europe will take German funds using the ballot box.

Not surprisingly, all of the international bureaucracies are on the wrong side of this issue. The NY Times story notes that the European Commission is using the fiscal crisis to push for more centralization.

The European Commission floated the idea of bonds issued jointly by euro zone governments in November, suggesting that such “stability bonds” could be created “in parallel” with moves toward closer fiscal union, rather than at the end of the process, as the German government prefers, to “alleviate tension” in sovereign debt markets. “From an economic point of view this makes sense,” a commission spokesman, Amadeu Altafaj, said Monday. “But at the end of the day this is a political decision that has to be taken by the member states of the euro area.” Mr. Altafaj added that “any form of common debt issuance requires a closer coordination of fiscal policies, moving toward a fiscal union, it is a prerequisite.”

And the Financial Times reports that the Organization for Economic Cooperation and Development, which is reflexively supportive of bigger government and more intervention, has endorsed eurobonds.

Mr Hollande…won backing from the OECD, which in its twice-yearly economic outlook specifically called for such bonds…“We need to get on the path towards the issuance of euro bonds sooner rather than later,” Pier Carlo Padoan, the OECD chief economist, told the Financial Times.

The fiscal pyromaniacs at the IMF also are pushing to make the debt bubble bigger according to the FT.

Christine Lagarde, the IMF chief, also called for more burden-sharing. Though she stopped short of explicitly backing euro bonds, she said “more needs to be done, particularly by way of fiscal liability sharing” – a thinly veiled reference to such debt instruments.

What makes this particularly frustrating is that American taxpayers provide the largest share of the subsidies that keep the IMF and OECD afloat. In other words, we’re paying for left-wing bureaucrats, who then turn around and push for bad policies that will result in bigger bailouts in the future.

Episodes like this make me understand why so many people believe in conspiracy theories. Folks watch something like this unfold and they can’t help but suspect that people in these governments and international bureaucracies want to deliberately destroy the global economy.

But as I’ve noted before, it’s not smart to believe conspiracies when corruption, incompetence, politics, ideology, greed, and self-interest provide better explanations for bad policy.

If the Europeans want to hit the self-destruct button, I’m happy to explain why it’s a bad idea, and I’m willing to educate them about better alternatives.

But I damn sure don’t want to subsidize their foolishness when they do the wrong thing.

P.S. It’s very appropriate to close this post with a link to this parody of Hitler complaining about debt crisis.

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In a grand Washington tradition, I periodically make imperious demands. In the past year or two, I’ve issued the following ultimatums to the GOP.

o No tax increases, since more money for Washington will encourage a bigger burden of government and undermine prosperity.

o Reform the biased number-crunching methodology at the Congressional Budget Office and Joint Committee on Taxation.

o No more money from American taxpayers to subsidize the left-wing bureaucrats at the Paris-based Organization for Economic Cooperation and Development.

I don’t actually expect any politicians to pay attention when I make these demands, of course, but I am highlighting issues that send a signal about whether Republicans actually learned any lessons after getting shellacked in 2006 and 2008.

So far, they’re holding reasonably firm on the tax issue. They don’t have control over the CBO and JCT thanks to Harry Reid, so we’ll give them a pass on that topic. And we’ll see later this year whether they agree to squander another $100 million on the OECD.

Well, here’s another test to see whether the GOP is on the side of taxpayers or the establishment. The Obama Administration has agreed that the fiscal pyromaniacs at the International Monetary Fun should have more money and power to provide more and bigger bailouts.

Here are some relevant parts of a Washington Post story.

…a brewing election year fight with congressional Republicans…could restrict the IMF’s finances at a time when agency officials say they need a substantial boost to protect the world economy. The dispute centers on Republican opposition to increasing the United States’ financial contributions to the agency, reflecting anger over IMF rescue programs in Europe that some GOP lawmakers argue have become too expensive and have put U.S. taxpayers at risk. …opposition is growing to a permanent increase in U.S. government support for the IMF, as well as to a $100 billion credit line the United States provided in 2009 as part of an international move to help the IMF respond to the global financial crisis. The IMF has been dipping into that credit line for emergency loans to Portugal and elsewhere… Planned changes at the IMF, which would shift seats on the fund’s governing board from Europe to the developing world, cannot proceed without congressional approval. For practical purposes, neither can a related doubling, from $370 billion to $740 billion, in the total permanent contribution that IMF members make to support the agency.

As you can see from the excerpt, Republicans in the House of Representatives have the ability to stop this global boondoggle. The interesting question, though, is whether they defend the interests of ordinary people or whether they cater to the whims of the political elite.

By the way, I’m irked by the Post’s biased presentation. They refer to IMF “rescue programs,” yet all the evidence seems to suggest that the international bureaucracy is simply making the debt bubble bigger. We certainly don’t see any evidence that problems are getting solved. Greece is still in trouble, as are the other nations that stuck their hands in Uncle Sam’s pocket.

But that could be excused as a bit of sloppy reporting. Here’s a part of the story that is hopelessly biased.

The potential for a stalemate over the issue in the United States has the IMF and other international officials worried that it could put broader agency reform efforts at risk. IMF officials say that to backstop the global economy they need about $500 billion in addition to the increase in permanent contributions.

Since when is it appropriate to use the term “reform efforts” to describe policies that subsidize moral hazard and reward profligacy? And how is it accurate to say that IMF actions “backstop the global economy” when the bureaucrats don’t seem to achieve anything other than encouraging more debt?

Congresswoman Rodgers, Defending Taxpayers

But this isn’t a post about media bias, even though I sometimes can’t resist pointing out sloppy or dishonest journalism. Let’s get back to the main point. Giving the IMF more resources would be like giving the keys to a liquor store to a bunch of alcoholics.

Republicans have the ability to stop this raid on the Treasury by saying no. What they decide will reveal a lot about whether they’re still part of the problem.

