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Extraterritoriality, the Obama-Trump Policy of Sanctions, and Risks to America’s Economy

Fri, 12/27/2019 - 12:53pm

In order to protect against “Goldfish Government,” it’s very important to make sure that the powers of government are constrained by national borders.

This is the reason why I’m a passionate defender of tax competition and fiscal sovereignty (even if it means being subjected to slursattacks, and imprisonment!).

And it’s why I oppose extraterritorial tax laws such as FATCA.

The fight against extraterritoriality isn’t limited to fiscal issues. It’s also become a big problem in the area of financial regulation.

In a new CF&P study, Bruce Zagaris addresses the over-use of sanctions and how they produce undesirable unintended consequences.

The widespread use of economic sanctions constitutes one of the paradoxes of contemporary American foreign policy. Although sanctions are often criticized, even derided, they are simultaneously and quickly becoming the policy mechanism of choice for the United States. The U.S. has economic sanctions against dozens of countries. Even though the success rate of sanctions is unimpressive, sanctions are so popular that they are being introduced by many states and municipalities. …In a global economy, unilateral sanctions tend to impose greater costs on U.S. businesses than on the target, which can usually find substitute sources of supply and financing. …As the U.S. is increasingly resorting to unilateral sanctions, they are inadvertently mobilizing a club of countries and international organizations, including U.S. allies, to develop ways to circumvent U.S. sanctions. …Sanctions are criticized due to their lack of effectiveness, adverse humanitarian effects, and adverse public health effects. Sanctions foment criminalization both during and after the sanctions as a way to circumvent sanctions. Sanctions also result in unintended negative effects on neighbor countries… The excessive use of economic sanctions, especially when U.S. allies oppose them and become targets, produces diplomatic tension, and damages the U.S.’s economy and reputation abroad. The growing number of countries in the club of targets has caused countries to develop innovative means to circumvent the use of the dollar.

I’ve previously written about how the dollar’s role as the world’s reserve currency could be threatened by extraterritoriality, so I fully agree with the concerns in Bruce’s study.

Interestingly, even the U.S. Treasury Secretary acknowledges that there is a problem.

[RTRS] 14 Dec – 07:20:39 AM – U.S TREASURY MNUCHIN SAYS IF WE ARE NOT CAREFUL WITH SANCTIONS, PEOPLE WILL START USING OTHER CURRENCIES

— Alastair Williamson (@StockBoardAsset) December 14, 2019

The issue also has been featured on the op-ed page of the Wall Street Journal. Sahil Mahtani of Investec Asset Management opined that excessive sanctioning by Obama and Trump creates risks for the dollar.

Will the U.S. dollar soon lose its status as the world’s pre-eminent currency? …Developments in foreign-exchange markets during the past 18 months point toward dedollarization. …The increasing use of economic sanctions under Presidents Obama and Trump is the immediate cause of dedollarization. …the change in posture among the trans-Atlantic democracies is noteworthy. …the emergence of a genuinely multipolar world means the coming market cycle is likely to be different. The U.S. dollar may finally be knocked off its pedestal.

Other experts also have warned about how sanctions can backfire on the American economy.

With its weaponization and extra-territorial use of financial and now tech sanctions the Trump administration is doing its best to undermine over time the role of the dollar as the key global reserve currency. https://t.co/ShozLhWSbz — Nouriel Roubini (@Nouriel) July 18, 2019

The Economist also has highlighted how promiscuous use of sanctions is both wrong and could backfire against America.

The United States…has increasingly punished foreign firms for misconduct that happens outside America. Scores of banks have paid tens of billions of dollars in fines. In the past 12 months several multinationals, including Glencore and ZTE, have been put through the legal wringer. …America has taken it upon itself to become the business world’s policeman, judge and jury. …as the full extent of extraterritorial legal activity has become clearer, so have three glaring problems. …Facing little scrutiny, prosecutors have applied ever more expansive interpretations of what counts as the sort of link to America that makes an alleged crime punishable there; indirect contact with foreign banks with branches in America, or using Gmail, now seems to be enough. …Second, the punishments can be disproportionate. In 2014 BNP Paribas, a French bank, was hit with a sanctions-related fine of $8.9bn, enough to threaten its stability. …Third, America’s legal actions can often become intertwined with its commercial interests. …American banks have picked up business from European rivals left punch-drunk by fines. Sometimes American firms are in the line of fire—Goldman Sachs is being investigated by the DOJ for its role in the 1MDB scandal in Malaysia. But many foreign executives suspect that American firms get special treatment and are wilier about navigating the rules. …escalating use of extraterritorial legal actions will ultimately backfire. It will discourage foreign firms from tapping American capital markets. It will encourage China and Europe to promote their currencies as rivals to the dollar… Far from expressing geopolitical might, America’s legal overreach would then end up diminishing American power.

To be sure, not every issue should be decided solely on the basis of economics. More GDP is good, but not at the cost of sacrificing honor and dignity.

Some nations might be so evil that sanctions are justified.

But policy makers should be fully aware that there are costs when sanctions are imposed.

Those costs include foregone trade, which would be bad for American consumers, workers, and businesses.

Most important, those costs could mean the dollar gets weakened or dethroned as the world’s reserve currency and the U.S. loses its “exorbitant privilege.”

And that could mean less investment in America, which translates into fewer jobs and lower wages.

P.S. The study by Bruce Zagaris is the third in a series on why extraterritoriality is a bad idea. The first study focused on extraterritorial taxation. The second study analyzed extraterritorial financial regulation.

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Image credit: Max Pixel | CC0 Public Domain.

A Great Day in History: The End of the Soviet Union

Thu, 12/26/2019 - 12:28pm

Yesterday, most of us celebrated Christmas.

Today, all of us should celebrate the dissolution of the Soviet Union, which officially happened on this date in 1991 (aided and abetted by a Texas grocery store).

2016 FEE column by Richard Ebeling documents the relentless evil of Soviet communism.

…the curtain was lowered on the 75-year experiment in “building socialism” in the country where it all began following the Bolshevik Revolution in Russia, led by Vladimir Lenin in November 1917. Some historians have estimated that as many as 200 million people worldwide may have died as part of the 20th century dream of creating a collectivist “paradise on earth.” The attempt to establish a comprehensive socialist system in many parts of the world over the last 100 years has been one of the cruelest and most brutal episodes in human history. …as many as 68 million innocent, unarmed men, women, and children may have been killed in Soviet Russia alone over those nearly 75 years of communist rule in the Soviet Union. …This murderous madness never ended. In the 1930s, during the time of the Great Purges instituted by Soviet dictator Josef Stalin to wipe out all “enemies of the revolution” through mass executions, millions were sent to the Gulag prisons that stretched across all of the Soviet Union to be worked to death as slave labor to “build socialism.” …Soviet central planning even had quotas for the number of such enemies of the people to be killed in each region of the Soviet Union, as well as the required numbers to be rounded up to be sent to work in the labor camps in the frigid wastelands of the Siberia and the Arctic Circle… The nightmare of the socialist experiment, however, did not end with Stalin’s death in 1953. Its form merely changed in later decades. As head of the KGB in the 1970s, Yuri Andropov (who later was General Secretary of the Communist Party of the Soviet Union after Leonid Brezhnev’s death in 1982), accepted a new theory in Soviet psychiatry which said opposition to the socialist regime was a sign of mental illness.

Based on the sheer number of victims, Stalin understandably has the worst reputation of all Soviet dictators.

But let’s not forget that Lenin was a horrible human being as well.

Lenin’s streak of cruelty began long before he came to power. By his early 20s, his zealous dedication to Marxism led him to believe that anything justified revolution. When a famine broke out in the Volga region in 1891—one that would kill 400,000 people—Lenin welcomed the event, hoping that it would topple the Czarist regime. …Later, in 1905, when Czarist forces killed hundreds of striking workers and 86 children in Moscow, Lenin refused to mourn for the dead and, instead, hoped the event would further enflame class antagonisms. In his eyes, human lives were expendable… While in exile, Lenin railed against the imperial government for its oppressive ways—for instance, its censorship of the opposition and dismissal of parliament. Of course, once in power, Lenin repeated these policies and usually exceeded their cruelty, imprisoning and confiscating the property of his opponents. …Lenin appointed the homicidal Felix Dzerzhinsky to head up the Cheka (the secret police)… In less than a year, hundreds, if not thousands, were executed… He marked wealthy peasants, or kulaks, as enemies of the revolution and encouraged violence against them. He imposed fixed grain prices at low rates, straining peasants who already were living on the margins, seized their grain, and left them to starve. When the peasants began resisting, Lenin ordered government officials to torture them or apply poison gas.

By the way, it’s not directly relevant to the dissolution of the Soviet Union, but I can’t resist sharing this story from the BBC.

Karl Marx’s Grade I-listed memorial in Highgate Cemetery has been “mindlessly vandalised”. The marble plaque on the imposing sculpture’s base has been attacked, seemingly with a hammer. A cemetery spokesman said they did not know when it had happened, but believed it was within the last couple of days. No witnesses have come forward. …Ian Dungavell, chief executive of Friends of Highgate Cemetery Trust, said: “This is mindless vandalism, not political commentary. …This is not the first time the monument has been damaged. In 1970 a pipe bomb blew up part of the face, swastikas have been painted on it and emulsion paint has been thrown at it.

My only comment it that the memorial wasn’t “mindlessly vandalised.” There were 100 million reasons why it was defaced.

Now let’s look at the economic performance of the Soviet Union.

I’ll start with the simple and near-tautological observation that there’s no longer a Soviet Union in large part because its economy became so anemic.

Yet some people believed that the Soviet Union’s version of socialism could be economically successful. I wrote about their naivete as part of my collection of essays on the 100th anniversary of the Bolshevik revolution.

I suppose we can partially forgive them because much of the economic misery in the Soviet Union was hidden from outsiders.

What’s less forgivable is that some people still make absurd claims about the Soviet economy. Consider this screenshot of the first paragraph of the Wikipedia entry on the economy of the Soviet Union. I’ve highlighted in red the parts that are laughable.

Though, to be fair, there wasn’t a problem with unemployment and job security in the Soviet Union. Just like slaves in Alabama in 1830, Soviet workers were victims of state coercion. They were forced to show up at the collective farms and state-run industries.

And state coercion was the basis of a failed system. Contrary to whoever authored that Wikipedia entry, the Soviet Union did not enjoy high growth rates.

1994 World Bank study by William Easterly and Stanley Fischer exposed the Soviet Union’s very poor track record.

Soviet growth from 1960 to 1989 was the worst in the world after we control for investment and human capital; the relative performance worsens over time. …The declining Soviet growth rate from 1950 to 1987 can be accounted for by a declining marginal product of capital with a constant rate of growth of total factor productivity. The Soviet reliance on extensive growth (rising capital-to-out-put ratios) was no greater than that of market economies, such as Japan and the Republic of Korea, but a low elasticity of substitution between capital and labor implied especially acute diminishing returns to capital compared with the case in market economies.

“Worst in the world” is quite an achievement.

Not that any sentient being should be surprised. Politicians are bureaucrats don’t do a good job of allocating labor and capital.

If you want prosperity, it’s not a good idea to have central planning and other features of socialism.

Here’s a fascinating look at the world’s largest economies (by overall size, not on a per-capita basis) from 1961-1989.

