Archive for March 9th, 2010

Dan Henninger authored a fascinating column in the Wall Street Journal a few days ago comparing people who became rich honestly to those who used government favoritism. He warns that Obama’s policies will encourage the latter version – meaning that smart entrepreneurs will seek wealth by gaming the political system. At best, this is a zero-sum game for the overall economy, and it is quite likely that it will reduce prosperity since labor and capital will be allocated based on political power rather than market forces. But there are two other reasons to reject Obama’s industrial policy. First, political control is necessarily unjust and corrupt since political insiders will have an advantage. This is something that also should upset honest left wingers. As my Cato colleague Will Wilkinson sagely noted, “…the more power the government has to pick winners and losers, the more power rich people will have relative to poor people.” Second, this system undermines support for genuine free markets because the average person begins to associate wealth with corrupt government handouts. This insight (sent to me by an American who fled Greece many years ago) helps explain why average people sometimes support punitive tax rates in hopes of clawing back some of the unearned wealth in the hands of insiders. The downside of that approach, of course, is that the honest and productive entrepreneur also suffers from those policies, thus undermining the economy’s ability to generate earned wealth:

…a small classic by Hillsdale College historian Burton W. Folsom called “The Myth of the Robber Barons: A New Look at the Rise of Big Business in America” (Young America’s Foundation). Prof. Folsom’s core insight is to divide the men of that age into market entrepreneurs and political entrepreneurs. Market entrepreneurs like Rockefeller, Vanderbilt and Hill built businesses on product and price. Hill was the railroad magnate who finished his transcontinental line without a public land grant. Rockefeller took on and beat the world’s dominant oil power at the time, Russia. Rockefeller innovated his way to energy primacy for the U.S. Political entrepreneurs, by contrast, made money back then by gaming the political system. Steamship builder Robert Fulton acquired a 30-year monopoly on Hudson River steamship traffic from, no surprise, the New York legislature. Cornelius Vanderbilt, with the slogan “New Jersey must be free,” broke Fulton’s government-granted monopoly. If the Obama model takes hold, we will enter the Golden Age of the Political Entrepreneur. The green jobs industry that sits at the center of the Obama master plan for the American future depends on public subsidies for wind and solar technologies plus taxes on carbon to suppress it as a competitor. Politically connected entrepreneurs will spend their energies running a mad labyrinth of bureaucracies, congressional committees and Beltway door openers. Our best market entrepreneurs, instead of exhausting themselves on their new ideas, will run to ground gaming Barack Obama’s ideas. …Political entrepreneurs create fewer jobs than do market entrepreneurs. We need new mass markets, really big markets of the sort Ford, Rockefeller and Carnegie created. Great employment markets are discoverable only by people who create opportunities or see them in the cracks of what already exists—a Federal Express or Wal-Mart.

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When politicians talk about the human cost of global warming, we now know what they mean. According to the Daily Mail, an Argentinian couple killed themselves, one of their kids, and wounded another supposedly because of fears of climate change. Notwithstanding the title of this post, I don’t think Al Gore should be held responsible for the lunatic actions of this couple, but I can’t help but wonder whether this would have received more attention if a depressed taxpayer did the same thing and blamed Obama’s proposed tax hikes. My guess is that there would be front page stories about the irresponsible rhetoric of pro-taxpayer organizations:

A seven-month-old baby girl survived three days alone with a bullet in her chest beside the bodies of her parents and toddler brother. Argentines Francisco Lotero, 56, and Miriam Coletti, 23, shot their children before killing themselves after making an apparent suicide pact over fears about global warming. Their son Francisco, two, died instantly after being hit in the back.

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According to Financial Times report the politicians in Paris and Berlin want to set up some sort of European Monetary Fund to help bail out Greece and other profligate European nations. This is good news in the short run for American taxpayers since it is less likely that American taxpayers will be financing bailouts through the International Monetary Fund. But this is not good news for America in the long run. Bailouts will encourage bad policy in Europe, regardless of whether they are financed with European tax dollars or American tax dollars. This means more economic instability in the future. At worst, this means big future bailouts financed by the United States. But even in a best-case scenario, Europe will be poorer, and that means less trade:

Germany and France are planning to launch a sweeping new initiative to reinforce economic co-operation and surveillance within the eurozone, including the establishment of a European Monetary Fund, according to senior government officials. Their intention is to set up the rules and tools to prevent any recurrence of instability in the eurozone stemming from the indebtedness of a single member state, such as Greece. …If France and Germany can agree on such proposals – long urged by Paris – they are likely to set the basis for the most radical overhaul of the rules underpinning the euro since the currency was launched in 1999. …Both France and Germany agree Greece should not turn to the IMF for support, so the idea of an EMF has clear attractions for Paris, though it could hardly be set up in time to help Greece. Mr Schäuble said: “We are not planning a competitor . . . to the IMF, but we do need an institution for the internal equilibrium of the eurozone that would have at its disposal both the experience of the IMF, and comparable intervention mechanisms.” According to German thinking, the plan could include tough penalties for eurozone members that fail to curb deficit spending or run up excessive government debt. Ideas include cutting off countries that fail to curb deficit spending from EU cohesion funds, temporarily removing their right to vote in EU ministerial meetings and suspension from the eurozone.

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