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Posts Tagged ‘Government intervention’

All things considered, I like small businesses more than big businesses.

Not because I’m against large companies, per se, but rather because big businesses often use their political influence to seek unearned and undeserved wealth. If you don’t believe me, just look at the big corporations lobbying for bad policies such as the Export-Import Bank, Dodd-Frank, Obamacare, bailouts, and the green-energy scam.

It’s almost as if cronyism is a business model.

By contrast, the only bad policy associated with modest-sized firms is the Small Business Administration. And I suspect the majority of little firms wouldn’t even notice or care if that silly bit of intervention was shut down.

Rather than seeking handouts, small businesses generally are more focused on fighting back against excessive government.

That’s because taxes and red tape can be a death sentence for a mom-and-pop firm. Literally, not just figuratively.

The Daily News reports on the sad closing of popular restaurant in New York City.

For 25 years, China Fun was renowned…the restaurant’s sudden Jan. 3 closing, blamed by management on suffocating government demands. …“The state and municipal governments, with their punishing rules and regulations, seems to believe that we should be their cash machine to pay for all that ails us in society.” …Albert Wu, whose parents Dorothea and Felix owned the eatery, said the endless paperwork and constant regulation that forced the shutdown accumulated over the years. …Wu cited one regulation where the restaurant was required to provide an on-site break room for workers despite its limited space. And he blamed the amount of paperwork now required — an increasingly difficult task for a non-chain businesses. “In a one-restaurant operation like ours, you’re spending more time on paperwork than you are trying to run your business,” he griped. Increases in the minimum wage, health insurance and insurance added to a list of 10 issues provided by Wu. “And I haven’t even gone into the Health Department rules and regulations,” he added. …“For smaller businesses like China Fun, each little thing that occurs makes it harder,” said Malpass. “Each regulation, each tax — you put it all together and it’s just a hostile business environment.”

This is rather unfortunate, but perhaps it is a “teachable moment.”

There are two things that came to mind as I read this story.

  • First, at some point a camel’s back is broken by too much straw. Politicians often claim that a particular tax or regulation imposes a very small burden. Perhaps that is true, but when you have dozens of taxes and hundreds of regulations, those various and sundry small burdens become very onerous. I’ve made the point before that you don’t need perfect policy for the economy to function. You just need “breathing room.” Well, China Fun ran out of breathing room. A casualty of big government, though it remains to be seen if anyone learns from this experience.
  • Second, complicated taxes and regulations are a much bigger burden for small companies compared to big corporations. Every large firm has teams of lawyers and accountants to deal with tax and regulatory compliance. That’s expensive and inefficient, of course, but such costs nonetheless consume only a very small fraction of total revenue. For small businesses, by contrast, those costs consume an enormous percentage of time, energy, and resources for owners. For all intents and purposes, bad government policy creates a competitive advantage for big firms over small firms.

The moral of the story is that we should have smaller government. Not just lower taxes (and simpler taxes), but also less regulation and red tape.

Not just because such policies are good for overall economic performance, but also because small businesses shouldn’t be disadvantaged.

P.S. Since we’re on the topic of how government tilts the playing field in favor of big companies (at least the corrupt big companies), let’s enjoy some humor on that topic.

Starting with Uncle Sam’s universal bailout application form. And we also have the fancy new vehicle from Government Motors.

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For the next four years, I suspect I’m going to suffer a lot of whiplash as I yank myself back and forth, acting as both a critic and supporter of Donald Trump’s policy.

This happened a lot during the campaign, as Trump would say very good things one day and then say very bad things the next day.

And now that he’s President-Elect Trump, that pattern is continuing. Consider his approach to American businesses. In the space of just a few minutes, he manages to be a Reaganesque tax cutter and an Obamaesque cronyist.

I discussed this bizarre mix in a recent interview with Dana Loesch.

I guess the only way to make sense of Trump’s policy is that it’s a random collection of carrots and sticks. The carrots are policies to encourage companies to create jobs in America, and Trump is proposing both good carrots such as a much lower corporate tax rate and bad carrots such as special Solyndra-style handouts (except, instead of loot for green energy, firms get loot for maintaining production in America).

And the sticks are all bad, ranging for public shaming to explicit protectionism.

As I said during the interview, Trump is probably scoring political points, but what we should really care about is whether policy is moving in the right direction.

The Wall Street Journal is rather skeptical, opining that Republican-backed cronyism will be just as bad as Democrat-backed cronyism.