Some GOPers in the House, such as Cathy McMorris Rodgers of Washington, already are fighting against expanded bailout money for the IMF. The real key, though, will be whether the Republican leadership does the right thing.

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I speculated last year that the political elite finally might be realizing that higher tax rates are not the solution to Greece’s fiscal situation.

Simply stated, you can only squeeze so much blood out of a stone, and pushing tax rates higher cripples growth and drives more people into the underground economy.

Well, it turns out that even the International Monetary Fund agrees with me. Here’s what the IMF said in its latest analysis about the Greek fiscal situation.

…further progress in reducing the deficit is going to be hard without underlying structural fiscal reforms. The fiscal deficit is now expected to be 9 percent this year, against the program target of 7½ percent. “One of the things we have seen in 2011 is that we have reached the limit of what can be achieved through increasing taxes,” Thomsen said. “Any further measures, if needed, should be on the expenditure side.

This is a remarkable admission. The IMF, for all intents and purposes, is acknowledging the Laffer Curve. At some point, tax rates become so punitive that the government collects less revenue.

This is a simple and common-sense observation, as explained in this video.

Unfortunately, even though the IMF now recognizes reality, the same can’t be said about the Obama Administration.

The President has proposed higher tax rates in his recent budget and it seems he can’t make a speech without making a class-warfare argument for penalizing producers, investors, entrepreneurs, and small business owners.

Yet if you compare American tax rates and Greek tax rates, it seems that the IMF’s lesson also applies in the United States.

The top tax in Greece is 45 percent, which is higher than the 35 percent top rate in America. But this doesn’t count the impact of state income taxes, which add an average of about five percentage points to the burden. Or the Medicare payroll tax, which boosts the rate by another 2.9 percentage points.

So Obama’s proposed 4.6 percentage point hike in the top tax rate almost certainly would mean a higher tax burden in the United States.

Even more worrisome, the U.S. tax rates on dividends and capital gains already are higher than the equivalent rates in Greece. Yet Obama wants to boost double taxation on these forms of retained earnings and distributed earnings.

But there are important cultural differences between the United States and Greece, so there’s no reason to think that the revenue-maximizing tax rates in both nations are the same (by the way, policy makers should strive for growth-maximizing tax rates, not the rates that generate the most money).

That’s why I wrote about the U.S.-specific evidence from the 1980s, which shows that rich people paid much more to the IRS when tax rates were slashed from 70 percent to 28 percent.

But all this analysis may miss the point. Why is the President willing to raise tax rates even if the economy suffers enough damage that the Treasury doesn’t collect any revenue? And if you’re wondering why I might ask such a crazy question, watch this video – especially beginning about the 4:30 mark.

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I realize the title of this post sounds like the beginning of a joke, along the lines of “A priest, a minister, and a rabbi walk into a bar…”, but this is a serious topic.

A big problem in fiscal debates is that people can’t even agree on what they mean by certain words. For instance, what’s the definition of austerity? Is it budget cuts, higher taxes, or both? Why are people saying the United Kingdom is practicing austerity, when the burden of government spending is going up?

Or how do we define responsible fiscal policy? Should politicians try to balance budgets, or should they shrink the burden of government? Is it reasonable for some people to call Obama a conservative because he wants higher taxes and claims the money would be used to reduce red ink?

I grapple with some of these questions in this appearance on Fox Business News.

But I’m not happy with my performance, largely because there needs to be a simple way of categorizing the various approaches to fiscal policy. So that’s what I’ve done in this Table. This is a first draft, so I welcome suggestions.

I’m serious about looking for input, For instance, I would like to come up with some way to describe Bushonomics without sullying the name of supply-side economics.

But perhaps I am just sensitive to that issue because supply-side economists tend to be serious and sober people who favor smaller government, but some of the politicians associated with supply-side economics – such as Jack Kemp – have been unapologetic big spenders.

I’m also unhappy with the division between IMFers and Keynesians, which is strange because it seems like half of my time is devoted to battling statists who argue for more government spending and the other half is consumed by fights against proponents of higher taxes.

What makes this so frustrating, though, is that Keynesians and IMFers are usually the same people, even though the philosophies are supposedly inconsistent.

I suspect that all they really want is bigger government, and they use any sign of weakness to argue for more spending, and then they quickly pivot and ask for higher taxes because of red ink. The biased analysis of the Congressional Budget Office is a good example.

The right approach, needless to say, is libertarianism. Small government and low tax rates are the pro-growth, pro-freedom recipe. That’s the one part of the Table that’s right on the mark.

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Perhaps the title of this post is a bit unfair since the International Monetary Fund is good on some issues, such as reducing subsidies. And some of the economists at the IMF even produce good research.

But I can’t help but get agitated that this behemoth global bureaucracy wants more money when it has a dismal track record of promoting, enabling, and subsidizing bigger government.

Here’s a brief blurb from the Wall Street Journal, which shares my skepticism.

The IMF’s Christine Lagarde delivered a speech in Berlin Monday warning that, without dramatic action, the world risked another Great Depression. …”We estimate a global potential financing need of $1 trillion,” she said. “To play its part, the IMF would aim to raise up to $500 billion in additional lending resources.” …Perhaps an IMF managing director with sound ideas about what makes an economy grow might deserve a raise. The first thing such a director would demand would be to cut the Fund’s size in half, not double it.

The WSJ’s editors are right to criticize the IMF. The folks in charge at the international bureaucracy, depending on the circumstances, have a nasty habit of supporting Keynesian spending and class-warfare tax hikes.

Let’s look at two very recent news reports to prove this point.

Our first example is from Europe, where there’s a discussion of how to address the fiscal crisis. Remarkably, the IMF has staked out a position to the left of Germany, arguing that more government spending will boost growth in Europe. Consider these excerpts from a Washington Post article.

