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Posts Tagged ‘Government intervention’

The good news is that some honest leftists have thrown in the towel and now openly admit that capitalism generates more prosperity.

They still don’t want free markets, of course. For ideological reasons, they continue to push for a big welfare state. But at least they admit their redistributionist policies lead to weaker economic performance. Perversely, they are willing to reduce living standards for poor people so long as rich people suffer even bigger drops in their income (in other words, Thatcher was right).

Many statists, though, realize that this is not a compelling agenda.

So they try to claim – notwithstanding reams of evidence – that bigger government somehow enables more growth.

And they’re crafty. Most of them are clever enough that they don’t embrace full-scale socialism. Instead, they push for an ad hoc approach based on subsidies, bailouts, social engineering, price controls, and other forms of intervention.

If you want to get technical, they’re actually pushing a variant of fascism, with nominal private ownership but government direction and control.

But let’s avoid that loaded term and simply call it cronyism.

In a column for the Washington Post, Nicholas Borroz observes that this approach exists all over the world.

China’s consolidation of its state-owned enterprises (SOEs), Russia’s oligarch-led economy, the proliferation of sovereign wealth funds (SWFs) and growing government intervention in the West are clear indicators of state-led capitalism… Controlling market activity gives governments obvious advantages when it comes to advancing political agendas at home and foreign policy abroad. …SWFs are an important feature of today’s global economic landscape; governments also use them as agents of statecraft. …State-led capitalism is even finding support in the West. …President Trump has bragged that he personally influences firms’ decisions about where to place their factories. …we have entered an era when state-led capitalism is firmly entrenched.

Unfortunately, I think Mr. Borroz is correct.

Though “state-led capitalism” an oxymoronic phrase.

Borroz also notes that the shift to cronyism reverses some of the progress that occurred at the end of the 20th century.

This is a dramatic reversal of the trend from two decades ago. In the 1990s, there was a rush around the world to liberalize economies. Capitalism’s defeat of communism made it seem that unfettered market activity was the key to success.

If you look at the data from Economic Freedom of the World, the period of liberalization actually began in the 1980s, but I’m being a nit-picker.

So let’s shift to parts of his column where I have substantive disagreements.

First, my jaw hit the proverbial floor when I read the part about the International Monetary Fund supposedly being a beacon of free-market reform.

Developing countries signed up with the International Monetary Fund’s structural adjustment programs (SAPs), gaining access to loans in exchange for adopting neoliberal economic prescriptions.

Since I’ve referred to the IMF as the “dumpster fire” or “Dr. Kevorkian” of the global economy, I obviously have a different perspective.

Though, to be fair, the bureaucrats at the IMF generally do advocate for deregulation and free trade. But they are bad news on fiscal policy and oftentimes misguided on monetary policy as well.

But here’s the part of the column that is even more galling. Borroz defends cronyism because free markets allegedly failed.

…a number of factors led to skepticism about free markets. One was the underwhelming developmental effect of SAPs and liberalization. …A further blow to the neoliberal model was a series of financial disasters caused by unrestricted flows of capital, notably the 1997 Asian financial crisis and the 2008 global financial crisis. Perhaps the factor that has most undermined neoliberalism’s attractiveness, though, is…countries with state-led economies, such as China and Russia…remain relevant not despite state intervention but because of it.

This is remarkably wrong. Three big mistakes in a handful of sentences.

  1. When IMF structural adjustment programs fail, that’s an unsurprising consequence of big tax increases, not the fault of capitalism.
  2. Government monetary policy deserves the bulk of the blame for financial crises with Fannie and Freddie also playing a role in the case of America.
  3. China and Russia are relevant from a geopolitical perspective, but their economies could be far more prosperous if government played a smaller role.

Heck, per-capita output in both China and Russia is far below U.S. levels, so the notion that they are role models is amazingly oblivious to reality.

Now let’s review some evidence about the downside of “state-led” economic policy.

The Economist notes that cronyism does not have a very successful track record.

Some argue it makes no sense for a government to place VC bets, directly or otherwise. …Massimo Colombo, an academic who studies government VC in Europe at the Polytechnic University of Milan, …admits that, when results are measured by jobs created or productivity boosted, the private sector is far better at deploying capital. Studying 25,000 government VC investments in 28 countries, between 2000 and 2014, he and colleagues concluded that they worked only when they did not compete directly with the private sector.

And research from three economists at Italy’s central bank specifically measured the loss of economic efficiency when governments operate and control businesses.

In OECD countries public services, especially at local level, are often provided by public enterprises (Saussier and Klien, 2014). Therefore, the efficiency of LPEs is important for the overall efficiency of the economy and the sustainability of public finances. …we are able to build a very detailed dataset that allows us to compare firms that are observationally equivalent, apart from the ownership indicator, thus making possible the definition of the appropriate set of comparison firms. …Although we focus on Italy, which represents a particularly interesting case to analyze for several reasons, the approach we have followed in this paper may be easily adapted to other countries. We find that the performance of Italian LPEs, measured in terms of total factor productivity, is on average lower than that of private enterprises by about 8%… our results show that the ownership structure is more important than the market structure in explaining the performance of LPEs with respect to their private sector counterparts. …Our results imply that policy measures aimed at privatizing LPEs (totally or, at least, partially) can improve their performance, by reducing the level of public control and promoting cost-benefit analysis for investments.