A giant flaw in President Obama’s economic policy has been the politicized allocation of capital, from green energy to housing. Donald Trump suffers from a similar industrial-policy temptation, as we’ve seen…with his arm-twisting of Carrier to change its decision to move a plant to Mexico from Indiana. …A mercantilist Trump trade policy that jeopardized those exports would throw far more Americans out of work than the relatively low-paying jobs he’s preserved for now in Indianapolis. Mr. Trump’s Carrier squeeze might even cost more U.S. jobs if it makes CEOs more reluctant to build plants in the U.S. because it would be politically difficult to close them. Mr. Trump has now muscled his way into at least two corporate decisions about where and how to do business. But who would you rather have making a decision about where to make furnaces or cars? A company whose profitability depends on making good decisions, or a branding executive turned politician who wants to claim political credit? The larger point is that America won’t become more prosperous by forcing companies to make noneconomic investments.

Here’s some of what Tyler Cowen wrote about Trump’s approach.

One of Donald Trump’s most consistent campaign promises has been to prevent U.S. businesses from moving good jobs to Mexico… Economists might regard this as a misguided form of protectionism, but in fact, it’s worse than that: If instituted, it could prove a major step toward imposing capital controls on the American economy and politicizing many business decisions. …Using the law to forbid factory closures would have serious negative consequences. For one thing, those factories may be losing money and end up going bankrupt. For another, stopping the closure of old plants would lock the U.S. into earlier technologies and modes of production, limiting progress and economic advancement. An alternative policy would prohibit companies from cutting American production and expanding in Mexico… The end result would be that Asian, European and Mexican investors would gain at the expense of U.S. companies. …Furthermore, if we limit the export of American capital to Mexico, the biggest winner would be China, as one of its most significant low-wage competitors — Mexico — suddenly would be hobbled.

Those are all very practical and sensible arguments against protectionism.

But Tyler points out that Trump’s agenda could lead to something even worse.

…a policy limiting the ability of American companies to move funds outside of the U.S. would create a dangerous new set of government powers. Imagine giving an administration the potential to rule whether a given transfer of funds would endanger job creation or job maintenance in the United States. That’s not exactly an objective standard, and so every capital transfer decision would be subject to the arbitrary diktats of politicians and bureaucrats. It’s not hard to imagine a Trump administration using such regulations to reward supportive businesses and to punish opponents. Even in the absence of explicit favoritism, companies wouldn’t know the rules of the game in advance, and they would be reluctant to speak out in ways that anger the powers that be. …It also could bring the kind of crony capitalist nightmare scenarios described by Ayn Rand in her novel “Atlas Shrugged,” a book many Republican legislators would be well advised to now read or reread.

Tyler’s best-case scenario is that Trump doesn’t try to change policy and instead just uses the bully pulpit to…well, be a bully.

…public jawboning  also would be an unfortunate form of politicizing the economy, but at least there wouldn’t be new laws or regulations to back it up in a systematic way.

Though I’ll close by noting that this best-case scenario is still a very bad case.

The mere fact that politicians think they have the right to interfere with the internal decisions of companies is a dangerous development.

It’s cronyism on steroids.

And even if Trump somehow restrains himself (how likely is that?!?), sooner or later that bad mentality will lead to bad policy.

Yes, I’m making a slippery-slope argument. But not just because I’m a libertarian who is paranoid about government power.

My fear is based on lots of real-world evidence. It turns out that slippery slopes are very slippery.

The bottom line is that politicians don’t even do a good job of running the government. Let’s not allow them to run private companies as well. And that’s true whether they have an R after their names or a D after their names.

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It’s time to channel the wisdom of Frederic Bastiat.

There are many well-meaning people who understandably want to help workers by protecting them from bad outcomes such as pay reductions, layoffs and discrimination.

My normal response is to remind them that the best thing for workers is a vibrant and growing economy. That’s the kind of environment that produces tight labor markets and more investment, both of which then lead to higher pay.

Even statists sort of understand that this is true, but it’s sometimes difficult to get them to grasp the implications. They oftentimes are drawn to specific forms of government intervention, even if you explain that there are adverse unintended consequences.

Let’s explore this issue further.

In a column for the New York Times, Megan McGrath writes about a big new mining project in a remote part of Australia that “has the potential to create 10,000 jobs.” While that’s obviously good news, she worries that the company “will repeat the mistakes made by companies during the last mining boom by using workplace practices that hurt workers and their families.”

And what are these mistaken “workplace practices”? Apparently she thinks it is terrible that workers don’t want to move to the outback and instead prefer to continue living in cities and suburbs. So she think it is bad that they fly in for multi-week shifts, stay in temporary housing, and then fly back (at company expense) to their homes.

Employees…fly to remote mines from major cities to work weeks at a time, and fly home for several days off before starting the cycle again. These so-called fly-in, fly-out jobs, which offer hefty pay, are widely known here as “fifo.” At the peak of the boom in 2012, …more than 100,000 of these held fifo positions.

Though it seems these workers are making very rational decisions on how to maximize the net benefits of these positions.