Germany, the economic engine of Europe, is afraid it could get stuck paying much of the cost to bail out its weaker European neighbors. It is pushing instead for budget cuts, which the IMF says could weaken growth further and undermine market confidence. The IMF is already lending to the region’s bailout fund and has a lead role in monitoring the progress that nations such as Greece make in reducing their government deficits. Germany, meanwhile, is also a large contributor to the bailout fund. …If Europe doesn’t take several steps recommended by the IMF, such as reducing its emphasis on budget cuts, the 17 nations that share the euro could contract at a much faster pace, the fund said. That could possibly plunge the rest of the world into recession.

This is remarkable. One would think that the past three years have proven, once and for all, that Keynesian spending is a sedative rather than a stimulus. Yet the IMF thinks recessions are caused by smaller government.

We have another story that is equally upsetting. IMF bureaucrats get tax-free salaries, yet they frequently urge governments to impose higher taxes. And they have a very troubling habit of undermining tax reform.

Here’s a blurb from a Bloomberg report.

The International Monetary Fund may require Hungary to change its flat personal income tax as part of a bailout agreement, according to a person familiar with the Washington-based lender’s preparations for the talks. The flat tax will be an important part in any program discussion, said the person, who declined to be identified because official talks haven’t started. The IMF is in general opposed to flat-tax systems.

I’ll confess that I’m not overly sympathetic to Hungary’s plight. The government is in a mess because it keeps overspending.

But if the IMF is going to foolishly provide a bailout, wouldn’t it be better if the bureaucrats made the money contingent on implementing good policy rather than bad policy?

Unfortunately, the IMF has a bad track record on tax reform, as I’m constantly reminded when talking to officials in Eastern Europe. Indeed, one of my early posts on this blog was about the IMF’s attempt to sabotage the Latvian flat tax.

People have a right to be statist, but the question we have to decide is whether American taxpayers should subsidize that destructive mindset. Not surprisingly, I say no. Indeed, the IMF may even be worse than the OECD, another international bureaucracy that promotes a statist agenda.

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In a recent column for the Wall Street Journal, I explained why Mitt Romney’s interest in a value-added tax is deeply troubling.

One of my key points was that the VAT is a money machine for big government.

But don’t believe me. Look at Japan, where the politicians see increases in the VAT as a way of financing a much larger burden of government spending. Here’s some of what is being reported by Bloomberg.

Noda reshuffled his cabinet last week, aiming to win support for doubling Japan’s 5 percent national sales tax by 2015… Japan’s finances are “getting worse and worse every day, every second,” Takahira Ogawa, Singapore-based director of sovereign ratings at S&P… Japan’s aging population is also weighing on Noda’s struggle to achieve fiscal health. Social-security expenses have more than doubled in two decades and will account for 52 percent of general spending for the year starting in April, according to a budget proposal the cabinet approved last month.

The key point in this excerpt is that the VAT is a substitute for entitlement reform. Without the VAT, politicians might actually reform the welfare state. But because of the VAT, they want to take the easy (but extremely destructive) route and boost the tax burden.

This is why I get so agitated about the threat of a VAT in America, as illustrated by this recent appearance on Larry Kudlow’s show.

By the way, you won’t be surprised to know that the fiscal pyromaniacs at the International Monetary Fund support a bigger tax burden in Japan. Here’s another passage from the Bloomberg story.

The International Monetary Fund has said a gradual increase of Japan’s sales tax to 15 percent “could provide roughly half of the fiscal adjustment needed to put the public-debt ratio on a downward path.”

Isn’t it nice that we give these international bureaucrats big tax-free salaries so they can run around the world pushing for bailouts and higher taxes.

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There’s a rather simple solution to Europe’s fiscal crisis, but politicians will never do the right thing unless every other option is exhausted.

That’s why American taxpayers should not be involved in any sort of European bailout, either directly or indirectly.

This cartoon captures my sentiment.

At the risk of being picky, however, I would replace “Fed” with “USA/IMF” or something like that.

As I explained a few days ago, the Federal Reserve’s recent announcement that it will provide dollar liquidity to Europe is not necessarily objectionable. After all, the Europeans have to pay us back if they borrow dollars, with interest, at current exchange rates.

Yes, I worry European politicians may interpret the Fed’s actions as a signal that they can defer long-overdue reforms, and I also worry that it might be a precursor for easy-money policies in the future.

But the real threat to American taxpayers is that the International Monetary Fund may provide more bailouts to Europe.

I keep explaining that the only solution is for Europe’s welfare states to copy the Baltic nations and actually cut spending, but that will never happen if European politicians think that they can get an IMF handout (and thus shift some of their bad fiscal policy onto the backs of American taxpayers).

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The Europeans have just agreed to another bailout for Greece. That’s the bad news.

The good news is…well, there is no good news. Sarkozy, Merkel, and the other statists have once again failed to do the right thing and instead have decided to throw good money after bad and dig the debt hole even deeper.

But there is worse news. The IMF is financing part of the bailout and American taxpayers are “shareholders” in the IMF.

In other words, I’m helping to reward bad behavior and misallocate global capital. This doesn’t make me very happy – especially since the White House supports this misguided approach.

But this is business-as-usual for the IMF, and here’s a first-hand example.

I’m in El Salvador where I just finished two days of speeches, meetings, and interviews to discuss how the country should deal with its fiscal imbalance.

Discussing Mitchell's Golden Rule in El Salvador

My message is simple. El Salvador should reject tax hikes and instead put government on a diet by capping annual spending growth so the budget grows by 1 percent or 2 percent annually.

Ever single reporter responded by saying some variant of “but the IMF says we need to raise taxes.”

During the first interview, I simply said the IMF was wrong. During the second interview, I said El Salvador should refuse to let IMF bureaucrats in the country. After I heard the same IMF message the third time, I suggested shooting down any flight carrying IMF bureaucrats and their snake-oil economic advice.

