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Archive for the ‘Government intervention’ Category

Before getting to the main topic today, here are some excerpts from a New York Post story that patriotic American readers will appreciate.

It deals with a protest.

…the group Disarm the Police…had announced on social media that they had planned to burn the flag in protest of NYPD policies.

But the event didn’t go as planned, thanks to members of the Hallowed Sons Motorcycle Club.

One of the bikers rushed forward in a fit of rage and kicked over the grill, sending embers flying. He then doused it as members of the pro-flag crowd chanted “USA! USA!” The bikers then started trying to rough up the protesters.

Here’s where the ironic part of the story.

…anti-NYPD protesters needed New York’s Finest to save their skin from a gang of angry bikers who tried to pummel them… The protesters were shielded by the cops and escorted out of the park.

And here’s some evidence that silly government regulations (a New York City tradition) take the fun out of protesting and counter-protesting.

While it’s illegal to openly burn anything in Fort Greene Park, the self-styled anarchists managed to find a loophole in the law that allows cooking in closed barbecue grills.

A few final comments on this story.

I realize I shouldn’t care, but I’m always dumbfounded when left-wing crazies refer to themselves as anarchists. Don’t they realize that you can’t be an anarchist while simultaneously advocating for much bigger government?

Reminds me of this bit of humor from the Libertarian Party.

In any event, the supposed anarchists obviously aren’t very bright since they thought it was a good idea to get on the wrong side of a bunch of bikers.

Since this is America’s Independence Day, I can’t help but think they got what they deserved, even though in the abstract I support their right to protest and burn flags that they bought with their own money (or, more likely, with money from their parents or from the welfare office).

==========================

Now for today’s main topic.

I appreciate tax havens for many reasons, mostly having to do with the importance of having some sort of external constraint on the tendency of politicians to over-tax and over-spend.

But I also like these low-tax jurisdictions for non-tax reasons. And high on my list is that I want people to have safe havens for their money as an insurance policy against governments that are incompetent, venal, abusive and/or corrupt.

And for the same reason, I like alternative currencies such as bitcoin (click here is you want to see a short and informative primer). These “cryptocurrencies” give people a way of protecting themselves when government mis-manage or mis-use monetary and financial systems.

And we have some very compelling real-world examples of how this works.

We’ll start with Greece, where people with bitcoins still enjoy liquidity. Those using the banking system, by contrast, are in trouble because of irresponsible government policy.

Here are some excerpts from a Reuters story.

There is at least one legal way to get your euros out of Greece these days, to guard against the prospect that they might be devalued into drachmas: convert them into bitcoin. Although absolute figures are hard to come by, Greek interest has surged in the online “cryptocurrency”, which is out of the reach of monetary authorities and can be transferred at the touch of a smartphone screen. New customers depositing at least 50 euros with BTCGreece, the only Greece-based bitcoin exchange, open only to Greeks, rose by 400 percent between May and June, according to its founder Thanos Marinos, who put the number at “a few thousand”. The average deposit quadrupled to around 700 euros.

Why are people shifting to bitcoin?

One part of the answer is that bitcoins are insulated from political risk.

Using bitcoin could allow Greeks to do one of the things that capital controls were put in place this week to prevent: transfer money out of their bank accounts and, if they wish, out of the country. …the bitcoin buyers’ main aim was to shield their money against the prospect that Greece might leave the euro zone and convert all the deposits in Greek banks into a greatly devalued national currency.

And is anyone surprised that there’s interest from other failing welfare states?

Coinbase, one of the world’s biggest bitcoin wallet providers, which is not currently accessible to Greeks, said it had seen huge interest from Italy, Spain and Portugal.

And it’s just a matter of time, I suspect, before there will be interest from France, Belgium, Japan, etc.

Now let’s look at Argentina, another corrupt and dysfunctional government that has a sordid history of abusing both the monetary system and the financial system.

The New York Times in May had an in-depth report on how people in that nation have been using bitcoin to circumvent bad government policy.

