Feeds:
Posts
Comments

Posts Tagged ‘Statism’

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

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

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

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

He starts with an observation and a query.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Read Full Post »

Over the years, I’ve repeatedly tied to explain why socialism is a terrible system while also explaining that we should be careful not to label people as socialists if it’s more accurate to refer to them as statists, redistributionists, cronyists, or fascists.

To help illuminate this issue, here’s a four-quadrant matrix. Free markets are on the left and state planning is on the right. And small government is on the top with redistribution is on the bottom.

So it’s a very good idea to be in the top-left quadrant, hopefully close to the corner, sort of like Hong Kong and Singapore. And it’s a big mistake to be in the bottom-right quadrant, sort of like Cuba, North Korea, and Venezuela.

Notice, by the way, that Denmark and Sweden are more free market than the United States (i.e., further to the left), but with much more redistribution (i.e., closer to the bottom). Which is exactly what you see when you look at the underlying data from Economic Freedom of the World.

Let’s augment our four quadrants by adding a couple of historical examples, which are colored red.

In the top left quadrant, we have the United States in the late 1800s, which is when we had a public sector that was significantly smaller than what Hong Kong has today. Heck, nations such as France and Sweden also had very small governments in the 1800s, which is when the western world became rich.

I also added the National Socialists from 1930s Germany. Their fascist economic system retained the veneer of private ownership, but state planning was the dominant economic model.

Moreover, it would be very illuminating to have a three-dimensional matrix in order to capture the difference between cronyism/interventionism and socialism/state planning.

Both involve government officials exercising power over the allocation of resources, of course, but cronyism/interventionism tends to be ad hoc and morally corrupt while socialism/state planning tends to be systemic and intellectually corrupt.

Though if a government engages in enough cronyism/interventionism (think Venezuela), the net result looks a lot like socialism/state planning (think North Korea).

Or maybe we should have a four-dimensional matrix so we also can distinguish between systems with nominal private property (such as fascism) and ones where the government owns the “factors of production” (such as socialism and communism).

The unfortunate reality is that there are several strains of statism, all of which are bad.

By the way, one of Hillary Clinton’s advisors, Gene Sperling, was recently asked about the difference between a socialist and a Democrat and was accused of dodging the question just like Hillary (and, I would add, Debbie Wasserman-Schultz).

“I’m not here to do general definitions,” replied Gene Sperling, a Hillary Clinton economic adviser, when asked by MSNBC: ‘What is the difference between a socialist and a Democrat?’ MSNBC’s Chris Matthews stumped Hillary Clinton with the same question several months ago.

Though, if you watch the interview, I think Gene actually gets close to the truth. He said Hillary was a “progressive” (which presumably means lots of redistribution), but nonetheless supports the market economy (as opposed to state planning).

To be sure, there are many examples of Hillary wanting to engage in interventionism, so Sperling may be right about socialism but wrong about Mrs. Clinton.

Let’s close with a video on socialism from Dennis Prager, though it applies equally to redistributionism (or any system where people can use the coercive power of government to obtain unearned goodies).

One of the most insightful parts of the video was when Dennis pointed out that excessive government weakens character. Which is just another way of pointing out that statism erodes social capital.

And I fear he’s right that regaining and restoring character is not that easy. Once people have decided that it’s morally acceptable to use the power of government to take what other people have produced, restoring an ethical society is probably like putting toothpaste back in a tube.

Which explains why I am so miserably pessimistic about the future of places such as Greece.

Read Full Post »

European economic analysts are paying too much attention to the United Kingdom and too little attention to Italy.

Yes, the Brexit decision is important, and the United Kingdom is the world’s 5th-largest economy so it merits attention to see if there are any speed bumps as it escapes from the slowly sinking ship otherwise known as the European Union.

But one of the other passengers on that doomed ship is Italy, the world’s 8th-largest economy. And if the UK merits attention because of uncertainty on its way to a brighter future, then Italy should be getting five-alarm focus for its festering economic crisis as it descends into chaos.

Part of that crisis is quasi-permanent stagnation, as illustrated by this map showing changes in per-capita economic output since 1995.