In other words, the type of statism doesn’t really matter.

The inevitable result is less growth and prosperity.

Which is why I advocate “separation of business and state.”

Simply stated, I want to reverse the data in this chart because I understand the data in this video and this chart.

P.S. If my statist friends disagree, accept my challenge and please show me a cronyist nation that is outperforming a market-oriented nation.

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As a policy wonk, I mostly care about the overall impact of government on prosperity. So when I think about the effect of red tape, I’m drawn to big-pictures assessments of the regulatory burden.

Here are a few relevant numbers that get my juices flowing.

  • Americans spend 8.8 billion hours every year filling out government forms.
  • The economy-wide cost of regulation reached $1.75 trillion in 2010.
  • For every bureaucrat at a regulatory agency, 100 jobs are lost in the economy’s productive sector.
  • A World Bank study determined that moving from heavy regulation to light regulation “can increase a country’s average annual GDP per capita growth by 2.3 percentage points.”
  • Regulatory increases since 1980 have reduced economic output by $4 trillion.
  • The European Central Bank estimated that product market and employment regulation has led to costly “misallocation of labour and capital in eight macro-sectors,” and also found that reform could boost national income by more than six percent.

But one thing I’ve learned over the years is that I’m not normal.

Most people don’t get excited about these macro-type calculations.

Instead they’re far more likely to get agitated by regulations that make their daily lives a hassle. Such as:

I certainly can sympathize. It’s galling that the clowns in Washington have made our existence less pleasant.

Most people also are quite responsive to anecdotes about red tape. Simply stated, big-picture numbers are like a skeleton, while real-world examples put meat on the bones.

Today, let’s look at some absurd examples of the regulatory state in action.

We’ll start with bone-headed pizza regulation, as explained by the Wall Street Journal.

FDA released guidance for posting calorie disclosures at restaurants with more than 20 locations, and the ostensible point is to help folks choose healthier foods. The regulations…are an outgrowth of the 2010 Affordable Care Act… The reason some restaurants have spent years fighting these rules is not because executives lay awake at night plotting how to make Americans obese. It’s because the rules are loco. …Take pizza companies, which have to display per slice ranges or the number for the entire pie. Calories vary based on what you order—the barbarians who put pineapple on pizza are consuming fewer calories than someone who chooses pepperoni and extra cheese. But the number of pepperonis on a pizza depends on the pie’s size and whether someone also adds onions and sausage. ..The rules are so vague that companies could face a crush of lawsuits, which will be abetted by this “nonbinding” FDA guidance.

By the way, you won’t be surprised to learn that academic researchers have found these types of rules have no effect on consumer choices.

A systematic review and meta-analysis determined the effect of restaurant menu labeling on calories and nutrients…were collected in 2015, analyzed in 2016, and used to evaluate the effect of nutrition labeling on calories and nutrients ordered or consumed. Before and after menu labeling outcomes were used to determine weighted mean differences in calories, saturated fat, total fat, carbohydrate, and sodium ordered/consumed… Menu labeling resulted in no significant change in reported calories ordered/consumed… Menu labeling away-from-home did not result in change in quantity or quality, specifically for carbohydrates, total fat, saturated fat, or sodium, of calories consumed among U.S. adults.

Shocking, just shocking. Next thing you know, somehow will tell us that Obamacare didn’t lower premiums for health insurance!

For our second example, we have a surreal story out of California.

A farmer faces trial in federal court this summer and a $2.8 million fine for failing to get a permit to plow his field and plant wheat in Tehama County. A lawyer for Duarte Nursery said the case is important because it could set a precedent requiring other farmers to obtain costly, time-consuming permits just to plow their fields. “The case is the first time that we’re aware of that says you need to get a (U.S. Army Corps of Engineers) permit to plow to grow crops,” said Anthony Francois, an attorney for the Pacific Legal Foundation. “We’re not going to produce much food under those kinds of regulations,” he said. …The Army did not claim Duarte violated the Endangered Species Act by destroying fairy shrimp or their habitat, Francois said. …Farmers plowing their fields are specifically exempt from the Clean Water Act rules forbidding discharging material into U.S. waters, Francois said.

Wow, sort of reminds me of the guy who was hassled by the feds for building a pond on his own property. Or the family persecuted for building a house on their own property.

Last but not least, our third example contains some jaw-dropping tidbits about red tape in a New York Times story.

Indian Ladder Farms, a fifth-generation family operation near Albany, …sells homemade apple pies, fresh cider and warm doughnuts. …This fall, amid the rush of commerce — the apple harvest season accounts for about half of Indian Ladder’s annual revenue — federal investigators showed up. They wanted to check the farm’s compliance… Suddenly, the small office staff turned its focus away from making money to placating a government regulator. …The investigators hand delivered a notice and said they would be back the following week, when they asked to have 22 types of records available. The request included vehicle registrations, insurance documents and time sheets — reams of paper in all. …the Ten Eyck family, which owns the farm, along with the staff devoted about 40 hours to serving the investigators, who visited three times before closing the books. …This is life on the farm — and at businesses of all sorts. With thick rule books laying out food safety procedures, compliance costs in the tens of thousands of dollars and ever-changing standards from the government…, local produce growers are a textbook example of what many business owners describe as regulatory fatigue. …The New York Times identified at least 17 federal regulations with about 5,000 restrictions and rules that were relevant to orchards. …Mr. Ten Eyck…fluently speaks the language of government compliance, rattling off acronyms that consume his time and resources, including E.P.A. (Environmental Protection Agency), OSHA (Occupational Safety and Health Administration), U.S.D.A. (United States Department of Agriculture) and state and local offices, too, like A.C.D.O.H. (Albany County Department of Health).

