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Posts Tagged ‘Government intervention’

Last year, I shared the most depressing PowerPoint slide in Danish history.

Back in 2011, I wrote about a depressing picture of tax complexity in America.

Let’s continue with the “depressing” theme today.

James Bessen, from Boston University Law School, has an interesting article in the Harvard Business Review about the source of corporate profits in the 21st century (h/t: James Pethokoukis).

He starts with an observation and a query.

Profits are up. …is it good news for society?

The default answer presumably is yes. Higher profits, after all, generally are a sign of wise investments.

And when labor and capital are allocated wisely, that’s good news for consumers and workers.

But Bessen correctly observes that profits can increase for bad reasons, and that’s the focus of his research.

…the rise in profits might represent a decline in…economic dynamism. …Firms engage in political “rent seeking”—lobbying for regulations that provide them sheltered markets—rather than competing on innovation. If so, then high profits portend diminished productivity growth. …In a new research paper, I tease apart the factors associated with the growth in corporate valuations.

Unfortunately, he finds that cronyist policies account for a depressingly large share of corporate profits.

I find that investments in conventional capital assets like machinery and spending on R&D together account for a substantial part of the rise in valuations and profits, especially during the 1990s. However, since 2000, political activity and regulation account for a surprisingly large share of the increase.

Here’s a very grim chart from his article. At the very least, I’ll call this the most depressing image of 2016.

Ugh, what a dismal observation on the state of our economy. Companies are almost making as much money from manipulating Washington as they earn from serving consumers. Heck, just consider the way politically connected financial institutions tilt the playing field for unearned goodies.

Bessen adds some analysis, including the very important insight that regulation and intervention tends to help big companies relative to small companies and new competitors.

Much of this result is driven by the role of regulation… Lobbying and political campaign spending can result in favorable regulatory changes, and several studies find the returns to these investments can be quite large. For example, one study finds that for each dollar spent lobbying for a tax break, firms received returns in excess of $220. …regulations that impose costs might raise profits indirectly, since costs to incumbents are also entry barriers for prospective entrants. For example, one study found that pollution regulations served to reduce entry of new firms into some manufacturing industries.

It’s also worth noting that he finds that this bad news really started back in 2000, which makes sense given that both Bush and Obama have pushed policies that have expanded the clumsy footprint of government.

This research supports the view that political rent seeking is responsible for a significant portion of the rise in profits. Firms influence the legislative and regulatory process and they engage in a wide range of activity to profit from regulatory changes, with significant success. …while political rent seeking is nothing new, the outsize effect of political rent seeking on profits and firm values is a recent development, largely occurring since 2000. Over the last 15 years, political campaign spending by firm PACs has increased more than thirtyfold and the Regdata index of regulation has increased by nearly 50% for public firms.

What an awful cycle. Government gets bigger and more powerful, which lures companies into viewing Washington as a profit center, which then leads to more policies that expand the size and power of the federal government, which leads to further opportunities for rent-seeking behavior. Lather, rinse, repeat.

Oh, and don’t forget this is one of the reasons why there’s a revolving door of insiders who shift back and forth between the private sector and government, but their real job is always to be working the system to obtain undeserved wealth.

Which is why I periodically explain that there’s a big difference between being pro-market and being pro-business.

P.S. Earlier this year, I shared some data, based on sources of billionaire wealth, that suggested that cronyism wasn’t a major factor in the United States. But Bessen’s new research nonetheless shows we do have a major problem, perhaps because people who get rich honestly then decide to maintain their wealth dishonestly.

P.P.S. If there’s any sort of silver lining to this bad news, it’s this amusing parody commercial about Kronies, which are toys for the children of Washington’s gilded class.

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The United Kingdom is getting a lot of attention because voters just chose to leave the European Union.

I think this was the smart choice. Yes, there will be some short-run economic volatility, but the long-run benefits should make it worthwhile. Sort of like chemotherapy being painful, but still being much better than the alternative of cancer.