…fifo workers in the last boom were young, undereducated men lured by salaries that far surpassed what they could earn for similar work outside the industry — up to $100,000 a year to shift earth and drive trucks. The average full-time mining employee in 2016 earned $1,000 more per week than other Australians.

So what’s the downside? Why are workers supposedly being exploited by these lucrative jobs?

According to McGrath, the mining camps don’t have a lot of amenities.

…fifo life comes at a steep price. The management in many mines controls the transient workers’ schedules — setting times for meals, showers and sleep. The workers often can’t visit nearby towns and recreational facilities such as gyms and swimming pools because of a lack of transportation. Many employees have to share beds. They work 12-hour shifts, seven days a week, up to three weeks at a time.

That doesn’t sound great, but this also explains why the mining companies have to pay a boatload of money to attract workers. This is a well-established pattern that is familiar to labor economists. If working conditions are unpalatable, then employers have to compensate with more remuneration.

But Ms. McGrath doesn’t think workers should get extra cash. She would rather the mining company compensate workers indirectly.

A lot can be done to improve life in the camps. Shorter swings would help workers maintain bonds with their families. More stable living situations, with less sharing of living spaces, would increase a sense of value and belonging. Workers should be encouraged to visit nearby towns to reduce their isolation. The Adani megamine could be in operation for 60 years, experts say. Roads for the mine and the region should be improved so employees can move with their families to existing townships and drive to work.

Of course, she doesn’t admit that she wants workers to get less cash compensation, but that would be the real-world impact of her proposed policies.

She says that the mining companies should “put people ahead of profits.” But that’s a vacuous statement. Projects like this new mine only exist because investors expect to earn a return. Otherwise, they wouldn’t take the enormous risk of sinking so much capital into such endeavors.

All this new investment is good news for unemployed or under-employed Australians since they’ll now have an opportunity to compete for jobs that pay very well, particularly for workers without a lot of education.

By the way, if workers really valued all the things that are on Ms. McGrath’s list, the company would offer those fringe benefits instead of higher wages. But that’s obviously not the case. The market has spoken.

By the way, I can’t resist pointing out that she also does not understand tax policy. In a sensible system, companies calculate their taxable profit by adding up their total revenue and then subtracting all their costs. What’s left is profit, a slice of which is then grabbed by government.

But that’s not enough for Ms. McGrath. She apparently believes that mining companies shouldn’t be allowed to subtract many of the costs associated with so-called fifo workers when calculating their annual profit. I’m not joking.

Mining companies are encouraged through tax incentives to use the transient workers. Some costs associated with a fifo worker — meals, transportation and airline tickets — can be claimed as production expenses, helping to lower a company’s tax bill.

I hope the Australian government isn’t dumb enough to buy this argument. Allowing a firm to subtract costs when calculating profit is simply common sense. And if doesn’t matter if those costs reflect fifo costs, investment expenditures, luxury travel, or band costumes.

For what it’s worth, if the government does get pressured into forcing companies to pay tax on these various business expenses, one very safe prediction is that the net effect will be to lower the wages offered to workers. Or, if the mandates, taxes, and regulations reach a certain level, the business will simply close down or new projects will be abandoned.

And those options obviously are not good news for workers.

Let’s now shift from the specific example of fifo workers to the broader issue of labor regulation. What happens if governments listen to people like Ms. McGrath and impose all sorts of rules that prevent flexible labor markets? According to recent scholarly research from three European economists, the consequence is more unemployment.

They start by pointing out that European nations with mandates and red tape have a lot more unemployment (particularly when the economy is weak) than countries with lightly regulated labor markets.

The Great Recession has brought a substantial increase in unemployment in Europe. Overall, unemployment rate in the euro area has grown from 8 percent in 2008 to 12 percent in 2014. The change in unemployment has been very heterogenous. In northern Europe, unemployment did not grow substantially or even fell: in Germany, for example, unemployment rate has actually declined from 7 to 5 percent. At the same time, in Greece unemployment has grown from 8 to 26 percent, in Spain — from 8 to 24 percent, and in Italy — from 6 to 13 percent. Why has unemployment dynamics been so different in European countries? The most common explanation is the difference in labor market institutions that prevents wages from adjusting downward. If wages cannot decline, negative aggregate demand shocks (such as the Great Recession) result in growth of unemployment.

The three economists wanted some way to test the impact of regulation, so they looked at the labor market for immigrants in Italy since some of them work in the formal (regulated) economy and some of them work in the shadow (unregulated) economy.

