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While the Bureaucrat Hall of Fame and Moocher Hall of Fame already exist, the Hypocrite Hall of Fame is just a concept.

But once it gets set up, Congressman Alan Grayson of Florida will definitely be a charter member.

Here are some passages from a column in the Tampa Bay Times.

U.S. Rep. Alan Grayson, the outspoken, populist Democrat who thunders against Wall Street fat cats,and used to to joke about Mitt Romney’s low tax bill, incorporated a couple hedge funds in the Cayman Islands so investors could avoid taxes. Grayson Fund Ltd. and Grayson Master Fund were incorporated in 2011 in the Cayman Islands… That was the same year he wrote in the Huffington Post that the IRS should audit every Fortune 500 company because so many appear to be “evading taxes through transfer pricing and offshore tax havens.”

But apparently Grayson only wants other people to cough up more money to Washington.

Grayson’s financial disclosure statements indicate he has between $5-million and $25-million invested in the Grayson fund, and he lists no income from it.

The above sentence frankly doesn’t make sense. How can Grayson have millions of dollars of personal wealth and not generate any income?

The only plausible answer is that he’s just as bad at managing his own money as he is at managing the money of taxpayers (he “earned” an F from the National Taxpayers Union).

In any event, Grayson has plenty of company from fellow leftists who also use tax havens.

Including Treasury Secretary Jacob Lew.

And the President’s top trade negotiator.

Along with big donors to Obama.

Joined by huge donors to Democrats.

Politicians from Massachusetts also are hypocrites. They endorse higher taxes on everyone else, but use neighboring states to protect themselves from oppressive taxation. John Kerry is a prime example, as are run-of-the-mill hacks from the state legislature.

The on-air “talent” at MSNBC also has trouble obeying tax laws. At least Bill and Hillary Clinton have figured out how to legally dodge taxes while endorsing higher burdens for the rest of us.

Though I must admit that the really smart pro-tax statists simply choose to work at places where they’re exempt from taxation. Hey, nice “work” if you can get it.

P.S. Nothing written here should be construed as criticism of tax havens, which are very admirable places.

I’m just irked when I discover that greedy pro-tax politicians are protecting their own money while pillaging our money.

P.P.S. By the way, it’s worth noting that the Cayman Islands is basically a conduit for investment in America’s economy.

Here’s a chart, prepared by the Treasury Department, showing that “Caribbean Banking Centers” are the biggest source of investment for America’s financial markets.

And the reason why the Cayman Islands are a platform for investment to the United States is that America is a tax haven for foreigners, assuming they follow certain rules.

P.P.P.S. Since today’s topic deals with international taxation, here’s an update on “FATCA,” which arguably is the worst provision in the entire tax code.

Here are some passages from a recent column in the New York Times.

…recent efforts by the United States Congress to capture tax revenues on unreported revenues and assets held in foreign accounts are having disastrous effects on a growing number of Americans living abroad. The Foreign Account Tax Compliance Act, or Fatca, signed into law in March 2010 but only now coming into full effect, has been a bipartisan lesson in the law of unintended consequences. Pressure is growing to halt its pernicious impact.

I agree the law is a disaster and that pressure is growing to ameliorate its negative effects, but we need more lawmakers like Rand Paul if we want to translate unhappiness into action.

Here are further details from the column.

The bureaucratic burden of identifying, verifying and reporting has caused many banks to regard American clients, particularly those of moderate means, as more trouble than they are worth. Middle-class Americans living abroad are losing bank accounts and home mortgages and, in some cases, having their retirement savings exposed to debilitating taxes and penalties. …Those impacted are left with the choice of uprooting their families (including foreign spouses and children), careers and businesses to re-establish a life in the United States; or to make the painful decision to renounce their citizenship.

No wonder so many Americans are put in a position where they have to give up their passports and become foreigners.

But here’s the really frightening part.