The last comment was a joke, of course, but it does raise a fundamental question. Why are American taxpayers subsidizing an international bureaucracy that runs around the world urging higher taxes and bailouts?!?

To be fair, the IMF usually includes some good advice in their reports. If you read the fine print, the bureaucrats often recommend reductions in subsidies, red tape, government payrolls, and handouts.

But if you give politicians in any country a set of options, and higher taxes and/or bailouts are on the list, it doesn’t take a genius to realize that the good reforms will get ignored while the bad policies will be adopted.

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Almost two years ago, I wrote that bailing out Greece was misguided because it would dig the debt hole deeper.

More recently, I wrote an I-told-you-so post that looked at my four original predictions and patted myself on the back for being accurate (not that it took any special insight to conclude that bailouts would make things worse).

But now it’s time for a turbo-charged I-told-you-so post. The UK-based Telegraph has a remarkable story about the chaos in Europe. This passage is a good summary of the circular firing squad.

Just when the eurozone governments thought it could not get worse for Europe’s single currency, it did.Shell-shocked EU finance ministers meeting in Brussels on Saturday were already reeling from the worst Franco-German rift for over 20 years and a fractious failure to resolve the problems that have brought Greece, and the euro, close to the brink.But then a new bombshell hit as a joint report by the EU and the International Monetary Fund (IMF) warned that, without a default, the Greek debt crisis alone could swallow the eurozone’s entire €440 billion bailout fund – leaving nothing to spare to help the affected banks of Italy, Spain or France.

And to understand how the situation is so dire, here are some additional details.

Compounding the trauma, Christine Lagarde, the French finance minister turned IMF chief – and one of the few key players who appeared to be enjoying herself in her new headmistress-like role – issued a grim warning to her former European peers. The IMF would no longer be willing to pick up a third of the total bill for rescuing Greece, a contribution worth €73 billion, unless European banks were prepared to write off 50 per cent of Greek debt. “It was grim. The worst mood I have ever seen, a complete mess,” said one eurozone finance minister.

But here’s the key passage of the entire article, where the German Finance Minister correctly complains that the crisis is now three times as costly thanks to previous bailouts.

According to insiders, Wolfgang Schaeuble, Germany’s finance minister, could not resist taking an “I told you so” approach – he had been, after all, the first to call for an “orderly” default for Greece 18 months ago, at a time when the cost of such a move was less than one third of the price today. “Schaeuble is a man who does not mince his words, whose reputation for harshness and arrogance is well earned. He was, frankly, unbearable,” said one diplomat.

This is similar to the point I made in my post about whether the bailouts would work. But as I noted above, there was nothing profound about my predictions. Sort of like predicting water runs downhill.

The amusing part of the story is the infighting among Europe’s politicians.

Interpersonal relations between eurozone leaders have hit an all-time low, reflecting sharp disagreements between Germany and France over using the ECB to bailout the euro and presenting an additional obstacle to finding a “grand solution” to Europe’s debt crisis. Nicolas Sarkozy’s “two faced” personality has been cited as a major factor in his dysfunctional relationship with Angela Merkel. …A row between the pair in Frankfurt on Wednesday overshadowed leaving-do celebrations to mark the end of Jean-Claude Trichet’s nine years as the head of the ECB. “Their shouting could be heard down the corridor in the concert hall where an orchestra was about to play the EU’s anthem, Ode to Joy,” said an incredulous EU official.

And the depressing part of the story is how one of the chief Euro-crats is trying to use the crisis as an excuse for more centralization in Brussels.

Herman Van Rompuy, the EU president who is regarded by many as too close to Berlin, angered many countries when he made confidential proposals for the creation of a European finance ministry. His plan, which has considerable backing from the growing body of EU bureaucrats who see a unified EU treasury as the only solution to the problem of countries spending more than the euro can stand, would mean a centralised body able to override national budgets and enforce cuts on profligate governments.

I doubt this terrible idea will be approved, but the final outcome won’t be pleasant.

The worst-case scenario is that American taxpayers somehow will get suckered into participating in a bailout. The Senate has voted against subsidizing the failure of European socialism, but Obama has said he wants American taxpayers to participate in a bailout and the White House may use the Fed or some back-door mechanism to unilaterally link America to Europe’s sinking ship.

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I’m not an expert on addiction, but it’s probably safe to assume that one would never treat an alcoholic by giving him more booze. Or treat an addict by giving him more drugs.

So you won’t be surprised to learn that I’m opposed to bailouts. I’m against bailing out banks. I’m against bailing out car companies. I’m against bailing out governments.

And I’m against bailing out international bureaucracies that are running short on cash because they’ve been busy engaging in bailouts, which is the point I make in this Fox News interview.

I wish there was more time in the interview to expand on the issue of corrupt investors and financial institutions that love to make big profits when a bubble is expanding, but want handouts, subsidies, and bailouts when a bubble bursts.

This is why short-term blips in the stock market are not necessarily a good indicator of the economy’s long-run health.

Another point worth making is that failure is (or should be) part of the market process. One of my favorite lines, which I should have used in the interview, is that “capitalism without bankruptcy is like religion without hell.”

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This is getting surreal. We now have layers of bailouts around the world.

Different nations are doing their own bailouts. On top of that, the Europeans have set up something called the European Financial Stability Facility, which does bailouts across the continent. And then there’s the International Monetary Fund, doing bailouts on a global basis. (and we’re not even counting the indirect bailouts from the Federal Reserve and European Central Bank)

So how is this system working? Well, if you understand the principle of moral hazard, you won’t be surprised to learn that it’s a big flop. Giving bailouts is like trying to cure an alcoholic with more booze.

But the problems are much deeper than promoting bad behavior. Bailouts also undermine growth by misallocating capital. And, most ominously, they create even bigger problems down the road.

Which is now what’s happening. The queen bureaucracy of bailouts, the IMF, may run out of bailout money, and presumably will demand more handouts from member nations – with the United States on the hook for providing the biggest share. Here’s a blurb from the story in the Daily Telegraph.

