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Updated: 1 hour 29 min ago

It’s Time for Congress to Reclaim its Constitutional Trade Authority

Mon, 06/11/2018 - 5:56pm

Congress has delegated so much authority to the executive branch over the decades that it has become a de facto legislature in its own right. We see this in the broad discretion bureaucrats wield through administrative law, as well as the various ways that Presidents can make major policy changes on a whim.

It’s the second problem, exemplified most recently by President Trump’s imposition of steel and aluminum tariffs on flimsy national security grounds, that has prompted an effort to claw back some of the authority that Congress so eagerly handed over when it comes to trade.

Sen.Corker’s S. 3013 would require Congressional approval before a president could adjust imports on national security grounds, and would apply retroactively for the last two years. From a policy point of view, it will make protectionism less likely, at least in the short run. But more importantly, from a process point of view, it would better align the law with Constitutional intent, as Article I, Section 8 gives Congress the power to impose tariffs and regulate foreign commerce.

The bill has bipartisan support, and Corker hopes to propose it as an amendment to the NDAA. Unfortunately, some Republicans, including leadership, are less than enthusiastic. They are prioritizing partisanship and a desire not to thwart a president from the same party over even the institution to which they belong, to say nothing of the interests of the c0nsumers and the economy. Nor are there as many Democrats on board as one might expect, as even the typical opposition partisanship is apparently struggling to overcome the left’s love of a powerful and unchecked executive.

Nevertheless, if ever there was a chance to reverse the long trend toward expanding executive power and diminishing the role of the legislature, this should be it. Congress should pass Corker’s bill to reclaim some of its power while preventing the destructive protectionism at the same time.

Taking up Trump’s Rescission Package a Needed First Step Toward Fiscal Responsibility

Thu, 06/07/2018 - 8:33am

The House is expected to consider H.R. 3, the Spending Cuts to Expired and Unnecessary Programs Act, sometime today. Using authority that allows for previously appropriated funding to be “rescinded,” the package put together by Trump’s White House represents the largest ever rescission request, at nearly $15 billion.

Some big spenders have predictably objected despite lacking any substantive reason to do so since the rescissions almost exclusively target funds with expired budget authority or that have sat unspent for years. That also makes the exercise somewhat less significant an example of fiscal responsibility than some boosters insist, but the fact that the previous two administrations never took advantage of the authority granted by the Budget and Impoundment Control Act of 1974 to clear some of the financial underbrush also proves that it’s not to be taken for granted.

Further, by ensuring that future lawmakers are unable to repurpose the funds or use them to offset new spending, the Trump rescissions will prevent higher spending down the road.

Two of the larger rescissions are the $4.3 billion from a loan program for Advanced Technology Vehicle Manufacturing that hasn’t made any loans since 2011 and the $800 million from Obamacare’s Center for Medicare and Medicaid Innovation that was intended for a controversial effort to experiment with payment delivery methods.

In the grand scheme of the federal budget, the rescissions package is a small step. But as the old Chinese cliche goes, a journey of a thousand miles begins with a single step. Assuming Congress is able to pass the bill, let’s hope this sets a precedence and foreshadows renewed interest in fiscal responsibility in Washington.

Another Edition of Anti-Communism Humor

Mon, 05/28/2018 - 12:52pm

expressed my disapproval yesterday about the pro-Stalin propaganda in Gori, Georgia.

Yes, I realize he’s the most noteworthy person to be born in that town, but that’s hardly a reason to acknowledge – much less celebrate – the life of a totalitarian butcher.

In response, I thought about writing a column documenting Stalin’s awful crimes against humanity, but perhaps mockery is a more appropriate response.

So let’s start with this news report from the Onion.

…a group of Johns Hopkins University researchers released a report Tuesday indicating that the late Soviet Union leader Joseph Stalin was only one great purge away from creating a communist utopia. “Our research demonstrates that if Stalin had shipped a mere 100,000 more people to Siberia, the whole communist experiment would have worked out perfectly,” said historian and report co-author Franklin Morrison, adding that all of the USSR’s corruption, hunger, and disease would have disappeared overnight if Stalin had simply been able to let a few million more Ukrainians starve to death. “It’s a shame, because in 1953 the Soviet Union was really on the precipice of becoming a perpetual workers’ paradise devoid of all poverty and want. Unfortunately, Stalin passed away before he could round up just one last group of intellectuals and make them dig their own mass graves.”

Sadly, some leftist academic probably believes this satire.

They need a copy of this book.

Of course, some statists (like these dopes) will trot out their usual excuse that “real communism hasn’t been tried.”

Speaking of dopes, I wrote last month about the loathsome decision by the President of the European Commission to honor Karl Marx. Well, it appears he’s also going to authorize having Marx on the currency.

But the sensible folks at the European Central Bank intervened and insisted on an appropriate denomination.

I’ve saved the best for last.

Those of you familiar with the silly fuss over “cultural appropriation” will definitely appreciate this gem.

Marx must be very proud of the starvation caused by his ideas since he also tweeted on the topic back in March.

For additional examples of communist satire, click herehere, and here.

Georgia (the Country) Is a Case Study of the Benefits of Economic Liberalization

Sun, 05/27/2018 - 4:40pm

Normally when I write about Georgia, it’s to wax poetic about the Glorious Bulldogs. But I’m currently in Tbilisi, the capital of the nation of Georgia, which is wedged between Russia, Turkey, Armenia, and Azerbaijan.

So allow me to take this opportunity to highlight the benefits of sweeping pro-market reform. Georgia is ranked #8 according to Economic Freedom of the World and it doesn’t get nearly enough attention considering that lofty score.

This chart from EFW shows Georgia’s score since the reform wave started in 2004.

The fact that Georgia’s score jumped by one full point over 11 years is impressive, but it’s even more impressive to see how the country’s relative ranking has increased from #56 to #8.

Here are the numbers for 2004 and 2015. As you can see, there were particularly dramatic improvements in trade, regulation, and quality of governance (legal system and property rights).

My friend from Georgia, Gia Jandieri, said one of the worst legacies of Soviet rule was corruption. He and his colleagues at the local pro-market think tank explained to policymakers that reducing the size and scope of government was a good strategy to address this problem.

And they were right.

Georgia was ranked near the bottom by Transparency International in 2004, scoring just a 2 (on a 1-10 scale) and tied for #133 out of 146 nations. Now Georgia’s score has jumped to 56 (on a 1-100 scale), which puts it #46 out of 180 nations.

And a big reason why corruption has plummeted is that you no longer need all sorts of permits when setting up a business. Indeed, Georgia ranks #9 in the World Bank’s Ease of Doing Business.

For what it’s worth, Georgia is only three spots behind the United States (the previous year, they were eight spots behind America).

And I definitely shouldn’t forget to mention that Georgia is part of the global flat tax revolution.

So what does all this mean? Well, according to both the IMF data and the Maddison database, per-capita GDP in Georgia has more than doubled since pro-market reforms were enacted.

In other words, ordinary people have been the winners, thanks to a shift to capitalism.

Illicit Opioids — Not Prescription Meds — Are Fueling America’s Epidemic

Sat, 05/26/2018 - 4:00pm

Originally published by The Daily Caller on May 25, 2017.

Coverage of the rise in drug overdoses caused by opioids is rightly drawing attention to the economic and social destruction caused by addiction and drug abuse in America. Unfortunately, political responses often operate on the false premise that doctors or prescription painkillers and their manufacturers are primarily to blame. Patients are increasingly suffering as a result, while the real bad actors are too often being ignored.

For years, the primary political response to opioid abuse has been to heavily scrutinize doctors treating patients with chronic or severe pain and restrict access to prescription painkillers. But the outcome of this approach has not been positive.

As the number of opioid prescriptions has declined since 2011, overall opioid-related overdoses have skyrocketed. That’s because while strangling legitimate doctor-advised prescriptions has led to a slight reduction in the growth of prescription opioid-involved overdoses, these slight gains have been swamped by increases in overdoses associated with illicit opioids, driven by the synthetic opioid fentanyl.

The crackdown on prescription drugs led to a subsequent rise in illegal opioid alternatives. These illegal drugs are being trafficked into the U.S. by criminal smugglers primarily from Mexico and China. Mexico’s Sinaloa Cartel, the criminal enterprise once led by Joaquín “El Chapo” Guzmán, is a driving force in the surge in fentanyl crossing the border, while Chinese drug manufacturers will ship fentanyl via international mail to any address in the world.

Fentanyl is extremely potent — about 100 times more so than morphine and 50 times more than heroin. It’s a threat not only to users, but also to law enforcement, medical personnel, and first responders — even to police dogs used for sniffing drugs. To illustrate, in May 2017, an Ohio police officer overdosed merely from brushing fentanyl residue leftover from an earlier drug bust off his uniform.

Overall, deaths from fentanyl have risen from 3,000 to more than 20,000, an astonishing 540-percent increase, just since 2013. Prior to this, deaths attributed to synthetic opioid overdoses were relatively stable. A growing body of research is blaming the spike on policies that have driven abusers and pain sufferers alike toward illicit markets.

This failure to properly diagnose the real bad actors behind the opioid crisis — foreign criminals supplying illegally manufactured drugs — is partly why my organization recently formed Taxpayers Against Illicit Opioids, which aims to educate on the dangers posed by illicit opioids in hopes of directing policy responses toward the right problem: the largely ignored surge in illicit opioids from Chinese-manufactured drugs smuggled in by Mexican cartels.

