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Archive for March, 2016

The debate over socialism shouldn’t even exist. Everywhere big government has been tried, it has failed.

And we have reams of evidence that free-market economies dramatically out-perform statist economies.

Yet the siren song of socialism still appeals to a subsection of the population, either because of naiveté or an unseemly lust to exercise power over others.

So let’s once again wade into this debate that shouldn’t be happening.

Writing for the Dallas Morning News, former Texas A&M economics professor Svetozar Pejovich explains that adding “democratic” to “socialism” doesn’t change anything. What really matters is that Sanders and his supporters want bigger government. And that never ends well.

Sanders’ policies…are…incompatible with the American tradition of self-responsibility, self-determination and limited government under a rule of law. …putting those premises into practice requires the acceptance of two institutions: the redistribution of income initiated and monitored by federal government, and the attenuation of private property rights.

And these policies don’t lead to good results, something that Professor Pejovich understands very well given that he was born in the former Yugoslavia.

Of course, the lunch is not free. The short-run consequence of redistributive policies is erosion of the link between performance and reward, which, in turn, reduces economic efficiency and the pie available for redistribution. The long-run cost is the transformation of the American culture of self-responsibility and self-determination into the culture of dependence on the state. …Sanders’ democratic socialism bribes people to voluntarily accept the erosion of private property rights…via laws and regulations. Those law and regulations (such as reducing the right of employers to fire workers at will, giving tenants rights at the expense of apartment owners, granting special privileges to some rent seeking groups, etc.) transfer some decision-making rights from owners to public decision makers, or non-owners. …In the end, the attenuation of private property rights impedes the flow of resources to higher-valued uses and reduces economic efficiency of the economy.

Allow me to augment Professor Pejovich’s analysis by elaborating on how these policies hurt the economy. The redistributionism doesn’t lead to immediate disaster, but it inevitably lures a larger share of the population into dependency over time and the higher taxes required to finance the growing welfare burden gradually erode incentives for work, saving, investment, and entrepreneurship. The combination of those factors slowly but surely dampens the economy’s growth. And as I’ve repeatedly explained, even small difference in growth have enormous long-run implications for a nation’s prosperity.

And there comes a point, particularly given modern demographics, that the system breaks down.

The erosion of property rights has a similar effect, largely by causing a reduction in both the level of investment and the quality of investment. And since every economic theory agrees that capital formation is a key to long-run growth, the net effect of “democratic socialism” it to further weaken potential growth.

What’s especially frustrating is that leftists then point to reduced growth rates as an argument for even bigger government.

I’m not joking. Robert Kuttner of the American Prospect argues that young people are attracted to Sanders because their economic outlook is so grim.

Bernie Sanders has…broad and enthusiastic support, especially among the young…voters who say they are attracted rather than repelled by Sanders’s embrace of socialism. …this is the stunted generation—young adults venturing into a world of work, loaded with student debt, unable to find stable jobs or decent careers.

I basically agree that the economic situation for young people is tepid, but I’m baffled that this is an argument for bigger government since the statist policies of both Bush and Obama deserve much of the blame for today’s sub-par economy.

In other words, we’re seeing Mitchell’s Law in action. Politicians have adopted bad policies that have led to stagnation and now they’re using the resulting economic malaise as an argument for even bigger government. And young people, who are among the biggest victims, are getting seduced.

I’m tempted to simply say young people are too stupid to be allowed to vote, but instead let’s take a serious look at why so many of them are misguided.

Christine Emba of the Washington Post has a column pointing out young people openly embrace socialism.

…it seems that socialism is cool. …socialism does seem to have become the political orientation du jour among voters of a certain (read: young) age. …A January YouGov poll asked respondents whether they had a “favorable or unfavorable” view of socialism and capitalism. While capitalism rated significantly higher overall, those younger than 30 gave socialism higher marks: Forty-three percent viewed it very or somewhat favorably, compared with only 32 percent for capitalism.

The problem is that both Ms. Emba and a lot of young people apparently believe the nonsense spouted by people like Robert Kuttner. They actually blame capitalism for the economic weakness caused by government intervention.

…simple economics have pushed a younger generation of voters to embrace what used to be a dirty word. The past 10 years – for many millennials, the formative years of adulthood – have eroded the credibility of economic [classical] liberalism. The financial crisis and recession weakened youths’ faith in markets… Yet they were also told that the solution to the these problems was more [classical] liberal capitalism. But those solutions haven’t delivered… Underemployment, excessive debt, out-of-reach health care and delayed life goals are young peoples’ defining concerns, and the traditional assumption – that free markets and limited state intervention lead to good outcomes – just doesn’t ring true to them.

Wow, it’s bad enough that people blame free markets for a government-caused financial crisis, but Ms. Emba (and perhaps others) think that we’ve tried capitalist “solutions” after the crisis.

What planet is she on? Can she identify one thing that Obama has done that would count as a free-market response to the financial crisis? The fake stimulus? Obamacare? Dodd-Frank?

By the way, she points out that young people presumably have no idea what socialism actually entails. They just want traditional welfare-state redistributionism.

…for many millennials, “socialism” is simply shorthand for “vaguely Scandinavian in the best way” – free health care, free education and subsidized child care, a state that supports its citizens rather than leaving them at the mercy of impersonal corporations bent on profit. …the socialism that most millennials want is simply a return to a more muscular form of traditional liberalism, one that would have felt right at home in the administration of FDR.

Given that President Roosevelt was either malicious or ignorant, and given that his policies lengthened and deepened the Great Depression, I’m not exactly encouraged that millennials merely want traditional liberal (as opposed to classical liberal) policies.

Though it’s worth noting (in a very depressing sense) that a lot of young people are embracing more totalitarian versions of socialism. Here are some brief excerpts from a longer article in Vox.

