The World Bank has come out with a wonderful short video explaining the benefits of trade liberalization among African countries:

Cato has addressed that topic in a 2005 paper:

[Accordingly,] in 1997 SSA countries levied an average applied tariff of 34 percent on agricultural exports from other SSA countries. Industrial countries, by contrast, imposed an average applied tariff of 24 percent on SSA agricultural exports. Similarly, SSA countries maintained an average applied tariff of 21 percent on nonagricultural exports from other SSA countries. Industrial countries imposed an average applied tariff of 4 percent on SSA non-agricultural exports.

According to the WTO, only 10 percent of African (including sub-Saharan African) exports were intraregional (i.e.: traded to other African countries). In contrast, 68 percent of exports from countries in Western Europe were exported to other Western European countries. Similarly, 40 percent of North American exports were to other countries in North America.

The World Bank Backs African Trade Liberalization is a post from Cato @ Liberty - Cato Institute Blog

After much wrangling and consternation, the Greek government has agreed to the latest round of “drastic austerity measures,” the most significant of which is the promise to cut 15,000 government jobs. In return, the Greeks will receive 130 billion euros ($170 billion) of European bailout money to keep the Greek state afloat and, crucially, in the eurozone. That, anyway, is the plan.

The leaders of the political parties that “support” the Greek technocratic (i.e. unelected) government still have to approve the cuts, which they might not do because the unions threaten a general strike. But, there are additional problems as well. First, many of those 15,000 government workers will likely come from the ranks of those who are close to retirement. While the number of government workers will thus shrink, the government’s unsustainable social security burden will worsen. Second, the government workforce (i.e. public servants and employees of the Greek parastatals) account for over 22 percent of the Greek labor force of 4.4 million. That means that the number of people working for the government will decline from 968,000 to 953,000—a reduction of 1.6 percent. And that is what amounts to a “drastic austerity measure” in Greece!

Cutting the Government—Greek Style is a post from Cato @ Liberty - Cato Institute Blog

The European leaders’ meeting in Brussels yesterday will likely fail to reassure the financial markets. First, the intergovernmental agreement on stricter budget controls among the members of the eurozone will still have to be approved by national parliaments and could potentially face legal challenges in one or more countries. Second, there is no guarantee that the agreed penalties for countries that run excessive budget deficits are either enforceable or sufficiently onerous to limit government spending. Third, the European leaders failed to make progress on the most important issue facing the EU economies—slow growth. Indeed, it is difficult to see how EU leaders—many of whom backed higher taxes and support more regulation—can be trusted to do anything useful to spur economic growth and private sector job creation in Europe.

The EU Summit Will Fail to Calm Markets is a post from Cato @ Liberty - Cato Institute Blog

Daniel Hannan’s post on the establishment of the European Credit Rating Agency makes some good points. The recent downgrade of a number of European countries is a consequence of low growth and massive debts and deficits.

Instead of implementing far-reaching structural reforms, however, an increasing number of European politicians talk about an Anglo-American conspiracy to sink Europe’s single currency, the euro. According to one of the most prominent EU parliamentarians, Elmar Brok of the German Christian Democratic Party, credit-rating agencies Standard & Poor’s, Moody’s and Fitch are part of the American economic war against Europe. The EU Commission president Jose Manuel Barroso implied as much some time ago.

So, naturally, what the EU needs is a European credit-rating agency that will provide an “objective” and “independent” analysis of the “true” state of the European economies. (The EU already has an “independent” think-tank called Bruegel that is largely funded by the European governments.)

EU Credit Rating Agency Hoax is a post from Cato @ Liberty - Cato Institute Blog

Foreign aid, as many (including myself) have argued, is a very bad idea. Aside from encouraging corruption and helping to keep nasty dictators in power, it is a major disincentive to necessary political and economic reforms.

Considering how little evidence the advocates of further foreign aid have to support their case and spending cuts across the Atlantic, you would have thought that aid budgets in rich countries would be among the first to be cut. Not so in Great Britain.

The Conservative-Liberal coalition’s spending cuts have been hailed as the most dramatic since WWII. For example, the island nation will lose its aircraft carrier, its famous Harrier jump jet fleet and thousands of jobs in the military. The defense budget will shrink by 7.5 percent, while other departments will be cut by 19 percent on average.

The only two departments that will not see any cuts are the socialist National Health Service (a bottomless money pit) and, you have guessed it, foreign aid, which will see an actual increase by an astonishing 37 percent.

Many will remember the Blair/Brown era for getting the UK involved in the Iraq War and bringing the country to the brink of bankruptcy. They should also remember it as an era that made support for foreign aid a badge of good citizenry — irrespective of common sense and all evidence to the contrary.