And here’s an info-graphic that accompanied the article.

Wow. No wonder a depressingly large share of the population prefers to simply get a job as a bureaucrat.

Needless to say, this is not a system that encourages and enables entrepreneurship.

Which is why deregulation is a good idea (and Trump deserves credit for making a bit of progress in this area). We need some sensible cost-benefit analysis so that bureaucracies are focused on public health rather than mindless rules.

And it also would be a good idea in many cases to rely more on mutually reinforcing forms of private regulation.

Since I’m a self-confessed wonk, I’ll close by sharing this measure of the ever-growing burden of red tape. I realize it’s not as attention-grabbing as anecdotes and horror stories, but it is very relevant if we care about long-run growth and competitiveness.

P.S. On the topic of regulation, I admit that this example of left-wing humor about laissez-faire dystopia is very clever and amusing.

P.P.S. I’ve used an apple orchard as an example when explaining why a tax bias against saving and investment makes no sense. I’ll now have to mention that the beleaguered orchard owner also has to deal with 5,000 regulatory restrictions.

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I’m not a fan of conspiracy theories. When people ask me whether there is some sinister, behind-the-scenes cabal running Washington, I tell them that petty corruption, self interest, and “public choiceare much better explanations for the nonsensical policies being imposed on the country.

So you won’t be surprised that rhetoric about the “deep state” rubs me the wrong way. If the term simply was used to describe D.C.’s bloated, self-interested, and left-leaning bureaucracies, that would be okay. But is seems that the phase also implies some sort of secret master plan on the part of shadowy insiders.

To be blunt, the people in Washington don’t have the competence to design, implement, and enforce any type of master plan. Yes, we have a Leviathan state, but it’s much more accurate to think of Uncle Sam as a covetous, obese, and blundering oaf (as illustrated by my collection of cartoons).

That being said, that oaf is not a friend of liberty, as explained in an article published by the Federalist.

…to make a government job more like the ones the rest of us have will require the president and Congress to undo more than a century of misguided, anti-democratic, and unconstitutional laws governing the civil service. …the bulk of the civil service—2.8 million bureaucrats—has become a permanent class of powerbrokers, totally unaccountable to the winds of democratic change. …incompetence and corruption are the least of the problems with the modern civil service. With 95-99 percent of political donations from government employees going to Hillary Clinton in the last election, it looks less like a system of apolitical administrators and more like an arm of the Democratic Party. …Civil service protections…have created a system that grows government and advances left-wing causes regardless of who the people elect.

Moreover, there is a structural feature of the Washington bureaucracy that gives it dangerous powers.

John Tierney’s column in the Wall Street Journal explains the problem of the “administrative state.”

What’s the greatest threat to liberty in America? …the enormous rogue beast known as the administrative state. Sometimes called the regulatory state or the deep state, it is a government within the government… Unelected bureaucrats not only write their own laws, they also interpret these laws and enforce them in their own courts with their own judges. All this is in blatant violation of the Constitution… Mr. Hamburger, 60, a constitutional scholar…says, sitting in his office at Columbia Law School… “The government can choose to…use an administrative proceeding where you don’t have the right to be heard by a real judge or a jury and you don’t have the full due process of law…” In volume and complexity, the edicts from federal agencies exceed the laws passed by Congress by orders of magnitude. “The administrative state has become the government’s predominant mode of contact with citizens,” Mr. Hamburger says. …“The framers of the Constitution were very clear about this,” Mr. Hamburger says…”Congress cannot delegate the legislative powers to an agency, just as judges cannot delegate their power to an agency.”

George Will elaborates, noting that “administrative law” is an affront to the Constitution’s principle of “rival branches.”

…the administrative state distorts the United States’ constitutional architecture…Clarence Thomas…is urging the judicial branch to limit the legislative branch’s practice of delegating its power to the executive branch. …This subject is central to today’s argument between constitutionalists and progressives. …Today, if Congress provides “a minimal degree of specificity” in the instructions it gives to the executive, the court, Thomas says, abandons “all pretense of enforcing a qualitative distinction between legislative and executive power.” …the principles Thomas has articulated “attack the very existence of the modern administrative state.” This state, so inimical to conservatism’s aspiration for government limited by a constitutional structure of rival branches… Woodrow Wilson…became the first president to criticize America’s founding, regretted the separation of powers because he thought modern government required a clerisy of unfettered administrators. …Today we are governed by Wilson’s clerisy, but it does not deliver what is supposed to justify the overthrow of James Madison’s constitutional system — efficient, admirable government.

Peter Wallison of the American Enterprise Institute adds some cogent analysis.