Worse yet, the law has spawned a potentially more intrusive program known as the Global Account Tax Compliance Act, or Gatca. The proposal, developed by the Organization for Economic Cooperation and Development, calls for data from accounts opened by a foreign national to be automatically reported to that person’s homeland tax authorities. While Gatca is in an early stage of negotiation and implementation, observers believe that as many as 65 countries will ultimately be involved. Fatca, and by extension Gatca, are forming more links in the chain of global government snooping into the lives of innocent individuals under the guise of identifying criminals and tax cheats. For Americans, it is a massive breach of the Fourth Amendment, which forbids unreasonable search and seizure. The repeal of Fatca is the only way to end this dangerous and growing government overreach.

I’ve been warning about this awful outcome for almost four years, so it’s good to see more people are recognizing the danger.

And if you want more details, Richard Rahn and David Burton have explained why these awful policies will lead to bigger government and more statism.

P.P.P.P.S. I’m sure nobody will be surprised to learns that Obama has played a destructive role in these debates.

After all, tax havens and tax competition inhibit government growth and Obama wants the opposite outcome.

If I had to pick a government policy that would be most upsetting to our Founding Fathers, I’d be tempted to pick the income tax. Or maybe some useless agency, such as the Department of Housing and Urban Development.

After all, surely the Founders didn’t envision – or want – today’s Leviathan government in Washington.

But I also know I’m biased since I work on fiscal policy issues.

So upon further reflection, I think the policy that would be most horrifying to the Founding Fathers is so-called civil asset forfeiture, a.k.a., theft by government.

You may think I’m joking or exaggerating, but theft is the right word when you look at how citizens (such as the Dehko family and Lyndon McClellan) have had their bank accounts seized even though they were never even charged with a crime, much less ever committed a crime.

And now we have a new example that would have the Founders rolling in their graves, but also should get every decent person angry.

Reason has a report with the odious details.

…the Drug Enforcement Administration (DEA), is snatching the life savings of a young black male for the crime of being alone on a train. The man, Joseph Rivers, 22, was traveling from Michigan to Los Angeles by train with $18,000 in cash to pay for a music video. In Albuquerque, DEA agents boarded the train and started asking people questions. They got to Rivers, who told him he was going to shoot a music video and agreed to let them search his stuff.

Now put yourself in the mind of Mr. Rivers. You’re not committing a crime. You’re not in possession of any drugs or other illicit substances.

Agents ask to search your stuff as part of their snooping on the train and you figure being cooperative is the best way of allaying suspicion (regardless of whether the DEA used profiling).

And what’s your reward for being cooperative?

The Reason report then shares some very ugly passages from a story in the Albuquerque Journal.

Rivers was the only passenger singled out for a search by DEA agents – and the only black person on his portion of the train… In one of the bags, the agent found the cash, still in the Michigan bank envelope.

Mr. Rivers explained why he had the money, but it didn’t do any good.

“I even allowed him to call my mother, a military veteran and (hospital) coordinator, to corroborate my story,” Rivers said. “Even with all of this, the officers decided to take my money because he stated that he believed that the money was involved in some type of narcotic activity.” Rivers was left penniless.

Here’s perhaps the most disturbing part of the story is the way government bureaucrats openly admit that they can take money without any criminal charges, much less a conviction for any crime.

“We don’t have to prove that the person is guilty,” Waite said. “It’s that the money is presumed to be guilty.”

Just imagine how the Founding Fathers, if they were still around, would react to the statements of this bureaucrat?

Imagine what they would think of a policy that gave bureaucrats arbitrary powers to take money from citizens?

By the way, I’m not asking these rhetorical questions because I have some inside knowledge that Mr. Rivers is a stand-up guy. Maybe his story was fake and he actually was going to buy illegal drugs.

So what?

I’m tempted to point out at this point the foolishness of the Drug War, but that’s the point I want to make today. Heck, we can assume he had $18,000 because he intended to commit a real crime. Perhaps he was going to pay a hit man to kill someone.

At the risk of being repetitive, so what?

Our Constitution was set up to constrain the powers of government and protect citizens from abuse by government. We have a 4th Amendment to protect us from unreasonable search and seizure and we have the presumption of innocence so that we can’t be punished unless that’s the outcome of a proper legal proceeding.

