Archive for the ‘International Economics and Development’ Category
New Government of Honduras Takes a Wrong Turn
Facing mounting international pressure to reinstall a would-be despot, the provisional government of Honduras is taking a very wrong turn by asking the National Assembly to temporarily extend curfew powers and limit basic individual liberties.
The government claims that the measures, which will be in place for 72 hours, are justified to prevent any civil unrest given the imminent return of former president Manuel Zelaya to the country. However, the provisional authorities are actually undermining the rule of law and constitutional liberties that they claimed to be protecting when removing Zelaya from power last Sunday.
The individual rights and liberties that would be affected: the inviolability of homes, the right to protest peacefully, the guarantee against being held for more than 24 hours without charges, and the freedom to move around the country undisturbed.
These actions are unjustified. By moving to take away civil liberties from Hondurans, the provisional government undercuts its moral standing vis-à-vis the increasingly autocratic rule of Manuel Zelaya it came to replace. Even if these measures are meant to be temporary, history shows that once a government claims emergency powers, it is very hard to completely relinquish them once the “emergency” is gone.
Moreover, these restrictions do little service to the argument of the new Honduran government that Zelaya’s removal was not a military coup d’état. Having the army policing the streets and curbing the free movement of people and their right to protest peacefully gives the impression that the military is in charge and calling the shots.
The Honduran government should scrap these measures and reassure the population that their individual rights and liberties guaranteed under the Honduran constitution will be fully respected.
Filed under: Foreign Policy and National Security; International Economics and Development
The European Union Stops Banning Ugly Veggies
The European Union has helped create a continental European market and knock down protectionist barriers, which is good. But it also has created another opportunity for meddling bureaucrats to interfere with people’s lives.
Now consumer protests have led to at least one victory for liberty. Reports London’s Sun newspaper:
Now the European Commission has finally scrapped the 20-year ban on 26 types of fruit and veg including asparagus, celery and aubergines.
They ruled they can now be sold - as long as they are labelled as “intended for processing”.
Sainbury’s spokeswoman Lucy Maclennan said: “We are delighted to have played a part in winning the wonky veg war against these bonkers EU regulations.”
Tesco spokesman Adam Fisher said: “It’s not before time. We welcome this move.”
And last night it was predicted the change could see some prices fall by 40 PER CENT.
A Commission official said: “Times have changed - now household budgets are tighter and there is the problem of wasting food.”
One bad regulation down. Who knows how many to go?
Filed under: International Economics and Development; Regulatory Studies; Trade
Honduras’ President Is Removed from Office
Honduran President Manuel Zelaya is just the latest democratically elected Latin American leader to violate his country’s constitution in order to achieve his political goals. Both he and the practice of democracy in Honduras are now paying the price.
The removal from office of Zelaya on Sunday by the armed forces is the result of his continuous attempts to promote a referendum that would allow for his reelection, a move that had been declared illegal by the Supreme Court and the Electoral Tribunal and condemned by the Honduran Congress and the attorney general. Unfortunately, the Honduran constitution does not provide an effective civilian mechanism for removing a president from office after repeated violations of the law, such as impeachment in the U.S. Constitution. Nonetheless, the armed forces acted under the order of the country’s Supreme Court, and the presidency has been promptly bestowed on the civilian figure — the president of Congress — specified by the constitution.
Restoration of stable democracy in Honduras could benefit from two things: one, the Electoral Tribunal and Congress calling for general elections earlier than they are scheduled in November; and two, an international condemnation of moves by strongarm figures like Zelaya to undermine democratic institutions and the rule of law.
Filed under: Foreign Policy and National Security; International Economics and Development
Spinning…When a President who Seeks Dictatorial Powers in an Illegal Move Is Removed by the Congress and by the Supreme Court, Is it a “Military Coup”?
The media discussion of events in Honduras is remarkably confused. Here’s CNN:
The president of the U.N. General Assembly scheduled a noon session Monday to discuss the situation in Honduras, following a military-led coup that ousted the sitting president.
and
Micheletti, the head of Congress, became president after lawmakers voted by a show of hands to strip Zelaya of his powers, with a resolution stating that Zelaya “provoked confrontations and divisions” within the country.
….
The coup came on the same day that he had vowed to follow through with a nonbinding referendum that the Honduran Supreme Court had ruled illegal.
Imagine that George Bush, Barack Obama, Bill Clinton, Ronald Reagan or some other American president had decided to overturn the Constitution so that he could stay in power beyond the constitutionally limited time. To do that, he orders a nationwide referendum that is not constitutionally authorized and blatantly illegal. The Federal Election Commission rules that it is illegal. The Supreme Court rules that it is illegal. The Congress votes to strip the president of his powers and, as members of Congress are not that good at overcoming the president’s personally loyal and handpicked bodyguards, they send police and military to arrest the president. Now, which party is guilty of leading a coup?
This is another example of populist, dictatorial, anti-democratic thought parading as “democratic.” I discuss the issue in my recent lecture on enduring democracy in New Delhi.
Tax Oppression Index Ranks America in Bottom Half of Industrialized Nations
A thorough new study of 30 nations from the Institut Constant de Rebecque in Switzerland reveals serious shortcomings in America’s tax system.
