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Government Schools + Anti-Gun Political Correctness = Child Abuse

Sun, 04/23/2017 - 12:39pm

Several years ago, I would regularly share horror stories about innocent kids being abused by politically correct government school administrators who overreacted to anything remotely resembling a gun.

I even had a U.S. vs. U.K. stupidity contest that featured many examples of anti-gun lunacy, though Canada may actually win the prize for the most absurd case of political correctness.

But I eventually stopped sharing these types of stories because it seemed there were so many and I felt like I was making the same points over and over again.

Time for the hiatus to end. I’ve run across a handful of stories that are so preposterous that I can’t resist revisiting the issue.

Here’s our first example. A local television station in North Carolina reports that a little girl was suspended because she pretended that a stick was a gun while playing with her friends.

A local mother is outraged after her 5-year-old daughter was suspended from school because of a stick that resembled a gun. …It started Friday when her mother got a call from the principal about a playground incident. Caitlin explained that she and her two friends were using their imaginations, playing “King and Queen.” In this case, Caitlin was the guard protecting the royals and picked up the gun to imitate shooting an intruder into the kingdom. Hoke County Schools said Caitlin posed a threat to other students when she made a shooting motion, thus violating policy 4331. …Miller says Caitlin was alienated by her friends and teachers as a result of the suspension. She hopes that the school will issue some sort of apology to her daughter.

I’m not the only one who thinks this is insane.

POLL: Should 5-year-old girl be suspended for playing with ‘stick gun’? https://t.co/vQpNDwk1LZ

— ABC11 EyewitnessNews (@ABC11_WTVD) March 29, 2017

Now for our second story.

It’s about a very dangerous 11-year old girl who – gasp!! – used a butter knife. A Florida television station has the details.

A South Florida couple is outraged after they said their daughter was suspended from her middle school for using a child butter knife at lunchtime to cut a peach. …Souto’s daughter is an honor roll student at Silver Trail Middle School in Pembroke Pines. …Ronald and Andrea Souto told Local 10 News reporter Michael Seiden that their 11-year-old daughter was suspended for six days for bringing the knife to school. “This is a set of a spoon, fork and knife for toddlers — one year old,” Andrea Souto said. “It is made for children to learn how to eat properly. She’s used it since she was baby.” According to the school district, the girl violated the county’s weapon policy when she used her butter knife in the cafeteria to cut the peach. …Ronald said he hopes what happened to his daughter will bring change to the district, specifically new polices when it comes to weapons.

But this rogue child didn’t just get suspended. She may become an actual criminal.

The Soutos said they were shocked about the suspension and are now concerned that their daughter’s act of kindness could lead to criminal charges. …The Pembroke Pines Police Department said it has turned over their investigation to the State Attorney’s Office. It’s unclear whether prosecutors will file charges.

Our third story comes from a St. Louis TV station and it involves a four-year old boy who was suspended for a shell casing.

Hunter, 4, has been suspended from his preschool for bringing a shell casing from a fired bullet to school. He’d been at the preschool for about a year, she said, and now was in tears. Neither she nor Hunter’s dad knew it, but he found something he thought was pretty neat and he took it to school Tuesday to show his friends. …Hunter’s parents got a letter from the school’s director saying Hunter had been suspended for 7 days. …It turns out the casing came from a visit with Hunter’s grandpa who is a Caseyville police officer, Jackson said. …The school’s vice-president e-mailed her that he was notifying the Illinois Department of Children and Family Services (DCFS).

The last sentence is particularly chilling since DCFS bureaucrats presumably have the power to take children from their families. So imagine the horrible position of Hunter’s parents, who not only have to deal with their kid being suspended for doing nothing wrong, but also have to worry about the state kidnapping their child if some anti-gun bureaucrat woke up on the wrong side of the bed.

Our fourth and final story is courtesy of the Montgomery Advertiser in Alabama, where a teenager was expelled for a year because of a water gun.

A family is up in arms after their 16-year-old daughter was expelled from Prattville High School for having a water gun on campus. …she was banned from school property and any extra-curricular activities for the same period. …She said a male classmate handed the toy to her daughter “as a joke.” “…the second you picked it up, you know its plastic and a toy,” she said. “So we can understand the initial reaction, not knowing it wasn’t a real gun. But after the principal and school officials knew it was a water gun, things should never have progressed this far.” …The family wants any reference to the expulsion removed from Laney’s academic records, McPhillips’ letters read. …If the expulsion isn’t removed from Laney’s academic record, the family is considering filing legal action

I suppose there are two big-picture lessons to be learned.

First, it’s hard to be optimistic about the education system after reading this type of story.

If bureaucrats at government schools don’t have common sense, how can they teach reading, writing, and arithmetic?

Maybe (especially given the shocking lack of results after record levels of staffing and funding) we should break up the government school monopoly and let parents choose better-quality schools.

Second, keep in mind that anti-gun statists know they can’t win the intellectual argument against private gun ownership, so they’re trying to stigmatize anything remotely connected to guns in hopes of eventually winning the political argument.

Congress Should Tell the Music Industry ‘No’ When it Comes to Legislating Royalties

Sun, 04/23/2017 - 2:48am

Originally published by The Hill on April 21, 2017.

If the music industry has its way, Congress will soon pass legislation that will charge consumers more for listening to music.

Major publishers of music have made record revenues from music royalties, but now they want Congress to legislate even larger profits. The largest publishers and record labels have created a front group called MusicFirst, which is organizing major lobbying efforts in Congress to generate artificially higher profits for the industry.

Currently, local radio stations receive free airplay in exchange for the free exposure they provide to artists. That exposure is highly valuable as it reaches hundreds of millions of people each week. One study suggested that the total value of such airplay totals nearly $2.5 billion annually.

Radio airplay is what determines the commercial success of artists, and it’s clear that record labels would even pay for its promotional value. But federal law prohibits doing so. The “free airplay for free advertising” set-up was created at the onset of the radio age to please both sides of the music equation, and to ensure that money would not corrupt or influence radio playlists.

Yet despite the fact that the music industry receives billions in free advertising from local radio stations every year, it’s asking Congress to impose a new royalty fee on local radio stations for playing popular music.

The specifics of the proposal are still being worked out, but it has already involved big hitters in the music industry. The group financed Grammys on the Hill and Advocacy Day earlier this month, and had about one hundred of the biggest celebrities in the entertainment industry knock on representatives’ office doors.

The leading music publishers and record labels dismiss the value of radio play for music success, yet airtime on local radio stations remains the largest factor in the success of popular music. “That’s where they get a lot of my music,” said country artist and 2017’s honoree at Grammys on the Hill Keith Urban. As a result, the record labels and publishers behind MusicFirst annually invest millions in promoting music for radio airplay.

MusicFirst, referring to the promotional value of radio airtime, notes in a statement, “In any other market-based arrangement they (local radio stations) would have to compensate the owner of that music at market rate.” But the reality is that in any other market-based arrangement, “big music” would also be paying for the promotion of their product as advertising.

In an open letter to Congress, MusicFirst said their proposal was based on “market-based principles [that] drive compensation for all artists and creators.” The problem is that the market would not set the “market rate” at all: The coalition is advocating for a government rate-setting agency to dictate prices on local radio stations.

Clearly, this effort is not one of seeking increased revenues for the music industry via the free market, but one of seeking a government-imposed fee at the expense of those who listen to popular music via local radio stations.

While the industry has sought several times in the past, through both legislation as well as regulatory action, to increase their profit margins, all of those efforts have failed. One such effort in the past was the Songwriter Equity Act, which did not go anywhere in Congress. The music industry has also unsuccessfully sought to get the Department of Justice to allow for artificially higher royalty rates off the backs of taxpayers.

Bailing out the music industry should not even be on Congress’ map. Voters elected their members of Congress to repeal and replace ObamaCare, reform the federal government, create jobs, and build a much stronger economy. Congress should heed the wishes of the voters that elected them and tell “big music” that the era of special interest bailouts is over.

The Horrifying Death Throes of Venezuelan Socialism, Captured in 28 Headlines

Sat, 04/22/2017 - 12:24pm

I wrote last year that Venezuela was entering the “fourth circle of statist hell.”

How else, after all, can you describe a government that is so venal and incompetent that it resorts to confiscating toys in an effort to strengthen its hold on power?

I also wrote last year that Atlas was “shrugging” in Venezuela.

But shrugging may soon turn to shrugged. It’s hard to see how Maduro’s despotic regime can hold power much longer. Consider this collection of horrifying stories.

The Washington Post reported:

With inflation spiraling out of control, food and medicine supplies dwindling and violent crimes on the rise, women as young as 27 are seeking out surgeons to avoid unwanted pregnancies. A study by PLAFAM, the biggest family planning clinic in the country, estimates that about 23 percent more Venezuelan women are being sterilized today as compared to four years ago, said the clinic’s director, Enrique Abache. “The financial crisis is one of the main causes for this,” he explained. Years of government mismanagement have fueled what is now a full-blown humanitarian crisis in a country where infant mortality has almost doubled in recent years. …mothers often spend whole days searching for milk powder or diapers. Those who can’t find them are simply forced to go without.

From a story in CapX:

How serious is Venezuela’s crisis? Bad enough that, in 2016, Venezuelans became the top US asylum-seekers… Venezuelan asylum claims increased by 150 per cent from 2015 to 2016. Though Venezuela does not publicly circulate emigration information, estimates suggest that between 700,000 and two million Venezuelans have emigrated since 1999. …Sometimes, from here, it can seem as though the entire population – fed up with shortages of medicine and food, with crime and with the political trajectory of the nation – wants to leave.

Some grim news from the Japan Times:

Julio Noguera…spends his evenings searching through the garbage for food. “I come here looking for food because if I didn’t, I’d starve to death,” Noguera said as he sorted through a pile of moldy potatoes. “With things like they are, no one helps anyone and no one gives away meals.” Across town, unemployed people converge every dusk at a trash heap on a downtown Caracas sidewalk to pick through rotten fruit and vegetables tossed out by nearby shops. They are frequently joined by small business owners, college students and pensioners — people who consider themselves middle class even though their living standards have long ago been pulverized by triple-digit inflation, food shortages and a collapsing currency. …Nearly half of Venezuelans say they can no longer afford to eat three meals a day, according to a recent poll.

The Wall Street Journal opines:

cities around the country…have been hit hard by police, national guard troops and the regime’s paramilitary forces as the dictatorship of Nicolás Maduro tries to contain a wildfire of rebellion. …The government is running out of money to buy imports, and since it has crippled domestic production, privation is growing more profound. …Roving bands of government-sponsored militias terrorize civil society as they have for more than a decade. …a 16-year-old girl politely informed Mr. Maduro that students in her school often faint from hunger. …Mr. Maduro was pelted with stones as he left a military rally in Bolívar state… Meanwhile, Mr. Maduro is doubling down on centralized control of a shrinking food supply. …Those who do not support the regime can be cut off.

The thuggery will worsen according to the Washington Free Beacon:

The socialist leader of Venezuela announced in a speech to regime loyalists his plan to arm hundreds of thousands of supporters after a years-long campaign to confiscate civilian-owned guns. …The Venezuelan government justified the gun bans and confiscations by saying they were needed to combat the country’s violent crime and murder epidemic. However, statistics reported by the nonprofit Venezuelan Violence Observatory show the murder rate in Venezuela increased from 73 murders per 100,000 inhabitants the year the gun ban was instituted to 91.8 murders per 100,000 inhabitants in 2016. …As protests and unrest increase in Venezuela, Maduro’s regime has created a landscape where civilians are disarmed but his supporters are not. The latest round of mass demonstrations in the streets of Caracas have already claimed five lives.