Once these drugs reach America, unscrupulous dealers often then add fentanyl to heroin and other drugs to make them more powerful, contributing to a spike in fentanyl overdoses among unsuspecting users. Some of the drugs are also manufactured to resemble legitimate prescription medications, thereby tricking pain sufferers who, having been denied treatment thanks to crackdowns on prescription medications, turned in their desperation for relief to the illicit market. Unfortunately, these counterfeits can come with lethal consequences.

The proliferation of illicit opioids smuggled from Mexico and China and their misuse is costing taxpayers, big time. The full economic costs since 2001 are estimated at over $1 trillion. The longer the problem drags on, the higher the bill will climb. It’s clear that lawmakers need a new approach, one that prioritizes stopping illicit and counterfeit opioids over restricting access to legitimate medications.

The Success Story of Canadian School Choice

Sat, 05/26/2018 - 12:29pm

Canada is a surprisingly pro-market country, with relatively sensible policies involving spending restraintwelfare reformcorporate tax reformbank bailoutsregulatory budgeting, the tax treatment of saving, and privatization of air traffic control.

And we should add education policy to the mix.

There are four comparatively admirable features of Canadian schooling. First, as explained by the Vancouver-based Fraser Institute, the central government has no role.

…the Canadian educational system is much more decentralized than in the United States. One of the starkest illustrations of the different models at work between the two countries, is the fact that Canada has no federal role, no federal ministry or department, and no federal cabinet position for K-12 education at all. …in Canada, this vital aspect of society is under the exclusive control and authority of the provinces. Furthermore, in many provinces the delivery responsibilities are decentralized to local and regional boards of education.

Too bad we can’t say the same in the United States.

Second, Canadian taxpayers don’t spend as much money.

Adjusting for differences in currencies, in 2010 the United States (public and private) spent $11,826 per student on K-12 education. In contrast, the comparable figure for Canada was only $9,774… the United States spent about one-fifth (21%) more per student in 2010 for primary and secondary education, and…that difference arises from the higher level of government spending.

The sad news is that the United States has the ignoble distinction of having the highest level of per-student spending. Yet we certainly don’t get better results.

Especially compared to Canadians, which is the third admirable feature north of the border.

…on most international tests, Canada performs at least as well as, and often much better than, the United States. For example, the OECD administers the Programme for International Student Assessment (PISA), which in 2006 gave U.S. students a science score of 489, compared to Canada’s 534 and the OECD average of 500.

So why is Canada getting better results with less money?

There are probably several answers, but one reason is a Canadian version of school vouchers, which is the fourth positive attribute of the Canadian education system.

Five provinces in Canada make provision for funding qualifying independent schools. These are Quebec and the four western provinces: Manitoba, Saskatchewan, Alberta, and British Columbia. …Funding percentages vary across the five funding provinces. None offer funding toward the purchase or construction of capital assets. Funding is generally calculated as a percentage of the amount given to the local school district for the operational (recurrent) expenses of educating a student. Funding is generally paid directly to the independent school on a per-student basis.

The money follows the students, which means parents in the more enlightened provinces have a real choice.

Interestingly, even researchers from the Canadian government confirm that kids in private schools receive superior education.

Private high school students score significantly higher than public high school students on reading, mathematics, and science assessments at age 15, and have higher levels of educational attainment by age 23.…In the reading test, private school students outperformed their public school counterparts by 0.081 log points, or about 8% (Table 5). The gaps were slightly larger in the mathematics and science tests. By age 23, 99% of private school students had graduated from high school, about 3 percentage points above the figure for public school students. The private school advantage was more evident in postsecondary outcomes (measured at age 23)—postsecondary attendance (11.6 percentage points), university attendance (17.8 percentage points), postsecondary graduation (16.2 percentage points), university graduation (13.9 percentage points), and graduate or professional studies (8.1 percentage points).

Private schools produced better results even after adjusting for the quality of students.

…private high school attendance was positively associated with postsecondary attendance and graduation outcomes. Specifically, postsecondary attendance and graduation outcomes were 5- to 9-percentage-points higher among private high school students. …It is well documented that private high school students generally outperform their public school counterparts in the academic arena.

Parents seems to recognize where they can get the best education for their kids. The Fraser Institute tracks enrollment patterns and an ever-increasing number of children are attending independent schools.

So what’s the bottom line? Simply that what we see in Canada augments evidence from SwedenChile, and the Netherlands about the benefits of breaking up state-run education monopolies. And we can give India honorary membership in this club since so many parents have opted for private schooling even though there’s no choice program.

P.S. Canada used to have the world’s 5th-freest economy, but it has dropped to the 11th-freest. Still a relatively good score, but Prime Minister Justin Trudeau has the country moving in the wrong direction.

Nazism and Communism Are Two Sides of the Collectivist Coin

Fri, 05/25/2018 - 12:08pm

In 2016, I toured the Tuol Sleng Genocide Museum in Cambodia, which memorializes the victims of communist butchery in that nation.

Earlier today, I was lucky enough to get a tour through the House of Terror, a museum in Budapest that commemorates the horrors that Hungary endured during both Nazi occupation and Soviet occupation

Some of the exhibits are uplifting, such as the photo from the 1956 uprising that shows a toppled statue of Stalin.

Other parts are downright depressing.

Or, in the case of these torture instruments, certain exhibits are utterly horrifying (you can use your imagination to figure out what the communists did with the glass tubes).

If you go to Hungary, the House of Terror should be on your list of things to do.

I was particularly gratified to learn that it’s the most-visited museum in Budapest. Not simply because it’s filled with interesting material, but because it helps people understand that all forms of statism are wrong.

The House of Terror has exhibits on the brutality of Nazi rule and the brutality of Marxist rule.

Which is a good excuse for me to share excerpts from a couple of columns on the common thread between fascism and socialism.

In a column last November for the Foundation for Economic Education, Brittany Hunter shared some of Friedrich Hayek’s analysis of the philosophical link between national socialism and international socialism.

F.A. Hayek’s The Road to Serfdom, …in chapter twelve, …Hayek highlights the very important connection between the socialist and Nazi intellectuals by profiling a handful of prominent German Marxist supporters… Hayek points out that contrary to what many think, Nazism did not simply appear out of thin air and infect the minds of docile German people. There were academic roots that, while grown in the soil of socialist thought, grew into a philosophy that praised German superiority, ultimate war, and the degradation of the individual. …Beginning his list of influential thinkers prior to WWII, Hayek begins with the dedicated Marxist who later embraced nationalism and dictatorship, Werner Sombart (1863-1941). …He seethed with criticism for the English people, who, in his mind, had lost their warlike instincts. …His other main criticism of English culture was the emphasis placed on the individual. For Sombart, individual happiness was hampering societies from being truly great. …Professor Johann Plenge (1874-1963) was another leading intellectual authority on Marxist thought during this time. He also saw war with England as a necessary struggle between two opposite principles: emphasis on the individual and organization and socialism. …Interestingly enough, many…socialist philosophers eventually abandoned Marxism in favor of National Socialism… while Prussian militarism was seen to be the enemy of socialism, Spengler helped bridge that gap. Both schools of thought require an abandonment of the individual identity. …This hatred and fear of the individual is the worldview espoused by these thinkers and it continues on with those who claim to be socialists today. Unless the concept of individualism is completely eradicated, the glorified state cannot come into existence.

Earlier this year, Byron Chiado echoed this analysis of Hayek’s Road to Serfdom in another FEE column, pointing out that all forms of socialism reject classical liberalism.

The bulk of the book makes the argument that central planning and interventionism inevitably lead to authoritarianism… Towards the end of the book, he deals with the undeniable authoritarians of his time and casts the national-socialist movement as one built on disgust with liberalism. …Sombart, like many Germans in the early 20th century, was compelled by a case for war between the British and Germany on the grounds that the British…pursuit of individual happiness, which he saw as a disease contracted from a society built on commercialism. Laissez-faire was an unnatural anarchic order giving rise to parasites and dishonest merchants… another Marxist, Sociologist Johann Plenge…moved into the shamelessly totalitarian realm that attracted so many Marxist leaders… Hayek gives…a warning to England; that the “conservative socialism” en vogue at the time was a German export, which for reasons he details throughout the book, will inevitably become totalitarian. …This was not a sensationalist attempt to prove his point. Hayek was rather calmly pointing out an example of the type of government one could expect in a society that has discarded liberalism for planning.

Amen. Big government is coercive government, regardless of what label is applied.

Which is why libertarianism (what Hayek would have called liberalism, meaning classical liberalism) is the proper philosophy of government. Assuming, of course, one values individual rights and civil society.

P.S. I also visited the Solidarity Museum in Poland a few years ago. Maybe I could put together a guide-book on the horrors of totalitarianism.

The Center for Freedom and Prosperity Announces Creation of “Taxpayers Against Illicit Opioids”

Thu, 05/24/2018 - 2:50pm

Center for Freedom and Prosperity

For Immediate Release
Thursday, May 24, 2018
202-285-0244

www.freedomandprosperity.org

The Center for Freedom and Prosperity Announces Creation of “Taxpayers Against Illicit Opioids”

Illicit opioid overdose deaths are sky-rocketing and the growing epidemic is draining government funds. A new group has been created to provide a voice to those who are tired of carrying this financial burden.