His occupation is one of the world’s oldest, but it remains a conspicuous part of modern life in Argentina…to serve local residents who want to trade volatile pesos for more stable and transportable currencies like the dollar. For Castiglione, however, money-changing means converting pesos and dollars into Bitcoin, a virtual currency, and vice versa. …Castiglione joked about the corruption of Argentine politics as he peeled off five $100 bills, which he was trading for a little more than 1.5 Bitcoins, and gave them to his client. …before showing up, he had transferred the Bitcoins — in essence, digital tokens that exist only as entries in a digital ledger — from his Bitcoin address to Castiglione’s.

Why are so many people interested in bitcoin?

Because the government is debasing and manipulating the official currency in ways that indirectly steal from the citizenry.

Had the German client instead sent euros to a bank in Argentina, the musician would have been required to fill out a form to receive payment and, as a result of the country’s currency controls, sacrificed roughly 30 percent of his earnings to change his euros into pesos. Bitcoin makes it easier to move money the other way too. The day before, the owner of a small manufacturing company bought $20,000 worth of Bitcoin from Castiglione in order to get his money to the United States, where he needed to pay a vendor, a transaction far easier and less expensive than moving funds through Argentine banks.

And don’t forget that Argentina’s government is one of the nations with a track record of stealing money when it’s left in banks.

Commerce of this sort has proved useful enough to Argentines that Castiglione has made a living buying and selling Bitcoin for the last year and a half. …The money brought to Argentina using Bitcoin circumvents the onerous government restrictions on receiving money from abroad. …It makes sense that a place like Argentina would be fertile ground for a virtual currency. Inflation is constant: At the end of 2014, for example, the peso was worth 25 percent less than it was at the beginning of the year. And that adversity pales in comparison with past bouts of hyperinflation, defaults on national debts and currency revaluations. Less than half of the population use Argentine banks and credit cards. Even wealthy Argentines fear keeping their money in the country’s banks.

Bitcoin protects consumers from rapacious and feckless politicians.

…in the fall of 2012, when the Argentine government ordered PayPal to bar direct payments between Argentines, part of the government’s effort to slow the exchange of pesos into other currencies. …Argentines were using Bitcoin to circumvent the government’s restrictions. “…competition eliminates all currencies from noneffective governments,” it said… In Argentina, the banks refuse to work with Bitcoin companies like Coinbase, which isn’t surprising, given the government’s tight control over banks. This hasn’t deterred Argentines, long accustomed to changing money outside official channels.

In an ideal world, of course, there would be no need for bitcoin. At least not as a hedge against bad government policy (if a world of private monies, of course, cryptocurrencies presumably would be one of the market-based options).

But we don’t live in an ideal world. Some of us already live in nations where government financial and/or monetary policy make bitcoin a very important alternative.

And others of us live in countries where there is good reason to worry about future instability because of misguided fiscal, monetary, and economic policy. So it will be good if we have options such as bitcoin.

That doesn’t mean, to be sure, that the average person should transfer all their liquid wealth into bitcoin. Indeed, I’ve specifically stated that “I wouldn’t put my (rather inadequate) life savings in bitcoin.

But I certainly want that option if future events warrant a change of strategy.

P.S. If you’re in a patriotic mood (and if you like the Second Amendment), then you’ll definitely enjoy this slideshow.

P.P.S. If you enjoyed the six-frame image about bitcoin owners, you’ll probably like a similar image portraying libertarians.

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Advocates of economic liberty, free market, and small government haven’t enjoyed many victories in the 21st Century.

Government got bigger and more expensive during Bush’s reign, starting in his first year with the No Bureaucrat Left Behind legislation and then ending in his final year with the odious TARP bailout.

Then Obama came to office, promising “hope and change,” but then proceeded to act like Bush on steroids, giving us the faux stimulus his first year and then the Obamacare boondoggle his second year.

But there have been a few victories since 2010.

The sequester unquestionably was Obama’s biggest defeat, and that policy helped contribute (along with debt limit fights and shutdown battles) to a much-needed five-year slowdown in federal spending between 2009 and 2014.

That’s certainly not a permanent victory, particularly since our long-run fiscal crisis will still be enormous in the absence of genuine entitlement reform.

But better to have some short-run spending restraint than none at all.

And since we’re looking at victories, we have something new to celebrate. Today (July 1) is the first day in decades that America is freed from a very misguided form of corporate welfare known as the Export-Import Bank.