While this argument is straightforward, it is not easy to test empirically. Cross-country studies of labor markets are subject to comparability concerns. The same problems arise in comparing labor markets in different industries within the same country. In order to construct a convincing counterfactual for a regulated labor market, one needs to study a non-regulated labor market in the same sector within the same country. This is precisely what we do in this paper through comparing formal and informal markets in Italy over the course of 2004-12. We use a unique dataset, a large annual survey of immigrants working in Lombardy carried out by ISMU Foundation since 2004. …Our data cover 4000 full-time workers every year; one fifth of them works in the informal sector. The dataset is therefore sufficiently large to allow us comparing the evolution of wages in the formal and in the informal sector controlling for occupation, skills and other individual characteristics.

And what did they find?

In the absence of regulation, labor markets can adjust. The bad news for workers is that they get less pay. But the good news is that they’re more likely to still have jobs.

Our main result is presented in Figure 1. We do find that the wage differential between formal and informal sector has increased after 2008. Moreover, while the wages in the informal sector decreased by about 20 percent in 2008-12, the wages in the formal sector virtually did not fall at all. This is consistent with the view that there is substantial downward stickiness of wages in the regulated labor markets. …we find that both before and during the crisis, undocumented immigrants (those without a regular residence permit) are 9 percentage points more likely than documented immigrants to be in the labor force

Here’s the relevant chart from the study.

And here are some concluding thoughts from the study.

…despite the substantial growth of unemployment in 2008-12, the wages in the formal labor market have not adjusted. In the meanwhile, the wages in the unregulated informal labor market have declined substantially. The wage differential between formal and informal market that has been constant in 2004-08 has grown rapidly in 2008-12 from 18 to 35 percentage points. …These results are consistent with the view that regulation is responsible for lack of wage adjustment and increase in unemployment during the recessions.

For what it’s worth (and this is an important point), this helps explain why the Great Depression was so awful. Hoover and Roosevelt engaged in all sorts of interventions designed  to “help” workers. But the net effect of these policies was to prevent markets from adjusting. So what presumably would have been a typical recession turned into a decade-long depression.

So what’s the moral of the story? Good intentions aren’t good if they lead to bad results. Which brings me back to my original point about helping workers by minimizing government intervention.

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I’ve argued before that the Department of Housing and Urban Development (HUD) should be the top target of those seeking to shut down useless and counterproductive parts of the federal government.

And if President-Elect Trump’s choice for HUD Secretary, Ben Carson, is as sound on housing issues as he is on tax issues, presumably he will work to close down the bureaucracy that he’ll soon be overseeing.

But I just read a Wall Street Journal column about agriculture subsidies that has me so agitated, that I may change my mind and make the Department of Agriculture my top target for elimination. Here’s some of what Jim Bovard wrote.

President-elect Donald Trump’s vow to “drain the swamp” in Washington could begin with the Agriculture Department. …Farmers will receive twice as much of their income from handouts (25%) this year as they did in 2013, according to the USDA. …big farmers snare the vast majority of federal handouts. According to a report released this year by the Environmental Working Group, …“the top 1 percent of farm subsidy recipients received 26 percent of subsidy payments between 1995 and 2014.” The group’s analysis of government farm-subsidy data also found that the “top 20 percent of subsidy recipients received 91 percent of all subsidy payments.” Fifty members of the Forbes 400 list of wealthiest Americans have received farm subsidies, according to the group, including David Rockefeller Sr. and Charles Schwab.

Indeed, agriculture subsidies are basically a huge transfer of wealth from the poor to the rich.

…in 2015 the median farm household had a net worth of $827,307. That includes a great many residential, gentlemen and hobby farmers. The largest class of farmers—those who produce most farm products and harvest the largest share of the subsidies—have a median net worth of $2,586,000. By contrast, the median net worth for American households in 2013 was $81,200, according to the Federal Reserve.

In his column, Jim also explains some of the bizarre consequences of various specific handout programs, including the fact that American taxpayers have forked over $750 million to Brazil in order to continue huge (and impermissible, according to our trade commitments) subsidies to American cotton producers.

But the sugar subsidies are probably the most economically insane.

The U.S. maintains a regime of import quotas and price supports that drive U.S. sugar prices to double or triple the world price. Since 1997 Washington’s sugar policy has zapped more than 120,000 U.S. jobs in food manufacturing, according to a 2013 study by Agralytica. More than 10 jobs have been lost in manufacturing for every remaining sugar grower in the U.S.

Let’s look at some more evidence, this time dealing with dairy subsidies.

Charles Lane of the Washington Post wrote earlier this year about America’s government-caused cheese problem.

…as of March 31, 1.19 billion pounds had accumulated in commercial cold-storage freezers across the United States, the largest stockpile ever. …each American would have to eat an extra 3 pounds of cheese this year, on top of the 36 pounds we already consume per capita, to eliminate the big yellow mountain.

Why is there something as silly as a giant stockpile of cheese?

If you’re guessing it’s the result of a foolish government policy, you’d be right.

