When Ronald Reagan said that big government undermined the economy, some people dismissed his comments because of his philosophical belief in liberty.

And when I discuss my work on the economic impact of government spending, I often get the same reaction.

This is why it’s important that a growing number of establishment outfits are slowly but surely coming around to the same point of view.

• The European Central Bank published a study showing “…a significant negative effect of the size of government on growth.”
• A study by two Harvard economists found that “large adjustments in fiscal policy, if based on well-targeted spending cuts, have often led to expansions.”
• The Organization for Economic Cooperation and Development noted in recent research that welfare programs are economically destructive because they lure people into dependency because “net disposable income would increase despite putting in fewer hours.”
• A study from the International Monetary Fund concluded that “Cuts to pension and health entitlements had the most beneficial effect on economic growth.”

This is remarkable. It’s beginning to look like the entire world has figured out that there’s an inverse relationship between big government and economic performance.

That’s an exaggeration, of course. There are still holdouts pushing for more statism in Pyongyang, Paris, Havana, and parts of Washington, DC.

But maybe they’ll be convinced by new research from the World Bank, which just produced a major report on the outlook for Europe. In chapter 7, the authors explain some of the ways that big government can undermine prosperity.

There are good reasons to suspect that big government is bad for growth. Taxation is perhaps the most obvious (Bergh and Henrekson 2010). Governments have to tax the private sector in order to spend, but taxes distort the allocation of resources in the economy. Producers and consumers change their behavior to reduce their tax payments. Hence certain activities that would have taken place without taxes, do not. Workers may work fewer hours, moderate their career plans, or show less interest in acquiring new skills. Enterprises may scale down production, reduce investments, or turn down opportunities to innovate. …Over time, big governments can also create sclerotic bureaucracies that crowd out private sector employment and lead to a dependency on public transfers and public wages. The larger the group of people reliant on public wages or benefits, the stronger the political demand for public programs and the higher the excess burden of taxes. Slowing the economy, such a trend could increase the share of the population relying on government transfers, leading to a vicious cycle (Alesina and Wacziarg 1998). Large public administrations can also give rise to organized interest groups keener on exploiting their powers for their own benefit rather than facilitating a prosperous private sector (Olson 1982).

In other words, government spending undermines growth, and the damage is magnified by a poorly designed tax policies.

The authors then put forth a theoretical hypothesis.

…economic models argue that the excess burden of tax increases disproportionately with the tax rate—in fact, roughly proportional to its tax rate squared (Auerbach 1985). Likewise, the scope for self-interested bureaucracies becomes larger as the government channels more resources. At the same time, the core functions of government, such as enforcing property rights, rule of law and economic openness, can be accomplished by small governments. All this suggests that as government gets bigger, it becomes more likely that the negative impact of government might dominate its positive impact. Ultimately, this issue has to be settled empirically. So what do the data say?

These are important insights, showing that class-warfare tax increases are especially destructive and that government spending undermines growth unless the public sector is limited to core functions.

Then the authors report their results.

Figure 7.9 groups annual observations in four categories according to the share of government spending in GDP during that year. Both samples show a negative relationship between government size and growth, though the reduction in growth as government becomes bigger is far more pronounced in Europe, particularly when government size exceeds 40 percent of GDP. …we provide new econometric evidence on the impact of government size on growth using a panel of advanced and emerging economies since 1995. As estimates can be biased due to problems of omitted variables, endogeneity, or measurement errors, it is necessary to rely on a broad range of estimators. …They suggest that a 10 percentage point increase in initial government spending as a share of GDP in Europe is associated with a reduction in annual real per capita GDP growth of around 0.6–0.9 percentage points a year (table A7.2). The estimates are roughly in line with those from panel regressions on advanced economies in the EU15 and OECD countries for periods from 1960 or 1970 to 1995 or 2005 (Bergh and Henrekson 2010 and 2011).

These results aren’t good news for Europe, but they also are a warning sign for the United States. The burden of government spending has jumped by about 8-percentage points of GDP since Bill Clinton left office, so this could be the explanation for why growth in America is so sluggish.

Last but not least, they report that social welfare spending does the most damage.

Governments are big in Europe mainly due to high social transfers, and big governments are a drag on growth. The question is whether this is because of high social transfers? The answer seems to be that it is. The regression results for Europe, using the same approach as outlined earlier, show a consistently negative effect of social transfers on growth, even though the coefficients vary in size and significance (table A7.4). The result is confirmed through BACE regressions. High social transfers might well be the negative link from government size to growth in Europe.

The last point in this passage needs to be emphasized. It is redistribution spending that does the greatest damage. In other words, it’s almost as if Obama (and his counterparts in places such as France and Greece) are trying to do the greatest possible damage to the economy.

