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Posts Tagged ‘Organization for Economic Cooperation and Development’

Free markets and limited government are a tried-and-true recipe for growth and prosperity.

Indeed, it’s the only way for a poor nation to become a rich nation. Those are the policies that helpd North America and Western Europe become rich in the 1800s and it’s how East Asia became rich in the second half of the 1900s.

By contrast, there’s no poor country that has implemented statist policies and then become rich (which is why none of my left-wing friends have ever come up with a good answer to my two-question challenge).

But that doesn’t stop some international bureaucracies from pushing bad policies on poor nations.

I wrote last year about the International Monetary Fund’s pernicious efforts to impose higher tax burdens in Africa.

Now the Organization for Economic Cooperation and Development is seeking to perpetuate poverty in the world’s poorest continent. The Paris-based bureaucracy actually is arguing that “urgent action” is need to impose higher taxes.

The average tax-to-GDP ratio for the 26 countries participating in the new edition of Revenue Statistics in Africa was…17.2% for the third consecutive year in 2017. …underlining the need for urgent action to enhance domestic revenue mobilisation in Africa. …Overall, the tax structure across participating countries has evolved over the past decade, with VAT and personal income tax (PIT) accounting for a higher proportion of revenue generation in 2017 relative to 2008, on average. However, PIT (15.4% of total tax revenues) and social security contributions (8.1% of total tax revenues) remain low in Africa. Reforms to broaden the personal tax base…and expand social insurance coverage can assist in domestic resource mobilisation efforts while contributing to inclusive growth. …Property taxes are shown to be much lower in Africa than in LAC and in the OECD but have the potential to play a key role.

Before explaining why the OECD’s analysis is wrong, here are a couple of charts for those who want some country-specific details.

Here’s a look at the aggregate tax burdens in various nations.

I’m not surprised that South Africa’snumbers are so bad.

And here’s a look at how tax burdens have changed over the past 10 years.

Kudos to Botswana.

The big question to consider, of course, is why the OECD is pushing for higher taxes in poor nations.

The real reason is that the OECD represents the interest of governments and politicians instinctively want more revenue.

The official reason, though, is that the bureaucrats want people to believe – notwithstanding reams of evidence – that higher taxes are good for prosperity. And it’s not just the OECD pushing this bizarre theory. It’s now routine for international bureaucracies to push this upside-down analysis, based on the anti-empirical notion that economies will prosper if governments can finance more spending.

P.S. Africa’s big economic challenge is not bad fiscal policy. If you peruse the data from Economic Freedom of the World, the continent has huge problems with excessive regulation and poor quality of governance. What’s tragic, though, is that the OECD doesn’t push for good reforms in those area. Instead, it wants to make fiscal policy worse.

P.P.S. To be fair, the OECD doesn’t discriminate. The bureaucrats also advocate higher taxes in other poor regions, such as Latin America and Asia.

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Ever since the bureaucrats at the Organization for Economic Cooperation and Development launched their attack on so-called harmful tax competition back in the 1990s, I’ve warned that the goal has been to create a global tax cartel.

Sort of an “OPEC for politicians.”

Supporters of the initiative said I was exaggerating, and that the OECD, acting on behalf of the high-tax nations that dominate its membership, simply wanted to reduce tax evasion. Indeed, some advocates even said that the effort could lead to lower tax rates.

That was a nonsensical claim. I actually read the various reports issued by the Paris-based bureaucracy. It was abundantly clear that the effort was based on a pro-tax harmonization theory known as “capital export neutrality.”

And, as I documented in my first study on the topic back in 2000, the OECD basically admitted the goal of the project was to enable higher taxes and bigger government.

  • Low-tax policies “unfairly erode the tax bases of other countries and distort the location of capital and services.”
  • Tax competition is “re-shaping the desired level and mix of taxes and public spending.”
  • Tax competition “may hamper the application of progressive tax rates and the achievement of redistributive goals.”