This bit of cronyism was created to give undeserved wealth to big companies by guaranteeing some of their sales to foreign customers, and I argued in 2012 and earlier this year that shutting down the Ex-Im Bank was a test of seriousness for the GOP..

They sort of passed the test. The Ex-Im Bank needed to be authorized by midnight on June 30 to stay in operation and that didn’t happen.

However, this victory also isn’t permanent. Cronyists in the business community plan to push for re-authorization later this year, so it’s still an open question on who will prevail. Particularly since there are some GOPers who like big business more than free markets.

But at least for today, we can enjoy this image from the Ex-Im Bank’s website.

For more information why the Ex-Im Bank should not be re-authorized and instead should be permanently shut down, here are some excerpts from a column by Veronique de Rugy of Mercatus.

Ex-Im Bank puts millions of consumers, firms and workers at a disadvantage. As such, closing it down is an important first step in the battle against the unhealthy marriage between the government and corporate America. …Over 60 percent of the bank’s financing aids 10 giant beneficiaries, like Caterpillar, Bechtel, and General Electric. On the foreign side, the cheap loans go to state-owned companies like Pemex, the Mexican government’s oil and gas giant, or Air Emirates, the airline of the wealthy United Arab Emirates. …More than 98 percent of all U.S. exports occur with no Ex-Im Bank subsidies at all. And considering who the beneficiaries of Ex-Im on the domestic and foreign sides are, there’s no chance that all Ex-Im supported exports will disappear.

And let’s not forget the costs imposed on the rest of the economy thanks to this bit of corporate welfare.

Economists have shown that while export subsidies boost the profits of the recipients, it tends to have a negative impact on economy as a whole by shifting capital, economic growth, jobs and profits from unsubsidized firms to subsidized ones. …victims are taxpayers who now bear the risk for $140 billion in liabilities. These victims are consumers who pay higher prices for the purchase of subsidized goods. These victims are unsubsidized firms competing with subsidized ones. They not only pay higher financing costs but also lose out when private capital flows to politically privileged firms regardless of the merits of their projects. Some are even victimized multiple times: first as taxpayers, then as consumers, then as competitors, and finally as borrowers.

Speaking of economic costs, you definitely should click here and watch a video by another Mercatus expert of why the Ex-Im Bank undermines economic efficiency.

Like Veronique, Tim Carney of the Washington Examiner is one of the unsung heroes in the fight against the Ex-Im Bank. Here’s some of his column from yesterday.

The Export-Import Bank is down. …Legally, Ex-Im’s officers, employees and board members must cease their typical work of subsidizing Boeing, J.P. Morgan and Chinese state-owned enterprises. Instead, under the law that authorized it, Ex-Im is allowed to exist only “for purposes of orderly liquidation, including the administration of its assets and the collection of any obligations held by the bank.” …This week’s knockdown of Ex-Im should be seen in exactly this light: It is an early and visible victory for the GOP’s free-market forces over the forces of K Street, which for so long held a monopoly on the party.

I should also point out that some of my colleagues at the Cato Institute have been working hard for years to explain why the Ex-Im Bank should be abolished. Kudos also to Heritage Action for fighting against this corrupt cronyist institution.

Last but not least, here’s a video Nick narrated last year on why the Ex-Im Bank should not be re-authorized. I like how he starts with a clip of Obama the candidate citing it as wasteful corporate welfare. Now that he’s in power, though, he’s decided the cesspool of DC corruption is really a hot tub.

P.S. Speaking of leftist phonies, Elizabeth Warren likes to portray herself as a scourge of big business, yet she’s a supporter of continued handouts for corporate fatcats. A fake populist, and a fake Indian.

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When debating and discussing the 2008 financial crisis, there are two big questions. And the answers to these questions are important because the wrong “narrative” could lead to decades of bad policy (much as a mistaken narrative about the Great Depression enabled bad policy in subsequent decades).

  1. What caused the crisis to occur?
  2. What should policy makers have done?

In a new video for Prager University, Nicole Gelinas of the Manhattan Institute succinctly and effectively provides very valuable information to help answer these questions. Particularly if you want to understand how the government promoted bad behavior by banks and created the conditions for a crisis.

Here are some further thoughts on the issues raised in the video.