Although the Constitution places the federal legislative power in Congress, it is now increasingly — and alarmingly — flowing to administrative agencies that, unlike Congress, are not directly accountable to the public affected by their decisions. Unless we can find a solution to this problem—a way to curb and cabin the discretionary power of administrative agencies —decentralization and individual self-determination will eventually be brought to an end. …The framers believed that the tripartite structure of the federal government would be enough to prevent any one of the three branches from consolidating the power of government and becoming a danger to liberty. But with the growth of the administrative state, we may now be seeing exactly the consolidation of powers that Madison feared. …the judicial branch is supposed to be the final interpreter of the Constitution and thus the objective protector of the framework the Constitution ordains. But unfortunately, modern courts have generally failed to perform this role… America is an exceptional country in part because its constitutional framework has, until relatively recently, limited the government’s ability to centralize its control and restrain the nation’s diversity. If we are to avoid a dramatic over-centralization of power, the growth of the administrative state must be restrained.

In an article for National Review, Stanley Kurtz delves into the topic.

the gist of the growing conservative critique of the administrative state…focuses on a runaway bureaucracy’s threat to constitutional government. Congress has improperly delegated much of its law-making power to bureaucrats, who in turn have abusively expanded this authority. The courts, for their part, have turned a blind eye to the administrative power-grab. Meanwhile, agencies staffed by unelected bureaucrats now operate de facto courts. In effect, these agencies negate the separation of powers by simultaneously exercising legislative, executive, and judicial functions, the very definition of authoritarian rule. …governors and state legislators can be unaware of policy end-runs imposed by federal agreements with a state’s own bureaucrats. At both the state and federal levels, then, bureaucracy has broken loose and effectively turned into a national fourth branch of government. …The Founders designed our federalist system to secure liberty by dividing and disbursing power, and by ensuring that local and state governments would remain more accountable to citizens than a distant federal government ever could. In fundamental ways, however, the modern practice of conditioning federal grants on state acceptance of federal dictates undermines the Founders’ intent. …

Robert Gebelhoff of the Washington Post points out that this fight has major implications.

One of the legal issues that’s less often discussed is the role that the next Supreme Court justice will play in conservatives’ long-running legal fight to limit the size of the federal government. For decades, conservatives on the bench have been losing that war, giving way to a system of administrative law that is written, for the most part, by bureaucratic agencies. …it’s a really big deal. Over the past half century, agencies have exploded in size and power, so this debate really is about how much power the federal government should have. …Conservatives, fearful that bureaucracies are becoming an unchecked “fourth branch of government,” have decried agency deference. Just last month, Justice Clarence Thomas argued that the doctrine “has metastasized,” as if it were a cancer. And back in 2013, Chief Justice John Roberts warned of the “danger posed by the growing power of the administrative state…” Both Roberts and Thomas frame the issue as a threat to the separation of powers: We’re letting agencies in the executive branch dip into the powers reserved for the judicial and legislative branches. …And by allowing bureaucrats the ability to define the scope of their own jurisdiction, we let them answer questions meant to be left up to the courts. This, they argue, is at odds with the Constitution. …Conservatives fearing a powerful bureaucratic state have few legal weapons to fight it. The future of a small-government Supreme Court is bleak, and the march toward greater agency control of the law will probably continue forward.

I’ll close with some recent polling data about the “deep state” from Monmouth University.

Here’s a question asking whether there’s a conspiratorial version of the “deep state.”

I’m not sure what to think of the answers.

I like people to be suspicious of the federal government. But I’d much prefer them to be concerned because they’re reading my daily columns, not because they think there’s a sinister plot.

I prefer the answers to this next question. Most people presumably have never heard of “administrative law” or the “administrative state,” but they do have a healthy skepticism of bureaucratic rule.

Most of the authors cited today correctly want federal judges to fix the problem by limiting the power of bureaucrats to make and enforce law.

That would be desirable, but I’d go much further. We should eliminate almost all of the agencies, programs, and departments that clutter Washington. Then the problem of the administrative state automatically disappears.

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Beginning in the 1980s, money-laundering laws were enacted in hopes of discouraging criminal activity by making it harder for crooks to use the banking system. Unfortunately, this approach has been an expensive failure.

Amazingly, some politicians actually want to make these laws even worse. I wrote last year about some intrusive, expensive, and pointless legislation proposed by Senators Grassley, Feinstein, Cornyn, and Whitehouse.

Now there’s another equally misguided set of proposals from Senators Rubio and Wyden, along with Representatives Pearce, Luetkemeyer, and Maloney. They want to require complicated and needless ownership data from millions of small businesses and organizations.

David Burton of the Heritage Foundation has a comprehensive report on the legislation. Here’s some of what he wrote.

Congress is seriously considering imposing a beneficial ownership reporting regime on American businesses and other entities, including charities and churches. …the House and Senate bills…share three salient characteristics. First, they would impose a large compliance burden on the private sector, primarily on small businesses, charities, and religious organizations. Second, they create hundreds of thousands—potentially more than one million—inadvertent felons out of otherwise law-abiding citizens. Third, they do virtually nothing to achieve their stated aim of protecting society from terrorism or other forms of illicit finance. …Furthermore, the creation of this expensive and socially damaging reporting edifice is unnecessary. The vast majority of the information that the proposed beneficial ownership reporting regime would obtain is already provided to the Internal Revenue Service.