The OECD’s agenda was so radical that it even threatened low-tax jurisdiction with financial protectionism if they didn’t agree to help welfare states enforce their punitive tax laws.

At first, there was an effort to push back against the OECD’s tax imperialism – thanks in large part to the creation of the pro-competition Center for Freedom and Prosperity, which helped low-tax jurisdictions fight back (I almost got thrown in a Mexican jail as part of the fight!).

But then Obama got to the White House and sided with Europe’s big welfare states. Lacking the ability to resist the world’s most powerful nations, low-tax jurisdictions around the world were forced to weaken their human rights laws on privacy so it would be easier for high-tax countries to track and tax flight capital.

Once that happened, was the OECD satisfied?

Hardly. Any victory for statism merely serves as a springboard for the next campaign to weaken tax competition and prop up big government.

Indeed, the bureaucrats are now trying to impose minimum corporate tax rates. Let’s look at some excerpts from a report in the U.K.-based Financial Times.

…large multinationals could soon face a global minimum level of corporate taxation under new proposals from the OECD… The Paris-based organization called…for the introduction of a safety net to enable home countries to ensure their multinationals cannot escape taxation, even if other countries have offered them extremely low tax rates. …The proposals would…reduce incentives for countries to lower their tax rates… The OECD said: “A minimum tax rate on all income reduces the incentive for…tax competition among jurisdictions.”

Sadly, the Trump Administration is not fighting this pernicious effort.

Indeed, Trump’s Treasury Department is largely siding with the OECD, ostensibly because a one-size-fits-all approach is less bad than the tax increases that would be imposed by individual governments (but also because the U.S. has a bad worldwide tax system and our tax collectors also want to reach across borders to grab more money).

In any event, we can safely (and sadly) assume that this effort will lead to a net increase in the tax burden on businesses.

And that means bad news for workers, consumers, and shareholders.

Moreover, if this effort succeeds, then the OECD will move the goalposts once again and push for further forms of tax harmonization.

I’ll conclude by recycling a couple of videos produced by the Center for Freedom and Prosperity. Here’s my analysis of the OECD.

By the way, the OECD bureaucrats, who relentlessly push for higher taxes on you and me, get tax-free salaries!

And here’s my explanation of why tax competition should be celebrated rather than persecuted.

I also recommend this short speech that I delivered earlier this year in Europe, as well as this 2017 TV interview.

Last but not least, here are two visuals that help to explain why the OECD’s project is economically misguided.

First, here’s the sensible way to think about the wonky issue of “capital export neutrality.”

Yes, it would be nice if people could make economic decisions without having to worry about taxes. And sometimes people make inefficient decisions that only make sense because they don’t want governments to grab too much of their money.

But the potential inefficiencies associated with tax planning are trivial compared to the economic damage caused by higher tax rates, more double taxation, and a bigger burden of government spending.

Now let’s consider marginal tax rates. Good policy says they should be low. The OECD says they should be high.

Needless to say, people will be less prosperous if the OECD succeeds.

That’s why I fight on this issue, notwithstanding personal attacks.

P.S. Senator Rand Paul is one of the few lawmakers in Washington fighting on the right side of this issue.

P.P.S. If you want even more information, about 10 years ago, I narrated a three-part video series on tax havens, and even a video debunking some of Obama’s demagoguery on the topic.

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I’m a big fan of globalization, so does that make me a globalist?

That depends on what is meant by that term. If it means free trade and peaceful interaction with other nations, the answer is yes.

But if it means global governance by anti-market bureaucracies such as the United Nations, International Monetary Fund, and Organization for Economic Cooperation and Development, the answer is a resounding no.

So I have mixed feelings about this video from Dalibor Rohac of the American Enterprise Institute.

I can’t resist nit-picking on some of his points.

While I have disagreements with Dalibor, that definitely doesn’t put me in the same camp as Donald Trump.