The Awesome Power of a Very Bad Idea is a post from Cato @ Liberty - Cato Institute Blog

The British Telegraph reports that 250 Members of the European Parliament, along with 80 assistants and 70 bureaucrats who work for the center-right European People’s Party in the European Parliament, took a “three-day study break” at the holiday resort on the Portuguese island of Madeira. The taxpayer will pay $500,000 for the trip that included a stay in five-star hotels. The formal program included “a debate on controversial plans by the MEPs to increase the EU budget for 2011.”

Great Job if You Can Get It is a post from Cato @ Liberty - Cato Institute Blog

On September 26, 2010 — 92 years after the WWI officially ended — Germany made her last payment of $94 million in reparations “to private individuals, pension funds and corporations holding debenture bonds as agreed under the Treaty of Versailles.” As Keynes rightly predicted, the unreasonably high French demands for financial reparations led to German economic weakness. The end result was hyperinflation, which was one of the principal causes of Hitler’s rise to power and the start of the Second World War. In spite of losing two world wars, Germany did eventually become the most powerful nation in Europe — through trade, capitalism and German ingenuity.

First World War Ends is a post from Cato @ Liberty - Cato Institute Blog

The Swiss finance minister Hans-Rudolf Merz lost his composure in the Swiss parliament earlier today and broke out in uncontrollable laughter. Merz was reading out a memorandum concerning foreign cured meat imports to Switzerland that was prepared for him by the Swiss customs office. The text, redolent with legalese, Merz acknowledged at the end of his speech, was incomprehensible. Unfortunately, there is no indication that the Swiss agricultural protectionism will be reformed as a result of this episode.

The Funny Side of Protectionism is a post from Cato @ Liberty - Cato Institute Blog

Having inherited an 8 percent budget deficit from the previous socialist government, the new conservative-liberal government of Slovakia has come up with a novel way of keeping budget deficits under control in the future. Starting in 2011, salaries of government ministers will rise and fall depending on the evolution of the fiscus. Thus, a budget deficit of 5 percent will translate to a 10 percent decrease in salaries, while an (unlikely) budget surplus of 5 percent will translate into a 10 percent rise in salaries, etc. It will be interesting to see if this new measure will truly result in a more responsible fiscal policy in the years to come.

Incidentally, had the United States adopted a similar measure, President Obama’s reported salary of $400,000 in 2009 would have fallen to $320,000 in 2010.

A Novel Way of Keeping Fiscal Deficits Under Control? is a post from Cato @ Liberty - Cato Institute Blog

Professor William Easterly, the economic development expert from New York University, has written an excellent comment for the Financial Times online. He writes, “The Millennium Development Goals [summit that wraps up in NY today] tragically misused the world’s goodwill to support failed official aid approaches to global poverty and gave virtually no support to proven approaches. … But current experience and history both speak loudly that the only real engine of growth out of poverty is private business, and there is no evidence that aid fuels such growth.”

At the Center for Global Liberty and Prosperity, we have continuously emphasized the power of trade to help the poor escape poverty. Unfortunately, politicians in rich countries find it easier to waste billions of taxpayers’ dollars in the form of foreign aid than to take on special interests that thrive on trade protectionism; hence European and American agricultural tariffs and subsidies.

However, the impact of rich countries’ protectionism should not be exaggerated. African countries are typically more protectionist than rich countries. In fact, they are more protectionist against one another than against rich countries. The sad truth is that poor countries are perfectly able to shoot themselves in the foot by following growth-killing economic policies – irrespective of what the rich countries do.

Foreign aid, incidentally, has been ineffective at promoting liberalization.

Trade Can Help the Poor Escape Poverty is a post from Cato @ Liberty - Cato Institute Blog

The European Union was meant to create a common market with free movement of goods, services, capital and people. The citizens of the “new” member states, such as the Czech Republic, should have been free to work in the “old” member states, such as Austria, from the date of accession of the “new” members to the EU on May 1, 2004. The Austrian government managed to postpone the horror of having laborers from ex-communist countries offer cheaper services to the Austrian citizenry until 2011.

With the 2011 deadline looming, Austrian politicians came up with an ingenious way to make it more difficult for the Czechs and other hoi polloi to enter the Austrian labor market. Beginning next year, it will be “illegal” for Austrian employers to pay less to a foreign laborer than they would to an Austrian. I am looking forward to seeing how this is to be accomplished without further wage regulations (collective bargaining and wage minimums in different sectors of the economy are widely used) and accompanying corruption.