(Washington, D.C., Thursday, May 24, 2018) Today, the Center for Freedom and Prosperity formally announces the creation of their new coalition – “Taxpayers Against Illicit Opioids.” In October 2017, President Trump declared the opioid crisis in America a “national health emergency.” A driving force behind this evolving epidemic are the illegal, dangerous synthetic opioids, such as fentanyl, which are smuggled into the United States from both Mexican drug cartels and Chinese drug smugglers.

While prescription opioid deaths have seen a significant decline, fentanyl overdose deaths have seen a spike of 540% since 2013. To combat the severity of American opioid overdoses, local, state and federal budgets are dwindling. The reality is law enforcement are being outspent and outmanned by these sophisticated, billion-dollar criminal enterprises.

The cost of the crisis is estimated to have already exceeded a whopping $1 trillion – with a predicted additional $500 billion needed by 2020. As noted in the group’s mission statement, Taxpayers Against Illicit Opioids look to fight back against the illegal drugs entering the United States in order to preserve essential local, state and federal resources.

“The crackdown on prescription drugs has led to a subsequent rise in illegal opioid alternatives,” said Center for Freedom and Prosperity founder Andrew Quinlan. “The proliferation of illicit opioids smuggled from Mexico and China and their misuse is costing taxpayers, big time. It’s clear that lawmakers need a new approach to salvage American dollars and American lives.”

To learn more about the devastating effects of illicit opioids and how you can help, visit the Taxpayers Against Illicit Opioids website.

About the Center for Freedom and Prosperity

The Center for Freedom and Prosperity (CF&P) is a non-profit organization created to advance market liberalization. The CF&P Foundation and CF&P seek to promote economic prosperity by advocating competitive markets and limited government. The organization accomplishes its goals by educating the American people and its elected representatives.

For more information, visit http://freedomandprosperity.org/.

George Mason University, the Koch Brothers, and Academic Bias

Thu, 05/24/2018 - 12:57pm

I received my Ph.D. from George Mason University in Fairfax, VA, and I have very fond memories of that experience, including interactions with great economists such as James Buchanan and Walter Williams.

But not everyone has favorable views of GMU’s market-friendly program. There’s a group, UnKoch My Campus, that pretends to be horrified that the school has attracted contributions from philanthropists such as Charles Koch and David Koch.

In a column for the Washington Post, Steven Pearlstein opines about the ostensible controversy.

Thanks to a group of courageous and persistent students, George Mason University was recently forced to acknowledge that it had accepted millions of dollars from billionaire Charles Koch and other conservatives under arrangements that gave the donors input into several appointments at the university’s famously libertarian economics department. These arrangements violated traditional norms meant to insulate academic institutions from donor influence… The story fits neatly into the liberal narrative that the Koch brothers, Charles and David, have used their inherited oil wealth to fund the development of radical economic theories at Koch-funded universities.

At the risk of digressing before I even get started, I have to correct Pearlstein’s snide comment about “inherited oil wealth.”

The Koch brothers did inherit a valuable company, but they are not dilettantes with trust funds. They took a successful company and built it into an extremely successful firm. I wouldn’t be surprised if more than 90 percent of any contributions they make are a result of value they created.

Also, Charles Koch is a libertarian rather than a conservative.

Anyhow, back to our regularly scheduled program.

Pearlstein may have taken a cheap shot at the Kochs, but at least he doesn’t blindly parrot the leftist narrative.

…at Mason, the story is more complicated… I’ve been a professor at Mason. …I’m not a member of the economics department — they wouldn’t have me. But over the years, I’ve gotten to know and admire many of the economists there. For the most part, I have found them to be good economists and teachers, incredibly smart, intellectually honest and curious. …In the case of Mason’s economics department, the faculty have driven the donor relationships. In most instances, it was the faculty who approached and solicited Koch and other donors with specific projects in mind, not the other way around. …Our economics department is not libertarian and conservative because it is funded by Koch and his friends; they fund our economics department because its faculty is — and always has been — overwhelmingly conservative and libertarian. …rules and norms of university governance give faculty the power to hire people who think like they do. …Sorting by political or academic ideology is a naturally occurring phenomenon at universities.

Pearlstein suggests that university administrators should insist on more intellectual diversity.

The challenge is figuring out what to do about it. …It would have been better if Mason’s presidents and provosts had insisted on more ideological diversity in the law school and the economics department.

Perhaps there’s merit to that idea.

But if that’s Pearlstein’s goal, he should first focus on other departments at other schools. Because there’s an overwhelming bias in the other direction when looking at America’s system of higher education.

Here’s a report from Inside Higher Ed about some academic research by Mitchell Langbert, Anthony Quain, and Daniel Klein.

A new study…, published online by Econ Journal Watch, considered voter registration data for faculty members at 40 leading U.S. institutions in economics, history, communications, law and psychology. Of 7,243 professors total, about half are registered. Some 3,623 are Democrats while just 314 are Republicans. Economists are the most mixed group, with a ratio of 4.5 Democrats for every Republican. Historians as a group are the most lopsided, at 33.5 to one… There are also regional effects, with ratios highest in New England. …Women are much more likely to be registered Democrats, at 24.8 to one. Among men, the ratio is nine to one. …Brown University has the highest ratio for all five disciplines combined, at 60 to one, Democrat to Republican. It’s followed by Boston University (40 to one), Johns Hopkins University and the University of Rochester (both 35 to one), and Northeastern University (33 to one). The lowest ratio — that is, the most even mix of registered Democrats and Republicans — is at Pepperdine University, at 1.2 registered Democrats for every Republican. Case Western Reserve University is next, at 3.1 to one.

Here’s a chart from the report showing that economics is the most balanced discipline, but even in that field Democrats outnumber Republicans by a 4.5:1 margin.

Professor Langbert has some new research on this topic.

And, as pointed out in this report, the problem isn’t getting better.

An extensive study of 8,688 tenure-track professors at 51 of the 66 top-ranked liberal arts colleges in the U.S. published by the National Association of Scholars found that the ratio of faculty members registered as Democrats compared to those registered Republican is now a stunning 10.4 to 1. If two military colleges that are technically described as “liberal arts colleges” are removed from the calculations, the ratio is 12.7 to 1. …nearly 40% of the colleges in the study had zero faculty members who were registered Republican. Not a single one. Nearly 80% of the 51 colleges had so few Republican faculty members that they were statistically insignificant. …this trend toward an increasingly uniformly left-leaning faculty has spanned decades, both in the United States and Britain. “More than a decade ago, Stanley Rothman and colleagues provided evidence that while 39 percent of the professoriate on average described itself as Left in 1984, 72 percent did so in 1999,” Langbert writes. “They find a national average D:R ratio of 4.5:1.

Wow. University professors may be even further to the left than journalists.

Let’s circle back to the controversy at George Mason University.

The Wall Street Journal recently editorialized on the faux controversy.

Progressives dominate all but a few corners of American academia, but apparently they want it all. Witness the political and media assault on George Mason University, an island of intellectual diversity in Northern Virginia… an outfit called UnKoch My Campus…claims that donors like Charles and David Koch inappropriately influence university decisions. The demand is for “transparency” but the real goal is to silence conservative views. …Among the horrors supposedly uncovered by UnKoch is that one condition of these gifts was that George Mason rename its law school after Antonin Scalia. …The truth is that the naming request and decision went through normal university channels that included a vote by the university’s Board of Visitors, as well as the State Council on Higher Education for Virginia. …Donors are committing no crime in trying to judge if their philanthropy is fulfilling its purpose. The Kochs, God bless them, believe in supporting academics who believe in the principles of liberty and market economics. …Researchers from Stanford, Harvard and the University of Chicago Law School found last year that only 15% of American law school professors are conservative. We’re surprised it’s that many.

My two cents is that universities – either faculty and/or administrators – should be free to hire whoever they want under whatever rules they want. And students (or their parents) should be able to say no to schools that go overboard.

But here’s the catch. I don’t want to pay for any of it, either directly or via my kids. Let’s get rid of federal handouts for higher education.

The good news is that the no-subsidy approach also would reduce tuition costs since there no longer would be a third-party-payer problem.

Sounds like a win-win scenario.

P.S. My dissertation topic at GMU was Australia’s private retirement system, which was a clever decision on my part. Nobody in the United States at the time knew anything about the Aussie approach, which meant it was a) comparatively easy to make a contribution to the literature, and b) the professors on my committee didn’t know enough about the topic to nit-pick. Best of all worlds.

How Can Government Get Best Bang for Public’s Buck?

Thu, 05/24/2018 - 12:29pm

Originally published by CNSNews.com on May 23, 2018.

Conservative policymakers are all-too-familiar with the problems associated with government contractors ripping off taxpayers. Look no further than the $464 million Healthcare.gov website that became an $824 million boondoggle, or Orlando’s $250 million Veterans Affairs hospital that doubled in cost to see that cost overruns is often the major consequence.

Not surprisingly, Chris Edwards and Nicole Kaeding at the Cato Institute’s DownsizingGovernment.org found that this is a pervasive problem with government bureaucracies and not specific to the United States. They cite Danish Professor Bent Flyvbjerg, who in his book “Megaprojects and Risk” found that 90 percent of the 258 transportation projects he studied across the world went over budget. Similarly, Oxford University found that 245 government dam projects from over 5 dozen countries clocked in at over 96 percent higher than expected.

Edwards and Kaeding recommend increased transparency in major contracting and decentralization, among other things, to fight cost overruns, but never will government planners succeed at streamlining operations as well as the private sector. Everyone who observes government understands this. That’s why privatization remains one of the most needed government reforms, as government officials lack the “skin in the game” necessary to be truly fiscally responsible with taxpayer’s dollars.

