Archive for April, 2010
State Fiscal Reforms
The Federal Reserve Bank of St. Louis recently held a conference on state and local government finances. I presented a paper discussing four reforms for state and local governments to consider: abolishing corporate income taxes, privatizing government activities, cutting public-sector compensation, and reforming public-sector labor laws.
Those may seem like disparate policy ideas, but the common theme is that governments need to be smaller, more efficient, and more flexible if America is to prosper in an age of intense global competition.
What Colombia Needs Is More Economic Freedom
The Washington Post had an interesting story a few days ago on poverty in Colombia, a country that is viewed by many as Washington’s closest ally in Latin America. Colombians are heading to the polls on May 30th to elect a new president, so we’ll be hearing more about that country and Alvaro Uribe’s legacy as president in the upcoming weeks.
Uribe has been credited—rightly so—with making Colombia more secure. Crime rates have fallen dramatically since he took office in 2002, right-wing paramilitaries have been disbanded (although many complain that most of them just moved into regular criminal activities), and the decades-old Marxist FARC guerrilla group, which not long ago threatened Colombia’s capital and main cities, has been dealt spectacular blows to its leadership and is now a shadow of its former self.
As a result of a more secure environment, the economy has experienced a boom. Foreign direct investment has ballooned, growth rates have shown robust numbers, while poverty and unemployment have gone down. There is no doubt that Colombians are better off today than in 2002. However, as the Post story points out, poverty is still stubbornly high, and neighboring countries such as Peru seem to be having better results in reducing it. Perhaps this has to do with one key ingredient that has been largely missing in Uribe’s recipe for development: a bolder push for economic freedom.
Let’s be fair: According to the World Bank’s Doing Business report, Colombia significantly improved the ease of doing business in recent years. This is not a small feat given Latin America’s well known taste for red tape. The Uribe administration has also negotiated free trade agreements with the United States, Canada and the European Union, among others. Unfortunately, the agreements with the U.S. and Canada are stalled in those countries’ legislatures due to concerns about Colombia’s record on labor rights. These concerns are overblown, as shown here in this case for the U.S.-Colombia FTA.
However, Colombia scores poorly on economic freedom. Consequently, the country’s outlook won’t brighten much more as long as it stifles its economy with high tax rates, burdensome labor regulations, bloated public spending, impoverishing tariffs, and weak protection of property rights and enforcement of contracts. A comprehensive economic agenda must be undertaken in all these areas if the country is going to repeat the successes of other South American countries such as Chile and Peru in tackling poverty.
Unfortunately, none of the leading presidential candidates is talking much about the need for economic reforms. Despite the gains of recent years, security still monopolizes the political debate in Colombia.
This Week in Government Failure
Over at Downsizing Government, we focused on the following issues this week:
- You wouldn’t know it based on comments from members of Congress, but the U.S. Postal Service has a serious union problem.
- Food stamp cost and usage are at record highs. And no, it’s not good for the economy.
- When it comes to Fannie Mae and Freddie Mac, President Obama has amnesia.
- The federal government has more food subsidy programs than Tiger Woods had girlfriends.
- There’s not much difference between Sen. Kent Conrad’s budget proposal and the president’s. Both would continue the massive spending, deficits, and debt that are bankrupting the country.
Weekend Links
- Why new financial reform plans could make American business less competitive.
- Regardless of its currency regime, China has been the hottest major export market for U.S. companies in the last decade.
- How not to spend taxpayer money: City council in the UK spends £2,000 (about $3,000) on an 8-foot long bike lane.
- Could the U.S. become another Argentina?
- Podcast: “A Small Step Forward for Online Privacy” featuring Jim Harper.
SEC Incompetence
There has been much speculation that the Securities and Exchange Commission (SEC) released its charges against Goldman Sachs on the eve of a Senate vote on new finance regulation in order to help Democrats win that vote. Perhaps that theory is wrong: It now looks more likely that the SEC timed its Goldman case in order to divert attention away from two SEC inspector general (IG) reports criticizing the commission.
In one of the reports, the SEC IG found that several of the top staffers at the SEC were spending their days surfing the web for porn, rather than looking for securities fraud. One senior manager spent almost 8 hours a day looking a porn, getting to the point where he even filled up his government issued hard-drive with porn. His actions were not some isolated incident. Over 30 employees were found to have regularly used SEC computers to download and view porn. Some of the senior employees had salaries as high as $222,000 a year. Sounds like nice work, if you can get it.
