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Archive for September, 2012

This past Monday, I took part in a panel discussion about the financial crisis at the European Resource Bank in Brussels.

One of my main points was that people in private markets always make mistakes, but that this is a healthy and necessary process so long as there is a profit and loss feedback mechanism that encourages people to quickly learn when things go wrong (and also to reward them when they make wise decisions).

In the financial crisis, though, we saw the government interfere with this process. First, bad policies such as easy money from the Fed and corrupt Fannie Mae/Freddie Mac subsidies distorted market signals and caused a needlessly high level of mistakes. Second, bailouts interfered with the feedback mechanism, teaching people that large levels of imprudent risk are okay.

The politicians, unsurprisingly, didn’t learn the right lessons. Instead of reducing the level of government intervention, they imposed the Dodd-Frank bailout bill (named after two lawmakers who were pimps for Fannie and Freddie and thus disproportionately responsible for the crisis).

I don’t know if this is a case of too-little-too-late, but more and more people are waking up to the idea that regulation is the problem rather than the solution. Perhaps most important, some of these people are in positions of power.

Let’s begin with a look at how the Wall Street Journal’s editorial page reacted to some very important research by some uncharacteristically astute regulators from the Bank of England.

…the speech of the year was delivered at the Federal Reserve’s annual policy conference in Jackson Hole, Wyoming on August 31. And not by Fed Chairman Ben Bernanke. …BoE Director of Financial Stability Andrew Haldane and colleague Vasileios Madouros point the way toward the real financial reform that Washington has never enacted. The authors marshal compelling evidence that as regulation has become more complex, it has also become less effective. They point out that much of the reason large banks are so difficult for regulators to comprehend is because regulators themselves have created complicated metrics that can’t provide accurate measurements of a bank’s health. …Basel II relied far too much on the judgments of government-anointed credit-rating agencies, plus a catastrophic bias in favor of mortgages as “safe.” Instead of learning from that mistake, the gnomes have written into the new Basel III rules a dangerous bias in favor of sovereign debt. The growing complexity of the rules leaves more room for banks to pursue regulatory arbitrage, identifying assets that can be classified as safe, at least for compliance purposes. …in both the U.K. and U.S. the number of regulators has for decades risen faster than the number of people employed in finance. Complexity grows still faster. The authors report that in the 12 months after the passage of Dodd-Frank, rule-making that represents a mere 10% of the expected total will impose more than 2.2 million hours of annual compliance work on private business. Recent history suggests that if anything this will make another crisis more likely. Here’s a better idea: Raise genuine capital standards at banks and slash regulatory budgets in Washington. Abandon the Basel rules on “risk-weighting” and other fantasies of regulatory omniscience.

The references to the Basel regulations are particularly noteworthy. These are the rules, cobbled together by regulators from different nations, and they’re supposed to steer financial institutions away from excessive risk.

You won’t be surprised to learn, though, that these rules caused imprudent behavior. Indeed, one of the slides from my presentation in Brussels specifically highlighted the perverse impact of the Basel regulations.

Some American regulators also understand the inverse relationship between regulation and well-functioning markets. The Wall Street Journal opines on the words of Thomas Hoenig.

The same “fundamentally flawed” system of financial rules that failed in 2008 lives on, “but with more complexity” in the latest proposals from regulators. That was the blunt message on Friday from Federal Deposit Insurance Corporation Director Thomas Hoenig. He was talking about the pending implementation of international bank capital standards known as Basel III. …Mr. Hoenig did a public service at an American Banker symposium by reviewing the relevant history from 2008: “It turns out that the Basel capital rules protected no one: not the banks, not the public, and certainly not the FDIC that bore the cost of the failures or the taxpayers who funded the bailouts. The complex Basel rules hurt, rather than helped the process of measurement and clarity of information.” Observing a Basel system that only grows more complicated as U.S. regulators prepare to implement the latest version, the former president of the Federal Reserve Bank of Kansas City also pointed out that the biggest winners from such regulatory regimes are never the little guys. Mr. Hoenig explained that “the most brazen and connected banks with the smartest experts will game the system…”

I closed my remarks in Brussels by saying that government does have a role in financial markets, but I said that it should focus on identifying and punishing fraud. The free market, by contrast, is the best way to promote safety and soundness.

More specifically, there is nothing quite like the possibility of failure and losses to encourage prudent behavior. As I stated in this interview, capitalism without bankruptcy is like religion without hell.

Hell, by contrast, occurs when government intervenes and sets up a system of private profits and socialized losses.

P.S. The financial crisis doesn’t create much opportunity for humor, but this cartoon is definitely worth a laugh.

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If you want a straightforward measure of Obama’s economic performance, look at the comparative business cycle data from the Minneapolis Fed.

If you want to hoist the White House on its own petard, show the Administration’s estimate of what was supposed to happen to unemployment if the so-called stimulus was enacted compared to the real-world results.

And if you want to be mean and snarky, share this image from the good folks at Reason (click to enlarge).

To be fair, I imagine one could dig up quotes even from the Reagan years that make people look foolish after the fact.

Which is why I prefer data rather than quotes. But since I also enjoy mocking politicians, I must admit that this is a great infographic.

For what it’s worth, I gave Obamanomics an F in this CNBC debate. But lest anyone accuse me of partisanship, I’ve repeatedly explained that Bush’s performance was equally dismal.

It doesn’t matter whether you have an R after your name or a D after your name. If you expand the burden of government spending, the economy isn’t going to prosper.

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When I first read this story about a woman getting arrested because her kids were playing outdoors, I figured it would be a perfect addition for my ongoing series that tries to determine whether the United States or the United Kingdom has the most incompetent, stupid, and/or venal government officials making the most brainless and/or thuggish decisions.

And when you read these excerpts from a newspaper in Houston, you’ll agree that venal and thuggish are very appropriate words.

A stay-at-home mom from La Porte has filed a lawsuit against the city’s police department, an unknown officer and one of her neighbors. Tammy Cooper said she was wrongly accused of endangering her children and was even forced to spend the night in jail, all because she let her kids play outside. …her children, ages 9 and 6, were riding their motorized scooters in the cul-de-sac where they live while she watched from a lawn chair in her front yard just a few feet away. ..a La Porte police car pulled up in front of her home. …He proceeded to tell me he had received a call from one of my neighbors that my kids were riding their scooters unsupervised. Cooper said she was handcuffed, put in the back of a police car and forced to spend the night in jail. …The charges against her were eventually dropped but she still describes the ordeal as humiliating and said her children were even questioned by police and terrified. …”I hope that what I went through doesn’t go unpunished – that there are consequences for a bad decision,” Cooper said.

But as I thought about the story, I got more and more angry. Heck, it’s the kind of story that should get everybody upset. So maybe it belongs in the this-should-turn-everyone-into-a-libertarian category. Sort of like these horrifying examples.

Though I have to admit that I have a hard time understanding why any ethical person wouldn’t be a libertarian anyhow.

But I’m digressing. Returning to our topic, I very much hope that Mrs. Cooper wins her lawsuit. It’s not against the law for kids to play outside. Even if she was inside watching a soap opera, that shouldn’t matter.

If cops have nothing better to do in La Porte, then perhaps it’s time to downsize the police department. And a good place to start is by firing the thug that arrested a woman for no reason.

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I posted this t-shirt about Bernanke’s easy-money approach a couple of days ago, but I should have waited ’til today since it would be a perfect accompaniment to any analysis of the Fed Chairman’s unveiling of QE3.

But given the potential economic consequences, I suppose this isn’t a time for jokes. Let’s look at some of what the Wall Street Journal wrote this morning.

This is the Fed’s third round of quantitative easing (QE3) since the 2008 panic, and the difference this time is that Ben is unbounded. The Fed said it will keep interest rates at near-zero “at least through mid-2015,” which is six months longer than its previous vow. The bigger news is that the Fed announced another round of asset purchases—only this time as far as the eye can see. The Fed will start buying $40 billion of additional mortgage assets a month, with a goal of further reducing long-term interest rates. But if “the labor market does not improve substantially,” as the central bankers put it, the Fed will plunge ahead and buy more assets. And if that doesn’t work, it will buy still more. And if. . .

The “And if…” is the key passage. For all intents and purposes, Bernanke has said that the Fed is going to relentlessly focus on the variable it can’t control (employment) at the risk of causing bad news for the variable it can control (inflation).

A trip to the store in Bernankeville

Since that hasn’t worked in the past, it presumably won’t work in the future. The WSJ notes that recent Fed easings have made the economy worse.

Will it work? Mr. Bernanke recently offered a scholarly defense of his extraordinary policy actions since 2008, and there’s no doubt that QE1 was necessary in the heat of the panic. We supported it at the time. The returns on QE2 in 2010-2011 and the Fed’s other actions look far sketchier, even counterproductive. QE2 succeeded in lifting stocks for a time, but it also lifted other asset prices, notably commodities and oil. The Fed’s QE2 goal was to conjure what economists call “wealth effects,” or a greater propensity to spend and invest as consumers and businesses see the value of their stock holdings rise. But the simultaneous increase in commodity prices lifted food and energy prices, which raised costs for businesses and made consumers feel poorer. These “income effects” countered Mr. Bernanke’s wealth effects, and the proof is that growth in the real economy decelerated in 2011. It decelerated again this year amid Operation Twist. When does the Fed take some responsibility for policies that fail in their self-professed goal of spurring growth, rather than blaming everyone else while claiming to be the only policy hero?

