Feeds:
Posts
Comments

Posts Tagged ‘Government intervention’

Bernie Sanders, Vermont’s pseudo-socialist senator, thinks that America can learn from Europe.

He’s right.

But he’s also wrong. That’s because he thinks that Europe is a role model to emulate rather than a warning signal of mistakes to avoid. Needless to say, that’s borderline crazy.

Heck, even President Obama has pointed out that the United States out-performs our European counterparts.

In his Washington Post column, Robert Samuelson warns that it would be a mistake to follow the European model of more taxes and additional regulation. He starts with (what should be) an obvious point about businesses responding to incentives.

We can learn from Europe about job creation, but many Americans may reject the underlying lesson. It is: If you price labor too high — pay workers more than they produce — businesses will slow or stop hiring.

He then points out that bad incentives in Europe are leading to bad results.

Europe’s economy is in the doldrums. Growth in the eurozone (the 19 countries using the euro) is weak… Eurozone unemployment is 11.1 percent, barely down from the peak of about 12 percent. This contrasts with the United States, where the jobless rate has dropped from 10 percent in October 2009 to 5.3 percent now.

And what exactly are the bad incentives in Europe?

Simply stated, governments are imposing too many burdens on the economy’s productive sector.

In a fascinating article in the latest “Journal of Economic Perspectives,” economist Christian Thimann — a former top adviser at the European Central Bank and now at the French investment bank AXA — argues that Europe’s debt crisis and the weak recovery both stem from high wage and compensation costs. “Jobs fail to be created in a number of [eurozone] countries not because of a ‘lack of demand’ as often claimed,” Thimann writes,” but mainly because wage costs are high relative to productivity, social insurance and tax burdens are heavy, and the business environment is excessively burdensome.”

Which brings us back to the point Samuelson made earlier.

If the costs of new workers exceed the likely benefits in higher sales and profits, companies will hire less or not at all.

And just in case the implications aren’t obvious, he spells it out.

…we should not ignore the implications for the United States. …it’s tempting to load the costs of social policies onto business. …The Affordable Care Act (aka Obamacare) requires firms to provide health insurance for workers; a $15 minimum wage would raise labor costs sharply for many firms; and there are proposals mandating paid maternity and sick leave. All these seem worthy causes, but we need to be alert to unintended consequences. If we make hiring too expensive, there will be less hiring.

Amen. As I’ve already noted, businesses aren’t charities. They won’t hire new workers if that means lower profits!

But Europe has a lot of these policies, so unemployment is higher. And we have politicians in America who want to copy Europe’s mistakes.

The problem is not just that politicians are making it more expensive to hire workers. Bad government policy also is making it more expensive to do almost anything.

The U.K.-based Telegraph has a story looking at how some European governments are making other business activities needlessly costly and difficult.

…doing business in Portugal, Ireland, Italy, Greece and Spain is more difficult, expensive and slower than in stronger, neighbouring countries. …Looking at the average time it takes to get construction permits, electricity connected, contracts enforced and goods exported shows the disparity.

This chart shows that the problem is especially acute in Southern Europe.

Let’s close by making a very important point about differences within Europe. While it’s sometimes useful and interesting to look at big-picture comparisons (such as average unemployment in the EU vs US or average income in the EU vs US), it’s also important to realize that European nations (notwithstanding pressures for harmonization, centralization, and bureaucratization from the European Commission) still have considerable leeway to determine their own economic policies.

And if you peruse Economic Freedom of the World, you’ll see that Northern European nations such as Finland (#10), Denmark (#19), Germany (#28), and the Netherlands (#34) are all considered market-friendly, while Southern European countries such as Spain (#51), France (#58), Italy (#79), and Greece (#84) are much lower in the rankings.

The Nordic nations are especially interesting. They have large welfare states, but they have very pro-market policies in other areas. So to elaborate on what Senator Sanders asserted, we actually could learn some good lessons from Scandinavian nations in areas other than fiscal policy.