… the U.S. government has a long-standing pro-cheese-eating policy, which grew out of the need to do something with the subsidized excess of milk products generated by federal pro-production dairy policy… Two decades ago, in fact, the Clinton administration’s Agriculture Department helped form a promotional organization, Dairy Management Inc., funded by a congressionally authorized, federally collected dues requirement for dairy producers. Its $140 million annual budget has helped develop such fast-food items as Pizza Hut’s cheese-topped crust and Taco Bell’s double steak quesadillas, as well as cheesy pizzas for the federal school lunch program. …dairy farms are protected by a subsidized insurance program in the 2014 Farm Bill.

What’s the answer to this mess?

Well, even an editorial writer for the leftist Washington Post recognizes that markets, rather than subsidies, should determine cheese production.

In the long run, everyone — consumers, producers, middlemen, grocers — would probably be better off if governments just left the dairy market to its own devices. And a lot of other markets, too.

By the way, since we’re on the topic of subsidies to the dairy industry, a Bloomberg column exposes some of the perverse consequences of government intervention.

…some farmers tried to limit the supply of milk by killing off their own cows. No, you read that correctly. This mysterious state of affairs was revealed in a nationwide class-action lawsuit against dairy cooperatives, groups of farmers who pool their supplies but, as a whole, serve as middlemen between the farmers and dairy processors. …The “herd retirement program,” as it was called, was led by Cooperatives Working Together, run by the lobbying group National Milk Producers Federation, and supported by farms producing almost 70 percent of America’s milk. …The path that leads to killing perfectly good dairy cows begins with a 1922 law, the Capper-Volstead Act. The statute was designed to protect both dairy farmers and consumers from profiteering middlemen.

This story actually is a perfect storm of government stupidity. The federal government has programs that subsidize the dairy industry. That then leads to overproduction. Producers respond to overproduction with a plan to kill cows, which somehow triggers antitrust intervention by the government.

Heaven forbid we actually get the government out of the business and simply allow markets to work!

And if antitrust laws and agriculture subsidies are a bad combination, then you won’t be surprised to learn that foreign aid and agriculture subsidies are another bad combination. In other words, two negatives don’t make a positive, as explained by Jim Bovard earlier this year in another column for the Wall Street Journal.

The Obama administration’s plan to dump a million pounds of surplus peanuts into Haiti at no cost has sparked a firestorm from humanitarian groups… Haiti has about 150,000 peanut farmers. The industry is “a huge source of livelihood” for up to 500,000 people, Claire Gilbert of Grassroots International told NPR, “especially women, if you include the supply chains that process the peanuts.” …the Peasant Movement of Papaye, denounced the peanut donation as “a plan of death” for the country’s farmers. …American aid has a sordid record. In 1979 a development consultant told a congressional committee: “Farmers in Haiti are known to not even bring their crops to market the week that [food aid] is distributed since they are unable to get a fair price while whole bags of U.S. food are being sold.” …After the 2010 earthquake, Haiti’s president, René Préval, pleaded with the U.S. to “stop sending food aid so that our economy can recover and create jobs.” Former President Bill Clintonpublicly apologized the same year for the devastating impact of subsidized U.S. rice imports: “I have to live every day with the consequences of the lost capacity to produce a rice crop in Haiti to feed those people, because of what I did.”

The peanut program may be even more inanely destructive than the sugar program.

The real culprit here are federal peanut programs with an almost 80-year record as one of Washington’s most flagrant boondoggles. Subsidies have encouraged farmers to overproduce and then dump surplus peanuts on the USDA, which winds up stuck with hundreds of millions of pounds. That food has to go somewhere, and the department sees Haiti as the ticket. Food-aid policies have long been driven not by altruism, but by bureaucratic desperation to dispose of the evidence of failed farm policies. …The cost of peanut subsidies is predicted to rise 10-fold between 2015 and next year, reaching $870 million—which approaches the total farm value of the whole U.S. peanut crop itself. The USDA expects to spend up to $50 million a year to store and handle surplus peanuts, and industry experts are warning that federally-licensed warehouses might not have enough space to hold the next crop.

Though this humorous image reminds me that ethanol handouts also may be the most counterproductive and wasteful agriculture subsidy.

Agriculture subsidies are bad for taxpayer and bad for consumers. They are a corrupt transfer of unearned wealth to special interest groups.

P.J. O’Rourke came up with the only appropriate solution to this mess.

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I have a very consistent view of victimless crimes.

  • I don’t approve of drugs and I’ve never used drugs, but I think the social harm of prohibition is greater than the social harm of legalization.
  • I don’t particularly like alcohol and I am almost a teetotaler, but I’m glad there’s now a consensus that the social harm of prohibition was greater than the social harm of legalization.
  • I don’t approve of prostitution and I’ve never consorted with a prostitute (other than the political ones in DC), but I think the social harm of prohibition is greater than the social harm of legalization.