But the porn charges are the least of the SEC’s worries. Also released was the IG’s report on the SEC’s failure to stop the Stanford Ponzi scheme. The report shows a clear pattern of incompetence at the SEC. Given the SEC’s failure to act on the Madoff scheme, and the repeated warnings about Stanford, one has to wonder how good SEC investogators are at discovering fraud if they don’t even pursue the clear-cut cases brought to them.
The IG report does help explain the SEC’s poor track record. The SEC’s head of enforcement made it very clear that the staff was “to bring more Wall Street types of cases.” Perhaps ones like the recent Goldman case? The head of enforcement even goes so far as to ask the staff working on the Stanford case, “What are you bringing these cases for?” Clearly the SEC only seems to care about fraud if its catches a big headline. Since the SEC was first warned about Stanford, investors placed about $8 billion more into the Ponzi scheme, far more than the damages alleged in the Goldman case.
If anything should expose the current financial regulatory bill being debated in the Senate as a fraud, it should be the fact that it leaves the SEC still standing. Even worse, it reduces Congressional oversight of the SEC by removing it from the appropriations process.
The Four Congressmen of the Cotton Subsidy Apocalypse?
Yet another show of that rare commodity, bipartisan efforts to reduce the size of government today. Four members of the House—two Republican and two Democrat—have sent a letter to President Obama, calling on him to reverse the insane policy of bribing Brazilian farmers with subsidies in an attempt to correct, in accordance with the perverse two-wrongs-make-a-right school of logic, for illegal U.S. subsidies. (There were other questionable parts of the deal with Brazil).
Barney Frank (D, MA), Ron Kind (D, WI), Paul Ryan (R, WI) and Jeff Flake (R, AZ) make compelling arguments for finding a better and more permanent solution to the dispute than the current (dodgy) deal with Brazil, including arguments about fiscal responsibility, the adverse effects of distorting markets in this way, and the implications for the U.S. economy of continuing to operate the cotton program in its current form.
They also cleverly allude to President Obama’s emphasis on enforcement in his trade policy, pointing out that enforcement runs two ways:
Should we fail to effectively reform [the cotton] program now, American businesses and workers wil pay the price because we refused to write a law that complies with our international obligations. We cannot expect our trading partners to play by the rules if we are not willing to do the same. [emphasis added]
The press release from Rep. Flake’s office contains some great quotes, too. Flake, for example, says, “This proposal takes our federal farm subsidy policy from the impractical to the absurd.”
But I’ll give the last word to Rep. Frank, who has this gem to offer:
[T]he Obama administration apparently feels compelled to preserve our right to subsidize American cotton farmers by extending that subsidy to Brazilian cotton farmers. People looking for an illustration of the meaning of the phrase, ‘from bad to worse,’ need look no further.
Well-Worn Ideological Grooves
This week, over drinks at a fresh, new watering hole on up-and-coming H Street, NE, my companion and I struck up a conversation with a local resident, artist, and dandy. (Yes, dandy. His hair is what got the conversation started.)
We all three appreciated in varying degrees the change coming to the street. Having been about to up-and-come for quite a while now, H Street seems actually to be taking off. There’s quite a lively scene on the eastern end now, known as the Atlas District.
Change isn’t always easy, though. Increased commerce and gentrification along the street are apparently already raising property values and increasing property taxes, which some longtime local businesses can’t afford.
So it is with capitalism, though, remorselessly serving the tastes of the masses, shoving aside the businesses—institutions, really—that can’t keep up.
Now ask yourself: Where is it part of “capitalism’s” nature that increased property taxes push out long-time local businesses?
Note how the ideological grooves people trace again and again don’t quite match actual events.
(If you’re the kind of person who would debate this kind of thing at the bar, though, don’t come to H Street. It’s still too cool for you.)
Trouble in Georgia: The Tonya Craft Trial
William Anderson has been blogging about a child abuse prosecution underway in Georgia in which Tonya Craft is accused of abusing her daughter. The daughter, some of her friends (and their parents), and Ms. Craft’s ex-husband are witnesses for the state — so Ms. Craft needed and obtained a good defense lawyer. However, there is only so much a defense lawyer can do when the prosecutor and the judge in the case start breaking rules.
Anderson’s account of the prosecutorial and judicial misconduct is shocking. Here’s a sampling:
- A Facebook status update written by the prosecutor, with comments left by witnesses for the pending trial.
- A mother claiming on the stand that her daughter had never taken acting classes, yet with information on IMDB that suggests she’s taken acting classes in Atlanta (that information was dismissed by the judge).
- The judge sitting on the case represented the defendant’s husband in their divorce, but refused to recuse himself from the case.