The President is an incoherent mix. He combines odious protectionism with mostly-empty rhetoric about globalism. And he does all that without understanding issues – and, in some cases, his actions are contrary to his rhetoric.

Dan Henninger wrote about these issues two days ago for the Wall Street Journal.

He wisely warns that failures by national governments (most notably unaffordable welfare states and incompetent administrative states) are creating openings for unpalatable alternatives.

Global governance is one distressing possibility. Henninger worries about Chinese-style administrative authoritarianism.

President Trump at the United Nations this week elaborated on his long-running antagonism toward globalism. …There is merit to these concerns, but I think the critics of “globalism,” including most prominently Mr. Trump, underestimate the near-term danger of the serious difficulties appearing today in national democratic governance. Democracies maintain their legitimacy in the public’s eye only if they demonstrate a reasonable capacity to address society’s inevitably complex challenges. …it’s clear that many of the 21st century’s independent nations are having a remarkably difficult time executing their sovereign responsibilities. …Mr. Trump’s concerns about undemocratic governance by remote international bureaucracies are plausible, but the greater threat is more imminent. If the expansion of an increasingly dysfunctional administrative state inside the world’s sovereign democracies is inexorable and unreformable, the future will belong to China’s brand of administrative authoritarianism. …Elizabeth Warren and her multiple plans—heavily dependent on criminal prosecutions and intense oversight—is flirting with a milder version of this future.

Henninger is certainly correct that nations mostly get in trouble because of their own mistakes.

For instance, I’ve pointed out that the fiscal crisis in Europe should not be blamed on the euro.

That being said, global governance often creates moral hazard, which tends to exacerbate and encourage bad policy by national governments.

Let’s now look at an interesting column that John Bolton (Trump’s former National Security Advisor) wrote on global governance for the U.K.-based Times back in 2016. Here are some of the key passages.

He makes the should-be-obvious point that not all international bureaucracies are alike.

…international organisations sometimes act as if they are governments rather than associations of governments and sprout bureaucracies with pretensions beyond those of cosseted elites in national capitals. …International bodies take many different forms, and it serves no analytical purpose to treat them interchangeably. Nato, for example, is not equivalent to the United Nations. Neither is equivalent to the European Union. Each has different objectives, and different implications for constitutional and democratic sovereignty. …Nato is America’s kind of international partnership: a classic politico-military alliance of nation states. It has never purported to assume sovereign functions, and is as distant as is imaginable from the EU paradigm.

He explains that some of them – most notably the IMF – are counterproductive and should be shut down.

Proposals to reform the UN and its affiliated bodies such as the World Bank and the IMF are almost endless. The real question is whether serious, sweeping reform of these organisations…is ever possible. …In 1998, during the Asian financial crisis, the former secretaries of the Treasury William Simon and George Shultz, and Walter Wriston, a former chairman of Citibank, wrote in The Wall Street Journal: “The IMF is ineffective, unnecessary, and obsolete. We do not need another IMF, as Mr. [George] Soros recommends. Once the Asian crisis is over, we should abolish the one we have.” …We should consider privatising all the development banks… We should ask why US taxpayers are compelled to provide subsidised interest rates for loans by international development banks.

Amen.

He also opines about Brexit.

…the Brexit referendum was, above all else, a reassertion of British sovereignty, a declaration of independence from would-be rulers who, while geographically close, were remote from the peasantry they sought to rule. …The Brexit decision was deplored by British and American elites alike… It does not surprise Americans that British elites have not reconciled themselves to losing… London and Washington can fashion a new economic relationship, perhaps involving Canada, with the potential for significant economic growth. Let the EU wallow in strangling economic regulation, and the euro albatross that Britain wisely never joined.

He’s right, especially the final sentence of that excerpt.

I’ll conclude by reiterating my observation that we should distinguish between good globalization and bad globalization.

The good kind involves trade, peaceful interaction, and jurisdictional competition, all of which are consistent with sovereignty.

The bad kind of globalism involves international bureaucracies acting as supranational governments – almost always (as Nobel laureate Edward Prescott observed) with the goal of enabling and facilitating a larger burden of government.

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Speaking in Europe earlier this year, I tried to explain the entire issue of tax competition is less than nine minutes.

To some degree, those remarks were an updated version of a video I narrated back in 2010.

You’ll notice that I criticized the Organization for Economic Cooperation and Development in both videos.

And with good reason. The Paris-based OECD has been trying to curtail tax competition in hopes of propping up Europe’s uncompetitive welfare states (i.e., enabling “goldfish government“).

As I stated in the second video, the bureaucrats sometimes admit this is their goal. In recent years, though, OECD officials have tried to be more clever, even claiming that they’re pushing for higher taxes because that approach somehow is a recipe for higher growth.

Let’s look at a new example of OECD malfeasance.

We’ll start with something that appears to be innocuous. Or even good news. A report from the OECD points out that corporate tax rates are falling.

Countries have used recent tax reforms to lower taxes on businesses… Across countries, the report highlights the continuation of a trend toward corporate income tax rate cuts, which has been largely driven by significant reforms in a number of large countries with traditionally high corporate tax rates. The average corporate income tax rate across the OECD has dropped from 32.5% in 2000 to 23.9% in 2018. …the declining trend in the average OECD corporate tax rate has gained renewed momentum in recent years.

Sounds good, right?

From the OECD’s warped perspective, however, good news for the private sector is bad news for governments.

As a result, the bureaucrats are pushing for policies that would penalize jurisdictions with low tax rates.

The Organisation for Economic Co-operation and Development is going to propose a global minimum tax that would apply country by country before the next meeting of G‑20 finance ministers and central bankers set for 17 Oct. in Washington, DC. …The OECD’s head of tax policy, Pascal Saint-Amans, said a political push was needed to relaunch the discussions and used the case of the Cayman Islands to explain the proposal. “The idea is if a company operates abroad, and this activity is taxed in a country with a rate below the minimum, the country where the firm is based could recover the difference.” …While this framework is based on an average global rate, Saint-Amans said the OECD is working on a country-by-country basis. Critics of the proposal have said that this would infringe on the fiscal sovereignty of countries.

And as I’ve already noted, the U.S. Treasury Department is not sound on this issue.

This would work in a similar way to the new category of foreign income, global intangible low-tax income (GILTI), introduced for US multinationals by the 2017 US tax reform. GILTI effectively sets a floor of between 10.5% and 13.125% on the average foreign tax rate paid by US multinationals.

There are two aspects of this new OECD effort that are especially disturbing.

In a perverse way, I admire the OECD’s aggressiveness.

Whatever is happening, the bureaucrats turn it into a reason why tax burdens should increase.

The inescapable conclusion, as explained by Dominik Feusi of Switzerland, is that the OECD is trying to create a tax cartel.

Under the pretext of taxing the big Internet companies, a working group of the OECD on behalf of the G-20 and circumventing the elected parliamentarians of the member countries to a completely new company taxation. …The competition for a good framework for the economy, including low corporate taxes, will not be abolished, but it will be useless. However, if countries no longer have to take good care of the environment, because they are all equally bad, then they will increase taxes together. …This has consequences, because wages, wealth, infrastructure and social security in Western countries are based on economic growth. Less growth means lower wages. The state can only spend what was first earned in a free economy… The OECD was…once a platform for sharing good economic policy for the common good. This has become today a power cartel of the politicians… They behave as a world government – but without democratic mission and legitimacy.

Veronique de Rugy of the Mercatus Center examined the OECD and decided that American taxpayers should stop subsidizing the Paris-based bureaucracy.