In the short term, though, the least that government officials can do is make an effort to right the ship by making sure vendors fulfill their contractual obligations, and to impose severe consequences to firms that win bids but don’t deliver.

A first test case could be with NASA. As detailed in last Thursday’s House Committee on Science, Space, and Technology hearing, NASA will “pay $400 million more for its second round of delivery contracts from 2020 to 2024 even though the agency will be moving six fewer tons of cargo.” This 14 percent increase is in large part due to a 50 percent price hike from SpaceX.

It looks like SpaceX is blaming the new price increases on its growing understanding of the economics of cargo re-supply in space. This is a fancy way of saying that they promised far more than they appear able to deliver, and taxpayers will suffer as a result.

In other words, yet another government-dependent company has underperformed and now wants to charge more. Given the sorry track record of government contracting, that’s hardly a stop-the-presses revelation.

But surely we should ask why the government agrees to deals where contractors can get away with receiving far more money than originally promised?

Elon Musk’s company has also been rather accident prone, with several high-profile mission failures occurring at significant cost to taxpayers. Many free marketers have been willing to overlook this because SpaceX is said to offer lower costs than its competitors and put downward pressure on the market. In that spirit, it is now SpaceX’s competitors who seem to be lowering prices while its own costs skyrocket.

But if SpaceX – or any government contractor, for that matter – is permitted to change its terms, so too should NASA. For instance, NASA could begin determining the feasibility of giving some of SpaceX’s work on the second round of cargo resupply to contractors such as Sierra Nevada, the United Launch Alliance, and Orbital ATK, the latter of which recently cut its prices by 15 percent.

If the government is going to be in the space business, money shouldn’t be squandered. And that means holding all contractors to strict conditions that are open to public examination. It’s time that companies deliver what they promise for the price in the original contract.

As NASA’s William Gerstenmaier said at Thursday’s hearing, “If we can set ourselves up in the future for future contracts and other activities where there’s good competition, then that allows us to put some pressure on the commercial sector and the private sector to lower costs and still give us the services we need going forward.”

Hopefully, the agency walks the walk as good as it talks the talk because responsible stewardship of taxpayer’s dollars requires accountability. Those handing out federal contracts should constantly reassess whether they are getting the best bang for the public’s buck. It is what taxpayers deserve.

Entrepreneurship, Demographics, and Taxation

Wed, 05/23/2018 - 12:20pm

I’ve written over and over again that changing demographics are a very under-appreciated economic development. I’ve also written about why entrepreneurship is a critical determinant of growth.

But I never thought of combining those topics. Fortunately, the folks at the Fraser Institute had the foresight to do just that, having just published a book entitled Demographics and Entrepreneurship: Mitigating the Effects of an Aging Population.

There are chapters on theory and evidence. There are chapters on specific issues, such as taxes, regulation, migration, financial markets, and education.

It’s basically the literary equivalent of one-stop-shopping. You’ll learn why you should be concerned about demographic change. More important, since there’s not much policymakers can do to impact birthrates, you’ll learn everything you need to know about the potential policy changes that could help nations adapt to aging populations.

This short video is an introduction to the topic.

Let’s look at just a few of the highlights of the book.

In the opening chapter, Robert Murphy offers a primer on the importance of entrepreneurship.

…there is a crucial connection between entrepreneurship and economic prosperity. …There is a growing recognition that a society’s economic prosperity depends…specifically on entrepreneurship. …Two of the top names associated with the theory of entrepreneurship are Joseph Schumpeter and Israel Kirzner… Schumpeter famously invoked the term “creative destruction” to describe the volatile development occurring in a capitalist system… Kirzner has written extensively on entrepreneurship…and how…the alert entrepreneurial class who perceive these misallocations before their more complacent peers, and in the process earn pure profits… Schumpeter’s entrepreneur is a disruptor who creates new products first in his mind and then makes them a reality, whereas Kirzner’s entrepreneur is a coordinator who simply observes the profit opportunities waiting to be grasped. …If the goal is maximum economic efficiency in the long run, to provide the highest possible standard of living to citizens within the unavoidable constraints imposed by nature, then we need bold, innovative entrepreneurs who disrupt existing modes of production by introducing entirely new goods and services, but we also need vigilant, alert entrepreneurs who spot arbitrage opportunities in the existing price structure and quickly move to whittle them away.

Murphy describes in the chapter how there was a period of time when the economics profession didn’t properly appreciate the vital role of entrepreneurs.

But that, fortunately, has changed and academics are now paying closer attention. He cites some of the recent research.

An extensive literature documents the connection between entrepreneurship and economic growth. The studies vary in terms of the specific measure of entrepreneurship (e.g., small firms, self-employment rate, young firms, etc.) and the size of the economic unit being studied. …Carree et al. (2002) look at 23 OECD countries from 1976 to 1996. …They “find confirmation for the hypothesized economic growth penalty on deviations from the equilibrium rate of business ownership… An important policy implication of our exercises is that low barriers to entry and exit of businesses are necessary conditions for the equilibrium seeking mechanisms that are vital for a sound economic development” …Holtz-Eakin and Kao (2003) look at the birth and death rates of firms across US states, and find that this proxy for entrepreneurship contributes to growth. Similarly, Callejón and Segarra (1999) look at manufacturing firm birth and death rates in Spain from 1980 to 1992, and conclude that this measure of “turbulence” contributes to total factor productivity growth. …Wennekers and Thurik (1999) use business ownership rates as a proxy for “entrepreneurship.” Looking at a sample of 23 OECD countries from 1984 to 1994, they, too, find that entrepreneurship was associated with higher rates of employment growth at the national level.

In a chapter on taxation, Seth Giertz highlights the negative impact of taxes on entrepreneurship, particularly what happens with tax regimes have a bias against saving and investment.

High tax rates discourage both consumption and savings. But, for a given average tax rate, taxes on an income base penalize savings more heavily than taxes on consumption. …a consumption tax base is neutral between the decision to save versus consume. By contrast, an income tax base results in the double taxation of savings. …three major features of tax policy that are important for entrepreneurship. First, capital accumulation and access to capital is essential for innovation to have a big impact. Despite this, tax systems generally tax savings more heavily than consumption….Second, the tax treatment of risk affects incentives for entrepreneurship, since entrepreneurship tends to entail high risk. …progressivity can sometimes discourage entrepreneurship. This is because tax systems do not afford full offsets for losses, making progressivity effectively a tax increase. …Third, tax policy can lead entrepreneurial activity to shift from productive toward unproductive or destructive aims. Productive entrepreneurship tends to flourish when the route to great wealth is achieved primarily through private markets… High taxes reduce the rewards from productive entrepreneurship. All too often, smart, talented, and innovative people are drawn out of socially productive endeavours and into unproductive ones because the private returns from devising an innovative tax scheme—or lobbying government for special tax preferences—are greater than those for building the proverbial better mousetrap.

In a chapter that I co-authored with Brian Garst, Charles Lammam, and Taylor Jackson, we look specifically at the negative impact of capital gains taxation on entrepreneurship.

We spend a bit of time reminding readers of what drives growth.

One of the more uncontroversial propositions in economics is that output is a function of labor (the workforce) and capital (machines, technology, land, etc.). Indeed, it is almost a tautology to say that growth exists when people provide more labor or more capital to the economy, or when—thanks to vital role of entrepreneurs—labor and capital are allocated more productively. In other words, labor and capital are the two “factors of production,” and the key for policymakers is to figure out the policy recipe that will increase the quantity and quality of those two resources. …In the absence of taxation, people provide labor to the economy so long as they value the income they earn more than they value the foregone leisure. And they provide capital to the economy (i.e., they save and invest) so long as they value future consumption (presumably augmented by earnings on capital) more than they value current consumption.

And we highlight how entrepreneurs generate the best type of growth.

this discussion also helps illustrate why entrepreneurship is so important. The preceding analysis basically focused on achieving growth by increasing the quantity of capital and labor. Such growth is real, but it has significant “opportunity costs” in that people must forego leisure and/or current consumption in order to have more disposable income. Entrepreneurs, by contrast, figure out how to increase the quality of capital and labor. More specifically, entrepreneurs earn profits by satisfying consumer desires with new and previously unknown or underused combinations of labor and capital. In their pursuit of profit, they come up with ways of generating more or better output from the same amount of labor and capital. This explains why we have much higher living standards today even though we work far fewer hours than our ancestors.

And here’s what we say about the counterproductive impact of capital gains taxation, particularly when combined with other forms of double taxation.

…the effective marginal tax rate on saving and investment is considerably higher than the effective marginal tax rate on consumption. This double taxation is understandably controversial since all economic theories—even Marxism and socialism—agree that capital is critical for long-run growth and higher living standards. …capital gains taxes harm economies in ways unique to the levy. …entrepreneurs play a vital role in the economy since they figure out more efficient ways to allocate labor and capital. …The potential for a capital gain is a big reason for the risk they incur and the effort they expend. Thus, the existence of capital gains taxes discourages some entrepreneurial activity from ever happening. …the capital gains tax is more easily avoidable than other forms of taxation. Entrepreneurs who generate wealth with good ideas can avoid the levy by simply choosing not to sell. This “lock-in effect” is not good for the overall economy… Most governments do not allow taxpayers to adjust the value of property for inflation when calculating capital gains. Even in a low-inflation environment, this can produce perverse results. …taxpayers can sometimes pay tax even when assets have lost value in real terms. …Capital gains taxes contribute to the problem of “debt bias,” which occurs when there is a tax advantage for corporate investments to be financed by debt instead of equity. …Excessive debt increases the probability of bankruptcy for the firm and contributes to systemic risk.