The head of the IMF has warned that its $384bn (£248bn) war chest designed as an emergency bail-out fund is inadequate to deliver the scale of the support required by troubled states.In a document distributed to the IMF steering committee at the weekend, Ms Lagarde said: “The fund’s credibility, and hence effectiveness, rests on its perceived capacity to cope with worst-casescenarios. Our lending capacity of almost $400bn looks comfortable today, but pales in comparison with the potential financing needs of vulnerable countries and crisis bystanders.”

At the risk of stating the obvious, the IMF should not get any more money. This is one of those moments for which the phrase “Hell No!” was invented.

The time has come to stop the cycle of bailouts. As Greece has demonstrated, bailouts simply give politicians some breathing room to postpone necessary reforms.

But it’s not just that bailouts encourage bad behavior in the public sector. They also promote moral hazard, leading financial institutions to make excessively risky loans because of an expectation that taxpayers will be coerced into making up any losses.

To understand why bailouts and moral hazard are so misguided, here’s a video narrated by Nicole Neily of the Independent Women’s Forum.

The video largely focuses on American policy issues such as Fannie, Freddie, and TARP, but the principles apply to all bailouts.

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In a recent post, I explained some of the reasons why Greece should not get another bailout. I cover some of the same points in this Bloomberg interview, but my favorite part is when I state that it’s time for the Greek people to realize “they can’t loot and mooch their way through life.”

I also pontificate about the appointment of another pro-welfare state French politician to head the IMF. Not surprisingly, I’m not sanguine about the prospects.

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The notion that American taxpayers are about to subsidize another Greek bailout (via the Keystone Cops at the IMF) is way beyond economically foolish. It is also morally offensive.

To turn Winston Churchill’s famous quote upside down: “Never have so many paid so much to subsidize such an undeserving few.”

Let’s start with a few facts:

    o Greece’s GDP is roughly equal to the GDP of Maryland.

    o Greece’s population is roughly equal to the population of Ohio.

    o Despite that small size, in both terms of population and economic output, Greece already has received a bailout of about $150 billion (actual amount fluctuates with the exchange rate).

    o Don’t forget the indirect bailout resulting from purchases of Greek government bonds by the European Central Bank.

    o Now Greece is angling for another bailout of about $150 billion.

Is there any possible justification for throwing good money after bad with another bailout. Well, if you’re a politician from Germany or France and your big banks (i.e., some of your major campaign contributors) foolishly bought lots of government bonds from Greece, the answer might be yes. After all, screwing taxpayers to benefit insiders is a longstanding tradition in Europe.

But from a taxpayer perspective, either in Europe or the United States, the answer is no. Or, to be more technical and scientific, the answer is “Hell no, are you friggin’ out of your mind?!?”

Consider these fun facts from a recent column by John Lott and then decide whether the corrupt politicians of Greece (and the special interest groups that receive handouts and subsidies from the Greek government) deserve to have their hands in the pockets of American taxpayers.

Despite Greece’s promises, government spending is up over last year’s already bloated levels, the deficit is bigger than ever, and it has utterly failed to meet the promised sell-off of some government assets. Not a single public bureaucrat has been laid off so far. …Greece can pay off €300 of the €347 billion debt by selling off shares the government owns in publicly traded companies and much of its real estate holdings. The government owns stock in casinos, hotels, resorts, railways, docks, as well as utilities providing electricity and water. But Greek unions fiercely oppose even partial privatizations. Rolling blackouts are promised this week to dissuade the government from selling of even 17 percent of its stake in the Public Power Corporation. …Greeks apparently believe that they have Europe and the world over a barrel, that they can make the rest of the world pay their bills by threatening to default. Greece’s default would be painful for everyone, but for Europe and the United States, indeed for the world, the alternative would be even worse. If politicians in Ireland, Portugal, Spain, Italy, and other countries think that their bills will be picked up by taxpayers in other countries, they won’t control their spending and they won’t sell off assets to pay off these debts. Countries such as Greece have to be convinced that they will bear a real cost if they don’t fix their financial houses while they still have the assets to cover their debts. …The real problem is the incentives we are giving to other countries. We have to make sure that “Kicking the can down the road” isn’t an option.

Just for good measure, here are a few more interesting factoids in a Wall Street Journal column by Holman Jenkins.

[Greece is] one of the most corrupt, crony-ridden, patronage-ridden, inefficient, silly economies in Christendom. …The state railroad maintains a payroll four times larger than its ticket sales. When a military officer dies, his pension continues for his unwed daughter as long as she remains unwed. Various workers are allowed to retire with a full state pension at age 45.

To be blunt, Greek politicians have miserably failed. Wait, that’s not right. You can’t say someone has failed when they haven’t even tried. Let’s be more accurate and say that Greek politicians have succeeded. They have scammed money from taxpayers in other nations to prop up a venal and corrupt system of patronage and spoils. Sure, they’ve made a few cosmetic changes and trimmed around the edges, but handouts from abroad have enabled them to perpetuate a bloated state. And now they’re using a perverse form of blackmail (aided and abetted by big banks) to seek even more money.

    Let’s now re-ask the earlier question: Should American taxpayer finance the corrupt big-government policies of Greece?

    Or perhaps we should think like economists, so let’s rephrase the question: Should we misallocate capital so that funds are diverted from private investment to corrupt Greek politicians?

    Or maybe we should think like parents who have to worry about spoiling a child and the signal that sends to the other kids, so let’s ask the question this way: Should we encourage bad behavior in Spain, Italy, Portugal, etc, by giving another bailout to Greece’s corrupt politicians?

    Or should we think about this issue from the perspective of addiction counselors and rephrase the question: Should we reward self-destructive behavior by providing more money to corrupt political elites in Greece?