How the Soviet Union lost the race with the US: a brilliant infographic on Soviet attempt and failure to catch up with America

pic.twitter.com/DxQ5suZkfi

— Alex Kokcharov (@AlexKokcharov) December 23, 2019

Here’s a chart based on the Maddison database, so we can make comparisons based on per-capita economic output.

As you can see, even though convergence theory says poor countries should grow faster than rich countries, the gap between the United States and the Soviet Union grew ever larger.

Last but not least, here’s a chart that compares the Soviet Union’s claims about growth (blue) with both CIA estimates (red) and later revisions from a Russian economist (green).

There are two lessons to be learned.

That latter point may be relevant for people who think China is an economic powerhouse.

P.S. The Soviet Union is gone, but most of the countries that emerged from the wreckage are still struggling with a legacy of statism and intervention.

P.P.S. In addition to celebrating today, we also should celebrate November 9.

Merry Libertarian Christmas

Wed, 12/25/2019 - 12:39pm

Merry Christmas, even for my left-leaning friends and politically correct friends.

The good news is that – contrary to reports – Santa Claus did not get arrested last night.

And that’s good news because he does many things each year that could land him in prison.

In a column for FEE, David Rosenthal addresses the same topic of overcriminalization.

While most people know Jolly Old Saint Nick as a friendly figure, he too is not immune from the perils of administrative overreach and overcriminalization. …here is a list of some of the potential crimes and violations of federal law… Under the Reindeer Act, signed into law by President Franklin D. Roosevelt in 1937, only Alaska Natives are allowed to own reindeer in Alaska. …Even if Santa gets around the Reindeer Act, he may face civil and criminal penalties under the Lacey Act if his purchase, sale, possession, or use of reindeer—or any other flora or fauna— violates any state or federal law or the law of any foreign nation, no matter what language or code that foreign law is written in. …Despite Santa’s many years of experience, there is no Mr. Claus listed in the Federal Aviation Administration’s pilot certificates database. If Santa is piloting his sleigh without an airman’s certificate, he is in violation of 49 U.S.C. § 46317. …Any white lie that falls within the jurisdiction of the U.S. government could be a federal crime. …A government agent need only ask Santa if he committed burglary, trespass, or larceny, or ask him, “Are you really Santa Claus?” In that case, Santa really would need a Miracle on 34th Street to stay out of the slammer for lying. …Under IRS gift tax rules, the giver of gifts above a certain threshold is taxed at a rate up to 40 percent of the value of the gift. …Willful failure to file a gift tax return can land Santa in prison for up to one year under 26 U.S.C. § 7203.

Regarding whether Santa Claus is real, there is a downside to people being too gullible.

In the past, I’ve looked at the debate over whether Santa Claus is right wing or left wing, as well as the debate over whether Jesus is libertarian or socialist.

Here’s an amusing 2×2 matrix that builds on those themes.

Whoever created this put Jesus in the anti-capitalism camp, which irks me, but it’s still clever (just like this pro-socialism Christmas humor).

If you liked this adoption video, I imagine you’ll like these Christmas songs.

Speaking of songs, here are some economic-themed Christmas carols.

And if you like videos, Remy has two of them (here and here) showing how the TSA hurts the Christmas spirit.

Needless to say, I also have to share these libertarian-themed Christmas videos.

Trump’s Record on Spending Gets Worse Every Year

Tue, 12/24/2019 - 12:20pm

I wrote yesterday that the Trump tax plan is yielding significant benefits, but one of my caveats at the end of the column warned that Trump’s weak record on spending undermines the long-run sustainability of lower tax rates.

The latest example of Trump’s profligacy is the $1.4 trillion spending bill for the 2020 fiscal year that was just approved (this is the “discretionary” money for the parts of the budget that are annually appropriated, so keep in mind that there’s also more than $3 trillion of “mandatory” spending for entitlement programs in 2020).

This pork-filled spending bill became inevitable when Trump surrendered to the Democrats this summer and agreed to bust the spending caps (something politicians also did in 20132015, and 2018).

It’s hard to capture the utterly reckless nature of the new spending bill.

Here’s how Senator Rick Scott described the legislation.

…a giant spending package — 2,313 pages long — that was…negotiated in secret, spends $1.4 trillion, and is chock full of member projects and special-interest giveaways. …more than $4,200 for every man, woman, and child in America. …This package includes $25 million for the “operation, maintenance, and security” of the Kennedy Center in Washington, D.C. It includes a $7.25 million increase in funding for the National Endowment for the Arts, the largest increase in a decade. …It includes more than $1 billion in new foreign-aid funding without any discussion about what we’re getting for this funding. …This bill spends $1.4 trillion, with no cuts or reforms. …How many more trillions of dollars do we need to spend before we wake up to the danger…? We need to reform the way Washington works, and we need to do it now.

The Wall Street Journal was similarly dismayed, opining about the bipartisan spending orgy and pointing out the real problem is that all this spending violates the Golden Rule of fiscal policy.

Congress has left town for the year but alas not before another bipartisan spending party that has typified the Trump Presidency. …The budget problem isn’t a shortage of revenue. CBO says tax receipts grew 4% last fiscal year, through September, and 3% in the first two months this year. Economic growth is feeding the Treasury. But spending is growing much faster: 8% last fiscal year, more than four times the inflation rate, and 6% in October and November this year. In addition to the latest discretionary bills, spending on Social Security (6%), Medicare (6.1%) and Medicaid (9.2%) continue to soar this year. Neither party shows any inclination to do anything about those programs, except expand them. Mr. Trump may yet join Barack Obama in the spending record books.

Regarding the final sentence in the above excerpt, I will predict now that Trump will exceed Obama’s profligacy.

And I’ll have the numbers to prove that early next year when I update my data on presidential spending.

In the meantime, I’ll close with this very depressing chart from the Committee for a Responsible Federal Budget.

The bottom line is that Republican big spenders are enablers of Democratic big taxers.

  • In a couple of years, when there’s a big fight to get rid of the Trump tax cuts, every Republican who supported this awful deal (including Trump) will be responsible.
  • When there’s a Democratic president and a big push for class-warfare taxes, every Republican who supported this awful deal (including Trump) will be responsible.
  • When there’s a big fight after that to impose a European-style value-added tax, every Republican who supported this awful deal (including Trump) will be responsible.

Gee, isn’t bipartisanship wonderful?

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

Assessing the Trump Tax Reform after Two Years

Mon, 12/23/2019 - 12:27pm

The Trump tax plan, which was signed into law right before Christmas in 2017, had two very good features.

The former was important because the federal tax code was subsidizing high tax burdens in states such as New JerseyIllinois, and California.

The latter was important because the United States, with a 35 percent corporate rate, had the highest tax burden on businesses among developed nations.

The 21 percent rate we have today doesn’t make us a low-tax nation, but at least the U.S. corporate tax burden is now near the world average.

There were many other provisions in the Trump tax plan, most of which moved tax policy in the right direction.

Now that a couple of years have passed, what’s been the net effect?

In a column for today’s Wall Street Journal, former Trump officials Gary Cohn and Kevin Hassett make the case that the tax plan has produced good results.

…the tax cut reduced the cost of installing new plant and machinery by about 10%, suggesting that capital spending would jump by the same amount. This would increase the amount of capital per worker and drive up productivity and wages. …This predicted increase in capital has materialized, and has translated into additional economic growth. …Capital spending was 4.5% higher in 2018 than pre-TCJA blue-chip forecasts, and this trend continued in 2019. This extra capital improved productivity and wages… Over the past year, nominal wages for the lowest 10% of American workers jumped 7%. The growth rate for those without a high-school diploma was 9%. …when President Obama hiked marginal tax rates, …labor-force participation dropping 0.7% after the tax increase for workers 35 to 44, but dropping 1.5% for workers over 55. After passage of the TCJA, the opposite pattern emerged, with labor-force participation for those between 35 and 44 increasing 0.4%, and labor-force participation for those over 55 increasing 1.3%. … Before Mr. Trump took office in January 2017, the Congressional Budget Office forecast the creation of only two million jobs by this point. The economy has in fact created seven million jobs since January 2017. …the U.S. is the only Group of Seven country that will post growth above 2% this year.

And the White House has been publicizing some positive numbers.

Such as an increase in investment.

I suppose one can argue that the Blue Chip consensus forecast was wrong and that the Trump tax plan had no effect, but that seems like an after-the-fact rationalization.

The White House also has been touting an increase in prime-age labor force participation.

These are impressive numbers. I’ve argued, for instance, that the employment/population ratio may now be a more important variable than the unemployment rate.

Regardless, the best numbers I’ve seen aren’t from the White House.

Andy Puzder recently shared this chart showing that workers in low-wage industries (the blue line) are enjoying the biggest gains.

I want everyone’s wages to increase, which is why I’m a big supporter of reforms that boost investment and productivity.

But I especially applaud when those reforms increase wages for those with modest incomes.

I’ll close with three caveats.

  1. Because Trump has been very weak on the issue of government spending, it’s quite likely that his tax cuts eventually will be repealed or offset by other tax increases.
  2. Trump obviously was talking nonsense when he claimed his tax plan would produce annual growth of 4 percent or higher. That being said, even more-modest increases in growth are very desirable.
  3. Trump’s tax increases on trade are bad for prosperity and therefore are offsetting some of the benefits of his tax reductions on corporate and household income.

The bottom line is that Trump has made tax policy better (or less worse), but always remember that tax policy is just one piece of a large puzzle when looking at economic policy.

———
Image credit: The White House | Public Domain.

Communism Humor

Sun, 12/22/2019 - 12:16pm

Let’s add to our collection of communism humor.

Yes, I realize that we probably shouldn’t laugh about a horrific ideology that has killed 100 million people.

Especially since it’s still producing hardship, brutality, and suffering in places such as North Korea and Cuba.

Nonetheless, I think mockery of this evil ideology serves a purpose.

Today, we’ll start with a modified version of the it’s-a-party motto that some communists use. In this version, however, there’s some truth in advertising.

Speaking of food, here’s the communist version of Five Guys.

Though it’s slightly inaccurate because not everyone dies. There’s always a fat-and-happy ruling elite. It’s the ordinary people who suffer.

In the past, I’ve mocked leftists for trying to explain away real-world failures with the excuse that “real communism hasn’t been tried.”

Well, in the interest of fairness, I finally received an example of communism working.

Though maybe I’m being too kind. After all, we haven’t actually seen the bottle get opened.

This image could just be another example of leftists having good intentions, but then being unable to deliver good results.

The bottom line is that we should mock communism, but let’s never forget that it is a miserable failure, just like socialism (its usually-less-totalitarian cousin).

Government Mandates and Crummy Dishwashers

Sat, 12/21/2019 - 12:38pm

Four years ago, I wrote about how dishwashers don’t work very well because of foolish red tape from Washington.

The clever folks at the Competitive Enterprise Institute put together a video on the topic.

I especially like the fake commercial at the start of the video.

But I don’t like the way my dishwasher performs.

And Jeffrey Tucker of the American Institute for Economic Research shares my disdain.

American dishwashers used to work. They were wonderful labor-saving devices. They kept our kitchens cleaner. They sanitized the dishes, helping to stop cross-contamination and generally improving health over the iffy process of handwashing. …Then one day they just stopped doing the work. What happened? …Dishwashers used to wash all the dishes in under one hour. Now they take two hours, three hours, and four hours, and still don’t get the dishes clean. …All of this is directly due to government regulations. …Now everything comes out foggy and spotted. This is true no matter which dishwasher you get. …None of this has really hurt the dishwasher industry. Sales have consistently risen for the last ten years. My theory is that people are buying replacements, thinking (rationally) that they just need a newer model. What consumers don’t know, and what manufacturers don’t want to admit, is that they no longer work. The older the model, the more likely it is to be operational.