Richard Rahn criticizes this new proposal in his weekly column.

…what would you think of a member of Congress who proposes to put a new regulation on the smallest of businesses that does not meet a cost-benefit test, denies basic privacy protections and, because of its vagueness and ambiguity, is likely to cause very high numbers of otherwise law-abiding Americans to be felons? …Some bureaucrats and elected officials argue that the government needs to know who the “beneficial owners” are of even the tiniest of businesses in order to combat “money-laundering,” tax evasion or terrorism. …Should the church ladies who run the local non-profit food bank be put in jail for their failure to submit the form to the Feds that would give them the exemption from the beneficial ownership requirement? …Given how few people are actually convicted of money-laundering, the overwhelming evidence is that 99 percent of the people being forced to submit to these costly and time-consuming proposed regulations will not be guilty of money-laundering, terrorism or whatever, and thus should not be harassed by government.

Writing for the Hill, J.W. Verret, an expert in business law from George Mason University Law School, highlights some of the serious problems with this new regulatory scheme.

Legislation under consideration in Congress, the Counter Terrorism and Illicit Finance Act, risks tying entrepreneurs’ hands with even more red tape. In fact, it could destroy any benefit some small businesses stand to gain from the tax reform legislation passed last year. It would require corporations and limited liability companies with fewer than 20 employees to file a form with the Treasury Department at the time of formation, and update it annually, listing the names of all beneficial owners and individuals exercising control. …Given the substantial penalties, this will impose a massive regulatory tax on small businesses as they spend money on lawyers that should go toward workers’ pay. …It is unlikely someone on a terrorist watch list would provide their real name on the required form, and Treasury will probably never have sufficient resources to audit names in real time.

Professor Verret explains some of the practical problems and tradeoffs with these proposals.

…some individual money laundering investigations would be easier with a small business registry available. But IRS tax fraud investigations would be much easier with access to taxpayers’ bank account login information — would we tolerate the associated costs and privacy violations? …How is the term “beneficial owner” defined? How is “control” defined? As a professor of corporate law, I have given multiple lectures on those very questions. What if your company is owned, in part, by another company? Or there is a chain of ownership through multiple intermediary companies? What if a creditor of the company, though not currently a shareholder or beneficial owner, obtains the contractual right to convert their debt contract into ownership equity at some point in the future? …for the average small business owner, navigating those complexities against the backdrop of a potential three year prison sentence will often require legal counsel. Companies affected by this legislation should conservatively expect to spend at least $5,000 on a corporate lawyer to help navigate the complexities of the new filing requirements.

Needless to say, squandering $5,000 or more for some useless paperwork is not a recipe for more entrepreneurship.

So how do advocates for this type of legislation respond?

Clay Fuller of the American Enterprise Institute wants us to have faith that bad people will freely divulge their real identities and that bureaucrats will make effective use of the information.

It is time to weed out illicit financing and unfair competition from criminals and bad actors. …Passing the House Financial Services Committee’s Counter Terrorism and Illicit Finance Act should be a priority for the 115th Congress. …Dictators, terrorists and criminals have been freeriding on the prosperity and liberty of the American economy for too long. Officials at FinCEN are sure that beneficial ownership legislation will exponentially increase conviction rates. We should give law enforcement what they need to do their jobs.

Gee, all that sounds persuasive. I’m also against dictators, terrorists, and criminals.

But if you read his entire column, you’ll notice that he offers zero evidence that this costly new legislation actually would catch more bad guys.

And since we already know that anti-money laundering laws impose heavy costs and catch almost no bad guys, wouldn’t it be smart to figure out better ways of allocating law enforcement resources?

I don’t know if we should be distressed or comforted, but other parts of the world also are hamstringing their financial industries with similar policies.

Here’s some analysis from Europe.

…a new reportfrom Consult Hyperion, commissioned by Mitek, reveals that the average UK bank is currently wasting £5 million each year due to manual and inefficient Know Your Customer (KYC) processes, and this annual waste is expected to rise to £10 million in three years. …Key Findings…Inefficient KYC processes cost the average bank £47 million a year…Total costs for KYC processes range from £10 to £100 per check…In the UK, 25% of applications are abandoned due to KYC friction… The cost of KYC checks is much too high, placing too much reliance on inefficient and error-prone manual processes,” said Steve Pannifer, author of the report and COO at Consult Hyperion.

And here’s an update from Asia.

Anti-money laundering and know-your-customer compliance have become leading concerns at financial institutions in Asia today. … we estimate that AML compliance budgets across the six Asian markets in this study total an estimated US$1.5 billion annually for banks alone. …A majority of respondents (55%) indicated that AML compliance has a negative impact on their firms’ business productivity. …An additional 15% felt that AML compliance actually threatens their firms’ ability to do business. …Eighty-two per cent of survey respondents saw overall AML compliance costs increasing in 2016, with one third projecting that costs will rise by 20% or more.

The bottom line is that laws and regulations dealing with money laundering are introduced with high hopes of reducing crime.

And when there’s no effect on criminal activity, proponents urge ever-increasing levels of red tape. And when that doesn’t work, they propose new levels of regulation. And still nothing changes.

Lather, rinse, repeat.