Needless to say, allowing agents to steal money from train passengers is not what the Founding Fathers had in mind.

In a just society, there shouldn’t be shortcuts which trample people’s rights. Real police work should be used to amass evidence of real crimes, which then should be used in real courts where a jury can decide on guilt.

Let’s close with a few more passages from the Albuquerque story.

Rivers, 22, wasn’t detained and has not been charged with any crime since his money was taken last month. That doesn’t matter. Under a federal law enforcement tool called civil asset forfeiture, he need never be arrested or convicted of a crime for the government to take away his cash, cars or property – and keep it. Agencies like the DEA can confiscate money or property if they have a hunch, a suspicion, a notion that maybe, possibly, perhaps the items are connected with narcotics. Or something else illegal.Or maybe the fact that the person holding a bunch of cash is a young black man is good enough. …Meanwhile, Rivers is back in Michigan, dreaming, praying. “He’s handed this over to God,” his attorney said. Which seems infinitely safer than handing over anything further to government agents.

Amen.

I’ll make one final point.

In the absence of some evidence to the contrary, I’m not going to accuse the DEA agents of racial profiling. After all, government agents have stolen money from plenty of white people.

But I strongly suspect there was economic profiling. If Mr. Rivers was a 50-year old white guy in a business suit, the DEA probably wouldn’t have confiscated the money.

That doesn’t mean, by the way, that 50-year old white guys should rest easy. When government bureaucrats get away with stealing money from young people without power and connections, it’s probably just a matter of time before others get victimized as well.

Just keep in mind that slippery slopes are very slippery when government is involved.

P.S. Also keep in mind that asset forfeiture has become such an abusive nightmare that the first two heads of that division of the Justice Department now say the policy should be abolished.

P.P.S. I don’t know what’s riskier, riding trains while black or banking while Russian?

P.P.P.S. On a separate matter, the good people at the Competitive Enterprise Institute periodically measure the overall cost of regulation and red tape on the American economy. Their latest version of Ten Thousand Commandments was just released and it is very depressing reading.

Here are two charts (out of many) from the study. The first looks at the annual cost of federal rules.

The second chart looks at how the regulatory burden has grown over time.

As I said, very depressing. No wonder Santa Claus wasn’t happy with the end-of-year gifts he received last year from the Obama Administration.

In the past week, I’ve written two columns (here and here) extolling the benefits of federalism.

So I now feel compelled to warn that my support for decentralization is not motivated by some Pollyannish view of sub-national governments.

State and local government officials are perfectly capable of adopting policies that lead to the absurd waste of taxpayer money and grotesque abuse of citizens.

And they also are just as proficient at sleaze as their cousins in Washington.

Politico has a sobering report on pervasive state-level corruption. They start with a rundown of what’s been happening with the criminal class in the Empire State.

Other states have plenty of corruption, but it’s hard to beat New York when it comes to sheer volume. The criminal complaint Monday against Dean Skelos, the state Senate majority leader, and his son Adam came just three months after charges were brought against Sheldon Silver, then the Assembly Speaker. Having the top leaders in both chambers face criminal charges in the same session is an unparalleled achievement, but Skelos is now the fifth straight Senate majority leader in Albany to face them. …Senate Republicans are standing by Skelos, but if they decide to make a change, they probably won’t turn to Thomas Libous, the chamber’s Number Two leader. He faces trial this summer on charges of lying to the FBI… All told, more than two dozen members of the New York state legislature have been indicted or resigned in disgrace over the past five years.

New York seems to breed corruption, probably because it is a profligate state and there is a well-established relationship between the size of government and the opportunities for malfeasance.

But other states are doing their best to show corruption and government go hand in hand.

Silver was one of four state House Speakers to face criminal charges over the past year (Alabama, Rhode Island and South Carolina are home to the others). In Massachusetts, three Speakers prior to current incumbent Robert DeLeo all resigned and pleaded guilty to criminal charges. When Dan Walker died last week, it was hard for obituary writers not to note that he was one of four Illinois governors over the past five decades who ended up in prison. …Give any U.S. attorney a year and 10 FBI agents and he or she can probably come back from the state capital with a passel of indictments.