Here’s the most astounding factoid.

One in five homes have just stopped using their dishwashers altogether.

And here’s the bottom line.

These regulations have caused an infuriating and devastating degradation of the quality of appliances and the quality of life in our homes.

I agree. In my home, I don’t bother putting items in the dishwasher until I’ve thoroughly rinsed them. Otherwise, I’ll find food residue and have to wash them again.

Here’s a chart from the Competitive Enterprise Institute on the average cycle time of dishwashers. As you can see, modern dishwashers take much longer because they do such a poor job.

Since I generally run my dishwasher before heading to bed, I’m not particularly worried about how long it takes.

I just want clean dishes at the end of the process. But that’s now much more difficult because of government.

If you want more examples of the regulatory state’s war on modern life, there are plenty of examples.

———
Image credit: Bart Everson | CC BY 2.0.

Economics, Politics, and Trump

Fri, 12/20/2019 - 12:23pm

When I was in London last week for Boris Johnson’s landslide victory, many people asked me whether Trump would win again in 2020.

Since I was wrong about 2016, I told them I wasn’t the right person to ask.

That being said, Trump has some positive economic tailwinds.

For those of you who care about political outcomes, there’s a new CNN poll of battleground states.

It’s good news for Republicans, particularly if one assumes that there are some people who don’t want to admit that they will vote for Trump (which seems to have been true in 2016).

BATTLEGROUND STATE* VOTERS
Choice for President

Dem. Trump
Biden 47% 47%
Warren 46% 48%
Sanders 45% 49%
Buttigieg 43% 48%

Margin of error: +/-6.6% pts

* the 15 states decided by 8 points or less in 2016

— Jake Tapper (@jaketapper) December 20, 2019

Political betting markets also are pointing to a Trump victory.

Here’s a screenshot showing the 2019 odds of success for the various candidates. As you can see Trump’s numbers are trending upwards – including a positive bump after the House voted for impeachment!

Both polls and betting markets were wrong in 2016, so take all this data with a grain of salt.

For those who care about economic policy, I’ll simply regurgitate my usual comment that Trump is good on some issues (taxes and regulation) and bad on other issues (trade and spending).

I expect this pattern to continue if he’s reelected.

The big wild card is monetary policy.

As I said in the interview, I worry there’s a bubble caused by an easy-money approach. And bad things happen when bubbles pop.

P.S. I should have mentioned that the employment-population data is not as positive as the unemployment-rate data.

P.P.S. I mentioned macroeconomic political forecasts in the interview. I wrote about those predictions back in October.

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

Women Should Have the Freedom to Discriminate Against Men

Thu, 12/19/2019 - 12:00pm

I’ve previously argued that “freedom of association” is the best way of dealing with thorny social issues such as baking cakes for gay weddings and transgender bathroom usage.

Simply stated, people should have the freedom to do business with each other – or not do business with each other – based on their personal preferences.

I may disapprove of how various people exercise those preferences, but I wouldn’t ask a politician or bureaucrat to intervene.

Which brings us to today’s topic. Here are some excerpts from a New York Post story about a not-quite-women-only business.

The Wing was supposed to be the ultimate sanctuary for women: decidedly feminine in design, with walls and furniture in shades of millennial pink and a thermometer set at a women’s-clothing-friendly 72 degrees. …It offers perks that other co-working spaces can’t match — showers stocked with high-end beauty products…the company’s expansion and popularity has brought up a completely different issue…men wanting to come in and hang out. …it’s not against the rules for men to be at the lady lair, which costs anywhere from $185 to $250 a month in the US to join. But that’s only because legally the company can’t ban men. …The problem, multiple members have told The Post, is that the men physically take up too much space with their bigger bodies… While they aren’t using the members-only changing rooms and showers (yet), they are in the guest bathrooms. …The Wing…never had a membership policy, because, reps say, they didn’t think they’d need one. Instead, they simply billed themselves as a women’s co-working space and social club. …the New York City Commission on Human Rights…in 2018 opened an investigation into the company. The Wing’s large membership — more than 11,000 worldwide, according to reps — meant it couldn’t pass as a “social club,” and therefore can’t discriminate based on gender.

My reaction is that the New York City Commission on Human Rights should mind its own business.

If women want a female-only place to interact and do business, it’s not the job of government to interfere.

Yes, that means discrimination against men. Maybe that’s wrong, at least on some level, but not everything that’s wrong should be illegal.

Here’s another example, though the discrimination is based on politics rather than gender. As reported by the Hill, a California restaurant wants freedom not to associate with overt Trump supporters.

A restaurant owner and award-winning author in California tweeted that he will no longer serve customers who wear “Make America Great Again” hats at his eatery. “It hasn’t happened yet, but if you come to my restaurant wearing a MAGA cap, you aren’t getting served…”Some diners told The Associated Press on Thursday that they understand the restaurant owner’s position but added that they have mixed feelings about the ban. …“I see where he’s coming from, but I don’t think you should just keep people out because of a hat,” Jamie Hwang, a San Mateo resident, told the news agency. Another diner, Esther Shek, told the publication that she believes the hats have “come to represent racism, intolerance, exclusivity” but also added that López-Alt’s choice to refuse supporters of the president might spell trouble later.

In this case, I definitely think the restaurant owner is being petty. But I also recognize that it’s his restaurant. It’s his money and it’s his property.

By the way, it’s worth noting that freedom of association is a two-way street.

It means private businesses can refuse customers, but it also means customers can reject businesses.

A black couple in Georgia turned away a white repairman who showed up to their house while flying a large Confederate flag, leaving the couple in utter “disbelief” before saying he wasn’t welcome. …After a polite conversation with the contractor, Brown said, he was in “disbelief” that the man he hired from Facebook’s local marketplace would think the flag was acceptable to fly during house calls. Brown’s wife then came outside and bluntly turned the man away, video shows. …The repairman offered to remove the flag, but the damage was already done. He later reached out to the couple on Facebook to say he didn’t mean to offend them, Zeke Brown told ABC News. Brown replied to the contractor, explaining that the flag is “extremely offensive” to people of color while urging him to do some research.

Incidentally, I may be a bit of a Pollyanna on these issues, but I’m glad that the contractor reached out to the couple with an apology.

Having spent many years in Georgia and having interacted occasionally with people who displayed confederate flags, I concluded that very few of them were motivated by racial animus. It was more a form of social signalling about being rural, or being a hell raiser (a la Dukes of Hazard).

That being said, they obviously were not sensitive to the fact that blacks had a much more jaundiced view of what the flag represents.

Which is why I hope many of them eventually had the kind of epiphany that led a Texas man to get rid of his rebel flag tattoo. Simply stated, we should care about the feelings of others.

But I’m digressing.

Let’s conclude by addressing the negative aspect of freedom of association, which is that some bad people will discriminate for odious reasons.

The stereotypical example is a business in Alabama in 1958 that refused to serve black customers. This is partly inaccurate because much of the discrimination during that era was the result of government policies that mandated segregation (a.k.a., the Jim Crow laws).

But I’m sure there was also plenty of genuinely private discrimination.

That’s the bad news.

The good news is that such discrimination generally is punished by market forces.

And the best news is that our society is now increasingly vigilant against bias.

For instance, the Washington Post reported about a bakery that gained customers for being welcoming to everyone.

Nino Barbalace…opened a bakery and cafe in Dorchester, Mass. …He affixed a tiny pride flag to his restaurant’s window for the pride parade in June, and it has remained there since. Then came the Yelp review.“Well, that flag says all when you delve deeper and see the real customer base here, it’s clearly geared and catered ONLY to those who rally behind the rainbow flag.” That alarmed Barbalace, who posted an image of the one-star review on the restaurant’s Facebook page. “All are welcome at Zia Gianna, even this gentleman. We’d love to show him some kindness…” Barbalace wrote in his post on Aug. 13. …Customers rallied in response. Tiffany Andrade told Fox 25 that she dropped by the cafe on Friday to offer support. …“We love your place, and love your love for everyone no matter what,” one customer said. Another said: “Haven’t been in to your restaurant before, but now I’m putting it on my must-visit list. Love is love is love. Keep flying that flag!”

Kudos to Mr. Barbalace, by the way, for reaching out to the unfriendly reviewer.

The United States has made great progress and is one of the most tolerant places in the world.

But there’s always room for more progress and you’re far more likely to change hearts and minds with outreach – Daryl Davis and Matthew Stevenson are role models – rather than demonization.

———
Image credit: ☺Yoshi☻ | CC BY 2.0.

When It’s Politically Beneficial, Democrats Support Huge Tax Breaks for the Rich

Wed, 12/18/2019 - 12:53pm

Based on rhetoric, the Democratic Party is committed to a class-warfare agenda.

They want higher income tax rateshigher capital gains taxeshigher Social Security taxeshigher death taxes, a new wealth tax, and many other tax hikes that target upper-income taxpayers.

There are various reasons why they push for these class-warfare tax hikes.

I don’t pretend to know which factor dominates.

But that’s not important because I want to make a different point. Notwithstanding all their rhetoric, Democrats are sometimes willing to shower rich people with tax breaks.

The Wall Street Journal exposes the left’s hypocrisy in the fight over the deduction for state and local taxes.

Democrats have…grown more concentrated in the richest parts of the country. That explains the strange spectacle of a Democratic presidential field running on the most redistributionist agenda in memory even as Democrats in Congress try to expand a tax break for high-earners in the New York City, San Francisco and Los Angeles metropolitan areas. …Coastal Democrats have failed with gimmicks at the state and federal level to eliminate the SALT cap. The latest effort is the Restoring Tax Fairness for States and Localities Act, which passed the House Ways and Means Committee last week. …The bill would raise the SALT deduction cap in 2019 and eliminate it in 2020 and 2021. …The Tax Foundation found the biggest benefit from the unlimited deduction went to households with incomes above $1 million.

A related issue is the federal government’s special tax exemption for interest paid to holders of state and local government bonds.

explained in 2013 why it’s bad tax policy.

Josh Barro explained the previous year why this tax break is a boon for the rich.

In 2011, 35,000 taxpayers making more than $200,000 a year paid no federal income tax. …61 percent of those avoided tax for the same reason: their income consisted largely of interest on tax-exempt municipal bonds. As Washington looks…to eliminate tax preferences for the wealthy, why not eliminate this exemption? …Nearly all of those bondholders are either for-profit corporations or individuals with high incomes. The higher your tax bracket, the greater the value of the tax preference… muni bonds have an unfortunate feature…subsidies are linked to the interest rate. That means issuers who must pay higher interest rates get more valuable subsidies. Perversely, the worse a municipality’s credit, the greater incentive it is given to borrow more money.

Needless to say, it’s not a good idea to have a tax break that benefits the rich while subsidizing profligate states like New Jersey and Illinois.

In a column for Real Clear Policy, James Capretta analyzes how Democrats are working hard to preserve a big loophole.