P.S. Since we picked on Bernie Sanders already, let’s create some balance by also mocking Hillary Clinton.

Here’s a clever satirical video about her email scandal.

And if that doesn’t satisfy your craving, click here for more Hillary humor.

Read Full Post »

Over the past few years, Hillary Clinton has taken advantage of several opportunities to demonstrate that she doesn’t understand economics.

Though that’s not a problem. I have friends who routinely demonstrate their economic ignorance by saying things that don’t make sense.

The problem is that Hillary may actually wind up in a position of power. So there’s a danger that the entire nation could be victimized because of her disregard of the laws of supply and demand.

Let’s look at a fresh example. The New York Times has a story about Ms. Clinton’s latest effort to bribe people with their own money.

Hillary Rodham Clinton on Monday will propose major new spending by the federal government that would help undergraduates pay tuition at public colleges without needing loans. …her proposals…would cost $350 billion over 10 years…about $175 billion in grants would go to states that guarantee that students would not have to take out loans to cover tuition at four-year public colleges and universities.

To make matters worse, some of this money would be used to bribe states into additional spending (sort of the higher-education version of Obamacare’s Medicaid scam).

In return for the money, states would have to end budget cuts to increase spending over time on higher education, while also working to slow the growth of tuition, though the plan does not require states to cap it.

And to make matters even worsier (yes, that’s a made-up word, but it seems appropriate), there’s a big tax increase to finance Ms. Clinton’s new scheme.

Mrs. Clinton would pay for the plan by capping the value of itemized deductions that wealthy families can take on their tax returns.

I don’t like distortionary tax preferences, but loopholes should be eliminated as part of a shift to a low-rate flat tax, not to finance the vote-buying schemes of the crowd in Washington.

But let’s set aside the concerns about fiscal policy and focus on what Clinton’s plan would mean for higher education.

And we’ll start with a thought experiment. Imagine you sold cars and the government decided to give people lots of money to buy your products. In the world of economics, this causes the “demand curve” to shift to the right.

Now answer a simple question: Would car prices under this policy (a) increase, or (b) decrease?

The obvious answer is (a). That’s certainly what has happened in the healthcare sector because of programs such as Medicare and Medicaid. That also happened in housing last decade thanks to bad monetary policy and corrupt Fannie Mae and Freddie Mac subsidies.

Moreover, there’s lots of evidence that the same thing already has happened with higher education. And now there’s new research that reaches the same conclusion.

As pointed out by the Wall Street Journal, recent scholarly data confirms that colleges and universities jack up prices to capture the additional subsidies.

Politicians…their solutions—cheap loans and taxpayer cash—end up increasing the cost of a degree. The latest evidence that schools jack up tuition to absorb federal money comes in a new report from the Federal Reserve Bank of New York. …The Fed researchers looked at how colleges responded when Congress bumped up per pupil aid limits between 2006 and 2008. Sure enough, students took out more loans, but universities gobbled up most of the money. Ohio University economist Richard Vedder connected these dots a decade ago, estimating in 2006 that every dollar of grant aid raised tuition 35 cents. He now looks prescient. The New York Fed study found that for every new dollar a college receives in Direct Subsidized Loans, a school raises its price by 65 cents. For every dollar in Pell Grants, a college raises tuition by 55 cents. This is one reason tuition has outpaced inflation every year for decades, while the average borrower now finishes college owing more than $28,000.

So what’s the bottom line? What will happen if Hillary Clinton expands subsidies to higher education?

Simple, more government subsidies will mean more wasteful inefficiency and higher costs.

Administrative bloat, reduced faculty loads and Shangri La dorms… College will continue to be expensive as long as government aid amounts to a wealth transfer to universities.

In other words, Ms. Clinton’s plan will double down on the policies (described in this video) that already have made college needlessly expensive.