At some point, even non-libertarians need to recognize that 2+2=4. In other words, the evidence is overwhelming that the public sector is a breeding ground for corruption because it is premised on buying votes with other people’s money.

Which is the basic message of my First Theorem of Government.

By the way, I’m not making a partisan point. It should be obvious from the story cited above, but I’ll reiterate that Republicans are just as capable of venal behavior as their opponents.

And don’t delude yourself into thinking that “principled” Democrats are immune to sleazy behavior.

Here’s the video I narrated explaining how bloated government enables corruption.

P.S. You can enjoy some government corruption humor here, here, here, here, and (my personal creation) here.

P.P.S. If you’re a fan of Barack Obama, you may be pleased to know that we’re setting records as a result of his policies.

We already know America has experienced a record drop in labor force participation.

And we also have a new record for weakest recovery since the Great Depression.

As well as a record for declining household income.

Now we have a new record. More Americans than ever before have decided to give up U.S. citizenship. Here are some of the details from a Bloomberg report.

More Americans living outside the U.S. gave up their citizenship in the first quarter of 2015 than ever before, according to data released Thursday by the IRS. The 1,335 expatriations topped the previous record by 18 percent, according to data compiled by Bloomberg. Those Americans are driven to turn in their passports in part because of laws that have expanded bank reporting and tax compliance requirements for expatriates. The increase in early 2015 follows an annual record in 2014, when 3,415 Americans gave up their citizenship. An estimated 6 million U.S. citizens are living abroad, and the U.S. is the only country within the Organization for Economic Cooperation and Development that taxes citizens wherever they reside.

Here’s one example from the story.

“The cost of compliance with the complex tax treatment of non-resident U.S. citizens and the potential penalties I face for incorrect filings and for holding non-U.S. securities forces me to consider whether it would be more advantageous to give up my U.S. citizenship,” Stephanos Orestis, a U.S. citizen living in Oslo, wrote in a March 23 letter to the Senate Finance Committee. “The thought of doing so is highly distressing for me since I am a born and bred American with a love for my country.”

There are two lessons from this story.

  • First, it is absurd that our tax laws are so onerous (even worse than France in this regard) that some people feel compelled to give up American citizenship.
  • Second, while there are lots of ordinary Americans who are being pushed to give up their passports (folks married to foreigners, for instance), the average expatriate presumably has above-average income and is an asset to be welcomed rather than a burden to be repelled.

But such considerations don’t matter to politicians who like to demagogue about the supposed pot of gold at the end of the rainbow of overseas Americans. So we get awful laws like FATCA.

America has a giant long-run problem largely caused by poorly designed entitlement programs such as Social Security, Medicare, and Medicaid.

So when I wrote last month about proposals by some Democrats to expand Social Security, I was less than enthusiastic.

…demographic changes and ill-designed programs will combine to dramatically expand the size of the public sector over the next few decades. So it’s really amazing that some politicians, led by the clownish Elizabeth Warren, want to dig the hole deeper. …I’m surprised demagogues such as Elizabeth Warren haven’t rallied behind a plan to simply add a bunch of zeroes to the IOUs already sitting in the so-called Social Security Trust Fund. …If Hillary winds up endorsing Warren’s reckless plan, it will give us another data point for our I-can’t-believe-she-said-that collection.

But it turns out I may have been too nice in my analysis.

As reported by USA Today, independent researchers have discovered that Social Security is even more bankrupt than suggested by official estimates.

New studies from Harvard and Dartmouth researchers find that the SSA’s actuarial forecasts have been consistently overstating the financial health of the program’s trust funds since 2000. “These biases are getting bigger and they are substantial,” said Gary King, co-author of the studies and director of Harvard’s Institute for Quantitative Social Science. “[Social Security] is going to be insolvent before everyone thinks.” …Once the trust funds are drained, annual revenues from payroll tax would be projected to cover only three-quarters of scheduled Social Security benefits through 2088.