Even zoo animals are suffering, as reported by the Miami Herald:

An apparently malnourished African elephant in a Venezuelan zoo — her ribs showing through her sagging skin — has become the latest symbol the deep economic crisis in what was once one of Latin America’s most prosperous nations. …Ruperta is suffering from diarrhea and dehydration after zoo officials only had squash to feed her for several days. According to the newspaper, when neighbors tried to bring food to the elephant over the weekend, the donations were turned away by zoo officials… in a nation where a grinding economic crisis is forcing many to skip meals and go hungry, Ruperta’s fate has touched a nerve. …Román Camacho, a local reporter who broke the story, said a whistle-blower within the park service alerted him that Ruperta had grown so hungry that she collapsed last Thursday. …Also last year, a horse at a local zoo was reportedly butchered by hungry Venezuelans.

The New York Times has noticed:

Venezuela was once one of Latin America’s economic powerhouses… A growing number of Venezuelans are going hungry in a food shortage, and dying from treatable ailments in squalid, ill-equipped hospitals. …Until political prisoners are released, the prospects for a restoration of democratic rule are very dim. …Inflation has soared to an estimated 700 percent, while people in this oil-rich nation are left digging through piles of trash for scraps of food.

Productive people are escaping, Bloomberg reports:

For Venezuelan exiles with money, Madrid has become a home away from home. They are increasingly turning to the Spanish capital as a place to invest as their home country falls further into economic chaos and the political mood turns more sour in U.S. havens such as Miami. The number of Venezuelans arriving in Spain rose more than 50 percent in 2015, according to the Spanish statistics office.

The monetary system is also a disaster reports the New York Times:

President Nicolás Maduro of Venezuela made a baffling announcement…, saying that his government intended to yank the 100 bolívar note from circulation… Venezuelans, who have endured months of chronic food and medicine shortages, mobbed banks and A.T.M.s in a desperate attempt to offload their stacks of the highest denomination bill, which has become so devalued it is now worth roughly 3 cents in American dollars. …the Maduro government…has spent years…imposing arbitrary currency controls that have made a once prosperous economy one of the world’s most dysfunctional. …Venezuela was expelled from the regional trade bloc Mercosur in early December.

The outflow of people is staggering according to Fox:

Along with basic food, medicine and even toilet paper, Venezuela now lacks the materials to meet to the soaring demand for new passports – making it almost impossible for those few Venezuelans with the monetary means of escaping the troubled Latin American nation to do so. While estimates of how many passport requests the socialist government received last year vary from between 1.8 million to 3 million, only 300,000 of the elusive documents were doled out. Everyday, hundreds of people line up outside the passport agency, known as Saime, in the capital of Caracas in the hopes of obtaining one. It’s an ironic, and yet sad situation, for a country that used to be one of Latin America’s wealthiest and one that was used to seeing people flock to, not away from. …Adding to the overall misery are a drastic rise in violent crime – especially in the capital city of Caracas – rolling blackouts and widespread and often times bloody protests against the government. …since Chávez took power in 1999 nearly 2 million Venezuelans have fled the country and hundreds of thousands are marking their time until they obtains the funds and the passport that will allow them to leave.

Government insiders are getting rich, as noted by the New York Post:

Venezuela is no longer a country with a government, institutions and a civil society. It’s a geographic area terrorized by a criminal enterprise that pretends to govern, with a civil society made up of two sets of people: accomplices and victims. More than 30 million of the latter. …The Hugo Chavez-led looting spree began in 2000. …More than $1 trillion has disappeared… Loving parents are putting their children up for adoption because they have nothing to feed them; the elderly are starving; patients with treatable conditions are dying in hospitals that lack basic medicine like insulin and oxygen, where vital equipment has been pilfered and emergency rooms operate without electricity. …Meanwhile, those in power can focus on what they do best: looting the country’s natural-resource wealth and manufacturing and trafficking illegal narcotics. In fact, Maduro just upped his game by appointing Tareck el-Aissami, a drug kingpin, as vice president.

CNN shares some bad news:

Venezuela only has $10.5 billion in foreign reserves left, according to its most recent central bank data. For rest of the year, Venezuela owes roughly $7.2 billion in outstanding debt payments. In 2011, Venezuela had roughly $30 billion in reserves. In 2015, it had $20 billion. The trend can’t persist much longer, but it’s hard to know exactly when Venezuela will run completely out of cash. …The thinning reserves paint a scary financial picture as the country faces a humanitarian crisis sparked by an economic meltdown. Venezuelans are suffering massive food and medical shortages, as well as skyrocketing grocery prices. Massive government overspending, a crashing currency, mismanagement of the country’s infrastructure and corruption are all factors that have sparked extremely high inflation in Venezuela. Inflation is expected to rise 1,660% this year and 2,880% in 2018, according to the IMF.

A dour column from Real Clear World:

Socialist economic policies and government corruption have destroyed a once-thriving economy sitting on the world’s largest oil reserves. …Index of Economic Freedom…looks at the economic freedom of countries throughout the world. In that period of time, Venezuela’s score has declined the most out of any country, going from 59.8 to 27.0 (on a scale of 1-100). It is now in second-to-last place, right behind Cuba and better only than North Korea. …The World Health Organization estimates that there are shortages for 75 percent of necessary medications and medical supplies such as antibiotics, vaccines, and scalpels. Blackouts resulting from a crumbling energy infrastructure are a daily occurrence. The death of newborns has become a common phenomenon… All the while, Venezuelan government officials have been using oil revenues to line their own pockets.

The Washington Post opines on the disaster:

Venezuela, which was once Latin America’s richest country, has become an unwilling test site for how much economic and social stress a modern nation can tolerate before it descends into pure anarchy. …Venezuelans have struggled with mounting shortages of food, medicine and other consumer goods, as well as triple-digit inflation that has rendered the national currency, the bolivar, worthless. … President Nicolás Maduro, an economically illiterate former bus driver, …also closed Venezuela’s borders with Colombia and Brazil, on the theory that traders were hoarding currency in those countries. …the president is doing his best to blame the United States for the fiasco… Venezuelans no longer believe such nonsense. A survey released this month by pollster Alfredo Keller showed that only 1 percent said the United States was to blame for the country’s crisis, while 76 percent blamed Mr. Maduro and the regime founded by Hugo Chávez. …Only 19 percent said they still supported the regime.

Investor’s Business Daily piles on:

Want to lose weight fast? …Just move to Venezuela. There, the new Socialist Diet has caused the population to lose millions of pounds in 12 months. Unwillingly, of course. …A new study of Venezuela’s stunning decline under Hugo Chavez’s socialist model…reports that the average Venezuelan lost 19 pounds in the last year. Today, the 2016 Living Conditions Survey finds, 32.5% of Venezuelans eat only once or twice a day, up from 11.3% just one year ago. And 93.3% of all people don’t earn enough to buy sufficient food. …Bring socialism to your country, and you bring misery. It’s the one thing that socialism produces an abundance of. …formerly middle-class Venezuelans scavenge for food — some even stooping to dumpster diving and eating formerly beloved pets just to stay alive — socialists allied with Maduro have changed nothing. …rule of law has been rejected for the rule of one tyrant. Children aren’t spared; they’re dying by the hundreds from curable diseases, a lack of medicine, electricity outages and no incubators for newborns.

Some heartbreak from the New York Times:

Kevin Lara Lugo…died on his 16th birthday.He spent the day before foraging for food in an empty lot, because there was nothing to eat at home. Then in a hospital because what he found made him gravely ill.Hours later, he was dead on a gurney, which doctors rolled by his mother as she watched helplessly. She said the hospital had lacked the simplest supplies needed to save him on that day last July. … Inflation has driven office workers to abandon the cities and head to illegal pit mines in the jungle, willing to subject themselves to armed gangs and multiple bouts of malaria for the chance to earn a living. Doctors have prepared to operate on bloody tables because they did not have enough water to clean them. Psychiatric patients have had to be tied to chairs in mental hospitals because there was no medication left to treat their delusions. Hunger has driven some people to riot — and others into rickety fishing boats, fleeing Venezuela on reckless journeys by sea. But it was the story of a boy with no food, who had gone searching for wild roots to eat but ended up poisoning himself instead, that seemed to embody everything that had gone wrong in Venezuela.

Peak socialism, as reported by Foreign Policy:

A fleet of rundown Venezuelan oil tankers carrying some 4 million barrels of oil and other fuels is wallowing in the Caribbean Sea. Not because of bad weather, or mechanical problems, but because Venezuela’s state-owned oil company, Petróleos de Venezuela SA, doesn’t have the cash to get them to their final destinations. …it’s doubly bad news for Venezuela, a country in dire economic straits and full-fledged crisis, with a political impasse, looting, dangerous food and health supply shortages, and massive protests. Venezuela is massively reliant on oil exports to bankroll government services. But the cash-strapped country can’t even find the money to service the vessels that carry its exports. …Venezuela, once Latin America’s most powerful petrostate, is on the brink of collapse after decades of economic mismanagement.

More on insider corruption, exposed by the Washington Post:

Formerly a stable, sophisticated, middle-income country awash in oil wealth, Venezuela has experienced a dizzying downward spiral over the past two years. Today, Venezuela’s is arguably the world’s worst-run economy. Food shortages are pervasive, and food prices are rising fast — a deadly combination that has left millions unable to find enough to eat. …Why doesn’t the army rebel? …we have the genuinely shocking answer: Far from rebelling, Venezuela’s armed forces actively profit from their countrymen’s hunger.This year, President Nicolás Maduro granted the armed forces virtually unlimited authority over the nation’s food imports and distribution. Domestic food production is down sharply in the wake of a botched land reform program, meaning imports now account for most of the nation’s food. But putting the military in charge of this delicate domain has led to an explosion of corruption, as well-connected officers mercilessly prey on every part of the distribution chain, from the initial contracts and the foreign currency needed to fund them to storage, transportation and distribution. …A government that bills itself as radically pro-poor in fact drips with contempt for the poor.

More tragic sadness, this time from Reuters:

Struggling to feed herself and her seven children, Venezuelan mother Zulay Pulgar asked a neighbor in October to take over care of her six-year-old daughter, a victim of a pummeling economic crisis. …”It’s better that she has another family than go into prostitution, drugs or die of hunger,” the 43-year-old unemployed mother said… With average wages less than the equivalent of $50 a month at black market rates, three local councils and four national welfare groups all confirmed an increase in parents handing children over to the state, charities or friends and family. …the trend highlights Venezuela’s fraying social fabric and the heavy toll that a deep recession and soaring inflation are taking on the country with the world’s largest oil reserves. …most economists pin the responsibility on socialist policies introduced by former president Hugo Chavez, which his successor Nicolas Maduro has doubled down on… Two-thirds of 1,099 households with children in Caracas, ranging across social classes, said they were not eating enough in a survey released last week by children’s’ rights group… In some cases, parents are simply abandoning their kids. Last month, a baby boy was found inside a bag in a relatively wealthy area of Caracas and a malnourished one-year-old boy was found abandoned in a cardboard box in the eastern city of Ciudad Guayana, local media reported. …There are also more cases of children begging or prostituting themselves

Even Vox is aware of the problem:

…new data capturing the woes of the once well-heeled South American nation is shocking: According to new results from an annual national survey, nearly three-quarters of respondents reported losing an average of 19 pounds between 2015 and 2016. …Shortages of food, medicine, and many basic items abound in what was once the richest country in South America per capita in the 20th century. Malaria is ravaging a country that was the first in the world to eliminate the disease in its populated areas. Now there’s evidence that the economic chaos is translating into a malnutrition crisis… Alejandro Velasco, a scholar of Latin American history at New York University, believes Chávez’s model of socialism…”strangled the already meager productive apparatus of Venezuela,” he explained during an interview in January. …Chávez’s spending regime also left the country acutely vulnerable to emergency. Ricardo Hausmann, director of the Center for International Development at Harvard’s Kennedy School, notes…that Chávez’s government.. “over-spent and quintupled the public foreign debt.”

The Economist has given up on Venezuelan statism:

Every weekday morning, a queue of several dozen forlorn people forms outside the dingy headquarters of SAIME, Venezuela’s passport agency. As shortages and violence have made life in the country less bearable, more people are applying for passports so they can go somewhere else. …As desperation rises, so does the intransigence of Venezuela’s “Bolivarian” regime, whose policies have ruined the economy and sabotaged democracy. The economy shrank by 18.6% last year, according to an estimate by the central bank, leaked this month to Reuters… Inflation was 800%. …In 2001 Venezuela was the richest country in South America; it is now among the poorest.

Venezuela is even begging at the UN according to the Associated Press:

Venezuela’s President Nicolas Maduro has asked the United Nations for “help” boosting medicine supplies as he struggles to combat crippling shortages. …acknowledging that Venezuela needs outside help is a telling sign of how far the nation sitting atop the world’s largest petroleum reserves has fallen under Maduro. …Venezuelans…have been suffering from widespread shortages and triple-digit inflation… OAS Secretary General Luis Almagro is pushing to expel Maduro’s government from the group for breaking the country’s democratic order and violating human rights. Maduro’s government disavowed a landslide loss to the opposition in legislative elections in 2015, and then suspended a recall campaign seeking to force him from office before the 2018 election.

Bloomberg notes that an oil-rich nation even has shortages of gas:

…drivers lined up at filling stations amid a worsening shortage of fuel. While Petroleos de Venezuela SA says the situation is normalizing and blamed the lines on transport delays, the opposition says the company has had to reduce costly fuel imports as it tries to preserve cash to pay its foreign debt. …As the company’s crumbling refineries fail to meet domestic demand, imports have become a financial burden because the country buys fuel abroad at market prices only to sell it for pennies per gallon at home. … “It’s unbelievable that this is happening in an oil producing country.” …The hunt for gasoline is just the latest headache for consumers after years of severe economic contraction and triple-digit inflation have produced shortages of everything from bread to antibiotics.

The Miami Herald reports the government is making it even harder for hungry people to get fed:

Facing a bread shortage that is spawning massive lines and souring the national mood, the Venezuelan government is responding this week by detaining bakers and seizing establishments. In a press release, the National Superintendent for the Defense of Socioeconomic Rights said it had charged four people and temporarily seized two bakeries as the socialist administration accused bakers of being part of a broad “economic war” aimed at destabilizing the country. …The government said bakeries are only allowed to produce French bread and white loaves, or pan canilla, with government-imported flour. …The notion that bread could become an issue in Venezuela is one more indictment of an economic system gone bust. The country boasts the world’s largest oil reserves but it has to import just about everything else. …President Nicolás Maduro launched “Plan 700” against what he called a “bread war,” ordering officials to do spot checks of bakeries nationwide.

And there’s always more bad policy, as Reuters reports:

Venezuela’s socialist President Nicolas Maduro announced on Sunday a 50 percent hike in the minimum wage and pensions, the fifth increase over the last year… “In times of economic war and mafia attacks …we must protect employment and workers’ income,” added Maduro, who has now increased the minimum wage by a cumulative 322 percent since February 2016. …critics say his incompetence, and 17 years of failed socialist policies, are behind Venezuela’s economic mess. They say the constant minimum wage hikes symbolize Maduro’s policy failures… Venezuela’s inflation hit 181 percent in 2015, according to official data, though opponents say the true figure was higher. There is no official data for 2016, but…inflation was more than 500 percent in 2016, while the economy shrank 12 percent.

Which means, per the AP, more people want to leave:

Venezuelans for the first time led asylum requests to the United States as the country’s middle class fled the crashing, oil-dependent economy. Data from the U.S. government’s Citizenship and Immigration Services show that 18,155 Venezuelans submitted asylum requests last year, a 150 percent increase over 2015 and six times the level seen in 2014. …The vast majority leaving are middle-class Venezuelans who don’t qualify for refugee status reserved for those seeking to escape political persecution, according to Julio Henriquez, director of the Boston-based nonprofit Refugee Freedom Program, which has been drawing attention to the trend. “The pace at which requests are increasing is alarming,” said Henriquez, whose group obtained the still-unpublished data in a Feb. 8 meeting between U.S. officials and immigration lawyers.

And the government is engaged in more looting, MSN reports:

General Motors said it has been forced to stop operating in Venezuela on Wednesday after one of its plants was illegally seized by local authorities. The seizure, in the country’s industrial hub of Valencia, comes amid a deepening economic and political crisis that has sparked weeks of deadly street protests. …The auto giant did not provide any details about its plant being seized, other than saying it “was unexpectedly taken by authorities, preventing normal operations.” It said other assets, “such as vehicles,” had also been stripped from the site. …Venezuela’s car industry has been in freefall, hit by a lack of raw materials stemming from complex currency controls and stagnant local production, and many plants are barely producing at all. Venezuela’s government has taken over factories in the past. In 2014 the government announced the “temporary” takeover of two plants belonging to U.S. cleaning products maker Clorox Co.

Last but not least, here’s a column from the Week:

Venezuela cannot wake up from its socialist nightmare. …across the country, people are starving. Venezuela, a beautiful, oil-rich country, once one of the wealthiest nations in the Southern Hemisphere, is only sinking further into economic devastation and chaotic, corrupt authoritarianism. …Meanwhile, the economy keeps rotting. Venezuela has topped Bloomberg‘s Economic Misery Index, a benchmark whose title is self-explanatory, for three years running. The economy shrank by 18 percent last year, with unemployment at 25 percent, and inflation slated to be 750 percent this year and 2,000 percent the next…there are outbreaks of scabies, a disease easily prevented with basic hygienic practices; hospitals are running out of even basic drugs. Caracas is the murder capital of the world. Corruption has infected the country wholesale even as it has created a new class of kleptocratic oligarchs linked to the security services. …The whole of Venezuelan society is breaking down at a fundamental level. …It is truly heartbreaking. …And I blame socialism. …And now it’s Venezuelans, especially the poorest and more marginal among them, who are paying the price for this madness.

Let’s close with a video on the tragic situation in Venezuela.

I wonder if Bernie Sanders still thinks this is a system worth supporting?

OSHA Must Revisit Costly Expansion Of Maritime Construction Rule

Sat, 04/22/2017 - 2:46am

Originally published by The Daily Caller on April 11, 2017.

In the waning hours of the Obama administration, the Occupational Safety and Health Administration (OSHA) finalized a rule to dramatically lower the level of permissible exposure to beryllium in workplaces. This expensive regulation was expanded behind closed doors after its initial public proposal and lacks strong scientific support. It is set to take effect May 20, after President Trump directed agencies to delay for 60 days rules that had been published in the federal register but not yet taken effect. His administration should insist that OSHA reverse the last-minute expansion of the rule, and at the very least follow proper procedures if it wishes to expand it again.

OSHA says that lowering the allowed level of beryllium exposure from 2.0 micrograms per cubic meter of air to 0.2 micrograms over an eight-hour period will save over 90 lives per year. But it hasn’t provided evidence to sustain that number, nor the fanciful claim that the rule will somehow provide net savings of $560.8 million per year.

Given the way these agencies work, their estimation that the rule will cost $74 million per year to implement is almost certainly low. American business don’t need those added costs.

Nevertheless, the major problem with the rule is its last-minute expansion to cover not only those working with beryllium alloys, but also abrasive blasting in the construction and shipyard industries.

The materials used for abrasive blasting, like coal and copper slag—waste products from coal power plants or smelting and refining processes—would otherwise end up in landfills. Instead, it is recycled and put to use. It also contains only trace amounts of beryllium, as much as 22,000 times less than in some copper beryllium alloys, the original focus of the rule.

The already heavily regulated abrasive blasting industry, which directly employs over 400,000 workers, has never had a documented case of beryllium-related illness in either the manufacture or use of coal and copper slag abrasive materials. There are also likely to be unintended health consequences if the industry is effectively forced to substitute silica-based materials in order to avoid unaffordable burdens.

The added provisions in the regulation were never offered for public comment, thus limiting stakeholder input. Congressman Byrne (R-AL), Chairman of the Subcommittee on Workforce Protections, recently authored a letter chastising OSHA for this “impermissible overreach,” and called for an indefinite delay to the rule while the agency reopens the rule-making process and follows proper procedure for amending the scope of the original proposed rule.

If OSHA fails to take his advice and adhere to the rules put in place to ensure transparency and accountability in the regulatory process, then Congress has a remedy. The Congressional Review Act provides a mechanism for the reversal of agency ruling within 60 legislative days after a rule is submitted to Congress.

OSHA had the dubious distinction of being the originator of the only rule—requiring workplaces to create ergonomic programs—ever repealed using the Congressional Review Act prior to this year’s Congress, which has undone several costly Obama-era regulations already. If OSHA wishes to avoid seeing another of its rules preempted by Congress, it should respect the regulatory process and take out the 11th-hour expansion of the beryllium rule.

Who Will Prevail in Sunday’s French Presidential Contest and Earn the Right to Preside over the Nation’s Decline?

Fri, 04/21/2017 - 12:00pm

The last time there was a presidential election in France, I like to think my endorsement made a difference in the outcome.

Now that another election is about to take place, with a first round this Sunday and a runoff election between the top-2 candidates two weeks later, it’s time to once again pontificate about the political situation in France. But before looking at the major candidates, let’s consider a couple of pieces of economic data to get a sense of the enormous challenges that will have to be overcome to boost France’s anemic economy.

We’ll start with this measure of implicit pension debt (IPD) in various European nations. France, not surprisingly, has made commitments to spend money that greatly exceeds the private sector’s capacity to generate tax revenue.

By the way, the accompanying article notes that the numbers for France are even worse than suggested by the chart.

Most tax and accounting codes require companies to report such implicit debts on the liability side of the ledger as obligations. Not so with governments, whose accounting practices would under normal circumstances be considered as falsifying public accounts. …According to a recent study, six European countries – Austria, Finland, France, Germany, Italy and Poland – have an IPD exceeding 300 percent of gross domestic product. …And the kicker? The data cited above are based on the present value of future pensions as of 2006. More up-to-date figures probably won’t be available until the end of 2017. …The issue is no longer when France goes bankrupt, but when Europe does. The level of debt declared in the national accounts is already worrying. With implicit pension liabilities a multiple of that, it appears that a systemic implosion is unavoidable.

Here’s another sobering visual. France is doing a very good job of scaring off the geese that lay the golden eggs. It is losing more millionaires than any other country.

The combined message of these two visuals is that the already-enormous burden of spending in France will get worse, yet the country is chasing away the people who finance the lion’s share of the government’s budget.

And lots of young entrepreneurs also are escaping, which further exacerbates the nation’s long-run troubles.

Now that we’ve looked at where France is heading, let’s contemplate whether the politicians running for President will make the situation better or worse.

We’ll start with this helpful table summarizing the views of the major candidates (though the hard-left vote apparently has consolidated behind Mélenchon, so Hamon can be ignored).

What’s not captured in this table, however, is that the presidential race pits two outsiders (Mélenchon and Le Pen) against two establishment candidates (Macron and Fillon).

And this is leading to some interesting analysis. The establishment point of view is captured by Sebastian Mallaby’s column in the Washington Post. He is very opposed to Fillon, Le Pen, and Mélenchon, and also rather concerned that his preferred candidate – Emmanuel Macron – won’t make it to the runoff.

In the first round of its presidential election, to be held on Sunday, some three-quarters of the French electorate are expected to back candidates who stand variously for corruption, a 100 percent top tax rate, Islamophobia, Russophilia, Holocaust denial, the undermining of NATO and the traumatic breakup of Europe’s political and monetary union. France was once the cradle of the Western Enlightenment. Now it threatens to become a spectacle of decadent collapse.

I disagree with some of Mallaby’s analysis, but enjoyed his depiction of Mélenchon, who bizarrely thinks Venezuela is a role model.

Jean-Luc Mélenchon, the Communist-allied candidate who styles himself after Venezuela’s Hugo Chávez and promises a “citizens’ revolution.” No prizes for guessing that he’s the one who proposes a 100 percent top tax rate… Oblivious to the fact that France has taxed and regulated its way to a 25 percent youth unemployment rate and a government-debt trajectory that threatens Armageddon, he wants further cuts to the French workweek, an additional 10,000 civil servants and a shift in the retirement age from 62 to 60.

To put it in simple terms, Mélenchon is appealing to voters who think Hollandedidn’t go far enough.

CNN reports that Mélenchon is even more fixated on class warfare than Bernie Sanders.

Instead of a 90 percent top tax rate, he wants to steal every penny from the supposedly evil rich.

Jean-Luc Mélenchon, who has been endorsed by the French Communist Party, says he would introduce a 100% tax on income above €400,000 ($425,000). …France already has some of the world’s highest rates of income tax, and previous attempts to push them even higher have failed. …Around 10,000 millionaires left the country in 2015, followed by 12,000 last year, according to New World Wealth.

Though maybe he’s the French version of Obama, who also got support from communists.

And, like Obama, he thinks he should get to decide when someone has earned enough money.

“I believe that there is a limit to the accumulation [of wealth],” Mélenchon said in March. “If there are any who want to go abroad, well, goodbye!”

Though at least he has the courage of his convictions. He doesn’t mind if upper-income taxpayers leave. Though I wonder if he’s given any thought to who will then pay the bills?

Anyhow, the 100 percent tax is just one of many crazy ideas.

He also wants to limit pay for CEOs to 20 times the salary of their worst-paid employee. …Here’s a quick look at Mélenchon’s other economic policy proposals: Cut France’s working week to four days…More vacation days for workers…Raise minimum wage by 16%…Increase the tax on inherited wealth…100% renewable energy by 2050…No new free trade agreements…Nationalize French energy company EDF and gas provider Engie.

Now let’s shift to other candidates. I’m irked that Macron generally is portrayed as a centrist and even more irked that Le Pen is portrayed as being on the right.

Prince Michael of Liechtenstein is a very astute observer of European political and economic affairs and his analysis is more accurate. We’ll start with what he wrote about Le Pen’s support for statism.

Ms. Le Pen’s…socialist economic program will continue the ongoing destruction of the French economy, its competitiveness and public finances. …Such a scenario would, however, only accelerate a disaster that was already looming. The present government’s socialist policies, which have shied away from reform and preserved France’s oversized public sector, will eventually bear the same results.

To augment that analysis, Le Pen is considered on the right simply because of her anti-immigrant policy. But on economic policy, she is very much on the left.

Prince Michael also exposed Macron’s support for a more burdensome government.

Mr. Macron…claims that he will bring France’s budget deficit below the European benchmark of 3 percent. …The candidate’s plan…does not appear plausible in light of his intention to further increase government spending. Mr. Macron’s pronouncements indicate an adherence to the Keynesian economic policy approach at the EU level. According to him, Europe should end austerity and introduce a growth model in which additional spending – on top of the already lavish outlays planned by European Commission chief Jean-Claude Juncker – ought to be implemented. The Macron policies boil down to more state and more EU centralization. At the heart of the scheme is the creation of a European Ministry of Finance and Economy, an all-powerful body to plan and monitor the EU economy. …Macron intends to continue treating the French cancer with aspirin and transmit the disease to Germany and the rest of the EU, while demanding that they pay for France’s subsistence in the meantime.

In other words, Macron wants this cartoon to be official French policy. Yet some people actually think of him as a pro-market reformer. Wow.

Let’s conclude with these wise words from an editorial in today’s Wall Street Journal, which is very worried that the runoff may feature two pro-big government outsiders.

All four major candidates are polling at around 20%, but Mr. Mélenchon has momentum and the highest personal favorability. A Le Pen-Mélenchon finale would be a political shock to markets and perhaps to the future of the EU and eurozone. …Mr. Hollande’s Socialists have made France the sickest of Europe’s large economies, with growth of merely 1.1% in 2016, a jobless rate above 10% for most of the past five years, and youth unemployment at nearly 25%. His predecessor Nicolas Sarkozy and the Republicans talked a good reform game but never delivered. …the stage is set for candidates who appeal to nativism or a cost-free welfare state. Let’s hope a French majority steps back from the political brink.

By the way, it’s not yet time for me to make an official endorsement, though I’ll share my leanings.

I confess that I’m torn between Fillon and Mélenchon. By French standards, Fillon is apparently very pro-free market. So I should like him. He could be the Ronald Reagan or Margaret Thatcher of France.

But what if he turns out to be another Sarkozy, a big-government fraud?

If I support Mélenchon, by contrast, at least I can say with great confidence that I will be able to continue using France as an example of bad public policy. I realize that’s not an ideal outcome for the French people, but you know what they say about omelets and eggs.

In any event, I’ll wait until the runoff election before selecting a candidate.

 

Bureaucrat Pensions and America’s Brazilian Future

Thu, 04/20/2017 - 12:05pm

When I write about poorly designed entitlement programs, I will warn about America’s Greek future. Simply stated, we will suffer the same chaos and disarray now plaguing Greece if we don’t engage in serious reform.

Ideally sooner rather than later.

But when I write about state governments, perhaps it would be more appropriate to warn about a Brazilian future. That’s because many American states have made unaffordable and unfunded promises to give lavish benefits to retired bureaucrats, a topic that I’ve addressed on numerous occasions.

And why does that mean a Brazilian future? Because as Greece is already suffering the inevitable consequences of a bloated welfare state, Brazil is already suffering the inevitable consequences of a pension system that treats bureaucrats as a protected and cossetted class. Here are some excerpts from a sobering report in the Wall Street Journal.

Twenty years before Michel Temer became president of Brazil, he did something millions of his compatriots do, at great cost to the country’s coffers: He retired at age 55 and started collecting a generous pension. Delaying that moment until age 65 is at the center of Mr. Temer’s proposed economic overhaul. …making that happen is seen as a make-or-break test of whether the government can get its arms around mounting economic problems like rising debt, low investment and a stubborn recession now entering its third year. New pension rules are considered central to fixing an insolvent system.

It’s easy to understand why the system is bankrupt when you read the details.

…some retirees receive pensions before age 50 and surviving spouses can receive full pensions of the deceased while still drawing their own. The generosity of Brazil’s pension system is legendary—and, economists say, troubling as the country’s fertility rate plummets and life expectancy climbs. João Mansur, a long-time state legislator in Paraná state, served as interim governor there for 39 days in 1973, a stint that qualified him to retire with a $8,000 monthly pension. …Other former public workers who retire not only reap nearly the same income they got while on the job, but also see their checks get bumped up whenever those still working in the same job category get raises. …Retirement outlays will eat up 43% of the $422-billion national budget this year. …Demographics are playing against a generous system created in great part to bridge Brazil’s infamous social gap. Official statistics say there are 11 retirees for every 100 working-age Brazilians; that will rise to 44 per 100 by 2060.

Fixing this mess won’t be easy.

Brazil’s constitution must be amended to allow its pension system to be restructured… Mr. Temer has already been forced to make a series of major compromises, including exempting state and local government employees from the overhaul. …legislators have sought to further water down Mr. Temer’s proposals, by for instance maintaining the lower retirement ages for women and dragging out the transition from the old social-security regime to the new one.

In other words, Brazilian politicians are in the same position Greek politicians were in back in 2003. There’s a catastrophically bad fiscal forecast and the only issue is whether reforms will happen before a crisis actually begins. If you really want to be pessimistic, it’s even possible that Brazil has passed the tipping point of too much government dependency.

In any event, it appears that legislators prefer to kick the pension can down the road – even though that will make the problem harder to solve. Assuming they ever want to solve it.

Which is exactly what’s happening at the state level in America.

Consider these passages from a recent Bloomberg column.

Unfunded pension obligations have risen to $1.9 trillion from $292 billion since 2007. Credit rating firms have begun downgrading states and municipalities whose pensions risk overwhelming their budgets. New Jersey and the cities of Chicago, Houston and Dallas are some of the issuers in the crosshairs. …unlike their private peers, public pensions discount their liabilities using the rate of returns they assume their overall portfolio will generate. …Put differently, companies have been forced to set aside something closer to what it will really cost to service their obligations as opposed to the fantasy figures allowed among public pensions. …many cities and potentially states would buckle under the weight of more realistic assumed rates of return. By some estimates, unfunded liabilities would triple to upwards of $6 trillion if the prevailing yields on Treasuries were used.

But this looming disaster will not hit all states equally.

Here’s a map from the Tax Foundation which shows a tiny handful of states actually have funded their pensions (in other words, they may provide extravagant benefits, but at least they’ve set aside enough money to finance them). Most states, though, have big shortfalls.

The lighter the color, the bigger the financing gap.

To get a sense of the states that have a very good economic outlook, look for a combination of zero income taxes and small unfunded liabilities.

South Dakota (best tax system and negative pension liability!) gets the top marks, followed by Tennessee and Florida. Honorable mention for the state of Washington.

And is anyone surprised that Illinois is tied for last place? Or that Connecticut and New Jersey are near the bottom? Kentucky’s awful position, by contrast, is somewhat unexpected.

P.S. Brazil’s government may kick the can down the road on pension reform, but at least they added a spending cap to their constitution.

Keeping Puerto Rico Honest

Wed, 04/19/2017 - 7:06pm

Originally published by The Washington Times on April 18, 2017.

Congress wisely declined to bail out Puerto Rico when its leaders turned to Washington with hat in hand for help with its $70 billion debt. Instead, they created an oversight board to compel the island commonwealth to solve its self-inflicted fiscal mess. Unfortunately, both the oversight board and the territory’s government have failed to adhere to congressional requirements and are not taking the bold steps necessary to spur economic growth and fix Puerto Rico’s finances.

The Puerto Rico Oversight, Management and Economic Stability Act (PROMESA) was passed by Congress last year and aimed to restore fiscal responsibility to the commonwealth. In addition to creating the oversight board and tasking it with overseeing the island’s finances, the act provided a stay on litigation in order to give the government time to negotiate with bondholders. Crucially, it also mandated that any fiscal plan would “respect the lawful priorities or lawful liens, as may be applicable in the constitution, other laws, or agreements of a covered territory.”

Some debt restructuring is a necessary component of any realistic solution for Puerto Rico. How exactly that is accomplished makes a big difference, however. The island will eventually need access to bond markets again, which means excessive haircuts aren’t going to work. Nor can it play favorites and advantage certain debt-holders over others or ignore the legally established priorities. There won’t be many willing to lend to Puerto Rico in the future if rules are ignored.

Unfortunately, the government and the oversight board have not attempted to work with debt-holders in good faith. Instead, they’ve put forward a plan that ignores PROMESA’s requirement of respect for lawful priorities by advantaging certain interests over the general obligation debt that is guaranteed by the island’s constitution. The plan also only provides $800 million in debt service per year while keeping nearly 94 percent of revenue for other expenditures. There is virtually no fiscal reform — in fact, the budget plan calls for significant increases in payroll and operational expenses over the next decade — and no significant changes to the island’s pension system with its whopping $48 billion debt.

The plan does not represent the serious reforms that PROMESA was designed to bring about.

To make matters worse, the plan proposes a side deal to creditors of the Puerto Rico Electric Power Authority (PREPA), that would limit its bondholders to a 15 percent haircut while other debt-holders are likely to face haircuts of 77 percent under the current plan. A recent agreement reached between PREPA and its creditors imposing the 15 percent haircut and a new charge on consumers should likewise be rejected by the oversight board.

It would send a bad signal to credit markets if the commonwealth is able to renege on its constitutional pledge to prioritize general obligation bondholders. It shouldn’t be too much to ask that negotiations proceed fairly with all of the different creditor groups. They also must look at real spending reform and not try to balance on the backs of creditors alone.

Unfortunately, the government has sought to game the system by defining the vast majority of its budget as “essential services.” When it likely later invokes Title III of PROMESA, a court-supervised debt restructuring mechanism intended to be used only after negotiations with creditors fail to reach a satisfactory agreement, this designation will allow most spending to remain intact and unfairly put the bulk of the cuts on creditors. It would be bankruptcy by another name that Congress specifically sought to avoid.

And despite not attempting to negotiate with creditors, Puerto Rico has asked for the stay on litigation to be extended past its May 1 expiration. It’s not that costly litigation is desirable, of course, but an extension would only encourage the continued disregard of PROMESA’s requirements. Instead, Puerto Rico should be pressured to bring all bondholders to the table and negotiate honestly, and to make hard choices about spending cuts.

Ultimately, what the commonwealth needs is economic growth. With a stronger economy there will be more for everyone, and with common-sense fiscal restraint, the island will have a chance to grow out of its debt. There are actions Congress can and should take to make that growth more likely, but in the meantime, it must insist that the commonwealth’s government and the oversight board follow the requirements of PROMESA and respect the rule of law. Puerto Rico can’t afford to savage creditors to the point that investors lose confidence and jeopardize its ability to borrow, hopefully at more reasonable levels, in the future.

Republicans Can’t Be Trusted with Tax Reform

Wed, 04/19/2017 - 12:38pm

Fundamental tax reform such as a flat tax should accomplish three big goals.

The good news is that almost all Republicans believe in the first two goals and at least pay lip services to the third goal.

The bad news is that they nonetheless can’t be trusted with tax reform.

Here’s why. Major tax reform is based on the assumption that achieving the first two goals will lower tax revenue and achieving the third goal will generate tax revenue. A reform plan doesn’t have to be “revenue neutral,” of course, but politicians would be very reluctant to vote for a package that substantially reduced tax revenue. So serious proposals have revenue-raising provisions that are roughly similar in magnitude to the revenue-losing provisions.

Here’s the problem.  Notwithstanding lip service, Republicans are not willing to go after major tax loopholes like the healthcare exclusion. And that means that they are looking for other sources of revenue. In some cases, such as the proposal in the House plan to put debt and equity on a level playing field, they come up with decent ideas. In other cases, such as the border-adjustment tax, they come up with misguided ideas.

And some of them are even talking about very bad ideas, such as a value-added tax or carbon tax.

This is why it would be best to set aside tax reform and focus on a more limited agenda, such as a plan to lower the corporate tax rate. I discussed that idea a few weeks ago on Neil Cavuto’s show, and I echoed myself last week in another appearance on Fox Business.

Lest you think I’m being overly paranoid about Republicans doing the wrong thing, here’s what’s being reported in the establishment press.

The Hill is reporting that the Trump Administration is still undecided on the BAT.

The most controversial aspect of the House’s plan is its reliance on border adjustability to tax imports and exempt exports. …the White House has yet to fully embrace it. …If the administration opts against the border-adjustment proposal, it would have to find another way to raise revenue to pay for lowering tax rates.

While I hope the White House ultimately rejects the BAT, that won’t necessarily be good news if the Administration signs on to another new source of revenue.

And that’s apparently under discussion.

The Washington Post last week reported that the White House was looking at other ideas, including a value-added tax and a carbon tax… Even if administration officials are simply batting around ideas, it seems clear that Trump’s team is open to a different approach.

The Associated Press also tries to read the tea leaves and speculates whether the Trump Administration may try to cut or eliminate the Social Security payroll tax.

The administration’s first attempt to write legislation is in its early stages and the White House has kept much of it under wraps. But it has already sprouted the consideration of a series of unorthodox proposals including a drastic cut to the payroll tax, aimed at appealing to Democrats.

I’m not a big fan of fiddling with the payroll tax, and I definitely worry about making major changes.

Why? Because it’s quite likely politicians will replace it with a tax that is even worse.

This would require a new dedicated funding source for Social Security. The change, proposed by a GOP lobbyist with close ties to the Trump administration, would transform Brady’s plan on imports into something closer to a value-added tax by also eliminating the deduction of labor expenses. This would bring it in line with WTO rules and generate an additional $12 trillion over 10 years, according to budget estimates.

Last but not least, the New York Times has a story today on the latest machinations, and it appears that Republicans are no closer to a consensus today than they were the day Trump got inaugurated.

…it is becoming increasingly unlikely that there will be a simpler system, or even lower tax rates, this time next year. The Trump administration’s tax plan, promised in February, has yet to materialize; a House Republican plan has bogged down, taking as much fire from conservatives as liberals… Speaker Paul D. Ryan built a tax blueprint around a “border adjustment” tax… With no palpable support in the Senate, its prospects appear to be nearly dead. …The president’s own vision for a new tax system is muddled at best. In the past few months, he has called for taxing companies that move operations abroad, waffled on the border tax and, last week, called for a “reciprocal” tax that would match the import taxes other countries impose on the United States.

The report notes that Trump may have a personal reason to oppose one of the provisions of the House plan.

Perhaps the most consequential concern relates to a House Republican proposal to get rid of a rule that lets companies write off the interest they pay on loans — a move real estate developers and Mr. Trump vehemently oppose. Doing so would raise $1 trillion in revenue and reduce the appeal of one of Mr. Trump’s favorite business tools: debt.

From my perspective, the most encouraging part of the story is that the lack of consensus may lead Republicans to my position, which is simply to cut the corporate tax rate.

With little appetite for bipartisanship, many veterans of tax fights and lobbyists in Washington expect that Mr. Trump will ultimately embrace straight tax cuts, with some cleaning up of deductions, and call it a victory.

And I think that would be a victory as well, even though I ultimately want to junk the entire tax code and replace it with a flat tax.

P.S. In an ideal world, tax reform would be financed in large part with spending restraint. Sadly, Washington, DC, isn’t in the same galaxy as that ideal world.

P.P.S. To further explain why Republicans cannot be trusted, even if they mean well, recall that Rand Paul and Ted Cruz both included VATs in the tax plans they unveiled during the 2016 presidential campaign.

Another Reason to Reject the Border-Adjustable Tax: Value-Added Taxes Undermine National Competitiveness

Tue, 04/18/2017 - 12:20pm

My crusade against the border-adjustable tax (BAT) continues.

In a column co-authored with Veronique de Rugy of Mercatus, I explain in the Wall Street Journal why Republicans should drop this prospective source of new tax revenue.

…this should be an opportune time for major tax cuts to boost American growth and competitiveness. But much of the reform energy is being dissipated in a counterproductive fight over the “border adjustment” tax proposed by House Republicans. …Republican tax plans normally receive overwhelming support from the business community. But the border-adjustment tax has created deep divisions. Proponents claim border adjustability is not protectionist because it would automatically push up the value of the dollar, neutralizing the effect on trade. Importers don’t have much faith in this theory and oppose the GOP plan.

Much of the column is designed to debunk the absurd notion that a BAT is needed to offset some mythical advantage that other nations supposedly enjoy because of their value-added taxes.

Here’s what supporters claim.

Proponents of the border-adjustment tax also are using a dodgy sales pitch, saying that their plan will get rid of a “Made in America Tax.” The claim is that VATs give foreign companies an advantage. Say a German company exports a product to the U.S. It doesn’t pay the American corporate income tax, and it receives a rebate on its German VAT payments. But an American company exporting to Germany has to pay both—it’s subject to the U.S. corporate income tax and then pays the German VAT on the product when it is sold.

Sounds persuasive, at least until you look at both sides of the equation.

When the German company sells to customers in the U.S., it is subject to the German corporate income tax. The competing American firm selling domestically pays the U.S. corporate income tax. Neither is hit with a VAT. In other words, a level playing field.

Here’s a visual depiction of how the current system works. I include the possibility that that German products sold in America may also get hit by the US corporate income tax (if the German company have a US subsidiary, for instance). What’s most important, though, is that neither American-produced goods and services nor German-produced goods and services are hit by a VAT.

 

Now let’s consider the flip side.

What if an American company sells to a customer in Germany? The U.S. government imposes the corporate income tax and the German government imposes a VAT. But guess what? The German competitor selling domestically is hit by the German corporate income tax and the German VAT. That’s another level playing field. This explains why economists, on the right and left, repeatedly have debunked the idea that countries use VATs to boost their exports.

Here’s the German version of the map. Once again, I note that it’s possible – depending on the structure of the US company – for American products to get hit by the German corporate income tax. But the key point of the map is to show that American-produced goods and services and German-produced goods and services are subject to the VAT.

 

By the way, it’s entirely possible that an American company in Germany or a German company in America may pay higher or lower taxes depending on whether there are special penalties or preferences. Those companies may also pay more or less depending on the cleverness of their tax lawyers and tax accountants.

But one thing can be said with total certainty: The absence of an American VAT does not result in a “Made-in-America” tax on American companies. Even Paul Krugman agrees that VATs don’t distort trade.

Moreover, Veronique and I point out that the lack of a VAT creates a big advantage for the United States.

One big plus for Americans is that Washington does not impose a VAT, which would enable government to grow. This is a major reason that the U.S. economy is more vibrant than Europe’s. In Germany, the VAT raises so much tax revenue that the government consumes 44% of gross domestic product—compared with 38% in America.

And to the extent that there is a disadvantage, it’s not because of some sneaky maneuver by foreign governments. It’s because of a self-inflicted wound.

America’s top corporate income tax of 35% is the highest in the developed world. If state corporate income taxes are added, the figure hits nearly 40%, according to the Congressional Budget Office. That compares very unfavorably with other nations. Europe’s average top corporate rate is less than 19%, and the global average is less than 23%… That’s the real “Made in America Tax,” and it’s our own fault.

The column does acknowledge that BAT supporters have their hearts in the right place. They are proposing that new source of revenue to help finance a lower corporate tax rate, as well as expensing.

But there’s a much better way to enable those pro-growth reforms.

If Congress simply limits the growth of outlays to about 2% a year, that would create enough fiscal space to balance the budget over 10 years and adopt a $3 trillion tax cut. If Republicans want a win-win, dropping the border-adjustment tax is the way to get one.

And what if Republicans aren’t willing to restrain spending? Then maybe the sensible approach is to simply cut the corporate tax rate and declare victory.

The Shadow Bureaucracy and the Burden of Federal Spending

Mon, 04/17/2017 - 12:51pm

As Ronald Reagan pointed out many years ago, Washington is a company town. But rather than being home to a firm or industry that earns money by providing value to willing consumers, the “company” is a federal government that uses a coercive tax system to provide unearned wealth to various interest groups.