The push to get rid of the Cadillac tax is short-sighted for both parties, but particularly for the Democrats. …In its estimate of H.R. 748, CBO projects that Cadillac tax repeal would reduce federal revenue by $200 billion over the period 2019 to 2029, with more than half of the lost revenue occurring in 2027 to 2029. …When examined over the long-term, repeal of the Cadillac tax is likely to be one of the largest tax cuts on record. …If the Cadillac tax is repealed, the government will have less revenue to pay for the spending programs many in the party want to expand. And Republicans will be able to say that it was the Democrats, not them, who paved the way for this particular trillion dollar tax cut.

Not only is it a big tax cut to repeal the Cadillac tax, it’s also a tax cut that benefits the rich far more than the poor.

Here are some distributional numbers from the left-leaning Tax Policy Center. I’ve highlighted in red the most-important column, which shows that the top-20 percent get more than 42 percent of the tax cut while the bottom-20 percent get just 1.2 percent of the benefit.

For what it’s worth, I don’t care whether tax provisions tilt the playing field to the rich or the poor.

I care about good policy.

That’s why I like the Cadillac tax, even though it was part of the terrible Obamacare legislation.

In other words, I think principles should guide policy.

My Democratic friends obviously disagree. They beat their chests about the supposed moral imperative to “soak the rich,” but they’re willing to shower the wealthy with big tax breaks so long as key interest groups applaud.

The Abuse of Economic Sanctions is Undermining the Use of Financial Suasion

Wed, 12/18/2019 - 3:47am

[PDF Version]

The Abuse of Economic Sanctions is Undermining the Use of Financial Suasion

By Bruce Zagaris*

The widespread use of economic sanctions constitutes one of the paradoxes of contemporary American foreign policy. Although sanctions are often criticized, even derided, they are simultaneously and quickly becoming the policy mechanism of choice for the United States. The U.S. has economic sanctions against dozens of countries. Even though the success rate of sanctions is unimpressive,[1] sanctions are so popular that they are being introduced by many states and municipalities.

Economic sanctions encompass the imposition by governmental or international organizations of economic sanctions for noneconomic foreign policy reasons.  Economic sanctions can be multilateral, such as by the United Nations and the European Union, or they can be unilateral.

Sanctions are applied for a variety of reasons, which include discouraging the proliferation of weapons of mass destruction and ballistic missiles, strengthening human rights, ending terrorism, combating drug trafficking, discouraging armed aggression, promoting market access, protecting the environment, and replacing governments.

Sanctions take the form of arms embargoes, foreign assistance reductions and cut-offs, export and import limitations, asset freezes, tariff increases, revocation of most favored nation (MFN) trade status, negative votes in international financial institutions, withdrawal of diplomatic relations, visa denials, cancellation of air links, prohibitions on credit, financing, and investment, and authorization of lawsuits.

In a global economy, unilateral sanctions tend to impose greater costs on U.S. businesses than on the target, which can usually find substitute sources of supply and financing.

Secondary sanctions can exacerbate matters. Trying to compel others to join a sanctions effort by threatening secondary sanctions against third parties unwilling to sanction the target can cause serious harm to many U.S. foreign policy interests. When the U.S. imposed sanctions against overseas firms who violated the terms of U.S. legislation affecting Cuba, Iran, and Libya, the sanctions may have had some deterrent effect on the willingness of certain individuals to enter into proscribed business activities, but at the price of increasing anti-American sentiment, stimulating challenges within the World Trade Organization, and drawing attention away from the provocative behavior of the target governments.[2] They also helped the targeted countries unite political opinion and support against U.S. measures.

As the U.S. is increasingly resorting to unilateral sanctions, they are inadvertently mobilizing a club of countries and international organizations, including U.S. allies, to develop ways to circumvent U.S. sanctions.

This article discusses the limitations of sanctions generally and then focuses on the unilateral sanctions imposed on Iran and Cuba to show how such sanctions are counterproductive.

The Limitations of Sanctions Generally

Sanctions are criticized due to their lack of effectiveness, adverse humanitarian effects, and adverse public health effects. Sanctions foment criminalization both during and after the sanctions as a way to circumvent sanctions. Sanctions also result in unintended negative effects on neighbor countries, such as driving up costs of goods.[3]

The U.S. has become responsible for the majority of 20th century economic sanctions.[4] As the U.S. increased its use of sanctions, their utility declined rapidly. During the early post-World War II era approximately 50 percent of the sanctions in which the U.S. was involved were successful. In the 1970s and 1980s, less than one in four sanctions were successful.[5]

Another study concludes that sanctions have had limited success overall. The success rate depends on the type of policy or governmental change sought. Their use involving destabilization worked in half the cases, usually against target countries that were small and shaky. Sanctions with modest goals and efforts to disrupt minor military adventures succeeded about one-third of the time. Efforts to destroy a foreign adversary’s military potential, or otherwise change its policies in a major way, achieved success infrequently. An adverse effect of sanctions is the criminalization of the sanctioned state and its neighbors. Criminalization happens when the targeted government attempts to maintain its power by resorting to organized crime in order to generate revenue or obtain supplies. The conduct to circumvent sanctions through smuggling tends to institutionalize relationships between the government and shadow economic actors.[6]

International cooperation may help in three areas: to increase the moral suasion of the sanctions, to help isolate the target government from the global community psychologically as well as economically, and to preempt foreign backlash.[7]

In evaluating the effectiveness of sanctions, broad claims of extraterritoriality can be decidedly counterproductive when U.S. allies do not share the U.S. position on the underlying issue.[8]

The Iran Sanctions

On May 8, 2018, President Trump chose to remove the U.S. from the Joint Comprehensive Plan of Action (JCPOA) and to reinstate all previously lifted sanctions under this agreement. The re-imposed U.S. sanctions came into effect after a “wind-down” period of 90 days, which ended August 6, 2018 for certain sanctions and 180 days (November 4, 2018) for others.

As U.S.-Iran sanctions continue to unfold, the European Union and the U.S. are clashing on their implementation. On May 18, 2018, for example, the European Commission commenced a formal process to update the 1996 EU Blocking Regulation (as referred to as the Blocking Statute) to include certain U.S. sanctions on Iran. The regulation entered into effect on August 7, 2018. On September 24, 2018, a joint statement of a ministerial meeting of the E3/EU+2 (China, France, Germany, the Russian Federation, and the United Kingdom, with the High Representative of the EU for Foreign Affairs and Security Policy, and the Islamic Republic of Iran) reaffirmed their dedication to the full and effective implementation of the JCPOA. They announced an initiative to establish a Special Purpose Vehicle (SPV) to facilitate payments related to Iran’s exports (including oil) and imports, assisting and reassuring economic operators seeking legitimate business with Iran.[9] Yet even with this international cooperation, U.S. National Security Adviser John R. Bolton stated on September 25, 2018 that “(w)e do not intend to allow our sanctions to be evaded by Europe or anybody else.”[10] On July 31, the Trump administration imposed sanctions against Iran’s Foreign Minister Mohammad Javad Zarif for complying with the Iranian ‘regime.’[11]

Responses

The updated Blocking Statute is a core element of the EU’s continued dedication to the total implementation of the JCPOA, including sustained trade and economic relations between the EU and Iran, which underwent normalization after the lifting of nuclear-related sanctions that came with the JCPOA.

The Blocking Statute allows EU operators to recover damages arising from U.S. extraterritorial sanctions from the persons causing them, as well as nullifies the effect in the EU of any foreign court rulings based on them. It further prohibits EU persons from complying with those sanctions, unless the Commission specifically permits them to do so if non-compliance were to seriously harm their interests or the interests of the EU.[12]

To assist EU companies in implementing the updated Blocking Statute, the Commission has also published a Guidance note to offer advice and promote understanding of the relevant legal acts.[13]

The EU has proven and remains dedicated to the continued, total implementation of the JCPOA, as long as Iran also respects its nuclear-related pledges. The lifting of nuclear-related sanctions allowing for the normalization of trade and economic relations with Iran is a key element of the JCPOA. Simultaneously, the EU remains dedicated to maintaining cooperation with the U.S., who continues to prove an essential partner and ally.

The EU, in close coordination with Member States and other partners, is striving to implement measures that sustain cooperation with Iran in key economic sectors, such as banking and finance, trade and investment, oil, and transport.[14]

During their September 24, 2018 meeting, JCPOA participants reaffirmed their dedication to its full and effective implementation in good faith and in a constructive atmosphere.  They reiterated that the JCPOA is a key example of global non-proliferation policy, as well as a significant achievement of multilateral diplomacy unanimously endorsed by the UN Security Council through Resolution 2231.

The participants acknowledged that Iran has routinely met its nuclear-related commitments, as confirmed by the International Atomic Energy Agency through twelve consecutive reports. The agency further emphasized the need for Iran to continue to fulfil its pledges.

Additionally, the participants noted that, alongside Iran’s implementation of its nuclear-related commitments, the elimination of sanctions, including the economic benefits arising from it, prove an important piece of the JCPOA.[15] On August 25, 2019, the French Prime Minister Macron invited Zarif to the G-7 meeting, showing that, notwithstanding his designation by the U.S., Macron deems him important to include in the dialogue to reach an accommodation over the U.S.-Iran JCPOA dispute.

Trade associations have expressed concern over the conflicting regimes.  Specifically, UK Finance has detailed how Article 6 of the Blocking Regulation potentially exposes the EU financial sector to private claims for damages. Any person, for example, who suffers losses because of the EU person’s compliance with U.S. sanctions in breach of the Regulation is entitled to claim damages against the EU person.[16] The paper explains how, in comparison to pre-JCPOA days, the updated Blocking Regulation has seen a substantive rise in the risk of civil litigation.[17]

A key factor of this case is whether, in the long-term, the creation of an SPV may undermine U.S. hegemony of the international payment systems, on which the effectiveness of the U.S. to successfully impose unilateral sanctions depends.[18] At the beginning of May 2019, the U.S. government waivers for six countries to buy Iranian oil expired. The U.S. government announced that it is considering targeting financial networks that transfer U.S. dollars to Iranian companies as payment for petrochemicals and exports.[19] On May 2, after oil prices posted their strongest first quarter in decades, rising about 30 %, Mohammed Barkindo, the head of the Organization of Petroleum Exporting Countries, warned against the political use of oil markets.[20]

Ultimately, the U.S.’s ability to successfully utilize sanctions depends on the active use of America’s strategic suasion, which is the directed use of U.S. power and influence to align influential state and nonstate actors and networks with U.S. interests.[21] Effective U.S. sanctions against large countries have depended on multilateral support. The continued implementation of U.S. unilateral sanctions against Iran without the backing of U.S. allies – especially with their active resistance – risks jeopardizing the success of the Iran sanctions and the long-term ability of U.S. financial suasion.

The Trump Administration’s withdrawal from the JCPOA has eroded the prior effective regime of multilateral sanctions and international consensus. It will make future negotiations with other countries over nuclear agreements more difficult, as both U.S. allies and adversaries have lost confidence in the ability of the U.S. to adhere to agreements.

Cuba

The imposition of economic sanctions against Cuba since the 1960s has also failed to achieve success in changing the Cuban economic and political system. The previous U.S. stance against Cuba alienated the U.S. from regional and international partners.[22]

On April 17, 2019, the United States government announced new sanctions against Cuba.

While speaking in Miami, National Security Advisor John Bolton stated that the Trump administration is re-imposing limits on the amount of money Cuban Americans can send to relatives in Cuba, as well as ordering new restrictions on U.S. citizen, nonfamily travel to Cuba.