We then cite a lot of academic studies. I strongly encourage folks to peruse that section, but to keep this column manageable, let’s close by looking at two charts that reveal how some nation – including the United States – have uncompetitive tax systems.

Here are long-run capital gains tax rates in developed nations.

By the way, even though the data comes from a 2018 OECD report, it shows tax rates as of July 1, 2016. So not all the numbers will be current. For instance, I assume Macron’s reforms have mitigated France’s horrible score.

Speaking of horrible scores, here are the numbers showing the combined burden of the corporate income tax and capital gains tax. Sadly, the United States was at the top of this list as of July 1, 2016.

The good news is that the recent tax reform means that the United States no longer has the world’s most punitive tax system for new investment.

Though keep in mind that the United States doesn’t allow investors to index capital gains for inflation, so the effective tax rate on capital gains will always be higher than the statutory tax rate.

Creative Destruction Is the Best and Worst Part of Capitalism

Tue, 05/22/2018 - 12:59pm

This morning in Monaco, I moderated a panel for the Convention of Independent Financial Advisors on the implications of an “uber-ized” economy. In my introductory comments, I asserted that the best part of capitalism was “creative destruction.” Simply stated, we all benefit when entrepreneurs come up with products such as personal computers that make our lives better.

But I also pointed out that creative destruction was the most painful part of capitalism. Think, for example, about the people who used to work in the typewriter industry.

One of the speakers, Professor Philippe Silberzahn of the EMLYON Business School, cited another example. Kodak used to be one of the biggest and most profitable companies in America, but the digital camera (ironically, first invented by Kodak) set the firm into a death spiral. What was creative for the rest of us wound up causing destruction for the people who worked at Kodak and the investors who owned shares of Kodak.

It’s easy, as an armchair economist, to argue in favor of creative destruction. As explained in this video, this is why we are far richer than our ancestors. Even if our ancestors worked in the candle industry and were bankrupted and tossed out of work when the electric light bulb hit the market.

But armchair theorizing (even when accurate) doesn’t change the fact that change means temporary pain. And this is a political challenge. Especially since those who suffer are the “seen” and the beneficiaries often are “unseen.”

But none of that changes the fact that politicians should not intervene. Assuming, of course, the goal is long-run increases in living standards for everyone.

In a column for CapX, Tim Worstall elaborates on how we become richer when we produce more with less.

Warren Buffett tells us all that slashing jobs is just the capitalist way. …But Buffett is wrong. This isn’t the capitalist way at all. This is just the way that any and every economy should work. Whether communist, socialist, social democratic or capitalist, all economies will economise on inputs into a process. That is what actually makes us richer. Buffett’s subsequent point – that “people live better when there is more output per capita” – is right. But that’s not specific to capitalism. …as Paul Krugman has pointed out, productivity isn’t everything but in the long run it’s pretty much everything. …Today, instead of everyone working in the fields, just 2 per cent of us do so. The other 98 per cent of the population are busing trying to sate some other human desire or want. And thus, we have the labour to run a health service, libraries, ballet companies, vital cat picture websites, manufacturing, ketchup plants and the like. Being economical with labour is the very thing that makes civilisation itself possible. … William Nordhaus has pointed out…entrepreneurs – for devising a new process which uses different or fewer inputs is the very definition of entrepreneurship – end up with some 3 per cent or so of the value they create. The remaining 97 per cent flows to the rest of us in the form of consumer surplus.

By the way, I’m not surprised that Buffett is wrong. He’s goofed before when venturing into public policy.

Tim closes with a very important point.

Not enough people realise that using fewer resources to do something makes us richer. And yes, human labour is just such a scarce resource that we wish to economise upon using. Perhaps if people understood this, they’d stop arguing that solar power is better than nuclear because it produces more jobs for the same amount of electricity produced.

And since we’re on that topic, here’s an item from Libertarian Reddit revealing a leftist who genuinely seems to think that the goal should be to produce less per unit of labor.

Sounds like Ms. Kohn should spend some time with this video.

But I like to be even-handed in my disdain for bad economics. Trump is a protectionist who wants to preserve certain jobs in certain industries.

Well, I don’t know if this artist is a left-wing Trump critic or right-wing Trump critic, but he’s right about the foolishness of trying to stop progress.

 

But this brings me back to where I started. The VHS worker was a victim, just as the workers at Kodak were victims.

It’s the inevitable consequence of progress. But if we try to stop progress, we all lose in the long run. The best way to help workers and investors who suffer from creative destruction is to have pro-growth policies so that if you’re in a disrupted sector, you have plenty of opportunities to quickly rebound.

Envy, Redistribution, Income, Attractiveness, and Sex

Mon, 05/21/2018 - 12:45pm

I’m currently in Monaco, which is a remarkable place for two reasons.

  • First, it has an unusual economic model. There is no income tax, and you won’t be surprised to learn that I think this helps to explain why it is the world’s richest jurisdiction. Makes me wish we could reverse that terrible day in 1913 when the income tax was imposed in the United States.
  • Second, there are a lot of beautiful people in this small nation, especially relative to the small overall population.

With one exception, I’ve never commented on the looks of a population for the simple reason that it has nothing to do with public policy.

But that may be changing, in part because some ostensibly unattractive young men (known as “incels” because they are involuntarily celibate) are dealing with their frustration by killing others.

That strikes me a crazy reaction. I’ve endured many periods of involuntary celibacy in my life and it never occurred to me to murder anyone.

But let’s deal seriously with this issue. There’s no question that some people are lucky because they won the genetic lottery. If you’re naturally attractive, you have many more relationship options, whether you’re looking for one-night stands or marriage. And it’s not just sex and relationships. Being physically attractive makes life easier in all sorts of ways.

That’s not fair. But does that unfairness justify intervention?

Professor Robin Hanson of George Mason University doesn’t think so, but he wonders why people concerned about income equality aren’t similarly concerned about access-to-sex equality.

I’ve long puzzled over the fact that most of the concern I hear expressed on inequality is about…income inequality… many seem to be trying hard to inform those who rank low of their low status. Their purpose seems to be to induce envy, to induce political action to increase redistribution. …They remind the poor that they could consider revolting, and remind everyone else that a revolt might happen. This strengthens an implicit threat of violence should redistribution be insufficient. …One might plausibly argue that those with much less access to sex suffer to a similar degree as those with low income, and might similarly hope to gain from organizing around this identity, to lobby for redistribution along this axis and to at least implicitly threaten violence if their demands are not met. …personally I’m not very attracted to non-insurance-based redistribution policies of any sort, though I do like to study what causes others to be so attracted.

Hanson’s column generated a lot of response.

Ross Douthat addressed the topic in a column for the New York Times.

…it brings me to the case of Robin Hanson, a George Mason economist, libertarian and noted brilliant weirdo. Commenting on the recent terrorist violence in Toronto, in which a self-identified “incel” — that is, involuntary celibate — man sought retribution against women and society for denying him the fornication he felt that he deserved, Hanson offered this provocation: If we are concerned about the just distribution of property and money, why do we assume that the desire for some sort of sexual redistribution is inherently ridiculous? …Hanson’s post made me immediately think of a recent essay in The London Review of Books by Amia Srinivasan, “Does Anyone Have the Right To Sex?” Srinivasan, an Oxford philosophy professor, covered similar ground (starting with an earlier “incel” killer) but expanded the argument well beyond the realm of male chauvinists to consider groups with whom The London Review’s left-leaning and feminist readers would have more natural sympathy — the overweight and disabled, minority groups treated as unattractive by the majority, trans women unable to find partners and other victims… Srinivasan ultimately answered her title question in the negative: “There is no entitlement to sex, and everyone is entitled to want what they want.” But her negative answer was a qualified one. …like other forms of neoliberal deregulation the sexual revolution created new winners and losers, new hierarchies to replace the old ones, privileging the beautiful and rich and socially adept in new ways and relegating others to new forms of loneliness and frustration.

Writing for Slate, Jordan Weissmann had a very sour reaction to Hanson’s column.

If you’ve ever heard of George Mason University economist Robin Hanson, there’s a good chance it was because he wrote something creepy. …Last week, Hanson was back at it again. In a post that left many readers agog, he decided to use a heinous incident of misogynistic violence as an opportunity to contemplate the concept of “redistributing” sex to men who have trouble getting laid. …His brief post is more or less a lame attempt to compare people who worry about income inequality with incels who worry about “sexual inequality,” and suggest that they’re maybe not so different. …Some people have read Hanson’s piece and concluded that he believes women should be forced to have sex with men who strike out on Tinder, like some sort of giant socialized harem. I don’t think that’s the case. The professor, again, leans libertarian and, as he clarified on Twitter, opposes all sorts of government redistribution, including in this case.

By the way, I can’t resist commenting on the absurdity of Weissmann stating that he doesn’t “think” that Hanson believes in coerced sex redistribution.

Of course, he knows that Hanson is opposed to that route. But since Weissmann presumably believes in coerced income redistribution, he wants to lash out at Hanson for pointing out that there’s an unseemly link between the two ideas.

I’ll close by pointing out that attractiveness helps with income as well as sex. And Omar Al-Ubaydli of the Mercatus Center asks, in a column for the Washington Examiner, whether that justifies redistribution.