    Or how about we think like moral human beings, and ask the real question: Should we take money from people who earned it and give it to people who think they are entitled to live at the expense of others?

Since we paraphrased Churchill earlier, let’s answer these questions by butchering Shakespeare: “A bailout from every angle would smell to high Heaven.”

I wrote back in February of 2010 that a Greek bailout would be a mistake and every development since that time has confirmed that initial commentary.

But that doesn’t matter. Politicians have a different way of looking at things. They look at a policy and wonder whether it increases their power and generates campaign contributions. And when you understand their motives, you begin to realize why they will answer yes to the previous set of questions.

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As a general rule, the bureaucrats at the International Monetary Fund are not awful people or fire-breathing leftists. But they are voices for the establishment. And, at the upper levels, IMF staff seem overly solicitous of the views of the big nations, which means that they are indirectly attentive to interest groups (such as big banks) that have political power in those big nations.

This helps explain why the IMF is so intent on providing bailouts to Greece when it would be far better in the long run to cut the country loose and force the Greek people to realize that there is not a never-ending supply of subsidies to support statism.

But it’s not just in Greece where the IMF peddles bad policy. I wrote back in 2009 about the IMF’s efforts to repeal the flat tax in Latvia. And I’ve posted about the IMF’s support for anti-tax competition schemes that would enable bigger government.

I guess we need to give the bureaucrats credit for being consistent. The IMF is now pushing Albania to increase its flat tax rate. Here’s an excerpt from the Albanianeconomy.com website.

“The flat tax can be raised to 12-15 per cent, [from the current 10 per cent] as a way to cut the deficit and the stock of public debt,” IMF representative Gerwin Bell said on Thursday in a joint press conference with Albania’s Minister of Finance Ridvan Bode and the Governor of Albania’s Central Bank, Ardian Fullani.

To reiterate my earlier point, however, the IMF produces muddled advice, not bad advice. The bureaucrats also are recommending some budgetary restraint for Albania. The problem, of course, is that politicians often accept the suggestions for higher taxes and never bother with fiscal restraint. Indeed, IMF bailout funds for places such as Greece are substitutes for fiscal restraint.

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Many European nations face a sovereign debt crisis because of excessive spending caused by too much redistribution. The obvious – and only – solution to this crisis is to reverse the policies that caused the problem.

So take a wild guess about what the International Monetary Fund recommended: Did the international bureaucracy recommend that nations such as Greece and Portugal impose serious fiscal discipline, such as the spending freezes that worked so successfully in New Zealand and Canada in the 1990s?

Of course not. That would make sense. Instead, the IMF is urging more centralization and redistribution in order to facilitate “economic governance” and “fiscal transfers.”

I’m not a fan on international bureaucracies, and I wasn’t expecting good advice, but even I’m stunned. Here are some excerpts from a story in the EU Observer.

The International Monetary Fund has bluntly warned the European Union…it must integrate faster and more deeply in order to stop a global disaster. …Saying Europe is at a “crossroads”, the IMF’s acting director, John Lipsky, in Luxembourg for a meeting with EU finance ministers, declared: “The euro area needs to strengthen economic governance and may need to be more intrusive in terms of national structures.” …the IMF said that still “more economic and financial integration” and EU intervention in national economies is necessary. …Specifically, the report mentioned that “without political union” and fiscal transfers, “stronger governance of the euro area is indispensable.”

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Way back in February of 2010, I wrote that a Greek bailout would be a failure. Not surprisingly, the parasites at the International Monetary Fund and the political elite from other European nations ignored my advice and gave tens of billions of dollars to Greece’s corrupt politicians.

The bailout happened in part because politicians and international bureaucrats (when they’re not busy molesting hotel maids) have a compulsion to squander other people’s money. But it also should be noted that the Greek bailout was a way of indirectly bailing out the big European banks that recklessly lent money to a profligate government (as explained here).

At the risk of sounding smug, let’s look at my four predictions from February 2010 and see how I did.

    1. The first prediction was that “Bailing out Greece will reward over-spending politicians and make future fiscal crises more likely.” That certainly seems to be the case since Europe is in even worse shape, so I’ll give myself a gold star.

    2. The second prediction was that “Bailing out Greece will reward greedy and short-sighted interest groups, particularly overpaid government workers.” Given the refusal of Greek politicians to follow through with promised cuts and privatizations, largely because of domestic resistance, it seems I was right again. As such, I’ll give myself another pat on the back.

    3. My third prediction was that “Bailing out Greece will encourage profligacy in Spain, Italy, and other nations.” Again, events certainly seem to confirm what I warned about last year, so let’s put this one in the win column as well.

    4. Last but not least, my fourth prediction was that “Bailing out Greece is not necessary to save the euro.” Well, since everybody is now talking about two possible non-bailout options – either a Greek default (a “restructuring” in PC terms) or a Greek return to using the drachma – and acknowledging that neither is a threat to the euro, it seems I batted 4-4 in my predictions.

But there’s no reward for being right. Especially when making such obvious predictions about the failure of big-government policies. So now we’re back where we were early last year, with Greece looking for another pile of money. Here’s a brief blurb from Reuters.

The European Union is racing to draft a second bailout package for Greece to release vital loans next month and avert the risk of the euro zone country defaulting, EU officials said on Monday.

If this second bailout happens (and it probably will), then I will make four new predictions. But I don’t need to spell them out because they’ll be the same ones I made last year.

We’ve reached the lather-rinse-repeat stage of fiscal collapse for the welfare state.

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I’ve remarked before about how I get especially upset when well-to-do people figure out ways of ripping off taxpayers. Redistribution from rich to poor is not a good idea, but it is far more offensive when the coercive power of government is used to transfer money from ordinary people to the elite.

A good (perhaps “reprehensible” would be a better word to use) example if the scam created by international bureaucracies. The folks who work for entities such as the International Monetary Fund, World Bank, United Nations, and Organization for Economic Cooperation get wildly excessive compensation packages. To add insult to injury, their income is tax free!