The report, entitled “Tax burden and individual rights in the OECD: An International Comparison,” creates a Tax Oppression Index based on three key variables: the overall tax burden, public governance, and taxpayer rights. The good news is that the United States has a comparatively low aggregate tax burden, though America’s score on this measure would be much better in the absence of a punitively high corporate tax rate. The bad news is that corruption and inefficiency in Washington drag down America’s score for public governance. The ugly news is that America has a very low rating for protecting taxpayer rights — largely because politicians have tilted the playing field to favor the IRS, including the fact that taxpayers lose the presumption of innocence provided in the Constitution.
Here is a brief description of the study:
The OECD’s campaign against “harmful tax competition” and “tax havens” has overshadowed the essential issue, namely the important roles that both tax competition and “tax havens” play for capital preservation and formation, leading to higher prosperity and better protection of individual rights throughout the OECD.
The tax oppression index is based on 18 representative criteria measuring fiscal attractiveness, public governance and financial privacy in the 30 member states of the OECD. Switzerland appears as the country with the lowest tax oppression — due to a relatively low tax burden and a more [classical] liberal institutional order, including its citizens’ right to veto legislation, political decentralization, and protection of financial privacy. Germany and France, on the other hand, whose governments have supported the OECD’s efforts, are among the most questionable states in terms of safeguarding their residents’ individual rights.
…The tax oppression index evaluates the 30 OECD member states on three complementary dimensions quantified by 18 representative criteria, on the basis of OECD and World Bank data. The index enables relevant conclusions about the tax burden and individual rights among those countries.
Switzerland earns the top ranking in the report, followed by Luxembourg, Austria, Canada, and Slovakia. Italy and Turkey have the worst systems, followed by Poland, Mexico, and Germany. The United States is tied for 19th, behind the welfare states of Scandinavia. With Obama promising to raise tax rates and increase the power of the IRS, it may just be a matter of time before the United States is competing for the world’s most oppressive tax regime.
Filed under: International Economics and Development; Tax and Budget Policy
A Tree Grows in Washington
The front-page of the Washington Post’s latest Outlook section features a review of James Tooley’s wonderful book The Beautiful Tree: A Personal Journey Into How the World’s Poorest People Are Educating Themselves. From the review:
The officials Tooley encountered in his travels often denied the existence (much less the superiority) of private schools for low-income children. “There are no private schools for the poor,” a bureaucrat in China’s Gansu province told Tooley, “because the People’s Republic has provided all the poor with public schools. So what you propose to research does not only not exist, it is also a logical impossibility.”
Undeterred, Tooley spent years surveying private schools across the developing world. He found that, on average, they had smaller class sizes, higher test scores and more motivated teachers, all while spending less than public schools…. Tooley blasts development experts for recognizing the problems with public education and still insisting that more investment in public schools is the way to go. “Why wasn’t anyone else thinking that private schools might be part of a quicker, easier, more effective solution?” he asks.
… Tooley, meanwhile, with a Rough Guide in one pocket and an endless supply of exclamation points in the other, drowns readers in local color, detailing every “bright-eyed” school child and every “thin drifting smog” above a shantytown.
Still, Tooley’s passion comes off as genuine.
Filed under: Education and Child Policy; International Economics and Development
The UN Can’t Even Promote Health
When people ask if the United Nations can serve any useful role, I find myself mumbling that maybe it can do some good on issues with cross-border impact, such as aiding refugees and improving health care. However, I always add, the record has not been good even there.
Now even the UN is admitting that it is hard to demonstrate that it has done any good on health care despite spending billions of dollars collected largely from American and other Western taxpayers.
In the last two decades, the world has spent more than $20 billion trying to save people from death and disease in poor countries.
UPDATE: The AP has made a correction to their original story that reported the UN had spent $20 billion on health care programs. They meant to say nearly $200 billion:
LONDON (AP) — In the last two decades, the world has spent more than $196 billion trying to save people from death and disease in poor countries.
But just what the world’s gotten for its money isn’t clear, according to two studies published Friday in the medical journal Lancet.
Millions of people are now protected against diseases like yellow fever, sleeping under anti-malaria bed nets and taking AIDS drugs. Much beyond that, it’s tough to gauge the effectiveness of pricey programs led by the United Nations and its partners, and in some cases, big spending may even be counterproductive, the studies say.
I’m thinking of changing my answer the next time I’m asked if the UN has any positive roles to a simple and emphatic “no.”
Filed under: Health, Welfare & Entitlements; International Economics and Development
High Noon for U.S. Trade Policy
This morning, the U.S. International Trade Commission issued an affirmative determination in a so-called “Section 421” or “China-Specific Safeguard” case that imports of consumer tires from China are causing market disruption in the United States. That may sound like just another day in Washington, but the decision could very well be the catalyst for the most consequential event in trade policy since the Bush steel tariffs of 2002. It will certainly force a defining moment for a president who has preferred obfuscation to clear direction on trade policy.
Under the statute (which became U.S. law as a condition of China’s accession to the World Trade Organization in 2001), the ITC has 20 days to provide remedial recommendations to the president and the U.S. trade representative. Those recommendations are likely to include quotas, tariffs, or some combination that will ultimately curtail the supply and raise the prices of all tires in the United States — not just those imported from China. However, the president has the discretion to deny import “relief” if he determines that such restrictions would have an adverse impact on the U.S. economy that is clearly greater than its benefits, or if he determines that such relief would cause serious harm to the national security of the United States.