Jacobin has in the past five years become the leading intellectual voice of the American left, the most vibrant and relevant socialist publication in a very long time. …That’s an opportunity that Jacobin is seizing to great effect, even if Sanders isn’t far enough left for their taste. The Sanders campaign “could begin to legitimate the word ‘socialist,’ and spark a conversation around it, even if Sanders’s welfare-state socialism doesn’t go far enough,” Sunkara wrote earlier this year. …Jacobin…now boasts a print circulation of about 20,000 and has gained about 400 more subscribers a week since Bernie started his ascent in November. …even if Bernie fades, there’s still a constituency for socialist ideas — a fact that could turn out to be much more important than the Sanders campaign itself.

And they really, really mean socialism. With all its warts.

“It is unapologetic about its interests in political economy and Marxism…,” Brooklyn College professor Corey Robin, a longtime leftist writer who signed on early and is now a contributing editor at Jacobin, says. …any Jacobin editor would be the first to tell you, Sanders is a normal labor liberal, or at most a social democrat. He doesn’t go far enough. …What we really need, Sunkara insists, is democratic worker control of the means of production. …A number of Jacobin’s contributors are members of the International Socialist Organization (ISO), the largest Trotskyist group in North America. …Sunkara’s allegiances…lie with Democratic Socialists of America (DSA). …Frase recalls working with the Freedom Road Socialist Organization, a post-Maoist group, while in high school.

I’m not sure to be more amazed that some people really believe this evil nonsense or more worried that Jacobin may actually represent the future of the left in America.

Time for some good news.

My Cato colleague Emily Ekins writes that young people are not hopeless idiots, at least not all of them. Though she phrases her argument in a much nicer fashion in a column she wrote for the Washington Post.

She starts with grim polling data.

A national Reason-Rupe survey found that 53 percent of Americans under 30 have a favorable view of socialism compared with less than a third of those over 30. Moreover, Gallup has found that an astounding 69 percent of millennials say they’d be willing to vote for a “socialist” candidate for president — among their parents’ generation, only a third would do so.

But she notes that for the most part they don’t actually believe in real socialism.

…millennials tend to reject the actual definition of socialism — government ownership of the means of production, or government running businesses. Only 32 percent of millennials favor “an economy managed by the government,” while, similar to older generations, 64 percent prefer a free-market economy. …what does socialism actually mean to millennials? Scandinavia. …In contrast with the 1960s and ’70s, college students today are not debating whether we should adopt the Soviet or Maoist command-and-control regimes that devastated economies and killed millions.

In other words, the nutjobs at Jacobin are still a minority on the left.

Best of all, young people are capable of learning lessons from the real world.

…as millennials age and begin to earn more, their socialistic ideals seem to slip away. …millennials become averse to social welfare spending if they foot the bill. As they reach the threshold of earning $40,000 to $60,000 a year, the majority of millennials come to oppose income redistribution, including raising taxes to increase financial assistance to the poor. …When tax rates are not explicit, millennials say they’d prefer larger government offering more services (54 percent) to smaller government offering fewer services (43 percent). However when larger government offering more services is described as requiring high taxes, support flips and 57 percent of millennials opt for smaller government with fewer services and low taxes, while 41 percent prefer large government.

And she explains that previous generations also have shifted away from big government.

In the 1980s, the same share (52 percent) of baby boomers also supported bigger government, and so did Generation Xers (53 percent) in the 1990s. Yet, both baby boomers and Gen Xers grew more skeptical of government over time and by about the same magnitude. Today, only 25 percent of boomers and 37 percent of Gen Xers continue to favor larger government.

My two cents, for what it’s worth, is that the infatuation with socialism (however defined) among the young underscores why it is so important to “win the narrative” about the causes of the financial crisis and the resulting weak economy.

To the extent that voters actually think capitalism caused the mess in 2008, they will be susceptible to statist ideologies.

In some sense, this is history repeating itself. The Great Depression largely was caused by misguided policies from Hoover and Roosevelt. Yet the left very cleverly peddled the story that capitalism had failed. As a result, generations of voters were more sympathetic to big government.

Thank goodness there are places such as the Cato Institute that are working to correct the narrative, not only about the Great Depression, but also with regards to the financial crisis.

Let’s close with a clever description of the difference between various strains of statism.

I put forth a similar analysis back in 2014, but I confess it wasn’t as clever as the above image. Or as clever as the sign I recently shared.

And let’s not forget the famous two-cow explanation of various ideologies.

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Even though it’s theoretically possible to design a desirable budget deal that includes a tax increase, I’m a big advocate of the no-tax-hike pledge for the simple reason that – in the real world – support for genuine spending restraint and real entitlement reform evaporates once politicians think higher revenues are an option.

Heck, bumping into the Loch Ness Monster while riding my unicorn is more likely than an acceptable budget deal including tax hikes.

Though I confess that my anti-tax resolve sometimes gets a bit wobbly when I think about unsavory tax breaks such as the ethanol credit, the state and local tax deduction, and the healthcare exclusion. I have to remind myself that while these provisions are very odious, they should be repealed as part of tax reform rather than as part of some deal that gives politicians more money to waste.

Now there’s another example of a tax that is very tempting, and it comes from my home state of Connecticut.

When I was growing up, the Nutmeg State didn’t have an income tax and it was a refuge for overtaxed New Yorkers. But then an income tax was imposed in 1991. And ever since politicians got their hands on this new source of revenue, the burden of spending has skyrocketed and Connecticut has become a fiscal dystopia.

So you would think I’d be reflexively hostile to additional tax hikes by the politicians in Hartford. And I should be, but I’m perversely intrigued by a new levy they’re considering. The Wall Street Journal opines on the proposal.