Here are some excerpts from a Richard Pollack column at Pajamas Media.

At the World Bank, Inter-American Development Bank, the African Development Bank, and at the IMF, you find extravagantly paid men and women who masquerade as anti-poverty fighters for the Third World. As one World Bank vice president said upon his resignation: “Poverty reduction is the last thing on most World Bank bureaucrats’ minds.” These global institutions are supposed to act as non-profits, but big salaries and big perks rule as the norm. And you’re paying for them: as the largest single contributor, American taxpayers pick up the tab. By now everyone knows about DSK’s extravagant $420,000 employment agreement that included an additional $73,000 for living expenses — a provision explained thusly by the IMF: “To enable you to maintain … a scale of living appropriate to your position.” …A PJM survey found that a common annual compensation package for senior management at the anti-poverty banks exceeds $500,000 — tax-free. World Bank President Robert Zoellick currently receives $441,980 in base salary and $284,500 in other benefits. Strauss-Kahn’s deputy, John Lipsky, receives $384,000 in base salary plus “living allowances.” …Ten of Zoellick’s deputies receive tax-free base pay of $321,00 to $347,000, plus enjoy an additional $210,000 in benefits. Even mid-level World Bank employees earn well into six digits: the average salary for a professional manager is $181,000, plus $97,000 in benefits. A senior adviser receives on average $238,000 plus $127,000 in benefits. A vice president receives $286,000 plus $153,000 in benefits. The biggest hidden benefits are the off-the-book perks called “living allowances.” These perks can nearly double a stated salary. Of the 2,600 IMF and 10,000 World Bank full-time employees, all receive some form of supplemental living allowances in addition to their base pay. These include home leave grants, dependent allowances, travel perks, and education “grants” for their children to attend private schools. In addition, they offer generous pensions and health insurance policies. According to a U.S. General Accounting Office study, the average cost for these additional perks added $197,300 per employee cost beyond their base pay in 1994 dollars.

The column doesn’t mention my “favorite” international bureaucracy, which is the Paris-based Organization for Economic Cooperation and Development. The OECD’s budget is small compared to some of the other parasitic bodies mentioned in the column, but this video explains how big-government policies are being financed with the $100 million-plus of American tax dollars sent to France to subsidize the OECD.

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Veronique de Rugy of the Mercatus Center has a very good – but somewhat depressing – analysis of the fiscal crisis in Greece. She basically concludes that bailouts will continue because nobody in Europe is willing to do the right thing.

This got me thinking about what I expect to happen. Here are the options, along with my (admittedly wild) guesses about their likely implementation. They add up to more than 100 percent because I think the Greek government (aided and abetted by their German and French enablers) will adopt more than one of these options.

Indeed, the only option that is completely unrealistic is doing the right thing and reducing Greece’s bloated public sector.

My CYA disclaimer is that these are the probabilities for the next two years.

    New Bailouts – 40 percent chance of additional funds from European taxpayers (via the European Union) and/or from world taxpayers (via the IMF).

    Default to Private Bondholders – 25 percent chance
    of default (a.k.a., restructuring) of at least some portion of the money owed to private investors. This number would be higher if it wasn’t for the next options.

    Restructuring of Prior Bailouts – 50 percent chance of an indirect bailout by restructuring existing loans from the European Commission and/or IMF.

    Indirect Bailout from the ECB – 80 percent chance of additional purchases of Greek government bonds by the European Central Bank.

    More Tax Increases – 65 percent chance of additional significant tax hikes. I’m tempted to make this 100 percent, but I think even the Europeans realize that Greece is probably on the wrong side of the Laffer Curve. As such, more tax increases would reduce revenues for the government.

    Leave the euro – 10 percent chance that the government will abandon the common European currency. It may seem like I’m not giving enough consideration to this option, particularly since going back to the drachma would give the government the ability to screw bondholders with inflation. Veronique’s article explains why this might not be an attractive option, but I’ll add one further point. The European elite passionately favor centralization and the common currency is a symbol of centralization. As such, they will provide endless amounts of bailout money before allowing something that would be interpreted as a violation against their secular religion of “ever closer union.”

    Real Spending Cuts – .0001 percent chance of meaningful reductions in the burden of government spending. Why do the right thing when you can get taxpayers from Germany, Netherlands, and other nations to subsidize your corrupt fiscal regime?!?

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I certainly take second place to nobody in my utter contempt for Dominique Strauss-Kahn, the head of the International Monetary Fund. Who knew that forcing yourself (allegedly) on women could earn you a reputation as “the Great Seducer”? I guess my failure to understand means I’m just a backwards and provincial American.

I’m also a bit old-fashioned in my approach to economics. I don’t think people should use the coercive power of government take what they haven’t earned. That’s why I hold international bureaucracies in low esteem. Most of my efforts have focused on the OECD, a Paris-based (gee, what a surprise) bureaucracy that squanders American tax dollars on statist schemes such as their ongoing anti-tax competition campaign that persecutes countries with low tax rates.

But I’m also a big believer in kicking an enemy while he’s vulnerable, so let’s shift to the International Monetary Fund. Here are some passages from a new column by my Cato colleague Doug Bandow. He points out that the IMF has a horrible track record of promoting and facilitating big government.