By the way, I’m not overly enamored with this analysis since it is based on the assumption that the Social Security Trust Fund is real when it’s really nothing but a collection of IOUs.

But if you don’t believe me, perhaps you’ll believe the Clinton Administration, which admitted back in 1999 (see page 337) that the Trust Fund is just a bookkeeping gimmick.

These balances are available to finance future benefit payments and other trust fund expenditures–but only in a bookkeeping sense. …They do not consist of real economic assets that can be drawn down in the future to fund benefits. Instead, they are claims on the Treasury, that, when redeemed, will have to be financed by raising taxes, borrowing from the public, or reducing benefits or other expenditures.

In other words, what really matters is that Social Security spending is climbing too fast and consuming an ever-larger share of economic output.

That means – in the absence of reform – that more and more money will be diverted from the economy’s productive sector, in the form of taxes or borrowing, to finance benefits.

And when I write “more and more money,” that’s not a throwaway statement.

Returning to the USA Today report, academic experts warn that the long-term shortfall in the program is understated because it is based on 75-year estimates even though the program doesn’t have an expiration date.

The bigger problem with the Social Security Administration is not disclosure, it’s accounting, said Laurence Kotlikoff, a Boston University professor of economics… Kotlikoff…wants the agency to calculate its liabilities using fiscal gap accounting, which considers the difference between the government’s projected financial obligations and the present value of all projected future tax and other revenue. …Under this accounting system, SSA’s projected unfunded liabilities would be $24.9 trillion (instead of the $10.6 trillion projected in 2088). …17 Nobel Prize-winning economists have endorsed Kotlikoff’s push for the SSA and other government agencies to use the fiscal gap accounting method more broadly. “We have a situation that is like Enron accounting,” Kotlikoff said. “And the public doesn’t want to hear about it.”

At the risk of being pedantic, I’m also not enamored with either approach mentioned in the above passage.

Sure, we should acknowledge all expenses and not arbitrarily assume the program disappears after 75 years, but the approach used to calculate “unfunded liabilities” is artificial since it is based on how much money would need to be invested today to finance future promised benefits (whether for 75 years or forever).

Needless to say, governments don’t budget by setting aside trillions of dollars to meet future expenses. Social Security, like other programs, is funded on a pay-as-you-go basis.

That’s why the most appropriate way to measure the shortfall is to take all projected future deficits, adjust them for inflation, and calculate the total. When you do that, the Social Security shortfall is a staggering $40 trillion.

And that’s based on just a 75-year estimate, so the real number is much higher.

Though keep in mind that this is just an estimate of the fiscal shortfall. What really matters is the total level of spending, not how much is financed with red ink.

Which is why the only real answer is genuine reform.

For further information, here’s the video I narrated for the Center for Freedom and Prosperity on the need to modernize the system with personal retirement accounts.

But if you prefer to trust politicians, you can always support the left’s favored solution.

P.S. You can enjoy some previous Social Security cartoons here, here, and here. And we also have a Social Security joke if you appreciate grim humor.

P.P.S. The “Trust Fund” is real only in the sense that the government’s legal authority to pay benefits will be constrained when the IOUs are used up. That’s why the USA Today article says that the government at that point would be able to pay only about 3/4ths of promised benefits (though one imagines that future politicians will simply override that technical provision and require full payments).

P.P.P.S. Many nations have adopted genuine reform based on private retirement savings, including Australia, Sweden, the Faroe Islands, Chile, and The Netherlands.

P.P.P.P.S. Because of lower life expectancies, African-Americans are very disadvantaged by the Social Security system. A system of personal accounts presumably wouldn’t help them live longer, but at least they would have a nest egg to pass on to their kids.

P.P.P.P.P.S. And don’t fall for the false argument that financial markets are too unstable for personal retirement accounts

Civil disobedience is a powerful and traditional way for Americans to resist bad government policy.