…most Yale University professors are proud to be progressives. Well, they are now getting the chance to live their convictions as Connecticut Democrats attempt to soak Yale’s rich endowment. Democrats in Hartford have proposed taxing the unspent earnings of university endowments with more than $10 billion in assets. Only Yale’s $25.6 billion endowment—the country’s second largest after Harvard—fits the tax bill. Yale’s tax-exempt investments earned $2.6 billion last year, eight times more than the University of Connecticut’s $384 million endowment. Oh, the inequality! …Hartford is already taxing anything that moves. Last year Democrats raised the top individual tax rate to 6.99% and extended a 20% corporate surtax. The tax hikes precipitated General Electric’s decision in January to move its headquarters to Boston. Between 2010 and 2015, Connecticut lost 105,000 residents to other states. For the last five years, it has recorded zero real GDP growth.

Nobody should be double taxed on income that is saved and invested, so my mind tells me that the right approach is to give all taxpayers the treatment now reserved for places like Yale.

But my heart tells me the opposite because it’s galling that Yale is dominated by statists who presumably want higher taxes on the rest of us, so maybe it’s time they swallow some of their own bitter medicine.

But the way, it’s not just state politicians that are salivating to pillage Yale. It’s now being reported that city politicians want a slice of the action.

The mayor of New Haven is backing a push to revisit an 1834 Connecticut statute affecting taxes for Yale University, saying new guidelines are needed to assess liability for the institution… “Since taxing real estate and other property is the only form of municipal taxation allowed by state law, more modern guidelines as to what’s taxable and what’s tax exempt are essential,” New Haven Mayor Toni Harp said this week in testimony supporting the legislation. …The Ivy League university has strongly objected to proposal.

Gee, I wonder if Yale also “strongly objected” to the various big tax hikes that have savaged the state’s investors, entrepreneurs, and small businesses? Or is their battlefield conversion against tax hikes solely a selfish gesture.

Needless to say, I’m sure it’s the latter, which is why part of me is thinking it would be rough justice if the jackals in state and local government descended on Yale.

That being said, I certainly don’t like the idea of these profligate politicians getting their greedy hands on even more money. So if they do impose taxes on Yale, I hope the university will consider a very thoughtful invitation from the Governor of Florida.

Gov. Rick Scott…issued a statement calling on the Ivy League institution to pick up stakes and move on down to sunny Florida. “We would welcome a world-renowned university like Yale to our state and I can commit that we will not raise taxes on their endowment,” Governor Scott said

Hmmm…. Better weather and no state income tax. Sounds like a good deal to me.

And since Florida doesn’t double tax anybody, Yale’s leftist professors could sleep easier at night since they no longer would be hypocrites who work at a school that enjoys tax-free status on its investments while neighbors are being taxed.

P.S. I should add Yale’s anti-tax leftists to my collection of statist hypocrites.

P.P.S. I might be willing to accept a tax hike if it somehow could be designed so that it only applied to advocates of higher taxes.

P.P.P.S. While some tax distortions are destructive, some are simply bizarre.

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Hillary Clinton and Bernie Sanders are basically two peas in a pod on economic policy. The only difference is that Sanders wants America to become Greece at a faster rate.

Folks on the left may get excited by whether we travel 60 mph in the wrong direction or 90 mph in the wrong direction, but this seems like a Hobson’s choice for those of us who would prefer that America become more like Hong Kong or Singapore.

Consider the issue of taxation. Clinton and Sanders both agree that they want to raise tax rates on investors, entrepreneurs, small business owners, and other “rich” taxpayers. The only difference is how high and how quickly.

Scott Winship of the Manhattan Institute has a must-read column on this topic in today’s Wall Street Journal.

He starts by speculating whether there’s a rate high enough to satisfy the greed of these two politicians.

Here is a question to ask Hillary Clinton and Bernie Sanders: What is the best tax rate to impose on high-income earners…? Perhaps they think it is 83%, a rate that economists Thomas Piketty and Emmanuel Saez hypothesized in 2014… Or maybe it is 90%, which Sen. Sanders told CNBC last May was not out of the question.

He then points out that there were very high tax rates in America between World War II and the Reagan era.

…the U.S. had such rates in the past. From 1936 to 1980, the highest federal income-tax rate was never below 70%, and the top rate exceeded 90% from 1951 to 1963. …The discussion of these rates can easily create the impression that the federal government collected far more money from “the rich” before the Reagan administration.

But rich people aren’t fatted calves awaiting slaughter. They generally are smart enough to figure out ways to avoid high tax rates. And if they’re not smart enough, they know to hire bright lawyers, lobbyists, and accountants who figure out ways to protect their income.

Which is exactly what happened.

The effective tax rates actually paid by the highest income earners during the 1950s and early ’60s were far lower than the highest marginal rates. …In the 1960s, for example, the average rate paid by the top 0.1% of tax filers—the top 10th of the top 1%—ranged from 26.5% to 29.5%, according to a 2007 study by Messrs. Piketty and Saez. Even during the 20 years after the Reagan tax cuts, the top 10th of the top 1% paid an average rate of 23.7% to 33%—essentially the same as in the 1960s.

Gee, sounds like Hauser’s Law – a limit on how much governments can tax – is true, at least for upper-income taxpayers.

And Winship provides some data showing that high tax rate are not the way to collect more revenue.