To state that Italy is the slow student in the class is an understatement. There’s been a two-decade period with almost no improvement in economic output.

Even Greece has done better!

To make matters worse, Italy’s long-run stagnation is matched by an immediate banking crisis. Here are some excerpts from a MarketWatch report.

Banks in Italy are weighed by about €360 billion in nonperforming loans, or unpaid debts, according to Italy’s central bank. That represents 18.1% of total loans to consumers. Roughly €210 billion of those loans have been taken out by borrowers now considered to be insolvent. “Meanwhile, average return on equity has been less than 2% per year during the last five years, neither enough to clear out the NPLs at a decent pace, nor to attract more capital.

And, as illustrated by this chart from the Economist, this puts the nation in a very undesirable position.

There’s also a demographic disaster in Italy. The fertility rate is 1.43, which puts Italy in 208th place out of 224 nations.

To be sure, there’s nothing wrong with choosing to have fewer children. The “disaster” is that Italy has a huge, pay-as-you-go entitlement state that is premised on having an ever-growing number of new taxpayers to pay for the promises made to older taxpayers. And since Italy’s population pyramid is turning into a population cylinder, that’s obviously not happening.

Indeed, the EU Observer reports that parts of Italy are becoming ghost towns.

Around a third of villages in Italy are at risk of turning into “ghost” villages in the next 25 years because young people are leaving, and those who are left behind are dying of old age. …2,430 villages are at risk.

The “good news” is that there is some awareness that the nation faces a double-disaster of statism and unfriendly demographics.

Unfortunately, that awareness doesn’t extend to Italy’s ruling class. Almost nothing is being done to address the problems of a bloated (and notoriously incompetent) public sector and excessive government intervention. Fully one-half of the nation’s economic output is consumed by a bloated public sector. And a stifling tax burden helps to explain why economic output is stagnant.

And I’m not expecting good results from a new scheme to change the nation’s demographic outlook.

Italy’s health minister is proposing doubling a ‘baby bonus’ incentive for couples to have more children to combat what she calls a catastrophic decline in the country’s birth rate. …Lorenzin told the paper she wanted to double the standard baby bonus, currently 80 euros ($90) a month…and introduce higher payments for second and subsequent children to encourage bigger families.

Part of my concern is that I don’t think the government should pay people to have children, both because I don’t like redistribution and because I’m skeptical that you can successfully bribe people to have more children with $90 per month.

But when you dig into the details, the proposal is even more troubling. The government basically wants to encourage more children from the portion of the population that is most likely to rely on state handouts.

Higher-income families, those with taxable earnings of more than 25,000 euros per year, are not eligible for the scheme, excluding about a third of parents. The allowances are paid at higher rates for the poorest — those declaring less than 7,000 euros a year to the taxman. Under the new proposals, the payment for second and subsequent children would be 240 euros/month for average families and 400 euros/month for the poorest.

Call me crazy, but the last thing Italy needs is more people riding in the wagon of government dependency.

Oh, by the way, this scheme will add to the burden of government spending.

Lorenzin’s proposals would add 2.2 billion euros to public spending over six years, her department estimates.

More spending, bigger government, higher taxes, and additional red ink. Maybe that’s a recipe for prosperity on some planet in the universe, but it definitely won’t work on Earth.

P.S. No wonder there’s discussion in Sardinia on leaving Italy and joining Switzerland. After all, the luckiest Italian people in the world are the ones in Ticino, the southernmost canton of über-prosperous Switzerland (just as the unluckiest French people live in Menton and Roquebrune, which used to be part of Monaco).

P.P.S. Though you have to give the Italians credit for ingenuity. This doctor and this cop both went to extraordinary lengths to earn membership in the Bureaucrat Hall of Fame.

Read Full Post »

The economic and humanitarian crisis in Venezuela is the predictable result of statism run amok.

And I will confess a bit of Schadenfreude has suffused my columns on the topic.

But we shouldn’t laugh at the collapse of statism. Real people are suffering. And even if a painful collapse is necessary to create the conditions for a rebirth of freedom in Venezuela, the widespread misery that now exists is still tragic.

So let’s set aside sarcasm and try to draw a very important lesson from the crisis.

