Archive for April, 2010

Every experience I’ve had with speed cameras has been negative. That’s hardly a surprise, but the other common experience is that they always are set up in places where the speed limit is absurdly low (a 45-mph limit on a stretch of interstate highway in DC is a good example). As one might suspect, there is considerable evidence that greedy and corrupt governments use cameras as a revenue generator. But cameras are not a necessary component of speed traps. Here’s a story from Michigan about how local governments are ignoring state requirements to set reasonable speed limits solely because the bureaucrats want to rip off motorists:

Metro Detroit motorists who exceed posted speed limits may not be breaking the law, because in many cases the limits themselves are unlawful, according to one of the state’s top traffic cops. Four years after the passage of Public Act 85, which requires municipalities in Michigan to conduct studies to set proper speed limits, most cities, villages and townships have not complied, according to Lt. Gary Megge, head of the Michigan State Police Traffic Services Section. One likely reason, said Megge, whose section advises communities on how to set proper speed limits, is that communities want speeding ticket revenue, and failing to conduct the required speed studies allows them to keep enforcing their speed limits that Megge calls “artificially low.” …Ferndale Police Chief Michael Kitchen admitted revenue was the reason behind his recent decision to step up traffic enforcement. “We have to write more tickets in order to avoid layoffs,” Kitchen said. …Kitchen admitted that the 35-mph speed limit on the most heavily-driven roadway in Ferndale — Woodward Avenue near Nine Mile — is likely too low. “That speed limit would probably be 45 mph if they ever did a speed study,” said Kitchen, adding that Woodward falls under MDOT’s jurisdiction.

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A former Governor of Delaware, Pete DuPont, explains that a value-added tax means bigger government and slower growth. This issue is very important since Obama clearly is trying to set the stage for imposing this European-style national sales tax in the United States:

The VAT has been in use in the European countries since the late 1960s, and has had a strong, negative economic influence. Before the European VATs were put into effect, the average EU tax burden was 28% of gross domestic product, compared with the 25% in the U.S. By 2006 with the VATs EU average tax burden was 40% compared with 28% in America. Average European government spending was about 30% of GDP when the VATs were instituted in the late 1960s. Fast forward to today, and we see European government spending has grown more than 50% and now hits 47% of GDP. And European government debt in 2005 was 50% of GDP, compared with under 40% in America. Perhaps most important, bigger government spending and higher taxes have radically reduced job growth in Europe. Between 1982 and 2007, Europe created fewer than 10 million new jobs, vs. 45 million in the U.S. Our economic growth was more then one-third faster. The European Union now requires all member nations to have a minimum VAT of 15%–more or less the equivalent of Congress telling each of our 50 states how high their taxes must be. So has the VAT replaced some of the income tax in Europe? Absolutely not, nor has it reduced the income tax rates. The average VAT rate there is just under 20%, and the EU’s top income tax rates average about 46%. …What the VAT really does, as we have seen in Europe, is to do away with government spending controls. So if enacted by the Congress, higher taxes, bigger government, lower economic growth and fewer jobs will be the result, and all of us will soon be living in a new and much less successful America.

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I spoke today before the 2010 Global Financial Services Centres Conference. Equally important, I got to meet with some of the nation’s top economic minds.

First, the good news: Ireland has no intention of giving up its low 12.5 percent corporate tax rates.

The bad news is that Ireland is drifting in the wrong direction. Bailouts, higher spending, more red tape, and social engineering are gradually eroding the benefits generated by a better tax system. Both government and private debt are too high.

Ireland probably still belongs in the world’s top 10, as determined by Economic Freedom of the World and the Index of Economic Freedom, but that is more a reflection of how few nations enjoy genuine economic liberty.

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I’m not even sure what to say about this story. Politicians apparently think that they have the right to impose their personal preferences on other people, regardless of whether the issue is big or small. How else to explain the thuggish proposal of a headline-seeking sleazy pol who wants to ban Happy Meals at McDonalds?

Convinced that Happy Meals and other food promotions aimed at children could make kids fat as well as happy, county officials in Silicon Valley are poised to outlaw the little toys that often come with high-calorie offerings. The proposed ban is the latest in a growing string of efforts to change the types of foods aimed at youngsters and the way they are cooked and sold. Across the nation, cities, states and school boards have taken aim at excessive sugar, salt and certain types of fats. Believed to be the first of its kind in the nation, the proposal would forbid the inclusion of a toy in any restaurant meal that has more than 485 calories, more than 600 mg of salt or high amounts of sugar or fat. In the case of McDonald’s, the limits would include all of the chain’s Happy Meals — even those that include apple sticks instead of French fries. …The California Restaurant Assn. has taken out full-page newspaper advertisements against the proposed ordinance in local newspapers. One shows a little girl with her hands cuffed behind her back as she holds a stuffed animal. Another opponent wrote in a YouTube posting, “I want to know when the pitchforks and torches and rope is going to come out…. We need to run these Frankenstein politician monsters the hell out of town!”