I hope that the Czechs take the Austrian government to the European Court of Justice and pronto. If the Austrian measure is allowed to stand, it will undermine one of the four freedoms, and destroy an important source of competition and wealth creation in Europe.

Austrian Government Moves to Undermine Freedom of Movement in Europe is a post from Cato @ Liberty - Cato Institute Blog

Britain may have given the world freedom as we understand it (see The Liberty of Ancients Compared with that of Moderns by Benjamin Constant), but you would not know it from the last prime ministerial debate that took place last Thursday. The candidates (Conservative David Cameron, Labour’s Gordon Brown and Liberal Democrat Nick Clegg) used the word “freedom” only 2 times. They said the word “free” 5 times, but all in the context of the supposedly “free” goodies, which they promised to lavish on the electorate. Words “responsible” and “responsibility” fared somewhat better (4 times). But the winning words were “fair” and “fairness” that were mentioned 22 times — almost always in connection with taxing the rich. Here is a typical example:

Brown: “But I come back to the central question about fairness that has been raised by our questioner. How can David [Cameron] possibly justify an inheritance tax cut for millionaires at a time when he wants to cut Child Tax Credits? Let’s be honest. The inheritance tax threshold for couples is £650,000, if your house is worth less than that you pay no inheritance tax. What David [Cameron] is doing is giving 3,000 people, the richest people in the country, he’s going to give them £200,000 each a year. That is simply unfair.”

It was Gordon Brown, the current Prime Minister, who increased the top rate of income tax to 50%. Neither Clegg nor the supposedly business-friendly Cameron have proposed to cut that rate. Indeed, “fairness” in British politics seems to amount to little more than taxing the most productive members of society “until the pipes squeak.” Those words were uttered by Denis Healy who was the Chancellor of the Exchequer in the 1970s. It was under his leadership that the UK ran out of money and had to borrow billions from the IMF. It turns out that when you tax the rich too much, they will work less or leave for a more hospitable jurisdiction. Margaret Thatcher and Ronald Reagan understood it. Messrs Cameron, Clegg and Brown do not.



Forget Freedom. The UK Poll Is All About ‘Fairness’ is a post from Cato @ Liberty - Cato Institute Blog

This month, two vice-presidents of the Czech National Bank (CNB) have made very serious allegations against the International Monetary Fund. Below is the summary of their claims so far:

1. Speaking to the Austrian daily newspaper Der Standard on April 2, Mojmir Hampl, the vice-president of the CNB, said that the IMF under Dominique Strauss-Kahn “wanted to expand its role in Eastern Europe and obtain new financial resources.” Hampl claimed that the IMF exaggerated problems with the financial systems in Eastern Europe. “We have always emphasized that the instability of the financial system [in 2008] was a Western European problem. That proved correct… According to a recent EU report, only nine out of 27 EU member states did not have to introduce any financial stabilization measures [during the crisis]. All nine were new [mostly Eastern European] member states.”
2. Hampl’s claim was echoed by his colleague, CNB vice-president Miroslav Singer, in today’s edition of the Czech daily Hospodarske Noviny. According to Singer, “I cannot say nice things about the IMF’s role in the 2008 crisis.” The Financial Times, Singer continued, carried a lot of nonsensical stories about the state of the Czech financial sector prior to the crisis. Instead of dispelling those stories, the IMF produced a study about the Czech Republic based on incorrect data and then leaked it to the Financial Times.  “It is difficult to be certain… that the IMF wanted to harm the Czechs, Slovaks or Poles on purpose… More likely it was a combination of panic, lack of expertise and a desire to see problems everywhere.”

If true, these claims raise troubling questions about the incentives behind the largest increase of resources in the Fund’s history.

Did the IMF Deliberately Exaggerate the 2008 Financial Crisis? is a post from Cato @ Liberty - Cato Institute Blog

In a way, I always knew it would happen. I knew that, come November 9, the left-leaning NYT would publish an article focusing on the supposed crisis of capitalism rather than the end of communist dictatorship. Still, I was not prepared for Slavoj Zizek’s op-ed entitled “20 Years of Collapse.”

First, a few words about the author — a Marxist philosopher from Slovenia. Generally ignored or ridiculed in Slovenia, Zizek is considered (by some) to be the new messiah of leftist thought in the West. Why did the NYT chose to celebrate the 20th anniversary of the collapse of communism with Zizek’s call for “socialism with a human face,” rather than an op-ed by someone like Vladimir Bukovsky, a former Soviet political prisoner tormented for years by the communists, is anyone’s guess.