My main argument for Brexit was that the European Union is a sinking ship. The continent is in trouble because the bureaucrats in Brussels reflexively support centralization, bureaucratization, and harmonization. And it’s in trouble because most member governments support dirigiste policies on the national level.

Consider France. The country is so statist that even some folks from the establishment media have warned that government has too much power. Heck, even some of the people at the European Commission have complained that taxes are too high.

Perhaps most miraculously, there was even a column in the New York Times last month explaining how bad government policy is killing France’s job market.

It’s obvious that the current system isn’t working. …business owners are reluctant to hire employees, because it’s so complicated and expensive to fire them when times are bad. …times are pretty bad: France has 10 percent unemployment, roughly twice the levels in Germany and Britain. For young people, it’s around 24 percent. …While many other European countries have revamped their workplace rules, France has barely budged.

The most important thing to understand is that employers are extremely reluctant to hire full-time workers because it’s nearly impossible to fire them if they don’t do a good job or if the company hits hard times. And that translates into temporary jobs combined with lots of unemployment.

The Hollande government has proposed to tinker with this system.

The new labor bill — weakened after long negotiations — wouldn’t alter the bifurcated system, in which workers either get a permanent contract called a “contrat à durée indéterminée,” known as a C.D.I., or a short-term contract that can be renewed only once or twice. Almost all new jobs have the latter.

But even though the reforms are very timid, the French are protesting.

…it isn’t just unions that oppose the bill. So do more than 60 percent of the population, who fear the bill would strip workers of protections without fixing the problem. Young people took to the streets to oppose it, demanding C.D.I.s, too. Why are the French so wedded to a failing system? …they believe that a job is a basic right — guaranteed in the preamble to their Constitution — and that making it easier to fire people is an affront to that. Without a C.D.I., you’re considered naked before the indifferent forces of capitalism. …young protesters held a banner warning that they were the “génération précaire.”

Here’s the most amazing part of the story. The protesters think that a government-protected job is a rite of passage into adulthood. They want the “right to grow up,” even though their version of adulthood involves complete blindness to economic reality.

They were agitating for the right to grow up. …getting a permanent work contract is a rite of adulthood. Without one, it’s hard to get a mortgage or car loan, or rent an apartment. Mainstream economic arguments can’t compete. “Basic facts of economic science are completely dismissed,” said Étienne Wasmer, a labor economist at Sciences Po. “People don’t see that if you let employers take risks, they’ll hire more people.” Instead, many French people view the workplace as a zero-sum battle between workers and bosses.

The obvious answer is to dramatically reduce government intervention in labor markets. But since that’s a near impossibility in France, high levels of joblessness almost surely will continue and short-term employment contracts will be the norm for those who do manage to find work.

By the way, the system doesn’t even work that well for the workers with the government-protected positions.

Many workers here have permanent contracts that make it very hard to fire them. So some companies resort to an illegal strategy: They try to make someone so miserable, he’ll quit. “What happens next is, I’ll lose my team and my staff, and therefore I’ll have nothing to do,” the man predicted. “You still have to come to work every day, but you have no idea why.” …those lucky enough to have C.D.I.s can struggle at work. In one study, workers with C.D.I.s reported more stress than those with short-term contracts, in part because they felt trapped in their jobs. After all, where else would they get another permanent contract?

No wonder so many people in France want to work for the government. That way they can get lavish pay and benefits with very little pressure to perform.

In any case, the net result is that the French economy is stagnant. Potentially valuable labor (one of the two factors of production) is being sidelined or misallocated.

Writing for Market Watch, Diana Furchtgott-Roth shares her analysis of crazy French labor law.