All she’s doing is shifting more of the cost onto the backs of taxpayers.

Fortunately, there is a solution to this mess. Simply get the federal government out of the education business. This would reverse the bad policies that have caused colleges and universities to become more expensive and less efficient.

Sadly, this ideal approach probably won’t be adopted anytime soon.

But that doesn’t mean progress is impossible. Washington may actually move policy a bit in the right direction. And Elizabeth Warren (yes, that Elizabeth Warren) may even play a constructive role.

As reported by the Wonkblog section of the Washington Post, there’s growing interest in a plan to make colleges and universities partly responsible when students default on loans.

A coalition of liberal and conservative lawmakers is promoting a plan on Capitol Hill that would force colleges to pay up when their students default. If schools share the risk of borrowing or have some “skin in the game,” policymakers figure they would work harder to keep costs down….Senate Democrats, led by Elizabeth Warren (D-Mass.) and Jack Reed (D-R.I.), introduced legislation in 2013 requiring schools with default rates above 15 percent to reimburse the government 5 percent of the total defaulted debt. The higher the default rate, the higher the penalty. …Congressional Republicans are renewing the call for schools to share the risk of borrowing, as are presidential hopefuls Wisconsin Gov. Scott Walker and Ben Carson. The policy is being considered as a part of the re-authorization of the Higher Education Act.

The story even has some very sensible economic analysis about how third-party payer should be blamed for rising prices.

As it stands, there is little incentive for colleges to keep costs under control. As long as there is a supply of students and federal financial aid, both for-profit and nonprofit schools can charge high prices and encourage people to take out loans to cover the cost. If schools had a financial stake in every student’s ability to repay loans, they might be less inclined to saddle students with debt in the first place—or they might lower costs altogether.

Gee, what a shocking thought. If people have to play with their own money rather than taxpayer money, they suddenly behave more responsibly!

P.S. We should also remember that there is such a thing as too much “investment” in higher education.

P.P.S. Third-party payer in higher education also shows how government money can corrupt private institutions. Though any effort to stamp out such corruption should apply equally to government schools as well.

P.P.P.S. Now for the most important news. The Beltway Bandits are now Eastern National Champions of 55+ AAA softball, winning five straight games in Raleigh, NC, this past weekend.

We’ll play in Las Vegas for a national title in late September.

Read Full Post »

What’s the best way to understand the burden of government regulation and red tape?

Is it better to focus on the overall burden by sharing data about aggregate cost, job losses, time wasted, and foregone growth?

Or is it better to look at specific examples of regulatory foolishness, such as silly rules that force consumers to use crummy dishwashers, inferior light bulbs, substandard toilets, and inadequate washing machines?

If the latter approach is best, we have a great (in a bad sense) new example.

Nicole Carroll of CrossFit has a column in the Washington Post that dissects a disturbing new regulatory scheme from the busy-body local government.

D.C….government is developing misguided regulations that would add burdensome red tape to the most innovative fitness programs. Specifically, the D.C. Council has enacted a law — the first in the nation — that would define what personal fitness trainers can and cannot do, require them to register.

Just in case you think this sounds reasonable in theory (and you shouldn’t), take a look at what it means in practice.

If early drafts of the regulations are advanced, D.C. fitness trainers will have to divert their attention from improving lives to bureaucratic burdens: taking courses they don’t need, adhering to methods they don’t believe in, paying fees that will be passed on to their clients and looking over their shoulders at ever-present regulators. The draft regulations even call for a four-year college degree.

Huh?!? Why would a personal trainer need a college degree? And why should trainers be forced to take courses or follow one-size-fits-all methodologies?

Sounds like a bunch of red tape that will make it hard for low-income people to become trainers.

And what will this mean for consumers?

Well, higher costs at the very least.

The immediate impact would be to make fitness programs less accessible, more expensive and more elitist. Thousands of residents would lose the opportunity to follow programs that will help them get stronger, lose weight and enjoy a better quality of life.