For those of us who worry about the pernicious impact of inflation, it’s possible that the Fed will soak up all this excess liquidity at the right time. But don’t hold your breath. The WSJ continues.

The deeper into exotic monetary easing the Fed goes, the harder it will also be to unwind in a timely fashion. Mr. Bernanke says not to worry, he has the tools and the will to pull the trigger before inflation builds. That’s what central bankers always say. But good luck picking the right moment, which may be before prices are seen to be rising but also before the expansion has begun to lift middle-class incomes. That’s one more Bernanke Cliff the economy will eventually face—maybe after Ben has left the Eccles Building.

Last but not least, the WSJ is not terribly happy about the Fed seeking to influence the election.

Given the proximity to the Presidential election, the Fed move can’t be divorced from its political implications. Mr. Bernanke forswore any partisan motives on Thursday, and we’ll give him the benefit of the personal doubt. But by goosing stock prices, and thus lifting the short-term economic mood, the Fed has surely provided President Obama an in-kind re-election contribution.

If we go to the other side of the Atlantic, Allister Heath of City A.M. has some very wise thoughts about QE3.

In the long run, real sustainable growth comes from entrepreneurs inventing better ways of conducting business, from investment in productivity enhancing capex financed from savings, and from more people finding viable jobs. Eventually, the short-term becomes the long-term – and that is where we are today. Cheap money is just a temporary fix – and like all drugs, the economy needs more and more of it merely to stay still now it is hooked. …manipulating the housing and construction markets is a dangerous game that the Fed should not be playing; it would be better to allow the market to clear freely. In a brilliant new paper for the Federal Reserve Bank of Dallas, William R White, one of the few economists to have predicted the financial crisis, warns of the disastrous unintended consequences of ultra easy money. He explains why there are limits to what central banks can do, that monetary “stimulus” is less effective in bolstering aggregate demand than previously, that it triggers negative feedback mechanisms that weaken both the supply and demand-sides of the economy, threatens the health of financial institutions and the functioning of financial markets, damages the independence of central banks, and encourages imprudent behaviour on the part of governments.

In other words, Allister is worried about the Fed acting as some sort of central planning body, attempting to steer the economy.

Sadly, the Fed has a long track record of doing precisely that, as documented in this lecture by Professor George Selgin. It’s 40 minutes, so not for the faint of heart, but if you watch the video, you’ll have a hard time giving the Fed the benefit of the doubt.

And let’s also remember that bad monetary policy is not the only thing to worry about when considering the Fed’s behavior. It also has started to interfere with the functioning of credit markets, thus distorting the allocation of capital.

Here’s the bottom line. I think, at best, the Fed is pushing on a string. Why will it help to create more liquidity when banks already have more than $1 trillion of excess reserves?

The real problem in our economy is the overall burden of government. The tax system is punitive. Wasteful and excessive government spending is diverting resources from productive use. The regulatory burden continues to expand.

These are the policies that need to be fixed. Sadly, they are less likely to be addressed if politicians think they can paper over the problems by figuratively printing more money.

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Everyone seems to agree that the Brits have a good sense of humor, and I think you’ll agree if you peruse this modern glossary of financial terms and this example of politically incorrect terrorism humor.

I was wondering whether their use of humor is a defense mechanism to endure the predations of statist politicians such as Gordon Brown and David Cameron.

But then why aren’t the French famous for humor considering they’ve had to deal with Sarkozy and Hollande?

So maybe there’s an alternative explanation for British humor. In any event, we can now add some tax humor to the list. I have no idea who Jeremy Kyle is, but I’m guessing an infamous moocher (sort of like America’s Diaper Man or Germany’s Footless Hans). The other dependents are self explanatory.

Quite clever, sort of like this letter defending drunken sailors from unfair and malicious comparisons.

At the risk of sounding chauvinistic, we do have some very good American tax humor, such as cartoons about the value-added tax that can be seen here, here and here.

There are also lots of jokes at the expense of the IRS, as you can see here, here, here, here, and here.

Also, I suspect this comedian has helped improve awareness of excessive taxation.

And everyone seems to like this beer-centric explanation of the tax system.

Last but not least, we also have the official cigarette of the Obama campaign, as well as cartoons here, here, here and here that mock the President’s class-warfare tax agenda.

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In my travels through Europe, I often wind up debating whether policy is better in the United States or Europe. I generally try to explain that this is the wrong comparison, both because Europe is not a monolithic bloc and also because most individual nations have both good policies and bad policies.

But sometimes you have to use blunt comparisons, which is why this data on living standards is powerful evidence that Europe is paying a high price for excessive government.

When I cite such data, proponents of statism often respond by arguing that I’m being unfair by lumping together more efficient welfare states in Northern Europe with poorly run welfare states in Southern Europe.

That’s a very good point, and I’ve acknowledged that nations such as Sweden and Denmark are examples of how to do the wrong thing in the best possible fashion. They have large welfare states, but they compensate with very pro-market policies in other areas.

Indeed, Sweden is a good example of a nation that has implemented some good reforms in recent years, such as school choice and partial Social Security privatization.

But I argue that these good reforms don’t fully offset the damage caused by excessive government spending. And now I have a new – and very pointy – arrow in my argumentative quiver. A study from the London-based Institute for Economic Affairs has found that Swedes in America earn significantly more money than Swedes in Sweden.

Here are a couple of excerpts from the IEA study.

The 4.4 million or so Americans with Swedish origins are considerably richer than average Americans, as are other immigrant groups from Scandinavia. If Americans with Swedish ancestry were to form their own country, their per capita GDP would be $56,900, more than $10,000 above the income of the average American. This is also far above Swedish GDP per capita, at $36,600. Swedes living in the USA are thus approximately 53 per cent more wealthy than Swedes (excluding immigrants) in their native country (OECD, 2009; US Census database). It should be noted that those Swedes who migrated to the USA, predominately in the nineteenth century, were anything but the elite. Rather, it was often those escaping poverty and famine. …A Scandinavian economist once said to Milton Friedman, ‘In Scandinavia, we have no poverty’. Milton Friedman replied, ‘That’s interesting, because in America, among Scandinavians, we have no poverty, either’. Indeed, the poverty rate for Americans with Swedish ancestry is only 6.7 per cent: half the US average (US Census).

This is remarkable information, and it reminds me that Thomas Sowell had similar stats for other groups in his great book, Ethnic America.

I’m not familiar with the methodological issues involved in this type of research, but is certainly seems like this is a good way of getting apples-to-apples comparisons of different economic systems.

Like many other people, I’ve argued that the success of the overseas Chinese community (compared to their counterparts stuck in Communist China) is a damning indictment of statism.

Now we see that Swedes do reasonably well when living in a country with a big welfare state, but they do even better when living in a nation with  a medium-sized welfare state.

So you can imagine how prosperous they would be if a bunch of them lived in places such as Hong Kong and Singapore!

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As a general rule, I’m completely neutral about private-sector unions. As I argued in this interview, the federal government should not take sides or tilt the playing field when unions and management squabble.

I have a more skeptical view of unionized bureaucrats, though, because politicians (acting as “management”) have no incentive to be frugal since they’re spending our money and there’s no competitive pressure to be efficient.

Which is why this cartoon is the best summary of “negotiations” between politicians and union bosses, and this video is damning proof that bureaucrats are wildly over-compensated.

So it’s no surprise that I’m unsympathetic to the striking teachers in Chicago. They earn more money than the taxpayers of the city, yet they do a terrible job of educating students.

Here are some good cartoons, beginning with a gem from Michael Ramirez.

You can see some of my favorite Ramirez cartoons here, here, here, here, here, here, here, here, here, herehereherehereherehere, and here.

Here’s another cartoon. Instead of mocking teachers for doing a crummy job, it zings them for insatiable greed (similar to this cartoon).

Lisa Benson did this cartoon, and you can review some of her best work herehereherehereherehere,here, herehere, and here.

Last but not least, I’m not even sure what we’re supposed to learn from this cartoon. But it implies thuggish tactics in Chicago, so let’s add it to the list.

Sort of reminds me of this cartoon about Wisconsin.

The best outcome of the strike, by the way, is to junk the government education monopoly and implement a sweeping school choice program.  Chile has reformed its education system with vouchers, as have Sweden and the Netherlands. So why shouldn’t kids in Chicago get the same opportunity?

The answer, of course, is that there’s a corrupt and symbiotic relationship between unions and local politicians. The kids are nothing more than collateral damage.

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Like most of you, I imagine, I get lots of email advertisements. It’s very rare that I ever click on something, and I’ve never purchased anything. But sometimes I have to acknowledge a clever pitch or product.

And since I’ve previously publicized special Federal Reserve toilet paper, Ben Bernanke’s hacked Facebook page, and the famous “Ben Bernank” video, you will understand why I think this t-shirt is quite amusing.

Though I’m not sure that’s a great likeness of Bernanke on the t-shirt. Heck, my Bernanke-who-stole-Christmas image may be more accurate.

But I guess that’s not overly important since the real reason for the t-shirt is to express concern about inflationary monetary policy. And that’s something that should worry all of us (it’s already worrying drug dealers).