But, it is the substance of Zizek’s article that is so misleading. The article makes absolutely no mention of the economic progress made in Central and Eastern Europe. Yet, as the World Bank and even the United Nations tell us, incomes in the region have substantially increased and so has school enrollment. People live longer and healthier lives; environmental quality has much improved.

Zizek mentions communist oppression, but nowhere does he mention that 100 million people have died in the pursuit of communist utopia. Contemporary Marxists either ignore the astonishingly high number of victims of communism or try to minimize it. That is understandable. No matter what the (real or imagined) problems with capitalism are today, no sane person would be willing to embrace an alternative to capitalism that has a habit of resulting in a mountain of corpses.

The second — and equally risible tactic of contemporary communists (as Paul Hollander mentions in his just released Cato study) — is to try to draw a moral equivalence between socialism and market democracy. Zizek attempts to do exactly that by telling a story of a Soviet defector who became an outspoken critic of McCarthyism in the United States. The idea that there is any but the most superficial similarity between Soviet totalitarianism and the United States in the 1950s is preposterous — unless, of course, you are a modern-day leftist trying to salvage whatever remains of your philosophy from the dustbin of history.

Zizek is right to point out that there is growing disenchantment with capitalism and democracy. But, the recently released Pew and BBC polls have surely been influenced by the current (and likely temporary) economic environment, which, we are told, is the worst since the Great Depression. There are other psychological factors at work. Current problems feature more prominently in the minds of today’s Central and Eastern Europeans than shortages of 20 years ago and the old tend to remember their youth fondly — no matter what the actual political and economic circumstances.

Last, but not least, young people in the region know very little about communism. Learning about communism is by-and-large superficial, because the level of collaboration with communist regimes was very high among the general public. A thorough investigation of communist crimes would open too many wounds, it is claimed. Unfortunately, this collective amnesia means that instead of appreciating the great advances that their societies have made over the past 20 years, young people focus on their societies’ shortcomings vis-à-vis the contemporary West.

I have lived under communism. Although I have never personally experienced its true horrors, I had family members who did. The NYT’s choice of a lead op-ed on the day of an almost miraculous deliverance of hundreds of millions of people from communist slavery is shameful and sickening.

New York Times “Celebrates” the Fall of the Berlin Wall is a post from Cato @ Liberty - Cato Institute Blog

Bastien François, a professor of political science at the Sorbonne, writes that “The French political system is incomprehensible to the rest of the world… In France we call it a republican monarchy. That phrase says it all.”

Indeed, according to the press, a £250,000 ($413,000) shower with air conditioning and radio surround sound that was “built to the exact specifications of the French President Nicolas Sarkozy” was paid for by the EU taxpayer during the French Presidency of the European Union in July 2008.

 It was “disposed of soon afterwards, unused, together with most of the equipment bought for the £16million ($26 million) conference.” The press also reported “other expenses included £1million ($1.65 million) spent on the opening dinner alone – more than £23,000 ($38,000) for each of the 43 heads of state.”

It Is Good to Be the King: Taxpayers Pay $413,000 for French President’s Unused Luxury Shower is a post from Cato @ Liberty - Cato Institute Blog

According to press reports, the most recent opinion poll shows that 65% of Czechs support President Václav Klaus’ refusal to sign the Lisbon Treaty that would take more power from national parliaments and give it to the unelected bureaucracy in Brussels.

Klaus, who has been at the pinnacle of Czech politics for the last 20 years (as minister of finance, prime minister, speaker of the house and now as president), has an unmatched understanding of the Czech people. Clearly, once again, he was able to discern the public mood better than others. That includes his successor as the leader of the center-right Civic Democratic Party (ODS), Mirek Topolanek, who once opposed the Lisbon Treaty but now supports it. It seems that the ODS is in a state of revolt against him and may unseat him at the ODS Party Congress in November.

Klaus will be much encouraged by the above poll. As a consequence, it is less likely that he will give way under pressure and sign the Lisbon Treaty anytime soon. If he can hold out until the likely British referendum on the Lisbon Treaty midway through 2010, he will likely be remembered as the man who put an end to the most ambitious attempt to create a centralized European super-state in modern history.

Czech Support for Klaus at 65% is a post from Cato @ Liberty - Cato Institute Blog

The lower house of the Czech parliament passed legislation earlier today implementing a 15 percent flat tax on personal income. The new tax system will take effect on January 1, 2008, and the rate is then scheduled to drop to 12.5 percent in 2009. The legislation also reduces the corporate tax rate from 24 percent today to 19 percent by 2010.