Do attractive workers get paid more than unattractive ones? Some labor economists think so, having clearly demonstrated the existence of the “beauty premium,” which shows attractive workers have higher wages and more job opportunities. So, should we look to implement a “ridiculously good looking” tax? …what truly leads to higher wages for our photogenic friends. Is it because our beautiful colleagues are more effective at their jobs? Or is it because we are biased toward them… If physical attractiveness brings about superior productivity…then the beauty premium is morally justifiable. Employers pay for productivity… But if, on the other hand, earnings differences can be attributed to bigoted oppression of those blessed with less beauty, then there may be moral grounds for some positive discrimination and equal-pay legislation.

But if there’s a tax on beauty, what about other natural traits, like athletic skill?

If I deserved a subsidy from Gisele Bundchen for being less beautiful, would I deserve one from Lionel Messi for being a less capable soccer player?

Or a tax on height?

If the idea of a beauty tax seems strange or unlikely, then you may be surprised to learn that several respected economists have argued in favor of a height tax, whereby tall people are forced to subsidize the short.

As a libertarian, this isn’t a difficult issue. Like Robin Hanson, I don’t believe in coerced redistribution, whether for sex or money.

I have zero sympathy for violent “incels”, but I also recognize that life can be very unfair for people who lost the aforementioned genetic lottery. This is not a problem with a solution, but it’s one of the reasons I support legalized prostitution.

P.S. The U.K. actually has decided that some people have a right to sex, though fortunately there’s no coercion (other than the threats needed to collect taxes).

Consumers Win With Deal To Avoid Air Travel Protectionism

Sun, 05/20/2018 - 12:49pm

Originally published by The Daily Caller on May 19, 2017.

At a time when victories against cronyism seem few and far between, consumers have a new reason to celebrate with the announcement that the United States and the United Arab Emirates (UAE) have reached an agreement that preserves air travel competition. Try as they might to spin it otherwise, the deal represents a blow to the efforts of Delta Air Lines, United Airlines, American Airlines, and their lobbyists to convince Washington to impose protectionist measures against international competition.

For years the three American carriers have targeted Open Skies agreements with Persian Gulf governments. The agreements—which the United States has in place with over 100 jurisdictions—were essential for deregulating and drastically reducing government intervention globally in the airline industry. The result is billions in annual gains for consumers.

Lobbyists for the three U.S. airlines sought to have the agreements ripped up on the basis that Emirates, Etihad Airways, and Qatar Airways were alleged to benefit from government subsidies. Much of the evidence was questionable, at best, but the truly obvious flaw with this complaint is that the American carriers have benefitted just as much, if not more, from a host of government programs.

U.S. air carriers received taxpayer bailouts following 9/11. That might be argued as a unique circumstance, but they also receive ongoing handouts in the form of programs like the Essential Air Service program and its subsidies for airlines serving many rural communities, or the Fly America Act that requires federal agencies to favor U.S. air carriers regardless of cost or convenience.

Contrary to the what the argument from U.S. carriers imply, government handouts are no key to competitive success. Quite the opposite is typically true. Reliance on government saps the competitive pressure to innovate, and it trades long-run success in exchange for immediate access to taxpayer cash. Even if the recipient company remains in business for some time, consumers suffer from an economy that is inefficient and less dynamic. There’s a reason, in other words, why free market economies have bested their state-managed counterparts time and again.

Thankfully, the effort to stymie competition, in this case, appears to have been averted. With this new deal, just as with the one reached with Qatar in January, the U.S. and the UAE will keep the Open Skies agreement in force, including the so-called fifth-freedom flights that allows an airline to carry passengers between two foreign countries if it is part of a route that begins or ends in its own country.

The fifth-freedom routes were a key point of contention because the U.S. airlines objected when Gulf carriers launched nonstop flights from New York to Milan, and Newark to Athens. That, however, is no cause for government intervention, as such competition is good for consumers and industry alike.

As part of the agreement, the UAE said it had no plans to open new U.S.-European fifth-freedom routes in the near feature, though is technically not prevented from doing so in the future. Both sides, in other words, are claiming victory. But the real victors are consumers.

Sometimes the best thing for politicians to do to protect their constituents is nothing, or as close to it as they can get. In negotiating the agreement, the Trump administration wisely settled for mere face-saving gestures to placate U.S. carriers, but otherwise kept the skies open for competition. It’s a rare case where a massive, multiyear lobbying campaign to thwart competition failed to deliver any new forms of cronyism.

Italy’s Countdown to Fiscal Crisis

Sun, 05/20/2018 - 12:06pm

As a general rule, we worry too much about deficits and debt. Yes, red ink matters, but we should pay more attention to variables such as the overall burden of government spending and the structure of the tax system.

That being said, Greece shows that a nation can experience a crisis if investors no longer trust that a government is capable of “servicing” its debt (i.e., paying interest and principal to people and institutions that hold government bonds).

This doesn’t change the fact that Greece’s main fiscal problem is too much spending. It simply shows that it’s also important to recognize the side-effects of too much spending (if you have a brain tumor, that’s your main problem, even if crippling headaches are a side-effect of the tumor).

Anyhow, it’s quite likely that Italy will be the next nation to travel down this path.

This in in part because the Italian economy is moribund, as noted by the Wall Street Journal.

Italy’s national elections…featured populist promises of largess but neglected what economists have long said is the real Italian disease: The country has forgotten how to grow. …The Italian economy contracted deeply in Europe’s debt crisis earlier this decade. A belated recovery now under way yielded 1.5% growth in 2017—a full percentage point less than the eurozone as a whole and not enough to dispel Italians’ pervasive sense of national decline. Many European policy makers view Italy’s stasis as the likeliest cause of a future eurozone crisis.

Why would Italy be the cause of a future crisis?

For the simple reason that it is only the 4th-largest economy in Europe, but this chart from the Financial Times shows it has the most nominal debt.

So what’s the solution?

The obvious answer is to dramatically reduce the burden of government.

Interestingly, even the International Monetary Fund put forth a half-decent proposal based on revenue-neutral tax reform and modest spending restraint.

The scenario modeled assumes a permanent fiscal consolidation of about 2 percent of GDP (in the structural primary balance) over four years…, supported by a pro-growth mix of revenue and expenditure reforms… Two types of growth-friendly revenue and spending measures are considered along the envisaged fiscal consolidation path: shifting taxation from direct to indirect taxes, and lowering expenditure and shifting its composition from transfers to investment. On the revenue side, a lower labor tax wedge (1.5 percent of GDP) is offset by higher VAT collections (1 percent of GDP) and introducing a modern property tax (0.5 percent of GDP). On the expenditure side, spending on public consumption is lowered by 1.25 percent of GDP, while productive public investment spending is increased by 0.5 percent of GDP. The remaining portion of the fiscal consolidation, 1.25 percent of GDP, is implemented via reduced social transfers.

Not overly bold, to be sure, but I suppose I should be delighted that the IMF didn’t follow its usual approach and recommend big tax increases.

So are Italians ready to take my good advice or even the so-so advice of the IMF?

Nope. They just had an election and the result is a government that wants more red ink.

The Wall Street Journal‘s editorial page is not impressed by the economic agenda of Italy’s putative new government.

Five-Star wants expansive welfare payments for poor Italians, revenues to pay for it not included. Italy’s public debt to GDP, at 132%, is already second-highest in the eurozone behind Greece. Poor Italians need more economic growth to generate job opportunities, not public handouts that discourage work. The League’s promise of a pro-growth 15% flat tax is a far better idea, especially in a country where tax avoidance is rife. The two parties would also reverse the 2011 Monti government pension reforms, which raised the retirement age and moved Italy toward a contribution-based benefit system. …Recent labor-market reforms may also be on the block.

Simply stated, Italy elected free-lunch politicians who promised big tax cuts and big spending increases. I like the first part of that lunch, but the overall meal doesn’t add up in a nation that has a very high debt level.

And I don’t think the government has a very sensible plan to make the numbers work.

…problematic for the rest of Europe are the two parties’ demand for an exemption from the European Union’s 3% GDP cap on annual budget deficits. …the two parties want the European Central Bank to cancel some €250 billion in Italian debt.

Demond Lachman of the American Enterprise Institute suggests this will lead to a fiscal crisis because of two factors. First, the economy is weak.

Anyone who thought that the Eurozone debt crisis was resolved has not been paying attention to economic and political developments in Italy…the recent Italian parliamentary election…saw a surge in support for populist political parties not known for their commitment to economic orthodoxy or to real economic reform. …To say that the Italian economy is in a very poor state would be a gross understatement. Over the past decade, Italy has managed to experience a triple-dip economic recession that has left the level of its economy today 5 percent below its pre-2008 peak. Meanwhile, Italy’s current unemployment level is around double that of its northern neighbors, while its youth unemployment continues to exceed 25 percent. …the country’s public debt to GDP ratio continued to rise to 133 percent, making the country the most indebted country in the Eurozone after Greece. …its banking system remains clogged with non-performing loans that still amount to 15 percent of its balance sheet…

Second, existing debt is high.

…having the world’s third-largest government bond market after Japan and the United States, with $2.5 trillion in bonds outstanding, Italy is simply too large a country for even Germany to save. …global policymakers…, it would seem not too early for them to start making contingency plans for a full blown Italian economic crisis.

Since he writes on issues I care about, I always enjoy reading Lachman’s work. Though I don’t always agree with his analysis.

Why, for instance, does he think an Italian fiscal crisis threatens the European currency?