…reforms are vital because the French economy is stagnant. GDP growth for the latest quarter was 0.6%. Over the past decade, growth has rarely risen above 1%. The unemployment rate is over 10% and the youth unemployment is 25%. Clearly tax and regulatory reform, including more labor flexibility, are needed to encourage employers to hire. …a French court this week ruled that Société Générale rogue trader Jérôme Kerviel, who lost $5.5 billion of the bank’s assets in 2008 and almost caused its bankruptcy, had been unfairly dismissed. Société Générale was ordered to pay Kerviel $511,000 because it decided he was dismissed “without cause.” …When employers cannot fire workers, they are less likely to hire them, leading to a sclerotic labor market and high unemployment. This is what the left-wing Hollande is trying to repair. …Some view France as a worker’s paradise where the government protects workers from abusive employers. The reality is that France is a worker’s nightmare where jobs are scarce and work ethic is prohibited by law.

Ambrose Evans-Pritchard is even more negative in his column for the U.K.-based Telegraph.

An intractable economic crisis has been eating away at the legitimacy of the French governing elites for much of this decade. This has now combined with a collapse in the credibility of the government, and mounting anger… The revolt comes as Paris battles a wave of protest against labour reform, a push that has come close to rupturing the Socialist Party. The measures were rammed through by decree to avoid a vote. Scenes of guerrilla warfare with police on French streets have been a public relations disaster… Rail workers are demanding a maximum 32-hour week. Eric Dor from the IESEG School of Management in Lille says powerful vested interests have made France almost unreformable. …Dor said the labour reforms have been watered down and are a far cry from the Hartz IV laws in Germany in 2004, which made it easier to fire workers and screw down wages.

He points out that the damage of labor-market intervention is exacerbated by a wretched tax system (I’ve written that the national sport of France is taxation rather than soccer).

France’s social model is funded by punitively high taxes on labour. The unintended effect is to create a destructive ‘tax wedge’ that makes it too costly to hire new workers. It protects incumbents but penalizes outsiders, leading to a blighted banlieu culture of mass youth unemployment. There are 360 separate taxes, with 470 tax loopholes. The labour code has tripled… Public spending is 57pc of GDP, a Nordic level without Danish or Swedish levels of labour flexibility. Unemployment is still 10.2pc even at this late stage of the global cycle.

Given the various ways that government discourages employment, is anyone surprised that the French work less than any other nation in Europe? Here’s a blurb from a report in the EU Observer.

French put in the least working hours in the EU, according to the bloc’s statistical office Eurostat. Full-time workers in France clocked up 1,646 hours of labour last year.

By the way, there’s a tiny possibility of change.

There’s an election next year and one of the candidates has a platform that sounds vaguely like he wants to be the Ronald Reagan or Margaret Thatcher of France.

Here are some of the details from a report by Reuters.

French presidential hopeful Alain Juppe, the frontrunner in opinion polls 20 years after serving as a deeply unpopular prime minister, said on Tuesday he would roll back France’s iconic 35-hour working week and scrap a wealth tax if elected next year. In the mid-1990s Juppe triggered France’s worst unrest in decades because he would not budge on pension reforms. He eventually had to drop them after weeks of strikes and protests. …”The French are being kept from working by excessive labor costs. I want to cut those costs,” Juppe told hundreds of supporters as he outlined his economic platform. …Juppe said he would raise the retirement age to 65 from 62 while cutting both taxes and state spending. Juppe said he would aim to cut public spending by 80-100 billion euros over five years and to reduce payroll taxes by 10 billion euros and corporate taxes by 11 billion euros. …Juppe also said he would cap welfare subsidies.

Amazingly, Juppe is the favorite according to the polling data.

So maybe French voters finally realize (notwithstanding the bad advice of Paul Krugman) that becoming another Greece isn’t a good idea.

P.S. My “Frexit” title simply recognizes the reality – as shown in this video – that productive people already are fleeing France. Hollande’s punitive tax policy has driven many of them to other nations. French entrepreneurs in particular have flocked to London.

P.P.S. Watch Will Smith’s reaction after being told France has a top tax rate of 75 percent.

P.P.P.S. France’s effective tax rate actually climbed to more than 100 percent, though Hollande mercifully decided that taxpayers now should never have to pay more than 80 percent of their income to government.