Moisés Naim of the Carnegie Endowment and Francisco Toro of the Caracas Chronicles have a column in the Washington Post about Venezuela’s collapse under Chávez and Maduro. They point out that ordinary people are the main victims of the nation’s statism.

Venezuela is the sick man of Latin America, buckling under chronic shortages of everything from food and toilet paper to medicine and freedom. Riots and looting have become commonplace, as hungry people vent their despair while the revolutionary elite lives in luxury.

They also ask the key question of why so many leftists became enamored with corrupt, failed, and anti-democratic leaders, particularly Hugo Chávez, who was “admired as a progressive visionary who gave voice to the poor.”

Not long ago, the regime that Hugo Chávez founded was an object of fascination for progressives worldwide, attracting its share of another-world-is-possible solidarity activists. …the time has come to ask some hard questions about how this regime — so obviously thuggish in hindsight — could have conned so many international observers for so long.

The authors answer that question in two ways.

Chávez pioneered a new playbook for how to bask in global admiration even as he hollowed out democratic institutions on the sly. …he mastered the paradoxical art of destroying democracy one election at a time. Venezuelans have gone to the polls 19 times since 1999, and chavismo has won 17 of those votes. The regime has won by stacking the election authorities with malleable pro-government officials, by enmeshing its supporters in a web of lavishly petro-financed patronage and by intimidating and marginalizing its opponents. It worked for more than a decade — until it didn’t work anymore.

In other words, the Venezuelan left sometimes won by rigging the rules, which is obviously bad.

But Chávez and Maduro sometimes did win genuine majorities. Those outcomes, however, were only made possible by bribing voters. People were seduced into stealing from their neighbors as part of a process that produces ever-larger sclerotic government.

This is the untrammeled majoritarianism that America’s Founders tried to avoid with a Constitution limiting the power of government.

In the absence of societal ethics, it’s not a good idea to let two wolves and a sheep vote on what to have for lunch. It has destroyed Venezuela. It’s destroying Greece. It’s what makes me pessimistic about the future of nations as diverse as Brazil, Italy, and South Africa. And it’s the biggest long-run danger facing the United States.

Simply stated, majoritiarianism produces “goldfish government.”

Let’s close by noting that type of system is very beneficial for powerful insiders.

Chávez successfully cultivated a pro-poor, anti-American posture . Endless professions of concern for the poor… But this, too, was a charade. We now know that the fiery speeches professing unconditional love and support for the poor were a ruse to deflect attention from the wholesale looting of the state. In fact, more than $100 billion in oil profits stashed in a “National Development Fund” were simply never accounted for. …regime-connected politicians run their luxury yachts aground after drunken romps. …You would think that preying on the world’s largest oil reserves would be enough for even the most voracious of kleptocratic elites, but no. The regime is also deeply involved in drug trafficking.

In other words, big government is very profitable for the insiders of Caracas just as big government in the United States is very profitable for the insiders of Washington.

P.S. I will admit that majoritarianism works when voters are knowledgeable and ethical. Switzerland is a very good (but very rare) example.

Read Full Post »

It’s not easy being a libertarian, especially in election years.

  • Do you choose not to vote because you either reject your choices or even the entire principle of majoritarianism?
  • Do you vote for the Libertarian Party even though that historically is nothing more than an ineffective way of sending a message?
  • Or do you strategically cast a vote for a major-party candidate, fully aware that such a person inevitably will be a disappointment in office?

If you’re normally in the last category, 2016 will be especially difficult.

Let’s start with Trump. On the positive side, he’s proposed a good package of tax cuts. And he’s…….ummm……..errrr……well……(scratch head)……

Actually, in terms of specifics rather than rhetoric, the tax cut is about the only market-oriented policy he’s embraced.

On the negative side, he’s a big fan of protectionism, and that’s definitely not a recipe for prosperity. And he’s rejected much-need reforms to entitlement programs, which therefore makes his big tax cut totally unrealistic.

But mostly it’s impossible to know what he really thinks for the simple reason that he probably doesn’t have deep thoughts about public policy (look at his flailing response to the question of debt). Even when he’s been specific, does anyone think he’s philosophically committed to what he has said while campaigning?