Sound like a lose-lose proposition, right?

Who could be for such a bad idea? Why are D.C. politicians pushing such a foolish plan?

The answer is special-interest corruption.

…entrenched interests can drive up costs and close markets for competitors, preventing new products and services from improving the status quo. The groups pushing hardest for licensure are entrenched institutions such as the American College of Sports Medicine, the National Strength and Conditioning Association and the Register of Exercise Professionals. …a not-so-credible agenda to defend their long-established but increasingly threatened business models and stifle successful competition. They want the licensing because they will profit from it. For those in the Exercise Industrial Complex, the fear of disruptive competition explains why they want to make the District the first jurisdiction in the nation to regulate fitness programs.

Here’s the bottom line.

Instead of raising standards, burdensome regulations would have the effect of driving newcomers out of the industry — and pricing many moderate-income people out of fitness programs.

Licensing and regulation of personal trainers is just one example of a worrisome trend in governments across the country.

This video from the Institute for Justice has disturbing details of how special interests conspire with politicians in various states to impose high burdens that make it hard for people to work.

Isn’t this typical? Politicians always claim to be for the little guy, but licensing rules are all about erecting high barriers to protect entrenched incumbents from competition.

This chart shows how much time and money is needed to work in certain professions that generally use lower-income workers.

By the way, the same principle applies to the tax system. The political elites often argue against a flat tax because it would be a boon to the rich.

But it’s the powerful and well-connected that benefit from the Byzantine system of credits, exemptions, deductions, exclusions, preferences, and other loopholes in the tax code.

Rest assured that poor people aren’t hiring all the high-paid lobbyists that specialize in manipulating the tax code in Washington. Which is why honest and well-intentioned leftists should support real tax reform. Just like they should support sweeping deregulation.

Read Full Post »

Is the third time the charm, at least for bailouts?

First, we had the TARP bailout in the United States, and that turned out to be a corrupt mess.

Second, we had the Greek bailout, which has squandered hundreds of billions of euros to prop up a welfare state.

Now we have a third big bailout, with China seeking to stabilize that nation’s faltering stock market. So anybody want to guess how this will work out?

To put it mildly, the Wall Street Journal does not have a favorable opinion of this financial market intervention.

Beijing…officials pumped public money into the market. It hasn’t worked; the Shanghai Composite Index closed Thursday at 3661, 29% below its June peak. …Peking University economist Christopher Balding has added up the bailout and stimulus measures announced since the market panic started in late June. They total $1.3 trillion, or more than 10% of GDP.

So why is this a bad thing?

For two reasons, as the WSJ explains. First, it’s an unjustified wealth transfer. Second, it creates an economic environment contaminated by moral hazard.

Investors who bought when the market was already frothy are getting a chance to exit with some of their profits intact. But Chinese who don’t own stocks are justified in asking why they must subsidize their fellow citizens’ poor decisions. Mr. Balding’s spreadsheet shows that the market-rescue measures represent a huge transfer of wealth to investors who should have been prepared to shoulder the risks when they bought shares. The failed bailout reinforces the expectation that Beijing will attempt to manage the financial markets in the future. This moral hazard means the volatility will continue, along with the costs of future bailouts.

You won’t be surprised to learn that I share the Wall Street Journal’s skepticism. In a recent interview with Neil Cavuto, I said the Chinese government (like just about all governments) is too focused on short-run pain avoidance.

In other words, by trying to prop up markets in the short run, I think the Chinese government will cause a far greater amount of economic pain in the long run.

Two other points from the interview deserve highlighting.