The most famous example is the way civil rights leaders used disobedience (and armed self defense) to help end the Jim Crow laws imposed by state governments.

It’s also encouraging that gun owners have no intention of obeying bad gun control laws, with evidence of massive resistance to bad laws in states such as Connecticut, Colorado, and New York.

And motorists ended the use of speed (i.e., revenue) cameras in Arizona in part by simply ignoring the fines that arrived in the mail (folks in Houston needed to use a referendum).

These are encouraging stories, but we also need to be realistic about the fact that most Americans meekly comply with lots of other bad laws and regulations imposed by greedy and overbearing governments.

The regulatory burden in the United States has become absurd, for instance, but it’s difficult to envision a successful strategy to resist various bureaucratic impositions.

Until now.

The great scholar Charles Murray has a column in the Wall Street Journal about fighting back against the regulatory state.

He begins with a very depressing assessment.

America is no longer the land of the free. We are still free in the sense that Norwegians, Germans and Italians are free. But that’s not what Americans used to mean by freedom. It was our boast that in America, unlike in any other country, you could live your life as you saw fit as long as you accorded the same liberty to everyone else. …with FDR’s New Deal and the rise of the modern regulatory state, our founding principle was subordinated to other priorities and agendas. What made America unique first blurred, then faded, and today is almost gone.

In some sense, we’ve been buried by red tape.

…consider just the federal government. The number of federal crimes you could commit as of 2007 (the last year they were tallied) was about 4,450, a 50% increase since just 1980. A comparative handful of those crimes are “malum in se”—bad in themselves. The rest are “malum prohibitum”—crimes because the government disapproves.

This is something that we’ve already discussed. I made the distinction just the other day between real crimes (which involve an infringement on someone else’s life, liberty, and property) and innocent behavior that is criminalized by government.

But it’s even worse when folks have no idea how to be compliant.

Everyone knows how to obey the laws against robbery. No individual can know how to “obey” laws such as Sarbanes-Oxley (810 pages), the Affordable Care Act (1,024 pages) or Dodd-Frank (2,300 pages). We submit to them. The laws passed by Congress are just the beginning. In 2013, the Code of Federal Regulations numbered over 175,000 pages.

Especially when constitutional protections are weakened.

It gets worse. If a regulatory agency comes after you, forget about juries, proof of guilt beyond a reasonable doubt, disinterested judges and other rights that are part of due process in ordinary courts. The “administrative courts” through which the regulatory agencies impose their will are run by the regulatory agencies themselves, much as if the police department could make up its own laws and then employ its own prosecutors, judges and courts of appeals.

And the insult to injury is that many regulations make no sense.

Regulations that waste our time and money are bad enough. Worse are the regulations that prevent us from doing our jobs as well as we could—regulations that impede architects from designing the most functional and beautiful buildings that would fit their clients’ needs, impede physicians from exercising their best judgment about their patients’ treatment, or impede businesses from identifying the best candidates for job openings. …Public-school teachers typically labor under regulatory regimes that prescribe not only the curriculum but minutely spell out how that curriculum must be taught—an infantilization of teachers that drives many of the best ones from the public schools.

So what’s the solution?

You can fight these bureaucrats in their kangaroo courts, or maybe even force the case into a real court.

But Murray acknowledges that this is prohibitively expensive.

…when the targets of the regulatory state say they’ve had enough, that they will fight it in court, the bureaucrats can—and do—say to them, “Try that, and we’ll ruin you.”

Charles has an idea of how to overcome this problem.

…the regulatory state is the Wizard of Oz: fearsome when its booming voice is directed against any single target but, when the curtain is pulled aside, revealed as impotent to enforce its thousands of rules against widespread refusal to comply. And so my modest proposal: Let’s withhold that compliance through systematic civil disobedience. Not for all regulations, but for the pointless, stupid and tyrannical ones.

More specifically.