To be momentarily serious, I don’t follow monetary policy closely enough to make definitive statements, but here’s a good summary of why I’m also worried. I further address monetary policy in this post, and express displeasure with Bernanke’s behavior in this post.

Last but not least, this video is a good introduction to central banking.

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Ayn Rand’s famous novel, Atlas Shrugged, tells the story of what happens when society’s most productive people go on strike because they don’t want to subsidize the looters and moochers.

I won’t give away the plot, but one interesting twist in the story is when government officials realize that they need some people to produce. Otherwise, as the former President of Brazil acknowledged in real life, there’s nothing to redistribute.

Well, some people in France don’t understand the risks of driving away the geese that lay the golden eggs. Here are some excerpts from a Christian Science Monitor story.

“au revoir, looters and moochers”

As French President François Hollande outlined new taxes and spending cuts while promoting reforms to turn the economy around – word leaked out that France’s wealthiest man, Bernard Arnault, was heading for Belgium in a rumored tax dodge. At first, the timing could not appear to have been worse for the national morale and Mr. Hollande. …he will hit those with direct salaries over 1 million euros ($1.3 million) with a 75 percent tax. The French have not forgotten the national shame when British Prime Minister David Cameron told the world from Mexico in early summer that London was “rolling out the red carpet” for wealthy French seeking tax havens.  Yet, instead, in a national spasm of pique, France spent all day making accusations of “traitor” and “ingrate” at the rich guy – Mr. Arnault, worth $41 billion. …The anti-Arnault frenzy spurred far-left guru Jean-Luc Mélenchon to call him a “parasite,” and far-right darling Marianne Le Pen to proclaim “scandalous” what appears to be a financial exile. A screaming headline in Libération – “Get Lost You Rich Idiot”… Hollande yesterday said the fashion tycoon, who also left France for the US during the last Socialist government of François Mitterand, “should have measured what it means to apply for citizenship to another country. In this period, we need to appeal to patriotism.”

I’ve already posted about productive people escaping France, so that’s not exactly a new development.

What is remarkable, though, is the way French politicians, journalists, and ordinary citizens (presumably of the moocher variety) have viciously attacked Mr. Arnault.

Sort of like thieves who want moral sanction from their victims. Hmmm…seems that somebody wrote a book with that theme – and it didn’t end well for the looter class. Which is exactly why I’m predicting that France will soon face a Greek-style fiscal crisis.

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The great Ronald Reagan famously said (and I am paraphrasing, since I do not remember the exact phrase) that the most dangerous words in the English language were “I am from Washington and I am here to help you.”

Those are very wise words, especially when we think of the damage politicians have done because of their impulse to “do something” when the economy stumbles. The problem is not that there is nothing that needs to be fixed. The problem is that the crowd in Washington is far more likely to make things worse rather than better.

And who better to explain this than Thomas Sowell.

Sowell starts his most recent column by explaining that politicians who want to “do something” almost always want to expand the burden of government spending, but he notes that this approach has meant deeper recessions and more economic suffering. And he cites Warren Harding as an example of a President who rejected the notion that bigger government was some sort of economic elixir.

…you might think that the economy requires government intervention to revive and create jobs. It is Beltway dogma that the government has to “do something.” History tells a different story. For the first 150 years of this country’s existence, the federal government felt no great need to “do something” when the economy turned down. Over that long span of time, the economic downturns were neither as deep nor as long lasting as they have been since the federal government decided that it had to “do something” in the wake of the stock market crash of 1929, which set a new precedent. One of the last of the “do nothing” presidents was Warren G. Harding. In 1921, under President Harding, unemployment hit 11.7 percent — higher than it has been under President Obama. Harding did nothing to get the economy stimulated. Far from spending more money to try to “jump start” the economy, President Harding actually reduced government spending.

Can we learn any lessons from Harding’s anti-Keynesian approach? Assuming we want more growth and less unemployment, the answer is yes (and we can also learn the lesson that Hoover was a moronic statist from the very beginning).

President Harding deliberately rejected the urging of his own Secretary of Commerce, Herbert Hoover, to intervene. The 11.7 percent unemployment rate in 1921 fell to 6.7 percent in 1922, and then to 2.4 percent in 1923. It is hard to think of any government intervention in the economy that produced such a sharp and swift reduction in unemployment as was produced by just staying out of the way and letting the economy rebound on its own. Bill Clinton loudly proclaimed to the delegates to the Democratic National Convention that no president could have gotten us out of the recession in just one term. But history shows that the economy rebounded out of a worse unemployment situation in just two years under Harding, who simply let the market revive on its own, as it had done before, time and time again for more than a century.

Allow me to actually quibble with what Sowell wrote. Harding didn’t “let the market revive on its own.” He helped the economy grow faster by shrinking the federal budget. As Jim Powell explained in National Review, “Federal spending was cut from $6.3 billion in 1920 to $5 billion in 1921 and $3.2 billion in 1922.”

That’s a stunning statistic, akin to cutting more than $1.5 trillion from today’s bloated federal budget.

Sowell  also cites the achievements of the Gipper. Since I’ve posted some powerful comparisons of Reaganomics and Obamanomics, this is music to my ears.

Something similar happened under Ronald Reagan. Unemployment peaked at 9.7 percent early in the Reagan administration. Like Harding and earlier presidents, Reagan did nothing, despite outraged outcries in the media. The economy once again revived on its own. Three years later, unemployment was down to 7.2 percent — and it kept on falling, as the country experienced twenty years of economic growth with low inflation and low unemployment. The Obama party line is that all the bad things are due to what he inherited from Bush, and the few signs of recovery are due to Obama’s policies beginning to pay off. But, if the economy has been rebounding on its own for more than 150 years, the question is why it has been so slow to recover under the Obama administration.

By the way, Sowell also could have mentioned what happened in the United States immediately after World War II. The Keynesians were predicting a return to depression because of big reductions in government spending and the demobilization of millions of troops. But as Richard Vedder and Jason Taylor explained for the Cato Institute, the economy quickly adjusted and rebounded precisely because politicians didn’t revive the New Deal (and, as you can see from this video, President Reagan understood this bit of economic history).

Sowell also explains how FDR made a bad situation worse in the 1930s.

A great myth has grown up that President Franklin D. Roosevelt saved the American economy with his interventions during the Great Depression of the 1930s. But a 2004 economic study concluded that government interventions had prolonged the Great Depression by several years. Obama is repeating policies that failed under FDR.

In previous posts, I have cited both Sowell and the Wall Street Journal to make this very point, but I also call your attention to this post referencing the seminal work of Robert Higgs, as well as this video on the pernicious role of government intervention in the 1930s.

Last but not least, check out this video to understand more about FDR and his malignant views.

P.S. Fans of Professor Sowell can read more of his work here, here, here, here, here, hereherehereherehereherehereherehereherehere, and here. And you can see him in action here.

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While I often complain about government waste and stupidity, I’m not even sure what to say about this grim bit of news from Reuters.

General Motors Co sold a record number of Chevrolet Volt sedans in August — but that probably isn’t a good thing for the automaker’s bottom line. Nearly two years after the introduction of the path-breaking plug-in hybrid, GM is still losing as much as $49,000 on each Volt it builds, according to estimates provided to Reuters by industry analysts and manufacturing experts. Cheap Volt lease offers meant to drive more customers to Chevy showrooms this summer may have pushed that loss even higher. There are some Americans paying just $5,050 to drive around for two years in a vehicle that cost as much as $89,000 to produce. …The weak sales are forcing GM to idle the Detroit-Hamtramck assembly plant that makes the Chevrolet Volt for four weeks from September 17, according to plant suppliers and union sources. It is the second time GM has had to call a Volt production halt this year. GM acknowledges the Volt continues to lose money, and suggests it might not reach break even until the next-generation model is launched in about three years.

Gee, it’s almost as if everything that critics have said all along is right.

But not to worry, taxpayers are underwriting the costs. So if bigger subsidies are the price of buying support from the UAW and allowing fat-cat incompetent managers to stay on the job, that just means a bigger tab to pay for the rest of us.

How comforting.

P.S. If you’re a taxpayer and need to be cheered up, these cartoons may help.

P.P.S. This spoof video on the Volt may be even funnier.

P.P.P.S. Last but not least, Government Motors plans to build on the success of the Volt with the Obummer. It was due in 2011, but standard government incompetence has pushed back the release date.

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During the dark ages, nations like China were relatively advanced while Europeans were living in squalid huts.

But that began to change several hundred years ago. Europe experienced the enlightenment and industrial revolution while the empires of Asia languished.

What accounts for this dramatic shift?

I’m not going to pretend there’s a single explanation, but part of the answer is that Europe benefited from decentralization and jurisdictional competition. More specifically, governments were forced to adopt better policies because labor and capital had significant ability to cross borders in search of less oppression.

I’m certainly a big fan of making governments compete with each other, but even I didn’t realize how jurisdictional rivalry gave us modernity.

But you don’t have to believe me. This topic was discussed by Professor Roland Vaubel at last week’s Mont Pelerin Society meeting. Here are some excerpts from one of Professor Vaubel’s papers on the topic.

…competition among the public institutions of different countries can benefit from an international competitive order which preserves peace  and prevents governments from colluding with each other at the expense of third parties, notably their citizens.