Deregulation didn’t cause the financial crisis – Nicole explained that banks got in trouble because of poor incentives created by previous bailouts, not because of supposed deregulation. As she mentioned, their “risk models” were distorted by assumptions that some financial institutions were “too big to fail.”

But that’s only part of the story. It’s also important to recognize that easy-money policies last decade created too much liquidity and that corrupt subsidies and preferences for Fannie Mae and Freddie Mac steered much of that excess liquidity into the housing sector. These policies helped to create the bubble, and many financial institutions became insolvent when that bubble burst.

TARP wasn’t necessary to avert a meltdown – Because the video focused on how the “too big to fail” policy created bad incentives, there wasn’t much attention to the topic of what should have happened once big institutions became insolvent. Defenders of TARP argued that the bailout was necessary to “unfreeze” financial markets and prevent an economic meltdown.

But here’s the key thing to understand. The purpose of TARP was to bail out big financial institutions, which also meant protecting big investors who bought bonds from those institutions. And while TARP did mitigate the panic, it also rewarded bad choices by those big players. As I’ve explained before, using the “FDIC-resolution” approach also would have averted the panic. In short, instead of bailing out shareholders and bondholders, it would have been better to bail out depositors and wind down the insolvent institutions.

Bailouts encourage very bad behavior – There’s a saying that capitalism without bankruptcy is like religion without hell, which is simply a clever way of pointing out that you need both profit and loss in order for people in the economy to have the right set of incentives. Bailouts, however, screw up this incentive structure by allowing private profits while simultaneously socializing the losses. This creates what’s known as moral hazard.

I’ve often used a simple analogy when speaking about government-created moral hazard. How would you respond if I asked you to “invest” by giving me some money for a gambling trip to Las Vegas, but I explained that I would keep the money from all winning bets, while financing all losing bets from your funds? Assuming your IQ is at least room temperature, you would say no. But our federal government, when dealing with the financial sector, has said yes.

Good policy yields short-run pain but long-run gain – In my humble opinion, Nicole’s most valuable insight is when she explained the long-run negative consequences of the bailouts of Continental Illinois in 1984 and Long-Term Capital Management in 1998. There was less short-run pain (i.e., financial instability) because of these bailouts, but the avoidance of short-run pain meant much more long-run pain (i.e., the 2008 crisis).

Indeed, this “short termism” is a pervasive problem in government. Politicians often argue that a good policy is unfeasible because it would cause dislocation to interest groups that have become addicted to subsidies. In some cases, they’re right about short-run costs. A flat tax, for instance, might cause temporary dislocation for some sectors such as housing and employer-provide health insurance. But the long-run gains would be far greater – assuming politicians can be convinced to look past the next election cycle.

Let’s close by re-emphasizing a point I made at the beginning. Narratives matter.

For decades, the left got away with the absurd statement that the Great Depression “proved” that capitalism was unstable and destructive. Fortunately, research in recent decades has helped more and more people realize that this is an upside-down interpretation. Instead, bad government policy caused the depression and then additional bad policy during the New Deal made the depression longer and deeper.

Now we have something similar. Leftists very much want people to think that the financial crisis was a case of capitalism run amok. They’ve had some success with this false narrative. But the good news is that proponents of good policy immediately began explaining the destructive role of bad government policy. And if Nicole’s video is any indication, that effort to prevent a false narrative is continuing.

P.S. The Dodd-Frank bill was a response to the financial crisis, but it almost certainly made matters worse. Here’s what Nicole wrote about that legislation.

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If you’re a libertarian or a small-government conservative, it’s quite likely you believe both these statements.

  1. Instead of picking winners and losers with special preferences and penalties, the tax code should be simple and fair, treating all economic activity similarly.
  2. Anything that reduces revenue to government is a good thing, and it’s especially good if the net result is to improve public safety by expanding gun ownership.

But what happens if these two statements are in conflict?

This isn’t a hypothetical question. As reported by Politico, there’s legislation in Louisiana to have a special three-day “tax holiday” on purchases of selected products, including guns and ammo.

Louisiana’s state legislature decided Tuesday to eliminate a tax holiday for hurricane equipment and school supplies, but keep one for guns and other hunting tools. In a 7-2 vote, the Louisiana Senate’s Committee on Revenue and Fiscal Affairs decided that for a three-day weekend at the beginning of September the state would eliminate its sales tax on firearms, ammunition, knives and ATVs. …Ultimately, three Democrats voted with four of their Republican colleagues to keep the tax holiday for hunting while eliminating the other two.

Is this a good idea?

I’m conflicted. As a fan of the flat tax, I obviously don’t want government to micro-manage the economy with back-door industrial policy in the tax code. And I’ve also written that tax holidays are a less-than-ideal way of reducing taxes. So this suggests that I’m against the Louisiana proposal.

But on the other hand, I’m an advocate of “starve the beast,” which means I support policies that will shrink the amount of revenue controlled by politicians. And I also strongly support the Second Amendment and want safer communities, so I like the idea of expanded gun ownership.

So how would I have vote if (Heaven forbid!) I was a Louisiana legislator?

I guess I would vote yes. Based on the limited information in the article, the proposal is a pure tax cut. So while I don’t like loopholes, I’ve also stated that I only want to eliminate such preferences if all the revenue was used to lower tax rates.

So the bottom line is that I would oppose the policy if the holiday was financed by an increase in the overall sales tax rate (similarly, I would support getting rid of the holiday as part of a proposal to lower the overall sales tax rate). But since such tradeoffs don’t apply, I would grudgingly offer my support (especially since I know the plan would offend anti-gun statists such as Michael Bloomberg).

P.S. We’ll add this post to my collection of libertarian quandaries.

P.P.S. Since we have a gun-related topic, I can’t resist sharing this example of pro-Second Amendment propaganda.

By the way, if you disagree with the message in this image, please take this IQ test for criminals and liberals and reconsider your views.

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When one thinks about all the Obamacare lies, it’s difficult to identify the worst one.

In other words, just about everything we were told was a fib. Even the tiny slivers of good news resulting from Obamacare were based on falsehoods.

So I almost feel like I’m guilty of piling on by writing about another big Obamacare lie.

But Charles Krauthammer has such a strong critique of Obamacare’s mandate for electronic health records that I can’t resist. He starts by pointing out that doctors are unhappy about this costly new mandate.

…there was an undercurrent of deep disappointment, almost demoralization, with what medical practice had become. The complaint was not financial but vocational — an incessant interference with their work, a deep erosion of their autonomy and authority…topped by an electronic health records (EHR) mandate that produces nothing more than “billing and legal documents” — and degraded medicine.

Not just unhappy. Some of them are quitting and most of them are spending less time practicing actual health care.

Virtually every doctor and doctors’ group I speak to cites the same litany, with particular bitterness about the EHR mandate. As another classmate wrote, “The introduction of the electronic medical record into our office has created so much more need for documentation that I can only see about three-quarters of the patients I could before, and has prompted me to seriously consider leaving for the first time.” …think about the extraordinary loss to society — and maybe to you, one day — of driving away 40 years of irreplaceable clinical experience.

Then Krauthammer exposes the deceptions we were fed when Obamacare was being debated.

The newly elected Barack Obama told the nation in 2009 that “it just won’t save billions of dollars” — $77 billion a year, promised the administration — “and thousands of jobs, it will save lives.” He then threw a cool $27 billion at going paperless by 2015. It’s 2015 and what have we achieved? The $27 billion is gone, of course. The $77 billion in savings became a joke. Indeed, reported the Health and Human Services inspector general in 2014, “EHR technology can make it easier to commit fraud,” as in Medicare fraud, the copy-and-paste function allowing the instant filling of vast data fields, facilitating billing inflation.

A boondoggle on the back of taxpayers. Flushing $27 billion is bad enough, but the indirect costs also are large.

That’s just the beginning of the losses. Consider the myriad small practices that, facing ruinous transition costs in equipment, software, training and time, have closed shop, gone bankrupt or been swallowed by some larger entity. …One study in the American Journal of Emergency Medicine found that emergency-room doctors spend 43 percent of their time entering electronic records information, 28 percent with patients. Another study found that family-practice physicians spend on average 48 minutes a day just entering clinical data.

Here’s the bottom line.

EHR is health care’s Solyndra. Many, no doubt, feasted nicely on the $27 billion, but the rest is waste: money squandered, patients neglected, good physicians demoralized.

Not much ambiguity in that sentence. To put it bluntly, “EHR” is the kind of answer you get when you ask a very silly question.

But on a more serious note, now read what Dr. Jeffrey Singer wrote about electronic health records. Simply stated, this is like Solyndra, but much more expensive. Instead of wasting a few hundred million on cronyist handouts to Obama campaign donors, EHR is harming an entire sector of the economy.

The only thing I’ll add is that neither Krauthammer nor Singer contemplated the possible risks of amassing all the information contained in EHRs given the growing problem of hacking and identity theft.

P.S. On another topic, I’ve written several times about the excessive pay and special privileges of bureaucrats in California.

Now, thanks to Reason, we can read with envy about another elitist benefit for that gilded class.

…a little-known California state program designed to protect police and judges from the public disclosure of their home addresses had expanded into a massive database of 1.5 million public employees and their family members… Because of this Confidential Records Program, “Vehicles with protected license plates can run through dozens of intersections controlled by red light cameras and breeze along the 91 toll lanes with impunity,” according to the Orange County Register report. They evade parking citations and even get out of speeding tickets because police officers realize “the drivers are ‘one of their own’ or related to someone who is.”

You may be thinking that the law surely was changed after it was exposed by the media.

And you would be right. But if you thought the law would be changed to cut back on this elitist privilege, you would be wrong.

…the legislature did worse than nothing. It killed a measure to force these plate holders to provide their work addresses for the purpose of citations — and expanded the categories of government workers who qualify for special protections. This session, the legislature has decided to expand that list again, never mind the consequences on local tax revenues, safety and fairness. …Given the overwhelming support from legislators, expect more categories to be added to the Confidential Records Program — and more public employees and their families being free to ignore some laws the rest of us must follow.

This is such a depressing story that I’ll close today with this bit of humor about bureaucracy in the Golden State.

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When I write about columns in the New York Times, I’m normally pointing out silly examples of bias or exposing absurd mistakes (with Paul Krugman deserving his own special category for sloppiness, as seen here, here, here, here, here, herehere, here, here, here, here, and here).

But every so often, there’s an insightful piece that is worth sharing rather than worth mocking. And that’s the case with a column by Claire Cain Miller on the unintended negative consequences of policies that ostensibly are supposed to help women but actually hurt them.

In Chile, a law requires employers to provide working mothers with child care. One result? Women are paid less. In Spain, a policy to give parents of young children the right to work part-time has led to a decline in full-time, stable jobs available to all women — even those who are not mothers. Elsewhere in Europe, generous maternity leaves have meant that women are much less likely than men to become managers or achieve other high-powered positions at work.

Why all these bad results, which seemingly are contrary to the intentions of lawmakers?

…these policies often have unintended consequences. They can end up discouraging employers from hiring women in the first place, because they fear women will leave for long periods or use expensive benefits.

Amen. You don’t make workers more attractive to employers with laws and regulations that increase the real and/or potential costs of employing those workers.

The column cites some research on the impact of the Family and Medical Leave Act in the United States. As well as the harmful effect of similar laws in other nations.

Women are 5 percent more likely to remain employed but 8 percent less likely to get promotions than they were before it became law, according to an unpublished new study by Mallika Thomas, who will be an assistant professor of economics at Cornell University. …These findings are consistent with previous research by Francine Blau and Lawrence Kahn, economists at Cornell. In a study of 22 countries, they found that generous family-friendly policies like long maternity leaves and part-time work protections in Europe made it possible for more women to work — but that they were more likely to be in dead-end jobs and less likely to be managers.

The bottom line is that government intervention is not a recipe for helping people, especially once you factor in the effect of unintended consequences.

Speaking of which, I made the same argument when looking at a government proposal to help those struggling with long-run unemployment.

All of which tells us that you must have asked a very silly question if the answer is more government.

P.S. My favorite articles and columns from the New York Times are the ones that accidentally show the superiority of small government and free markets.

P.P.S. Since I wrote the other day about the wisdom of allowing successful foreigners to emigrate to the United States, here’s a related graphic.

Maybe I’m missing something, but doesn’t this suggest we should welcome more Indians to America?

After all, the economy isn’t a fixed pie and sensible folks understand that the rest of us benefit when there are more rich and successful people.

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I almost feel sorry for my leftist friends. Whenever there’s a story about a crazed shooter, they invariably speculate that it’s someone affiliated with the Tea Party. So they must be sad when it turns out to be a random nut or in some cases a leftist.

Similarly, when the news broke a few days ago about the Amtrak derailment, they instantly decided that the crash was the result of inadequate handouts from Washington. So imagine how forlorn they must be since it turns out the bureaucrat in charge of the train was traveling at about twice the appropriate speed.

But let’s set aside the tender feelings of our statist buddies and look to see whether there are any policy lessons to learn from the recent Amtrak tragedy.

Writing for National Review, Kevin Williamson makes a key point that Amtrak, like other parts of government, is first and foremost focused on maximizing the amount of money that can be extracted from taxpayers.

…everything from the stimulus bill to regular appropriations has spent billions of dollars on Amtrak, and Amtrak still failed to install the speed-control system that was supposed to be completed this year — a system that the NTSB and others believe would have prevented this accident. So, the “investments” in safety systems have produced no safety system. Where does Amtrak spend its money? Almost every dime of ticket revenue is spent on personnel — salaries, benefits, bonuses, etc.  Amtrak can’t be bothered to finish up a safety system on time. But did Amtrak CEO Joseph Boardman ever miss a nickel of his $350,000-a-year salary? No. Did Amtrak fail to pay employee bonuses? No—in fact, it paid bonuses to people who weren’t even eligible for them, and then refused to rescind them once it was pointed out that they were unauthorized. So Amtrak took care of Amtrak’s priorities, just like every other government agency. But Amtrak’s priorities are not its customers’ priorities.

In other words, the culture at Amtrak is to maximize goodies from government, not to maximize profits, which is the culture at a real company.

And the beneficiaries are the overpaid bureaucrats who operate Amtrak, as well as the insiders (like Joe Biden’s son) who get special appointments to Amtrak’s board of directors.

So what, then, is the solution?

As explained by Jeffrey Dorfman, an economics professor at the University of Georgia, it’s time to wean Amtrak from the public teat.

…within two days liberal politicians had seized on the occasion to demand larger subsidies for Amtrak. In fact, the events of last week show the precise opposite-Amtrak should not receive a larger subsidy, but rather should be sold off and privatized. Currently, Amtrak receives more than $1 billion in funding from Congress although it still manages to lose money. …This leads to the question of why Americans taxpayers should subsidize a rail service that only somewhere around one or two percent of Americans actually use. The clear and obvious answer is that they should not be. While Democratic leaders are calling for more federal funding, the problem is not a lack of subsidies but instead that Amtrak’s leadership is divided between serving its customers and serving the political benefactors who provide it with about $1.4 billion per year. If Amtrak was privatized, it could focus solely on serving its customers. If those customers were concerned with safety, then Amtrak would prioritize safety improvements because that would be a necessary step to staying in business.

Moreover, Amtrak would have the incentive to behave rationally if it wasn’t sponging off taxpayers.

If sold for a fairly low valuation for a railroad, Amtrak would sell for around $6.5 to $7 billion. …the federal government would save the $1.4 billion each year that it has been providing to Amtrak. After privatization, Amtrak will know that federal government subsidies are not available to it and will focus on serving its customers and turning a profit. That may mean that some routes are discontinued or continue operating with fewer scheduled trains. At the same time, some routes, such as those in the northeast corridor, may see an increase in the quality and frequency of service as Amtrak responds to the level of consumer demand in the free market.

Notwithstanding the recent accident, trains actually are very safe. And in the absence of government meddling, a private rail company would have the right incentives to produce the correct amount of investments in safety.

Train travel is already ten times safer than driving in terms of deaths per mile traveled. It is possible that riders do not want to pay more for train tickets in exchange for safety improvements. After all, Amtrak is actually ahead of many private railroads in installing the positive train control safety systems. However, if riders demand it, a private, profit-oriented railroad will provide it.

P.S. Here’s a personal story to give you a sense of Amtrak’s misguided culture.

P.P.S. The good news, for what it’s worth, is that Amtrak is a bargain for taxpayers compared to the rail boondoggle taking place in California. And I guess we should be happy that we don’t have the Chinese version of Amtrak.

P.P.P.S. Don’t carry a lot of cash if you’re a young black male and riding Amtrak.

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