In reality, of course, these politicians are simply trying to buy votes. But they need to understand that this shallow behavior imposes very high costs in terms of foregone growth.

To elaborate, this video discusses the Rahn Curve, which augments the data in the World Bank study.

As I argue in the video, even though most of the research shows that economic growth is maximized when government spending is about 20 percent of GDP, I think the real answer is that prosperity is maximized when the public sector consumes less than 10 percent of GDP.

But since government in the United States is now consuming more than 40 percent of GDP (about as much as Spain!), the first priority is to figure out some way of moving back in the right direction by restraining government so it grows slower than the private sector.

Data in New World Bank Report Shows that Large Public Sectors Reduce Economic Growth is a post from Cato @ Liberty - Cato Institute Blog

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

Like other government hand-out programs, the unemployment insurance system suffers from a substantial fraud problem. The Washington Post reports that 90 D.C. city employees and 40 former employees are being investigated for grabbing UI benefits to which they were not entitled. The cost of this fraud has been about $800,000 since 2009.

It’s not hard to rip-off federal subsidy programs, and UI is no exception. The Post reports that “the alleged fraud is not complicated, nor is it uncommon in unemployment insurance programs: Workers apply for checks and receive them legitimately for a time but fail to inform authorities when they go back to work.”

Other sources of UI fraud include the misreporting of earnings, the provision of false ID to gain benefits, and falsifying reasons for employment termination. Nationwide, the Department of Labor estimates that the improper payment rate for UI is about 11 percent, which amounted to $17 billion of wasted taxpayer money in 2010.

What’s the solution? The nation of Chile appears to have found it. In 2002 it created a system of UI personal savings accounts to replace the traditional government hand-out system. The new system built on the success of Chile’s Social Security personal account system. UI personal accounts help solve the fraud problem because workers would only be stealing from their own accounts if they took unjustified benefits.

There are other benefits to the Chilean system. A detailed study in 2010 found that the nation’s savings-based UI system helped improve work incentives and reduced unemployment. Such accounts can also add to the long-term retirement savings of workers.

For a full analysis of the failures of our UI system and possible reforms, see my co-authored essay on DG here.

Unemployment Insurance Fraud: Chile Has Solution is a post from Cato @ Liberty - Cato Institute Blog

Josefina Vázquez Mota won the nomination of the incumbent National Action Party (PAN) for Mexico’s upcoming presidential election. Most of the coverage in the international media today focuses on how she is the first woman to have a real shot at Los Pinos (the official residence of the president of Mexico). However, the real story should be what new ideas (if any) Vázquez Mota brings to the table. Unfortunately, there’s isn’t much to report.

The same can be said of the other two presidential contenders, Enrique Peña Nieto of the Institutional Revolutionary Party (PRI) and Andrés Manuel López Obrador of the Democratic Revolutionary Party.

Perhaps William Booth of the Washington Post sums it up best when he writes about the three choices Mexican voters face in July:

“The popular former mayor of Mexico City with a messianic self-regard [López Obrador]; a telegenic leading man who wrote a book but has been vague about which books he has read [Peña Nieto]; and a perky, gal-next-door type who does a lot of smiling but has been blank on specifics [Vázquez Mota].”

Mexico will face serious challenges in the next six years, not least of which is a crippling war on drugs that kills thousands of Mexicans every year, but also a sluggish economy due largely to the sclerotic effects of public and private monopolies in key industries. This presidential election should be more about substance and less about style.

Mexicans Deserve Substance Over Style in Presidential Race 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

Is it April Fool’s Day? Has somebody in Paris hacked the website at the Organization for Economic Cooperation and Development? Have we been transported to a parallel dimension where up is down and black is white?

Please forgive all these questions. I’m trying to figure out why any organization—even a leftist bureaucracy such as the OECD—would send out a press release entitled, “Rising tax revenues: a key to economic development in Latin American countries.”

Not even Keynesians, after all, think higher taxes are a recipe for growth.

Ah, never mind. I just remembered that the OECD is a hotbed of statism, so the press release makes perfect sense. After all, the U.S.-taxpayer-funded organization has become infamous for reflexively advocating big government.

• The OECD has an anti-tax competition project designed to prop up Europe’s bankrupt welfare states.
• The OECD is pushing a “Multilateral Convention” that is designed to become something akin to a World Tax Organization, with the power to persecute nations with free-market tax policy.
• The OECD has endorsed Obama’s class-warfare agenda, publishing documents endorsing “higher marginal tax rates” so that the so-called rich “contribute their fair share.”
• The OECD pulled off a hat trick of bad policy in a 2010 document, promoting a value-added tax, Obama’s global warming agenda, and failed Keynesian stimulus.
• The OECD endorsed Obamacare, as I explain in this video.
• The OECD even advocates higher taxes when nations are in the middle of economic crisis.