I will forego my own explanation as to why restrictions would have an adverse impact that is clearly greater than its benefits, and instead give you the statement of the U.S. Tire Industry Association, which represents “all segments of the tire industry, including those that manufacture, repair, recycle, sell, service or use new or retreaded tires, and also those suppliers or individuals who furnish equipment, material or services to the industry.” Suffice it to say that no producers of tires in the United States supported this petition, so it is not a matter of U.S. tire producers against Chinese tire producers. It is really nothing more than a matter of a U.S. union objecting to management’s decision to produce its lowest grade (lowest quality, lowest priced, lowest profit margin) tires abroad. Yet the consequences of trade restraints could affect interests across and throughout the economy, particularly if China responds in kind.
During the Bush administration, there were six Section 421 cases filed by domestic parties, four of which were found by the ITC to warrant import relief. In each of those four cases, President Bush exercised his discretion to deny relief. The tires case is a test case for President Obama. Will 421 fly under this president? Or will it remain the dead letter that petitioners considered it to be under President Bush?
The stakes are much higher for Obama than they were for Bush because the unions (the United Steel Workers union is the petitioner in the tires case) and the Chinese both feel more emboldened in their positions now. Bush didn’t win the near-unanimous support of organized labor in his elections, nor did he promise to get tough on Chinese trade practices, as Obama did.
Instead, Bush set the precedent of denying relief. And he did it four times. So, the Chinese see this firmly as a matter of presidential discretion — unlike antidumping or countervailing duties, which run on statutory auto pilot without requiring the president’s attention or consent. In other words, although there are over 50 outstanding U.S. antidumping and countervailing duty orders against various Chinese products, none of them is considered to reflect the direct wishes of the U.S. president, and thus don’t rise to the level of a potentially explosive trade dispute. But trade restraints under the 421 will no doubt be considered by the Chinese to be a directive of the U.S. president, thus the offense taken and the consequences wrought could be profound.
The good news is that President Obama will finally be forced to take a stand — to match his words and deeds. After a campaign in which trade was disparaged, President Obama’s first 100 days were characterized by a conciliatory tone and some enlightened actions. He told the Mexican president and the Canadian prime minister that he no longer wanted to reopen NAFTA. He spoke out against the most protectionist provisions of the Buy American language in the so-called stimulus bill. He repudiated protectionism and pledged to avoid new protectionist measures at the G-20 and before other international gatherings. His Treasury Department declined to label China a currency manipulator. And his trade representative set about articulating a pro-trade agenda, including support for a push to pass pending bilateral trade agreements and concluding the Doha Round.
But there’s been very little follow through and trade partners are beginning to doubt his sincerity. Efforts to schedule votes on pending trade agreements have been shunted aside as too controversial to happen before health care reform legislation. In the meantime, imports are being turned away from U.S. procurement projects on account of some mindless Buy American caveats and overzealous interpretation of other Buy American rules by project administrators, which is inciting copycat rules in Canada and China.
The time has come for the president to stop wavering and to take decisive actions on trade policy. Of course, he will have until September 17 to render his decision about whether to grant or deny relief in the tires case. Between now and then he should conclude that trade restrictions are not the appropriate course — that among other problems, they will also undermine his economic and diplomatic objectives. And while he’s denying relief, he should take some advice from Scott Lincicome and me to speak the truth about trade to those constituencies who will feel betrayed. Directly and honestly making the case for trade to those who doubt is more durable than rationalizing each pro-trade decision, which has been the norm for too long in Washington. Besides, the polls show that Americans have already turned the corner and are moving away from their misguided flirtation with protectionism. That may help inspire an uncommitted president to take the baton.
Filed under: International Economics and Development; Trade
Prime Minister of Finland Commits Gaffe, Admits that Anti-Tax Competition Schemes Are Designed to Enable Higher Tax Burdens
Most politicians and other advocates of tax harmonization are clever enough to pretend that they do not want higher tax rates. Instead, they assert that their proposals are merely ways of reducing evasion and making tax systems more efficient. So it is rather surprising that the Prime Minister of Finland has a column in the Financial Times, where he admits that various governments should conspire to simultaneously raise tax rates in order to finance big government:
The overall tax rate will have to rise as well over the longer term. In some areas that can be done without much consultation between the countries. For example, property taxes or inheritance taxes can largely be determined at the national level without adverse economic consequences. But such taxes will not raise significant amounts of revenue. Only changes in value added tax, various excise taxes or taxes on earned and capital income can make a real difference. However, raising such taxes can have detrimental effects on economic activity. This is especially so when a country acts on its own: capital and people can respond by migrating to jurisdictions with lower rates. Deeper co-operation is therefore necessary if tax revenues are to be increased in a way that truly helps fiscal consolidation. …It is important that different countries do not find themselves with very different tax solutions. We should avoid tax competition and the damage this would cause to Europe’s economic growth. …member countries could agree, for example, to change the levels of certain taxes in parallel. Parallel measures would help all of Europe: tax competition risk would be reduced and the public finances of individual countries would improve. Such co-ordinated tax changes could set also an important global example. In particular, it might encourage the US – with lower tax levels in most areas – to do what has to be done to address its spiralling budget deficit.