Taxpayers are spending millions of dollars every year funding an army of bureaucrats who advocate higher taxes and bigger government around the globe. Last year, the United States sent $77 million to the Organization for Economic Cooperation and Development, the largest single contribution and fully 21 percent of the Paris-based bureaucracy’s $370 million annual budget. Add to that several million dollars in additional expenses for special projects and the U.S. mission to the OECD. …despite the OECD’s heavy reliance on American taxpayer funds, the organization persistently works against U.S. interests, arguing for international tax cartels, the end of privacy, redistribution schemes and other big-government fantasies. Take its campaign for tax harmonization, begun as a way to protect high-tax nations from bleeding more capital to lower-tax jurisdictions. …The OECD may recognize competition is good in the private sector, but promotes cartelization policies to protect politicians. …The bureaucrats, abetted by the European Union and the United Nations, even started clamoring for the creation of some kind of international tax organization, for global taxation and more explicit forms of tax harmonization.

These articles are spot on.

As you can see from this interview, I’ve repeatedly explained why the OECD’s anti-market agenda is bad news for America.

Which is why, as I argue in this video, American taxpayers should no longer subsidize the OECD.

It’s an older video, but the core issues haven’t changed.

Acting on behalf of Europe’s uncompetitive welfare states, the OECD relentlessly promotes a statist agenda.

That’s a threat to the United States. It’s a threat to Europe. And it’s a threat to every other part of the globe.

P.S. To add more insult to all the injury, the tax-loving bureaucrats at the OECD get tax-free salaries. Must be nice to be exempt from the bad policies they support.

P.P.S. If you’re not already sick of seeing me on the screen, I also have a three-part video series on tax havens and even a video debunking some of Obama’s demagoguery on the topic.

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Proponents of bigger government sometimes make jaw-dropping statements.

I even have collections of bizarre assertions by both Hillary Clinton and Barack Obama.

What’s especially shocking is when statists twist language, such as when they claim all income is the “rightful property” of government and that people who are allowed to keep any of their earnings are getting “government handouts.”

A form of “spending in the tax code,” as they sometimes claim.

Maybe we should have an “Orwell Award” for the most perverse misuse of language on tax issues.

And if we do, I have two potential winners.

The governor of Illinois actually asserted that higher income taxes are needed to stop people from leaving the state.

Gov. J.B. Pritzker…blamed the state’s flat income tax for Illinois’ declining population. …“The people who have been leaving the state are actually the people who have had the regressive flat income tax imposed upon them, working-class, middle-class families,” Pritzker said. Pritzker successfully got the Democrat-controlled state legislature to pass a ballot question asking voters on the November 2020 ballot if Illinois’ flat income tax should be changed to a structure with higher rates for higher earners. …Pritzker said he’s set to sign budget and infrastructure bills that include a variety of tax increases, including a doubling of the state’s gas tax, increased vehicle registration fees, higher tobacco taxes, gambling taxes and other tax increases

I’ve written many times about the fight to replace the flat tax with a discriminatory graduated tax in Illinois, so no need to revisit that issue.

Instead, I’ll simply note that Pritzker’s absurd statement about who is escaping the state not only doesn’t pass the laugh test, but it also is explicitly contradicted by IRS data.

In reality, the geese with the golden eggs already are voting with their feet against Illinois. And the exodus will accelerate if Pritzker succeeds in killing the state’s flat tax.

Another potential winner is Martin Kreienbaum from the German Finance Ministry. As reported by Law360.com, he asserted that jurisdictions have the sovereign right to have low taxes, but only if the rules are rigged so they can’t benefit.

A new global minimum tax from the Organization for Economic Cooperation and Development is not meant to infringe on state sovereignty…, an official from the German Federal Ministry of Finance said Monday. The OECD’s work plan…includes a goal of establishing a single global rate for taxation… While not mandating that countries match or exceed it in their national tax rates, the new OECD rules would allow countries to tax the foreign income of their home companies if it is taxed below that rate. …”We respect the sovereignty for states to completely, freely set their tax rates,” said Martin Kreienbaum, director general for international taxation at the German Federal Ministry of Finance. “And we restore sovereignty of other countries to react to low-tax situations.” …”we also believe that the race to the bottom is a situation we would not like to accept in the future.”

Tax harmonization is another issue that I’ve addressed on many occasions.

Suffice to say that I find it outrageous and disgusting that bureaucrats at the OECD (who get tax-free salaries!) are tying to create a global tax cartel for the benefit of uncompetitive nations.

What I want to focus on today, however, is how the principle of sovereignty is being turned upside down.

From the perspective of a German tax collector, a low-tax jurisdiction is allowed to have fiscal sovereignty, but only on paper.

So if a place like the Cayman Islands has a zero-income tax, it then gets hit with tax protectionism and financial protectionism.

Sort of like having the right to own a house, but with neighbors who have the right to set it on fire.

P.S. Trump’s Treasury Secretary actually sides with the French and supports this perverse form of tax harmonization.

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Donald Trump and other populist leaders frequently are condemned for undermining the “rules-based system” that is the basis of the “postwar order.”

What exactly is meant by this criticism? In the case of Trump, is it disapproval of his protectionism?

Yes, but that’s just the tip of the iceberg.

The broader accusation is that Trump and the others are insufficiently supportive of the so-called “international architecture” of treaties and organizations (the United Nations, International Monetary Fund, World Trade Organization, World Bank, G-7, Organization for Economic Cooperation and Development, NATO, etc) that western nations created after World War II.

And the critics are right, in my humble opinion.

But that’s besides the point. What’s really needed is a case-by-case analysis to determine whether the aforementioned treaties and organizations are making the world a better place.

To help understand this topic, let’s look at some excerpts from an anonymously authored article in  the latest issue of Cayman Financial Review.

What is the oft-cited “postwar order” that ostensibly is being threatened by populism? …begin with some history. There have been three major attempts to create an international architecture in hopes of discouraging war and encouraging peaceful commerce among world’s countries. The first occurred after the Napoleonic wars, the second occurred after World War I, and the third occurred after World War II.

The article explains that first postwar order was a big success, with 100 years of relative peace and prosperity between 1815 and 1914.

But the second postwar order, which followed World War I, was a miserable failure.

…the urgent economic problems that World War I had created – the need for demobilization, the restoration of the gold standard, the resumption of international trade flows, and the reconstruction of war-ravaged areas. Reparations burdened Germany and contributed to hyperinflation. …Germany depended on American loans to make its reparations payments to France and the United Kingdom. In turn, France and the United Kingdom depended on German reparations to repay their wartime loans from the United States. This financial merry-go-round was inherently unstable. …In the 1930s, many countries tried economic nationalism to escape from the Great Depression. Abandonment of the interwar gold standard, high tariffs to discourage imports, and competitive devaluations to boost exports became widespread. However, these “beggar-thy-neighbor” failed economically, caused the collapse of international trade, and contributed to rising international tensions.

And this grim experience was in the minds of policymakers as they sought to restore a system based on peace and open commerce.

…neither Churchill nor Roosevelt wanted to punish ordinary Germans, Italians or Japanese. Instead of the postwar harshness of Clemenceau, Churchill and Roosevelt favored the postwar magnanimity of Metternich, in which Germany, Italy, and Japan would be reconstructed as democratic capitalist countries. …both Churchill and Roosevelt thought that other new international organizations would be needed to help finance postwar reconstruction, provide stable exchange rates, and promote the progressive liberalization of international trade. …At the risk of oversimplifying, there are four major pieces of what is now loosely though of as the postwar order.

1. The United Nations and other multilateral bodies
2. The International Monetary Fund and World Bank
3. The World Trade Organization and affiliated trade pacts
4. NATO and other military/security alliances

The article is filled with details on how these various institutions evolved.

But for our purposes, let’s focus on ostensible threats to this order. Here’s what “Hamilton” wrote.

All four components of the current international architecture have critics, but they should be examined separately.

  1. The United Nations is routinely condemned for being ineffective, wasteful and anti-Western. However, the UN part of the post-war order is not under serious threat. However, the OECD is subject to considerable attacks because of its statist policy agenda.
  2. The IMF and World Bank are routinely condemned for being wasteful and anti-market. The IMF also is singled out for bailout policies that are said to encourage profligacy in developing nation and to reward sloppy lending practices by big western banks. Notwithstanding the instability than many say is caused by the IMF, this part of the postwar order is not under serious threat.
  3. The WTO and regional FTAs are under threat from a populist backlash in the United States and Europe, driven in large part by angst over financial prospects for lower-skilled workers. This part of the postwar order is under serious threat, especially because U.S. laws give the president significant unilateral powers over trade policy.
  4. NATO and other security arrangements are being questioned for both cost and changing geopolitical factors (e.g., the rise of China, Islamic terrorism). While unlikely at this point, dramatic policy changes from the United States could substantially alter the structure and/or operation of these military alliances.

How depressing. The part I like is the part that is under assault.

Here are the key points from the article’s conclusion.

The so-called postwar order is not a monolithic entity. …Some have been very successful. Consider, for instance, the sweeping reduction in trade barriers and the concomitant rise in cross-border commerce. …But other parts of the post-war order do not have very strong track records. Bureaucracies such as the IMF and OECD arguably deserve some hostile attention because of their support for anti-market policies. Policymakers who want to preserve the best parts of the post-war order may want to consider whether it is time to jettison or reform the harmful parts.

This is spot on.

Parts of the “postwar order” should be preserved. The World Trade Organization definitely belongs on that list. And presumably nobody wants to disrupt or eliminate the parts of the “international architecture” that facilitate things such as cross-border air travel, international shipping, and global telecommunications.

But the helpful work of those entities doesn’t change the fact that other entities engage in activities that are counterproductive. A “rules-based order” is only good, after all, if it advancing good rules.

Needless to say, the answer to all of these questions is no.

Which brings to mind the old saying about “Don’t throw the baby out with the bathwater.”

As “Hamilton” wrote, the bad parts of the postwar order should be jettisoned to preserve the good parts.

For those interested in this topic, Adam Tooze of Columbia University has a very interesting article on the same topic.

Published in Foreign Policy, his article basically applies a “public choice” description of how the current postwar order evolved. And he says it initially was not very successful

For true liberals in both the United States and Europe, who hankered after the golden age of globalization in the late 19th century, the resulting Cold War economic order was a profound disappointment. The U.S. Treasury and the first generation of neoliberals in Europe fretted against the U.S. State Department and its interventionist economic tendencies. Mavericks such as the young Milton Friedman—true advocates of free markets in the way we take for granted today—demanded a bonfire of all regulations. …The reality of the liberal order that supposedly came into existence in the postwar moment was the more or less haphazard continuation of wartime controls. It would take until 1958 before the Bretton Woods vision was finally implemented. Even then it was not a “liberal” order by the standard of the gilded age of the 19th century or in the sense that Davos understands it today. International mobility of capital for anything other than long-term investment was strictly limited.

Tooze argues that genuine liberalism (i.e., open markets and trade) didn’t really take hold until the 1980s, with the market-based revolution of Thatcher and Reagan, the “Washington Consensus,” and the collapse of communism.

The stakeholders in the 1970s were obstreperous trade unions, and that kind of consultation was precisely the bad habit that the neoliberal revolutionaries set out to break. …the global victory of the liberal order required a more far-reaching struggle. …the market revolution of the 1980s…  the aftermath of the Cold War, the moment of Western triumph. …the defeat of inflation, this was the age of the Washington Consensus.

For those not familiar with this particular piece of jargon, the “Washington Consensus” refers to the 1980s-era acceptance of free markets as the ideal route for economic development.

And “neoliberal” refers to classical liberalism, not the modern dirigiste version of liberalism found in the United States.