P.P.P.P.S. The big puzzle is why the French put up with so much statism. Polling data from both 2010 and 2013 shows strong support for smaller government, and an astounding 52 percent of French citizens said they would consider moving to the United States if they got the opportunity. So why, then, have they elected statists such as Sarkozy and Hollande?!?

P.P.P.P.P.S. In my humble opinion, the most powerful comparison is between France and Switzerland.

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The Transportation Security Administration has become infamous over the years for things that it doesn’t allow on planes.

Consider these examples of the Keystone Cops in action.

But now the TSA is moving with such tortoise-like inefficiency that even the passengers without plastic hammers and kitty cat keychains aren’t getting on planes.

Our cousins across the Atlantic are amused by the TSA’s incompetence. Here are some blurbs from a story in the UK-based Telegraph.

Circus performers have been brought in to cheer up delayed passengers at San Diego International Airport, where travellers are missing flights because the Transportation Security Administration (TSA) is failing to get people through security quick enough. …San Diego isn’t the only airport gripped by TSA chaos – queues are winding around terminals across the country as the busy summer season begins. Neither is it the only airport to hire entertainment – Cincinnati/Northern Kentucky International Airport has been trying to stabilise the situation with miniature horses. Yes, horses. …The so-called “therapy unicorns” have been supplied by the Seven Oaks Miniature Therapy Horses programme in nearby Ohio. …Other airports have laid on live music and free lollipops to lighten the mood. It will take more than a lollipop to assuage American Airlines, though, which claims 6,800 of its passengers missed their flights in one week due to the delays.

Surely there must be a better response than clowns and unicorns, right?

As you might expect, the answer is less government.

…critics claim the tax-payer funded agency is inefficient and should be replaced by a private company.

Could that really be the solution?

According to a report from the BBC, some major airports are thinking of escaping from the nightmare of TSA incompetence.

The Port Authority of New Jersey and New York and the Atlanta Hartsfield-Jackson airport have both threatened to privatise their passenger screening processes.

And we already have private screeners at more than 20 airports, including major cities such as Kansas City, Orlando, Rochester, and San Francisco.

But there should be a lot more if this 2011 story from MSNBC is any indication.

“The TSA has grown too big and we’re unhappy with the way it’s doing things,” said Larry Dale, president of Orlando Sanford International Airport. “My board is sold on the fact that the free enterprise system works well and that we should go with a private company we can hold directly accountable for security and customer satisfaction.” Dale isn’t alone. Airports in Los Angeles, the Washington, D.C. metro area and Charlotte, N.C., are also considering tossing the TSA. …Rep. John Mica (R-Fla.), …chairman of the House Transportation and Infrastructure Committee, has encouraged the nation’s 200 biggest airports to opt out, calling TSA a “bloated, poorly focused and top-heavy bureaucracy.”…When TSA was created in 2001, the Aviation and Transportation Security Act mandated that the Screening Partner Program (SPP) be adopted to allow screening by private companies under federal oversight.Five airports immediately signed up in 2002 — San Francisco International, Kansas City International, Greater Rochester International, Jackson Hole and Tupelo Regional — and eleven others…have joined since then. …So far, no airport that joined SPP has opted back into the federal screening program.

Airports go with a private company because it means workforce adaptability and flexibility.

Unlike government workers, problem employees working for contract screening companies “can be removed immediately,” noted Mark VanLoh, director of aviation at Kansas City Aviation Department. The private screening company is easier to reach, he added. “Because I am a client, I usually get a return call immediately. We are all in the customer service business, so that’s a nice thing to have.” The bottom line, said McCarron of San Francisco International, is that “we feel our passengers are as safe as at any other airport. And by allowing [the private screening company] to handle the personnel management of the screening process, the TSA staff at SFO can focus its attention on security issues.”

But much more needs to happen to make air travel pleasant and safe.