This post will have lots of additional excerpts, but if you’re not as excited by the issue as I am, just take a moment to review this table from Vaubel’s paper (click it for a larger image). You will see that the intellectual history of this issue is enormous, and the common theme is that big, centralized states hinder development.

Remember that this table merely looks at the classical thinkers on the issue. The paper also includes modern thinkers, some of who are quoted below. And I also have a postscript that shows how many Nobel Prize-winning economists see jurisdictional competition as a tool for restraining excessive government.

But let’s see what insights we can find from the great thinkers of history, starting with this passage from Charles Montesquieu that Vaubel cites in his paper.

In Europe, the natural divisions form many medium-sized states in which the government of laws is not incompatible with the maintenance of the state; on the other hand, they are so favourable to this that without laws this state falls into decadence and becomes inferior to all the others. This is what has formed a genius for liberty, which makes it very difficult to subjugate each part and to put it under a foreign force other than by laws and by what is useful to its commerce… princes have had to govern themselves more wisely than they themselves would have thought, for it turned out that great acts of authority were so clumsy that experience itself has made known that only goodness of government brings prosperity.

In other words, the mobility of capital among jurisdictions limits government interference.

The father of economics, Adam Smith, made a very similar point. Here’s a passage from the Wealth of Nations that Vaubel includes in his paper.

The … proprietor of stock is properly a citizen of the world and is not necessarily attached to any particular country. He would be apt to abandon the country in which he is exposed to a vexatious inquisition in order to be assessed a burdensome tax and would remove his stock to some country where he could either carry on his business or enjoy his fortune at ease. A tax that tended to drive away stock from a particular country would so far tend to dry up every source of revenue both to the sovereign and society … The nations, accordingly, who have attempted to tax the revenue arising from stock, instead of any severe inquisition … have been obliged to content themselves with some very loose and, therefore, more or less arbitrary estimation. The abuses which sometimes creep into the local and provincial administration of a local or provincial revenue, however enormous so ever they may appear, are in reality, however, almost always very trifling in comparison with those which commonly take place in the administration and expenditure of the revenue of a great empire.

Jacques Turgot (Bastiat was not the only great French economist) looked at the new nation of the United States and saw the benefits of jurisdictional competition.

The asylum which (the American people) opens to the oppressed of all nations must console the earth. The ease with which it will now be possible to take advantage of this situation, and thus to escape from the consequences of a bad government, will oblige the European governments to be just and enlightened

And Immanuel Kant observed.

…civil liberty cannot now be easily assailed without inflicting such damage as will be felt in all trades and industries and especially in commerce; and this would entail a diminution of the powers of the state in external relations. This liberty, moreover, gradually advances further. But if the citizen is hindered in seeking his prosperity in any way suitable to himself that is consistent with the liberty of others, the activity of business is  checked generally; and thereby the powers of the whole state are again weakened.

Kant expanded on this notion in another publication.

…peace is created and guaranteed by an equilibrium of forces and a most vigorous rivalry. Thus, nature wisely separates the nations.

Professor Vaubel remarked that, “In other words, Kant prefers interjurisdictional anarchy to centralised despotism.”

Lord Acton also noted the dangers of centralization.

…the distribution of power among several states is the best check on democracy. By multiplying centres of government and discussion it promotes the diffusion of political knowledge and the maintenance of healthy and independent opinion. It is the protectorate of minorities and the consecration of self-government. …It is bad to be oppressed by a minority but it is worse to be oppressed by a majority.

Max Weber wrote.

The competitive struggle (among the European nation states) created the largest opportunities for modern western capitalism. The separate states had to compete for mobile capital, which dictated to them the conditions under which it would assist them to power.

Weber’s comments are significant from a terminological perspective. As Vaubel noted in his paper, “This is the first time that we find the economic term “competition” rather than jealousy (Hume) or rivalry (Kant) or emulation (Gibbon) in this literature.”

From Eric Jones.

…how did Europeans escape crippling exploitation by their rulers? … The rulers of the relatively small European states learned that by supplying the services of order and adjudication they could attract and retain the most and best-paying constituents …European kings were never as absolute as they wished. The power dispersed among the great proprietors was a check on them, as was the rising power of the market.

Harold Berman of Harvard wrote.

In the Western legal tradition diverse jurisdictions and diverse legal systems coexist and compete within the same community. … The pluralism of Western law was a source of legal sophistication and of legal growth. It was also a source of freedom.

Brian Tierny noted that rivalry between church and state also helped advance liberty.

In the Middle Ages there was never just one hierarchy of government exercising absolute authority but always two – church and state to use the language of a later age – often contending with one another, each limiting the other’s power” (1995, p. 66). “Since, in the conflicts between church and state, each side always sought to limit the power of the other, the situation encouraged theories of resistance to tyranny and constitutional limitations on government.

Here are some additional quotes from more modern academics, all taken directly from Professor Vaubel’s paper.

  • “In the West, the absence of an empire removed the crucial bureaucratic block on the development of market forces; merchants persecuted  in one place could always go with their capital elsewhere” (John A. Hall 1985, p. 102).
  • “The paradox is that competition between states, economic and political rivalry, and international tension are the best guarantees of continuing progress … The very tension which presents the greatest threat to our survival assures that, if we survive at all, some states, in order to compete better, will be obliged to encourage intellectual freedom and progress” (Daniel Chirot 1986, p. 296).
  • “Competition among the political leaders of the newly emerging nation states … was an important factor in overcoming the inherited distaste of the rural military aristocracy for the new merchant class. Had the merchants been dealing with a political monopoly, they might not have been able to purchase the required freedom of action at a price compatible with the development of trade” (Nathan Rosenberg, L.E. Birdzell 1986, pp. 136ff.).
  • “The political and social consequences of this decentralized, largely unsupervised growth of commerce … and markets were of the greatest significance. In the first place, there was no way in which such economic developments could be fully suppressed … There existed no uniform authority in Europe which could effectively halt this or that commercial development; no central government whose change in priorities could cause the rise and fall of a particular industry; no systematic and universal plundering of businessmen and entrepreneurs by tax gatherers … In Europe there were always some princes and local lords willing to tolerate merchants and their ways even when others plundered and expelled them” (Paul Kennedy 1987, pp. 19f.).
  • “The availability of alternative nation states for production meant that labour expelled from one nation could find other nations in which to locate, and the possibilities opened for capital mobility could operate as a deterrent to widespread political confiscations” (Stanley L. Engerman 1988, p. 14).
  • “Western technological creativity rested on two foundations: a materialistic pragmatism based on the belief that the manipulation of nature in the service of economic welfare was acceptable, indeed, commendable behavior, and the continuous competition between political units for political and economic hegemony” (Joel Mokyr 1990, p. 302).
  • “The various European societies complemented one another, and their internal competition gave (Europe) a dynamism that China lacked” (Mokyr 2003, p. 18).
  • “Ironically, then, Europe’s great good fortune lay  in the fall of Rome and the weakness and division that ensued … The Roman dream of unity, authority, and order (the pax Romana) remained, indeed has persisted to  the present. After all, one has usually seen fragmentation as a great misfortune, as a recipe for conflict … And yet, … fragmentation was the strongest brake on wilful,  oppressive behaviour. Political rivalry and the right of exit made all the difference” ( David S. Landes 1998, pp. 37f.).

For those interested in the topic, Vaubel’s entire paper is worth reading. But if you don’t have time, just remember that national sovereignty should be celebrated. Not because national governments are good, but because competition between governments is the best protector of liberty and civilization.

I favor tax competition, financial privacy, and fiscal sovereignty because these institutions lead to better tax policy. But Vaubel teaches us that promotion of better tax policy is just the tip of the iceberg.

P.S. Since this post is designed to show the intellectual case for jurisdictional rivalry, here are some quotes from a number of Nobel Prize-winning economists.

George Stigler:
Competition among communities offers not obstacles but opportunities to various communities to choose the type and scale of government functions they wish.
Gary Becker:
…competition among nations tends to produce a race to the top rather than to the bottom by limiting the ability of powerful and voracious groups and politicians in each nation to impose their will at the expense of the interests of the vast majority of their populations.
James Buchanan:
…tax competition among separate units…is an objective to be sought in its own right.
Milton Friedman:
Competition among national governments in the public services they provide and in the taxes they impose is every bit as productive as competition among individuals or enterprises in the goods and services they offer for sale and the prices at which they offer them.

Edward Prescott:

With apologies to Adam Smith, it’s fair to say that politicians of like mind seldom meet together, even for merriment and diversion, but the conversation ends in a conspiracy against the public, or in some contrivance to raise taxes. This is why international bureaucracies should not be allowed to create tax cartels, which benefit governments at the expense of the people.

Edmund Phelps:

[I]t’s kind of a shame that there seems to be developing a kind of tendency for Western Europe to envelope Eastern Europe and require of Eastern Europe that they adopt the same economic institutions and regulations and everything.  …We want to have some role models… If all these countries to the East are brought in and homogenized with the Western European members then that opportunity will be lost.
Douglass North:
…international competition provided a powerful incentive for other countries to adapt their institutional structures to provide equal incentives for economic growth and the spread of the ‘industrial revolution.’
Friedrich Hayek:
…while it has always been characteristic of those favouring an increase in governmental powers to support maximum concentration of powers, those mainly concerned with individual liberty have generally advocated decentralisation.

Vernon Smith:

[Tax competition] is a very good thing. …Competition in all forms of government policy is important. That is really the great strength of globalization …tending to force change on the part of the countries that have higher tax and also regulatory and other policies than some of the more innovative countries. …The way to get revenue is doing all you can to encourage growth and wealth creation and then that gives you more income to tax at the lower rate down the road.

In other words, it’s not just me making these arguments.

But I’m probably the only person mentioned in this post who almost got tossed into a Mexican jail for having these views. But that’s the risk one takes when fighting evil.

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Even though I don’t own that many guns, I’m an unyielding supporter of the 2nd Amendment. Indeed, I use gun control as a quick and simple of way of deciding whether politicians meet minimum standards of acceptability.

I’m not a single-issue voter, though, since politicians have to pass a number of tests (unwavering opposition to tax hikes, support for entitlement reform, etc) before receiving the Dan Mitchell Seal of Approval. I guess this is why 99 percent of them fail.

But I’m digressing. Back to the topic at hand, my support for private gun ownership and constitutional freedoms has motivated me to post several videos in the past few years.

Here’s another video to add to the collection. It’s a bit snarky and not exactly subtle, but I’ve dealt with almost every one of the arguments you’ll hear from the “liberal.” Enjoy.

Oh, and how could almost forget to include a link to my interview on NRA-TV.

This message in my interview is particularly appropriate since I just gave a speech earlier today to the European Resource Bank conference and cited this OECD and BIS data to explain why it is just a matter of time before most nations in Europe descend into Greek-style fiscal crisis and social chaos. When that happens, it’s preferable to be one of the people with guns (unlike the unfortunate Brits when the riots struck the U.K.).

P.S. For those of you who appreciate humor, these gun control posters that have been very popular (here, here, here, here, and here). I’ve also posted amusing images of t-shirts and bumper stickers on gun control (here, here, and here).

P.P.S. If you want something that defends the 2nd Amendment in a simple, but inspirational, fashion, you’ll really like this powerpoint presentation.

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Thomas Sowell, George Will, and Walter Williams have all explained that the Constitution imposes strict limits on the powers of the federal government. This means, for all intents and purposes, that it is a somewhat anti-democratic document.

And by anti-democratic, I mean the Constitution puts restrictions on democracy (not restrictions on the Democratic Party, though in this case…).

More specifically, it doesn’t matter if a majority of people want Obamacare or a Department of Education. We live in a constitutional republic, a system specifically designed to protect individual liberties from tyranny.

The Founding Fathers obviously didn’t want our freedoms to be subject to the whims of a king, but they also wanted to protect us from the tyranny of the majority.

This is one of the reasons why I’m so happy to share this short video from the folks at the Institute of Humane Studies. The Supreme Court may have wimped out in fulfilling its role of  protecting us against untrammeled majoritarianism, but at least we can understand why it’s a good idea to protect economic liberty.

I particularly like the fact that the video cites the Supreme Court’s horrific Kelo decision.

By the way, if you want to understand the other side of the debate (or if you want to enjoy a good laugh), you can peruse my post on E.J. Dionne’s failure to understand history and constitutional governance.

P.S. I applied the lessons of this video in my post about why the U.S. government should promote liberty rather than democracy in the Middle East.

P.P.S. They probably don’t realize it, but Republicans actually came out against marjoritarianism in their party platform.

P.P.P.S. There is at least one Republican who is against majoritarianism (and for the right reason). Click here for the answer.

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I periodically mock Republicans for being the stupid party. Yes, some of them probably mean well, but they have this lemming-like instinct to throw themselves on hand grenades.

But I noted back in April that the supposedly right-wing Christian Democrat party in Slovakia put on a display of stupidity that was so mind-boggling that it made GOPers look like rocket scientists.

Notwithstanding their original protestations to the contrary, the Christian Democrats (who were the lead party in the governing coalition) decided to support the bailout of Greece.

And when Slovakia’s pro-freedom SAS Party (part of the governing coalition) refused to support this terrible idea, the top Christian Democrat politicians decided that the bailout was so important that they struck a deal with the Social Democrats to get their votes in exchange for early elections.

Which, of course, meant that Social Democrats prevailed and the Christian Democrats lost power. And, much to my dismay, the Social Democrats are now poised to repeal the flat tax.

But that terrible development is only happening because the Christian Democrats were so breathtakingly stupid that they threw away power in the first place. And they gave up power so they could do something bad for Slovakia. Amazing.

It seems stupidity is infectious, because something similar is now happening next door in the Czech Republic.

Just as was the case in Slovakia, there’s a supposedly right-wing government in charge of the Czech Republic. So you would think that this government would be focused on controlling spending and lowering tax rates.

But that’s based on the assumption of competence, intelligence, and principles. Those characteristics seem to be in short supply. Here’s an excerpt from a report in the Washington Post.

The lower house on Wednesday rejected a 1 percent increase in the sales tax on retail goods and a 7 percent income tax increase for the highest-earners. The parliamentary refusal came after six lawmakers from the conservative Civic Democratic Party of Prime Minister Petr Necas voted against because they said the tax hikes are against their party’s values. Necas said Thursday a new vote should take place in three months and the government is linking it to a confidence vote. If that vote also fails, the coalition government will fall.

Just in case you’re not familiar with the workings of parliamentary systems, the Prime Minister of the Czech Republic is throwing a tantrum and threatening to have an election (which he almost certainly will lose) and turn the country back over to the leftists.

“Read my lips, let’s screw the people”

Unless, of course, he can convince a handful of principled lawmakers from his own party decide to stab taxpayers in the back and support a big tax hike. But not just a big tax hike. The Prime Minister wants to get rid of the flat tax by imposing a special, Obama-style class-warfare tax rate on the so-called rich.

I hope the six lawmakers mentioned in the news report hold firm, even if they’re only doing the right thing for non-principled reasons. It soon will be very obvious that they are/were on the side of the angels and that the Prime Minister and the other members of the party are a bunch of hacks who are willing to screw taxpayers in a lame and pathetic effort to buy votes with other people’s money.

I’m not sure which politician is most deserving of scorn. Is it Prime Minister Necas, who is channeling the spirit of George H.W. “read my lips” Bush as he leads his party over the cliff? Or is it Prime Minister Radicova of Slovakia, who got her party tossed from power because she decided her nation’s taxpayers should support the corrupt vote-buying schemes of Greek politicians?

Or maybe I should augment the list by including other supposed right wingers of Europe, such as Sarkozy, Merkel, Cameron, and Rajoy, all of whom seem to specialize in betraying taxpayers.

I’ve had friends tell me that this is inevitable because smart right wingers go into business, leaving the dregs for politics. It’s just the opposite for the left, they say. The smart leftists have no desire to dirty their hands with real work (Obama viewed his tiny bit of experience with the private sector “working for the enemy”), so they gravitate to government.

I think that’s way too simplistic of an explanation. I suspect the answer can be found in the insights of public choice economics, which explains that government and politics are corrupting institutions.

Perhaps that’s why it is so rare to find right-wing politicians – such as Reagan and Thatcher – who generally do the right thing.

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A couple of weeks ago, before leaving for Europe, I stopped by the High Lonesome Ranch in De Beque, Colorado.

City slicker in the CO mountains

Controlling about 300 square miles, the High Lonesome is a remarkable spread. And if you like wildlife, you’re in Heaven.

It’s sort of akin to a private national park. And it shows how free markets are an excellent steward of natural resources.

The folks at the ranch brag about having the heaviest concentration of elk, deer, bear, and mountain lion in the country. That’s probably not easy to verify, but deer and elk are ubiquitous and I saw two bear on the trip (I also saw a badger on a previous visit).

The mountain lions are largely invisible, though the ranch has a project – as part of its education and conservation work – with some academics to monitor the range, feeding habits, and behavior of these impressive animals.

Another noteworthy feature of the ranch is the way hydrologists are protecting and restoring streams and ponds. They have an incentive to do this because people from around the country come to the High Lonesome for fly fishing.

Obviously not a very bright trout

I very much doubt that all this valuable work would take place if a bunch of bureaucrats were in charge of the property.

Or, if it did take place, it would take three times as long and cost five times as much thanks to the nightmarish incompetency and misaligned incentives of the government procurement process.

Hunting is another source of revenue that enables the ranch to preserve natural resources. It goes without saying (but I’ll say it anyhow in case some leftists read this) that this means the owners have a big incentive to protect wildlife and ensure a sustainable harvest.

Heck, there are now so many bear that they are almost at the point of being a nuisance animal.

I did a bit of fishing, as you can see from the photo with the remedial trout. Maybe I should try some hunting at some point.

The 2nd Amendment in action

But probably not bird hunting. The ranch is filled with pheasants, quail, chuckers, and other game birds, but I haven’t been overly impressive when I’ve tried the sporting clays. The clay that shoots straight in the air was particularly vexing. Fortunately, I doubt burglars would have that ability, so I’ll still be okay with home defense.

The Chi-coms better avoid Fairfax

While I wasn’t overly proficient with the shotgun, I think I did okay with the rifle. I was a bit high and to the left on the target range, but one of the guides said anything within the bigger orange square is a kill shot.

Then again, part of their job may be to stroke the egos of visitors from the cities and suburbs.

In any event, a bear hunt might be a good idea. I have a fireplace at home, and it might look nice with a bearskin rug in front of it. All I’d be missing, then, is a lovely lass to pose on it.

But I’m digressing. The point of this post is to simply note that this piece of property is something every environmentalist should applaud. And it’s all made possible by the free market and private property rights.

One final point: In the interests of full disclosure, I’m an officer in a company, created by a foreign investor, that owns about 50 percent of property. But that doesn’t influence my views. It’s my pre-existing belief in private property and the environment that made it very easy for me to say yes to the this opportunity.

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I’ve been worried for quite some time that the European Central Bank was losing its independence, thus undermining the long-run prospects of the euro.

Well, yesterday’s announcement that the ECB would buy the dodgy debt of nations such as Spain didn’t make me feel any better.

Central banks should not be bullied into creating too much money simply because politicians are too corrupt, venal, and short-sighted to control spending.

Here is some of what Allister Heath of City A.M. wrote earlier today. He begins with a wise warning about moral hazard.

There is nothing markets love more than a good dose of monetary activism, especially when they detect a hidden bailout, so it is no wonder that traders and investors reacted so positively to Mario Draghi’s bond buying plan. …Yet generally speaking these days, the more the markets like a central bank intervention, the more I worry. This is because all too often investors are trying to get central banks – and ultimately, the taxpayer – to monetise debt to protect themselves, or because they believe that there are monetary solutions to real, structural problems. I disagree on both counts: excessive debt needs to be written off, with the cost born by the creditors, not redistributed to the taxpayers of more prudent countries or inflated away. It is right that investors should be able to make a fortune if they make a correct bet – but it is equally right that they should lose their shirt when their investment goes sour. This habit of quietly enjoying the former but loudly refusing the latter is one of the main reasons why the City’s reputation is at such a low ebb.

He then explains that the ECB shouldn’t try to mask reality.

…there is a perfectly good reason why the yields of peripheral Eurozone nations have shot up over the past year. It is because the markets have finally started to price risk properly. Higher yields on Spanish or Greek debt reflect the reality of deeply troubled, structurally uncompetitive nations… The market is sending a clear and precise signal, and warning the world that there is a major problem that needs resolution; buying vast amounts of bonds to try and distort or even entirely eliminate that signal and pretend that nothing is wrong with Europe’s weaker economies would be an absurd act of delusion.

I’m not as optimistic as Allister is in this next section, largely because the supposed conditionality will lead to the kind of fiscal gimmicks and moving goal posts that we see in Greece.

…while there are many problems with Draghi’s plans, he is actually being relatively sensible. He will not help Portugal, Ireland and Greece until they are able to access bond markets; even more importantly, Spain and Italy will need to ask for European bailout fund support, and accept the ensuing conditionality, before ECB bond-buying starts. It will theoretically be unlimited in scale but Draghi only wants to “do whatever it takes” as long as politicians toe the line. Given that they won’t, and that many countries will soon be borrowing even more, the crisis will soon flare up again. The simple reality is that the Eurozone in its current form is doomed. Draghi’s plan will buy some time, and his next one even more, as will the one after that. But eventually the size of the fiscal and competitiveness crisis, combined with voter anger in both Northern and Southern countries, will overwhelm all of his attempts at papering over the cracks. It’s just a matter of time.

But I obviously agree with his conclusion. Unless European politicians decide to reduce the burden of government spending, the continent is in deep trouble.

Last but not least, the problem in Europe is not the euro. It is the welfare state. I’m not a huge fan of the single currency, but it is way down on my list of reasons that nations such as Spain, Italy, and Greece are in trouble.

P.S. America will be in the same boat at some point in the future if we don’t reform entitlements.

P.P.S. Allister is the author of this great article explaining why tax competition and tax havens are so important and valuable in the global economy.

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If it wasn’t for the fact that so many people are suffering and being seduced into empty lives of government dependency (symbolized by Julia, the world’s most disappointing daughter), I might feel sorry for President Obama.

He promised unemployment would never climb above 8 percent if Congress squandered $800 billion on a Keynesian stimulus scheme.

Well, Congress said yes and the results have not been pretty. And every month we get new numbers to show us that the Administration’s policies have failed. It’s like Chinese water torture for the White House.

The numbers released this morning from the Department of Labor don’t change the narrative. The Republican and Democratic spin-doctors obviously will spit out their talking points, but here’s a visual put together by Political Math that trumps all the political maneuvering. If you’re wondering where Obama is, look at the lower left portion of the image.

This image is a couple of months old, but job creation has been so anemic that the naked eye wouldn’t be able to tell the difference if it was updated.

Since I normally show a graph with the actual unemployment rate compared to what Obama promised, I’ll add that as well. Not a pretty picture. I wrote that last month’s version would cause anxiety for Obama, and see no reason to change that assessment.

Yes, the official unemployment rate dropped to 8.1 percent, but that was because more Americans dropped out of the labor force.

Most important, the rate of joblessness is about 2-1/2 to 3 percentage points higher than what Obama promised. Now he wants a second term, yet all he’s promising is more of the same.

Actually, I retract that statement. He wants to maintain his current approach, but then add some class-warfare taxes to the mix.

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Three months ago, I predicted that Obama would win reelection with 297 electoral votes, 27 more than needed.

Back in July, I shifted Virginia to Romney’s column and predicted Obama would still win, but with 284 votes.

Last month, I predicted things were moving even farther in the GOP direction. By moving Colorado to the Republican side, I guessed the outcome would be 275-263 for Obama.

Romney partisans will be disappointed to learn, though, that their candidate has fallen a bit further behind in my new prediction for the 2012 election.

The big change is that I moved Florida to the “leaning Obama” category and those 29 electoral votes more than offset the impact of shifting Iowa and Wisconsin to the “leaning Romney” column.

Why these changes? Well, I suspect that the demagoguery on Social Security and Medicare will hurt in Florida, even though the GOP platform on entitlement reform is that people over age 55 are exempt.

I’m shifting Wisconsin because of Paul Ryan. As for Iowa, I’m going by nothing but gut instinct.

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Everyone has a cross to bear in life, some sort of burden or obligation, often self-imposed.

For some inexplicable reason, I’ve decided that one of my responsibilities is to educate a backwards and primitive people who seem impervious to common sense, simple logic, and strong principles.

As you’ve probably guessed already, I’m talking about Republicans.

I’ve already identified them at the Stupid Party, but they seem especially ill-informed and clueless on the topic of government borrowing.

I’ve specifically warned that they are economically (and politically) misguided when they focus on deficits and debt as America’s main fiscal problem.

I even created a “Bob Dole Award” in hopes of getting this point across. Simply stated, fixating on debt opens the door for higher taxes.

And does anyone think our economy would be stronger, or our fiscal position would be better, if we replaced some debt-financed spending with some spending financed by class-warfare taxes?

Especially since the higher taxes almost certainly would trigger more spending, so government borrowing would stay the same and the only thing that would change is that we’d be saddled with even more waste.

Notwithstanding all my educational efforts, Republicans couldn’t resist jumping up and down and making loud noises earlier this week when the national debt hit the $16 trillion mark earlier this week (a google search for “$16 trillion debt” returned more than 24 million hits).

So let’s walk through (again) why this is misguided.

First, let’s clear up some numbers that cause confusion. Republicans are complaining about something called the “gross federal debt.” This number is largely meaningless (see table 7.1 of the OMB Historical Tables if you want to look at the details).

It is the combination of a somewhat meaningful number of more than $11 trillion known as “debt held by the public,” which is a measure of how much the federal government has borrowed over time from the private sector, and a totally irrelevant number  of about $4.5 trillion known as “debt held by federal government accounts.”

The latter number is simply a total of the IOUs that the government issues to itself, most notably the ones at the Social Security Trust Fund. But the “assets” in the Trust Fund at the Social Security Administration are offset by the “liabilities” at the Treasury Department. This is an empty bookkeeping gimmick, just as if you took a dollar out of your right pocket, put it in your left pocket, and left an IOU in exchange.

That being said, it is important to recognize that politicians have imposed poorly designed entitlement programs, and future spending on these programs will skyrocket far beyond current revenues. That growing gap, which is explained in this short video, is sometimes known as “unfunded liabilities.”

This number depends on a whole range of assumptions and can be measured in current dollars, constant dollars, and present value. I prefer the middle approach, which adjusts for inflation, and it’s worth noting that “unfunded liabilities” for Social Security and Medicare are more than $100 trillion.

That’s a number we should worry about, not the make-believe $4.5 trillion of IOUs that comprise part of the “gross national debt.”

Now let’s get to the most important issue. The reason we should worry about that $100 trillion number is that it is an estimate of how much the burden of spending will climb in the future. That additional spending will weaken the economy whether it is financed by borrowing or taxes.

Sort of helps to explain why entitlement reform is completely necessary if we want to keep America from a Greek-style fiscal collapse at some point in the future.

Here’s my video on the topic. In an ideal world, Republicans would not be allowed to talk about fiscal policy until they were first strapped in chairs, given a bunch of ADD medicine, and forced to watch this on automatic replay about 50 times.

Now for the all-important caveats. Yes, a nation can reach a point where debt becomes a problem. All you have to do is look at the mess in Europe to understand that point.