I’ll close by recycling this visual, which attempts to distinguish between good globalism and bad globalism.

The image uses the example of trade and jurisdictional competition, so I don’t pretend is captures all the issues and controversies that we discussed today.

But it reinforces why it is wrong to blindly accept and support the anti-market components of the postwar order simply because there are other parts that deserve our support. The goal is more global prosperity, not less.

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When I ask friends on the left to answer my two-question challenge about prosperity and the size of government, they sometimes will flip the script and demand that I answer their version of the same question.

Name a jurisdiction that became rich with small government, they ask!

I’ve always viewed that as a grossly ineffective debating tactic because I have so many good responses. For instance, I often point to Hong Kong and Singapore as modern-era examples of poor places that became rich places thanks to free markets and small government.

But my favorite examples are from North America and Western Europe. If you look at the historical data, nations in the western world evolved from agricultural poverty to middle-class prosperity in the 1800s and early 1900s when the burden of the public sector was minuscule.

It’s true that all of those nations, after they became prosperous, then chose to adopt welfare states of various sizes. That was an unfortunate development (though somewhat offset by trade liberalization and other pro-market policies), but at least they got rich before making that mistake.

After providing all these examples, I then tell my friends that it is their turn. Please, I ask, give me just one example of a nation that adopted big government and then became rich?

I’ve never received a good answer.

And this is why I’m so disappointed (but not surprised) that the Organization for Economic Cooperation and Development has a project to increase the fiscal burden in poor nations.

The Paris-based OECD actually asserts that higher taxes and more spending will lead to more prosperity. I’m not joking.

The OECD has a unique role to play in supporting developing countries to generate domestic revenues to finance their sustainable development. …While the ratio of tax to Gross Domestic Product (GDP) in OECD countries averaged 33% in 2008, in developing countries it was only around half this level, indicating that there was great potential yet to be exploited. …a growing focus on taxation as a development priority…as it is clearly the primary source of financing for development. …to unlock the potential of countries…the design and delivery of “modernised, progressive tax systems, improved tax policy and more efficient tax collection” were high on the list of must-dos.

I’m sure that poor people in developing nations will be delighted to learn that their politicians are conspiring with the OECD to “exploit” them with “progressive” and “efficient” tax regimes.

And I’m both amused and disgusted that the OECD report has creative euphemisms for higher taxes, such as “domestic resource mobilization” and “capacity building.”

But the section on how taxes supposedly are good for growth is downright unbelievable.

Taxation enables governments to invest in development, relieve poverty and deliver public services to underpin long-term growth. Strong tax systems not only raise crucial revenues: they also promote inclusiveness… Above and beyond the direct benefits to developing countries themselves, international co-operation in the area of taxation is essential in today’s globalised world. …Such actions can realise the potential of taxation to help drive development on a global scale.

You won’t be surprised to learn that the OECD does not provide any empirical evidence to back up this rhetoric.

The bureaucrats don’t even provide a single anecdote or example. Nothing. Zilch. Nada.

Instead, we’re supposed to believe that there’s a mysterious alchemy that somehow leads transforms higher taxes and bigger government into greater prosperity.

By the way, the OECD isn’t the only international bureaucracy pushing this message. I had the surreal experience of being a credentialed observer at a United Nations conference where seemingly every other participant was on the other side. And the International Monetary Fund is also guilty of this peculiar form of economic malpractice.

This video from the Center for Freedom and Prosperity examines whether big government is the right way to boost prosperity in poor nations.

P.S. I don’t know whether to characterize this as irony or hypocrisy, but OECD bureaucrats don’t pay tax on their lavish remuneration. Perhaps this explains why they are so oblivious to the real-world consequences of higher tax burdens.

P.P.S. I feel sorry for the professional economists at the OECD, who often produce very good studies. It must be embarrassing for them when the political appointees push bad policies.

P.P.P.S. Needless to say, I’m not happy that American taxpayers are financing the OECD’s statist agenda.

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