Here’s the video I narrated on this topic. It’s now a bit dated, but everything I said is even more true today.

Let’s close with a surreal column in the Washington Post from Dana Milbank. He was victimized by silly anti-money laundering policies, but seems to approve.

I did not expect that my wife and I would be flagged as possible financiers of international terrorism. …The teller told me my account had been blocked. My wife went to an ATM to take out $200. Denied. Soon I discovered that checks I had written to the au pair and my daughter’s volleyball instructor had bounced. …I began making calls to the bank and eventually got an explanation: The bank was looking into whether my wife and I were laundering money, as they are required to by the Bank Secrecy Act as amended by the Patriot Act. …the bank seemed particularly suspicious that my wife was the terrorist… The bank needed answers. Did she work for the government? How much money does she make? Is she a government contractor? …a week later they came back with a new threat to freeze the account and a more peculiar question: Is my wife politically influential?

Sounds like an awful example of a bank being forced by bad laws to harass a customer.

Heck, it is an awful example of that happening.

But in a remarkable display of left-wing masochism, Milbank approves.

The people who flagged us were right to do so. …Citibank, though perhaps clumsy, was doing what it should be doing. “Know your customer” regulations are important because they prevent organized-crime networks, terrorists and assorted bad guys from moving money. Banking regulations generally are a hassle, and expensive. But they protect us — not just from terrorists such as my wife and me but from financial institutions that would otherwise exploit their customers and jeopardize economic stability the way they did before the 2008 crash.

I guess we know which way Milbank would have responded to this poll question from 2013.

But he would be wrong because money-laundering laws don’t stop terrorism.

We’re giving up freedom and imposing high costs on our economy, yet we’re not getting any additional security in exchange.

And I can’t resist commenting on his absurd assertion that money laundering played a role in the 2008 crash. Does he think that mafia kingpins somehow controlled the Federal Reserve and insisted on easy-money policies and artificially low interest rates? Does he think ISIS operatives were somehow responsible for reckless Fannie Mae and Freddie Mac subsidies?

Wow, I thought the people who blamed “tax havens” for the financial crisis deserved the prize for silliest fantasies. But Milbank gives them a run for their money.

P.S. You probably didn’t realize you could make a joke involving money laundering, but here’s one featuring former President Obama.

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Back in 2015, I wrote some columns about policy differences with folks who normally would be considered allies.

  • In Part I, I defended the flat tax, which had been criticized by Reihan Salam
  • In Part II, I explained why I thought a comprehensive fiscal package from the American Enterprise Institute was too timid.
  • In Part III, I disagreed with Jerry Taylor’s argument for a carbon tax.

Now it’s time for another friendly spat.

A handful of right-of-center groups and individuals have decided to embrace a new entitlement for paid parental leave.

Such as the Independent Women’s Forum.

…the United States is the only industrialized nation that does not mandate or subsidize at least some form of paid parental leave. …there is a way for the federal government to provide paid parental leave to every worker in the United States at no additional cost: offer new parents the opportunity to collect early Social Security benefits after the arrival of their child in exchange for their agreeing to defer the collection of their Social Security retirement benefits. …New parents deserve this choice.

Along with the American Enterprise Institute (cooperating with the left-leaning Urban Institute).

…public interest in creating a federal paid family leave policy has grown. …we came up with a compromise proposal… Its key elements are benefits available to both mothers and fathers, a wage-replacement rate of 70 percent up to a cap of $600 per week for eight weeks, and job protection for those who take leave. It would be financed in part by a payroll tax on employees and in part by savings in other parts of the budget. …we felt an obligation…this was better than doing nothing when the US is the only developed nation without a national paid leave policy.

And Ramesh Ponnuru of National Review.

The more I’ve followed the debate, the more I’ve supported the idea. …there are certain similarities between the personal-account and paid-leave ideas that ought to reduce conservative skepticism of the latter. …there’s a mental block that’s keeping the paid-leave objectors from seeing how much these debates have in common.

Kristin Shapiro of IWF and Andrew Biggs of AEI elaborated on a version of this idea in a column for the Wall Street Journal.

The U.S. is the only industrialized nation without a law guaranteeing workers paid parental leave. The idea has broad public support, but how to pay for it? One idea is to mandate that employers fund it, but economists find employers offset the cost by reducing wages for female employees. …Our proposal is simple: Offer new parents the opportunity to collect early Social Security benefits for a period—say, 12 weeks—after the arrival of their child. To offset the cost, parents would agree to delay collecting Social Security retirement benefits… We estimate that to make the Social Security program financially whole, a parent who claimed 12 weeks of benefits would need to delay claiming retirement benefits by only around six weeks. …This idea should be considered as Congress turns to entitlement reform. It’s a fiscally responsible opportunity to help parents and children.

All of this sounds nice, but there are several reasons why I’m very skeptical.

But let’s first distinguish between a very bad idea and a somewhat bad idea. The AEI-Urban scheme for a payroll-tax-funded paid leave program is the very bad idea. The United States already has a baked-in-the-cake entitlement crisis, so the last thing we need is the creation of another tax-and-transfer program.

So I’ll focus instead on the IWF-designed plan to enable parents to get payments from Social Security when they have a new child.

I have three objections.