Also on April 17, Secretary of State Mike Pompeo declared the administration will remove restrictions that have inhibited U.S. citizens from pursuing lawsuits seeking compensation for property expropriated by the Cuban government when it rose to power in 1958.

Pompeo noted that the Trump administration will terminate waivers, activated by five U.S. presidents over the past 20 years, of Title III of the Cuban Liberty and Democratic Solidarity (LIBERTAD) Act of 1996, referred to as Helms-Burton, allowing for compensation lawsuits by U.S. citizens against any entity or person “trafficking” in confiscated property in Cuba.  The law includes foreign companies and persons.[23]

In March 2019, the U.S. State Department announced that it would allow U.S. citizens and companies to commence actions in U.S. federal court against entities on the Cuban Restricted List. The State Department issued this list based on the entities considered by the U.S. Government as under the control of, or acting for or on behalf of, the Cuban military. The initial list was published on November 9, 2017 and has received several updates. The State Department extended the suspension a number of times until, on April 17, Pompeo announced the end to the extensions.[24]

On April 17, 2019, Federica Mogherini, Minister of Foreign Affairs of Canada Chrystia Freeland, and EU Commissioner for Trade Cecilia Malmström, released a joint statement on the U.S.’s decision, stating, “the EU and Canada consider the extraterritorial application of unilateral Cuba-related measures contrary to international law. We are determined to work together to protect the interests of our companies in the context of the WTO and by banning the enforcement or recognition of foreign judgements based on Title III, both in the EU and Canada.” Since their laws allow for counter-claims or counter-suits, they claimed, the decision will instigate an unnecessary rush of legal claims.[25]

The U.S. initially based their unilateral sanctions on the demand that Cuba reduce military ties with Russia and stop supporting revolution abroad. In later years, the U.S. further demanded that Cuba repudiate the key elements of the revolution by restoring capitalism and adopting a multiparty liberal democracy.[26] The Trump administration has re-imposed sanctions to undue Obama-era policy and – most recently – because of Cuba’s assistance to the Maduro administration in Venezuela. On April 30, President Donald Trump threatened to impose a “full and complete embargo” and further sanctions on Cuba if does not immediately end its military support for Maduro.[27] However, Florida politics have motivated the policy, just as domestic politics are always an issue on both sides.[28] When the U.S. replaces demands about Cuban internal affairs with demands about Cuban internal affairs, Cuba has reacted with more indignation.[29] The Trump administration’s resumption of the hegemonic presumption with sanctions and hostile policy will not change Cuban policy. Instead, it will again polarize foreign relations with other countries both in and out of the Western Hemisphere, while adversely impacting jobs in both the U.S. and Cuba.

Analysis and Recommendations

The imposition of unilateral extraterritorial sanctions has a limited impact when it comes to changing the policies of other countries, even when such sanctions are imposed against countries comparatively small in economic and political power (e.g., Cuba). Sanctions have worked when they are multilateral, especially through the U.N., as was the case against Iran and North Korea.  The excessive use of economic sanctions, especially when U.S. allies oppose them and become targets, produces diplomatic tension, and damages the U.S.’s economy and reputation abroad.  The growing number of countries in the club of targets has caused countries to develop innovative means to circumvent the use of the dollar.

Economic sanctions should be chosen only after they meet the following rules.

  1. The likely benefits of a specific sanction to U.S. foreign policy should be greater than the anticipated costs to the U.S. government and the U.S. economy. In addition, the relationship between how the sanction is likely to affect U.S. interests should compare favorably to the likely consequences of all other policies, including military intervention, covert action, public and private diplomacy, offering incentives, or doing nothing.
  2. Multilateral support for economic sanctions should normally constitute a prerequisite for their use by the United States.
  3. Secondary sanctions are not a useful mechanism to obtain multilateral support for sanctions and should be rarely used.
  4. The U.S. should include humanitarian exceptions as part of any comprehensive sanctions. Innocent people should not be made to suffer any more than is absolutely necessary.
  5. The federal government should challenge the imposition of sanctions by states and municipalities.
  6. Any sanction should be the subject of an annual impact statement.[30]

__________________________________

*  Berliner Corcoran & Rowe LLP, Washington, D.C.

The Center for Freedom and Prosperity Foundation is a public policy, research, and educational organization operating under Section 501(C)(3). It is privately supported and receives no funds from any government at any level, nor does it perform any government or other contract work. Nothing written here is to be construed as necessarily reflecting the views of the Center for Freedom and Prosperity Foundation or as an attempt to aid or hinder the passage of any bill before Congress.

_______________________________________________

Endnotes

[1]         Lauren Ralph, In Consideration of Economic Sanctions 28  SAE/No. 131 (Jan. 2019).

[2]         Richard N. Haass, Economic Sanctions: Too Much of a Bad Thing, Brookings Policy Brief Series, June 1, 1998 https://www.brookings.edu/research/economic-sanctions-too-much-of-a-bad-thing.

[3]         Ralph, supra at 23.

[4]         A.C. Drury, U.S. Presidents and the Use of Economic Sanctions, Presidential Studies Quarterly 30. 51 (2000).

[5]         Ralph, supra at 7.

[6]         Gary Clyde Hufbauer, Jeffrey J. Schott, and Kimberly Ann Elliott, Economic Sanctions Reconsidered: History and Current Policy  92-93 (2d ed. 1990).

[7]         Id. at 96.

[8]         Barry Carter, International Economic Sanctions:  Improving the Haphazard U.S. Legal Regime 252 (1988).

[9]         Implementation of the Joint Comprehensive Plan of Action: Joint Ministerial Statement, Sept. 24, 2018  https://eeas.europa.eu/headquarters/headquarters-homepage/51036/implementation-joint-comprehensive-plan-action-joint-ministerial-statement

[10]        Gardiner Harris, Bolton Warns of ‘Terrible Consequences’ if Nations Defy Iran Sanctions, N.Y. Times, Sept. 26, 2018, at A10, col. 1.

[11]        U.S. Treasury, Treasury Designates Iran’s Foreign Minister Javad Zarif for Acting for the Supreme Leader of Iran,  July 31, 2019 https://home.treasury.gov/news/press-releases/sm749

[12]        Commission Implementing Regulation (EU) 2018/1101 of 3 August 2018 laying down the criteria for the application of the second paragraph of Article 5 of Council Regulation (EC) No 2271/96 protecting against the effects of the extra-territorial application of legislation adopted by a third country, and actions based thereon or resulting therefrom C/2018/5247 https://eur-lex.europa.eu/legal-content/EN/TXT/?uri=uriserv:OJ.LI.2018.199.01.0007.01.ENG&toc=OJ:L:2018:199I:TOC.

[13]       European Commission, Guidance Note – Questions and Answers: adoption of update of the Blocking Statute, Official Journal of the European Union, 61, Aug. 7, 2018, https://eur-lex.europa.eu/legal-content/EN/TXT/?uri=OJ:C:2018:277I:TOC

[14]        European Commission, Updated Blocking Statute in support of Iran nuclear deal enters into force, Brussels, Press release, August 6, 2018 http://europa.eu/rapid/press-release_IP-18-4805_en.htm

[15]       Implementation of the Joint Comprehensive Plan of Action: Joint Ministerial Statement, supra.

[16]       UK Finance, The EU Blocking Regulation – Issues and Considerations for the Financial Services Section, at 2 (July 11, 2018) https://www.ukfinance.org.uk/wp-content/uploads/2018/07/UK-Finance-paper-EU-Blocking-Regulation-11-July-2018-FINAL.pdf.

[17]       Id. at 4.

[18]       Noack, supra.

[19]        Benoit Faucon and Ian Talley, U.S. Considers Broader Sanctions on Iran, Wall St. J., May 3, 2019, at A8, col. 1.

[20]        Sune Engel Rasmussen, OPEC Warns on Mixing Oil, Politics, Wall St. J., May 3, 2019, at A8, col. 3.

[21]       Juan C. Zarate, Treasury’s War:  The Unleashing of a New Era of Financial Warfare 431 (2013).

[22]        Karen DeYoung, Obama moves to renew official ties after American captive’s release, Wash. Post, Dec. 18, 2014, at A1, col. 2.

[23]       U.S. Department of State, Remarks to the Press, (Apr. 17, 2019), https://bit.ly/2DgtkN8;  P.L. 104-114, 110 Stat. 785 (1996) (codified at 22 U.S.C. §§ 6021–91) (hereinafter “LIBERTAD”).

[24]        The White House, Fact Sheets, President Donald J. Trump is Taking a Stand For Democracy and Human Rights in the Western Hemisphere (Apr. 17, 2019), available at https://www.whitehouse.gov/briefings-  statements/president-donald-j-trump-taking-stand-democracy-human-rights-western-hemisphere.

[25]       European External Action Service, Joint Statement by Frederica Mogherini, Crustia Freeland and Cecilia Malmstrom on the decision of the United States to further activate Title III of the Helms Burton (Libertad) Act, (Apr. 17, 2019), https://bit.ly/2IoUCFj.

[26]        William M. Leogrande and Peter Kornbluh, Back Channel to Cuba: The Hidden History of Negotiations between Washington and Havana 404 (2014).

[27]        Matt Spetalnick and Eric Beech, Trump threatens ‘full’ embargo on Cuba over Venezuela security support, Reuters, Apr. 30, 2019 https://www.reuters.com/article/us-venezuela-politics-trump-tweet/trump-threatens-full-embargo-on-cuba-over-venezuela-security-support-idUSKCN1S62PD.

[28]        William M. Leogrande and Peter Kornbluh, supra,  at 413-414.

[29]        Id. at 409.

[30]       See Haass, supra, for these and other recommendations.

Refundability = Redistribution

Tue, 12/17/2019 - 12:18pm

I generally identify three big problems with the tax code.

But it may be time to include another item. Politicians have learned how to use “refundability” as a tool to redistribute income through the tax system.

A “refundable” provision gives money to selected people who file tax returns, even if they don’t pay any tax.

In other words, refundability isn’t the same as over-paying your taxes and then getting your money back after filing a tax return.

Nor is it like a traditional tax preference, where you can lower your tax bill if you do something politicians like – such as having a mortgage or contributing to charity.

With refundability, you get money even if your tax liability is zero.

For instance, the “earned income tax credit” is now the federal government’s fastest-growing redistribution program and 88 percent of the money is actually spending rather than a tax break.

Writing about this issue back in 2010, I referred to refundability as a form of political alchemy. Politicians can increase spending but pretend they are cutting taxes.

And it’s a bipartisan problem. Republicans utilize this gimmick and Democrats utilize this gimmick.

The most-recent example is a proposal by Senators Mitt Romney (R-UT) and Michael Bennet (D-CO), and I’ve highlighted the relevant portions of their press release.

Create a New Young Child Tax Credit: Create a new tax credit of $2,500 per child for children up to age six. The first $1,500 would be fully refundable, meaning that every taxpayer receives that amount regardless of income (up to the current law phase-out levels of $200,000 for individuals and $400,000 for couples). The next $1,000 would phase in at a 15 percent rate beginning at the first dollar of income, and begin phasing down at current law income thresholds. Reform Existing Child Tax Credit: Make critical reforms to a key measure that provides a $2,000 credit per child for children from age six up to age 17, including eliminating the current $1,400 cap on refundability, making the first $1,000 per child fully refundable regardless of income up to the phase-out threshold, and making the next $1,000 per child phase-in at a 15 percent rate starting at the first dollar income.