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In fairness, we were getting the same medicine during the Bush years. My only other thought it that Dr. Obama is soon going to prescribe suppositories for taxpayers.

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I was going to have a policy-oriented post about the value-added tax or something like that, but I have to complain about government incompetence as it is affecting my life right now.

I’m en route to Ireland for a speech. I started my day in Florida and took a connecting flight to Chicago (where I am right now). The Palm Beach Airport experience was reasonably pleasant, featuring free Internet (yes, I’m willing to utilize services financed by Florida taxpayers).

Chicago is a different story. One of the worst things about being at an airport is going through security, so it is a sign of a terrible airport when you land for a connecting flight and can’t get to your new gate without exiting the secure area and having to go through security again.

If that was the extent of my hassle, I wouldn’t grouse too much, but the geniuses who designed the international terminal at O’Hare didn’t put any restaurants inside security. So after going through security and finding no place to eat, I had to exit to the terminal again.

I’m a cheap bastard, but I paid $6.49 so I could get online and vent my spleen while munching on sub par airport food.

As long as I’m bitching about airport incompetence, I may as well take a shot at Dulles Airport in Washington. I’m vaguely sympathetic to administrators who are running airports that were designed before 9/11 and all the added security hassle. But Dulles recently completed a very expensive renovation, and the system for funneling people into security is even worse than the previous system. I would describe it if I could, but that’s impossible. Suffice to say that people wind up layered next to each other in long lines for each X-ray belt.

In the private sector, people who make bone-headed mistakes suffer consequences. In the government, they get excessive salaries and lavish pensions.

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The politicians are urging big taxes on banks, using rhetoric designed to trick people into thinking that this is a way to make the banks pay for their own bailouts. But a general tax on all banks simply means that well-run banks subsidize the reckless banks – a problem that may get worse over time because of the moral hazard problems that seem to get worse every time politicians get more power over the industry. Greg Mankiw of Harvard has a more appealing idea, which would require automatic conversion of bonds to equity when a bank gets in trouble. This means, for all intents and purposes, that a bank would only be in a position of bailing itself out, so there is no risky cross-subsidization. And since bondholders presumably would not want to be converted into shareholders, there would be greater incentive to monitor whether the bank is being operated in a prudent manner. I’m not an expert on the specifics of the banking system, so I won’t pretend to know enough to give this my unqualified blessing, but I know it is a far better approach than the blank-check bailout/intervention authority in the legislation on Capitol Hill:

There has been much talk about restricting the use of financial derivatives. Unfortunately, writing good rules is not easy. Derivatives, like fire, can lead to disaster if not handled with care, but they can also be used to good effect. Whatever we do, let’s not be overoptimistic about how successful improved oversight will be. The financial system is diverse and vastly complicated. Government regulators will always be outnumbered and underpaid compared with those whose interest it is to circumvent the regulations. Legislators will often be distracted by other priorities. To believe that the government will ever become a reliable watchdog would be a tragic mistake. …Much focus in Washington has been on expanding the government’s authority to step in when a financial institution is near bankruptcy, and to fix the problem before the institution creates a systemic risk. That makes some sense, but creates risks of its own. If federal authorities are responsible for troubled institutions, creditors may view those institutions as safer than they really are. When problems arise, regulators may find it hard to avoid using taxpayer money. The entire financial system might well become, in essence, a group of government-sponsored enterprises. …My favorite proposal is to require banks, and perhaps a broad class of financial institutions, to sell contingent debt that can be converted to equity when a regulator deems that these institutions have insufficient capital. This debt would be a form of preplanned recapitalization in the event of a financial crisis, and the infusion of capital would be with private, rather than taxpayer, funds. Think of it as crisis insurance. Bankers may balk at this proposal, because it would raise the cost of doing business. The buyers of these bonds would need to be compensated for providing this insurance. But this contingent debt would also give bankers an incentive to limit risk by, say, reducing leverage. The safer these financial institutions are, the less likely the contingency would be triggered and the less they would need to pay for this debt.

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