In the column, Prime Minister Vanhanen even suggests that the United States might be tempted to join the tax cartel. This has always been a goal of the Europeans since an OPEC for politicians without the United States will not work any better than the real OPEC without Saudi Arabia. One of my first videos — back in late 2007 — was on this topic, and it is embedded below for those who did not have a chance to view it.
Filed under: International Economics and Development; Tax and Budget Policy
The Populist Assault on the Latin American Press
Mary O’Grady writes in today’s Wall Street Journal on the Kirchners’ threats to press freedom in Argentina. Unfortunately, the attack on free expression is part of a worrying trend that is intensifying in some of the region’s populist countries. For more, see Gabriela Calderón’s post on Ecuador here; and my posts on Ecuador and on Venezuelan President Hugo Chávez’s efforts to close down Globovision TV here and here.
Latvia Retains Flat Tax, Disappointing Class-Warfare Advocates
The Baltic nation of Latvia is in the middle of a serious economic downturn resulting largely from a credit bubble and excessive government spending. This created an opening for those who have long wanted to undo the nation’s flat tax and impose a discriminatory system. Indeed, the economic Luddites at the Tax Research Network were already celebrating the expected demise of the single-rate tax. Unfortunately for them (but fortunately for Latvians), the government made a stunning announcement that the flat tax will be retained according to Reuters:
Latvia’s government is to reduce old age pensions and state sector salaries but not raise taxes, it said on Thursday as it tries to win more loans and avert crisis and possible currency devaluation. The five-party coalition government agreed with social partners such as unions and employers on ways to find savings of 500 million lats ($1.01 billion) to win further loans from the International Monetary Fund and European Union, which are seen as the only way to survive a deep economic slump. “It was a difficult decision and it will not be popular but it had to be done,” Prime Minister Valdis Dombrovskis told reporters after a marathon and sometimes chaotic government session of almost 12 hours. “Our decision is sending a signal to the EU that we are serious,” he added. Against expectations, the government decided against introducing a progressive income tax for the first time to replace the current flat tax of 23 percent. The moves will include a cut in old age pensions of 10 percent, a whopping 70 percent cut in the pensions of those who still work, and a 20 percent cut in state sector salaries.
To be sure, this may not be the last word on this issue. Latvian politicians eventually may decide to undo the flat tax. Or perhaps Iceland’s new left-wing government may be the first nation to backslide to a so-called progressive tax system. Regular readers of the blog may recall that we have a theme song that we include every time there is an announcement of a new flat tax nation. In preparation for bad news, we have selected a theme song for when a nation decides to go in the wrong direction.
Filed under: International Economics and Development; Tax and Budget Policy
Ecuador’s Continuing Attack on the Free Press
Last year the Ecuadorian government seized two TV channels broadcasting on public airwaves and one cable channel along with hundreds of other businesses supposedly owned by the Isaías family, an unpopular Ecuadorian business group that the government bailed out in the late nineties. In seizing those assets, the current government claimed to be cashing in on a long overdue debt owed to it by the Isaías family. Leaving the violations of due process aside, this was a significant attack on freedom of the press in Ecuador given that the two public access channels garnered almost half the country’s TV audience. Back then the government said it was going to sell off the seized channels but it has not done so yet.
The last elections in my country, held on April 26, showed how government ends up manipulating state media: 79% of the political ads aired on these channels went for the official candidates despite the fact that the new electoral rules require every candidate to have equal air time.
Since those elections, Carlos Vera, the most popular morning news anchor in the country, quit his channel Ecuavisa because he claims to have been subject to the self-censorship imposed by Ecuavisa’s owner. According to Vera, the owner wanted to dictate whom he should interview on his show and chose not to air one of his interviews which, coincidentally, was with the President’s main political opponent. Vera issued a public statement explaining that he would not censor his show nor would he let anybody else do so. Since then, Ecuavisa’s independence has been severely questioned.
This leaves us with one important public airwaves channel that is still independent: Teleamazonas.
For the past couple of weeks there have been growing rumors that the government might shut down Teleamazonas applying the laws of Conartel, the regulator of TV and radio stations. According to Ecuadorian regulations, which have their origins in the military dictatorship of General Rodríguez Lara of the early 1970s, a TV channel or radio station can be sanctioned symbolically for $20 the first time it commits a violation; suspended for up to 90 days the second time; and lose its concession to operate for good the third time. Conartel has already imposed two sanctions on Teleamazonas.
In the first case Teleamazonas was sanctioned for showing bull fighting images, which Conartel has considered to be “conducive to violence” and thus, in violation of its regulations. This is a questionable rule, especially in a country in which bull-fighting takes center stage every December in Quito. In the case of the second sanction Conartel is applying a clause that forbids the live reporting of unconfirmed events. Such a law would make illegal most of the news reported in CNN or other news networks that report in real time. In this particular case, Teleamazonas aired images of what appeared to be a clandestine vote-counting center.
For now, we are waiting to hear from Conartel about the third sanction and what it is going to do about the second sanction, which would, if enforced, mean the suspension of Teleamazonas for up to 90 days. I wonder what freedom of expression Ecuadorians would be left with if the government decided to apply Conartel’s rules consistently to every TV and radio station.