“The screening partnership program may be a step in the right direction, but ultimately, it doesn’t change the fact that people at the top are idiots. The real problem is that TSA needs to be totally rebuilt,” said aviation consultant Michael Boyd, of Colorado-based Boyd Group International. “Contracting with private screening companies offers staffing flexibility and a few other advantages,” said Robert Poole, director of transportation policy for the Reason Foundation, a free market think tank, “but the system is still very centralized and run too much by TSA.”

In other words, opting into the SPP program is a step in the right direction, but not the ideal solution.

Though even this step is difficult. Experts are concerned that TSA is dragging its feet to prevent more airports from opting for private security. Here’s some of what was written earlier this year.

There’s plenty of evidence that TSA airport screeners are not effective, but worse still, the agency is rigging the system to make sure it is the only option for airport security. …the Screening Partnership Program (SPP) could enhance aviation security while also supporting increased commercial activity, which are both good for the country. …SPP is a program for privatized passenger screening, where airports can “opt out” of TSA screening by contracting with a company to provide passenger and baggage screening commensurate with TSA standards and under the oversight of the federal government.

But TSA permission is needed if airports want private screeners, and that’s a problem.

TSA’s calculus on whether to grant an SPP application is based in part on costs, and the agency does this by comparing proposed costs from contractors against TSA’s estimated costs for the same service. …Private companies are incentivized to determine real costs, as those costs become an operating budget. Propose too little and the company will not make money; propose too much and the company is uncompetitive. Meanwhile, TSA is incentivized to determine costs that outcompete a private company (to protect budget and staff)… by 2011, TSA was rejecting all requests from airports to engage SPP. …TSA is doing an end-run around the free market, leveraging their unique role as competitor and application reviewer to ensure the private sector cannot participate, and the agency then shields itself from oversight.

So the TSA bureaucracy is putting its thumb on the scale to protect its turf.

Is there a silver lining to this dark cloud? Are the TSA bureaucrats at least doing a better job with security, thus perhaps balancing out the inefficiency and high costs?

Nope.

In June 2015, it was revealed that TSA screeners failed 95% of the time during Red Team tests that secreted illicit items through security. …TSA cannot even meet the security standards that private companies must meet under SPP. Arguably, if TSA were a private company bidding for an SPP contract, they would be rejected in terms of costs and effectiveness.

So here’s the bottom line.

SPP yields cheaper and more flexible security operations and, as arguably the biggest benefit to the disgruntled traveling public, if the private sector screeners insult someone, infringe on their rights, or treat them less than fairly (as an endless amount of TSA horror stories reveal), they can be fired, immediately. It is extremely difficult to fire a government employee… TSA is failing in its airport screening mission while also prohibiting competition that could deliver better security and lower costs. It’s time to let private sector screeners take a shot at it.

Yup. In a sensible world, airports all over the nation would be opting out of the TSA and into the SPP.

Let’s close with some depressing analysis from Megan McArdle on what will probably happen instead. Here are some excerpts from her Bloomberg column.

The TSA is blaming inadequate staffing, but government bureaucrats always blame inadequate staffing, since agency headcount is generally a good proxy for “importance of the boss of said agency.” …The TSA has slowed down screening after last summer’s humiliating failure to detect almost any of the contraband in a security audit. …this is the essential logic of bureaucracy. The TSA will suffer terribly if a terrorist slips through with a bomb — or even if the auditors make it through with a fake bomb. On the other hand, what happens to them if there are long lines? Not much. They’ve got to be there for eight hours, so why should they care if we are too? This is why government agencies tend to be much more attuned to remote risks than the real and persistent costs they impose on the rest of us.

Especially when providing poor service will probably produce a bigger budget for the TSA!