The reform, which was narrowly passed by 101 members of the 200-member parliament, now goes to the upper house, where the government has a massive majority and no obstacles are expected. Once the reform clears that hurdle, it will then be signed into law by the Czech President Vaclav Klaus, who is a free-market economist. That act would make the Czech Republic the 20th country to adopt a flat tax. (The Bulgarian government has agreed to introduce a flat tax by January 2008, but the measure has not yet passed through the Bulgarian parliament.)

The opposition socialists have stated that they will repeal the law if or when they return to power and may even raise constitutional objections to it. For now it seems, however, that the legislation will come into force.

The Czech flat tax is a big step in the right direction, and another sign that tax competition is having a positive effect. But the legislation is not perfect. One of the salient features of a pure flat tax is the elimination of tax exemptions, deductions and loopholes. The Czech legislation is less ambitious and many of the bad features of the current system will remain in force. Also, the 15 percent tax rate will be levied on gross income, including payroll taxes. This means the tax rate is not directly comparable to nations that impose the flat tax only on net income, such as Slovakia.

The Czechs Adopt a Flat Tax is a post from Cato @ Liberty - Cato Institute Blog

The 7-months-long political stalemate in the Czech Republic ended this morning. The Czech Parliament approved a coalition government consisting of the liberal Civic Democrats, conservative Christian Democrats and centrist Greens. The new government is committed to a flat individual and corporate tax rate of between 17 percent and 19 percent (to be determined during pre-budget negotiations), and slashing regulation and state expenditure.

A last-minute desertion of two MPs from the socialist opposition enabled the government to squeak through, but the government remains in a precarious position. With only a 100 seats in a 200 seat Parliament, the government’s reform program will be difficult to push through.

The Czechs (Finally) Have a New Government is a post from Cato @ Liberty - Cato Institute Blog

Hugo Chavez came one step closer to becoming a full-fledged dictator last night, as “Venezuelan lawmakers gave initial approval to a bill granting … [him] the power to rule by decree for 18 months so that he can impose sweeping economic, social and political change.” The vote in the National Assembly was unanimous — as befits a budding communist country.

Not that Chavez’s powers were much constrained prior to yesterday, but his soon-to-be official recognition as Venezuela’s dictator serves as an important reminder that state control of the economy and dictatorship go hand in hand.

Since the collapse of the Soviet empire, many defenders of socialism have argued that dictators, including Mao, Stalin, and Pol Pot, were aberrations; they took Marx’s ideas in the wrong direction. They claim that nationalization of the means of production (call it communism, socialism, or Marxism) and democracy can be compatible. In The Road to Serfdom, Hayek showed that it cannot. Some 50 years later, Hayek’s argument holds. Every socialist regime tends toward authoritarianism of some sort.

Chavez reminds us of the anti-democratic nature of socialism. As such, he is turning into a major embarrassment for many on the Left who supported him. Unfortunately, what the proponents of socialism again and again fail to realize is that it is the message, not the messenger, that is embarrassing.

Venezuela: Plus ça Change, Plus C’est la Même Chose is a post from Cato @ Liberty - Cato Institute Blog

Johnny Hallyday, the French singer and actor, has had enough of high taxes in France and decided to move to Switzerland.

According to Hallyday, “Like many people in France, I have had enough of paying these ridiculous taxes we are forced today. That’s it, I’ve made my decision.”

French politicians are reported to be shocked. Jean-François Copé, the Budget Minister, has even said that “Johnny Hallyday was not carrying out his patriotic duty of paying his taxes to his own country.” It appears that no prominent politician in France has even considered the possibility that Hallyday may be right to want to keep more of the money he has earned!

Of course this is not the first time that a French celebrity has opted to live in a country with lower income tax. Some years ago, Laetitia Casta, a French supermodel, got upset over high taxes in her home country and left for London.

There she joined tens of thousands of her compatriots, who find the French taxes too burdensome and job opportunities too scarce. Casta’s flight would have been unremarkable had it not been for the fact that she was cast as the model for the bust of Marianne, symbol of the French Republic, an honor formerly held by Bridgitte Bardot and Catherine Deneuve.

The above stories personify the conflict between the image of France purveyed by the governing elite and the reality. On the one hand, France is portrayed as a strong and confident country, whose people, unlike the Americans, are committed to “social solidarity.” On the other hand, there is the reality of high taxes, high unemployment, uncertainty, and a general feeling of malaise. As more of the young, educated, and successful French move abroad, the welfare state will grow more unsustainable.

The question is, do Nicolas Sarkozy and Segolene Royal recognize the need for deep reforms, or will the victor of this year’s presidential elections turn out to be the younger version of Jacques Chirac?

Rich and Successful Flee France is a post from Cato @ Liberty - Cato Institute Blog