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Posts Tagged ‘Statism’

Maybe it’s just because I’m a wonk, but it seems that comparing long-run growth rates in various nation sets up a slam-dunk argument for the superiority of free markets and small government.

Whether it’s North Korea vs. South Korea, Cuba vs. Chile, or Ukraine vs. Poland, nations with bigger governments and more intervention inevitably decline compared to market-oriented alternatives.

That’s very compelling evidence, in my humble opinion, but I wonder whether it’s not overly persuasive because it’s too dry and analytical.

Maybe I should focus more on the human cost of statism. And not just by sharing data about low levels of per-capita GDP. Perhaps it would help to explain what that means for the lives of ordinary people.

Venezuela certainly would be a perfect (in a bad way) example.

The Associated Press explains that big government and statism aren’t working very well, particularly for the most vulnerable members of Venezuelan society.

Tens of thousands of Venezuelans poured into neighboring Colombia to buy food and medicine on Saturday after authorities briefly opened the border that has been closed for almost a year. A similar measure last week led to dramatic scenes of the elderly and mothers storming Colombian supermarkets and highlighted how daily life has deteriorated for millions in Venezuela, where the economy has been in a freefall.

That certainly sounds grim, but that story doesn’t fully capture how bad life has become for ordinary people.

Here are some excerpts from a BBC report on the government-created misery in Venezuela.

Travelling through the country this month I saw endless queues of people trying to buy food – any food – at supermarkets and other government-run shops. I was stopped at a roadblock in the middle of the countryside by people who said they had eaten nothing but mangoes for three days. I saw the hopeless expression of a mother, who had been eating so little that she was no longer able to breastfeed her baby.

What a miserable tragedy.

The reporter shares information on his own family and other people he met.

…it was my family who really brought it home to me. My brother told me all his trousers were now too big. My father – never one to grumble – let slip that things were “really tough”. My mother, meanwhile, confessed that sometimes she only eats once a day. They all live in different parts of Venezuela, but none of them is getting enough to eat. It’s a nationwide problem. …a young mother, Liliana, …admitted to going to bed in tears on days when she had been unable to give her two children any dinner. In western Venezuela, in the oil-rich province of Zulia, I visited several small towns where people didn’t know what they would eat the following day.

What a horrifying life.

Imagine if you were a parent in Venezuela and you couldn’t find food for your children? That shouldn’t be happening in the 21st century.

Unsurprisingly, deprivation and economic chaos are now the norm.

A study by three of the country’s main universities indicates…that “extreme poverty” has jumped by 53% since 2014. …The country’s official inflation rate was 180% in December, the last time a figure was made public, but the IMF estimates it will be above 700% by the end of the year.

Considering that Venezuela is in last place for Economic Freedom of the World, none of this should be surprising.

But remember that we want to focus today on the human cost of statism, not just broad measures of economic mismanagement.

And this chart from the BBC on food riots certainly is a persuasive piece of evidence.

Here’s the part that shows the mess was created by bad government policies, with price controls being a major culprit.

…the government years ago fixed the price of many basic goods, such as flour, chicken, or bread. But Venezuelans can only buy the goods at these fixed prices once a week, depending on the final digit of the number on their national identity card. …Because there is a risk of the goods running out, people often arrive at supermarkets in the early hours of the morning, or even earlier. At 6am one morning in Caracas, I met a man who had already been in the queue for three hours. …”I’m hoping to get rice, but sometimes I’ve queued and then been unable to buy anything because the rice runs out before I get in,” he said.

In a sad example of Mitchell’s Law as the failure of one bad policy leads to the imposition of another bad policy.

President Nicolas Maduro[‘s]…latest step has been to create Local Committees of Supplies and Production, better known by the Spanish acronym, CLAP. The CLAPs essentially mean that the government will stop sending imported food to supermarkets and start handing it over to local community councils. …The ultimate aim of the CLAPs is to create self-sustaining communities, where people grow their own food. …a member of a colectivo – a group of hardcore government supporters, often armed, …agreed in the end to show me what the CLAP was aiming to achieve. I was taken to see a barren field – “which we aim to have ready for crops in eight months” – and several chili plants waiting to be planted. It was, to say the least, disheartening.

In other words, Venezuela apparently is creating a sure-to-fail mixture of autarky and collective agriculture.

Even Ayn Rand didn’t think to include something that crazy in her dystopian novel, Atlas Shrugged.

Let’s wrap up with a CNN story about a new “jobs” program from the thugs in Caracas.

In a vaguely-worded decree, Venezuelan officials indicated that public and private sector employees could be forced to work in the country’s fields for at least 60-day periods, which may be extended “if circumstances merit.” …President Nicolas Maduro is using his executive powers to declare a state of economic emergency. …According to the decree from July 22, workers would still be paid their normal salary by the government and they can’t be fired from their actual job. …Venezuela…is grappling with the lack of basic food items like milk, eggs and bread. People wait hours in lines outsides supermarkets to buy groceries and often only see empty shelves. …Venezuela is the world’s worst economy, according to the IMF. It’s expected to shrink 10% this year and inflation is projected to rise over 700%. Beyond food shortages, hospitals are low on supplies, causing many patients to go untreated and some to die.

Wow, I’m not even sure where to start. The fact that people are dying because of horribly sub-standard care? The fact that the government is engaging in a form of quasi-slavery by forcing people to work on farms? Or the fact that bad government policy is the reason for the disaster?

As I contemplated these questions, it got me thinking about the varying degrees of statism and the harmful impact on ordinary people.

So, with apologies to fans of Dante’s Inferno, I put together the Five Circles of Statist Hell. The first layer is relatively benign, featuring nations such as France that sap an economy’s vitality with lots of feel-good programs. Then you get countries that belong in the second layer, which is characterized by economies that are actually declining rather than merely stagnating.

And the next layer is where Venezuela is today, with systemic misery and poverty. In other words, the nations in this layer already have declined and have lots of suffering.

But it’s always possible to decline even further. If Venezuela doesn’t reverse some of the awful policies that are causing chaos today, it’s just a matter of time before the country joins North Korea is a state of pervasive deprivation and even starvation.

And the only thing worse than that is the final layer of statist hell, which features countries that actually butcher their own citizens.

By the way, let’s not forget the “useful idiots” who have justified and/or praised Venezuela’s brutal government. I’ve previously cited the misguided words of Joseph Stiglitz.

Well, Joe Kennedy also deserves our scorn and disdain. The former politician actually mourned the death of the evil slug who is most responsible for the mess in Venezuela.

Former congressman Joe Kennedy (D-Mass.) is mourning the death of Venezuelan President Hugo Chavez today, praising Chavez as someone who made a difference for poor people. …Kennedy also said that “some of the wealthiest people on our planet have more money than they can ever reasonably expect to spend.” Kennedy joins Rep. Jose Serrano (D-N.Y.) among the few American politicians to praise Chavez after his death Tuesday.

How disgusting and unseemly. Makes the Che sycophants seems like moral giants.

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I’m in Shenyang, China, as part of the faculty for Northeastern University’s International Economics and Management program.

My primary role is to talk about the economics of fiscal policy, explaining the impact of both taxes and spending.

But regular readers already know my views on those issues, so let’s look instead at the vaunted Chinese Miracle.

And I don’t use “vaunted” in a sarcastic sense. Ever since China began to liberalize its economy in the late 1970s, economic growth has been very impressive. I don’t necessarily believe the statistics coming from the Chinese government, but it’s unquestionably true that there’s been spectacular progress.

The great mystery, though, is whether China will continue to enjoy rapid growth. In other words, will it actually converge with the United States (right now per-capita economic output in America is more than five times higher than it is in China)? Or will China, like many other developing/transition economies, hit a ceiling and then begin to stagnate.

I don’t pretend to know the future, but I can say with great confidence that the answer depends on the actions of the Chinese government.

The good news is that economic freedom jumped dramatically starting in 1980 according to Economic Freedom of the World. Thanks to good reforms, China’s score rose by more than 50 percent, climbing from 4.0 in 1980 to more than 6.0 in just a bit over two decades.

That’s a huge improvement, and it largely explains why prosperity has expanded and there’s been a record reduction in the grinding poverty and material deprivation that characterized the country.

But the bad news is that there hasn’t been much reform in the past 15 years. China’s economic freedom score has oscillated between 6.0 and 6.4 during that period.

Indeed, there have been financial bailouts and Keynesian-style “stimulus” schemes, so it’s possible that China is now going in the wrong direction.

Before digging into the details, let’s consider the economics of growth. I’ve written before that labor and capital are the two factors of production and that economic growth is a function of more labor, more capital, or learning to use existing labor and/or capital more productively.

One way to visualize this is with a production possibility curve. This is a tool in economics that often is used to illustrate tradeoffs and opportunity costs. If Robinson Crusoe is on a deserted island, what the best way for him to allocate his time to maximize the amount of fish he can catch and the number of coconuts he can collect? Or, for an entire society, what’s the “guns-vs-butter” tradeoff?

Here’s a chart I found online that illustrates the role of capital and labor and producing output. It’s a three-dimensional chart, which is helpful since it not only shows that there’s no output in the absence of capital and labor, but it also shows that an economy with just labor or just capital also won’t have much if any output. You produce a lot, by contrast, with labor and capital are mixed together.

But that’s just the beginning.

The above chart shows the amount of output that theoretically can be produced with given amounts of labor and capital. But what if there’s bad policy in a nation? Consider the difference, for example, between China’s plateaued economic freedom score and decent economic performance compared to Hong Kong’s great economic freedom score and great economic performance.

With that in mind, contemplate this two-dimensional image. With bad policy, either the economy only produces A when it can produce B (i.e., by using existing labor and capital more productively) or it produces B when it can produce C (i.e., by expanding the amount of labor and capital).

I suspect that China’s problem is mostly that bad policy interferes with the efficient allocation of labor and capital. In other words, there’s already a lot of labor and capital being deployed, but a significant amount is misallocated because of cronyism and other forms of intervention.

Now let’s move from theory to empirical details.

Here’s a close look at China’s reforms from Professor Li Yang, Vice President of the Chinese Academy of Social Sciences.

Over the past 35 years, China has achieved extraordinary economic performance thanks to the market-oriented reforms and opening-up….The GDP per capita also reached to $6075 in 2012, up from $205 in 1980… China’s economy experiences impressive changes in favor of marketization. In fact, as far back as 1996, 81% of the production materials, and 93% of retail sales, had already been traded according to the market pricing mechanism.

And here’s a chart showing the gradual expansion of market forces in China, presumably based on whether prices are determined by markets or by central planning.

We also have two charts showing the decline in genuine socialism (i.e., government ownership of the means of production).

The first chart shows that state-owned companies are becoming an ever-smaller share of the economy.

Even more impressive, there’s been a huge decline in the share of the population employed by state-owned firms.

This is good news, and it helps to explain why China is much richer today than it was 30 years ago.

But the great unknown is whether China will experience similar strong growth for the next 30 years.

Here’s more of Professor Yang’s optimistic analysis.

Another indispensable factor explaining China’s growth miracle is constant opening-up, which is equally guided by the principle of gradualism. Regarding the space structure, the markets successively opened up from the special economic zones, economic and technological development zones, coastal economic development zones, riparian regions, inland regions, and finally the whole China; regarding the industrial structure, from the advantaged manufacturing industry, to the less advantaged agriculture and service industries. In 2001, China’s entry into the WTO can be regarded as a milestone: China’s opening up transformed from selective policy measures to widespread and deep institutional arrangements.

The liberalization of trade is particularly impressive, as shown by the following chart from the study.

Makes me wonder what Donald Trump would adjust his protectionist China-bashing if he saw (and understood) this chart.

Anyhow, here are some passages from Professor Yang’s conclusion.

…market-oriented reforms constitute the most crucial factor to support China’s growth in the future. The key here is to properly deal with the relationship between government and markets. The latter will be expected to play the fundamental role in the allocation of economic resources. …China should make more effort to improve the efficiency of investment. …the government needs to reduce its intervention in the micro-level economic activities, promote deregulation and administrative decentralization, break up monopolies, and improve the efficiency of functioning.

I agree, particularly the part about boosting the efficiency of investment.

And that can only happen if China ends cronyism by letting capital be allocated by market forces rather than political connections.

Let’s close with two items.

First, one of the other faculty with me at the University in Shenyang is Ken Schoolland. In his presentation, he noted that there’s some real federalism in China. Provinces have considerable flexibility to engage in reform.

And it shouldn’t come as any surprise that the rapid growth in China has been concentrated in the areas that have moved the fastest and farthest in the direction of free markets.

Second, some experienced observers are a bit pessimistic about future Chinese economic developments. Derek Scissors of the American Enterprise Institute explains what needs to happen to boost future prosperity.

…the economy is in the process of stagnating. The only solution is a return to market-driven, politically difficult reform. Such reform must be focused primarily on rolling back the state sector. …Expanded individual or household land ownership in rural areas would be…helpful. …More individual land rights shrink the rural state. The critical step in revitalizing the economy is to shrink the urban state, and by a considerable amount. Such changes will of course be phased in over time but the sooner they start, the sooner economic performance improves. Shrinking the urban state sector would (i) finally address excess capacity; (ii) enable capital to be much more efficiently allocated; (iii) thereby slow or halt unproductive debt accumulation; and (iv)encourage innovation by enabling more competition. …In terms of capital allocation, formal interest rate liberalization was said to be a vital step. But it cannot be while the state controls most financial assets – the incentives for collusion among sister state financials are overwhelming.

Here’s Derek’s bottom line.

Want to know when China is going to thrive again – just check if the state sector is actually shrinking.

Amen.

What he’s basically describing are the policies that would dramatically improve China’s score from Economic Freedom of the World. And if China can ever climb as high as Hong Kong, then the sky’s the limit for growth and prosperity.

P.S. There are some signs that China’s leadership recognizes that a Reagan-style agenda is needed.

P.P.S. On the other hand, if China’s government takes the IMF’s advice, then prepare for economic decline and stagnation.

P.P.P.S. The most amusing economic news in recent years was when a senior Chinese official basically explained that the welfare state in Europe makes people lazy.

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

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

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

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

He starts with an observation and a query.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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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.

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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.

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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.

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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.

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