…it should be OK to ignore the EPA when it uses a nonsensical definition of “wetlands” to forbid you from building a home on a two-thirds-acre lot sandwiched between other houses and a paved road…there’s no reason for the government to second-guess employer and employee choices on issues involving working hours and conditions that don’t rise to meaningful definitions of “exploitation” or “unsafe.” …Let’s just ignore them and go on about our lives as if they didn’t exist.

That’s sounds nice, but how does one overcome the risk of discriminatory and abusive prosecution and persecution by miffed bureaucrats?

Here’s the clever proposal Charles has for the private sector.

Let’s treat government as an insurable hazard, like tornadoes. …let’s buy insurance that reimburses us for any fine that the government levies and that automatically triggers a proactive, tenacious legal defense against the government’s allegation even if—and this is crucial—we are technically guilty. Why litigate an allegation even if we are technically guilty? To create a disincentive for overzealous regulators. The goal is to empower citizens to say, “If you come after me, it’s going to cost your office a lot of time and trouble, and probably some bad publicity.”

People presumably will be willing to fight if they have some free talent coming to their defense.

I propose…a legal foundation functioning much as the Legal Services Corporation does for the poor, except that its money will come from private donors, not the government. It would be an altruistic endeavor, operating exclusively on behalf of the homeowner or small business being harassed by the regulators. The foundation would pick up all the legal costs of the defense and pay the fines when possible.

Here’s the bottom line.

The measures I propose won’t get the regulations off the books, nor will they improve the content of those regulations, but they will push the regulatory agencies, kicking and screaming, toward a “no harm, no foul” regime. They will be forced to let the American people play.

And if you want to see this strategy in the form of a picto-graph, this is a very helpful depiction.

I mentioned yesterday that I was in Poland for a Liberty Fund conference.

After the conference, I had the opportunity to visit the Solidarity Museum, which commemorated the 1980 protests against communism at the Gdansk shipyards.

Here’s an image that warmed my heart. One of the rooms had a tape of Poland’s communist dictator announcing martial law. Here’s a screen capture of him saying there’s no turning back from socialism.

Gee, that didn’t turn out to be the case.

Indeed, Poland is now a reasonably good example of how markets enable higher living standards.

And that speech should be a permanent memorial about the evil of communism. And if you want further reminders, click here, here, and here.

I wrote just yesterday about new evidence showing that decentralized government is more efficient.

Part of the reason is because local governments are easier for voters to monitor and more likely to reflect the actual preferences of residents.

Another reason is tax competition. It’s relatively easy to “vote with your feet” by moving from one community to another, and this makes it difficult for interest groups and politicians to impose excessive tax burdens.

Now we have some serendipity.

I’m in Gdansk, Poland, for a Liberty Fund seminar on “Economic Growth, Entrepreneurship, and the Future of the Welfare State.”

Two of the readings, by great scholars from the Austrian school of economics, had passages about the importance of decentralization.

In 1960, here’s some of what Friedrich Hayek wrote in his classic, The Constitution of Liberty.

While it has always been characteristic of those favoring an increase in governmental powers to support maximum concentration of these powers, those mainly concerned with individual liberty have generally advocated decentralization. There are strong reasons why action by local authorities offers the next-best solution…it has many of the advantages of private enterprise and fewer of the dangers of coercive action by government. Competition between local authorities or between larger units within an area where there is freedom of movement…will secure most of the advantages of free growth. Though the majority of individuals may never contemplate a change of residence, there will usually be enough people, especially among the young and more enterprising, to make it necessary for the local authorities to provide as good services at a reasonable costs as their competitors. It is usually the authoritarian planner who…supports the centralist tendencies.

I should have remembered that quote from my collection of pro-tax competition statements by Nobel laureates.

In any event, I’m glad my memory was refreshed.

And here’s some of what Ludwig von Mises wrote in his 1944 book, Omnipotent Government. He approached the issue from the opposite direction, explaining that proponents of redistribution needed centralization so their intended victims couldn’t escape by moving across city borders.