  1. From a big-picture philosophical perspective, I don’t think the federal government should have any role in family life. Child care certainly is not one of the enumerated powers in Article 1, Section 8, of the Constitution. Proponents of intervention routinely argue that the United States is the only advanced nation without such a program, but I view that as a feature, not a bug. We’re also the only advanced nation without a value-added tax. Does that mean we should join other countries and commit fiscal suicide with that onerous levy?
  2. Another objection is that there is a very significant risk that a small program eventually become will become much larger. I haven’t crunched the numbers, but I assume the plan proposed by Shapiro and Biggs is neutral. In other words, the short-run spending for parental leave is offset by future reductions in retirement benefits. But once the principle is established that Uncle Sam is playing a role, what will stop future politicians from expanding the short-run goodies and eliminating the long-run savings? It’s worth remembering that the original income tax in 1913 had a top rate of 7 percent and it only applied to 1/2 of 1 percent of the population. How long did that last?
  3. Finally, I still haven’t given up on the fantasy of replacing the bankrupt tax-and-transfer Social Security system with a system of personal retirement accounts. Funded systems based on real savings work very well in jurisdictions such as Australia, Chile, Switzerland, Hong Kong, and the Netherlands, but achieving this reform in the United States will be a huge challenge. And I fear that battle will become even harder if we turn Social Security into a piggy bank for other social goals. For what it’s worth, this is also why I oppose plans to integrate the payroll tax with the income tax.

Now let’s see what others have to say about a new entitlement for parental leave.

Veronique de Rugy of Mercatus explains for National Review why Ramesh’s support for a new federal entitlement is the wrong approach.

…we don’t currently have a national parental-leave entitlement. Yes, the plan he’s talking about isn’t as bad as what Hillary would propose, but it still assumes that the federal government should be playing a role in this. Let’s not pretend otherwise. It relies on the government-run Social Security system, and it increases spending for a good while. That’s regress, not progress. And we also need to be realistic. Once the door has been opened, the Left will radically expand the scheme in ways that none of us like. And, to be honest, I can already hear future conservatives demanding that the program be expanded because parents who have to retire a few months later because they use paid leaves pay “a retirement penalty” compared to non-parents. …my point of reference for judging this plan is economic freedom and smaller government involvement. If you prefer more pro-family benefits even at the risk of growing the government, then we won’t agree.

Writing for Reason, Shikha Dalmia also is a skeptic.

…this is a flawed proposal that’ll do more harm than good, including to its intended beneficiaries. …The scheme will incentivize more workers to take off and for longer periods of time. This will be especially disruptive for small businesses and start-ups that operate on a shoestring budget and can’t spread the responsibilities of the absent workers across a large workforce. They will inevitably shy away from hiring young women of childbearing age. This will diminish these women’s job options. …Furthermore, it isn’t like Social Security has a ton of spare cash lying around to dole out to people other than retirees. The program used to generate surpluses when its worker-to-retiree ratio was high. But this ratio has dropped from 42 workers to one retiree in 1945 to less than four workers per retiree now. And even though payroll taxes have gone up from 2 percent at the program’s inception to 12.6 percent now, the system is still taking in less money than it is paying out in benefits, because of all the retiring baby boomers. …It is also beyond naïve to think that once the government is allowed to dip into Social Security to pay for family leave at childbirth, it’ll simply stop there. Why shouldn’t families taking care of old and sick parents get a similar deal? Liberals are already floating proposals to use Social Security for student loan forgiveness. The possibilities are endless.

The Wall Street Journal opined against the idea last month.

…some in the ostensible party of limited government think this is the perfect time to add a new entitlement for paid family leave. …this would shift the burden of providing the benefit from the private economy to government. Academic evidence shows that family leave keeps employees in their jobs and can make them happier or more productive, which is one reason many companies pay for it. But why pay when the government offers 12 weeks? …This “crowd out” effect is a hallmark of all entitlements… Also strap yourselves in for the politics. Social Security started as a 2% payroll tax to support the elderly poor, but the tax is now 12.4% and the program is still severely under-funded.

The WSJ shares my concerns about a small program morphing into a huge entitlement.

No politician is going to deny leave to a pregnant 22-year-old merely because she hasn’t paid much into Social Security. Watch the social right demand a comparable cash benefit for stay-at-home moms, and also dads, or caring for an elderly dependent. And wait until you meet the focus group known as Congressional Democrats, who are already dismissing the proposal as unfair for forcing women to choose between children and retirement. Democrats will quickly wipe out the deferral period so everyone is entitled to leave now and get the same retirement benefits later. And once Republicans open Social Security for family leave, the door will open for other social goals. Why not college tuition? …every entitlement since Revolutionary War pensions has skied down this slope of inexorable expansion. Disability started as limited insurance but now sends checks to roughly nine million people. Medicaid was intended to cover the vulnerable and disabled but today dozens of states cover childless working-age adults above the poverty line.

If you want more information, I had two columns last year (here and here) explaining why federally mandated parental leave is a bad idea.

To put the issue in context, we should be asking whether it makes sense for the government to make employees more expensive to employers. And since this proponents will probably sell this new entitlement as being good for new mothers, it’s worth pointing out that even a columnist for the New York Times admitted that women actually get hurt by such policies.