When average tax rates went up from 27.6% in 1965 to 34% in 1975, revenues went down, from 0.6% to 0.5% of the sum of GDP plus capital gains. When average tax rates declined to 23.7% over the second half of the 1970s and the ’80s, tax revenues from the top went up, reaching 0.8% of GDP plus capital gains in 1990. …in the early 1990s, Presidents George H.W. Bush and Bill Clinton raised average tax rates at the top, and revenue from the top 0.1% eventually skyrocketed. But the flood of revenue overwhelmingly reflected not the increase in rates but the stock market’s takeoff… Consider: If the higher top tax rates had caused the growth in revenue, then revenues should have fallen when Mr. Clinton cut the top tax rate on capital gains to 20% from 28% in 1997. But revenues from the top 0.1% kept pouring in.

And if you want more detail, check out the IRS data from the 1980s, which shows that rich taxpayers paid a lot more tax when the top rate was dropped from 70 percent to 28 percent.

That was a case of the Laffer Curve on steroids!

No wonder some leftists admit that spite is their real reason for supporting confiscatory tax rates on the rich, not revenue.

But what if the high tax rates are imposed on a much bigger share of the population, not just the traditional target of the “top 1 percent”?

Well, even hardcore statists who favor punitive tax policy admit that this would be a recipe for economic calamity.

Mr. Piketty said, “I firmly believe, that imposing a 70% or 80% marginal rate on large segments of the population (say, 25% of the population, or even 10%, or even a few percentage points) would lead to an economic disaster.” In other words, sayonara increased tax revenue.

Heck, even the European governments with the biggest welfare states rarely impose tax rates at those levels.

And when they do (as in the case of Hollande’s 75 percent tax rate in France), they suffer severe consequences.

Which is why the real difference in taxation between the United States and Europe isn’t the way the rich are taxed. Government is bigger in Europe because of higher tax burdens on the poor and middle class, specifically onerous value-added taxes and top income tax rates that take effect at relatively modest levels of income.

In other words, the rich already pay the lion’s share of tax in the United States. But not because we have 1970s-style tax rates, but because the tax burden is relatively modest for lower- and middle-income people.

Which brings us to Winship’s final point.

Proposals to soak the rich by raising their tax rates are unlikely to yield the revenue windfall that Mr. Sanders or Mrs. Clinton are dangling before voters. Leveling with the American people means…admitting that they will have to raise the money from tax hikes on middle-class voters.

Though he “buried the lede,” as they say in the journalism business. The most important takeaway from his column is that the redistribution agenda being advanced by Clinton and Sanders necessarily will require big tax hikes on the middle class.

Indeed, the “tax-the-rich” rhetoric they employ is simply a smokescreen to mask their real goals.

Which is why I included that argument in my video that provided five reasons why class-warfare taxation is a bad idea.

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I’m never surprised when politicians make absurd statements, but I’m still capable of being shocked when other people make outlandish assertions.

Like the leftist policy wonk who claimed that capitalism is actually coercion, even though free markets are based on voluntary exchange. Or the statist columnist who argued people aren’t free unless they’re entitled to other people’s money, even though that turns some people into unfree serfs.

Now I have another example of upside-down thinking. It deals with the “inversion” issue, which involves American-chartered companies choosing to redomicile overseas.

A column in the Huffington Post implies that Pfizer is some sort of economic traitor for making a sensible business decision to protect the interests of workers, consumers, and shareholders.

Pfizer…wants to turn its back on America by claiming to be an Irish company through an offshore merger, giving it access to Ireland’s low tax rates. The change would only be on paper. The company would still be run from the United States, enjoying all the benefits of being based in America—such as our taxpayer-supported roads, public colleges, and patent protections—without paying its part to support them.

There’s a remarkable level of inaccuracy in that short excerpt. Pfizer wouldn’t be claiming to be an Irish company. It would be an Irish company. And it would still pay tax to the IRS on all U.S.-source income. All that changes with an inversion is that the company no longer would have to pay tax to the IRS on non-U.S. income. Which is money the American government shouldn’t be taxing in the first place!

Here’s more from the article.

Pfizer could walk out on its existing U.S. tax bill of up to $35 billion if its Irish tax maneuver goes forward. That’s what it already owes the American people on about $150 billion in profits it has stashed offshore, much of it in tax havens.

Wrong again. The extra layer of tax on foreign-source income only applies if the money comes back to the United States. Pfizer won’t “walk out” on a tax liability. Everything the company is doing is fully compliant with tax laws and IRS rules.

Here’s another excerpt, which I think is wrong, but doesn’t involve misstatements.

When corporations dodge their taxes, the rest of us have to make up for what’s missing. We pay for it in higher taxes, underfunded public services, or more debt.

The “rest of us” aren’t losers when there’s an inversion. All the evidence shows that we benefit when tax competition puts pressure on governments.

By the way, the author wants Obama to arbitrarily and unilaterally rewrite the rules .

President Obama can stop Pfizer’s biggest cash grab: that estimated $35 billion in unpaid taxes it wants to pocket by changing its mailing address. There are already Treasury Department rules in place to prevent this kind of overseas tax dodge. As now written, however, they wouldn’t apply to Pfizer’s cleverly-crafted deal. The Obama Administration needs to correct those regulations so they cover all American companies trying to exploit the loophole Pfizer is using. It already has the authority to do it.

Needless to say, Pfizer can’t “grab” its own money. The only grabbing in this scenario would be by the IRS. Since I’m not an international tax lawyer, I have no idea if the Obama Administration could get away with an after-the-fact raid on Pfizer, but I will note that the above passage at least acknowledges that Pfizer is obeying the law.

Now let’s look at some analysis from someone who actually understands the issue. Mihir Desai is a Harvard professor and he recently explained the reforms that actually would stop inversions in a column for the Wall Street Journal.