To make matters worse, Romney and Bennet want to finance this additional redistribution spending by imposing capital gains taxes on the assets of dead people.

So more spending financed by higher taxes. Perhaps now people will understand why I was so hostile to Romney when he was running for President in 2012.

I’ll close with a comment about political honesty and transparency.

If Senators Romney and Bennet proposed to have the government send checks to people for having kids, I wouldn’t support that idea. But I would give them credit for introducing an honest proposal for more redistribution.

But they instead chose to mask their agenda by laundering additional redistribution through the tax code.

The bottom line is that we already have record amounts of redistribution in America. And refundable provisions of the internal revenue code are the fastest-growing type of redistribution.

Adding to the problem is not a good idea.

P.S. Unsurprisingly, as is so often the case with redistribution programs, there’s rampant fraud with the EITC and other refundable tax provisions.

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Image credit: pxhere | CC0 Public Domain.

The Best Part of USMCA Is that Most of NAFTA Is Preserved

Mon, 12/16/2019 - 1:55am

One of my big 2018 worries was that Trump would wreck NAFTA.

We dodged that bullet, but my two cents is that the new deal is underwhelming.

The bottom line is that his revisions to the pact – which is now called USMCA – create some new barriers to trade.

But there also are a few good parts of the deal.

And at least a source of economic uncertainty is now in the past. Indeed, that’s the real victory. There’s now presumably no risk that Trump will cause a meltdown of North American trade.

The Wall Street Journal‘s editorial hits the nail on the head.

Donald Trump is the most protectionist American President since Herbert Hoover, so one of our trade-policy goals of the last three years has been damage control. That’s the best case now for supporting Mr. Trump’s revisions to the North American Free Trade Agreement…  the new U.S.-Mexico-Canada trade deal puts to rest Mr. Trump’s threats to abandon the 1994 agreement and blow up continental trade. The new deal preserves most of the tariff-free trade in the original Nafta. …There’s particular political value in committing both Mexico’s President Andrés Manuel López Obrador, the left-wing economic nationalist known as AMLO, and Mr. Trump, the Republican mercantilist, to open trading rules for North America.

Sadly, the Trump Administration pushed for some European-style managed trade and regulatory harmonization.

The shame is that in many respects the new deal is worse than Nafta, especially its bows to politically managed trade. …This raises the cost of manufacturing, making North American products less competitive worldwide. Also reducing North American competitiveness is a new rule mandating that 40% of an auto qualifying for tariff-free trade in the region has to be produced by workers earning $16 an hour. Mandating wage rates ignores the relationship between productivity and output and sets a bad precedent for future trade deals. …The unions battered Mexico to allow a new enforcement process that will give American unions a new way to intrude in Mexican labor disputes. …North American auto production costs will also rise thanks to a new layer of protection for U.S. steel. The new deal mandates that 70% of steel used in North American vehicles must be made on the continent… Our concern now is that the deal’s concessions to politically managed trade will become the new baseline for future negotiations. …Senators will have to consider whether these bad precedents are worse than the benefit of saving most of the original Nafta.

I mentioned in the interview that the International Monetary Fund did an analysis of USMCA.

Here’s what the IMF set out to measure.

This paper uses a global, multisector, computable-general-equilibrium model to provide an analytical assessment of five key provisions of USMCA: (1) higher vehicle and auto parts regional value content requirement, (2) new labor value content requirement for vehicles, (3) stricter rules of origin for USMCA textile and apparel trade, (4) agricultural trade liberalization that increases U.S. access to Canadian supply-managed markets and reduces U.S. barriers on Canadian dairy, sugar and sugar products, and peanuts and peanut products, and (5) trade facilitation measures. In the context of successful ratification of USMCA, the paper also examines the effect of the removal of U.S. tariffs on steel and aluminum imports from Canada and Mexico and their reciprocal withdrawal of surtax countermeasures.

And what are the results?

Mostly nothing. There are  few good provisions and a few bad provisions, so the net result is trivial.

Indeed, it’s worth emphasizing that the the most unambiguously positive result will be the removal of Trump’s anti-growth taxes on imports of steel and aluminum.

At the aggregate level, effects of the USMCA are relatively small. According to the analysis of this paper, key provisions in USMCA would lead to diminished economic integration in North America, reducing trade among the three North American partners by more than US$4 billion (0.4 percent) while offering members a combined welfare gain of US$538 million. Effects of the USMCA on real GDP are negligible. …The results show that the tighter rules of origin in the auto sector and the labor value content requirement would not achieve their desired outcomes. The new rules lead to a decline in the production of vehicles and parts in all three North-American countries, with shifts toward greater sourcing of both vehicles and parts from outside of the region. …The three countries would gain much from ending the dispute triggered by the U.S. tariffs on steel and aluminum. USMCA scenario is extended to include the removal of U.S. steel and aluminum tariffs and a reciprocal elimination of Canadian and Mexican retaliatory import surtaxes. The extension would increase the welfare gain for the Canada, Mexico and the United States by $2.5 billion.

P.S. I mentioned an ideal free trade agreement in the interview. I also should have pointed out that unilateral free trade also is a good option. Assuming, of course, one understands the benefits of trade.

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Image credit: AKrebs60 | Pixabay License.

Don’t Copy the United Kingdom’s Government-Run, Single-Payer Health System

Sun, 12/15/2019 - 12:35pm

I’m on my way back to the United States from England. My election-week coverage (starting here and ending here) is finished, but I’m still in the mood to write about the United Kingdom.

Yesterday, I shared some “Great Moments in British Government” and today I want to look at the U.K.’s single-payer health scheme.

The National Health Service (NHS) is inexplicably popular. Boris Johnson and Jeremy Corbyn basically competed over who would dump the most money into the system.

This near-universal affection is a mystery. There’s a lot of data suggesting the system doesn’t work.

Consider these details from a column by a British doctor.

One of the most curious political phenomena of the western world is the indestructible affection in which the British hold their National Health Service. No argument, no criticism, no evidence can diminish, let alone destroy, it. …Yet again, however, the NHS is in ‘crisis.’ The British Red Cross has called the present situation an incipient humanitarian crisis, as if the country were now more or less in the same category as Haiti after a hurricane… The current NHS has a budget 50 per cent greater than it had 10 years ago. It employs 25 per cent more doctors than it did then. …but the net result, according to those who say the present situation is the worst ever, is that it is less able than ever before to perform satisfactorily its most elementary tasks such as treating emergencies promptly. …The difference in the standard mortality rate of the richest and poorest is now almost double what it was when the NHS began. …in 2014 the Commonwealth Fund of New York, a foundation whose purpose is to promote an effective, efficient and equitable health care system, published a report in which it compared 11 western health care systems. …The measure on which it was next to worst was the number of deaths preventable by health care. …thousands of people die every year in Britain who would have been saved in any other country in Europe.

Here are some passages from a recent editorial by the Wall Street Journal.

The NHS managed to treat only 83.6% of emergency-room patients within four hours in October, compared to 89.1% a year earlier and well short of the government’s target of 95%. …The NHS also missed its target for 93% of patients with suspected cancer to be seen by a specialist within two weeks of referral by a family doctor. In September, 90.1% of patients saw a specialist within two weeks, down from 91.2% in September 2018. A bureaucrat or Senator Elizabeth Warren might think that’s good enough for government work. But it’s definitely not for the nearly 10% of patients and their families who had to live with a suspected cancer diagnosis… Politicians who want a U.S. version of the NHS via Medicare for All should explain why they want Americans to catch this British disease.

Here are some insights from a former British hospital director.

…the people at the very top of the NHS’s regional and national organisations still truly believe in command and control. They are the only people left who still believe in the power of the five year plan to solve pressing public policy problems. They set targets in the same way as the managers of the Soviet tractor factories… The hospital I was involved in had a problem with its A&E waiting times. We were provided with “help” from multiple NHS intervention teams. There were so many of them that they arrived in a bus… Each of them wanted slightly different information, each had a different view of what the problem was… After several weeks of this they came up with an action plan containing 147 individual actions, each of which then had to be measured and monitored and reported back to the intervention teams. We all knew that the action plan was there to tick the box required by the central bureaucracy, not to solve the problem. …Every profession has its own powerful union, dressed up as a professional body, that is quite happy to hold their employer to ransom. When I was on the hospital board it took two years of negotiations to get the pharmacists to work shifts so that the pharmacy could stay open until 7pm.

Even the left-leaning Guardian recognizes there are major problems.

British households will need to pay an extra £2,000 a year in tax to help the NHS cope with the demands of an ageing population, according to a new report that highlights the unprecedented financial pressures on the health system. …The report said the NHS has been struggling to cope… Niall Dickson, chief executive of the NHS Confederation, which commissioned the report and represents 85% of NHS bodies, said: “This report is a wake-up call. And its message is simple – if we want good, effective and safe services, we will have to find the resources to pay for them.” …“If we are to have a health and social care system which meets our needs and aspirations, we will have to pay a lot more for it over the next 15 years. This time we won’t be able to rely on cutting spending elsewhere – we will have to pay more in tax…” The report said…the money would have to be found from the three main sources of government revenue: income tax, VAT or national insurance.

An expert from the U.K.’s Taxpayers Alliance exposes some warts in the NHS.

Hardly a day goes by without stories of how cash-strapped the service is and how it is on the brink of collapse. According to pretty much everyone in the newspapers, on the TV, and on social media the solution is simple – more money. …The NHS is certainly in a sickly state, but more money is not the solution. International league tables frequently rank the NHS near the bottom in terms of healthcare quality. Moreover, the UK ranks 19th out of 23 for mortality amenable to healthcare and 20th out of 24 developed countries for cancer survival. The failings of the NHS are perhaps best summed up by The Guardian…: “The only serious black mark against the NHS was its poor record on keeping people alive”. …A specific ‘NHS tax’ is a particularly bad idea. …throwing more money at the NHS is not an adequate solution. Scotland spends more money per capita on healthcare than England, but has longer waiting times for appointments and slower response times for ambulances. …As the head of the NAO Amyas Morse observed… “Over the last ten years, there has been significant real growth in the resources going into the NHS, most of it funding higher staff pay and increases in headcount. The evidence shows that productivity in the same period has gone down, particularly in hospitals.”

Sally Pipes of the Pacific Research Institute also reveals some NHS shortcomings.

The United Kingdom’s single-payer system is in turmoil. It’d be foolish to import that failed model. The NHS has rationed care for decades. But wait times and delays have gotten markedly worse in recent months. The NHS recently canceled 55,000 non-urgent operations… Last month, nearly 15 percent of emergency-room patients had to wait more than four hours to be seen by a physician. The conditions are so bad in U.K. hospitals that, in a letter to the nation’s government, 68 British emergency room physicians recently complained about patients “dying prematurely in corridors” as a result of overcrowding. …no amount of money can fix a system in which government bureaucrats, and not markets, determine how to distribute healthcare resources.

Bruce Bawer is certainly not impressed with the NHS.

…the Brits have been brainwashed for generations into thinking their NHS is some kind of miracle. …What makes this NHS-worship especially grotesque is that the NHS, far from being successful, is a world-class disaster. Last July the BBC reported that the NHS was “increasingly” rationing such treatments as “hip and knee replacements and cataract surgery … as well as drugs for conditions such as arthritis.” …the NHS has always “covertly” rationed health care…cutting corners, canceling operations and doctor appointments, and extending already long waiting times even for urgent treatments. In October came reports that patients’ obesity and tobacco use were increasingly being used as excuses for denying them care. In November, a Cambridge University study concluded that 120,000 Brits had perished unnecessarily during the previous seven years…hospitals all over Britain — including operating rooms and maternity wards — were infested by cockroaches, maggots, insects, and rats. …the NHS is no role model. On the contrary, its history is a cautionary tale — and its prospects are nothing less than nightmarish.