…there’s not really any point in having the TSA. Which is a conversation worth having. …But in the history of the world, few indeed are the managers or bureaucrats who have said: “Yup, what we’re doing is useless, you should probably fire me and all my staff.” It’s pretty much inevitable that the TSA, having flunked its audit, is going to choose to impose huge burdens on airline passengers, rather than admit that it’s not actually doing all that much to keep us safe. I’d bet that in the next six months, the TSA will be rewarded for the longer lines by having its budget and headcount increased. …The end result of this cycle: a bigger, more expensive agency that still doesn’t do much to keep us safe.

Isn’t that typical. A bureaucracy getting rewarded for failure.

In a just world, we would take this advice from the Chicago Tribune and shut down the TSA.

But don’t hold your breath waiting for that to happen.

P.S. Check out this amazing picto-graph if you want more information about the failures of the TSA.

P.P.S. For more TSA humor, see this, this, this, this, this, and this.

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According to Economic Freedom of the World, there are five major factors that determine a nation’s economic performance.

Here’s the recipe for growth and prosperity.

  • Rule of law and property rights.
  • Small government.
  • Stable monetary policy.
  • Reasonable regulatory policy.
  • Free trade.

This great publication is the first thing I check when I want to see whether a country leans in the direction of markets or whether it is burdened by a lot of statism. And it allows for meaningful comparisons between nations since it relies on global data sources.

But not all economic variables have good data sources that allow apples-to-apples comparisons. It’s very difficult to measure the degree to which various governments interfere with the price system by imposing controls (either minimum or maximum price limits).

Identifying the degree of cronyism in an economy also is a challenge since there are not reliable numbers for the degree to which politicians in various nations provide favors for particular firms or sectors.

So I was very interested when I saw that the Economist has put together a ranking that shows the degree to which a nation’s billionaires either earn their wealth via markets or cheat their way to wealth via cronyism.

It obviously doesn’t cover nearly as many nations as Economic Freedom of the World, but perhaps the folks at the Economist have come up with a methodology that eventually will allow a specific measure of cronyism in the future.

The article explains how the rankings were derived.

…for the past 20 years, from Malaysia to Mexico, crony capitalists—individuals who earn their riches thanks to their chumminess with government—have had a golden era. Worldwide, the worth of billionaires in crony industries soared by 385% between 2004 and 2014, to $2 trillion. The Economist’s crony-capitalism index tries to measure the extent of this graft for a number of important countries. Industries that have a lot of interaction with the state are vulnerable to crony capitalism (a full list of industries is provided in the table below). These activities are often legal but always unfair (Donald Trump, a casino and property tycoon, earns the 104th spot in our individual crony ranking). …Germany is cleanest, where just a sliver of the country’s billionaires derives their wealth from crony sectors. Russia fares worst in our index: wealth from the country’s crony sectors amounts to 18% of its GDP.

I’m glad to have these new numbers, but I’m not completely sold on the methodology used by the Economist.

Is all banking and finance really cronyism? That seems a bit of a stretch. While there are some indications that Warren Buffett is now a cronyist, I’m not aware of any evidence suggesting he used government connections to become rich in the first place.

And what about energy and chemicals? That description may apply to some rich people in the U.S. and elsewhere, but there are plenty of examples (the Koch brothers) of billionaires in this sector that have earned their wealth.

And speaking of wealth, why did the article compare wealth (which is a stock) and GDP (which is a flow)? I realize the Economist needed some sort of benchmark, but they chose an approach that has dubious methodological value.

All that being said, I suspect that the countries near the top of that list have a genuine problem with cronyism and the ones near the bottom do a better job of letting market forces operate.

So congratulations to Germany and South Korea and boos for Russia and Malaysia.

And a bit of applause for the United States. We have some egregious forms of cronyism that benefit the undeserving rich, but most American billionaires apparently earn their money.

Now let’s zoom out and look at the historical case against cronyism with this superb video from Prager University.

The bottom line is that scams like Solyndra are the modern version of what many railroads did in the 1800s.

I didn’t realize, though, that Uncle Sam also squandered money trying to invent the airplane.

P.S. You can enjoy other great videos from Prager University by clicking here, here, here, here, here, and here.