Removing the incentive for American companies to move their headquarters abroad is a widely recognized goal. To do so, the U.S. will need to join the rest of the G-7 countries and tax business income only once, in the country where it was earned. …Currently, the U.S. taxes the world-wide income of its corporations at one of the highest rates in the world, but defers that tax until the profits are repatriated. The result is the worst of all worlds—a high federal statutory rate (35%) that encourages aggressive transfer pricing, a significant restriction on capital allocation that keeps cash offshore, very little revenue for the Treasury, and the loss of U.S. headquarters to countries with territorial tax systems.

In other words, America should join the rest of the world and adopt a territorial tax system. And Prof. Desai is right. If the U.S. government stopped the anti-competitive practice of “worldwide” taxation, inversions would disappear.

That’s a lesson other nations seem to be learning. There’s only a small handful of countries with worldwide tax systems and that group is getting smaller every year.

Japan in 2009 and the United Kingdom in 2010 shifted to a territorial tax regime and lowered their statutory corporate rates. The U.K. did so to stop companies from moving their headquarters abroad; Japan was primarily interested in encouraging its multinationals to reinvest foreign earnings at home.

Professor Desai closes with a broader point about how it’s good for the American economy with multinational firms earn market share abroad.

…it is mistaken to demonize the foreign operations of American multinationals as working contrary to the interests of American workers. Instead the evidence, including research by C. Fritz Foley, James R. Hines and myself, suggests that U.S. companies succeeding globally expand at home—contradicting the zero-sum intuition. Demonizing multinational firms plays to populist impulses today. But ensuring that the U.S. is a great home for global companies and a great place for them to invest is actually the best prescription for rising median wages.

Amen. You don’t get higher wages by seizing ever-larger amounts of money from employers.

This is why we should have a territorial tax system and a much lower corporate tax rate.

Which is what Wayne Winegarden of the Pacific Research Institute argues for in Forbes.

…why would a company consider such a restructuring? The answer: the uncompetitive U.S. corporate income tax code. Attempts to punish companies that are pursuing corporate inversions misdiagnose the problem and, in so doing, make a bad situation worse. The problem that needs to be solved is the uncompetitive and overly burdensome U.S. corporate income tax code. The U.S. corporate income tax code puts U.S. companies at an unsustainable competitive disadvantage compared to their global competitors. The corporate income tax code in the U.S. imposes the highest marginal tax rate among the industrialized countries (a combined federal and average state tax rate of 39.1 percent), is overly-complex, difficult to understand, full of special interest carve-outs, taxes the same income multiple times, and taxes U.S. companies based on their global income.

Mr. Winegarden also makes the key point that a company that inverts still pays tax to the IRS on income earned in America.

…a corporate inversion does not reduce the income taxes paid by U.S. companies on income earned in the U.S. Following a corporate inversion, the income taxes owed by the former U.S. company on its income earned in the U.S. are precisely the same. What is different, however, is that the income that a company earns outside of the U.S. is no longer taxable.

Let’s now return to the specific case of Pfizer.

Veronique de Rugy of the Mercatus Center explains in National Review why the entire inversion issue is a classic case of blame-the-victim by Washington.

Almost 50 companies have chosen to “invert” over the last ten years. More than in the previous 20 years. …there are very good reasons for companies to do this. …for American businesses operating overseas, costs have become increasingly prohibitive. …Europe now sports a corporate-tax rate below 24 percent, while the U.S. remains stubbornly high at 35 percent, or almost 40 percent when factoring in state taxes. …it’s the combination with America’s worldwide taxation system that leaves U.S.-based corporations so severely handicapped. Unlike almost every other nation, the U.S. taxes American companies no matter where their income is earned. …So if a U.S.-based firm does business in Ireland they don’t simply pay the low 12.5 percent rate that everyone else pays, but also the difference between that and the U.S. rate.

Veronique explains why Pfizer made the right choice when it recently merged with an Irish company.

That’s a sensible reason to do what Pfizer has done recently with its attempt to purchase the Irish-based Allergan and relocate its headquarters there. The move would allow them to compete on an even playing field with every other company not based in the U.S. Despite the impression given by critics, they’ll still pay the U.S. rate when doing business here.

And she takes aim at the politicians who refuse to take responsibility for bad policy and instead seek to blame the victims.

…politicians and their ideological sycophants in the media wish to cast the issue as a moral failure on the part of businesses instead of as the predictable response to a poorly constructed corporate-tax code. …Clinton wants to stop the companies from moving with an “exit tax.” Clinton isn’t the first to propose such a silly plan. Lawmakers and Treasury officials have made numerous attempts to stop businesses from leaving for greener pastures and each time they have failed. Instead, they should reform the tax code so that businesses don’t want to leave.

Let’s close with an observation about the Pfizer controversy.

Perhaps the company did make a “mistake” by failing to adequately grease the palms of politicians.

Consider the case of Johnson Controls, for instance, which is another company that also is in the process of redomiciling in a country with better tax law.

Brent Scher of the Washington Free Beacon reports that the company has been a big donor to the Clinton Foundation, which presumably means it won’t be targeted if she makes it to the White House.

Hillary Clinton has spent the past few months going after Johnson Controls for moving its headquarters overseas, but during a campaign event on Monday, her husband Bill Clinton said that it is one of his “favorite companies.” …He described Johnson Controls as “one of my favorite companies” and praised the work it had done in the clean energy sector during an event in North Carolina on Monday. …Johnson Controls has contributed more than $100,000 to the Clinton Foundation and also partnered with it on numerous projects over the past eight years and as recently as 2015. Some of the Clinton Foundation projects included multi-million commitments from Johnson Controls. Bill Clinton pointed out in his speech that his foundation has done business with Johnson Controls—something that Hillary Clinton is yet to mention.

For what it’s worth, the folks at Johnson Controls may have made a wise “investment” by funneling money into the Clinton machine, but they shouldn’t delude themselves into thinking that this necessarily protects them. If Hillary Clinton ever decides that it is in her interest to throw the company to the wolves, I strongly suspect she won’t hesitate.

Though it’s worth pointing out that Burger King didn’t get attacked very much by the White House when it inverted to Canada, perhaps because Warren Buffett, a major Obama ally, was involved with the deal.

But wouldn’t it be nice if we had a reasonable tax code so that companies didn’t have to worry about currying favor with the political class?

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While there are many things I admire about Scandinavian nations, I’ve never understood why leftists such as Bernie Sanders think they are great role models.

Not only are income levels and living standards higher in the United States, but the data show that Americans of Swedish origin in America have much higher incomes than the Swedes who still live in Sweden. And the same is true for other Nordic nations.

The Nordics-to-Nordics comparisons seem especially persuasive because they’re based on apples-to-apples data. What other explanation can there be, after all, if the same people earn more and produce more when government is smaller?

The same point seems appropriate when examining how people of Chinese origin earn very high incomes in Hong Kong, Singapore, Taiwan, and the United States (all places with reasonably high levels of economic liberty), but are relatively poor in China (where there is still far too much government control over economic affairs).

Again, what possible explanation is there other than the degree of economic freedom?

Let’s now look at two other examples of how leftist arguments fall apart when using apples-to-apples comparisons.

A few years ago, there was a major political fight in Wisconsin over the power of unionized government bureaucracies. State policy makers eventually succeeded in curtailing union privileges.

Some commentators groused that this would make Wisconsin more like non-union Texas. And the Lone Star States was not a good role model for educating children, according to Paul Krugman.

This led David Burge (a.k.a., Iowahawk) to take a close look at the numbers to see which state actually did a better job of educating students. And when you compare apples to apples, it turns out that Longhorns rule and Badgers drool.

…white students in Texas perform better than white students in Wisconsin, black students in Texas perform better than black students in Wisconsin, Hispanic students in Texas perform better than Hispanic students in Wisconsin. In 18 separate ethnicity-controlled comparisons, the only one where Wisconsin students performed better than their peers in Texas was 4th grade science for Hispanic students (statistically insignificant), and this was reversed by 8th grade. Further, Texas students exceeded the national average for their ethnic cohort in all 18 comparisons; Wisconsinites were below the national average in 8… Not only did white Texas students outperform white Wisconsin students, the gap between white students and minority students in Texas was much less than the gap between white and minority students in Wisconsin. In other words, students are better off in Texas schools than in Wisconsin schools – especially minority students.

This is what I call a devastating debunking.

Though Krugman routinely invites mockery, and I’ve enjoyed exposing his disingenuous, sloppy, and dishonest use of data on issues such as Obamanomics, California jobs, American fiscal policy, Greek economics, U.S. and U.K. austerity, German fiscal policy, Estonian economics, British fiscal policy, inflation, European austerity, the financial crisis, and the Heritage Foundation.

Gee, with all these examples, I wonder if there’s a pattern?

Our second example showing the value of apples-to-apples comparisons deals with gun control.

Writing for PJ Media, Clayton Cramer compares murder rates in adjoining American states and Canadian provinces. he starts by acknowledging that a generic US-v.-Canada comparison might lead people to think gun rights are somehow a factor in more deaths.

…for Canada as a whole, murder rates are still considerably lower than for the United States as a whole. For 2011, Canada had 1.73 homicides per 100,000 people; the United States had 4.8 murders and non-negligent homicides per 100,000 people.

But he then makes comparisons that suggest guns are not a relevant factor.

…look at murder rates for Canadian provinces and compare them to their immediate American state neighbors. When you do that, you discover some very curious differences that show gun availability must be either a very minor factor in determining murder rates, or if it is a major factor, it is overwhelmed by factors that are vastly more important.

Gun ownership is easy and widespread in Idaho, for instance, but murder rates are lower than in many otherwise similar Canadian provinces.

I live in Idaho.  In 2011, our murder rate was 2.3 per 100,000 people.  We have almost no gun-control laws here. You need a permit to carry concealed in cities, but nearly anyone who may legally own a firearm and is over 21 can get that permit.  We are subject to the federal background check on firearms, but otherwise there are no restrictions. Do you want a machine gun? And yes, I mean a real machine gun, not a semiautomatic AR-15. There is the federal paperwork required, but the state imposes no licensing of its own.  I have friends with completely legal full-automatic Thompson submachine guns. Surely with such lax gun-control laws, our murder rate must be much higher than our Canadian counterparts’ rate. But this is not the case: I was surprised to find that not only Nunavut (21.01) and the Northwest Territories (6.87) in Canada had much higher murder rates than Idaho, but even Nova Scotia (2.33), Manitoba (4.24), Saskatchewan (3.59), and Alberta (2.88) had higher murder rates.

The same is true for other states (all with laws that favor gun ownership) that border Canada.

What about Minnesota? It had 1.4 murders per 100,000 in 2011, lower than not only all those prairie provinces, but even lower than Canada as a whole.  Montana had 2.8 murders per 100,000, still better than four Canadian provinces and one Canadian territory.  When you get to North Dakota, another one of these American states with far less gun control than Canada, the murder rate is 3.5 per 100,000, still lower than Manitoba, Saskatchewan, the Northwest Territories, and Nunavut.  And let me emphasize that Minnesota, Montana, and North Dakota, like Idaho, are all shall-issue concealed-weapon permit states: nearly any adult without a felony conviction or a domestic violence misdemeanor conviction can obtain a concealed weapon permit with little or no effort.

The takeaway from this evidence (as well as other evidence I have shared) is that availability of guns doesn’t cause murders.

Other factors dominate.

P.S. Regarding the gun control data shared above, some leftists might be tempted to somehow argue that American states with cold weather somehow are less prone to violence. That doesn’t make sense since the Canadian provinces presumably are even colder. Moreover, that argument conflicts with this bit of satire comparing murder rates in chilly Chicago and steamy Houston.

P.P.S. In his role as Iowahawk, David Burge has produced some great political satire, including extortion by Obama’s teleprompter, the bible according to Obama, mockery of the Obama campaign’s life-of-Julia moocher, and (my favorite) the video about a government-designed car.

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Over the years, Barack Obama has made some statements that indicate a very statist worldview.

Now he may have added to that list. Check out this excerpt from a report in the Daily Caller.

President Barack Obama downplayed the differences between capitalism and communism, claiming that they are just “intellectual arguments.” …Obama said…”I think for your generation, you should be practical and just choose from what works.”

It’s hard to object to the notion that people should choose “what works,” so perhaps there’s not a specific quote that I can add to my collection. However, the President’s implication that there’s some kind of equivalence between capitalism and communism, which both systems having desirable features, is morally offensive. Sort of like saying that we should “choose from what works” in Hitler’s national socialism.

Communism is a disgusting system that butchered more than 100,000,000 people.

It is a system that leads to starvation and suffering.

Communism produces Nazi-level horrors of brutality.

So what exactly “works” in that system, Mr. President? If you watch Obama’s speech, you’ll notice there’s not a lot of substance. There is a bit of praise for Cuba’s decrepit government-run healthcare system (you can click here, here, and here if you want to learn why the system is horrifying and terrible for ordinary citizens). And he also seems to think it’s some sort of achievement that Cuba has schools.

So let’s take a closer look at what Cuba actually has to offer. Natalie Morales is a Cuban-American actor, writer, and filmmaker. Here’s some of what she wrote about her country and her relatives still trapped on the island.

…we send money, medicine or syringes for the diabetic aunt (since the hospital doesn’t have any unused disposable ones), baby clothes, adult clothes, shoes, or food… a doctor, a lawyer, or another similar profession that is considered to be high-earning everywhere else in the world will make about twenty to thirty dollars per month in Cuba. Yet shampoo at the store still costs three dollars. This is because everything is supposed to be rationed out to you, but the reality is that they’re always out of most things, and your designated ration is always meager. …if you’re a farmer and you’ve raised a cow, and you’re starving, and your family is also starving, and you decide to kill that cow and eat it? You’ll be put in jail for life. Because it’s not “your” cow, it’s everyone’s cow. That’s good ol’ Communism in practice.

Ms. Morales is especially irritated by Americans who fret that capitalism will “ruin” Cuba.

…picture me at any dinner party or Hollywood event or drugstore or press interview or pretty much any situation where someone who considers themselves “cultured” finds out I’m Cuban. I prepare myself for the seemingly unavoidable…“I have to go there before it’s ruined!”…I will say some version of this: “What exactly do you think will ruin Cuba? Running water? Available food? Freedom of speech? Uncontrolled media and Internet? Access to proper healthcare? You want to go to Cuba before the buildings get repaired? Before people can actually live off their wages? Or before the oppressive Communist regime is someday overthrown?”

Here’s more about Cuba’s communist paradise, including her observations of the healthcare system that Obama admires.

The very, very young girls prostituting themselves are not doing it because they can’t get enough of old Canadian men, but because it pays more than being a doctor does. Hospitals for regular Cuban citizens are not what Michael Moore showed you in Sicko. …That was a Communist hospital for members of the Party and for tourists… There are no janitors in the hospitals because it pays more money to steal janitorial supplies and sell them on the street than it does to actually have a job there. Therefore, the halls and rooms are covered in blood, urine, and feces, and you need to bring your own sheets, blankets, pillows, towels, and mattresses when you are admitted. Doctors have to reuse needles on patients. My mom’s aunt had a stroke and the doctor’s course of treatment was to “put her feet up and let the blood rush back to her head.”

She closes with a PG-13 request for idiotic westerners.

…for God’s sake, please don’t wear a fucking Che t-shirt.

Very well said.

By the way, none of this means we shouldn’t normalize relations with Cuba. There’s no longer a Soviet Union, so Cuba doesn’t represent a strategic threat. So, yes, relax restrictions on trade and travel, just like we have for China, Zimbabwe, Vietnam, Russia, Venezuela, and other nations that have unsavory political systems.

But the opening of relations doesn’t mean we should pretend that other systems are somehow good or equivalent to capitalism and classical liberalism.

Let’s close by sharing some news from another garden spot of communism.

If North Korea’s reputation as a place of hunger, hardship and repression was not bad enough, scientists have now discovered that it is too grim even for vultures. …Eurasian black vultures are no longer bothering to stop over in North Korea as they fly from their breeding grounds in Mongolia to their winter homes in South Korea. They concluded that food is so short under the communist regime that even the world’s best-known carrion birds cannot feed themselves. …Lee Han Su, of the institute, said: “This seems to happen because in North Korea the vultures can barely find animal corpses, which are major food resources for them.” Under the draconian regime of Kim Jong Un the country is unable to feed itself. International aid agencies report chronic malnutrition in some regions. …wild animals face the risk of being eaten by people. Defectors describe how victims of the famine were driven to eat dogs, cats, rats, grasshoppers, dragonflies, sparrows and crows. Vultures, for the time being at least, are off the menu.

I’m not sure what American leftists will say we can learn from North Korea. Even PETA presumably won’t be happy that starving North Koreans are eating sparrows and grasshoppers.

The bottom line is that there is zero moral equivalence between communism and capitalism. The former is based on servility to the state and the latter is based on liberty.

But if you’re amoral and simply want to know what works, compare the performance of North Korea and South Korea. Or look at the difference between Cuba and Hong Kong.

Very compelling evidence.

But this isn’t an issue that should be decided on the basis of utilitarian comparisons. What should matter most is that communism is evil.

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It’s very hard to be optimistic about Japan. I’ve even referred to the country as a basket case.

But my concern is not that the country has been mired in stagnation for the past 25 years. Instead, I’m much more worried about the future. The main problem is that Japan has the usual misguided entitlement programs that are found in most developed nations, but has far-worse-than-usual demographics. That’s not a good long-term combination.

As I repeatedly point out in my speeches and elsewhere, a modest-sized welfare state can be sustained in a nation with a population pyramid. But even a small welfare state is a challenge for a country with a population cylinder. And it’s a crisis for a jurisdiction such as Japan that will soon have an upside-down pyramid.

To make matters worse, Japanese politicians don’t seem overly interested in genuine entitlement reform. Instead, most of the discussion (egged on by the tax-free bureaucrats at the OECD) seems focused on how to extract more money from the private sector to finance an ever-growing public sector.

But the icing on the cake of bad policy is that Japanese politicians are addicted to Keynesian economics. For two-plus decades, they’ve enacted one “stimulus package” after another. None of these schemes have succeeded. Indeed, the only real effect has been a quadrupling of the debt burden.

The Wall Street Journal shares my pessimism. Here’s some of what was stated in an editorial late last year.

Japan is in recession for the fifth time in seven years, and the…Prime Minister who promised to end his country’s stagnation is failing at the task. …Mr. Abe’s economic plan consisted of three “arrows,” starting with fiscal spending and monetary easing. The result is a national debt set to hit 250% of GDP by the end of the year. The Bank of Japan is buying bonds at a $652 billion annual rate, a more radical quantitative easing than the Federal Reserve’s. …The third arrow, structural economic reform, offered Japan the only hope of sustained economic growth. …But for every step Mr. Abe takes toward reform, one foot remains planted in the political economy of Japan Inc. In April 2014, Mr. Abe acquiesced to a disastrous three percentage-point increase in the value-added tax, to 8%, pushing Japan into its first recession on his watch. More recently, he has pushed politically popular but economically ineffectual spending measures on child care and help for the elderly. …only 25% of the population now believes Abenomics will improve the economy. Reality has a way of catching up with political promises.

You might think that even politicians might learn after repeated failure that big government is not a recipe for prosperity.

But you would be wrong.

Notwithstanding the fact that Keynesian economics hasn’t worked, Japanese politicians are doubling down on the wrong approach.

According to a report from Bloomberg, American Keynesians (when they’re not busing giving bad advice to Greece) are telling Japan to dig a deeper hole.

Paul Krugman urged Japanese Prime Minister Shinzo Abe to…expand fiscal stimulus to revive the economy.

Reuters filed a similar report.

U.S. economist Paul Krugman said on Tuesday he advised Japan’s Prime Minister Shinzo Abe to…boost fiscal spending… Krugman’s advice was the same as that which fellow U.S. economist Joseph Stiglitz gave Abe last week.

Indeed, there apparently was a consensus for bigger government.

Every one of the economists that Prime Minister Shinzo Abe has invited here for a series of meetings with policymakers has recommended that Japan let loose government spending… When Abe asked why consumer spending has remained feeble since the 2014 consumption tax increase, the U.S. academic suggested the answer lies in expectations that fiscal stimulus will end. …Abe’s government…appears to be seeking to rally the G-7 for aggressive fiscal policy.

So why did the Japanese government create an echo chamber of Keynesianism?

Perhaps because politicians want an excuse to buy votes with other people’s money.

With an upper house election looming in July, ruling coalition lawmakers also are eager to dole out massive public spending.

And it appears that Japanese politicians are happy to take advice when it’s based on their spending vice ostensibly being a fiscal virtue.

That’s not too shocking, but the Keynesian scheme that’s being prepared is a parody even by Krugmanesque standards.

Japan’s government is considering handing out gift certificates to low-income young people in a supplementary budget for fiscal 2016 as consumer spending remains sluggish on a slow wage recovery, the Sankei Shimbun newspaper reported Thursday. Government officials believe certificates for purchasing daily necessities would lead to spending, unlike cash handouts which could be saved… The additional fiscal program would follow a similar measure for seniors and the ruling coalition would use it to gain voter support before the Upper House election expected in July, the daily said.

Maybe the politicians will succeed in buying votes, but they shouldn’t expect better economic performance. Giving people gift certificates won’t alter incentives to work, save, and invest (the behaviors that actually result in more economic output).

Indeed, on the margin these handouts may lure a few additional people out of the labor force.

The plan is foolish even from a Keynesian perspective. Since money is fungible, do these people really think gift certificates will encourage more spending that cash handouts?

By the way, another reason to be pessimistic about Japan is that there apparently aren’t any politicians who understand economics. Or at least there aren’t any that want good policy. The opposition party isn’t opposed to Keynesian foolishness. Instead, it’s leader is only concerned about who gets the goodies.

Katsuya Okada, the leader of the main opposition Democratic Party of Japan, said in parliamentary debate in January. “Elderly people are not the only ones who are suffering. Among the working generation, only a limited number of people are feeling the fruit of Abenomics.”

The bottom line is that Japan will become another Greece at some point. I’m not smart enough to know whether that will happen in five years or twenty-five years, but barring a radical reversal in government policy, the nation is in deep long-run trouble.

P.S. Though I have to give the Japanese government credit for being so incompetent that it introduced a giveaway program that was so poorly designed that nobody signed up for the handout.

P.P.S. And Japan also wins the prize for what must be the world’s oddest regulation.

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