Every step toward more government interference and toward more planning means at the same time an expansion of the jurisdiction of the central government. …It is a very significant fact that the adversaries of this trend toward more government control describe their opposition as a fight against Washington…against centralization. …This evolution is not accidental. It is the inevitable outcome of policies of interference and planning. …There can be no question of adopting these measure for only one state. It is impossible to raise production costs within a territory not sheltered by trade walls.

And remember that there’s academic evidence showing that decentralization limits redistribution.

So the statists were smart to oppose welfare reform, since that meant decentralization and less wasteful and counterproductive spending.

Just as the statists are smart to push for a nationwide sales tax cartel. And just as the statists are wise to push for an end to international tax competition.

All of which means, of course, that the rest of us (at least those of us who value liberty) should follow the wisdom of Hayek and Mises.

P.S. Hayek even has groupies.

P.P.S. And Hayek even came back to life for Part I and Part II of the Hayek v Keynes rap videos.

In early November of last year, I shared some remarkable data from a groundbreaking study published by the European Central Bank (ECB).

The study looking at public sector efficiency (PSE) in developed nations and found that “big governments spend a lot more and deliver considerably less.”

Later in the month, I wrote about a second ECB study that looked at a broader set of nations and further confirmed that smaller government produces better results.

The first ECB study clearly concluded that “small” government is more efficient and productive than either “medium” government or “big” government. Based on the second ECB study, we can conclude that it’s even better if government is…well, I guess we’ll have to use the term “smaller than small.”

Today, we can augment this research by looking at a new study from the International Monetary Fund.

The IMF’s new working paper on “Fiscal Decentralization and the Efficiency of Public Service Delivery” shows that it’s not only good to have small government, but that it’s also good to have decentralized government. Here are the main findings.

This paper analyzes the impacts of fiscal decentralization on the efficiency of public service delivery. …The paper’s findings suggest that fiscal decentralization can serve as a policy tool to improve performance… an adequate institutional environment is needed for decentralization to improve public service delivery. Such conditions include effective autonomy of local governments, strong accountability at various levels of institutions, good governance, and strong capacity at the local level. Moreover, a sufficient degree of expenditure decentralization seems necessary to obtain a positive outcome. And finally, decentralization of expenditure needs to be accompanied by sufficient decentralization of revenue to obtain favorable outcomes.

Here’s some explanation of why it’s better to have decisions made by sub-national governments.

Local governments possess better access to local preferences and, consequently, have an informational advantage over the central government in deciding which provision of goods and services would best satisfy citizens’ needs. …Local accountability is expected to put pressure on local authorities to continuously search for ways to produce and deliver better public service under limited resources, leading to “productive efficiency.” …Decentralization…encourages competition across local governments to improve public services; voters can use the performance of neighboring governments to make inferences about the competence or benevolence of their own local politicians… Fiscal decentralization may lead to a decrease in lobbying by interest groups.

I especially like the fact that the study recognized the valuable role of tax competition in limiting the greed of the political class.

The study also noted that genuine federalism leads to spending competition, though I get the impression that the authors seems to think this is a negative outcome.

Fiscal decentralization can also obstruct the redistribution role of the central government.

For what it’s worth (and based on previous academic research), I agree that decentralization makes it harder for government to be profligate.

But that’s a good thing. I want to “obstruct” economically destructive redistribution.

Now let’s look at the specific finding from the study.

…expenditure decentralization seems to improve the efficiency of public service delivery in advanced economies… To quantify this effect, one could say that a 5 percent increase in fiscal decentralization would lead to 2.9 percentage points of efficiency gains in public service delivery. …about one third of public expenditure would need to be shifted to the local authorities to obtain positive outcomes from fiscal decentralization.

Though it’s worth emphasizing that decentralization works when the sub-national levels of government are completely responsible for raising and spending their own money.

Revenue decentralization shows positive and statistically significant impacts on public service delivery for advanced economies and emerging economies and developing countries. …These findings might imply the need to accompany expenditure decentralization with sufficient revenue decentralization to ensure improvement of performance.

I’ve already argued that federalism is good politics and good policy.

Now we have evidence that it’s good government.

And who would have guessed that the normally statist IMF would be the bearer of this good news.

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