And I’ve shared numbers from both the Bank for International Settlements and the Organization for Economic Cooperation and Development to indicate that almost all nations – including the U.S. – are going to face similar problems if government policy is left on autopilot.

What I want people to realize, though, is that governments only get into that kind of mess because there’s too much spending.

Government spending is the disease. The various ways of financing that spending – taxes, borrowing, and printing money – are symptoms of the underlying disease.

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I wrote a celebratory post last November about the dramatic difference between Americans and Europeans. There truly is American exceptionalism in that Europeans are much more likely to think it is government’s responsibility to provide the basics of life.

Another poll in 2010 showed Americans, by a 20-percentage point margin, want smaller government and lower taxes. A 2011 poll revealed negative views, by an almost 2-1 margin, of the federal government. And it’s not scientific, or even a poll, but I also enjoyed this Mark Steyn column  describing how Americans were the only people in the world to protest for less government when the financial crisis hit.

Perhaps most impressive is this data from late last year showing that Americans overwhelmingly view big government as the greatest threat to the nation’s future.

But self reliance and individualism are not necessarily a permanent part of American DNA, and some left wingers openly argue that they want to create an entitlement mindset.

Based on what’s already happened, Nicholas Eberstadt of the American Enterprise Institute is worried that the narcotic of dependency may be diluting American exceptionalism.

Here are some key passages from Eberstadt’s column, beginning with a look at what makes America special.

From the founding of our nation until quite recently, the U.S. and its citizens were regarded, at home and abroad, as exceptional in a number of deep and important respects. One of these was their fierce and principled independence, which informed not only the design of the political experiment that is the U.S. Constitution but also their approach to everyday affairs. The proud self-reliance that struck Alexis de Tocqueville in his visit to the U.S. in the early 1830s extended to personal finances. The American “individualism” about which he wrote did not exclude social cooperation—the young nation was a hotbed of civic associations and voluntary organizations. But in an environment bursting with opportunity, American men and women viewed themselves as accountable for their own situation through their own achievements—a novel outlook at that time, markedly different from the prevailing attitudes of the Old World (or at least the Continent). The corollaries of this American ethos were, on the one hand, an affinity for personal enterprise and industry and, on the other, a horror of dependency and contempt for anything that smacked of a mendicant mentality. Although many Americans in earlier times were poor, even people in fairly desperate circumstances were known to refuse help or handouts as an affront to their dignity and independence. People who subsisted on public resources were known as “paupers,” and provision for them was a local undertaking. Neither beneficiaries nor recipients held the condition of pauperism in high regard.

That’s the good news. Now for the bad news.

The U.S. is now on the verge of a symbolic threshold: the point at which more than half of all American households receive and accept transfer benefits from the government. From cradle to grave, a treasure chest of government-supplied benefits is there for the taking for every American citizen—and exercising one’s legal rights to these many blandishments is now part of the American way of life. …Citizens have become ever more broad-minded about the propriety of tapping new sources of finance for supporting their appetite for more entitlements. The taker mentality has thus ineluctably gravitated toward taking from a pool of citizens who can offer no resistance to such schemes: the unborn descendants of today’s entitlement-seeking population. …The U.S. is a very wealthy society. If it so chooses, it has vast resources to squander. And internationally, the dollar is still the world’s reserve currency; there remains great scope for financial abuse of that privilege. Such devices might well postpone the day of fiscal judgment: not so the day of reckoning for American character, which may be sacrificed long before the credibility of the U.S. economy. Some would argue that it is an asset already wasting away before our very eyes.

If you think Eberstadt is being needlessly pessimistic, you may change your mind if you read this and this.

To be sure, it’s possible to reverse this trend if we implement entitlement reform. But how likely is that given the short-sighted outlook and self-interested attitude of the political class.

P.S. You can enjoy some cartoons about dependency here, here, and here. If you need some more humor, this cartoon looks at the issue from the government’s perspective, and here’s a great Ramirez cartoon about Julia, a.k.a., the poster child of dependency.

P.P.S. Redistribution is bad for prosperity because you’re paying some people not to produce and you’re penalizing some people who do produce. To get a better idea of how the former kills incentives, look at this amazing chart.

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

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

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

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

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

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

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

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

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

Here is some of what was said about America.

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

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

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

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

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

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

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

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

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

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What do Mona Charen, Ron Paul, Cory Booker, Pat Robertson, Gov. Gary Johnson, and Sir Richard Branson all have in common?

Almost nothing, I imagine, but they do agree on one thing. It’s time to rethink the War on Drugs.

We can also add John Stossel to the list. Here’s some of what he wrote in his recent Townhall column. Let’s start with his powerful – and pragmatic – argument that the Drug War encourages criminal behavior.

The media (including Fox News) run frightening stories about Mexican cocaine cartels and marijuana gangs. Few of my colleagues stop to think that this is a consequence of the war, that decriminalization would end the violence. There are no wine “cartels” or beer “gangs.” No one “smuggles” liquor. Liquor dealers are called “businesses,” not gangs, and they “ship” products instead of “smuggling” them. They settle disputes with lawyers rather than guns. Everything can be abused, but that doesn’t mean government can stop it. Government runs amok when it tries to protect us from ourselves. Drug-related crime occurs because the drugs are available only through the artificially expensive black market. Drug users steal not because drugs drive them to steal. Our government says heroin and nicotine are similarly addictive, but no one robs convenience stores to get Marlboros.

Citing the work of a scholar at the Manhattan Institute, John also comments on the Drug War’s destructive impact on the black community.

John McWhorter, a senior fellow at the Manhattan Institute, indicts the drug war for “destroying black America.” McWhorter, by the way, is black. McWhorter sees prohibition as the saboteur of black families. “Enduring prison time is seen as a badge of strength. It’s regarded (with some justification) as an unjust punishment for selling people something they want. The ex-con is a hero rather than someone who went the wrong way.” He enumerates the positive results from ending prohibition. “No more gang wars over turf, no more kids shooting each other. … Men get jobs, as they did in the old days, even in the worst ghettos, because they have to.”

I don’t reckon that the Drug War does as much damage to African-Americans as the crummy government-run school system, but it’s probably not too far behind.

Stossel closes by looking at first principles.

“Once the principle is admitted that it is the duty of the government to protect the individual against his own foolishness,” economist Ludwig von Mises wrote, “why not prevent him from reading bad books and bad plays … ? The mischief done by bad ideologies is more pernicious … than that done by narcotic drugs.” If we adults own our own bodies, we ought to get to control what we put in them. It’s legitimate for government to protect me from reckless drivers and drunken airline pilots — but not to protect me from myself.

This is right on the mark. The War on Drugs is misguided because it creates crime. It’s misguided because it hurts the black community. And it’s misguided since government shouldn’t be in charge of micro-managing our lives.

P.S. Also keep in mind that the Drug War is the main excuse politicians given when they impose bad asset forfeiture laws and costly anti-money laundering laws. And it’s the Drug War that is usually the motive when politicians and courts erode our Fourth Amendment liberties and trample our individual rights.

P.P.S. Would you rather agree with John Stossel or Hillary Clinton?

P.P.P.S. And I’m sure you want to side with these Montana patriots, right?

P. P.P.P.S. You don’t need to approve of drugs or use drugs to recognize the Drug War is misguided. You can be uptight and straight-laced like me, but still recognize that the Drug War does far more harm than good.

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If we want to avoid the kind of Greek-style fiscal collapse implied by this BIS and OECD data, we need some external force to limit the tendency of politicians to over-tax and over-spend.

That’s why I’m a big advocate of tax competition, fiscal sovereignty, and financial privacy (read Pierre Bessard and Allister Heath to understand why these issues are critical).

Simply stated, I want people to have the freedom to benefit from better tax policy in other jurisdictions, especially since that penalizes governments that get too greedy.

I’m currently surrounded by hundreds of people who share my views since I’m in Prague at a meeting of the Mont Pelerin Society. And I’m particularly happy since Professor Lars Feld of the University of Freiburg presented a paper yesterday on “Redistribution through public budgets: Who pays, who receives, and what effects do political institutions have?”.

His research produced all sorts of interesting results, but I was drawn to his estimates on how tax competition and fiscal decentralization are an effective means of restraining bad fiscal policy.

Here are some findings from the study, which was co-authored with Jan Schnellenbach of the University of Heidelberg.

In line with the previous subsections, we find that countries with a higher GDP per employee, i.e. a higher overall labor productivity, have a more unequal primary income distribution. …fiscal competition within a country or trade openness as an indicator of globalization do not exacerbate, but reduce the gap between income classes. …expenditure and revenue decentralization restrict the government’s ability to redistribute income when fiscal decentralization also involves fiscal competition. …fiscal decentralization, when accompanied by high fiscal autonomy, involves significantly less fiscal redistribution. Please also note that fiscal competition induces a more equal distribution of primary income and, even though the distribution of disposable income is more unequal, it is open how the effect of fiscal competition on income distribution should be evaluated. Because measures of income redistribution usu-ally have adverse incentive effects which consequently affect economic growth negatively, fiscal competition might be favorable for countries which have strong egalitarian preferences. A rising tide lifts all boats and might in the long-run outperform countries with more moderate income redistribution even in distributional terms.