Meanwhile the former Minister of the Interior, Gustavo Larrea, called attention to “journalists whose salary comes from foreign powers” including the CIA, though he did not specify what individuals he was referring to.
When asked about details he merely replied that it was the duty of a legislative commission to find out. I guess he is suggesting that individuals like myself, who write for an Ecuadorian newspaper but are not employed by an Ecuadorian company, should be investigated…
What is happening in Ecuador, and what has been happening in Venezuela over the last few years — the shutdown of RCTV, and the ongoing persecution of Globovisión — shows that in countries with a weak rule of law and public ownership of the airwaves, regulations can easily serve those in power who want to silence independent voices. Nobel Laureate Ronald Coase warned Americans about this potential abuse of power in 1959 in his classic “The Federal Communications Commission.” Back then he wondered, “In other fields it is almost always agreed that the use of property rights and of the price system serves the public good, why not in the case of radios [and TV]?”
An Uneven Playing Field
Cato’s tax experts, Chris Edwards and Dan Mitchell, have written extensively on international tax competition. Their research shows that countries can help attract investment and spur economic growth by lowering their tax rates.
Could countries employ this same strategy to make their sports teams better?
Real Madrid, one of the most popular and successful soccer teams in the world, recently purchased the rights to two of the sport’s top players. They acquired Kaka, who was named the world’s best soccer player in 2007, from Italian powerhouse, AC Milan. And they lured Cristiano Ronaldo, the world’s top player in 2008, away from Manchester United, the reigning champions of the English Premier League.
There are a number of reasons why Kaka and Ronaldo are moving to Spain, but it’s pretty clear that taxes played a significant role. That’s because in 2005, Spain passed a tax break for foreign workers, including soccer players. This gives Spanish teams a huge advantage in bidding wars with teams from higher-tax countries like Italy and England. To make matters worse, England recently raised its top income tax rate.
“The new tax rate in England is going to make things much harder for English clubs,” noted Jonathan Barnett, a leading sports agent whose clients include Glen Johnson, Ashley Cole and Peter Crouch. “It will hinder the [English] Premier League and help the Spanish league because Spain has big tax discounts for footballers, so there’s an enormous advantage to go there. Someone like Ronaldo could be offered the same money at Real Madrid but be 25% better off.”
Similarly, a frustrated executive from AC Milan blames Kaka’s departure on the Italian tax system: “I repeat, this is all a matter of different types of taxation. If we were a Spanish club, we would have saved €40 million.”
Policymakers and soccer fans alike should take note.
Filed under: International Economics and Development; Tax and Budget Policy
World Bank Criticizes Corruption in Argentina, Then Awards its Government $2 Billion
According to the Argentine daily La Nación [in Spanish], the World Bank warned yesterday about “corruption, money laundering, inflation, indebtedness and nationalizations in Argentina.” Then the WB went ahead and approved a series of loans to the country for approximately $2 billion.
The Argentine minister of Labor said that the credits were “a good sign of confidence” by the World Bank on the country.
Europe Votes … For Something
The results are in after the Europeans voted in elections for the European Parliament. But while they were voting for the European Parliament, they largely voted on national issues. Ruling parties in Britain and Hungary were blasted. The Spanish ruling party took a hit. Anti-immigration candidates in Britain, Denmark, the Netherlands, and Austria did well. Ruling conservative governments in France, Italy, and Germany (in coalition) also prospered — after stealing the interventionist economic policies of their opponents.
Particularly noteworthy is the continuing fall in voter turnout. Barely 43 percent showed up at the polls last week. The Eurocratic elite is worried, as they should be. As decision-making increasingly flows to Brussels, and to unelected institutions in Brussels, people perceive government to be less accountable.
Czech President Vaclav Klaus observed earlier this year: “There is no European demos — and no European nation.” Alas, the divide between governed and governors is only going to increase if the Irish people ultimately approve the Lisbon Treaty, which further consolidates power in Brussels. It is a worrisome trend for anyone concerned about liberty, as I discuss in a new article on American Spectator online.
Filed under: Foreign Policy and National Security; International Economics and Development
Drug Related Gun Battle in Acapulco Leaves 18 Dead
A wild shootout over the weekend in Acapulco indicates that the drug-related violence in Mexico is spreading.
The Washington Post reports:
Suspected drug traffickers trapped in a safe house fought a furious gun battle with Mexican soldiers early Sunday in the beach resort city of Acapulco. As terrified residents and tourists cowered in their rooms, the firefight raged for two hours, leaving 16 gunmen dead. Two soldiers were also killed and several bystanders were wounded.
The gunmen, suspected members of one of Mexico’s major cartels, threw as many as 50 grenades at the advancing soldiers, and both sides fired thousands of rounds from assault rifles.
Mexican officials have long argued that while there has been serious turmoil in some cities along the border with the United States, the main tourist resort areas are safe. Even before the Acapulco incident, though, events over the past year had cast some doubt on such complacent assurances. A few months ago, a retired general who had just been appointed to direct anti-drug efforts in Cancun was assassinated, and there have been other troubling developments. The main Gulf coast and Pacific resorts are certainly safer than the war zones in such places as Tijuana, Nuevo Laredo, and Ciudad Juarez, but American tourists should not be lulled into thinking that those areas are immune from the drug violence.