Charles Hughes of the Manhattan Institute shares some grim news about the NHS’s performance.

A tracker from the BBC found that for 18 months hospitals across England, Wales, and Northern Ireland have failed to meet any of their three key targets, namely four-hour waits at the emergency department, cancer care within 62 days, and treating at least 92 percent of patients for planned hospital care or surgery within 18 weeks.  Waiting lists have ballooned. As of August 2017, the most recent month of data available, 409,000 had been waiting longer than 18 weeks for hospital treatment, an increase of almost 73,000 from the previous August. The median wait now stands at 7.1 weeks. …Citizens dissatisfied with rationing and wait times are turning to alternative options, forbidden in Canada. About 10 percent of people purchase supplemental private insurance for more timely treatment, many through company offerings. …Profit-driven hospital firms have seen a 15-25 percent year-on-year increase in the number of patients paying for their treatment themselves. People are also venturing abroad in their quest to get needed medical care. According to the Office of National Statistics, the total number of people leaving the U.K. for medical care surged from 48,000 in 2014 to almost 144,000 in 2016.

Some of the rationing and delays are simply due to government incompetence.

Some of it involves targeting certain segments of the population.

The NHS will ban patients from surgery indefinitely unless they lose weight or quit smoking, under controversial plans drawn up in Hertfordshire. The restrictions – thought to be the most extreme yet to be introduced by health services – immediately came under attack from the Royal College of Surgeons. …In recent years, a number of areas have introduced delays for such patients – with some told operations will be put back for months, during which time they are expected to try to lose weight or stop smoking. …The criteria also mean smokers will only be referred for operations if they have stopped smoking for at least eight weeks, with such patients breathalysed before referral.

My understanding is that the NHS does a good job with emergency care (you get maimed in a car accident) and a decent job with routine care (your annual check-up).

But you’re in big trouble if you have a chronic condition. Like people with cancer in Scotland.

More than 1,300 cancer patients in Scotland suffered agonising delays of more than two months to start treatment last year in breach of government targets. New figures show that, on average, 110 patients every month waited longer than 62 days for medical care after they were red-flagged by doctors for suspected cancer. The disclosure has prompted a wave of fresh criticism of the SNP, which in 2007 made a manifesto pledge to “ensure” suspected cancer patients were diagnosed and treated within 62 days.

I want to close by basically replicating some of my conversations from this past week with ordinary people in and around London.

When I highlighted shortcomings of the NHS, they routinely got defensive, admitted that their system isn’t perfect, and then attacked the American health system.

I think I surprised them by then stating that the U.S. healthcare system is a convoluted mix of waste and inefficiency.

I basically tried to give them this short speech, pointing out that our problems also are caused by government.

The Brits mess up their system by having the government directly provide medical care. We mess up our system with government-created third-party payer. In either case, the results aren’t pretty.

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Image credit: http://401kcalculator.org | CC BY-SA 2.0.

Great Moments in British Government

Sat, 12/14/2019 - 12:29pm

Technically, my coverage of U.K election week began last Monday with a look at Jeremy Corbyn’s radical statism, and ended yesterday with some analysis of Boris Johnson’s victory.

But since I’m still in England, this is an opportune time for a new edition of Great Moments in British Government.

For those who aren’t regular readers, I should add that “Great Moments” is a sarcastic term for odd stories that illustrate the incompetence and venality of government (statelocalforeign, etc).

We’ll start with a story that shows how insiders use government as a racket to enrich their lifestyles.

Local councils are spending millions on luxury cars for mayors and officials in “ceremonial” roles, an investigation has foundOver the past three years, 207 local authorities have spent more than £4.5million on vehicles including Bentleys, Jaguars and S-class Mercedes, information disclosed under the Freedom of Information Act reveals. The cars were used by mayors, lord mayors or chairmen. The TaxPayers’ Alliance, a campaign group which carried out the investigation, said the money went on officials who “often fulfil ceremonial duties within their local authority and serve as the ‘first citizen’.

Sounds like Washington’s gilded class!

For our next example, bureaucrats in the United Kingdom don’t do a very good job of teaching traditional subjects such as math and reading, so they’ve decided to try sharing their knowledge on a rather unconventional topic.

Children as young as six are being taught about touching or ‘stimulating’ their own genitals as part of classes that will become compulsory in hundreds of primary schools. Some parents believe the lessons – part of a controversial new sex and relationships teaching programme called All About Me – are ‘sexualising’ their young children. …Documents obtained by The Mail on Sunday detail how All About Me classes involve pupils aged between six and ten being told by teachers that there are ‘rules about touching yourself’. An explanation of ‘rules about self-stimulation’ appears in the scheme’s Year Two lesson plan for six and seven-year-olds. Under a section called Touching Myself, teachers are advised to tell children that ‘lots of people like to tickle or stroke themselves as it might feel nice’. …In one, pupils are told that when a girl called Autumn ‘has a bath and is alone she likes to touch herself between her legs. It feels nice’.

For what it’s worth, I wouldn’t have wanted my kids being exposed to this kind of topic, but I must admit that bureaucrats probably have some expertise on the matter.

Next, we have a story about a woman getting fined for feeding birds.

Neighbours complained about birds flocking to Maureen Francis’ garden after she began feeding them with bird seed and other food… Wiltshire Council gave Francis the protection notice after receiving complaints and told her she could only put out one ‘small caged bird feeder’. But she refused to comply with their demands, leading to the council taking her to court ‘for the sake of the neighbours’. When Francis failed to attend the hearing last week, magistrates convicted her of failing to comply with a protection notice in her absence. She was fined £250 for over feeding the animals and ordered to pay almost £1,600 in costs. Councillor Jerry Wickham, Wiltshire Council’s cabinet member for public protection, said: “Our officers made numerous attempts to engage with Mrs Francis to try and resolve this problem. “We were reluctant to take legal action but for the sake of the neighbours, prosecution was the only option.”

Gives over-criminalization a whole new meaning.

Last but not least, British officials decided it’s okay if a two-second journey is replaced by a one-hour trip.

Motorists in southwest England will need to pay special attention when driving through Dorset County next week, where officials are putting a 41-mile detour around a 65-foot stretch of construction work. …The small section of road A352 in Godmanstone, Dorset, will be closed Monday through Friday while construction crews work on a new sewage system… The detour is estimated to take an hour to complete. The closed portion of the road would take just over two seconds to travel at the 30 mph speed limit. …The council acknowledged that most residents will ignore the lengthy detour and use smaller roads to get around the construction work. Anyone caught using the closed stretch of road will be fined $1,291.

A few years ago, a clever entrepreneur in the United Kingdom dealt with a similar detour by building a private toll road.

I don’t know if such an option exists in this case, but I can state with considerable confidence that this impossibly inconvenient detour wouldn’t be an option if a private road company was making a sewage repair.

Why? Because private companies cater to customers.

Which is a good excuse to re-share this classic scene from Ghostbusters.

U.K. Election Week, Part V: A Tory Landslide for Brexit and Beyond

Fri, 12/13/2019 - 12:21pm

I was very surprised by the 2016 election in the United States, but I didn’t have a rooting interest, so I watched the results mostly for reasons of morbid curiosity.

Because of my support for Brexit, by contrast, I was intensely interested in the results of yesterday’s election in the United Kingdom.

So you can imagine my joy when the BBC announced at 10:00 last night that Boris Johnson and the pro-Brexit Conservative Party were going to win a landslide.

Here are maps showing the results, as well the seats that changed hands (it’s a parliamentary system, so a party that wins a majority of seats can form a government).

At the risk of oversimplifying, the Conservative Party (the Tories) prevailed because they picked up dozens of working class seats. Like American Democrats (at least in 2016), the Labour Party has been captured by the urban left and lost touch with ordinary people.

But here’s the data that I find most encouraging.

When asked before the election about why they might be worried about a Corbyn government, every single group of voters (even Corbyn supporters!) was concerned that he would spend too much money.

And many of them also were concerned he would damage the economy.

Why is this data encouraging?

Because we’re always told about polls suggesting the people support bigger government. I’m skeptical of these polls because they basically ask voters whether they would like Santa Claus to exist. So it’s not a big surprise the people say they want free things from government.

This data, however, suggests that – when push comes to shove – they understand that freebies aren’t free. As Margaret Thatcher warned, left-wing governments eventually will run out of other people’s money.

Now that Boris Johnson has won and has a big majority, what comes next?

I’m assuming a genuine Brexit will happen (yes, politicians have a nasty habit of doing bad things, but I can’t imagine Johnson engaging in the level of betrayal that would be required to strike a deal for a Theresa May-style Brexit in name only).

So I’ll be watching two other issues.

  1. Will Boris become the next Margaret Thatcher? I’ve already fretted that he’s too sympathetic to big government, but hopefully he pursues a pro-market agenda. Lower tax rates and genuine federalism (explained here by the Institute of Economic Affairs) would be a good place to start.
  2. Will the U.K. and E.U. agree to a good trade deal? In hopes of avoiding regulatory competition, the European Union doubtlessly wants any future trade deal with the U.K. to be based on regulatory harmonization. That would be very bad news. The U.K. should pursue a pact based on genuine free trade and mutual recognition.

Fingers crossed for good answers to these questions.

P.S. Regarding yesterday’s election, there were some big losers other than the Labour Party. The people who sell property in places such as MonacoCayman IslandsJerseyBermuda, and Switzerland doubtlessly are disappointed that there won’t be an influx of tax refugees escaping a Corbyn-led government.

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Image credit: EU2017EE Estonian Presidency | CC BY 2.0.

U.K. Election Week, Part IV: A Final Edition of Brexit Humor (Hopefully)

Thu, 12/12/2019 - 12:01pm

Today’s election in the United Kingdom presumably will decide Brexit, more than three years after the British people voted to leave.

  • If Boris Johnson wins, the government will honor the results of the 2016 referendum and extricate the United Kingdom from the European Union.
  • If the other parties win enough seats to block a Tory majority, they almost certainly will undo Brexit, presumably by setting up a rigged second referendum.

So this is likely my last opportunity to share some Brexit-themed humor.

For today’s collection, we’ll start with a 1990s-era Bird & Fortune skit mocking Tory euroskepticism. Sort of Brexit-themed before Brexit.

Rather reminiscent of this example of British stereotyping.

For those who don’t really understand the ins and outs of Brexit, Europe, and the United Kingdom, here’s a video that’s guaranteed to leave you even more confused.

Next we have a PG-13 song from John Oliver, put together back in 2016 before the referendum.

You’ll notice that the song implies the U.K. would be hurt by leaving, so it’s worth noting that all the “Project Fear” predictions (the IMF being a typical examplewere wildly wrong.

The U.K.’s economy has done better than continental Europe since Brexit was approved (in a just world, this would be the source of great embarrassment to the international bureaucracies and establishment voices who preached doom and gloom).

Indeed, the main selling point of Brexit is to enable more prosperity by escaping a slow-growth dirigiste European Union.