  1. China’s economy needs more economic liberalization (as opposed to the snake oil being peddled by the IMF) if it hopes to become a first-world nation. While there’s been a lot of progress since the wretched deprivation and poverty of Mao’s era, China is still way behind the United States and other nations with more capitalistic systems. Hong Kong, Singapore, and Taiwan are appropriate role models.
  2. Whenever folks on the left point to a “success story” that ostensibly proves big government and central planning are more successful that capitalism, it’s just a matter of time before they’re proven wrong. Some of them were delusional enough to think the Soviet Union was economically successful (see bottom of this post) and events proved them wrong. As I pointed out in the interview, some of them thought Japan’s model of central planning was the ticket for prosperity and events proved them wrong. More recently, some of them have argued that China’s state-driven economy was a role model and they’re now being shown to be wrong.

P.S. Let’s close with some economic humor.

Fans of old-time comedy are probably familiar with the famous who’s-on-first exchange between Abbott and Costello.

Well, here’s a modern version of that exchange that showed up in my mailbox yesterday, only it deals with joblessness. I won’t strain credibility by asserting it’s as funny as the original sketch, but it does indirectly highlight the fact that we should focus primarily on labor force participation since that measure how many people are producing wealth for the nation.

COSTELLO: I want to talk about the unemployment rate in America.

ABBOTT: Good Subject. Terrible times. It’s 5.6%.

COSTELLO: That many people are out of work?

ABBOTT: No, that’s 23%.

COSTELLO: You just said 5.6%.

ABBOTT: 5.6% unemployed.

COSTELLO: Right, 5.6% out of work.

ABBOTT: No, that’s 23%.

COSTELLO: Okay, so it’s 23% unemployed.

ABBOTT: No, that’s 5.6%.

COSTELLO: Wait a minute! Is it 5.6% or 23%?

ABBOTT: 5.6% are unemployed. 23% are out of work.

COSTELLO: If you are out of work, you are unemployed.

ABBOTT: No, Congress said you can’t count the “out of work” as the unemployed. You have to look for work to be unemployed.

COSTELLO: But they are out of work!

ABBOTT: No, you miss his point.

COSTELLO: What point?

ABBOTT: Someone who doesn’t look for work can’t be counted with those who look for work. It wouldn’t be fair.

COSTELLO: To whom?

ABBOTT: The unemployed.

COSTELLO: But ALL of them are out of work.

ABBOTTNo, the unemployed are actively looking for work. Those who are out of work gave up looking; and if you give up, you are no longer in the ranks of the unemployed.

COSTELLO: So if you’re off the unemployment rolls, that would count as less unemployment?

ABBOTT: Unemployment would go down. Absolutely!

COSTELLOThe unemployment rate just goes down because you don’t look for work?

ABBOTTAbsolutely it goes down. That’s how it gets to 5.6%. Otherwise it would be 23%.

COSTELLO: Wait, I got a question for you. That means there are two ways to bring down the unemployment number?

ABBOTT: Two ways is correct.

COSTELLO: Unemployment can go down if someone gets a job?

ABBOTT: Correct.

COSTELLO: And unemployment can also go down if you stop looking for a job?

ABBOTT: Bingo.

COSTELLO: So there are two ways to bring unemployment down, and the easier of the two is to have people stop looking for work.

ABBOTT: Now you’re thinking like an economist.

COSTELLO: I don’t even know what the hell I just said!

ABBOTT: Now you’re thinking like a politician.

P.P.S. While economists deservedly get mocked, we’re not totally useless. We occasionally show a bit of cleverness.

Read Full Post »

When I wrote about the media, it’s generally to criticize sloppy and/or biased reporting

But maybe I need to have a new category that features misleading headlines.

For instance, here’s a report by Fox Business News that grabbed my attention because of the headline. The story is about the arrest of an IRS bureaucrat.

The main reason I was startled by the story is that it didn’t seem at all newsworthy.

To be blunt, isn’t it the job of IRS employees to use our Social Security numbers to steal our money? That’s certainly what goes through my mind as I fill out my tax return.

So why was this bureaucrat arrested?