…the Italian economy is far too large an economy to fail if the Euro is to survive in anything like its present form.

Would the dollar be threatened if (when?) Illinois goes bankrupt?

But let’s not get sidetracked.3

To give you an idea of the fairy-tale thinking of Italian politicians, I’ll close with this chart from L’Osservatorio on the fiscal impact of the government’s agenda. It’s in Italian, but all you need to know is that the promised tax cuts and spending increases are on the left side and the compensating savings (what we would call “pay-fors”) are on the right side.

Wow, makes me wonder if Italy has passed the point of no return.

By the way, Italy may be the next domino, but it’s not the only European nation with fiscal problems.

P.S. No wonder some people want Sardinia to secede from Italy and become part of “sensible” Switzerland.

P.P.S. Some leftists genuinely think the United States should emulate Italy.

P.P.P.S. As a fan of spending caps, I can’t resist pointing out that anti-deficit rules in Europe have not stopped politicians from expanding government.

Rand Paul’s Sensible Budget Rejected, but Here’s the Silver Lining

Sat, 05/19/2018 - 12:59pm

During the election season, I speculated Trump was a big government Republican, and he confirmed my analysis this past February when he acquiesced to an orgy of new spending and agreed to bust the spending caps.

That awful spending spree gave huge increases to almost every part of the budget, and I pointed out that the deal probably will create the conditions for future tax hikes.

I got so upset at profligate GOPers that I crunched the numbers and revealed that (with the notable exception of Reagan) Republican presidents are even bigger spenders than Democrats.

Well, Senate Republicans recently had a chance to atone for their sins by voting for a proposal from Rand Paul to balance the budget.

So what did they do? Rejected it, of course.

In a column for Reason, Eric Boehm justly condemns Republicans for being big spenders.

The Senate on Thursday resoundingly rejected the Kentucky Republican’s plan to balance the federal budget by 2023, voting 76 to 21 against a bill that would have required a $400 billion cut in federal spending next year, followed by 1 percent spending increases for the rest of the next decade. …Paul’s proposal never really had a chance of passing, coming as it did just months after Congress approved enormous spending hikes that busted Obama-era caps once championed by Republicans as necessary for fiscal restraint. …Paul’s plan would have balanced the budget by 2023, as long as revenue met current CBO projections. By 2028, his proposal envisioned a $700 billion surplus instead of the $1.5 trillion deficit currently projected by the CBO.

Lifezette column by Brendan Kirby was even more critical of big-government Republicans.

Sen. Rand Paul (R-Ky.) was hoping his Republican colleagues would be embarrassed by their vote to jack up federal spending earlier this year and support his plan to phase in a balanced budget. Few were. Paul got 20 other Republican senators on Thursday — less than half of the Senate GOP caucus — to vote for his “penny plan,” which would balance the federal budget over five years… No Democrats back the proposal. …Even though Paul’s bid failed, it did pick up the support of some senators who voted for the spending bill in February, including Senate Majority Whip John Cornyn (R-Texas). The others were Sens. Marco Rubio (R-Fla.), John Barrasso (R-Wyo.), Joni Ernst (R-Iowa), Deb Fischer (R-Neb.) and Jerry Moran (R-Kan.). …Paul also got more votes than he did for a similar proposal last year.

Kirby’s article ended on an upbeat note based on voting patterns.

I also want to close on an upbeat note, but for an entirely different reason. Here are the annual numbers from the CBO baseline (what will happen to spending and revenue if government continues on its current path) and the numbers for Senator Paul’s proposal.

And why do these depressing numbers leave me with a feeling of optimism?

For the simple reason that they show how simple it is to make progress with some modest spending restraint. The lower set of number show that Senator Paul quickly gets to a balanced budget by imposing an overall reduction of about 2 percent on spending in 2019, followed by annual increases of about 1 percent until 2025.

I think that’s a great plan, but I’d also be happy with a plan that allows spending to grow by 1 percent each year. Or even 2 percent each year.

My bottom line is that we need some sort of spending cap so that the burden of government spending grows slower than the productive sector of the economy. In other words, comply with the Golden Rule.

And what’s especially remarkable is that solving our fiscal problems is still quite feasible notwithstanding the reckless spending bill that was recently approved (Paul’s proposal, incidentally, leaves in place the small – and temporary – tax cut from the recent reform legislation).

P.S. Senator Paul would achieve a balanced budget in just five years by letting spending grow during that period by a bit less than 4/10ths of 1 percent per year. Does that sound impossibly radical? Well, it’s what Republicans managed to achieve during the heyday of the Tea Party revolution, when they actually produced a five-year nominal spending freeze. In other words, zero spending growth! If they could impose that level of discipline with Obama in the White House, why not do the same with Trump (who quasi-endorsed the Penny Plan) at the other end of Pennsylvania Avenue?

Pope Francis Endorses Slower Growth and More Poverty

Fri, 05/18/2018 - 12:55pm

I almost feel guilty when I criticize the garbled economic thoughts of Pope Francis. After all, he was influenced by Peronist ideology as a youngster, so he wasprobably a lost cause from the beginning.

Moreover, Walter Williams and Thomas Sowell have already dissected his irrational ramblings on economics and explained that free markets are better for the poor. Especially when compared to government dependency.

But since Pope Francis just attacked tax havens, and I consider myself the world’s foremost defender of these low-tax jurisdictions, I can’t resist adding my two cents. Here’s what the Wall Street Journal just reported about the Pope’s ideological opposition to market-friendly tax systems.

The Vatican denounced the use of offshore tax havens… The document, which was released jointly by the Vatican’s offices for Catholic doctrine and social justice, echoed past warnings by Pope Francis over the dangers of unbridled capitalism. …The teaching document, which was personally approved by the pope, suggested that greater regulation of the world’s financial markets was necessary to contain “predatory and speculative” practices and economic inequality.

He even embraced global regulation, not understanding that this increases systemic risk.

“The supranational dimension of the economic system makes it easy to bypass the regulations established by individual countries,” the Vatican said. “The current globalization of the financial system requires a stable, clear and effective coordination among various national regulatory authorities.”

And he said that governments should have more money to spend.

A section of the document was dedicated to criticizing offshore tax havens, which it said contribute to the “creation of economic systems founded on inequality,” by depriving nations of legitimate revenue.

Wow, it’s like the Pope is applying for a job at the IMF or OECD. Or even with the scam charity Oxfam.

In any event, he’s definitely wrong on how to generate more prosperity. Maybe he should watch this video.

Or read Marian Tupy.

Or see what Nobel Prize winners have to say.

P.S. And if the all that doesn’t work, methinks Pope Francis should have a conversation with Libertarian Jesus. He could start herehere, and here.

California (Hopefully) Learns a Lesson about Marijuana Taxes and the Laffer Curve

Thu, 05/17/2018 - 12:52pm

I wanted California to decriminalize marijuana because I believe in freedom. Smoking pot may not be a wise choice in many cases, but it’s not the role of government to dictate private behavior so long as people aren’t violating the rights of others.

Politicians, by contrast, are interested in legalization because they see dollar signs. They want to tax marijuana consumption to they can have more money to spend (I half-joked that this was a reason to keep it illegal, but that’s a separate issue).

Lawmakers need to realize, though, that the Laffer Curve is very real. They may not like it, but there’s very strong evidence that imposing lots of taxes does not necessarily mean collecting lots of revenue. Especially when tax rates are onerous.

Here’s some of what the AP recently reported about California’s experiment with taxing pot.

So far, the sale of legal marijuana in California isn’t bringing in the green stuff. Broad legal sales kicked off on Jan. 1. State officials had estimated California would bank $175 million from excise and cultivation taxes by the end of June. But estimates released Tuesday by the state Legislative Analyst’s Office show just $34 million came in between January and March. …it’s unlikely California will reap $175 million by midyear.

And here are some excerpts from a KHTS story.

Governor Jerry Brown’s January budget proposal predicted that $175 million would pour into the state’s coffers from excise and cultivation taxes…analysts believe revenue will be significantly lower… Some politicians argue high taxes are to blame for the revenue shortfalls preventing that prediction from becoming reality, saying the black market is “undercutting” the legal one. …The current taxes on legal marijuana businesses include a 15 percent excise tax on purchases of all cannabis and cannabis products, including medicinal marijuana. The law also added a $9.25 tax for every ounce of bud grown and a $2.75-an-ounce tax on dried cannabis leaves for cultivators.

These results should not have been a surprise.

I’ve been warning – over and over again – that politicians need to pay attention to the Laffer Curve. Simply stated, high tax rates don’t necessarily produce high revenuesif taxpayers have the ability to alter their behavior.

That happens with income taxes. It happens with consumption taxes.

And it happens with taxes on marijuana.

Moreover, it’s not just cranky libertarians who make this point. Vox isn’t a site know for rabid support of supply-side economics, so it’s worth noting some of the findings from a recent article on pt taxes.

After accounting for substitution between products by consumers, we find that the tax-inclusive price faced by consumers for identical products increased by 2.3%. We find that the quantity purchased decreased by 0.95%…, implying a short-term price elasticity of -0.43. However, over time, the magnitude of the quantity response significantly increases, and our estimates suggest that the price elasticity of demand is about negative one within two weeks of the reform. We conclude that Washington, the state with the highest marijuana taxes in the country, is near the peak of the Laffer curve – further increases in tax rates may not increase revenue. …tax revenue has historically been one of the many arguments in favour of legalising marijuana…the optimal taxation of marijuana should be designed to take into account responses…excessive taxation might prop up the very black markets that legal marijuana is intended to supplant. As additional jurisdictions consider legalising marijuana and debate over optimal policy design, these trade-offs should be explored and taken into account.