So my assessment, as explained in this interview with Neil Cavuto, is that Trump is a grenade that will explode in an unpredictable fashion.

So if you’re a libertarian and you choose to vote for Trump, just be forewarned that you’ll probably be standing next to the grenade when it explodes.

So what about the alternative? Is there a libertarian argument for Hillary Clinton (other than the fact that she’s not Trump)? Can a politician who has spent decades promoting cronyism and redistributionism actually deliver good policy?

Her husband actually did a good job when he was in the White House, but you can probably sense from this debate with Juan Williams on the Stossel show, I’m not overflowing with optimism that she also would preside over a shift to better policy.

Here are a few additional thoughts on my debate with Juan.

Keynesian economics doesn’t work, either in theory or in reality. And it’s laughable that the excuse for Keynesian failure is always that politicians should have spent more money.

Entitlements will cripple America’s economy if left on auto-pilot. I’ve repeatedly made the point that we’re like Greece 10 or 15 years ago. By claiming at the time that there was no crisis, Greek politicians ensured that a crisis eventually would occur. The same thing is happening here.

I’m skeptical about the claim that climate change is a crisis, but a revenue-neutral carbon tax is the most sensible approach if action genuinely is required. But the left prefers sure-to-fail (but very lucrative to cronies) industrial policy.

Government can help create conditions for prosperity by providing core public goods like rule of law, but that only requires a very small public sector, not the bloated Leviathans that exist today.

I’d be delighted to have a woman as President if she had the same principles and judgement as Margaret Thatcher. To be colloquial, that ain’t a description of Hillary Clinton.

Last but not least, I was rhetorically correct but technically wrong about welfare dependency in Hong Kong. I said fewer than 3 percent of Hong Kong residents get public assistance when I should have said that Hong Kong spends less than 3 percent of GDP on redistribution. That’s an amazingly small welfare state, but it does ensnare about 5.5 percent of the population. Which if far lower than the share of the population getting handouts in America, so my point was still very much correct.

Not that any of this matters in the short run since there’s a 99.9 percent probability that America’s next President will be perfectly content to let the country sink further into the swamp of statism.

Read Full Post »

It sounds arcane and pedantic, but the United States has a democratic system of government but is not (or at least was not) designed to be a democracy.

A democracy implies that 51 percent of the people have the power to elect a government with unlimited powers to exploit 49 percent of the people.

The United States instead is a constitutional republic. That means very clear limits on the power of government. And very clear limits, as George Will has properly explained and E.J. Dionne never learned, on democracy.

The bad news is that constitutional limits on the size and power of government have been eroding. The drift in the wrong direction began with Woodrow Wilson and the so-called progressives, accelerated during the New Deal (ratified by the horrible Supreme Court decision in Wickard v. Filburn), and has intermittently continued in the post-World War II era.

The laughable news (in a sad way) is that some politicians are willing to openly display their ignorance on these matters.

The Washington Examiner reports on (what has to be) the year’s most remarkable example of historical and legal illiteracy.

A House Democrat said Wednesday that it “really bothers me” when people claim the U.S. Constitution was designed to limit the federal government’s power. …Rep. Jerrold Nadler, D-N.Y., said the founding document of the U.S. was designed for the “opposite” purpose. …”The Constitution was enacted to strengthen government power to enable central government to lay taxes and to function effectively…” said Nadler.

Wow.

Talk about claiming that night is day and up is down.

Let’s look at the actual document. Article II of the Constitution makes the President the nation’s Commander-in-Chief, which obviously is important, but otherwise limits the office to an administrator role.

All law-making power is granted to Congress.

And if you read Article 1 of the Constitution, specifically the enumerated powers in Section 8, you’ll see the areas where Congress has the right to make laws. You get a very clear view that the Founding Fathers wanted very firm limits on the central government.

Those “enumerated powers” include fewer than 20 specific items, such as “coin money” and “maintain a navy.”

There’s nothing in there about a Department of Housing and Urban Development. Nothing about Medicaid.

And, notwithstanding the elastic anti-constitutional gymnastics of Chief Justice John Roberts, nothing about mandating the purchase of government-approved health insurance.

To be fair, there’s a tiny sliver of truth to Congressman Nadler’s argument.

Compared to the Articles of Confederation (in effect from 1781-1789), the Constitution did give more power to the central government.

But that simply meant that the central government had a very small amount of power compared to a tiny amount of power.

Since I’m a thoughtful and helpful guy, here’s something I created to help Congressman Nadler understand constitutional restraints on the power of government.

This is just a back-of-the-envelope estimate, so I openly admit that I don’t know where to place the current system on this spectrum. We’ve unfortunately traveled a long way on the path to untrammeled majoritarianism in the United States. But voters and politicians haven’t chosen to translate their ability into an all-powerful central government.

In other words, majoritarianism can lead to pervasive statism (i.e., voluntarily electing a communist or fascist government).

But there also are majoritarian systems such as Switzerland where people vote to limit government.

Likewise, monarchies can be benign, such as in the United Kingdom or the Netherlands. Or they can be forms of absolute rule akin to communism and fascism.

For purposes of today’s discussion, though, all that really matters is that both the Articles of Confederation and the Constitution were explicitly designed to limit the powers of the central government.

And while it may upset people in Washington, that means the federal government should be much smaller than it is today. Not only fewer departments, agencies, and programs, but also no involvement in underwear, college football, Major League Baseball, condoms, birth control, or the National Football League.

P.S. Yes, the 16th Amendment (sadly) gave Congress broad powers to tax, but that’s not the same as giving the federal government broad powers to spend.

P.P.S. Republicans have actually endorsed language implying that most of the federal government should be dismantled. I wish they were serious.

Read Full Post »

There are many reasons why I don’t like the Paris-based Organization for Economic Cooperation and Development, an international bureaucracy that ostensibly represents the developed world but in reality is controlled by European welfare states.

The main problem is that the OECD is financed by mostly left-leaning governments and supports policies that reflect the ideology of those governments. As such, the bureaucracy routinely advocates more statism. Oftentimes with shoddy and dishonest data manipulation.

Adding insult to injury, even though the US is only one of 34 member nations and even though OECD policies frequently are designed to undermine US competitiveness, American taxpayers finance the largest share of the organization’s lavish budget.

That bureaucracy’s new Economic Survey of the United States is a typical example of the OECD’s bias.

Here are the challenges identified by the bureaucrats and their recommendations. Since I’m a helpful person, I’ve added a column to summarize what the OECD is actually suggesting.

For those keeping score at home, the OECD is advocating 10 bad policies, one good policy, and has empty rhetoric on a few others.

I don’t like the support of Dodd-Frank and find it bizarre that the OECD wants to make women less attractive to employers, but the three most offensive and destructive recommendations are:

  1. The proposal for information exchange would make America less attractive for foreign investors.
  2. The proposal for a higher minimum wage would make it harder for low-skilled people to climb the economic ladder.
  3. The massive energy tax would be a heavy blow to American households.

By the way, my favorite part of the report is on page 29, where the OECD has a box showing “Past OECD recommendations on fiscal policy.” One of the recommendations from the 2014 survey was for the US to have more consumption taxation, which is their way of urging a value-added tax on top of the income tax. I’m glad to share that the OECD glumly reports that “No action taken.”

And I suppose it’s good news that the OECD didn’t even bother to include that recommendation this year, or any suggestions for higher income tax rates (though there are other suggestions to boost the overall tax burden).

My next favorite part of the report is where the OECD inadvertently showed that America’s more market-oriented (or less-statist) policies put us ahead of other member nations that generally have bigger burdens of government.

Yet notwithstanding the fact that Americans enjoy much higher living standards than people in nations with more government, the report is an awful compilation of statist proposals to make America more like France.

Which raises the important question of why American taxpayers are financing an organization that basically is a propaganda machine for Obama-style policies?

P.S. It’s possible that the IMF is even worse than the OECD. I confess I’m torn on which one deserves to be abolished first.

P.P.S. In the interest of fairness, the OECD isn’t always wrong. Its economists have concluded that spending caps are the only effective fiscal rule.

Read Full Post »

Older Posts »

Follow

Get every new post delivered to your Inbox.

Join 3,212 other followers

%d bloggers like this: