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A Statement from CF&P on COVID-19

Wed, 03/25/2020 - 9:00am
A Statement from CF&P on COVID-19

In these extraordinary times, we at the Center for Freedom & Prosperity hope that you and your loved ones are well.

As believers in the importance of individual liberty, it is incumbent on each of us to take responsibility for the welfare of our communities by taking appropriate precautions to safeguard the health of not just our families, but all with whom we may come in contact. That means responsible social distancing to slow the spread of COVID-19 and prevent our brave health care providers from becoming overwhelmed.

Even as we all do our part to mitigate the toll of the pandemic, life must also go on as much as possible. At CF&P, we recognize that moments of crisis are often when our liberties are most threatened, and we are working to ensure that lawmakers not seize new powers as they consider relief to protect businesses that have been forced to close, along with the workers who have already lost their jobs as a consequence.

Now, after early delays, the government is allowing the private sector to do what it does best and mobilize to solve a pressing problem.  Car manufacturers are converting their plants to produce ventilators and masks, brewers are making hand sanitizer, and private labs are creating better testing kits. Individuals are also stepping up with charitable donations of time and money.

The resilience of our private institutions and the prosperity they create are what will ultimately see us through this. It is our duty to protect them so they can continue to benefit future generations.

We hope you will continue to follow our coverage of these and other issues surrounding the outbreak here.

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Image credit: Eneas De Troya | CC BY 2.0.

Coronavirus and the Seventh Theorem of Government

Mon, 03/23/2020 - 12:29pm

wrote yesterday how cumbersome bureaucracies and foolish regulations have hindered an effective response to the coronavirus.

This isn’t because governments are run by bad people. Some of them probably are that way, of course, but the real problem is that politicians and bureaucrats are dealing with a perverse incentive system.

They’re largely motivated by power, money, publicity, staffing, and votes.

And that leads to some very unfortunate outcomes, as Betsy McCaughey explained in her syndicated column.

Landing in the hospital on a ventilator is bad. But worse is being told you can’t have one. …learning that the state’s stockpile of medical equipment had 16,000 fewer ventilators than New Yorkers would need in a severe pandemic, Gov. Andrew Cuomo came to a fork in the road in 2015. He could have chosen to buy more ventilators. Instead, he asked his health commissioner, Howard Zucker to assemble a task force and draft rules for rationing the ventilators they already had. …Cuomo could have purchased the additional 16,000 needed ventilators for $36,000 apiece or a total of $576 million in 2015. It’s a lot of money but less than the $750 million he threw away on a boondoggle “Buffalo Billion” solar panel factory.

For what it’s worth, I’m not blaming Governor Cuomo for a failure to buy more ventilators.

In the same situation, I also may have decided that it wasn’t wise to spend $576 million for an event that most people thought was very unlikely.

But I am blaming him for supporting ever-bigger government in New York and getting ever-more involved in things that aren’t legitimate functions of a state government.

That applies to the solar factory mentioned in the article, and it also applies to other vote-buying schemes such as mass transit boondogglesexpanded rent control, and anti-gun snitch lines.

And when he expands the size and scope of state government, he increases the likelihood that there won’t be the energy, expertise, or resources to address problems where government should play a role.

Such as dealing with a pandemic.

Which motivates me to unveil a Seventh Theorem of Government.

In addition to the example of Cuomo and ventilators, there’s also a story from Belgium that underscores how bloated governments are less capable.

But I’ll close by noting the Seventh Theorem is not driven by anecdotes. There’s plenty of academic evidence showing that smaller governments are more competent.

P.S. As suggested by proponents of “state capacity libertarianism,” there is a possible exception to the Seventh Theorem.

Some of the world’s poorest nations have small public sectors – at least according to official measurements. It’s certainly possible, at least in theory, that such countries would benefit if they had larger governments that were capable of providing core public goods.

Indeed, international bureaucracies commonly argue that these countries should increase their tax burdens to provide “financing for development.”

However, the real problem in such nations is rampant corruption, low societal capital, and inadequate rule of law. Which is why it’s not a good idea to generate more money for politicians in those countries.

P.P.S. Here are my other theorems of government.

  • The “First Theorem” explains how Washington really operates.
  • The “Second Theorem” explains why it is so important to block the creation of new programs.
  • The “Third Theorem” explains why centralized programs inevitably waste money.
  • The “Fourth Theorem” explains that good policy can be good politics.
  • The “Fifth Theorem” explains how good ideas on paper become bad ideas in reality.
  • The “Sixth Theorem” explains an under-appreciated benefit of a flat tax.

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Image credit: Andy Withers | CC BY-NC-ND 2.0.

Coronavirus and Big Government

Sun, 03/22/2020 - 12:06pm

When the current health crisis heated up, I wrote a column on “Government, Coronavirus, and Libertarianism” and made four simple points.

  1. Libertarians believe government should protect life, liberty, and property
  2. Libertarians correctly warn that a big sprawling federal government means it is less capable of handling the few things it should be doing
  3. Other government-run health systems have not done a good job
  4. The federal government has hindered an effective response to the coronavirus.

Today, I want to elaborate on point #4 by highlighting an avalanche of reports on how bureaucracy and red tape have been endangering our health.

Readers are welcome to click on some or all of the stories and tweets to learn more about how we’re at risk because of clumsy and inefficient government. Though if you’re pressed for time, this first story is the one to read.

And here are many more reports that confirm how government has largely been the source of problems rather than a solution.

“Where other nations are expediting these deliveries, trusting proven suppliers in their claims that they simply want to get their goods to those who need it… the FDA has resorted to its favorite fetish: bureaucratic lethargy.” https://t.co/kdiy9Rssub

— Tom Rogan (@TomRtweets) March 20, 2020

This is sad, but all too predictable. “Stockpiles of masks, hand sanitizer, and other supplies,” @TomRtweets reports, “are sitting in warehouses waiting for FDA inspectors to get around to them.”https://t.co/pELgHvUSzw — Philip Wegmann (@PhilipWegmann) March 20, 2020

Shitshow USA: “CDC botched its own test development. It sent testing kits to state public-health labs with a nonfunctioning ingredient. And by then, the virus was already spreading. It was already spreading as the [FDA] held up independent labs that had made their own tests…” https://t.co/ZLO2hysWxL

— Amy Alkon (@amyalkon) March 21, 2020

It’s been maddening to watch coronavirus testing get strangled in red tape from the FDA & CDC pic.twitter.com/ZGhfD8ki2E — Alec (@AlecStapp) March 14, 2020

What the internet was to software, or crypto was to finance, the virus will be to biomedicine.

It is going to decentralize it, accelerate it, make it highly personal, cause an enormous surge of new talent into the area, and (most importantly) change the risk calculus.

— Balaji S. Srinivasan (@balajis) March 15, 2020

For what it’s worth, the stories I shared above are just a small sampling. I could have shared dozens of additional reports.

But rather than beat a dead horse, let’s focus on the key takeaway from this tragedy. David Harsanyi of National Review nicely summarizes the lessons we should be learning.

…the coronavirus crisis has only strengthened my belief in limited-government conservatism — classical liberalism, libertarianism, whatever you want to call it. Years of government spending and expanding regulation have done nothing to make us safer during this emergency; in fact, our profligate spending during years of prosperity has probably constrained our ability to borrow now. …government does far too much of what it shouldn’t, and is far too incompetent at doing what it should. The CDC, an agency specifically created to prevent the spread of dangerous communicable diseases, has failed. Almost everyone would agree that its core mission should be under the bailiwick of government. Yet, for the past 40 years, its mission kept expanding as it spent billions of dollars and tons of manpower worrying about how much salt you put on your steaks and imploring you to do more jumping jacks. …The CDC — and other federal agencies such as the FDA — haven’t just moved too slowly in tapping the expertise of our academic and private sectors to fight COVID-19; they’ve actively impeded such private efforts. …The CDC didn’t merely botch the creation of a COVID-19 test, it failed to turn to private companies that could have created a test faster and better. …I’d simply like government to do much less much better.

David’s final sentence about a government that does less and does it better deserves to be emphasized. Observers ranging from Mark Steyn to Robert Samuelson have pointed out that the federal government is more likely to do a good job if it focuses on core responsibilities. And there’s plenty of academic evidence in support of this position, though this anecdote from Belgium may be even more persuasive.

Economic Lessons from Coronavirus: Government-Subsidized Private Debt Creates Macro Vulnerability

Fri, 03/20/2020 - 12:50pm

There will be many lessons that we hopefully learn from the current crisis, most notably that it’s foolish to give so much regulatory power to sloth-like bureaucracies such as the FDA and CDC.

Today, I want to focus on a longer-run lesson, which is how tax policy (a bias for debt over equity) and monetary policy (artificially low interest rates) encourage excessive private debt.

Are current debt levels excessive? Let’s look at some excerpts from a column in the Washington Post, which was written by David Lynch last November – before coronavirus started wreaking havoc with the economy.

Little more than a decade after consumers binged on inexpensive mortgages that helped bring on a global financial crisis, a new debt surge — this time by major corporations — threatens to unleash fresh turmoil. A decade of historically low interest rates has allowed companies to sell record amounts of bonds to investors, sending total U.S. corporate debt to nearly $10 trillion… Some of America’s best-known companies…have splurged on borrowed cash. This year, the weakest firms have accounted for most of the growth and are increasingly using debt for “financial risk-taking,”… “We are sitting on the top of an unexploded bomb, and we really don’t know what will trigger the explosion,” said Emre Tiftik, a debt specialist at the Institute of International Finance, an industry association. …The root cause of the debt boom is the decision by the Federal Reserve and other key central banks to cut interest rates to zero in the wake of the financial crisis and to hold them at historic lows for years.

Needless to say, Emre Tiftik didn’t know last November what would “trigger the explosion.”

Now we have coronavirus, and George Melloan explained a few days ago in the Wall Street Journal that the “unexploded bomb” has detonated.

The Covid-19 pandemic…will do further damage to the global economy… The danger is heightened by the heavy load of debt American corporations have piled up as they have taken advantage of low-cost borrowing. …Cheap credit brought on the heavy overload of corporate debt. The Federal Reserve has responded to the virus by—what else?—making credit even cheaper, cutting its fed funds lending rate all the way to 0%-0.25% on Sunday. …Rate cuts in response to crises are programmed into the Fed’s software. There is no compelling evidence that they are a solution or even a remedy. …the low interest rates of the past decade have ballooned all forms of debt: government, consumer, corporate. Corporate debt, the most worrisome type at the moment, stands at about $10 trillion and has made a steady climb to 47% of gross domestic product, a record level… But even cheap borrowing and securitized debt obligations have to be paid back. It becomes harder to make payments when a global health crisis is killing sales and your company is bleeding red ink. …the increased political bias toward easy money remains a problem. The Federal Reserve Act of 1913 was political from the day Woodrow Wilson signed it. It has gotten more political ever since, increasingly becoming an instrument for robbing the poor—savers and pensioners—and giving to often profligate borrowers.

Melloan’s final points deserve emphasis. There are good reasons to reconsider the Federal Reserve, and we definitely should be angry about the perverse redistribution enabled by Fed policies.

But let’s keep our focus on the topic of government-encouraged debt and how it contributes to economic instability.

It’s not just an issue of bad monetary policy. We also have a tax code that encourages companies to disproportionately utilize debt.

But the 2017 tax bill addressed that flaw, as Reihan Salam explained two years ago in an article for National Review.

…one of the TCJA’s good points…limits that the legislation places on corporate interest deductibility, which…could change the way companies in the United States do business and make the U.S. economy more stable. …By stipulating that companies cannot use the interest deduction to reduce their earnings by more than 30 percent, the law made taking on debt somewhat less attractive compared to seeking financing by offering equity to investors. …equity is more flexible in times of crisis than debt, which means that problems are less likely to spiral out of control.

That’s the good news (along with the lower corporate rate and restriction on deductibility of state and local taxes).

The bad news is that the 2017 law only partially addressed the bias for debt over equity. Companies still have a tax-driven incentive to prefer borrowing.

Here’s the Tax Foundation’s depiction of how the pre-TCJA system worked, which I’ve altered to show how the new system operates.

I’ll close with the observation that there’s nothing necessarily wrong with private debt. Families borrow to buy homes, for instance, and companies borrow for reasons such as financing research and building factories.

But debt only makes sense if it’s based on market-driven factors (i.e., will borrowing enable future benefits and will there be enough cash to make payments). And that includes planning for what happens if there’s a recession and income falls.

Unfortunately, government intervention has distorted market signals and the result is excessive debt. And now the economic damage of the coronavirus will be even higher because more companies will become insolvent.

P.S. Even the International Monetary Fund is on the correct side about the downsides of tax-driven debt.

P.P.S. In addition to eliminating the bias for debt over equity, it also would be a very good idea to get rid of the bias for current consumption over future consumption (i.e., double taxation).

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Image credit: Max Pixel | CC0 Public Domain.

The Bernie Sanders Paradox

Thu, 03/19/2020 - 12:23pm

While it’s good news for the country that Bernie Sanders has faded in the polls, there’s a dark lining to that silver cloud.

For all his faults, Crazy Bernie at least was open and honest about his desire for socialism (unlike certain other candidates, who have hard-left platforms, but nonetheless are characterized as moderates).

But openness and honesty are not the same as common sense.

Consider, for instance, Crazy Bernie’s oft-stated assertion that we can afford big government because the United States is the richest nation in the history of the world.

There are two problems with what Bernie is saying.

First, we’re not actually the world’s richest nation.

Countries such as Monaco, Luxembourg, Liechtenstein, Singapore, and Switzerland rank above us, whether we’re measuring per-capita annual income or per-capita net wealth.

To be fair, that doesn’t change the fact that the United States is a very prosperous nation. Especially compared to most other western countries.

But that brings us to the main point of today’s column.

Second, America is very prosperous because we haven’t followed Bernie’s recipe for bigger government.

That’s true today and it’s been true in the past. Compared to other nations, the U.S. historically has enjoyed very high scores for economic liberty.

Crazy Bernie and his supporters will argue that none of this matters. They’ll simply assert that the United States is a rich nation and therefore politicians should impose higher tax rates and fund bigger government.

But this ignores the fact that rich nations that adopt big government slowly but surely cease to be rich nations.

In other words, there’s a very challenging paradox for people like Bernie Sanders. They want a wealthy society so there’s lots of loot to redistribute, but their policies make it harder for societies to create wealth.

The bottom line is that there’s no such thing as a free lunch. Even the nations that try to minimize the damage of big government, such as Denmark and Sweden, suffer gradual decline.

Which helps to explain why none of my friends on the left have ever been able to successfully answer my two-question challenge.

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Image credit: Michael Vadon | CC BY 2.0.

Pandemics, Civil Order, and Gun Control

Wed, 03/18/2020 - 12:14pm

About 10 years ago, when Europe was in the midst of fiscal crisis, advocates for welfare spending rioted in some nations.

Given the continent’s grim long-run outlook, that got me thinking about the potential for a future breakdown of civil order and I wrote that it was tragic that most people in Europe didn’t have the right to own guns for self-protection.

Which led to this interview with NRA TV.

Today, the big concern is coronavirus rather than a future collapse of the welfare state

But it does raise the same issue of how to protect yourself and your family if there’s a breakdown or erosion of civil order.

I don’t think that’s imminent, but these headlines are somewhat worrisome.

We’ll start with an example from CNN that’s relatively benign.

But we then learn that the changes involve lack of enforcement and releasing crooks.

From MSN.

From Syracuse.com.

From the Fort Worth Star-Telegram.

From NBC.

I’ve saved the best headline for last.

Call me crazy, but I don’t think crooks are likely to comply with such a request. After all, they wouldn’t be committing crimes if they were civic minded.

Which is why, when I read these types of stories, it reinforces my belief in the 2nd Amendment.

I want to protect people’s civil liberties for all sorts of reasons, and self-protection in extraordinary circumstances surely belongs on that list.

So the moral of the story is that what’s happening now is another strong argument against gun control.

P.S. Here’s a column from someone on the left who became a gun-rights supporter after dealing with the chaos caused by a natural disaster.

P.S.S. And let’s not forget the Korean merchants who defended their lives and property during the L.A. riots.

A Primer on “Price Gouging”

Tue, 03/17/2020 - 12:08pm

After Hitler’s National Socialists were defeated in World War II, the allies imposed price controls on the German economy for the ostensible purposes of fighting inflation and preventing “price gouging.”

That policy led to massive shortages, black markets, and hoarding. Fortunately, as described in this video, a very clever economist abolished those controls, thus setting the stage for Germany’s post-war economic miracle.

The lesson to be learned is that politicians should let markets determine prices. Price controls of any kind, as indicated by the cartoon, will cause people to withhold goods, services, and/or labor from the marketplace.

Unfortunately, many people overlook that lesson when there’s some sort of disaster.

In a column for Bloomberg, Scott Duke Kominers asserts that sellers should not be allowed to increase prices when there’s a sudden increase in demand.

One might think that steep prices for disinfectant in the middle of an epidemic are just markets at work — a way of getting scarce goods to the people who value them the most. I’m sure that’s what price gougers tell themselves. …But that’s not the right way to think about disinfectant at this particular moment. …if you can pay $87 for a bottle of Purell instead of the usual $2 that probably doesn’t mean you’re more concerned about the risk of infection than your neighbor; it just means that you have more disposable income. Thus buying low-priced disinfectant and selling it at steep markups effectively transfers disinfectant supplies from lower-income people to wealthier ones. …in situations such as this it may be best for society to force prices below market-clearing levels in order to make sure everyone has access; that’s exactly what laws prohibiting price gouging attempt to do. …There’s a serious consequence to keeping the price low, of course: we end up with rationing, since there’s not enough to go around. But that hits everyone — rich or poor — more or less equally.

Politicians obviously like this argument. Most states have laws against “price gouging.”

That may be smart politics, but it’s bad economics.

J.D. Tuccille of Reason explains why such laws are misguided.

…as common as accusations of “price gouging” are, the term has no fixed meaning. Asked when rising prices cross the line to become criminal, New York Attorney General Letitia James told NPR, “there’s no definitive answer to that question, but you know it when you see it.” …Some—including Alabama, Florida, and Maine—forbid selling at an “unconscionable” price. Idaho and Texas ban sales at an “exorbitant or excessive price.” And New York splits the difference with restrictions on “unconscionably excessive price” increases during an emergency… Laws can’t change the market conditions that drive prices up. Prices for hand sanitizer, face masks, and easily stored food are rising right now not because sellers are mean, but because demand is rising relative to the immediately available supply. Those rising prices tell…manufacturers and distributors that they should increase production, and where they should send the goods—if they’re allowed to. …Sure enough, GOJO industries is “operating around the clock” to produce hand sanitizer, 3M has “ramped up production” of respirators, and many other companies are responding to the messages they’re getting from the market. Allowed time, goods will get to where they’re needed, and prices will drop as supply meets demand. …Price-gouging laws, by contrast, falsely tell the public that politicians are watching out for them even as they extend shortages and the resulting pain. Crises like the COVID-19 pandemic come and go, but “price-gouging” laws demonstrate that intrusive politicians are a recurring plague.

Art Carden, an economics professor at Samford University, shows why anti-gouging laws backfire on consumers.

You’ve seen the pictures on your social media feeds: Empty shelves across America. Panic-buying. Hoarding. …this is exactly what the supply-and-demand model we teach in introductory economics courses predicts when we actively prevent the free market from functioningThe shelves are…empty because…governments aren’t letting prices change to reflect new market conditions. …“price gougers”…get tarred as villains while it’s actually the politicians who are making the problem worse by interfering with prices. …the fact remains that we get a lot more hand sanitizer, toilet paper, and other supplies when we make room for people who are just in it for the money. You may not like their motivations, but they’re doing something your state’s governor and attorney general aren’t doing. Namely, they’re getting valuable emergency supplies into your hands.

Veronique de Rugy of the Mercatus Center warns about adverse consequences in her syndicated column.

It’s normal for people to stock up on supplies during crises. The immediate results are empty store shelves, soon followed by higher prices. When this happens, politicians around the globe demand an end to the price hikes. …such heavy-handed intervention is a mistake… If prices are kept artificially low, there’s little incentive for shoppers not to buy as much as they can. …The fact is there’s no better means of slowing the rising demand — and, especially, reducing excessive hoarding — than allowing the very price hikes that governments are trying to prevent. But price hikes have another important advantage: They create the necessary incentives for entrepreneurs to shift resources toward activities that increase the supply of these goods. The higher prices encourage higher levels of production for goods like masks and hand sanitizers, which then increases supply. …When governments prevent price hikes, they unwittingly create shortages of vital supplies. …Aren’t we better off when products are actually on the shelves and available for purchase, even if only at higher prices? When no such products are to be found, except by the politically and socially connected, ordinary citizens lose out.

John Hirschauer’s piece in National Review cites some academic research on this topic.

The unintended consequences of price controls have been confirmed…in empirical literature. Take, for instance, the study published by three scholars in the Journal of Competition Law and Economics who examined the merits of proposed price-control laws in the wake of Hurricanes Katrina and Rita. …The researchers reviewed the historical data on gasoline price hikes and found that “price increases were due to the normal operation of supply and demand and not price manipulation.” Upon reviewing the body of gasoline price-control studies, the group found that “neither consumers nor the economy benefit [from price controls], because the apparent monetary savings to consumers are transformed into costs of waiting or other forms of nonmarket rationing that exceed the monetary savings.” Through econometric analysis, they estimated that the “economic damages would have been increased by $1.5–2.9 billion during the two-month period of price increases” if the federal government had instituted price controls.

The only thing I’ll add to this discussion is that people are sympathetic to anti-gouging laws because of a belief in social equality. We think that everyone – rich and poor – should be treated equally during a disaster.

And in some cases, such as a group of people stranded on a lifeboat, that’s the right approach. Nobody would argue that scarce supplies (limited emergency provisions of fresh water and food) belong to the person with the biggest bank account .

But the economy isn’t a lifeboat. As explained in the above excerpts, it’s possible to get more provisions with the right incentives. Higher prices will encourage entrepreneurs to produce more scarce supplies (in this case, everything from toilet paper and hand sanitizer to respirators and ventilators).

So what’s the bottom line? Price gouging is no fun if you need to buy supplies in an emergency. But a free market is better than the alternative of government controls that lead to shortages, black markets, and hoarding.

I’ll close with this cartoon, which Art Carden included at the end of his AIER column.

And I’ll also add this joke that Mark Perry shared on twitter.

P.S. This video explains why the price system is so important and these three videos explain why anti-gouging laws backfire because they hinder the price system.

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Image credit: Daniel Case | CC BY-SA 3.0.

Debating the Best Economic Policy Response to Coronavirus

Mon, 03/16/2020 - 12:55pm

wrote last week about the libertarian response to the coronavirus crisis and made four simple points.

  1. Governments should focus on protecting life, liberty, and property. That includes fighting pandemics.
  2. A big sprawling federal government will be less capable and competent when responding to a real crisis.
  3. International evidence suggests greater government control is not a good recipe for success.
  4. Domestic evidence indicates that bureaucracies such as the FDA and CDC are exacerbating the problem.

That column led to an invitation, from the folks at Pairagraph, to participate in a debate with Jason Furman, a Harvard professor who served as Chairman of President Obama’s Council of Economic Advisers.

Here are some excerpts from Jason’s opening statement.

Dan, you wrote a thoughtful piece the other day on a “Libertarian Perspective on the Coronavirus Response.” …But, I would also hope you would support me…in supporting a temporary increase in the share of Medicaid costs paid by the federal government. …health treatment is essential, and extra money…will help hospitals expand capacity as needed. After the pandemic is over we can take more time to debate the cost-benefit of this public funding for a low-income entitlement.

He then lists these four fiscal proposals.

Here’s some of what I wrote in my opening response.

Regarding potential steps to boost the economy, …conventional remedies may not be effective in the current environment. I don’t think my preferred policies (lower tax rates, for instance) will have much impact when people and businesses are focused on curtailing the spread of the virus. And I also don’t think Keynesian policies will be effective… That being said, we are facing a black-swan environment. …there is enormous pressure for Washington to do something.

What about Jason’s four proposals?

I agree on his first suggestion, but not on the mechanism.

…more health infrastructure would be very helpful. Which is why I want the private sector to take the lead. We’ll get faster results at lower cost.

As you might guess from what I wrote two days ago about paid sick leave, I’m very skeptical about program expansions.

I don’t want politicians to exploit a crisis to impose their long-standing policy preferences – especially when taxpayers, consumers, and workers will be burdened with long-run costs.

However, I’m open to his other two proposals.

I don’t think universal payments and/or business loans will prevent short-term economic harm. But if the federal government is going to do something, then payments and loans at least address a real problem (temporary loss of income) with a plausible action (temporary provision of cash).

Though I do warn that these ideas will have adverse unintended consequences.

In an ideal world, firms would guard against black-swan events by having business interruption insurance and households would similarly protect themselves by setting aside funds in savings accounts. Those prudent steps will be less likely in a world where people expect government intervention.

Our submissions are limited to 500 words, so neither of us had much opportunity to share details (there will be a second round, so the debate isn’t over yet).

Even with that limit, I made sure to mention Crisis and Leviathan, Robert Higgs’ must-read book about the unfortunate history of politicians using crises as an excuse to seize more power and control over the private economy.

That’s because my biggest fear is that this temporary crisis will lead to permanent expansions in the size and scope of government.

Libertarians don’t fear the “slippery slope” because we’re paranoid. We fear it because we understand the perverse incentive structure of politicians.

I don’t know whether we’ll become Greece or Venezuela if we tumble down that slope. But I know it will lead to a bad outcome.

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Image credit: U.S. Air Force photo by Airman 1st Class Cameron Otte | Public Domain.

Coronavirus Lessons from Europe

Sun, 03/15/2020 - 12:38pm

wrote recently how government regulation and bureaucratic inefficiency are hindering an effective response to coronavirus in the United States.

And I also wrote yesterday about one foolish response from Washington to the crisis.

But what about developments in other nations? Are there lessons to be learned?

Henry Olsen, writing in the Washington Post, contemplates how Italy is very vulnerable because of stagnationdependency, and debt.

Italy…has essentially shuttered its economy to fight its enormous health crisis. …Effectively, millions of Italians are out of work. These actions would shock any economy. But Italy’s economy is already weak, and has been for decades. Its gross domestic product has barely grown over the past 20 years. Its unemployment rate, at 9.8 percent, is one of the highest in Europe. Worse still, Italy is one of the most heavily indebted nations in the world. Government debt stood at 138 percent of GDP before this crisis hit… Italy’s economic crisis will ultimately put serious pressure on the euro. …If Italy’s economic hit weakens its banks sufficiently, the European Central Bank could be forced to step in with a large bailout. …Italians would likely face years of depression and stagnation… Italy’s economic lockdown is sending clear warning signs that a fiscal meltdown is coming.

Henry also speculates in the column that Italy’s current left-populist government will be replaced by a right-populist government. Furthermore, he thinks this could lead to the country abandoning the euro (the currency shared by many European nations) and going back to a national currency.

For what it’s worth, that would be a mistake.

A major problem in Italy is that populist politicians want people to believe the fairy tale that it’s possible to consume more than you produce.

That currently happens in Italy when politicians borrow money and spend it.

If the country gets rid of the euro and goes back to the lira, politicians will also be able to print money and spend it.

In other words, Italy’s populist politicians would have another way of undermining prosperity.

(I’m not a big fan of the European Central Bank’s easy-money policies, but it’s always possible to go from bad to worse.)

Meanwhile, Joseph Sternberg of the Wall Street Journal opines about lessons that can be learned from Europe about government-run healthcare.

Scientists around the world have worked overtime to get a handle on Covid-19, yet one great unknown remains. We still don’t know for sure whether this is only a medical crisis, or also a medical system crisis. …Doctors in Italy know what to do to treat severe cases, such as using ventilators in intensive-care units. But hospitals lack the beds and equipment for the influx of patients and Italy doesn’t have enough doctors even to make the attempt. Ill patients languish in hospital corridors for want of beds, recovering patients are rushed out the door as quickly as possible, and exhausted (and sometimes sick) doctors and nurses can’t even muster the energy to throw up their hands in despair. …U.K. policy makers understand what such analyses portend—because underinvestment in Britain’s creaking health-care system is even worse. …As a result, British authorities…are desperate to hold off on a mass outbreak until the socialized National Health Service has recovered from its chronic winter crisis. …the NHS…already falls to pieces every year with the normal ebb and flow of cold-weather ailments. Each winter crisis becomes a bit more acute, and this year was no exception. As of December, only 80% of emergency-room patients were treated within four hours of arrival, down from 84% in the depths of the previous two winters.

Interestingly, not all European nations are created equal.

…the U.K. and Italy are significantly more dependent on direct government financing of health-care than is France or Germany. Government accounted for 79% of total health-care spending in the U.K. in 2017, according to Eurostat, and 74% in Italy. Germany and France both rely on compulsory insurance schemes with varying degrees of subsidy and government meddling, but outright government expenditure amounts to only 6% of total health spending in Germany and 5% in France. …politicians already have made decisions that may seal a country’s coronavirus fate…the important choices may have already come in the guise of technocratic health spending and investment decisions made largely out of public view over many years. How lucky do Europeans feel?

The moral of the story is that coronavirus vulnerability may be worse in nations where government has the most control over healthcare.

Since the disease is a “black swan” (i.e., an unexpected big event), we should be cautious about drawing too many policy conclusions. After all, any nation with a severe coronavirus outbreak is going to face major problems.

That being said, it may be worth noting that Germany and France have an approach that’s more akin to Obamacare while the system in Italy and the United Kingdom is more akin to Medicare for All.

Either policy is greatly inferior to the free market, but it does raise the question of whether it’s a good idea to jump from a frying pan into a fire.

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Image credit: Sébastien Bertrand | CC BY 2.0.

Enacting Price Controls to Address Surprise Medical Bills Will Crush Independent Doctors and Harm Patients

Sun, 03/15/2020 - 12:36pm

Originally published by Townhall on March 14, 2020.

 

Independent physicians haven’t fared well in recent years. Obamacare’s high administrative burdens, along with added financial incentives favoring consolidation, devastated independent practices. As a result, the number of independent physicians fell from 62% in 2008 to 35% by 2014. Unfortunately, rather than remedy the damage federal policymakers have done to private practices, they are considering new proposals, this time to address surprise medical bills, that could prove the final nail in the coffin of independent practices.

Long the cornerstone of the American medical system, independent practices provide a high volume of care at lower costs, and produce better patient outcomes, compared to hospitals or large medical groups. The doctor-patient relationship is strongest in private practices where doctors have greater freedom to tailor treatments according to individual patient needs.

Obamacare created incentives for consolidation with the intention of shifting financial risk away from government programs onto doctors. The steep decline in independent practitioners is the result. Among other things, this means less local competition, which studies show results in higher prices and worse healthcare for patients.

The disturbing trend away from independent doctors will only get worse if Congress pushes through legislation to address surprise medical bills based on the flawed approach of imposing price controls.

There is widespread agreement that surprise medical bills, where an insured patient receives an unexpected bill for healthcare services, are a growing problem that needs a legislative fix. One study reports an increase in hospital visits resulting in a surprise bill from 32% in 2010 to 43% in 2016, with the average cost rising from $220 to $628 over the same period though in the most egregious cases they can run into the tens of thousands.

There’s less agreement over what to do about the problem. Insurers are pushing hard for rate-setting, which would put the government in charge of deciding what is to be paid for each procedure and force doctors to accept network rates even if they haven’t contracted with a particular insurer. This would discourage network building, while another proposed solution called benchmarking, or setting the payment based on a local average of networked rates, gives insurers an incentive to narrow networks in hopes of manipulating the rate in their favor.

These are bad ideas for those market-distorting reasons alone. But the fact that independent practitioners would suffer, despite not having substantial involvement in the problem of surprise bills that mostly result from emergency hospital visits, is especially troubling.

Health care markets don’t function well thanks to poorly designed government inventions. Price controls would make this problem worse and reward insurers for refusing to cover their customers’ treatments. It would also exacerbate negative trends that are harming patients by putting independent practitioners already struggling to cover the costs of regulatory burdens on life support.

Congress should step back and examine the issue more closely if this is the best it can come up with. Doing nothing is preferable to imposing price controls.

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Image credit: U.S. Army photo by Reese Brown | Public Domain.

The Adverse Unintended Consequences of Paid Sick Leave

Sat, 03/14/2020 - 12:13pm

Back in 2008, the soon-to-be Chief of Staff for President Obama infamously stated that, “You never want a serious crisis to go to waste.”

Sure enough, the Obama Administration – elected in the aftermath of the financial crisis – quickly rammed through a so-called stimulus, followed by Obamacare and Dodd-Frank.

Now it’s happening again. Politicians are trying to exploit the coronavirus by pushing a proposal to expand government by enacting paid sick leave.

Veronique de Rugy and Don Boudreaux of George Mason University’s Mercatus Center explain the downsides of such a new mandate in National Review.

It’s one thing to support temporary provision of sick leave paid for by the government when we face a public-health crisis. …But it would be deeply misguided to use COVID-19 as an excuse for a permanent policy change. …If Congress rushes through a universal paid-leave plan, …many employers will reduce their privately supplied coverage in response. Such crowding-out is what has already happened in states where paid-family-leave programs were adopted, with many companies…now requiring employees to first tap all the available taxpayer-provided benefits, which in turn has produced larger-than-expected budgetary costs for state governments. …Obliging companies to permanently provide paid sick leave to workers who don’t currently have it would impose eventual reductions on their take-home pay. The provision of such benefits isn’t costless. We can be sure that in the long run — after the coronavirus fades from the headlines — mandated paid leave would inflict a pricey and permanent toll on workers who would prefer to receive more of their compensation as take-home pay and less as paid leave. …This negative effect would exist even if leave benefits were paid for through the government and financed with a payroll tax split between employers and employees, as they would be in the Family and Medical Insurance Leave (FAMILY) Act also proposed by DeLauro and Murray… Unfortunately, the requirement that part of the tax be paid by employers is a legalistic formality: Economics dictates that the cost of this part of the tax, too, will over time fall on workers in the form of lower wages. …coronavirus is a serious problem… We must not further enfeeble American workers by using it as an excuse to enact permanent government mandates and entitlements that risk unleashing unintended negative consequences.

Here are some excerpts from a Wall Street Journal column on the same topic from Aaron Yelowitz and Michael Saltsman.

Democrats in Congress have a cure for the coronavirus crisis: a nationwide paid sick-leave mandate. …Ms. Murray and Ms. DeLauro began advocating such a policy in 2004 and have clearly internalized Rahm Emanuel’s immortal political advice that “you never want a serious crisis to go to waste.” …San Francisco was the first locality to require paid sick leave, starting in 2007. The law brought modest benefits and significant costs. A 2011 study by the Institute for Women’s Policy Research found nearly 30% of the lowest-wage earners reported layoffs or reduced hours… Connecticut’s sick-leave policy was the focus of a 2016 study…, which found a “sizeable decrease in labor demand” as a consequence of the mandate. …The coronavirus’s domestic arrival in these two states complicates Ms. Murray’s promise that a paid-leave mandate could “prevent” its spread. …Why didn’t paid-leave regimes in California and Washington prevent the spread of the disease, as Ms. Murray imagines? According to Johns Hopkins researchers, it takes five days on average for coronavirus symptoms to present. …The relative benefits and consequences of paid sick leave must be considered carefully. Using a pandemic to justify its swift enactment would result in ineffective policy that may hurt the workers it’s meant to help.

The bottom line, as I’ve explained before, is that employers don’t create jobs out of a sense of charity.

They hire workers because of an expectation that the revenue generated by those people will exceed the cost of employing them.

So when politicians enact laws to create new goodies, there will be “unintended consequences” that are bad for workers.

They’ll get less take-home pay, either because of higher taxes or higher costs (a point inadvertently acknowledged by a columnist for the New York Times).

Sadly, I don’t expect economic arguments to have much impact on vote-seeking politicians. Especially when they can exploit a crisis.

Which is a sad pattern in American history, as documented by Robert Higgs in his classic book, Crisis and Leviathan.

It’s what they did during the Great Depression. It’s what they did after 9-11. It’s what they did after the financial crisis. It’s what they’re doing today.

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Image credit: Department of Foreign Affairs and Trade | CC BY 2.0.

The TARP Bailout Was the Wrong Response to a Government-Caused Meltdown

Fri, 03/13/2020 - 12:04pm

Ten days ago, I shared an interview in which I pointed out that President George W. Bush acquiesced to a flawed narrative about the 2008 financial crisis.

Bush and his team basically accepted the assertion of interventionists that it was the fault of “Wall Street greed,” when the crisis actually was caused by bad monetary policy from the Federal Reserve and corrupt housing subsidies from Fannie Mae and Freddie Mac.

(For what it’s worth, I don’t disagree that folks on Wall Street were greedy, but they were also greedy in the 1990s, 1980s, and other decades. The crisis was caused because foolish government policies made bad decisions profitable in the 2000s.)

The reason I’m raising this issue is because the Washington Post editorialized this morning in favor of the TARP bailout.

…support for TARP should be considered a basic demonstration of political maturity and pragmatism… Some relevant historical context: The outgoing Bush administration and the Democrats who controlled both houses of Congress had few good options for dealing with a once-in-a-century global financial collapse. As experts from the Federal Reserve and Treasury Department told the politicians, however, one sure way to turn the worst recession since the Great Depression into, well, another Great Depression, would have been to let the banking sector collapse and take millions of American households down with it. …TARP…was actually a major policy success.

Nope, that’s not true.

Tim Carney of the Washington Examiner wisely wrote about this issue a couple of years ago.

Under the guise of saving the U.S. economy, a bipartisan gang of powerful men decided to save a few failed or faltering banks. They posited a false dichotomy between “doing nothing” about the credit crisis rollicking markets, and saving the big banks. …The stated reasons for government intervention were…to prevent a disorderly fire sale of financial assets, which could cause a total market collapse… There are ways that government can do that without making it a point to save the banks. Bankruptcy often involves winding down failed firms in a manner that minimizes the losses taken by creditors and counterparties. It can be structured so as to prevent a disorderly liquidation.

Amen.

Tim hit the nail on the head when he pointed out that it wasn’t a TARP-or-nothing choice.

Lawmakers could have recapitalized the financial system using the “FDIC-resolution” approach, which basically means putting bankrupt financial institutions into receivership.

Depositors and investors are protected with this approach, even if it means taxpayers are picking up the tab.

What really matters, though, it that the poorly run institutions get shut down. The senior executives lose their jobs, and shareholders and bondholders are subject to losses. Which is exactly what should happen. After all, capitalism without bankruptcy is like religion without hell.

So why didn’t lawmakers adopt the FDIC-resolution approach?

They don’t have ignorance as an excuse. I spent a lot of time talking to policy makers at the time, both in the Bush Administration and on Capitol Hill. I begged and pleaded for them to reject a bailout and instead go with FDIC-resolution.

Sadly, I was ignored, and I think the reason was corruption. Tim elaborated on this hypothesis in his column.

You could call it cronyism if you want. After all, Ben Bernanke and Tim Geithner have both cashed out to financial institutions. Barack Obama fundraiser Warren Buffett made billions off his investment in Goldman Sachs based on his informed assumption the taxpayers would bail Goldman out. …Geithner and crew could have reduced the moral hazard and moral outrage of TARP had they wound down Citigroup. But Geithner wanted Citigroup to keep existing. It was pinstripe protectionism. …At nearly every turn, the bailout barons acted mostly to save the failed or wounded banks rather than to focus narrowly on preserving economic stability. …An economic system where the big guys are never allowed to fail precisely because they are big is not a just system. When you look at the revolving door actions of these guys—Rubin, Geithner, Bernanke, Orszag, and all the others—the unfairness is more obvious.

Kevin Williamson also wrote about how corruption was the dominant factor.

The bottom line is that narratives are important. Unfortunately, too many people accept the establishment’s flawed narrative about TARP – and plenty of Republicans have aided and abetted this false view.

The right lesson is that bailouts are bad economic policy and immoral as well.

P.S. I wrote about this issue for USA Today in both 2010 and 2012.

P.P.S. The only silver lining to the dark cloud of TARP (and the related European fiscal crisis) is that we got this humorous glossary.

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Image credit: Rdsmith4 | CC BY-SA 2.5.

Government, Coronavirus, and Libertarianism

Thu, 03/12/2020 - 12:28pm

Some folks are using the coronavirus crisis to say that libertarianism is an inadequate approach to governance.

Noah Smith got the ball rolling with a snarky tweet.

Libertarians: Government sucks, let’s hollow out the civil service

*Pandemic comes, hollowed-out civil service is unable to respond effectively*

Libertarians: See, told you government sucks

— We need 120k tests a day (@Noahpinion) March 8, 2020

Since total government spending is at an all-time high and since even left-leaning fact checkers have debunked the assertion that public health bureaucracies have been reduced, Smith’s core claim is grossly inaccurate.

But what about the underlying assumption that a large government is necessary?

Farhad Manjoo of the New York Times hopes the crisis will usher in a new era of big government as everyone realizes the supposed benefits of collectivism.

Overnight, workplaces across the country were transformed into Scandinavian Edens of flexibility. Can’t make it to the office because your kid has to unexpectedly stay home from school? Last week, it sucked to be you. This week: What are you even doing asking? Go home, be with your kid! …Then politicians got into the act. The Trump administration…is now singing the praises of universal sick pay. …it’s almost funny: Everyone’s a socialist in a pandemic. …There may be a silver lining here: What if the virus forces Americans and their elected representatives to recognize the strength of a collectivist ethos?

Is Mr. Manjoo right? Just like there are supposedly no atheists in foxholes, are there no libertarians in a pandemic?

Here are four basic points to show why this is wrong.

1. Libertarians believe government should protect life, liberty, and property

A core tenet of libertarianism is that government should exist to protect against threats to the aforementioned core liberties. That presumably includes a role in responding to pandemics.

Yes, libertarians will appropriately worry that government will botch its response (see below, for instance), and we’ll also worry that government will use a crisis to accumulate new powers (the “ratchet effect” mentioned in this column).

But it’s silly to argue that a pandemic is evidence that libertarianism is impractical. As silly as arguing in the 1980s that you couldn’t be a libertarian and still favor a defense capacity to resist the Soviet Union.

To be sure, there are anarcho-capitalists who don’t believe in any government. Whether that’s a good idea involves an entirely separate set of arguments about how private governance associations would respond to a pandemic, which could be an interesting topic for some future column.

2. Libertarians correctly warn that a big sprawling federal government means it is less capable of handling the few things it should be doing

I’ve repeatedly explained, most recently this past January, that the federal government is more likely to do a good job if it focuses on core responsibilities (such as the ones assigned in the Constitution).

And observers ranging from Mark Steyn to Robert Samuelson have made the same point.

There’s plenty of academic evidence in support of this position, though this anecdote from Belgium may be even more persuasive.

3. Other government-run health systems have not done a good job

The virus originated in China, where government controls the healthcare system. It’s also spread most significantly in nations such as Iran and Italy, where government also plays a dominant role in health care.

By the way, since I don’t believe in demagoguery, I don’t necessarily blame those governments. I’m sure bad luck plays a big role in the spread of the disease.

Though this set of tweets from a guy in England is a damning indictment of that nation’s government-run system.

4. The federal government has hindered an effective response to the coronavirus

We’ll start with excerpts from an article by Ronald Bailey, who writes about science for Reason.

…officials at the Food and Drug Administration (FDA) and the Centers for Disease Control and Prevention (CDC) stymied private and academic development of diagnostic tests that might have provided an early warning and a head start on controlling the epidemic that is now spreading across the country. …the CDC required that public health officials could only use the diagnostic test designed by the agency. That test released on February 5 turned out to be badly flawed. The CDC’s insistence on a top-down centralized testing regime greatly slowed down the process of disease detection as the infection rate was accelerating. …On February 29, the FDA finally agreed to unleash America’s vibrant biotech companies and academic labs by allowing them to develop and deploy new tests for the coronavirus that causes COVID-19.

The New York Times has a depressing report about government red tape has prevented quick action.

Here’s the main takeaway.

…existing regulations and red tape — sometimes designed to protect privacy and health — have impeded the rapid rollout of testing nationally, while other countries ramped up much earlier and faster. Faced with a public health emergency on a scale potentially not seen in a century, the United States has not responded nimbly.

And here are some of the relevant details.

The Association of Public Health Laboratories made what it called an “extraordinary and rare request” of Dr. Stephen Hahn, the commissioner of the F.D.A., asking him to use his discretion to allow state and local public health laboratories to create their own tests for the virus. …Dr. Hahn responded two days later, saying in a letter that “false diagnostic test results can lead to significant adverse public health consequences” and that the laboratories were welcome to submit their own tests for emergency authorization. But the approval process for laboratory-developed tests was proving onerous. Private and university clinical laboratories, which typically have the latitude to develop their own tests, were frustrated about the speed of the F.D.A. as they prepared applications for emergency approvals from the agency for their coronavirus tests. Dr. Alex Greninger, an assistant professor at the University of Washington Medical Center in Seattle, said he became exasperated in mid-February as he communicated with the F.D.A. over getting his application ready to begin testing. “This virus is faster than the F.D.A.,” he said, adding that at one point the agency required him to submit materials through the mail in addition to over email. New tests typically require validation — running the test on known positive samples from a patient or a copy of the virus genome. The F.D.A.’s process called for five.

Fortunately, some folks in Seattle were willing to disobey federal bureaucracies at the start of the crisis.

In Seattle, Dr. Helen Chu, an infectious disease expert who was part of an ongoing flu-monitoring effort, the Seattle Flu Study, asked permission to test their trove of collected flu swabs for coronavirus. State health officials joined Chu in asking the CDC and Food and Drug Administration… The CDC and FDA said no. “We felt like we were sitting, waiting for the pandemic to emerge,” Chu told the Times. “We could help. We couldn’t do anything.” They held off for a couple of weeks, but on Feb. 25, Chu and her colleagues “began performing coronavirus tests, without government approval,” …Later that day, the CDC and FDA told Chu and her colleagues to stop testing, then partially relented, and the lab found several more cases. On Monday night, they were ordered to stop testing again. …the Times notes. “The scientists said they believe that they will find evidence that the virus was infecting people even earlier, and that they could have alerted authorities sooner if they had been allowed to test.”

And an article in the Atlantic reveals how bureaucracy and regulation have been hindering an effective response.

…the CDC sets the parameters for state and local public-health staff regarding who should be tested. The agency’s guidelines were very strict for weeks, focusing on returning international travelers. Even as they have been loosened in the past few days, there are persistent reports that people—including a sick nurse who had cared for a coronavirus patient—have not been able to get tested. …A week ago, the FDA eased some regulations on the types of coronavirus tests that can be used. This means that testing capacity will increase, but not overnight. …Soon private laboratories such as LabCorp and Quest Diagnostics will begin testing people…each lab must have the FDA’s permission to operate, under an Emergency Use Authorization, a new FDA policy allows labs to immediately begin testing people, and requires that they submit their paperwork to the agency within the next 15 days. …more than a week after the country’s first case of community transmission, the most significant finding about the coronavirus’s spread in the United States has come from an independent genetic study, not from field data collected by the government.

Last but not least, a column in the New York Post summarizes the impact of federal regulation.

Overregulation of diagnostic testing has played a major role in this delay. …Test protocols using the polymerase chain reaction (PCR) were publicly available shortly after Chinese researchers published (or described) the sequence of the virus in mid-January. The World Health Organization (WHO) used a freely available German procedure to create a test kit, shipping 250,000 tests to 159 laboratories worldwide. …CDC testing criteria have precluded recognizing community spread because of requirements stipulating recent travel to China or exposure to an infected person. Adherence to these guidelines delayed testing in the first probable case of community transmission… The FDA has not allowed the experienced and highly skilled professionals at public-health, academic and commercial laboratories to set up their own laboratory developed tests (LDTs), and no manufactured test kits have been authorized for sale in the US. In Europe, several companies, at least one US-based, have regulatory approval to sell test kits there.

The bottom line is that libertarians have no theoretical objection to a federal role in fighting pandemics, but we’re not very confident that we’ll get effective policies from the bloated bureaucracies in Washington.

After all, let’s not forget that the the CDC has a long track record of waste when it does get more money. And the FDA also is infamous for undermining health with excessive bureaucracy, as well as silly – and even dangerous – policies.

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Image credit: Bjoertvedt | CC BY-SA 3.

Singapore Is a Role Model for Prosperity

Wed, 03/11/2020 - 12:22pm

Brexit was a battle over whether the United Kingdom would:

  1. Be a component part of the European Union
  2. Be a self-governing democracy

Now that British voters have chosen the second option, there’s a secondary debate about what path to choose.

Many Brexit supporters hope that the United Kingdom will use its newly restored independence to chart a more laissez-faire path, including lower taxes and less red tape.

Critics fret that this approach would mean the U.K. becoming a European version of Singapore.

My former colleague Marian Tupy explains for CapX that this would be a very desirable outcome.

Earlier this month Guy Verhofstadt, the Belgian MEP…, tweeted that…”We will never accept ‘Singapore by the North Sea’!” What exactly is wrong with being Singapore? …Back in 1755 Adam Smith observed that “little else is requisite to carry a state to the highest degree of opulence from the lowest barbarism, but peace, easy taxes, and a tolerable administration of justice” – that certainly holds true for Singapore, which has become one of the world’s most prosperous countries by following Smith’s formula… In the last few decades, Singapore’s economy grew at a faster pace than that of the UK and the EU… Singapore’s GDP per capita, which amounted to 72 percent of the EU’s GDP per capita in 1950, amounted to 219 percent of the EU’s GDP per capita in 2019. …Life expectancy at birth is the best proximate measure of the overall health of the population. …life expectancy in Singapore trailed the EU and UK in 1960. In 2017, Singaporeans lived, on average, longer than Europeans.

Marian is right.

Singapore is an amazing example of a nation that broke through the middle-income trap, as I noted back in 2014 and 2017.

I’m particularly fond of the country because of the very modest burden of government spending. This chart, based on numbers in the IMF’s world economic outlook database, shows that the public sector consumes less than 20 percent of the economy’s output.

To put the above chart in context, government spending in the United States consume nearly 40 percent of GDP in the United States and more than half of economic output in some European nations.

Why does this matter?

Because good public policy is a recipe for more prosperity (and Singapore is very good in areas other than fiscal policy as well).

Building on Marian’s analysis, I’ve used the Maddison database to to see how Singapore compares to the United States, the United Kingdom (the former colonial master), and Malaysia (it was part of Malaysia until 1965).

This isn’t just convergence. Singapore caught up with the U.K., then caught up to the U.S.A., and now has a comfortable advantage.

Seems like a good model for the U.K. to follow. Though Hong Kong also is a very good option (though it’s unclear if that will be true in the future).

P.S. To be sure, Singapore is not a libertarian paradise. There are some strict laws governing private behavior, including the death penalty for certain drug offenses and a ban on the import and sale of chewing gum. More worrisome (given my focus on economic policy) is that officials have contemplated class-warfare tax policies.

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Image credit: Merlion444 | CC0 1.0.

Paternalism in the European Union

Tue, 03/10/2020 - 12:32pm

I’m not a big fan of paternalism because of my libertarian belief that people should be free to govern their own lives.

That’s true even if they make choices that I think are foolish.

Needless to say, many politicians don’t share this laissez-faire perspective.

But not all governments are equally intrusive. Epicenter has released a new version of the Nanny State Index, allowing us to see which EU nations have the most onerous rules governing private behavior.

The Index has been charting the slide towards coercive paternalism since 2016 and there is little good news to report this year. Once again, Finland tops the league table but although it maintains a strong lead, other countries are closing the gap. …Whether it is food, drink, vaping or smoking, the lifestyle regulators have the wind in their sails… In general, the story is one of a constantly expanding nanny state raising prices and trampling freedom. The blame lies overwhelmingly with domestic governments, not with the European Union. Although the EU has made the situation worse with its counter-productive policies on tobacco and e-cigarettes, it cannot be held responsible for regressive taxation, draconian smoking bans and excessive regulation of alcohol and food. The gulf between the more liberal countries at the bottom of the Index and the more heavy-handed countries at the top shows how much latitude member states have. Treating your citizens like children is, by and large, a domestic policy choice.

As you can see from this table, Finland is the worst, followed by two of the (otherwise sensible) Baltic nations.

Meanwhile, Germany gets the best score, followed by Czech Republic and Slovakia.

The report’s author, Christopher Snowdon of London’s Institute of Economic Affairs, observes that nanny-state policies don’t even achieve their putative goal of longer lifespans.

Insofar as ‘public health’ campaigners acknowledge the damage done by their policies, they argue that it is more than offset by the benefit to health – the ends justify the means. But there is little evidence that countries with more paternalistic policies enjoy greater health or longevity. As Figure 1 shows below, there is no correlation whatsoever between Nanny State Index scores and life expectancy.

Here’s the chart showing the lack of a relationship between paternalism and longevity.

By contrast, there is a correlation between economic prosperity and life expectancy.

…there is a strong, statistically significant relationship between health and wealth. Figure 4 shows the relationship between life expectancy and economic prosperity as measured by per capita GDP. This suggests that pursuing economic growth would bring much greater benefits to health than coercive efforts to control personal behaviour with bans and taxes.

Here’s the chart from the study showing the relationship between the two variables.

The obvious takeaway is that European governments should focus on policies that expand economic liberty if they truly care about the well-being of their citizens.

P.S. What about the United States? I’m not sure where we would rank in the Nanny State Index. Though we do have some indication of which states have a more laissez-faire attitude. When I wrote about Freedom in the 50 States back in 2013, I noted that Massachusetts ranked #1 in the “bachelor party” category (based on issues such as booze, hookers, fireworks, and drugs). That category doesn’t exist int he most-recent edition, but Nebraska ranks #1 in the “victimless crimes” category.

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Image credit: Sébastien Bertrand | CC BY 2.0.

Capitalism and Morality

Mon, 03/09/2020 - 12:34pm

Since libertarians are motivated by the non-aggression principle, it’s easy to understand why they support the capitalist system of voluntary exchange rather than alternative systems based on government coercion.

But there are some who think markets are immoral, and that’s the topic of this book and this related video.

Virgil Henry Storr and Ginny Seung Choi are the authors of Do Markets Corrupt Our Morals, and the Mercatus Center explains the book’s core message.

…people in market societies are wealthier, healthier, happier and better connected than those in societies where markets are more restricted. More provocatively, they explain that successful markets require and produce virtuous participants. Markets serve as moral spaces that both rely on and reward their participants for being virtuous. Rather than harming individuals morally, the market is an arena where individuals are encouraged to be their best moral selves.

And Professor Michael Munger from Duke University explores the implications in his review.

The useful thing about this book…is that it considers a more dynamic problem than the classical literature on the morality of markets. …doesn’t “commodification” and the pursuit of gain for its own sake distort, and ultimately corrupt, the human impulses of altruism and mutual aid on which society depends? …Their answer is “perhaps, but not necessarily.” And, compared to other actual systems that might be used to organize large scale human activity, they argue that markets are actually more likely to nurture moral spaces in which people can find ways to cooperate and help each other.

He identifies the main arguments about the putative shortcomings of markets.

…there are three central charges commonly leveled against the morality of markets. One is the claim that markets exploit workers and turn them into brutes; the second is that the commodification of things and the use of prices to direct allocation decisions corrupts the moral sense humans naturally possess and would otherwise use to motivate cooperation; and the third is that a common consequence of markets, extreme inequality, is corrosive to collective institutions of community and democracy.

And here’s Munger’s summary of the answers to those three questions.

Markets, in the Storr and Choi view, actually improve the lives of workers, rather than making them brutes. …it quickly becomes cheaper to “pay” workers with better and more comfortable conditions, safer working spaces, and more interesting activities…higher pay and the improvements in access to desirable consumer products that come with a market economy mean that workers have leisure time and the resources to enjoy it.

…commodification and division of labor foster a dramatic increase in scope and variety of new communities for humans to join and be part of. Further, the relation among workers in a firm, or the relation between a seller and a repeat customer, create new and important “moral spaces” in which the importance of character and personal familiarity produce both legitimately warm comradery and an increase in the efficiency of contracts and cooperation because of improvements in trust and personal commitment.

…market systems can in fact be associated with high levels of inequality, but it appears that increased inequality may often be the price a society pays for reducing poverty, a trade-off that very poor citizens are likely to embrace. Further, Storr and Choi show that (a) market societies generally have lower inequality than non-market societies, and (b) market societies show a great deal more social mobility, or a capacity for the very poor to become much more wealthy than their parents, than non-market systems.

In other words, markets generate higher income, better lives, and upward mobility.

Not a bad result.

My two cents on this debate is to expand on Munger’s point about capitalism when “compared to other actual systems.” In my humble option, this is what really matters.

Yes, markets can be cold and impersonal. And, yes, “creative destruction” is no fun when you’re part of the “destruction” (even if it results in your children and grandchildren living better lives).

But if our goal is prosperity, there’s no alternative that comes close.

Especially since every alternative empowers politicians and their cronies. Indeed, my readings on this topic reminded me of this passage in Atlas Shrugged when one of the anti-market interventionists said it was time to replace the “aristocracy of money” and one of the book’s good guys noted that this meant an “aristocracy of pull.”

And when an economy is based on political influence and power, P.J. O’Rourke warns that there’s an inevitable consequence.

P.S. Here’s David Burton’s bullet-point comparison of the morality of capitalism and socialism.

P.P.S. And Walter Williams has a great video on the morality of markets.

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Image credit: Erik Scheel | Pexels License.

A Lesson from Illinois: Higher Taxes Perpetuate Bad Policy and Exacerbate Fiscal Decline

Sat, 03/07/2020 - 12:20pm

Last year, I said the nation’s most important referendum was the proposal to emasculate Colorado’s Taxpayer Bill of Rights (I was delighted when voters said no to the pro-spending lobbies and preserved TABOR).

This year’s most important referendum is taking place in November in Illinois, where pro-spending lobbies are very anxious to repeal the state’s flat tax.

If they succeed, the steady flow of taxpayers out of Illinois will become a torrent.

That’s because the flat tax is the only semi-decent feature of the state’s fiscal policy. If it goes, there won’t be any hope.

My buddy from the Illinois Policy Institute, Orphe Divounguy, has a column in today’s Wall Street Journal about the dismal fiscal and economic outlook in the Land of Lincoln.

Long the economic hub of the Midwest, Illinois has lost more than 850,000 residents to other states during the past decade. The state has been shrinking for six consecutive years and suffered the largest raw population decline of any state in the 2010s. …Growing government debt and a crushing tax burden are depressing economic growth. State spending is up, but personal-income growth is lagging. Since 2000, Illinois’s per capita personal income growth has been 21% lower than the national average. …ratings firms are paying attention. Illinois’s credit rating is one notch above junk. …Illinois’s public pension payments already consume nearly a third of the state budget, yet the unfunded liability—which the state currently pegs at $137 billion, though others put the figure much higher—continues to rise. …Since 2000, Illinois has increased pension spending by more than 500%.

Orphe then points out that politicians in the state have been raising taxes with depressing regularity.

Needless to say, that never seems to solve the problem (a point I recently made when looking at fiscal policy in Washington).

Illinois has a culture of trying—and failing—to tax its way out of its problems. In 2011 then-Gov. Pat Quinn approved a temporary tax hike aimed at making a dent in the state’s $8 billion in unpaid bills. By 2014, Illinois still had a $6.6 billion bill backlog, and lawmakers were calling for families and businesses to give up more money. Another permanent income-tax increase came in 2017, but again more taxes failed to solve Illinois’s problems. The problems, in fact, got worse. In his freshman year, Gov. J.B. Pritzker signed into law 20 new taxes and fees totaling nearly $4.6 billion, including a doubling of the gasoline tax. Now Mr. Pritzker wants a progressive income tax he claims will really solve the issue.

The bottom line is that politicians in Illinois want ever-increasing taxes to finance ever-increasing pensions for state and local bureaucrats.

To be sure, there are plenty of states that have big fiscal holes because politicians have showered bureaucrats with overly generous compensation packages.

What presumably makes Illinois unique, Orphe explains, is that retired government workers get annual adjustments that are much greater than inflation.

Which means that there’s a simple and fair solution.

Illinois taxpayers can save $50 billion over 25 years, and dollars can be freed to support their eroding public services. Policy makers can finally shrink Illinois’s pension liability by reducing the main driver of its growth: the cost-of-living adjustment, or COLA. Currently, the COLA doesn’t reflect any actual cost-of-living increase, since it isn’t pegged to inflation. By simply replacing the existing guaranteed 3% compounding post-retirement raise with a true COLA pegged to inflation, among other modest changes, Illinois can save $2.4 billion in the first year alone. No current retiree would see a decrease in his pension check. Current workers would preserve their core benefit.

P.S. I don’t know how long this policy has existed. If it’s a long-standing policy, Illinois bureaucrats actually were net losers in the pre-Reagan era when the U.S. suffered from high inflation.

P.P.S. The ultimate solution is to shift bureaucrats to “defined contribution” retirement plans, akin to the IRAs and 401(K)s that exist in the private sector.

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Image credit: Jeff Sharp | CC BY 2.0.

Is Panama a Good Option for People Seeking a Better Future?

Fri, 03/06/2020 - 12:58pm

I’ve been in Panama with some friends for the past two weeks, in part to enjoy warm sunshine.

But I’m also here because I wanted to research possible options in case the United States somehow wound up with a hard-core leftist in the White House.

With “Crazy Bernie” fading and “Looney Liz” out of the race, that no longer appears to be an immediate threat.

That being said, America’s grim long-run fiscal outlook, combined with the other factors such as young people’s senseless support of socialism, suggests that it may just be a matter of time before the U.S. morphs into a stagnant, European-style welfare state.

(And don’t forget that Joe Biden is actually farther to the left than Barack Obama and Hillary Clinton.)

So let’s investigate whether Panama is a good option, not just for Americans, but also for people from other nations as well.

The place to start is the Fraser Institute’s Economic Freedom of the World. Based on their comprehensive rankings of economic liberty, Panama gets a 7.66 on a 0-10 scale, which places it at #31 out of 162 nations.

That puts the country comfortably in the top quartile of “most free” jurisdictions. Moreover, it is the second-freest nation in Latin America, trailing only Chile (#13).

Here’s how Panama does when looking at specific components of economic policy.

  • The good news is that the country gets a solid score for fiscal policy (#19) and excellent scores for monetary policy (#8) and trade (#5).
  • The not-so-good news is that Panama has a middling score for rule of law and property rights (#80) and a weak score for regulation (#95).

These scores are only a snapshot for the most-current year, so it’s also worth noting that Panama has been very stable.

For the past couple of decades, its score has ranged between a low of 7.27 and a high of 7.88. Going back further in time, it’s even been ranked in the top 10 a couple of times.

In other words, Panama has not been susceptible to wild policy swings. Or Venezuelan-style foolishness.

To be sure, the politicians in Panama are prone to populist measures, but bad policies are adopted for vote-buying reasons (i.e., public choice) rather than ideology. Indeed, there is not a successful left-wing party in the country.

Because Panama gets good-but-not-great scores for economic liberty, you won’t be surprised to learn that the people of Panama enjoy decent-but-not-great living standards.

According to World Bank calculations, Panama qualifies as a “high income” nation, but that category is very broad (basically $14,000 and up). For perspective, per-capita income in Panama is only about one-fourth of U.S. levels.

And, notwithstanding convergence theory, that gap probably won’t shrink much in the near future since the United States currently has significantly more economic liberty (ranked #6 compared to #31).

But this column is for people who fear that America’s score may tumble in the future because of a frightening development (perhaps a President AOC?).

Here’s a few final thoughts to consider.

  • Panama’s currency (from the country’s inception) is the dollar.
  • There is a large community of expats already in Panama, including thousands of Americans.
  • The government has done a good job of managing the Panama Canal.
  • The nation is making slow but steady progress on problem areas such as infrastructure.
  • Crime and personal security are not major concerns.
  • The tax burden is very reasonable, particularly for people with non-Panamanian income.

The bottom line is that Panama is a good place for foreigners. The government has a welcoming attitude so long as immigrants are self-sufficient. And you don’t need to be rich to live a nice life in Panama.

P.S. In the past, I’ve suggested that Australia is the best long-run option if the United States suffers a Greek-style economic decline. That’s still true, especially since the Aussies have a mostly private Social Security system. Switzerland is always a good option, along with the Cayman Islands, especially for people with more assets (everyone should keep in mind that those jurisdictions may not be ideal if the the U.S. and most of Europe are in decline and American readers should remember the IRS’s odious exit tax).

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Image credit: tvshoppingpty | Pixabay License.

Bernie Has Faded, but Socialism Is Still a Threat

Thu, 03/05/2020 - 2:48pm

I would like to think that the election results from Super Tuesday signify a rejection of the evil and destructive ideology of socialism. After all, despite promising the most handouts, Bernie Sanders was defeated in most states and quickly went from being the front-runner to a long-shot candidate.

This chart shows how political betting markets have dramatically changed in the past couple of days. Crazy Bernie (in green) has collapsed with Biden (in blue) has skyrocketed.

Moreover, the other explicitly hard-left major candidate, Elizabeth Warren, saw her support collapse even earlier.

Daniel Henninger of the Wall Street Journal opined today on the implications of this week’s political earthquake.

Before the voting began Tuesday it was conventional wisdom…that something called progressivism was on the march in the U.S., sweeping aside decades if not centuries of belief, history and tradition with a new agenda of wokeness, identity politics and socialism. …Guess what? The voters still get the last word. …Progressives, however much they dominate the culture, keep losing big, competitive elections. …Joe Biden, hardly a commanding presence, is a proxy for Democratic voters’ pragmatism and their doubts about Mr. Sanders, socialism and the American left.

By the way, it’s not just that Crazy Bernie got trounced.

As reported by the New York Times, many hard-left congressional candidates also are being rejected.

Ms. Ocasio-Cortez previously suggested that Democrats who were not sufficiently loyal to an emergent brand of progressive politics should have others like her run against them in a primary. She is now suggesting that, exit polling be damned, Mr. Biden’s latest string of successes is because of the strong-arming of corporate lobbyists, something Mr. Sanders has underscored by repeatedly calling Mr. Biden the establishment candidate. But the results speak for themselves. Ms. Ocasio-Cortez threw her weight behind Cristina Tzintzún Ramirez in her Senate primary campaign in Texas to defeat the Democratic Senatorial Campaign Committee’s chosen candidate, M.J. Hegar. Ms. Hegar ended up easily outpacing a crowded Democratic field.

All of this is very encouraging, but I’m still worried.

There are three reasons why I’m not brimming with optimism.

First, as explained by Annie Lowrey for the Atlantic, a non-trivial number of young people are enamored with the evil ideology of socialism.

A striking generational divide has emerged. Older people still see socialism and communism as dangerous, authoritarian political systems, whereas younger people are more likely to see them as economic systems, and to care far less one way or another. For millions of potential voters, the Red Scare is no longer so scary. …The simple passage of time explains a lot. Millions of Millennials and Gen Zers were never exposed to the threats of the Soviet Union; they did not live through the fall of the Berlin Wall… A recent poll conducted by the Victims of Communism Memorial Foundation showed that 36 percent of Millennials have a favorable opinion of communism, as do a quarter of Gen Zers. Roughly half of the members of those two generations have a favorable view of socialism and thinks the government should act as an employer of last resort. One in five Millennials thinks the Communist Manifesto better “guarantees freedom and equality” than the Declaration of Independence and thinks society would be better off if the government abolished private property.

I’ve shared plenty of additional data to confirm this worrisome trend.

Second, older Democrats may not embrace the socialist label, but they have shifted in that direction.

previously wrote about how even prominent folks on the left agree that Joe Biden is far to the left of both Barack Obama and Hillary Clinton.

This graphic from the New York Times illustrates how the rest of the Democratic establishment (as measured by party platforms) has also veered toward statism.

For what it’s worth, the “Median party” line shows the average position of the world’s other political parties, so the takeaway is that America’s Democrats (and the U.K.’s Labour Party) are now further to the left than some of the world’s socialist parties.

Third, while the Republican Party hasn’t moved to the left based on its platforms, I fear that the GOP isn’t motivated today by a Reagan-style belief in limited government and individual liberty.

It’s not just that Trump is a big spender (and a protectionist). Every major Republican in the post-Reagan era has expanded the burden of government and rejected the principles of classical liberalism.

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Image credit: Gage Skidmore | CC BY-SA 2.0.

Coronavirus, Easy Money, and the “Bad Penny” of Keynesian Economics

Wed, 03/04/2020 - 12:12pm

The coronavirus is a genuine threat to prosperity, at least in the short run, in large part because it is causing a contraction in global trade.

The silver lining to that dark cloud is that President Trump may learn that trade is actually good rather than bad.

But dark clouds also can have dark linings, at least when the crowd in Washington decides it’s time for another dose of Keynesian economics.

  • Fiscal Keynesianism – the government borrows money from credit markets and politicians then redistribute the funds in hopes that recipients will spend more.
  • Monetary Keynesianism – the government creates more money in hopes that lower interest rates will stimulate borrowing and recipients will spend more.

Critics warn, correctly, that Keynesian policies are misguided. More spending is a consequence of economic growth, not the trigger for economic growth.

But the “bad penny” of Keynesian economics keeps reappearing because it gives politicians an excuse to buy votes.

The Wall Street Journal opined this morning about the risks of more Keynesian monetary stimulus.

The Federal Reserve has become the default doctor for whatever ails the U.S. economy, and on Tuesday the financial physician applied what it hopes will be monetary balm for the economic damage from the coronavirus. …The theory behind the rate cut appears to be that aggressive action is the best way to send a strong message of economic insurance. …Count us skeptical. …Nobody is going to take that flight to Tokyo because the Fed is suddenly paying less on excess reserves. …The Fed’s great mistake after 9/11 was that it kept rates at or near 1% for far too long even after the 2003 tax cut had the economy humming. The seeds of the housing boom and bust were sown.

And the editorial also warned about more Keynesian fiscal stimulus.

Even if a temporary tax cuts is the vehicle used to dump money into the economy.

This being an election year, the political class is also starting to demand more fiscal “stimulus.” …If Mr. Trump falls for that, he’d be embracing Joe Bidenomics. We tried the temporary payroll-tax cut idea in the slow growth Obama era, reducing the worker portion of the levy to 4.2% from 6.2% of salary. It took effect in January 2011, but the unemployment rate stayed above 9% for most of the rest of that year. Temporary tax cuts put more money in peoples’ pockets and can give a short-term lift to the GDP statistics. But the growth effect quickly vanishes because it doesn’t permanently change the incentive to save and invest.

Excellent points.

Permanent supply-side tax cuts encourage more prosperity, not temporary Keynesian-style tax cuts.

Given the political division in Washington, it’s unclear whether politicians will agree on how to pursue fiscal Keynesianism.

But that doesn’t mean we can rest easy. Trump is a fan of Keynesian monetary policy and the Federal Reserve is susceptible to political pressure.

Just don’t expect good results from monetary tinkering. George Melloan wrote about the ineffectiveness of monetary stimulus last year, well before coronavirus became an issue.

The most recent promoters of monetary “stimulus” were Barack Obama and the Fed chairmen who served during his presidency, Ben Bernanke and Janet Yellen. …the Obama-era chairmen tried to stimulate growth “by keeping its policy rate at zero for six-and-a-half years into the economic recovery and more than quadrupled the size of the Fed’s balance sheet.” And what do we have to show for it? After the 2009 slump, economic growth from 2010-17 averaged 2.2%, well below the 3% historical average, despite the Fed’s drastic measures. Low interest rates certainly stimulate borrowing, but that isn’t the same as economic growth. Indeed it can often restrain growth. …Congress got the idea that credit somehow comes free of charge. So now the likes of Elizabeth Warren and Bernie Sanders think there is no limit to how much Uncle Sam can borrow. Easy money not only expands debt-service costs but also encourages malinvestment. …when Donald Trump hammers on the Fed for lower rates, …he is embarked on a fool’s errand.

Since the Federal Reserve has already slashed interest rates, that Keynesian horse already has left the barn.

That being said, don’t expect positive results. Keynesian economics has a very poor track record (if fiscal Keynesianism and monetary Keynesianism were a recipe for success, Japan would be booming).

So let’s hope politicians don’t put a saddle on the Keynesian fiscal horse as well.

If Trump really feels he has to do something, I ranked his options last summer.

The bottom line is that good short-run policy is also good long-run policy.

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Image credit: Rdsmith4 | CC BY-SA 2.5.

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