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I’m a bleeding heart libertarian in that I get most upset about statist policies that make life harder for disadvantaged people so that folks with more money can get undeserved goodies.

  • For instance, I despise anti-school choice leftists because they value political support from teacher unions more than they value opportunity for poor kids.
  • And I get very agitated that about the Export-Import Bank, which is a form of corporate welfare that transfers money from the general population to the rich.

Another example is occupational licensing, which occurs when politicians require newcomers to jump through expensive and/or time-consuming hoops before getting “permission” to provide a good or service. These licensing rules create unjust profits for established businesses by hindering competition, and they are especially burdensome for poor people, all of which is explained in this superb video from the Institute for Justice.

But if there’s a sliver lining to that dark cloud, it’s this image that I will add to my collection of libertarian humor. To be fair, I don’t know if it counts as purely libertarian humor, but I saw it on Reddit‘s libertarian page and it definitely makes the right points.

If you like libertarian humor, both pro and con, click here, here, and here for other examples.

P.S. Let’s close by sharing some good news on a serious topic.

Unlike the short-sighted politicians in the United States, the crowd in Australia seems a bit more level-headed on the issue of competitive corporate taxation. Here are some excerpts from a story in the U.K.-based Guardian.

The Turnbull government has given big business exactly what it wants – a substantial tax cut. It has also extended the Abbott government’s small business tax package by giving small and medium businesses more tax cuts and incentives. …“Our corporate tax rate is high by international standards and well above the average for OECD countries and those in the Asian region,” the budget papers say. “This will make Australian companies more internationally competitive in a tough global market place.” The government plans to cut the corporate tax rate significantly, from 30% to 25%. …The cut will be phased in over 10 years… The treasurer, Scott Morrison, says treasury modelling suggests the measures will grow the economy by 1% over the long term. He says they will lead to higher living standards, via increased business investment and more jobs.

I certainly don’t think “significantly” is a word to describe a modest five-percentage-point reduction in the rate, but kudos to Aussie politicians for moving in the right direction. I also like the part about “treasury modelling,” which suggests that the Australians also have a sensible approach on the issue of static scoring vs. dynamic scoring.

So perhaps now you can understand why Australia is my choice if (when?) the welfare state collapses in the United States (though I’m still of the opinion that the Swiss are the world’s most sensible people).

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If you look at the methodology behind the major measures of economic liberty, such as Economic Freedom of the World and Index of Economic Freedom, you’ll notice that each nation’s regulatory burden is just as important as the overall fiscal burden.

Yet there doesn’t seem to be adequate appreciation for the importance of restraining red tape. I’ve tried to highlight the problem with some very depressing bits of information.

Unfortunately, these bad numbers are getting worse.

We start with the fact that there’s a natural tendency for more intervention in Washington because of the Obama Administration’s statist orientation.

That’s the bad news. The worse news is that this tendency to over-regulate is becoming more pronounced as Obama’s time in office is winding down.

I’ve already opined on the record levels of red tape emanating from Washington, but it’s getting even worse in the President’s final year.

Here’s what the Wall Street Journal recently wrote about the regulatory wave.

…government-by-decree that is making Mr. Obama the most prolific American regulator of all time. Unofficially, Mr. Obama’s Administration has once again broken its own record by issuing a staggering 82,036 pages of new and proposed rules and instructions in the Federal Register in 2015. …That would not only eclipse Mr. Obama’s record of 81,405 set in 2010; it would also give him six of the seven most prolific years of regulating in the history of the American republic. He’s a champion when it comes to limiting economic freedom, and American workers have the slow growth in jobs and wages to prove it. …His Administration is also in a class by itself in issuing de facto rules as “notices” or “guidance” that are ignored by businesses at their peril. …And there’s much more to come.

Amen. The WSJ is correct to link the regulatory burden with anemic economic performance.

As I point out in this interview, red tape is akin to sand in the economy’s gears.

By the way, I can’t resist emphasizing that the Nordic nations, much beloved by Bernie Sanders and other leftists, generally are more free market than the United States on non-fiscal issues.

In other words, they have a more laissez-faire approach on matters such as regulation.

Now let’s try to quantify the cost of all this red tape.

The Washington Examiner reports on some new research.

The price of the Obama administration’s regulatory burden hit just shy of $200 billion last year, or $784 million for every day his government was open for business, according to a new analysis by American Action Forum.

To make matters worse, as I noted in the interview, I very much suspect the bulk of that new regulation was not accompanied by cost-benefit analysis. So the supposed benefits will be small and the actual costs will be high.

Let’s move from the general to the specific. The Heritage Foundation has a list of the worst regulations from last year. Here are some of the highlights, though lowlights would be a better term.

  • …a ban by New Jersey on sales of tombstones by churches — adopted in March at the behest of commercial monument makers.
  • Certain New York restaurants now have to include warnings on their menus about the sodium content in many popular dishes.
  • The Occupational Safety and Health Administration…expanded its mandate in June by declaring that businesses should allow employees to use whichever restroom corresponds to their “gender identity.”
  • …the Environmental Protection Agency and Army Corps of Engineers expanded their own jurisdiction to regulate virtually every wet spot in the nation.

And there are plenty more if you really want to get depressed.

But let’s not dwell on bad news. Instead, we’ll close by highlighting a potentially helpful bit of regulatory reform north of the border. Here are some blurbs from a story in the Washington Examiner.

…look to Canada for lessons from its experiment with regulatory budgeting. What is regulatory budgeting? It’s a process that seeks to use traditional budget concepts to better manage regulatory costs. The goal is to require government departments and agencies to prioritize and manage “regulatory expenditures,”… Regulatory budgeting imposes hard caps on departments and agencies and requires that new regulatory policies fit within their respective budgets. It may not be a silver bullet to the U.S. government’s regulatory profligacy, but with strong political leadership and a proper design, it can arrest the growth of new regulations and bring greater accountability, discipline and transparency to the process. …Departments and agencies are given a “baseline” calculation of regulatory requirements and the costs they impose on individuals and businesses, and then are expected to live within their respective budgets. This means — at least, in the case of the federal experiment — that any new regulatory requirements be offset by eliminating existing ones with equivalent “costs.” An independent, third-party panel verifies the government’s year-over-year compliance.

And it appears this new system is yielding dividends.

Over the past two years, the federal government estimates the system has saved Canadian businesses more than C$32 million in administrative burden, as well as 750,000 hours spent dealing with “red tape.” Most importantly, regulatory budgeting has gradually contributed to a more disciplined regulatory process by rewarding departments and agencies for finding lower-cost options and for making existing requirements smarter and less burdensome.

Hmmm…, maybe I should consider escaping to Canada rather than Australia if (when?) America falls apart.

In addition to this sensible approach on regulatory reform, Canada is now one of the world’s most economically free nations thanks to relatively sensible policies involving spending restraint, corporate tax reform, bank bailouts, the tax treatment of saving, and privatization of air traffic control. Heck, Canada even has one of the lowest levels of welfare spending among developed nations.

Though things are now heading in the wrong direction, which is unfortunate for our northern neighbors.

P.S. While the regulatory burden in the United States is stifling and there are some really inane examples of silly rules (such as the ones listed above), I think Greece and Japan win the record if you want to identify the most absurd specific examples of red tape.

P.P.S. Though I suspect America wins the prize for worst regulatory agency and most despicable regulatory practice.

P.P.P.S. Here’s what would happen if Noah tried to comply with today’s level of red tape when building an ark.

P.P.P.P.S. Just in case you think regulation is “merely” a cost imposed on businesses, don’t forget that bureaucratic red tape is the reason we’re now forced to use inferior light bulbs, substandard toilets, second-rate dishwashers, and inadequate washing machines.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Time for some good news.

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

She starts with grim polling data.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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