…the rape charges against him symbolize the IMF: an institution of privilege that routinely acts to the disadvantage of the vulnerable. The IMF’s founding purpose vanished when the system of fixed exchange rates collapsed in the early 1970s. But instead of closing up shop (no jobs for international bureaucrats in that!), the IMF switched to promoting development. That is, it became a welfare program for Third World governments (and, more recently, for Eastern Europe and even Greece). The IMF spent decades subsidizing the world’s economic basket cases. Few, if any, advanced because of its programs. …the agency often got “wise” wrong. It often focused on narrow accounting data, with perverse consequences — such as forcing governments to raise taxes rather than cut spending. …Years ago, economist John Williamson pointed to the problem of the IMF feeling pressure “to lend money in order to justify having it.” Indeed, the IMF seems to measure success by making loans. As a result, its cash often acted as a general subsidy for collectivist economic policies. (Williamson once defended the organization against the criticism that it was too market-oriented by pointing to its loans to several unreconstructed communist states.) Indeed, the agency proudly disclaimed any bias against collectivist systems, pointing to “programs in all types of economies” which had “accommodated such nonmarket devices as production controls, administered prices and subsidies.” It sometimes seems to favor the most perverse policies. For instance, in the IMF’s first 40 years, India collected more money from it than any other developing state — at a time when India was pursuing a Soviet-style industrialization program.

Ironically, some people are arguing that it is unfortunate that Strauss-Kahn is in jail at such a critical time, with several European welfare states teetering on the edge of default.

But this is actually very good news. If there is any chance of saving Europe, it will be precisely because bailouts stop and nations are forced to finally fix the awful big-government policies that have crippled growth and bloated budgets, thus leading to fiscal crises. Doug makes this essential point in the conclusion to his column, and also makes the key argument that it’s time to stop the handouts to this corrupt and wasteful bureaucracy.

The IMF’s loans have often likely postponed reform — allowing governments to keep going without making the tough changes that lead to long-term growth. That appears to be happening in Greece now — where the Fund has pushed more lending and a bigger bail-out (to the consternation of Germany, which is picking up much of the bill). Strauss-Kahn may finally have done a true public service by focusing attention on the IMF. With America drowning in red ink, Washington should stop throwing good money at this pernicious institution.

P.S. For those who want to hoist Europeans on their own petard, Tessa Berenson has a great little column at the Frum Forum pointing out how many of the political elite on the other side of the Atlantic thought it was horrible and inexcusable when an American head of the World Bank arranged for a pay raise for his girlfriend. The Europeans were right at the time, but they now turn a blind eye at a far more odious episode today.

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On rare occasions, I dream about being a politician or high-level international bureaucrat. Not because I want to be a moocher (please put me out of my misery if that ever happens), but because I periodically read about some sleazy interest group making petulant demands for handouts and I think about how much fun it would be to tell them to go jump in a lake.

In some cases, the sleazy interest group is an entire nation. Greece recently took a bailout from both the European Union (i.e., European taxpayers) and the International Monetary Fund (i.e., all taxpayers). In exchange for getting a handout, Greek politicians agreed to implement a bunch of deficit-reduction policies.

But like many welfare recipients, the country of Greece has an entitlement mentality and is now whining and complaining about having to live up to its side of the bargain.

All I can think about is how rewarding and satisfying it would be to say, “okay, a__h___s, have it your way, we’re revoking your bailout. Have fun becoming Argentina on your way to becoming Zimbabwe, you bloodsucking leeches.”

Actually, if I had that power, Greece never would have received a bailout in the first place, but I think you know what I mean.

Here are some excerpts from the Reuters report about Greece’s chutzpah.

Greece accused the EU and IMF of interfering in its domestic affairs on Saturday after the international lenders said Athens must speed up reforms and sell more public assets. On Friday, EU and IMF inspectors visiting Greece to monitor the implementation of a bailout plan that saved Greece from bankruptcy, approved more aid for the country but adopted a more critical tone than on previous visits. In rare harsh words, the Greek government said the inspectors’ approach was unacceptable, after coming under fire from local media for not reacting to criticism of the pace of reforms and the call for privatizations. …Earlier in the day, government spokesman George Petalotis said: “We asked nobody to interfere in domestic affairs … We only take orders from the Greek people.”

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The International Monetary Fund is a great place to work – at least for those who don’t feel guilty about getting extravagant salaries from taxpayers. And what do IMF bureaucrats do for the money we pay them (American taxpayers finance the biggest share of the bureaucracy’s expenses)?

Many of them jet around the world in business class, stay at first-class hotels, and tell nations to raise taxes and devalue their currencies. And to add insult to injury, they specialize in misallocating global saving and investment by bailing out irresponsible nations.

This is not to say the bureaucrats are always wrong. While the IMF often is bad on taxes and monetary policy, the bureaucrats sometimes give good advice on trade, regulation, and government spending.

But even when they give good advice, that doesn’t justify their big salaries (which are tax-free, by the way). The real question, though, is whether the IMF should even exist – especially when the bureaucracy more often than not is on the wrong side of key public policy issues.

Unfortunately, instead of being cut back or phased out, the IMF is getting even bigger. While the rest of us are having to tighten our belts, the bureaucrats at the IMF are having fun spending our money. The gold-plated international bureaucracy now wants to spend big bucks to upgrade it already lavish headquarters in Washington. Here’s a blurb from the UK-based Guardian.

…the International Monetary Fund’s bureaucrats plan to concentrate on a matter closer to home in the new year – sprucing up their offices in downtown Washington DC. Dominique Strauss-Kahn, the fund’s managing director, quietly announced last week that he would be asking permission from the organisation’s cash-strapped member states to refurbish its main headquarters building. …Pressure groups greeted the news with scepticism, pointing out that eight years ago the fund spent $150m on a second building, complete with external waterfall, after saying its original site – known as HQ1 – was no longer big enough for its staff of highly-paid international officials.They said the fund was now flush with cash after selling some of its stock of gold and extracting fees and interest payments from troubled countries such as Ireland and Greece. …Peter Chowla, programme manager at the Bretton Woods Project, a think tank that monitors the activities of the IMF and the World Bank, said: “After a nice financial crisis, the IMF’s balance sheet is looking very health – lots of interest to pour in from Greece and Ireland and commitment fees on money never even lent to Colombia, Mexico and Poland. So the fund is thinking about spending some of the proceeds on remodelling its headquarters.”

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