Given these views, you won’t be surprised to also learn that I don’t care for gambling, but I think the social harm of prohibition is greater than the social harm of legalization.

The good news is that the nation is slowly but surely moving in the direction of legalization.

The bad news is that politicians doing the right thing in the worst possible way. Let’s look at three examples.

Our first wretched example is government-run lotteries, which are rip-off operations. In a genuine market, competition forces casinos to have reasonably decent odds. Yes, it’s set up so “the house” wins more often than it loses, but a casino probably pays out $90 for every $100 of bets. With lotteries, by contrast, governments rig the rules so that they pay out closer to $50 for every $100 of bets. Mafioso loansharks must be envious.

A second example is that politicians seem to view legalization merely as an opportunity for taxes, graft, featherbedding, and cronyism. Consider the case of Atlantic City, as explained by the Wall Street Journal.

In 1976 New Jersey voters approved a referendum that legalized gambling in Atlantic City. The constitutional amendment required casino revenues to fund programs for senior citizens and disabled residents, but politicians have instead funneled the cash to favored projects and businesses under the guise of promoting development. Guess how that’s turned out? A 1984 law required casinos to pay 2.5% of gaming revenues to the state or “reinvest” 1.25% in tax-exempt bonds issued by the state Casino Reinvestment Development Authority for state and community “projects that would not attract capital in normal market conditions.” Investment recipients have included Best of Bass Pro shop, Margaritaville and Healthplex. A decade later, state lawmakers imposed a $1.50 fee (which has since doubled) on casino parking spots to fund Atlantic City transportation, casino construction and a convention center. In 2004 lawmakers added a $3 surcharge for casino hotel stays to finance new hotel rooms and retail establishments, which had the effect of promoting unsustainable commercial and casino development. …Employment in Atlantic City has declined by about 10% over the last decade. Since 2010 the city’s property tax base has shrunk by two thirds. Local politicians raised property taxes by 50% between 2013 and 2014 to compensate for the dwindling tax base, but this has merely deterred new business investment and propelled flight. Meantime, local politicians have continued to spend… Between 2010 and 2014, expenditures increased by 10% while government debt doubled. The city government spends about $6,600 a year per resident—more than any other city in the state including Newark ($2,344). …Labor costs constitute about 70% of the budget. Earlier this year, the city emergency manager projected a $393 million cumulative deficit over the next five years absent reforms. …Democratic legislators and Governor Chris Christie passed a bailout that allows the city to squeeze an additional $120 million out of casinos in revenues annually to compensate for lower property-tax revenue. To sum up: New Jersey…plundered Atlantic City casinos, redistributed the spoils and loaded up the city with unaffordable levels of debt. The gambling mecca is a five-star example of failed liberal policies.

In other words, gambling did lead to addiction. Politicians got hooked on wasteful spending and haven’t been able to kick the habit.

Our final example is how politicians and established casinos are getting in bed together to prohibit competition from online gaming.

Andy Quinlan of the Center for Freedom and Prosperity is not impressed by this bit of cronyism.

Casino magnate Sheldon Adelson has long sought federal legislation that would override the ability of state governments to set their own online gambling rules. Given his business activities, Adelson clearly has no moral objections to gambling itself. His goal is simply to undermine market competition and put alternatives to his Vegas casinos out of business, and he has spent millions on lobbyists to help make that happen. Adelson’s allies in Congress have tried repeatedly to pass the Restoration of America’s Wire Act (RAWA), which would prevent states from authorizing online gambling within their own borders… Outside groups strongly warned against the consequences of undermining the 10th Amendment in the pursuit of crony capitalism. RAWA represents both a direct attack on personal liberty and a potential slippery slope in its erosion of federalist principles.

Veronique de Rugy of the Mercatus Center also is disappointed with this odious bit of special-interest favoritism.

Adelson hates online gambling, as it competes with his bricks-and-mortar Las Vegas casinos for customers. More than five years ago, on what has become known to the poker world as Black Friday, the federal government unleashed a legal jihad against online poker companies and their top executives. Online poker is not itself illegal—a fact clarified by the DOJ’s reinterpretation of the Wire Act—but the 2006 Unlawful Internet Gambling Enforcement Act made it illegal for payment processors to transfer funds to and from gambling sites. The problem for Adelson and his allies is that the UIGEA and other federal statutes apply only when state borders are crossed. The 10th Amendment and the principles of federalism mean that federal lawmakers should have no say regarding activities that take place entirely within one state’s borders. So if state governments wish to authorize online gambling for their citizens, they are and should remain free to do so.

Time for my two cents on the issue. Ideally, no government should have the power to tell gamblers whether they can engage in consensual transactions across state lines or even national borders.

But not only has that already happened, but we now have politicians and a cronyist conspiring to have the federal government interfere with states that want to allow online gambling inside state borders.

It will be interesting to see whether Republicans, now that they’re about to control Washington, will choose cronyism or competition, centralization or federalism (the Export-Import Bank is another test of GOP principles…or lack thereof).

Let’s put all this in context. Today’s topic is gambling and the cancerous effect of government intervention and favoritism in that sector. But the lesson we should learn is that cronyism is a bad idea, period. Cronyism is also bad in agriculture. It’s bad in finance. It’s bad in the tax code. It’s bad in energy. It’s bad everywhere.

To conclude, here’s an excellent video from Lean Liberty about the dangers of letting big business and big government rig the rules for the benefit of powerful insiders.

The moral of the story is that consumers should be in charge of which companies succeed and which ones fail.

The free enterprise system – when it’s allowed to operate – produces great wealth and prosperity. Cronyism, by contrast, undermines growth by politicizing the allocation of resources. Even worse, it reduces public support for limited government since many people mistakenly assume that big business and capitalism are synonymous.

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President-Elect Trump has picked Ben Carson as his Secretary for the Department of Housing and Urban Development (HUD), which immediately produced two thoughts.

First, since he had the best tax plan of all the 2016 candidates, too bad he wasn’t named Secretary of Treasury.

Second, I hope his job at HUD is to shut down the department, raze the building, and get the federal government out of the housing business.

Then I realized I was thinking too narrowly. Shouldn’t all Trump appointees start with the assumption that their department, agency, or program is an unconstitutional waste of money? I’ve already written columns explaining why some cabinet-level bureaucracies should be abolished.

Now let’s expand this list by taking  a look at the Department of Energy.

And our job will be easy since William O’Keefe has a very persuasive column for E21. Let’s look at some of the highlights, starting with the observation that the bureaucracy was created based on the assumption that the world was running out of energy and that somehow politicians and bureaucrats could fix that supposed problem.

The Department of Energy (DOE) traces its roots to the energy crisis of 1973, which was made worse by misguided government policy.  …there was, at the time, a firm belief that the world was going to run out of oil by the end of the century. Not only does the world have plenty of oil, but the United States is now a net exporter of natural gas–and would be exporting more if DOE was faster with its approvals. …Prior to DOE, the federal government played a very limited role in energy policy and development.  Presumed scarcity, excessive dependence on OPEC nations, distrust in markets, and the search for energy independence became the foundation for what is now a $32.5 billion bureaucracy in search for relevance.

In other words, the ostensible problem that led to the creation of the department was preposterously misdiagnosed.

The market produced lots of energy once the shackles of government intervention (including those from the Energy Department) were sufficiently loosened.

So what, then, does the department do?

What DOE has done is squander money on the search for alternative energy sources. In the process, it enabled Bootlegger and Baptist schemes that enriched crony capitalists who are all too willing to support the flawed notion that government can pick winners and losers.  For 2017, a large chunk of DOE spending–$12.6 billion, or 39 percent—is earmarked to “support the President’s strategy to combat climate change.” This is not a justifiable use of taxpayer dollars. Over 36 years, DOE’s mission has morphed from energy security to industrial policy, disguised as advanced energy research and innovation.  There is a long and failed history of industrial policy by the federal government.

Here’s the bottom line.

DOE has become the Department of Pork. …Energy firms do not need government subsidies to innovate and develop new technologies.  Horizontal drilling and fracking came from the private sector because the incentives to develop shale oil and gas were stronger than the illusions driving alternative energy sources. …Abolishing DOE would punish only the crony capitalists who have become addicted to its support.

Amen.

By the way, Mr. O’Keefe’s argument is primarily based on the fact that DOE doesn’t produce value.

Since I’m a fiscal wonk, I’ll add another arrow to the quiver. We also should abolish the department so that we can save a lot of money.

My colleague Chris Edwards has an entire website filled with information about the uselessness of the department. You can – and should – spend hours perusing all of the information he has accumulated.

But here’s the part that jumped out to me. Over the years, the federal government has squandered hundreds of billions of dollars on a department that is most famous for wasteful Solyndra-style scams.

By the way, there are a small handful of activities at DOE that should be shifted to other departments (such as transferring nuclear weapons responsibilities to the Department of Defense).

But the vast majority of DOE activities never should have been created and produce zero value, so the sooner the bureaucracy is eliminated, the better.

P.S. We can have tons of evidence about the desirability of shutting down the Department of Energy, but it doesn’t matter if there aren’t politicians who think it is more important to protect taxpayers rather than to funnel money to cronyists and interest groups. We’ll have to wait and see whether Trump chooses wisely, though I’m not holding my breath. We certainly didn’t get any pro-taxpayer shift of policy the last time GOPers were in charge of the White House. And Trump’s commitment to the notion of smaller government doesn’t seem overly robust, though I very much hope I’m wrong.

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For data-loving policy wonks, the World Bank’s Doing Business report is a fascinating look at the degree to which nations have a policy and governance environment that is conducive to economic activity.

Unlike Economic Freedom of the World, it’s not designed to measure whether a jurisdiction has small government. Doing Business is probably best described as measuring quality of governance and whether a nation has sensible business policy.

That being said, there’s a lot of overlap between the rankings of the two publications. Indeed, you’ll notice many free-market countries in the top 20 of Doing Business, led by the “unsung success story” of New Zealand, followed by the capitalist haven of Singapore.

The United States is ranked #8, and you’ll notice most of the Nordic nations with very good scores, along with two of the Baltic nations.

Here’s some of the report’s analysis, including the unsurprising observation that countries with market-friendly policies tend to have high incomes (a lesson one wishes Hillary Clinton was capable of absorbing).

OECD high-income economies have on average the most business-friendly regulatory systems, followed by Europe and Central Asia. There is, however, a large variation within those two regions. New Zealand has a ranking of 1 while Greece has a ranking of 61; FYR Macedonia stands at 10 while Tajikistan is at 128. The Sub-Saharan Africa region continues to be home to the economies with the least business-friendly regulations on average.

If you’re wondering where the rest of world’s nations rank, click on the table in the excerpt. One thing that stands out is that Venezuela – finally! – isn’t in last place. Though being 187 out of 190 is not exactly something to brag about.

While it’s good to give favorable attention to the nations with the highest scores, it’s also worthwhile to see which countries are moving in the right direction at the fastest pace.

Ten economies are highlighted this year for making the biggest improvements in their business regulations—Brunei Darussalam, Kazakhstan, Kenya, Belarus, Indonesia, Serbia, Georgia, Pakistan, the United Arab Emirates and Bahrain.

Kudos to Georgia (the one wedged between Turkey and Russia on the Black Sea, not the one that is home to my beloved – but underperforming – Bulldogs). It’s the only country that is both in the overall top 20 and among the 10 nations that delivered the most positive reforms.

Here’s the table from the report showing why these 10 nations enjoyed a lot of improvement.

The report observes that a more sensible regulatory approach is associated with higher levels of prosperity.

A considerable body of evidence confirms that cross-country differences in the quality of business regulation are strongly correlated with differences in income per capita across economies.

But here’s the part that should open a few eyes among our leftist friends.

A more market-friendly regulatory environment also is linked to lower levels of inequality.

There is a negative association between the Gini index, which measures income inequality within an economy, and the distance to frontier score, which measures the quality and efficiency of business regulation when the data are compared over time (figure 1.8). Data across multiple years and economies show that as economies improve business regulation, income inequality tends to decrease in parallel.

As I’ve said many times tomorrow, I don’t care about differences in income. I simply want economic liberty so everybody has a chance to earn more income.

Nonetheless, it’s good have some evidence for statists who fixate on how the pie is sliced. Here’s the relevant chart from the report.

And here’s another chart showing that lots of regulation and red tape in labor markets (inevitably imposed for the ostensible goal of “protecting” workers) is correlated with a bigger underground economy.

Reminds me of the research showing how “labor protection” laws actually hurt workers.

Let’s now turn to the tax component, which predictably the part that grabbed my interest.

The score for this component is based on both the tax burden and the cost of tax compliance.

While the size of the tax cost imposed on businesses has implications for their ability to invest and grow, the efficiency of the tax administration system is also critical for businesses. A low cost of tax compliance and efficient tax-related procedures are advantageous for firms. Overly complicated tax systems are associated with high levels of tax evasion, large informal sectors, more corruption and less investment.

Here’s a table from the report showing some of the good reforms that have happened in various nations.

Sadly, America did not make any improvements in tax policy, so we don’t show up on any of the lists.

But since we’re on that topic, let’s now take a closer look at the United States. As already noted, America is ranked #8, which obviously is a reasonably good score.

But if you look at the various components, you sort of get the same story that we saw with the World Economic Forum’s Global Competitiveness Report, namely that there are some sub-par government policies that are hampering an otherwise very efficient private economy.

I’m particularly displeased that the U.S. scores so poorly (#51) in “starting a business.” And just imagine how much the score will drop if statists succeed in forcing states like Delaware, Wyoming, and Nevada to alter their business-friendly incorporation laws.

And I’m also unhappy that we rank #8 when the United States started at #3 in the World Bank’s inaugural 2006 edition of Doing Business. Thanks Bush! Thanks Obama!

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