Remember, if someone says the answer is more government, they’ve asked a very silly question.

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The Great Depression was an unimaginably miserable period in American history. Income fell, unemployment rose, and misery was pervasive.

But there was still room for political satire in the 1930s. Here’s a cartoon that I shared back in 2012. Based on the notations in the upper right, I gather it’s from the Chicago Tribune, though I don’t know if that’s actually true. And I also don’t know the year.

But I certainly sympathized with the message since Hoover and Roosevelt were big-spending interventionists.

Hoover saddled the economy with taxes (an increase in the top tax rate from 25 percent to 63 percent!), spending, protectionism, regulation, and intervention. Roosevelt then doubled down on almost all of those bad policies, with further tax rate increases (up to 79 percent, and he even pushed for a 100 percent tax rate in the early 1940s!!), more spending, and lots of additional regulation and intervention.

And here’s a cartoon I posted the previous year. Since I don’t know whether public opinion was on the right side, I don’t know if it accurately captures the mood of taxpayers.

But it’s 100-percent accurate about the instinctive response of politicians. For “public choice” reasons, the crowd in Washington has an incentive to buy votes with other people’s money. One might even say they spend like drunken sailors, but that’s actually an understatement.

But I’m beginning to digress, as is my wont. Let’s get back to satire and the Great Depression.

And I’m going to be creative. That’s because I saw a cartoon on Reddit‘s libertarian page that makes a very general point about government causing a mess and politicians then blaming the private sector. But because I’m a goofy libertarian policy wonk, I immediately thought that this is a perfect summary of what happened in the 1930s.  Hoover and Roosevelt hammered the economy with bad policy, the economy stayed in the dumps for an entire decade, yet the political class someone convinced a lot of people it was all the fault of capitalism.

While I will always view this cartoon as the spot-on depiction of what happened in the 1930s, it obviously applies much more broadly.

Consider the recent financial crisis, which was the result of bad monetary policy and corrupt Fannie Mae/Freddie Mac subsidies. Yet countless politicians blamed greedy capitalism.

Maybe what we have is the cartoon version of Mitchell’s Law. That’s because when politicians cause a problem and blame the free market, they inevitably then claim that the problem justifies giving them more power and control. Lather, rinse, repeat.

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When writing about the Obamacare and its birth-control mandate, I’ve made a handful of observations.

President Trump recently announced that his Administration would relax the mandate. I think that is good news for the above reasons.

Critics are very upset. But rather than argue about the desirability of insurance coverage and the wisdom of Washington mandates, they’re actually claiming that the White House has launched some sort of war on birth control. I’m not joking.

Jeff Jacoby of the Boston Globe analyzes the issue. He starts by observing that nobody is proposing to ban birth control

…the Supreme Court ruled, in Griswold v. Connecticut, that government may not ban anyone from using contraceptives. …That freedom is a matter of settled law, and hasn’t been challenged in the slightest by President Trump or his administration.

He then points out that some folks on the left have gone ballistic.

Hillary Clinton accused Trump of showing “blatant disregard for medicine, science, & every woman’s right to make her own health decisions.” Elizabeth Warren, denouncing “this attack on basic health care,” claimed that the GOP’s top priority is to deprive women of birth control.

Their arguments, however, are utter nonsense. If Person A no longer has to subsidize Person B, that doesn’t mean Person B can’t buy things. It simply means there won’t be third-party payer.

Jacoby agrees.

News flash to Warren, et al.: There is no attack on health care, and no in America is being deprived of birth control. You are losing nothing but the power to force nuns to pay for your oral contraceptives. …As a matter of economics and public policy, the Affordable Care Act mandate that birth control be supplied for free is absurd. …Especially since birth control will remain as available and affordable as ever.

Indeed, the Trump Administration was actually far too timid. There should be no birth-control mandate for any insurance plan. It should be something negotiated by employers and employees.

…the new White House rule leaves the birth-control mandate in place. Trump’s “tweak won’t affect 99.9 percent of women,” observes the Wall Street Journal, “and that number could probably have a few more 9s at the end.” Washington will continue to compel virtually every employer and insurer in America to supply birth control to any woman who wants one at no out-of-pocket cost.

Jacoby closes his column with some very sensible observations and recommendations.

…there is no legitimate rationale for such a mandate. Americans don’t expect to get aspirin, bandages, or cold medicine — or condoms — for free; by what logic should birth control pills or diaphragms be handed over at no cost? …By and large, birth control is inexpensive; as little as $20 a month without insurance. …access to birth control, as the Centers for Disease Control reported in 2010, was virtually universal before Obamacare. The White House is right to end the burden on religious objectors. But it is the birth-control mandate itself that should be scrapped. Contraception is legal, cheap, and available everywhere. Why are the feds meddling where they aren’t needed?

The last sentence is key. The federal government (heck, no level of government) should be involved with birth control. They shouldn’t ban it. And they shouldn’t mandate it, either.

P.S. About five years ago, Sandra Fluke got her 15 minutes of fame by asserting that she had a right to third-party-financed birth control. That led to some clever jokes, including this cartoon and this video.

For what it’s worth, I think this cartoon is the best summary of the issue.

P.P.S. Predictably, the United Nations supports a “right” to taxpayer-financed birth control.

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