The paper includes a bunch of empirical results that are too arcane to reproduce here, but they basically show that the welfare state is difficult to maintain if taxpayers have the ability to vote with their feet.

Or perhaps the better way to interpret the data is that fiscal competition makes it difficult for governments to expand the welfare state to dangerous levels. In other words, it is a way of protecting governments from the worst impulses of their politicians.

I can’t resist sharing one additional bit of information from the Feld-Schnellenbach paper. They compare redistribution in several nations. As you can see in the table reproduced below, the United States and Switzerland benefit from having the lowest levels of overall redistribution (circled in red).

It’s no coincidence that the U.S. and Switzerland are also the two nations with the most decentralization (some argue that Canada may be more decentralized that the U.S., but Canada also scores very well in this measure, so the point is strong regardless).

Interestingly, Switzerland definitely has significantly more genuine federalism than any other nation, so you won’t be surprised to see that Switzerland is far and away the nation with the lowest level of tax redistribution (circled in blue).

One clear example of Switzerland’s sensible approach is that voters overwhelmingly rejected a 2010 referendum that would have imposed a minimum federal tax rate of 22 percent on incomes above 250,000 Swiss Francs (about $262,000 U.S. dollars). And the Swiss also have a spending cap that has reduced the burden of government spending while most other nations have moved in the wrong direction.

While there are some things about Switzerland I don’t like, its political institutions are a good role model. And since good institutions promote good policy (one of the hypotheses in the Feld-Schnellenbach paper) and good policy leads to more prosperity, you won’t be surprised to learn that Swiss living standards now exceed those in the United States. And they’re the highest-ranked nation in the World Economic Forum’s Global Competitiveness Report.

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Last year, I held an unofficial contest to see whether the United Kingdom or the United States had the dumbest bureaucrats and/or most absurd examples of political correctness.

Since that time, I’ve posted additional examples of gross government stupidity from both sides of the Atlantic. From the United Kingdom, we have these gems.

But American officials have been busy as well, with impressive displays of incompetence and stupidity.

Now it’s time to revisit this contest. The United Kingdom has decided to arrest a man for the horrific crime of shooting some thugs that broke into his home. Here are some details from a column in the Telegraph.

A farm tenant and his wife who were arrested after two suspected burglars were shot at their isolated home had been the victims of a number of robberies. …The man is believed to have grabbed a legally owned gun after they were disturbed by the break-in early yesterday. He is understood to have fired at the intruders who then fled the isolated house at Melton Mowbray, Leics, before calling the police. …The arrested man’s mother said: “This is not the first time they have been broken into. “They have been robbed three or four times. One of them was quite nasty. …the businessman and his wife were arrested on suspicion of causing grievous bodily harm. Four men, understood to be the suspected burglars, were also arrested.

“Arrested on suspicion of causing grievous bodily harm”? Isn’t that the point when confronting criminals?!?

Though I guess we should be happy that the burglars also were arrested. And given the country’s oppressive gun control laws, I’m pleasantly surprised that there are still a few legal guns in the United Kingdom.

But that’s about the only silver lining I can find to this dark cloud.

Moreover, it turns out that the U.K. has a track record of persecuting the innocent. The column mentions outrageous examples.

The case will reignite the debate over a householder’s right to defend his property, which began in the late 1990s after the farmer Tony Martin shot two burglars at his remote Norfolk home. In 1999, Martin fired at Brendan Fearon, 29, and Fred Barras, 16, after they broke into the house in Emneth Hungate. Three shots were fired, Barras was hit in the back and despite escaping through a window died moments later. Martin was convicted of murder and jailed for life, which was reduced on appeal to manslaughter and five years’ jail. In 2009, the millionaire businessman Munir Hussain fought back with a metal pole and a cricket bat against a knife-wielding burglar who tied up his family at their home in Buckinghamshire. Hussain was jailed for two and a half years, despite his attacker being spared prison. Appeal judges reduced the sentence to a year’s jail, suspended. The case prompted David Cameron to announce that home owners and shopkeepers would have the right to protect themselves against burglars and robbers.

I’m glad to see, by the way, that David Cameron is at least saying supportive things about people having the right to self defense. I’ve hammered Cameron for undermining the U.K.’s system of personal retirement accounts, giving taxpayer money to statist environmental groupsincreasing the capital gains taxincreasing the burden of government spending, and whining that it is wrong for people to minimize their tax burdens.

But I also believe in giving credit where it’s due, so I’m glad he wants to change the law. I hope that includes the right to shoot burglars.

That would put the U.K. ahead of Illinois, though that’s a very low bar to clear.

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The unemployment rate has been stuck above 8 percent ever since Obama pushed through his ill-fated stimulus scheme to increase the burden of government spending.

This high level of joblessness presumably reduces Obama’s chances of getting reelected, so you would think that Democrats would be very leery of proposals that increase the cost of job creation.

Yet they’ve relentlessly pushed to subsidize unemployment, even though Paul Krugman and Larry Summers have acknowledged that unemployment insurance reduces the incentive to find a job.

Now there’s talk of pushing for a higher minimum wage. Here are some details from a report in The Hill.

Advocates pushing for a minimum wage increase are looking to turn it into an election-year issue as the campaign season heats up this fall. Such a hike is expected to be included in the Democrats’ 2012 platform — which will be presented to delegates at the party’s convention in Charlotte, N.C., next week — a member of the drafting committee told The Hill. …In the eyes of labor unions, consumer advocates and liberal Democrats, the strategy is a no-brainer in an election season that’s featured the birth of the Occupy Wall St. movement, questions about Mitt Romney’s financial practices and a highly partisan debate over which class of workers deserve an extended tax break next year. …A minimum wage hike is not without political risks, however, as Republicans and business groups are warning that such a move would burden small businesses amid an employment crisis when Congress is urging them to hire.

Regarding the last sentence in the excerpt, I agree that a minimum wage hike entails risk, but I fear those risks are to the economy rather than to politicians. Much to my dismay, a majority of voters generally support this misguided policy.

In my attempts to educate these misguided souls, I try to figure out why they favor certain policies. In the case of the minimum wage, this is my rough-draft list of why some people support this perverse form of government intervention.

1. They understand low-income people will suffer if the minimum wage is increased, but that is acceptable collateral damage in the quest for political power.

2. They understand low-income people will suffer in the short run, but they rationalize this harm because there will be more redistribution in the long run if they obtain political power.

3. They understand low-income people will suffer, but that is an acceptable price to pay since it means unions will have more negotiating leverage once low-income workers are priced out of the market.

4. They think low-income people will benefit because the economy is a fixed pie and a mandate to pay more to low-income workers will merely result in less income for the rich.

5. They think low-income people will benefit because of the magic of Keynesian economics – i.e., beneficiaries will have more income, which will then get spent, thus stimulating the economy.

6. They are impervious to evidence and instead are motivated solely by a sense that there should be a minimum income in a “fair” and “compassionate” society.

It’s quite possible, of course, for someone to support higher minimum wages for more than just one reason. Indeed, I suspect  supporters of the minimum wage can be divided into two groups. The politicians and union bosses tend to believe in higher minimum wages for reasons 1, 2, and 3, while ordinary people are likely to support intervention for reasons 4, 5, and 6.

But regardless of what they believe, they’re wrong. This Cato study has all the evidence you could possibly want. But if you don’t have time to read the paper, this video is well worth a few minutes of your time.

Walter Williams also has weighed in on this issue, noting specifically the negative impact of higher minimum wages on minorities.

Sadly, this is one of those issues where it might not make a difference which party wins in November. Romney already has said he favors not only an increase in the minimum wage, but also indexing, which means automatic increases in the future.

P.S. Here’s a very good cartoon showing the impact of raising the minimum wage.

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Like beauty, media bias is in the eye of the beholder. But my honest left-leaning friends almost always acknowledge that the establishment press is one their side.

And if they don’t, I ask them to explain one-sided reports such as the AP story on poverty, the Brian Ross Tea Party slur, this implicit USA Today bias, or the Reuters report on job creation and so-called stimulus.

One of the most remarkable examples of bias in recent weeks has been the way some folks in the media have decided that just about any criticism of Obama is racist.

I addressed this argument back in 2009, looking at the kerfuffle over the “Joker” poster. I was glad I did, because the post got considerable attention at a point when the blog was new and I didn’t have many readers. But my main goal was to point out a very silly double standard.

Well, that double standard still exists, as you can see from this cartoon.

To be sure, MSNBC is an opinion network. As far as I know, they don’t pretend to do straight news. And so long as their honest about their ideological perspective, they can assert that GOPers are racist for being left-handed or being right-handed.

But this mentality also seems to exist in the supposedly neutral outlets of the establishment media. This cartoon does a good job of exposing that biased attitude, and it does so by mocking the lapdogs in the press.

Speaking of lapdogs, the second cartoon in this post gets across the same point.

For what it’s worth, I still think this post has the best cartoon on media bias.

P.S. Back in the early days of this blog, the other post that got a good bit of attention was this amusing (or tragic?) look at how Chinese students reacted with Tim “Turbotax” Geithner claimed that the White House supported a strong dollar.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Here’s some of what Reuters recently reported.

“It’s always time for a tax hike!”

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

But at least the concept is good, right?

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

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

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

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

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

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

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

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

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