Let’s close by reviewing some interesting passages from a McClatchey report, starting with some observations about the harmful impact of excessive taxes.

Owners of legalized cannabis operations face a range of challenges… But taxes – local, state, federal – present a particular headache. They are a big reason why, in California and other states, only a small percentage of cannabis growers and retailers have chosen to get licensed and come out of the shadows. …In a March report, Fitch Ratings suggested that California may not realize the tax revenue – $1 billion a year – the state projected when Proposition 64, a legalization initiative, was put before voters in 2016. “While it is still too early to assess California’s revenue performance, comparatively high taxes on legal cannabis will likely continue to divert sales to illegal markets, reducing potential tax collections,” Fitch said in its report. …Add it all up, and state-legal cannabis in some parts of California could be taxed at an effective rate of 45 percent, Fitch said in a report last year.

Interestingly, even politicians realize they need to adapt to the harsh reality of the Laffer Curve.

Some state lawmakers blame the taxation for creating a price gap between legal and illegal pot that could doom California’s regulated market. Last month, Assembly members Tom Lackey, R-Palmdale, and Rob Bonta, D-Oakland, introduced legislation, AB 3157, that would reduce the state marijuana sales tax rate from 15 percent to 11 percent, and suspend all cultivation taxes until June 2021.

And I can’t resist including one final passage that has nothing to do with taxes. Instead, it’s a reference to the lingering effect of Obama’s dreadful Operation Choke Point.

Davies owns Canna Care, a medical marijuana dispensary in Sacramento. Like other state-legal cannabis businesses nationwide, her pot shop operates largely with cash. Most banks won’t transact with enterprises deemed illegal by the U.S. government. That forces Davies to stuff $10,000 in bills into her purse each month… even lawyers who represent state-legal marijuana businesses face financial risks. Sacramento lawyer Khurshid Khoja recently lost his two bank accounts with Umpqua Bank, after Umpqua started asking him about his state-legal cannabis clients.

The good news is that Trump has partially eased this awful policy. The bad news is that he only took a small step in the right direction.

But let’s get back to our main topic. I’ve written several times on whether our friends on the left are capable of learning about the Laffer Curve. Especially in cases when they imposed a tax in hopes of changing behavior!

What’s happening in California with pot taxes is simply the latest example.

And I’m hoping leftists will apply the lesson to taxes on things that we don’t want to discourage – such as work, saving, investment, and entrepreneurship.

P.S. I’ve pointed out that some leftists want high tax rates on income even if no money is collected. That’s because their real goal is punishing success. I wonder if there are some conservatives who are pushing punitive marijuana taxes because they want to discourage “sin” rather than collect revenue.

The Political Compass Test

Wed, 05/16/2018 - 12:47pm

I’ve taken several tests and quizzes on political philosophy. Not surprisingly, I usually wind up being some type of libertarian.

But sometimes I get odd results. For instance, the Political Left/Right Test, put me exactly in the middle, and another political quiz pegged me as a “moderate.”

The former might be reasonable since libertarians have some right-wing views and some left-wing views. But the latter quiz concluded that I had “few strong opinions,” which is a nonsensical result.

Anyhow, I found another test. This new survey is called the Political Compass Test, and it’s based on the theory that the traditional left-right economic spectrum is insufficient.

…the social dimension is also important in politics. That’s the one that the mere left-right scale doesn’t adequately address. So we’ve added one, ranging in positions from extreme authoritarian to extreme libertarian.

And here’s the four quadrants that are created by their two lines.

While no system will capture everything, I have no objection to their theoretical construct.

But I think two of the examples they provide are somewhat crazy.

First, Hitler was the head of the National Socialist Workers Party and he belongs on the left side of the horizontal axis. Second, it’s absurd to have Thatcher anywhere near Stalin and Hitler on the vertical axis.

I also think Friedman should be moved more in the libertarian direction, but at least they have him in the correct quadrant.

Now let’s look at my results. I’m somewhat disappointed because I’m not way on the right for economic issues. And I’m even more irked that I’m barely on the libertarian side for social issues.

For what it’s worth, some of the questions were more about attitude and outlook rather than policy. And since I’m the boring kind of libertarian, perhaps that’s why I don’t get a strong score.

Let’s close by looking at my score compared to various famous people. I’m closest to Gary Johnson, which strikes me as a reasonable result.

But some of the other results are very bizarre. First of all, Milton Friedman magically moved. Now he’s very libertarian on social issues, but squishy on economics. Needless to say, that’s nonsense.

But not nearly as nonsensical as Benito Mussolini being on the far right for economic policy. That’s crazy. He was a strident opponent of capitalism.

Likewise, they have Hillary Clinton on the right side of the spectrum for economic policy. The person who did that must have been on some crazy drugs at the time.

And I’m not a Trump fan, but I think it’s laughable to have him ranked as more authoritarian than MugabeMao, and Castro.

Slovakia, Economic Reform, and National Competitiveness

Tue, 05/15/2018 - 12:34pm

I had mixed feeling when I spoke yesterday in Bratislava, Slovakia, as part of the 2018 Free Market Road Show.

Last decade, Slovakia was a reform superstar, shaking off the vestiges of communism with a plethora of very attractive policies – including a flat taxpersonal retirement accounts, and spending restraint.

As Marian Tupy explained last year, “…in 1998, Slovaks kicked out the nationalists and elected a reformist government, which proceeded to liberalise the economy, privatise loss-making state-owned enterprises and massively improve the country’s business environment. …In 2005, the World Bank declared Slovakia the “most reformist” country in the world.”

And these policies paid off. According to research from both Europe and the United States, Slovakia has enjoyed reasonably strong growth that has resulted in considerable “convergence” to western living standards.

But in recent years, Slovakia has gradually moved in the wrong direction, which means I have good and bad memories of my visits.

The nation’s strong rise and subsequent slippage can be seen in the data from Economic Freedom of the World.

The drop may not seem that dramatic. And in terms of Slovakia’s absolute score, it “only” fell from 7.63 to 7.31.

But what really matters (as I explained last year when writing about Italy) is the relative score. And if you take a closer look at the data, Slovakia has dropped in the rankings from #20 in 2005 to #53 in 2015.

This relative decline is not good news for a nation that wants to compete for jobs and investment. Moreover, I’m not the only one to be worried about slippage in Slovakia.

Jan Oravec is similarly concerned about a gradual erosion of competitiveness in his country.

…the World Economic forum, which compares the competitiveness of 140 countries around the world, Slovakia ranked 67th. …If we…look at the long-term evolution of the Slovak economy’s competitiveness not only in this, but in other rankings, we realize…a tragic story of a dramatic decline in our competitiveness. Let us start by looking back at our previous scores: In 2000, we ranked 38th, while in 2010 we painfully fell to 60th – today we hold the aforementioned 67th place. …If we take a look at the evolution of Slovakia’s situation from the last 10 years, we come to the conclusion that there has been a significant drop in the ranking of our competitiveness. While 10 years ago we usually ranked in the top third or quarter of the ranked countries, today we usually rank in the bottom half… An explanation to this negative trend is twofold: Other countries have been improving while our business environment has been worsening, or stagnating at best.

There are three glaring examples of slippage in Slovakia.

  • The first is that the flat tax was undone in 2012.
  • The second is that the private social security system was weakened.
  • The third is an erosion of fiscal discipline.

To be sure, it’s not as if Slovakia went hard left. The top tax rate under the new “progressive” system is 25 percent. And as I noted last month, that means high-income workers in Slovakia are still treated rather well compared to their counterparts in other industrialized nations.

And the leftist government in Slovakia weakened – but did not completely reverse – personal retirement accounts.

Jan Oravec explains the good reform that was adopted last decade.

During 2003 two main legislative acts – the Social Insurance Act and the Old-Age Pension Savings Act – were prepared by the reform team.…Prior to reform Slovaks were obliged to pay to the PAYGO system contributions of 28.75 % of their gross wages, and the system promised in exchange to pay an average old-age benefit amounting to 50 % of gross wages. The reform allowed workers to redirect a significant part of their contributions, 9 % of gross wage, to their personal retirement accounts.

Under current law, however, the amount that workers are allowed to place in private accounts has been reduced. Moreover, the government is forcing the accounts to invest in government bonds, which means workers will earn sub-par returns. These are bad changes, but at least personal accounts still exist.

Even the bad news on government spending isn’t horrible news. As you can see from this OECD data, the spending burden (measured as a share of GDP) has climbed to a higher plateau in recent years, wiping out some of the gains that were achieved thanks to a period of strong restraint early last decade. That being said, Slovakia is still in better shape than many other industrialized nations.

So where does Slovakia go from here?

That’s not clear. The Prime Minister that imposed some of the bad policies recently was forced out of office by scandal, but his replacement isn’t any better and there’s not another election scheduled until 2020.

That’s the bad news. The good news is that Slovakia has one of Europe’s best pro-market think tanks, the Institute of Economic and Social Studies. Which hopefully means another wave of reform may happen. Hopefully including some of my favorite policies, such as a pure flat tax as well as some constitutional spending restraint.

P.S. Like other nations in Central and Eastern Europe, Slovakia faces demographic decline. To avert long-term crisis, reform is a necessity, not a luxury.

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