Was it for being a slacker, I wondered? The federal government confiscates about $3.5 trillion of our money each year, after all, which means the 95,000 IRS bureaucrats generate an average haul of more than $35 million. By contrast, $326 thousand is a mere pittance.

But then I read the story and realized that the story was about a completely different kind of theft. It appears that the bureaucrat was getting in on the nationwide scam of filing false claims to get EIC handouts.

An IRS employee who worked in the agency’s St. Louis, MO., office pled guilty this week to charges of tax fraud. Demetria Brown netted $326,000 in a fraud in which she stole taxpayer identities and created fake tax returns to steal refunds. …The scheme lasted seven years from 2008 to 2001.

So my first instinct was correct. There isn’t really anything newsworthy in that story. After all, nobody should be surprised that income-redistribution programs such as the EIC attract a lot of fraud. Nobody should be surprised that an IRS bureaucrat decided to take other people’s money (above and beyond the excessive salary the rest of us paid for). And nobody should be surprised that the other bureaucrats at the IRS were so incompetent that the scam was successful for seven years.

By the way, this isn’t the first time a thieving IRS bureaucrat generated a story with a misleading headline.

Speaking of which, here’s our second example of a headline that creates a completely false impression. It’s from a story in the Toronto Star.

Needless to say, I was completely shocked at first. After all, France is the nation where the national sport is taxation. It’s the country where taxes are so onerous that even the European Commission warns about over-taxation. It’s the nation where thousands of people have to pay more than 100 percent of their income to the tax authorities. It’s the country where high taxes are equated to patriotism. And it’s the nation that pushes tax policies that are so radical than even the Obama Administration sometimes says no.

So is it true? Is France going to become a Libertopia? The Galt’s Gulch of Europe?

But then my bubble burst. It turns out the story is about a technical shift in how taxes are collected.

The government wants to shift to a system of automatic withholding, similar to that in Canada and much of the rest of the world. Employees in France currently pay taxes a year after their income is earned. Christian Eckert, France’s budget secretary, said Wednesday that the government will not double-tax workers in 2018, the year automatic withholding is to begin. So 2017 incomes could effectively be tax-free for regular salaries. Taxpayers won’t actually feel much of a difference though — they would still spend 2017 paying for the previous year.

Though this might create an interesting social science experiment.

Depending on how rigorously France decides to be with its definition of “regular salaries,” this might be an opportunity for long-suffering French taxpayers to figure out ways of delaying 2016 income until 2017 and accelerating 2018 income so it’s received in 2017.

This could be a particularly useful strategy for investors, entrepreneurs, and small business owners, all of whom (if they’re like their American counterparts) presumably have some control over the timing, level, and composition of their income.

But I suspect the French government already is contemplating ways of making sure that every possible penny is being taxed at the highest possible rate, so I won’t hold my breath.

Read Full Post »

When I first got to Washington in the mid-1980s, one of the big issues was the supposedly invincible Japanese economy. Folks on the left claimed that Japan was doing well because the government had considerable power to micro-manage the economy with industrial policy.

With the benefit of hindsight, it’s now quite apparent that was the wrong approach.

In more recent years, some on the left have praised China’s economic model. And while it’s true that the country has enjoyed strong growth, it’s far from a role model.

Here’s some of what I wrote back in 2010.

Yes, China has been growing in recent decades, but it’s almost impossible not to grow when you start at the bottom – which is where China was in the late 1970s thanks to decades of communist oppression and mismanagement. …This is not to sneer at the positive changes in China. Hundreds of millions of people have experienced big increases in living standards. Better to have $6,710 of per capita GDP than $3,710. But China still has a long way to go if the goal is a vibrant and rich free-market economy. The country’s nominal communist leadership has allowed economic liberalization, but China is still an economically repressed nation.

With my skeptical view of the Chinese economic system, I figured it was just a matter of time before the nation experienced some economic hiccups.

And the recent drop in the Shanghai stock market certainly would be an example. I discussed the topic earlier this week in this Skype interview with Blaze TV.

To elaborate, there’s no precise formula for determining a nation’s prosperity. After all, economies are not machines.

But there is a strong relationship between prosperity and the level of economic freedom.

And as I explained earlier this year, China’s problem is that government is still far too big. As such, its overall ranking from Economic Freedom of the World is still very low.

And this means that the Chinese people – while much better off then they were under a pure communist system – are still not rich.

I mentioned the comparative numbers on per-capita economic output in the interview, which is something I wrote about back in 2011. And you can click here if you want the underlying figures to confirm that Americans are far more prosperous.

By the way, this is an issue where the establishment seems to have a semi-decent understanding of what’s happening, even if they don’t necessarily draw any larger lessons from the episode.

The Associated Press, for instance, has a good report on the issue. Here’s some of the story, which looks at why the the stock market seems untethered from economic fundamentals.

When China’s economy was roaring along at double digit rates in the 2000s, Chinese stocks floundered. But starting in the summer of 2014, as evidence of an economic slowdown gathered, the Shanghai Composite index climbed nearly 150 percent. …Now the Chinese stock bubble has burst and Shanghai shares are in a free fall. They’ve lost about 30 percent since peaking last month. …Prices in the stock market are supposed to reflect business realities: the health of the economy, the quality of the companies listed on stock exchanges, the comparative allure of alternative investments. But in a communist country where the government plays an oversized role in the economy, investors pay more attention to signals coming from policymakers in Beijing than to earnings reports, management shake-ups and new product announcements.

If savvy investors think it’s important to focus on what the government is doing, that’s obviously bad news.

During the booming 2000s, only politically connected firms were allowed to list on stock exchanges for the most part. Many of them were run by insiders of dubious managerial talent. The markets were dominated by inefficient state-owned companies. Investors were especially wary of investing in big government banks believed to be sinking under the weight of bad loans. Stocks went nowhere.

And when the government started to encourage a bubble, that also wasn’t a good idea.

…state media began encouraging Chinese to buy stock, even as the country’s economic outlook dimmed. The economy grew 7.4 percent last year, the slowest pace since 1990. It’s expected to decelerate further this year. But authorities allowed investors to borrow to buy ever-more shares. Unsophisticated investors — more than a third left school at the junior high level — got the message and bought enthusiastically, taking Chinese stocks to dangerous heights. Now it’s all crashing down.

I’m not sure “all crashing down” is the right conclusion.

As I said in the interview, the market doubled and now it’s down about 30 percent, so many investors are still in good shape.

That being said, I have no idea whether the market will recover, stabilize, or continue to drop.

But I do feel comfortable making a larger point about the relationship between economic freedom and long-run prosperity.

So if you want to learn lessons from East Asia, look at the strong performances of Hong Kong, Taiwan, Singapore, and South Korea, all of which provide very impressive examples of sustained growth enabled by small government and free markets.

P.S. I was greatly amused when the head of China’s sovereign wealth fund mocked the Europeans for destructive welfare state policies.

P.P.S. Click here if you want some morbid humor about China’s pseudo-communist regime.

P.P.P.S. Though I give China credit for trimming at least one of the special privileges provided to government bureaucrats.

Read Full Post »

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

It deals with a protest.

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

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

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

Here’s where the ironic part of the story.

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

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

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

A few final comments on this story.

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

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

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

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

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

Now for today’s main topic.

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

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

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

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

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

Here are some excerpts from a Reuters story.

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

Why are people shifting to bitcoin?

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

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

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

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

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

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

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

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

Why are so many people interested in bitcoin?

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

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

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

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

Bitcoin protects consumers from rapacious and feckless politicians.

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

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

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

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

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

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

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

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

Read Full Post »

Older Posts »

Follow

Get every new post delivered to your Inbox.

Join 2,865 other followers

%d bloggers like this: