When asked to pick the worst international bureaucracy, I generally respond as follows.
The International Monetary Fund (IMF) or Organization for Economic Cooperation and Development (OECD) should be at the top of the list. Both of those bureaucracies aggressively push statist policies designed to give governments more power over people. I have mixed feelings about which one deserves to be called the worst bureaucracy.
Next on my list are the United Nations (UN) and European Bank for Reconstruction and Development (EBRD). Many people are surprised the UN isn’t higher on the list, but I point out that the organization generally is very ineffective. Meanwhile, the EBRD is relatively unknown, but I have total disdain for its cronyist business model (basically a global version of the Export-Import Bank).
At the bottom of my list is the World Bank (WB). I don’t have knee-jerk hostility to the WB, in part because the bureaucrats historically have their hearts in the right place (reducing poverty) and even occasionally support the right policies (social security reform and regulatory relief).
Nonetheless, I was disappointed earlier this year to learn that the Trump Administration decided to give more money to the World Bank.
The Trump administration is backing a $13 billion increase in funding for the World Bank… The change…will allow the bank to increase lending to poor-country clients… The U.S. is the only country with veto power over any changes in bank structure, so funding increases cannot proceed without Washington’s support. …The shift to U.S. support for more funding at the Bank took some European governments by surprise, said Suma Chakrabarti, president of the European Bank for Reconstruction and Development, a London-based multilateral bank lending in Europe, the Middle East and North Africa. He said in an interview Thursday that the capital increase is “very good news,” since it would help efforts to reduce global poverty. …Mr. Mnuchin said he would work with Congress to secure approval for the U.S. contribution, a step that has in the past proved challenging.
Hopefully it will prove impossible rather than challenging to get approval for more funding (though I haven’t been following the issue, so maybe Republicans in Congress already have okayed an expansion).
Assuming the decision hasn’t yet been made, I have some evidence showing why the World Bank doesn’t deserve more funding.
And not merely because aid is not the route to prosperity. Consider the misguided advice that the World Bank is pushing on Romania.
The Romanian government should…consider switching the flat income tax to a progressive tax, said World Bank chief economist for Europe and Central Asia, Hans Timmer. …The World Bank representative…referred to the flat tax rate…, stating that they should think about whether this system is still appropriate. The World Bank’s advice would be to rethink the entire labor market taxation system in coordination with other countries in the region, and not just make small changes. ”We can not tell you what the solution is, but you need to analyze everything, including the single tax, and whether you’d be better off implementing a progressive tax system, meaning those who earn more pay more,” Timmer said.
This is horrible advice. The flat tax is very conducive to prosperity and Romania needs fast growth to help offset the damage caused by decades of communist enslavement.
Moreover, there are problems with corruption in Romania and the World Bank has admitted that tax complexity facilitates corruption.
Given Mr. Timmer’s misguided musings, I may need to get a new version of my cartoon about international bureaucracies. Especially since the World Bank once produced a study giving nations higher grades for having more oppressive tax systems.
P.S. In fairness, the WB has produced some good work on government spending, dependency, financial regulation, and free markets.
P.P.S. And I especially like the World Bank’s comparison of Chile and Venezuela.
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Reblogged this on James' Ramblings.
You might not like the loss of tax deductions, but say in the case of healthcare, you are receiving a $20,000 Cadillac plan. You would get an increase of $20,000 salary ($15,000 net) plus UBI money of $20,000 for you and your wife.
Since you’re paying for it directly, (and it will move with you when you change jobs) you might not want the Cadillac plan. You get to keep that money in your pocket and health plans will become more competitive to get your business.
Given that we already have an income tax, a flat tax is far and away the most efficient personal tax. It would cut the current 8 billion man-hours of compliance to less than half, or 4 billion. This would add 1% to annual growth.
The problem is that a flat tax is a political loser. It must be made progressive, to compete with the current tax. That can be done with a standard deduction, but that makes a two tier system (0% plus flat%) and it doesn’t deal with welfare. On the other hand, a UBI plus a flat tax covers the entire range of incomes with a smooth effective federal tax rate that goes from negative to the flat rate.
The effect is that UBI payments would be received with a separate monthly check. Businesses would charge the flat rate against gross income, and could file accurately file for all their employees. It doesn’t matter if the employee has multiple jobs.
Claims are that this would be giving away free money. What are doing now? Success depends on how big the UBI is. Let’s say you could get a flat tax and get rid of welfare for $1/citizen UBI. Would you do it? Like the joke about the prostitute, we have now determined that you are a prostitute, we’re just haggling about the price.
A UBI at the poverty level would cost $2.3 Trillion, which would get rid of federal welfare completely. However, it would be paid for by $0.9T of current $2.0T safety-net and $1.2T of current “tax expenditures” (tax deductions). $0.2T would be paid for from the additional 1 2/3% GDP growth from efficiency. (Federal welfare workers and some IRS would move 1 million bureaucrats to the private sector adding another 2/3% to growth.)
States and charities could provide additional support however they wish. Liberal states might give more, conservative states might leave that role to charities. Based on results, we could see what works best, with a federal system providing enough with a base income to eliminate financial poverty for all citizens (there are several other types of poverty, but financial poverty is the biggest). Accomplishing what the “War on Poverty” never came close to achieving.