President Felipe Calderon’s decision nearly three years ago to launch a military offensive against the drug cartels has backfired. The strategy has not stemmed the flow of illegal drugs into the United States, it has merely caused a spike in the violence and made Mexico a more turbulent, dangerous place for everyone.
Filed under: International Economics and Development; Law and Civil Liberties
Global Taxes and More Foreign Aid
The U.K.-based Guardian reports that the United Nations and other international bureaucracies dealing with so-called climate change are scheming to impose global taxes. That’s not too surprising, but it is discouraging to read that the Obama Administration appears to be acquiescing to these attacks on U.S. fiscal sovereignty. The Administration also has indicated it wants to squander an additional $400 billion on foreign aid, adding injury to injury:
…rich countries will be asked to accept a compulsory levy on international flight tickets and shipping fuel to raise billions of dollars to help the world’s poorest countries adapt to combat climate change. The suggestions come at the start of the second week in the latest round of UN climate talks in Bonn, where 192 countries are starting to negotiate a global agreement to limit and then reduce greenhouse gas emissions. The issue of funding for adaptation is critical to success but the hardest to agree. …It has been proposed by the world’s 50 least developed countries. It could be matched by a compulsory surcharge on all international shipping fuel, said Connie Hedegaard, the Danish environment and energy minister who will host the final UN climate summit in December. …In Bonn last week, a separate Mexican proposal to raise billions of dollars was gaining ground. The idea, known as the “green fund” plan, would oblige all countries to pay amounts according to a formula reflecting the size of their economy, their greenhouse gas emissions and the country’s population. That could ensure that rich countries, which have the longest history of using of fossil fuels, pay the most to the fund. Recently, the proposal won praise from 17 major-economy countries meeting in Paris as a possible mechanism to help finance a UN pact. The US special envoy for climate change, Todd Stern, called it “highly constructive”. …Last week, a US negotiator, Jonathan Pershing, said that the US had budgeted $400m to help poor countries adapt to climate change as an interim measure. But that amount was dismissed as inadequate by Bernarditas Muller of the Philippines, who is the co-ordinator of the G77 and China group of countries.
Filed under: International Economics and Development; Tax and Budget Policy
Is Obama Making America like Sweden?
If only.
Just as the Obama administration takes over another once-great American company, Sweden is busy privatizing. As the Christian Science Monitor reported recently:
Last week, the country’s center-right government began selling off state-owned pharmacies, one of the country’s few remaining nationalized companies, as part of an ambitious program of liberal economic reforms started in 2006. In the same week, a study by the Swedish Unemployment Insurance Board revealed that almost half of the country’s jobless lacked full unemployment benefits. Many opted out of the state scheme when the cost of membership was raised last year; others were ineligible.
State pensions, schools, healthcare, public transport, and post offices have been fully or partly privatized over the last decade, making Sweden one of the most free market orientated economies in the world, analysts say.
Please, President Obama, send Larry Summers to Sweden to get some new ideas for economic reform.
Filed under: International Economics and Development; Political Philosophy
“We Don’t Want Venezuela to Become a Totalitarian Communist State”
“We don’t want Venezuela to become a totalitarian communist state,” declared Peruvian novelist Mario Vargas Llosa yesterday in Caracas at the opening of a major conference organized by the market-liberal think tank, CEDICE. I’m in Venezuela this week with my Cato colleagues Juan Carlos Hidalgo and Gabriela Calderon to participate in the event and to run a seminar for 60 students and young leaders from Venezuela, which took place earlier this week.
Vargas Llosa’s concern is not about some remote possibility. Nor is it the opinion of an isolated intellectual detached from reality. His comments received sustained applause from the over-flow crowd of the 600 people in attendance and he has been mobbed by the press since he arrived here yesterday. Venezuela is not yet a full fledged dictatorship, evidenced by the fact that we are meeting here with leading liberal intellectuals from the region. But the environment of intolerance, arbitrary rule, and state vilification of anybody who disagrees with Hugo Chavez’s march toward socialism has worsened at an alarming rate in recent months.
Greedy Politicians Intrigued by Value-Added Tax to Finance European-Style Welfare State in America
The Washington Post reports that there is growing interest among politicians for a form of national sales tax known as the value-added tax (VAT). But rather than use the VAT to replace the income tax, the politicians want a new source of revenue to expand the burden of government. The story explains:
With… President Obama pushing a trillion-dollar-plus expansion of health coverage, some Washington policymakers are taking a fresh look at a money-making idea long considered politically taboo: a national sales tax. Common around the world, including in Europe, such a tax — called a value-added tax, or VAT — has not been seriously considered in the United States. But advocates say few other options can generate the kind of money the nation will need… At a White House conference earlier this year on the government’s budget problems, a roomful of tax experts pleaded with Treasury Secretary Timothy F. Geithner to consider a VAT. A recent flurry of books and papers on the subject is attracting genuine, if furtive, interest in Congress. And last month, after wrestling with the White House over the massive deficits projected under Obama’s policies, the chairman of the Senate Budget Committee declared that a VAT should be part of the debate. “There is a growing awareness of the need for fundamental tax reform,” Sen. Kent Conrad (D-N.D.) said in an interview. “I think a VAT and a high-end income tax have got to be on the table.” …”While we do not want to rule any credible idea in or out as we discuss the way forward with Congress, the VAT tax, in particular, is popular with academics but highly controversial with policymakers,” said Kenneth Baer, a spokesman for White House Budget Director Peter Orszag. Still, Orszag has hired a prominent VAT advocate to advise him on health care: Ezekiel Emanuel, brother of White House chief of staff Rahm Emanuel and author of the 2008 book “Health Care, Guaranteed.” Meanwhile, former Federal Reserve chairman Paul A. Volcker, chairman of a task force Obama assigned to study the tax system, has expressed at least tentative support for a VAT. “Everybody who understands our long-term budget problems understands we’re going to need a new source of revenue, and a VAT is an obvious candidate,” said Leonard Burman, co-director of the Tax Policy Center, a joint project of the Urban Institute and the Brookings Institution, who testified on Capitol Hill this month about his own VAT plan.