But I’m digressing. Let’s get back to humor. Here’s a French perspective on Brexit.

And here’s some satire from Ireland.

Here’s a joke that’s obviously anti-Brexit, but nonetheless is rather funny and worth sharing.

Since I’m disseminating lots of anti-Brexit humor today, here are some signs from people who presumably are not planning on voting for Boris Johnson.

This young lady is right about free trade, but wrong in thinking that approach requires a supranational government.

Here’s a clever mother-daughter duo.

I don’t know whether this comic is pro-Brexit or anti-Brexit, but he has a clever take on all the indecision that’s existed since the 2016 referendum (and he accurately explains the phony out-but-not-really-out Brexit that Theresa May wanted).

Speaking of indecision, we’ll wrap up with this cartoon that reflects some of the irritation that Europeans must be feeling as they wait to see what will finally happen.

 

 

If you want to peruse previous examples of Brexit-themed humor, I shared some satire shortly after the referendum in 2016, which included a very clever Hitler video.

I then shared some additional examples of Brexit humor earlier this year, including an amusing video message for the practitioners of Project Fear.

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Image credit: stux | Pixabay License.

Coalition to Congress: Surprise Billing Solution Can’t Include Rate-Setting

Wed, 12/11/2019 - 4:25pm

[PDF Version]

The Honorable Mitch McConnell
Majority Leader
United States Senate
317 Russell Senate Office Building
Washington, DC 20510

The Honorable John Thune
Majority Whip
United States Senate
511 Dirksen Senate Office Building
Washington, DC 20510

Dear Senators McConnell and Thune:

Reports suggest that some Members have reached a potential compromise to address surprise medical bills, but while we await further details, what is known thus far raises alarms.

Surprise bills are a problem faced by millions of Americans each year. It’s commendable that Congress is looking for solutions, but we, the undersigned organizations dedicated to promoting free markets, limited government, and constitutional principles, urge you not to rush to pass ill-considered proposals, especially as a ‘rider’ to a must-pass, year-end spending bill.

Any solution to the problem of surprise medical bills must recognize the reality of the health care market. High and opaque prices, for instance, are symptoms of a market heavily distorted by existing government interventions. Piling on with yet more heavy-handed regulation, such as with rate-setting through a benchmark payment for out-of-network providers, will only further complicate and distort the health care market. Furthermore, rate-setting will incentivize narrowing of networks, which undermines the goal of reducing surprise bills, and drive some doctors out of business.

Rather than reinvent the wheel, Congress should learn from the experiences of the states—our laboratories of democracy—that have already begun addressing surprise billing. Specifically, contrast the results of California’s embrace of price controls with New York’s adoption of independent dispute resolution.

In California, declining resources for doctors is fueling consolidation while physician networks are shrinking and harming patient access. On the other hand, New York reports a 34 percent reduction in out-of-network billing and $400 million in savings for consumers over 4 years.

We recognize that compromise is often necessary to move important legislation, but that doesn’t mean that any compromise will do. Rate-setting will exacerbate dysfunctions in the healthcare market and can’t be even a component of a bill to address surprise billing. If that means Congress must work a little longer on the issue, so be it. Patients will thank you for taking the time to get it right.

Sincerely,

Andrew F. Quinlan ~ President, Center for Freedom and Prosperity
Jason Pye ~ Vice President of Legislative Affairs, FreedomWorks
Jeffrey Mazzella ~ President, Center for Individual Freedom
Peter Ferrara ~ Senior Advisor, National Tax Limitation Committee
Andrew Langer ~ President, Institute for Liberty
Chuck Muth ~ President, Citizen Outreach
Sean Noble ~ President, American Encore
Judson Phillips ~ President, Tea Party Nation
Rick Manning ~ President, Americans for Limited Government
Norm Singleton ~ President, Ron Paul’s Campaign for Liberty
Seton Motley ~ President, Less Government
Matthew Kandrach ~ President, Consumer Action for a Strong Economy

U.K. Election Week, Part III: Remembering Margaret Thatcher

Wed, 12/11/2019 - 12:29pm

For two simple reasons, I want Boris Johnson to win a clear majority tomorrow in the elections for the British Parliament.

  1. He’s not a lunatic socialist, like Jeremy Corbyn, the leader of the Labour Party and the British version of Bernie Sanders.
  2. He’s promised a real Brexit, meaning the U.K. escapes a doomed-to-decline, ever-more-dirigiste European Union.

Beyond that, his platform is not terribly exciting for supporters of limited government.

Which makes me all the more nostalgic for Margaret Thatcher, the only good British Prime Minister in my lifetime (just as Ronald Reagan was the only good President in my lifetime).

I’ve previously shared two great videos of Thatcher, one about the real source of government funds and the other about the poisonous ideology of class warfare.

I can’t imagine Boris Johnson giving either speech.

Or making this statement.

Or giving these remarks.

As far as I know, Boris Johnson isn’t hostile to free markets and limited government.

He just doesn’t seem animated by a desire to shrink the public sector.

Thatcher, by contrast, was so sound on such issues that “Thatcherism” is now a term to describe good economic policy.

In a book review for City Journal, Alberto Mingardi celebrates Thatcherism.

Forty years on, Margaret Thatcher’s election as Great Britain’s first female prime minister still looks miraculous. …Right after World War II, Labour prime minister Clement Attlee, overly optimistic about the capacity of government to do great things, laid the foundations of the British welfare state. …The postwar economic consensus was so robust that it became known as Butskellism, since the policies of Rab Butler, the Conservative chancellor of the Exchequer from 1951 to 1955, and his Labour predecessor Hugh Gaitskell were indistinguishable. The glory days of interventionism didn’t last, however. By 1979, a third of the British workforce was employed by government, directly or indirectly, yet unemployment continued to rise throughout the 1970s. Inflation rose to double digits, exceeding 25 percent… Thatcher recognized the economic crisis as a failure of politics. She offered a gospel of government retrenchment and individual initiative that sounded outdated. She wanted to make people responsible again for their economic destinies, instead of entrusting their fates to state guidance. This meant denationalizing the British economy. Before Thatcher took office, “privatization” was a word out of science fiction; ten years after she left office, it was a global norm. She changed England and, by changing England, changed the world. …Thatcher aimed to stimulate self-reliance and independence, and she saw these virtues threatened by the culture of passivity that statism engenders. …the British political establishment always looked down on this shopkeeper’s daughter. And yet Thatcher’s defining quality, and the reason why we still speak of Thatcherism, is that she told people things that they didn’t want to hear.

And here are some excerpts about Thatcherism from a column by Roger Bootle for the U.K.-based Telegraph.

No previous British Prime Minister has had an ism named after them. …and if such an ism had been conjured up, it would surely not have been about economics. …“Thatcherism” was both substantial and essentially about political economy. …The main high intellectual influences, coming via Keith Joseph, were from Friedrich von Hayek and Milton Friedman. …Baroness Thatcher was ideological by nature. …When she first burst onto the stage it was a time for isms. Domestically, the 1970s had been a period of crisis. At various points, not just the economy but the whole system of democratic government in Britain seemed at the point of collapse. …Baroness Thatcher would have seen her ideological enemy then as “socialism”, which had brought the country low: excessive levels of government spending and taxation, lax financial discipline… Much of it was just the traditional liberal economic agenda, developed in the 19th century – free markets, free trade, competition, a small state, requiring only low levels of taxation, and financial probity. …Saying that this was just a retread of old 19th century liberalism doesn’t convey how radical these ideas were at the time, after decades in which markets were held under suspicion and even in a supposedly capitalist country like the UK, the state’s role in the economy was overwhelming. …there was more to Thatcherism than simply the liberal agenda. Classical liberalism was fleshed out with some more homespun beliefs – in value for money, efficiency, self-reliance, saving and wealth accumulation.

Warms my heart!

Speaking of which, I finally found some video of Margaret Thatcher’s famous line about socialists running out of other people’s money.

Shifting topics, nobody knows with total confidence whether Thatcher would have supported Brexit.

She was sympathetic to the original concept of Europe as a free-trade zone.

But as the free-trade pact began morphing into a pro-centralization supra-national government, she became increasingly hostile.

This video captures some of that skepticism.

For what it’s worth, I’m confident she would have been on the right side and supported Brexit.

I’ll close with an overall assessment of Thatcher’s overall economic record.

We’ll start with the United Kingdom’s score from Economic Freedom of the World.

As you can see, there was a dramatic increase in economic liberty during the Thatcher years.

The scores from EFW, which only exist in every fifth year, don’t exactly coincide with Thatcher’s tenure, but the trend is unmistakable.

Conversations with British experts lead me to state that she had three amazing accomplishments.

  1. Radical reductions in tax rates on income, with the top rate falling from 83 percent (98 percent for investment income) down to 40 percent. Unsurprisingly, the rich paid more tax with lower rates, just as happened when Reagan lower the top tax rate.
  2. Ending capital controls, meaning that people actually had the freedom to take money out of the country (many supposed experts advised against this liberalization, much as so-called experts advised Erhardt not to remove price controls in post-WWII Germany).
  3. Industry privatization, which meant undoing the pure socialist policies that resulted in the nationalization of major industries (gas, telecom, steel, coal, transport, etc) and gave government ownership and control over the means of production.

Her only notable bad policy is that she increased the value-added tax.

I also give Thatcher credit for a better-than-expected record on spending restraint (the same is true for David Cameron), and I also think she deserves praise from helping to bring inflation under control.

To be sure, this simplified assessment only skims the surface. And it doesn’t address “sins of omission,” such as her inability to pare back the the country’s creaky government-run health care system (though she did some incremental reforms, such as internal markets).

Nonetheless, the bottom line is that Thatcher was an amazingly successful Prime Minister. For all intents and purposes, she saved the United Kingdom.

P.S. If you want to see my assessments of American presidents, I’ve looked at ReaganClintonHooverNixonthe second Bush, and Obama.

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Image credit: U.S. News & World Report collection at the Library of Congress | Public Domain.

U.K. Election Week, Part II: Political Humor

Tue, 12/10/2019 - 12:13pm

I realize the prospect of a hard-core socialist government for the United Kingdom isn’t funny. Nor is it amusing to think that the political class could undo Brexit and leave the country trapped inside a slowly dying European Union.

So many people are in no mood to laugh about what might happen in Thursday’s election.

Nonetheless, here’s some election-themed humor from London.

We’ll start with this modernized version of this classic scene from Love, Actually.

But two can play at this game.

Here’s an ad from a Labour candidate.

Let’s not forget that there’s another political party, the Liberal Democrats.

Though they are a distant third place.

Unless, of course, pollsters are very creative in how they ask questions.

As is the case in the United States, many voters in the United Kingdom are not happy with their choices.

So this cartoon, featuring Guy Fawkes, who tried – but failed – to blow up Parliament in the early 1600s, makes a lot of sense.

Let’s close with some attention to the major candidates for Prime Minister.

Boris Johnson of the Conservative Party has a reputation for liking the opposite sex (sort of a British version of Bill Clinton).

Which has created some opportunities for amusing satire.

Most of the humor involving Jeremy Corbyn, by contrast, revolves around his statist ideology.

For instance, here’s an Advent Calendar from the Labour Party.

And here’s a look at the future if Corbyn wins the election.

Brits will have free broadband, but maybe not anything else.

Reminds me of this satirical poster from Obama’s 2012 campaign.

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Image credit: DonkeyHotey | CC BY 2.0.

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