More here. Some are comparing this case to the Duke lacrosse players who were railroaded by Michael Nifong. That case — bad as it was — fell apart before the trial got underway. This case is in trial right now and the judge is compounding the prosecutorial abuses.
Anderson had a recent article in Cato’s Regulation magazine. For more Cato work on prosecutorial misconduct, go here and here.
Return of the Neo-Malthusians
This Earth Day we heard various commentators bemoan the growth in population, consumption, and carbon emissions driven by fossil fueled technologies. Once again we are told that this is unsustainable, that we are running out of resources, prices are inevitably headed up, and, worse, such consumption reduces both environmetal and human well-being. In this worldview, industrialization and economic development were fashioned in the Devil’s crucible, and that de-industrialization and de-development will be our saviour.
I have started a series of posts at Master Resources that compares the above Neo-Malthusian view of industrialization, economic growth, and technological change against empirical data on human well-being from the age of industrialization. The first post revisits the bet made in 1980 by Julian Simon and Paul Ehrlich on the direction of commodity prices, and examines long term trends in the prices and affordability of various commodities. Specifically, for metals, I look at trends going back to 1800, while for food I examine trends from 1900 onward. Parts II and III will compare long term trends in population, consumption, economic development, and carbon emissions against trends in human well-being for the world (from 1750 onward) and the United States (from 1900 onward). Finally, Part IV will provide an explanation as to why empirical data is at odds with the Neo-Malthusian worldview.
Part I, which examines the Simon-Ehrlich Bet in the context of long term trends in the prices and affordability of various commodities, is here.
Conrad’s Budget Proposal
Senate Budget Committee chairman Kent Conrad has released his budget plan for the next five years. The following are some thoughts on the proposal:
- Conrad proposes total federal spending for FY2011 equal to 25 percent of GDP, which would match the current fiscal year’s post-war record.
- Conrad says his proposal will cut spending as a share of the economy by 11 percent. This sounds okay until you realize that out-year spending would still be substantially above the norm at 22 percent of GDP.
- Conrad says his plan will cut the deficit as a share of the economy by 70 percent. But he’s starting from a Mount Everest-sized deficit of $1.4 trillion this year. Besides, his projected deficits for the next five years would add another $3.9 trillion to the debt.
- Conrad gets to his lower future deficits through tax increases. In addition to marginal tax rate increases on singles earning over $200,000 ($250,000 for couples), the alternative minimum tax would increase starting in 2012, and estate taxes in 2011. Conrad says “lawmakers will have to find revenues elsewhere in the budget” to provide AMT and estate tax relief in future years. Assuming Congress doesn’t suddenly find the gumption to offset the tax relief with spending cuts, more debt or tax increases elsewhere will be its solution.
- Conrad includes Obama’s proposal to freeze non-security discretionary funding for three years. Unfortunately, this segment of spending only amounts to 13 percent of the budget. As Chris Edwards has pointed out, actual spending will be higher as previously authorized stimulus spending sloshes forward.
- Conrad supports throwing more taxpayer money down the drain for failed federal experiments like education and Head Start.
- Conrad’s proposal includes a $2 billion reconciliation instruction, which could be a vehicle for getting more big government with 50 Senate votes. Last year’s budget resolution also contained a $2 billion reconciliation instruction that was used to facilitate passage of the gargantuan health care bill.
- With regard to the nation’s long-term fiscal woes, Conrad punts the ball to the president’s National Commission on Fiscal Responsibility and Reform. But this commission might be just a stalking horse for huge tax increases, which aren’t “responsible” and isn’t “reform.”
In sum, there’s not much difference between Conrad’s proposal and the President’s. Both would continue the massive spending, deficits, and debt that are bankrupting the country.
Was There a Libertarian Golden Age?
Recently I wrote an article arguing that there never was a golden age of liberty and that in particular libertarians should not hail 19th-century America as a small-government paradise, at least not without grappling with the massive problem of slavery. Jacob Hornberger, author of an article that I criticized, responded in Reason, and I then responded here. Meanwhile, an interesting discussion took place on a email list of libertarian scholars, and I’m pleased to have gotten the permission of several participants to include some of that discussion here:
Angel Investors
The Wall Street Journal has an important editorial today on how the financial “reform” bill being considered by Congress could help kill the angel investment industry in the United States.
Burying angels under new regulations would be part of a one-two knock-out blow for this group of more than 300,000 higher-income Americans who invest directly into start-up companies. The Obama administration’s tax-increase policies would be the other blow, as I testified to the Senate earlier this year.
Angels have played a crucial role in America’s dynamic job-creating economy over the decades. Policymakers would be absolutely crackers to screw up such a successful part of our innovation economy.
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