Not surprisingly, the Washington Post did not bother to quote any free-market people who oppose giving politicians a new source of money. For what it is worth, I wrote a piece for National Review in 2005 that explains why a VAT is a terrible idea. The core arguments are just as relevant today as they were then:
A VAT might have some theoretically attractive features, but it is a perniciously effective way of raising revenues and inevitably leads to bigger government. The best evidence comes from Europe. Back in the mid-1960s, the burden of government in Europe wasn’t that much higher than it was in the United States. Tax revenues consumed about 30 percent of gross domestic product in Europe. The U.S. had a small advantage: The tax burden, including state and local governments, was about 27 percent of GDP. But then European governments started adopting the VAT. Denmark was the first to do so in 1967. France and Germany followed, with many other European nations imposing the tax within 5 years. For politicians, the VAT was great news. Besides being a new source of revenue, the VAT has been a disturbingly easy tax to increase since it’s built into the price of products and hidden from consumers. Moreover, even small increases generate a big pile of revenue because the tax base is so broad. The tax has become so easy to raise that VAT rates in Europe average more than 20 percent. For taxpayers, however, the news has been disastrous. Thanks to this levy, the burden of government in Europe today is much higher than it is in the U.S. On average, taxes consume about 41 percent of Europe’s economic output. While other taxes have also climbed, the VAT certainly has helped finance the explosion of social welfare spending that creates such a drag on European economies. In the U.S., by contrast, the total tax burden as a share of GDP is about where it was 40 years ago — 27 percent… Many European governments…claimed that more destructive taxes would be reduced or repealed once the VAT was implemented. In the short term, this was true: As late as 1975, taxes on income and profits were lower in the EU than they were in the U.S. But this was a transitory phenomenon. Income-tax rates quickly began climbing and almost immediately jumped above U.S. levels. Ironically, the VAT facilitated higher tax rates on income since politicians often argued that a higher VAT had to be accompanied by higher income-tax burdens to ensure the tax burden wasn’t being shifted to lower-income taxpayers. There is only one scenario that would make a VAT acceptable. If U.S. lawmakers were willing to repeal the 16th Amendment and abolish all taxes on income, a VAT would be an acceptable risk. But until that happens, taxpayers should vigorously resist the Europeanization of America.
Filed under: International Economics and Development; Tax and Budget Policy
Chavez Tries to Shut Down Pro-Free Market Educational Conference
The Cato Institute media department sent this press release to media outlets in Latin America, after the Venezuelan government tried to shut down a Cato-sponsored conference this week:
CAUCAGUA, VENEZUELA—A Cato Institute educational seminar fell victim to an attempt by the Venezuelan government to shut it down for expressing ideas critical of the Chavez regime.
Numerous Venezuelan government agencies harassed the Cato Institute event, called Universidad El Cato-CEDICE, or “Cato University,” which took place in Caucagua, Venezuela May 24-26. The event is co-sponsored by the Venezuelan free-market think tank Centro de Divulgación del Conocimiento Económico por la Libertad (CEDICE) and was organized to teach and promote the classical liberal principles of limited government, individual liberty, free markets and peace.
During the course of the event on Monday, the National Guard, state television and a state representative from a ministry of higher education interrupted the seminar, demanding that the seminar be shut down on the grounds that the event organizers did not have permission to establish a university in Venezuela. When the authorities were told that neither Cato nor CEDICE was establishing a university and that the Cato Institute has long sponsored student seminars called Cato Universities, the authorities then insisted that the seminar was in violation of Venezuelan law for false advertising.
After two hours of groundless accusations, the Chavez representatives left but their harassment has continued. One of the speakers at the seminar, Peruvian intellectual Alvaro Vargas Llosa, was detained by airport authorities Monday afternoon for three hours for no apparent reason. He was released and told that he could stay in the country as long as he did not express political opinions in Venezuela.
“The government’s attacks on freedom of speech are part of a worrying pattern of abuse of power in Hugo Chavez’s Venezuela,” said Ian Vasquez, director of Cato’s Center for Global Liberty and Prosperity, from Caucagua. “But they have so far not managed to alter the plans of the Cato Institute here, and will hopefully not do so, as we continue to participate in further meetings the rest of this week.”
For more information about Cato programs in Latin America, visit www.ElCato.org.
UPDATE (5/27, 2:30 PM EST) : Cato just received word from scholar Ian Vásquez that “Chavistas are gathering in front of the conference hotel now…Cato is all over state TV.”
Vásquez snapped this photo of people carrying anti-Cato signs and protesting the conference.
Filed under: General; International Economics and Development; Political Philosophy
A British Warning on Health Care
Briton Daniel Hannan, a member of the European Parliament, gained international noteriety when he challenged Prime Minister Gordon Brown after the latter spoke to the European Parliament. Hannan also has been warning Americans not to follow Britain in socializing its health care system.
Filed under: Health, Welfare & Entitlements; International Economics and Development
Obama’s Proposed IRS Rules Mean Trouble for Overseas Americans, Will Also Lead to Less Investment in America
The U.K.’s Daily Telegraph reports that British banks may turn away any America clients as a result of an Administration proposal to modify the already-onerous Qualified Intermediary rules and make them even worse. This makes life more difficult for overseas Americans, which will compromise the competitiveness of U.S. firms trying to win market share around the world. It also will discourage foreign financial institutions from investing in America since pulling out of the U.S. market is an easy way to get out from under the IRS’s unfair extraterritorial regulatory reach.
British banks and stockbrokers may refuse to take on American clients if new international tax proposals outlined by President Obama are passed. The decision, which would make it hard for Americans in London to open bank accounts and trade shares, is being discussed by executives at Britain’s banks and brokers who say it could become too expensive to service American clients. The proposals, which were unveiled as part of the president’s first budget, are designed to clamp-down on American tax evaders abroad. However bank bosses say they are being asked to take on the task of collecting American taxes at a cost and legal liability that are inexpedient. …One executive at a top UK bank who didn’t want to be named for fear of angering the IRS said: “It’s just about manageable under the current system - and that’s because we’re big. The danger to us is suddenly being hauled over the coals by the IRS for a client that hasn’t paid proper taxes. The audit costs will soar. We’ll have to pay it but I know plenty of smaller players won’t.” The British Bankers Association (BBA) and APCIMS had a meeting with European counterparts 10 days ago to discuss the crisis. A delegation is set to meet the US Treasury’s Internal Revenue Service on 16th June to demand they drop the reforms. …President Obama’s proposals are built on the so-called Qualified Intermediary system which was intended to ensure Americans paid the correct tax wherever they were domiciled. Foreign financial institutions that handle American money have to fill in a US tax form on behalf of the client that has to be audited too.
Filed under: International Economics and Development; Tax and Budget Policy
Foreign Aid Establishment Runs Scared
For years the foreign aid establishment has simply pointed at pictures of starving children abroad and said: give. Congresses and presidents have responded by tossing billions at the World Bank, International Monetary Fund, U.S. Agency for International Development, and other so-called aid agencies. The result, unfortunately, has been continuing poverty mixed with increased indebtedness. For good reason aid has been said to involve taking money from poor people in rich countries and giving it to rich people in poor countries. But the arguments against misnamed “foreign aid” advanced by Cato and other free market advocates have been largely ignored.
The latest challenger is Zambian economist Dambisa Moyo, who has gained significant public attention for her new book, Dead Aid. I’ve reviewed it in the Washington Times and Cato has hosted a forum for her. Dedicated to legendary British economist P.T. Bauer, the first recipient of Cato’s Milton Friedman Prize, Dead Aid excoriates the aid establishment for supporting policies that actually make recipients worse off. Foreign aid would be better called foreign hindrance.
Now, reports the Financial Times (full text hidden behind a subscription wall, alas):
A swell of opposition is building in the aid world to a new protagonist who has thrown down a strident challenge to the rock stars and liberal economists who have long dominated debate over foreign assistance to developing countries.
Galled by the ease with which Dambisa Moyo, a Zambian economist and former investment banker, has risen to prominence this year, activists are circulating detailed critiques of her ideas and mass mailing African non-government organisations to mobilise support against her.
Yet it is proving hard to suppress the hyper-active graduate of Oxford and Harvard, who pops up weekly in a new capital to promote her book, Dead Aid — the title itself an affront to rock star Bob Geldorf’s Live Aid campaigns.
Obviously the aid lobby is worried. Free market friends should jump in to back up Moyo. She has brought both attention and credibility to the case against foreign aid. This moment must not be wasted.
Filed under: Foreign Policy and National Security; International Economics and Development
Tax Bureaucrats Take the Fun out of Everything
The Daily Mail reports that a Romanian student who sold her virginity to the highest bidder as part of an online auction may wind up keeping less than half of her earnings thanks to Germany’s oppressive tax system:
Tax authorities in Germany are poised to claim 50 per cent of the money that a teenage student earned for ‘auctioning’ her virginity… Romanian-born Alina Percea, who is a student in Germany, was paid £8,800 in cash for a weekend of sex with the Italian businessman after she auctioned her virginity online. But tax officials in Berlin regard the 18-year-old’s act as ‘nothing more than prostitution’. Prostitution is legal in Germany — but it is heavily taxed. …It also emerged that, because Alina earned so much in such a short time, she may even be liable for a hefty VAT bill too. VAT in Germany works out to 19 per cent, meaning the sale of her virginity could land her with just over £3,000 in the end.
Filed under: International Economics and Development; Tax and Budget Policy
O Canada!
So not only is Canada economically freer than the United States, with government spending and taxes about to be lower than ours, now the Canadian navy has saved an American ship from a pirate attack off Somalia. It may be time to play “The World Turned Upside Down” again.
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