And the beneficiaries of that redistribution zealously guard their privileges and pay very close attention to any developments that might threaten their access to the public trough.

Federal bureaucrats are particularly concerned whenever there is talk about spending restraint. They get lavishly compensated compared to folks in the private sector, so they definitely fret whenever something might happen to derail their gravy train.

A recent segment on a local station in Washington, DC, focused on their angst, and I provided a contrary point of view.

Needless to say, my friends who work for the federal government generally don’t agree with my assessment.

Some of them have even told me that I’m off base because the federal workforce is remarkably efficient. Indeed, several of them even sent me an article from the Washington Post that claims the number of bureaucrats hasn’t changed since the late 1960s.

They claim this is evidence that the bureaucracy has become more efficient.

But they’re wrong. The official federal workforce may not have changed, but research from the Brooking Institution reveals that this statistic is illusory because of a giant shadow bureaucracy.

George Will’s latest column is about this metastasizing hidden bureaucracy.

…government has prudently become stealthy about how it becomes ever bigger. In a new Brookings paper, …government expands by indirection, using three kinds of “administrative proxies” — state and local government, for-profit businesses, and nonprofit organizations. Since 1960, the number of state and local government employees has tripled to more than 18 million, a growth driven by federal money: Between the early 1960s and early 2010s, the inflation-adjusted value of federal grants for the states increased more than tenfold. …“By conservative estimates,” DiIulio writes, “there are about 3 million state and local government workers” — about 50 percent more than the number of federal workers — “funded via federal grants and contracts.” Then there are for-profit contractors, used, DiIulio says, “by every federal department, bureau and agency.” For almost a decade, the Defense Department’s full-time equivalent of 700,000 to 800,000 civilian workers have been supplemented by the full-time equivalent of 620,000 to 770,000 for-profit contract employees. …the government spends more (about $350 billion) on defense contractors than on all official federal bureaucrats ($250 billion). Finally, “employment in the tax-exempt or independent sector more than doubled between 1977 and 2012 to more than 11 million.” Approximately a third of the revenues to nonprofits (e.g., Planned Parenthood) flow in one way or another from government.

When you add it all together, the numbers are shocking.

“If,” DiIulio calculates, “only one-fifth of the 11 million nonprofit sector employees owe their jobs to federal or intergovernmental grant, contract or fee funding, that’s 2.2 million workers” — slightly more than the official federal workforce. To which add the estimated 7.5 million for-profit contractors. Plus the conservative estimate of 3 million federally funded employees of state and local governments. To this total of more than 12 million add the approximately 2 million federal employees. This 14 million is about 10 million more than the estimated 4 million federal employees and contractors during the Eisenhower administration.

In other words, the federal budget has expanded and so have the number of people with taxpayer-financed jobs.

By the way, there’s nothing theoretically wrong with a government bureaucracy using non-profits or contractors. Assuming, of course, that both the agency and the person are doing something productive.

And that was the point I tried to make it the interview. I don’t care whether the Department of Agriculture or Department of Education is filled with official bureaucrats or shadow bureaucrats. What I do care about, however, is that they are part of an agency that should not exist.

And the same is true for the Department of Energy, Department of Labor, Department of Transportation, Department of Veterans Affairs, and Department of Housing and Urban Development.

Sound Tax Advice from the International Monetary Fund

Sun, 04/16/2017 - 12:14pm

Since I’ve written that the International Monetary Fund is “the Dumpster Fire of the Global Economy” and “the Dr. Kevorkian of Global Economic Policy,” I don’t think anyone could call me a fan of that international bureaucracy.

But I’ve also noted that the real problem with organizations like the IMF is that they have bad leadership. The professional economists at international bureaucracies often produce good theoretical and empirical work. That sensible research doesn’t make much difference, though, since the actual real-world policy decisions are made by political hacks with a statist orientation.

For instance, the economists at the IMF have produced research on the benefits of smaller government and spending caps. But the political leadership at the IMF routinely ignores that sensible research and instead has a dismal track record of pushing for tax increases.

Hope springs eternal, though, so I’m going to share some new IMF research on tax policy that is very sound. It’s from the second chapter of the bureaucracy’s newest Fiscal Monitor. Here are some excerpts, starting with an explanation of why the efficient allocation of resources is so important for prosperity.

A top challenge facing policymakers today is how to raise productivity, the key driver of living standards over the long term. …The IMF’s policy agenda has therefore emphasized the need to employ all policy levers, and in particular to promote growth-friendly fiscal policies that will boost productivity and potential output. Total factor productivity (TFP) at the country level reflects the productivity of individual firms…aggregate TFP depends on firms’ individual TFP and also on how available resources (labor and capital) are allocated across firms. Indeed, the poor use of existing resources within countries—referred to here as resource misallocation—has been found to be an important source of differences in TFP levels across countries and over time. …What is resource misallocation? Simply put, it is the poor distribution of resources across firms, reducing the total output that can be obtained from existing capital and labor.

The chapter notes that creative destruction plays a vital role in growth.

Baily, Hulten, and Campbell (1992) find that 50 percent of manufacturing productivity growth in the United States during the 1980s can be attributed to the reallocation of factors across plants and to firm entry and exit. Similarly, Barnett and others (2014) find that labor reallocation across firms explained 48 percent of labor productivity growth for most sectors in the U.K. economy in the five years prior to 2007.

And a better tax system would enable some of that growth by creating a level playing field.

Simply stated, you want people in the private sector to make decisions based on what makes economic sense rather than because they’re taking advantage of some bizarre quirk in the tax code.

Potential TFP gains from reducing resource misallocation are substantial and could lift the annual real GDP growth rate by roughly 1 percentage point. …Upgrading the design of their tax systems can help countries chip away at resource misallocation by ensuring that firms’ decisions are made for business and not tax reasons. Governments can eliminate distortions that they themselves have created. …For instance, the current debt bias feature of some tax systems not only distorts financing decisions but hampers productivity as well, especially in the case of advanced economies. …Empirical evidence shows that greater tax disparity across capital asset types is associated with higher misallocation.

One of the main problems identified by the IMF experts is the tax bias for debt.

And since I wrote about this problem recently, I’m glad to see that there is widespread agreement on the economic harm that is created.

Corporate debt bias occurs when firms are allowed to deduct interest expenses, but not returns to equity, in calculating corporate tax liability. …Several options are available to eliminate the distortions arising from corporate debt bias and from tax disparities across capital asset types, including the allowance for corporate equity system and a cash flow tax. …In the simplest sense, a CFT is a tax levied on the money entering the business less the money leaving the business. A CFT entails immediate expensing of all investment expenditures (that is, 100 percent first-year depreciation allowances) and no deductibility of either interest payments or dividends. Therefore, if it is well designed and implemented, a CFT does not affect the decision to invest or the scale of investment, and it does not discriminate across sources of financing.

By the way, regular readers may notice that the IMF economists favor a cash-flow tax, which is basically how the business side of the flat tax operates. There is full expensing in that kind of system, and interest and dividends are treated equally.

This is also the approach in the House Better Way tax plan, so the consensus for cash-flow taxation is very broad (though the House wants a destination-based approach, which is misguided for several reasons).

But let’s not digress. There’s one other aspect of the IMF chapter that is worthy of attention. There’s explicit discussion of how high tax rates undermine tax compliance, which is music to my ears.

Several studies have shown that tax policy and tax administration affect the prevalence of informality and thus productivity. Colombia provides an interesting case study on the effect of taxation on informality. A 2012 tax reform that reduced payroll taxes was found to incentivize a shift of Colombian workers out of informal into formal employment. Leal Ordóñez (2014) finds that taxes and regulations play an important role in explaining informality in Mexico. For Brazil, Fajnzylber, Maloney, and Montes-Rojas (2011) show that tax reductions and simplification led to a significant increase in formal firms with higher levels of revenue and profits. While a higher tax burden contributes to the prevalence of informality… For 130 developing countries, a higher corporate tax rate is found to increase the prevalence of cheats among small manufacturing firms, lowering the share of sales reported for tax purposes.

In closing, I should point out that the IMF chapter is not perfect.

For instance, even though it cites research about how high tax rates reduce compliance, the chapter doesn’t push for lower rates. Instead, it endorses more power for national tax authorities. Makes me wonder if the political folks at the IMF imposed that recommendation on the folks who wrote the chapter?

Regardless, the overall analysis of the chapter is quite sound. It’s based on a proper understanding that growth is generated by the efficient allocation of labor and capital, and it recognizes that bad tax policy undermines that process by distorting incentives for productive behavior.

The next step is to convince Ms. Lagarde and the rest of the IMF’s leadership to read the chapter. They get tax-free salaries, so is it too much to ask that they stop pushing for higher taxes on the rest of us?

What We Can Learn From Maryland’s Work on Opioid Abuse

Sat, 04/15/2017 - 12:46pm

Originally published by the Herald-Mail, and was coauthored by Brian Garst.

Lawmakers at the state and national levels are scrambling to find answers to the growing problem of opioid abuse. Overdose deaths involving opioids increased by 200 percent between 2000 and 2014, and opioids are now a factor in almost two-thirds of all fatal drug overdoses. With overdoses now surpassing deaths from car accidents, firearms and suicides, opioid abuse is a serious public health problem.

President Donald Trump recently signed an executive order to tackle opioid addiction and abuse—creating the President’s Commission on Combating Drug Addiction and the Opioid Crisis. The Commission is charged with identifying existing programs to combat drug addiction and evaluating their effectiveness, assessing the availability of drug addiction treatment services and reporting on best practices for addiction prevention, among other things. It has 90 days to report its interim recommendations.

Many states are already working to solve the problem in their communities. Their work should inform the President’s Commission. In “Evaluating Public Policy Responses to Opioid Abuse and Maryland’s Proposed and Existing Initiatives,” a new policy study from the Maryland Public Policy Institute, we looked at Maryland’s current and proposed responses to opioid abuse and whether they can or should be adopted elsewhere.

Like the President, Maryland Governor Larry Hogan moved quickly after his election to establish a task force to tackle opioid abuse. More recently, he declared a state of emergency and promised to commit $50 million over five years to enforcement. prevention and treatment. He has also pushed several pieces of legislation as part of the 2017 Heroin and Opioid Prevention, Treatment, and Enforcement Initiative.

Overall, we find that Maryland’s approach is likely to produce mixed results.

We find that efforts to limit access to opioids can have negative unintended consequences. Since some patients who become addicted to opioids are first exposed while undergoing treatment for painful conditions, it may be tempting to seek to restrict access to much-needed medications. Yet doing so just makes it harder for those with medical needs to get treatment, while ultimately failing to have a major impact on abuse.

Abusers will simply turn to the black market for access while law-abiding patients suffer. Unfortunately, as part of his initiative, Governor Hogan proposed the Prescriber Limits Act, which would prevent more than seven days’ worth of opioid painkillers from being prescribed during a patient’s first visit.

Another proposed bill, the Distribution of Opioids Resulting in Death Act, would enact new felony charges for selling opioids that result in the death of a user. Yet responsibility is often difficult to determine given the high percentage of overdoses that involve a mix of drugs. The history of our nation’s war on drugs further demonstrates that this bill would do a great job at filling prisons—with all the economic and social costs that entails—while ultimately doing little to reduce drug abuse or illegal sales.

To really fix the problem, addiction itself must be tackled. On that front, Maryland has demonstrated a better record, as the state has sought to expand the number of physicians qualified to prescribe buprenorphine, which is used to treat addiction, and has directed considerable financial resources toward addiction treatment.

We also find that solutions may reside in policy areas where lawmakers might not always think to look. For instance, Maryland’s Pharmacy and Therapy Committee replaced Suboxone Film, a form of buprenorphine that has proven easy to smuggle in prisons and highly susceptible to abuse, with the more efficient Zubsolv tablets on the Medicaid preferred drug list.

In just six months after the change, the Department of Public Safety and Correctional Services reported significant declines in Suboxone Film contraband, which it identified as “by far the most prevalent form of contraband found in Maryland State Correctional Facilities.” Zubsolv’s greater efficiency makes it less attractive to abusers since it uses less of the active ingredient to achieve the same results.

This simple change has quickly started paying dividends in Maryland, and would be easy to replicate in other jurisdictions. At the same time, lawmakers should recognize that addiction is a powerful motivator and that those who suffer from it will not easily be deterred from finding a fix. Placing costly, heavy-handed controls on access to needed painkillers will only hurt those who need relief from chronic or severe pain.

Economic Liberty and the Rise and Fall of Nations

Sat, 04/15/2017 - 12:00pm

I wrote yesterday about the most recent OECD numbers on “Average Individual Consumption” in member nations.

There was a very clear lesson in that data about the dangers of excessive government. The United States was at the top in this measure of household living standards, not because American policies are great, but rather because huge welfare states in Europe have undermined economic vitality on the other side of the Atlantic.

Indeed, the only countries even remotely close to the United States were oil-rich Norway and the two tax havens of Switzerland and Luxembourg.

Those AIC numbers gave us an interesting snapshot of relative living standards in 2014.

But what would we discover if we looked at how that data has changed over time?

It appears that the OECD began assembling that data back in 2002. Here’s a table showing how nations rose or fell, relative to other OECD nations, since then. Based on convergence theory, one would expect to see that poorer nations enjoyed the biggest relative gains, while richer nations fell in the rankings. And that is what generally happened, but with some notable exceptions.

Here are the countries that did not conform, for either good reasons or bad reasons, to convergence theory.

We’ll start with the nations that have bragging rights.

  • Chile started at the very bottom compared to the rich nations of the western world, so anything other than a large increase would have been a disappointment. But the magnitude of Chile’s increase is nonetheless quite impressive and presumably a testament to pro-market reforms.
  • Finland was almost 7 points below the OECD average in 2002 and now is more than 2 points above the average, which is a significant jump for a nation near the middle of the pack. Maybe having sensible leaders is a good idea.
  • Oil-rich Norway was above average at the start of the period and even farther above average at the end of the period.
  • The United States was very high in 2002 and remained very high in 2014. Since that outcome violates convergence theory, that’s a non-trivial accomplishment and another piece of evidence that big governments in Europe are imposing a harsh economic cost.
  • Switzerland also started high and remained high. That’s presumably a reflection of good policies such as federalism and spending restraint.

Now for the nations that did not fare well.

  • Luxembourg suffered a large drop, some of which is understandable since the tiny tax haven was in first place back in 2002. But the magnitude of the decline – particularly compared to the United States and Switzerland – is not an encouraging sign. This may be a sign that anti-tax competition efforts by the OECD have hit the nation hard.
  • Greece, Spain, Ireland, and Italy all tumbled in the rankings even though – at best – they started in the middle of the pack. It will be interesting to see how these nations perform as they recover (or don’t recover, as I expect in the cases of Italy and Greece) from the European fiscal crisis.
  • Slovenia also went from bad to worse, which perhaps is not a big surprise since it is one of the least reform-oriented countries to emerge from the Soviet Bloc.
  • The United Kingdom suffered a rather large decline, almost all of which happened under the profligate Blair and Brown Labour governments. This will be another nation that will be interesting to watch in coming years, particularly because of Brexit.
  • France and the Netherlands also suffered, starting well above average in 2002 but falling to the mean in 2014.

If you like this kind of data on whether nations are trending in the right direction or wrong direction, I’ve also tinkered with the data from Economic Freedom of the World.

Last year, I highlighted countries that have made significant moves in the EFW rankings, including oft-overlooked success stories such as Israel and New Zealand.

I also looked specifically at changes in Europe this century and did not find any reason for optimism.

The bottom line is that there’s no substitute for free markets and limited government. If nations want faster growth and more prosperity, they need to mimic jurisdictions such as Hong Kong and Singapore.

Unfortunately, there’s very little reason to be optimistic about that happening in Europe.

Another Reminder that the United States Should Not Become a European-Style Welfare State

Fri, 04/14/2017 - 12:47pm

One of the more surreal aspects of the 2016 campaign was watching Bernie Sanders argue that the United States should become more like a European welfare state.

Was he not aware that Europe had major problems such as high unemployment and a fiscal crisis?

Didn’t he know that America’s economy was growing faster (which is a damning indictment since growth in the U.S. was relatively anemic during the Obama years)?

Perhaps more important, didn’t he know that Americans enjoy much higher living standards than their European counterparts? Was he not aware that European nations, if they were part of America, would be considered poor states?

If you don’t believe me, here’s a chart I prepared using the “average individual consumption” data from the Organization for Economic Cooperation and Development. These are the numbers that measure the material well-being of households. As you can see, the United States is far ahead of other nations. Indeed, the only three countries that are even close are two admirable tax havens and oil-rich Norway.

 

What about Denmark and Sweden, the two nations that Bernie Sanders said were role models? Well, the United States could copy them, but only if we wanted our living standards to drop by more than 30 percent.

By the way, since the OECD is a left-leaning bureaucracy that is guilty of periodically rigging numbers against the United States, you can be confident that this AIC data isn’t structured to favor America.

So why does the United States have such a big advantage?

In a new study from the National Bureau of Economic Research, Professor Martin Feldstein addresses why Europe is lagging the United States.

Although the official statistics imply that the rate of growth of real GDP in the United States has declined in recent years, it has still been substantially higher than the real growth rates in Europe and the other industrial countries. The sustained higher rate of real GDP growth in the United States over a longer period of time has resulted in a substantially higher level of real GDP per capita in the United States than in other major industrial countries.

He lists 10 reasons for the growth gap. Here are the ones that are related to public policy, followed by my brief observations.

(4) Labor markets that generally link workers and jobs unimpeded by large trade unions, state-owned enterprises, or excessively restrictive labor regulations. In the private sector, less than seven percent of the labor force is unionized. There are virtually no state-owned enterprises. While labor laws and regulations affect working conditions and hiring rules, they are much less onerous than in Europe.

Given America’s high ranking in the World Bank’s Doing Business, this makes sense.

(6) A culture and a tax-transfer system that encourages hard work and long hours. The average employee in the United States works 1800 hours per year, substantially longer than the 1500 hours worked in France and the 1400 hours worked in Germany.

The U.S. subsidizes leisure, but not nearly as bad as Europe (think of Lazy Robert).

(7) A supply of energy that makes North America energy independent. The private ownership of land and mineral rights has facilitated a rapid development of fracking to expand the supply of oil and gas.

Apparently, the United States is one of the few nations where you own minerals under your land. Good for us.

(8) A favorable regulatory environment. Although the system of government regulations needs improvement, it is less burdensome on businesses than the regulations imposed by European countries and the European Union.

Given the data from Economic Freedom of the World, I’m not sure I believe this.

(9) A smaller size of government than in other industrial countries. According to the OECD, outlays of the U.S. government at the federal, state and local levels totaled 38 percent of GDP while the corresponding figure was 44 percent in Germany, 51 percent in Italy and 57 percent in France. The higher level of government spending in other countries implies that not only is a higher share of income taken in taxes but also that there are higher transfer payments that reduce incentives to work. In the United States, …There is no value added tax. State income taxes vary but are generally about five percent… So Americans have a higher pre-tax reward to working and can keep a larger share of their earnings.

A smaller burden of government spending may be America’s biggest advantage. And that’s connected with our other big advantage, which is not being burdened by a government-fueling value-added tax.

(10) The U.S. has a decentralized political system in which states compete. The competition among states encourages entrepreneurship and work effort and the legal systems protect the rights of property owners and entrepreneurs. The United States political system assigns many legal rules and taxing power to the fifty individual states. The states then compete for businesses and for individual residents by their legal rules and tax regimes. Some states have no income taxes and have labor laws that limit unionization.

We still have some federalism, and that helps.

Overall, Feldstein’s list is impressive, though it fails to note that there are areas where Europe has better policy, such as lower corporate tax rates, lower death taxes, private postal services, and private infrastructure. There are even European nations with school choice and private retirement accounts.

Notwithstanding these attractive features, Feldstein is right about more economic liberty in the United States. And that helps to explain higher living standards in America.

What makes this especially noteworthy is that convergence theory says that poorer nations should automatically catch up to richer nations. Yet Europe’s catch-up period came to halt in the 1980s and the continent has since been losing ground.

And for fans of apples-to-apples comparisons, it’s very illuminating that Americans of Scandinavian descent earn about 40 percent more than those who didn’t emigrate and still live in Scandinavia.

Laughing at Socialism, both in Theory and Practice

Thu, 04/13/2017 - 12:32pm

I’m tempted to say that statism is sort of like a cult. Proponents of socialism and other big-government ideologies have a dogmatic zeal that blinds them to reality.

For instance, no nation has ever become rich with big government. But that doesn’t stop leftists from advocating in favor of higher taxes and more coercive redistribution.

They are equally capable of rationalizing that economic misery in places such as Greece and Venezuela has nothing to do with bad policy, and you can even find a few zealots willing to defend basket cases such as Cuba and North Korea.

So long as they don’t burn me at the stake for my heretical views, I guess I won’t get too agitated by their bizarre fetish for statism.

But I will periodically mock them. And that’s the purpose of today’s column. We’ll start with this nice comparison between a capitalist grocery store and a socialist grocery store. I have no idea, by the way, if the lower image actually is a supermarket in a socialist country, but let’s not forget that a real-world version of this comparison is one of the reasons there’s no longer an Evil Empire.

 

But the bad news about socialism is not limited to economic deprivation for the masses.

The system also leads in many cases to totalitarianism (see this article by Marian Tupy, for example).

Venezuela is a particularly poignant example. Once the richest nation in Latin America, it now is an economic laggard and also is a cesspool of oppression.

Which makes this set of images from Reddit‘s libertarian page both funny and sad.

 

As you might expect, Milton Friedman had some very pointed observations on this topic.

The really good part starts shortly before 2:00. He explains very clearly that socialism is based on force and coercion.

I’ve saved the best for last.

The PotL sent me this collections of risky temptations and it perfectly captures the attitude of many statists. No matter how many times socialism has failed, they never learn the appropriate lesson. It just hasn’t been tried by right people, they tell us. Or been imposed in the right circumstances.

So they want us to give it one more try, just like a person with no willpower will eat one more bite of chocolate.

 

Which is the same message you find here, here, and here.

Incidentally, this analysis not only applies to socialism, as technically defined, but it also applies to redistributionism. Which is definitely more benign, but nonetheless produces bad results.

The bottom line is that statism is a recipe for stagnation and free markets are a route to prosperity.

Clever Video Mocking Privatization, but the Free Market Got the Last Laugh

Wed, 04/12/2017 - 12:35pm

My favorite anti-libertarian video is the one based on the notion that Somalia is a libertarian paradise. Since no libertarian has ever pointed to that country as a role model, the underlying premise is a bit silly (I’ve written something semi-favorable about Somaliland, but that’s a different place). However, that doesn’t change the fact that the video is well produced and rather amusing.

It’s now time to share another amusing video with a bad message. It’s not targeting libertarians directly, but it’s mocking an idea that’s being promoted by libertarians such as my colleague Chris Edwards. The video shows a pair of English comedians doing a mock interview back in the 1990s on privatizing the U.K.’s air traffic control system.

Putting millions of passengers at the mercy of a for-profit company? Seems laughably absurd, right?

Except it actually happened. Not only in the United Kingdom, but also in Canada. So advocates of privatization actually got the last laugh.

And we may see similar progress in the United States. Remarkably, even the Washington Post is supporting this reform.

The United States can and should learn from the experience of other Western democracies… Take the prosaic but crucial function of air traffic control. In the United States, that is still a job for big government: specifically, the Federal Aviation Administration. Overseas, however, countries are turning away from this statist model. Canada spun off its system, Nav Canada, in 1996, to a private entity funded by user fees. Britain privatized in 2000. Australia and New Zealand are also part of the movement; ditto Germany and Switzerland… In all of these countries, safety and innovation have stayed the same or improved, which is not surprising.

The editorial urges something similar for America.

A new corporation, funded by charges on the system’s various users, would manage flights and implement the long-stalled modernization. The FAA would still ensure safety, a regulatory job it already does remarkably well and might do even better if it were free to focus on that exclusively. Major players in the industry would share governance of the new entity, working out their differences within its boardroom rather than through the costlier and more conflictual method of lobbying Congress, as they do now.

Wow, the Washington Post is pointing out that a leaner government with fewer responsibilities would be more effective. I hope in the future they apply that lesson on a consistent basis.

Let’s close with a reference to another bit of anti-libertarian humor. Last year, I shared an image showing a satirical box of libertarian cereal, which I freely admitted was very amusing. But I then made the obvious point that private companies have zero incentive to harm or kill their customers.

Moreover, there’s even a system of mutually reinforcing private regulation that further discourages bad or sloppy behavior by companies.

Sot the bottom line is that there are greater incentives for safety with for-profit firms than there are with governments, where it’s just about impossible to fire someone for doing a bad job.

P.S. Since I’m a fiscal wonk, I’ll confess that I also want to privatize air traffic control because I’m still irked that the FAA tried to deliberately and unnecessarily inconvenience travelers during the 2013 sequester. Sort of like the jerks at the National Park Service, who did something similar that year during the partial government shutdown (though at least we got some good humor out of that).

New Video Shows the Simple Recipe for Poor Nations to Become Rich Nations – in Spite of Bad Advice from International Bureaucracies

Tue, 04/11/2017 - 12:31pm

The recipe for growth and prosperity isn’t very complicated.

Adam Smith provided a very simple formula back in the 1700s.

For folks who prefer a more quantitative approach, the Fraser Institute’s Economic Freedom of the World uses dozens of variables to rank nations based on key indices such as rule of law, size of government, regulatory burden, trade openness, and stable money.

One of the heartening lessons from this research is that countries don’t need perfect policy. So long as there is simply “breathing room” for the private sector, growth is possible. Just look at China, for instance, where hundreds of millions of people have been lifted from destitution thanks to a modest bit of economic liberalization.

Indeed, it’s remarkable how good policy (if sustained over several decades) can generate very positive results.

That’s a main message in this new CF&P video.

The first part of the video, narrated by Abir Doumit, reviews success stories from around the world, including Hong Kong, Singapore, Chile, Estonia, Taiwan, Ireland, South Korea, and Botswana.

Pay particular attention to the charts showing how per-capita economic output has grown over time in these jurisdictions compared to other nations. That’s the real test of what works.

The second part of the video exposes the scandalous actions of international bureaucracies, which are urging higher fiscal burdens in developing nations even though no poor nation has ever become a rich nation with bigger government. Never.

Yet bureaucracies such as the United Nations, the International Monetary Fund, and the Organization for Economic Cooperation and Development are explicitly pushing for higher taxes in poor nations based on the anti-empirical notion that bigger government is a strategy for growth.

I’m not joking.

As Ms. Doumit remarks in the video, these bureaucracies never offer a shred of evidence for this bizarre hypothesis.

And what’s especially frustrating is that the big nations of the western world (i.e., the ones that control the international bureaucracies) all became rich when the government was very small.

And while the bureaucracies never provide any data or evidence, the Center for Freedom and Prosperity’s video is chock full of substantive information. Consider, for instance, this chart showing that there was almost no redistribution spending in the western world as late as 1930.

Unfortunately, the burden of government spending in western nations has metastasized starting in the 1930s. Total outlays now consume enormous amounts of economic output and counterproductive redistribution spending is now the biggest part of national budgets.

But at least western nations became rich first and then made the mistake of adopting bad fiscal policy (fortunately offset by improvements in other areas such as trade liberalization).

The international bureaucracies are trying to convince poor nations, which already suffer from bad policy, that they can succeed by imposing additional bad fiscal policy and then magically hope that growth will materialize.

And having just spent last week observing two conferences on tax and development at the United Nations in New York City, I can assure you that this is what they really think.

The United States Should Stay Out of Syria

Mon, 04/10/2017 - 12:05pm

You would think the never-ending mess in Afghanistan would have taught us lessons.

Or maybe we might have learned lessons from the never-ending mess in Iraq.

Notwithstanding those unpleasant experiences, President Trump is expanding America’s intervention in Syria with missile strikes.

This rubs me the wrong way, but let’s look at what others are writing on this issue.

One of my colleagues at the Cato Institute, Gene Healy, isn’t impressed by Trump’s intervention.

Thus far, the administration has said nothing about the legal authority for the strikes. There’s not much that can be said: they’re plainly illegal. He had neither statutory nor constitutional authority to order them. …Without statutory cover, all that’s left is an appeal to presidential power under Article II of the Constitution. But that document vests the bulk of the military powers it grants in Congress, with the aim of “clogging, rather than facilitating war,” as George Mason put it. In that framework, the president retains the power to “repel sudden attacks” against the US; but he does not have the power to launch them. …

Kevin Williamson of National Review is equally unhappy with Trump’s unilateral intervention.

As Daniel Pipes and others have persuasively argued, the United States does not have an ally in Syria. The United States does not have any national interest in the success of the ISIS-aligned coalition fighting to depose Assad. The United States does not have any interest in strengthening the position of the Assad regime and the position of his Russian and Iranian patrons. …Of course the Assad regime is murderous. It is murderous in an awfully familiar way: a Baathist despot in cahoots with jihadists using chemical weapons against a civilian population. …The Trump administration has no authorization to engage in war on Syria. Congress has not declared war or authorized the use of military force; there is no emergency to justify the president’s acting unilaterally in his role as commander in chief; there is no imminent threat to American lives or American interests — indeed, there is no real American interest at all. President Donald Trump is acting illegally, and Congress has a positive moral obligation to stop him. …All decent people feel for the Syrians. We also feel for the Ukrainians, the North Koreans, the men and women languishing in Chinese laogai, Russian gulags, and Cuban prisons. We do not go to war for the sake of sentiment. We go to war for the sake of pressing national interests that cannot be otherwise secured. There is no casus belli for knocking over the Assad government, odious as it is.

And Sean Davis of the Federalist asks 14 questions. Here are the ones that caught my attention.

…proponents of military action to depose Assad have not explained is what our clear national security interest is there, what political victory looks like, what our main risks are, and what costs we will be required to pay in order to achieve that victory. …If our nation is going to wage war, and if we are going to pay a price in dollars and in American lives as a result of that decision, we are owed answers to questions that were never adequately answered before we went into Iraq.

1) What national security interest, rather than pure humanitarian interest, is served by the use of American military power to depose Assad’s regime?

2) How will deposing Assad make America safer?

3) What does final political victory in Syria look like (be specific), and how long will it take for that political victory to be achieved? Do you consider victory to be destabilization of Assad, the removal of Assad, the creation of a stable government that can protect itself and its people without additional assistance from the United States, etc.?

6) What costs, in terms of lives (both military and civilian), dollars, and forgone options elsewhere as a result of resource deployment in Syria, will be required to achieve political victory?

8) Should explicit congressional authorization for the use of military force in Syria be required, or should the president take action without congressional approval?

10) If U.S. intervention in Syria does spark a larger war with Russia, what does political victory in that scenario look like, and what costs will it entail?

14) What lessons did you learn from America’s failure to achieve and maintain political victory following the removal of governments in Iraq and Libya, and how will you apply those lessons to a potential war in Syria?

I try to avoid commenting on foreign policy, but all of the excerpts I just shared make total sense. Nobody is claiming that America’s national interests are being threatened. Instead, the case for intervention is that Assad is a bad dictator who is doing bad things.

But if that’s the criteria for intervention, why aren’t we bombing China, Venezuela, North Korea, Saudi Arabia, and the Central African Republic?

Heck, here’s a map from Freedom House. The purple nations are “not free,” which means systematic repression of political rights and civil liberties. Syria is on the list, of course, but if having an oppressive government is what triggers U.S. intervention, there will be perpetual war.

Finally, I can’t help but call attention to a story in the New York Times that looked at many of the Republicans and Democrats who have flipped and flopped when commenting on Obama’s 2013 intervention and Trump’s 2017 intervention.

But there are some notable exceptions, particularly two of the more libertarian-leaning Republicans who actually put principle over partisanship.

And even though I admit I’m not a foreign policy expert, I sometimes play one on TV. And if you look at this interview from 2013, you’ll see that my views also have been consistent.

New “Economics 101” Video from CF&P Explains How Poor Nations Become Rich

Mon, 04/10/2017 - 10:11am

Center for Freedom and Prosperity Foundation

For Immediate Release
Monday, April 10, 2017
202-285-0244

www.freedomandprosperity.org

New “Economics 101” Video from CF&P Explains How Poor Nations Become Rich

(Washington, D.C., Monday, April 10, 2017) The Center for Freedom and Prosperity Foundation (CF&P) released today an “Economics 101” that explains the role of economic freedom in enabling developing nations to become prosperous.

Narrated by Abir Doumit from Lebanon, the mini-documentary highlights how growth is enabled by good rule of law, limited government, property rights, sound money, freedom to trade, and modest regulatory burdens. The video includes numerous real-world examples of success stories, such as the Asian tigers of Hong Kong and Singapore, as well as Chile, Ireland, Estonia, and Botswana. The video also highlights how international organizations like the IMF, the OECD, and the UN work to promote fiscal policies that are bad for growth.

Link to the video: https://youtu.be/aK3lyNR_vV8

“The evidence overwhelming supports the adoption of classical liberal policies as the key to economic growth,” said CF&P Foundation President Andrew Quinlan. He added, “It’s alarming to see that US taxpayer dollars are going to international organizations that push policies which help keep billions from enjoying prosperity.”

“The video is a great tutorial on the policies that produce growth,” said Dan Mitchell of the Cato Institute, who also noted that “it exposes the pernicious role of international bureaucracies, which use their leverage and influence to push for high tax burdens and excessive levels of government.”

Executive Summary

This mini-documentary from the Center for Freedom and Prosperity Foundation outlines the public policy framework that is necessary for a poor nation to become a rich nation and includes several real-world examples. It also highlights how international bureaucracies hinder development by advocating onerous destructive fiscal policies, which is especially disturbing since today’s rich nations all made their big jumps to prosperity when government was very small and taxes were very low.

This new video is part of CF&P’s Economics 101 video series, which is designed to explain free market concepts, with particular emphasis on reaching students and young people. This is the twenty-fifth video in the series, which have combined for over 787,000 views.

Small Government Is the Recipe for Creating Rich Nations

Mon, 04/10/2017 - 10:05am

Center for Freedom & Prosperity Foundation’s
Economics 101 Series:
Small Government Is the Recipe for Creating Rich Nations
April 2017

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