With this dismal track record, it’s hardly a surprise that the Paris-based bureaucracy is now pushing to undermine prosperity in Latin America. Here’s some of what the OECD said in its release.

Additional tax revenues enable governments to simultaneously improve their competitiveness and promote social cohesion through increased spending on education, infrastructure and innovation. Latin American countries have made great strides over the past two decades in raising tax revenues.

You won’t be surprised when I tell you that the Paris-based bureaucrats do not bother to provide even the tiniest shred of proof to support the silly claim that higher taxes improve competitiveness. But that shouldn’t be surprising since even Keynesians don’t believe something that absurd.

And the claim about social cohesion also is a bit of a stretch given the riots, chaos, and social disarray in many European nations.

The only accurate part of the passage is that Latin American nations have increased tax burdens over the past 20 years. To the tax-free bureaucrats at the OECD, that is making “great strides.”

Let’s see what else the OECD had to say.

Despite these improvements, significant gaps between Latin America and OECD countries remain. The average tax to GDP ratio in OECD countries is much higher than in Latin American countries (33.8% compared to 19.2% in 2009, respectively). As the countries in the region still find themselves in relatively strong economic conditions, now is the time to consider reforms that generate long-term, stable resources for governments to finance development.

Wow. The OECD is implying that Latin American nations should mimic OECD nations. In other words, the bureaucrats in Paris apparently think it makes sense to tell nations to copy the failed high-tax, welfare-state model of countries such as Greece, Italy, and Spain.

Is that really the lesson they think people should learn from recent fiscal history? Are they really so oblivious and/or blinded by ideology that they issued the release as these European nations are in the middle of a fiscal crisis?

To further demonstrate their bias, the folks at the OECD even acknowledged that the Latin American nations, with their less oppressive tax regimes, are enjoying “relatively strong economic conditions.” Normal people would therefore conclude that the failed high-tax European nation should copy Latin America on fiscal policy, not the other way around. But not the geniuses at the OECD.

Now that we’ve addressed the awful policy advice of the OECD, let’s take a moment to look at the real policy challenges facing Latin America.

The Fraser Institute, in cooperation with dozens of other research organizations around the world, produces every year a comprehensive survey measuring Economic Freedom of the World.

The report ranks 141 nations based on dozens of variables that are used to construct scores for five key measures of economic freedom. Of those five categories, the Latin nations have the highest average ranking on…you guessed it…fiscal policy.

Yet the OECD wants policies that will undermine the competitiveness of the Latin nations, hurting them in the area where they are doing a halfway decent job.

If the bureaucrats actually wanted to boost economic performance in Latin America, they would be pressuring those nations to make reforms in the two areas where the burden of government is most severe—legal structure/property rights and regulation.

But that would make sense, which is contrary to the OECD’s mission of promoting statism.

The only semi-positive thing to say about the OECD is that it is consistent. As this video explains, the Paris-based bureaucrats are advocating bigger government in the United States. And to add insult to injury, they’re using American tax dollars to push that agenda.

What a scam. Politicians from various nations send taxpayer money to Paris. The bureaucrats at the OECD then issue reports and studies saying the politicians in those countries should raise taxes and increase the burden of government. Everybody wins…except for taxpayers and the global economy.

Per dollar spent, OECD subsidies may be the most destructively wasteful part of the federal budget. And that says a lot.

Acting as the Typhoid Mary of the Global Economy, the OECD Urges Higher Taxes in Latin America is a post from Cato @ Liberty - Cato Institute Blog

We at Cato enjoy citing Frederic Bastiat’s 1845 classic of free-trade pamphleteering, the “Petition of the Candlemakers,” which addresses the French Parliament as follows:

…We are suffering from the ruinous competition of a rival who apparently works under conditions so far superior to our own for the production of light that he is flooding the domestic market with it at an incredibly low price; for the moment he appears, our sales cease, all the consumers turn to him, and a branch of French industry whose ramifications are innumerable is all at once reduced to complete stagnation. This rival… is none other than the sun…

The satire goes on to demand that the government banish the unfair competition and restore proper encouragement to domestic industry by requiring that owners exclude sunlight from all building windows.

Once again real life is making it hard to tell satire from reality — appropriately, in Bastiat’s France. According to an Agence France-Presse account, a French commercial court has ordered Google to pay 500,000 Euros to a local map company for unfair practices that constitute an abuse of the “dominant position of its Google Maps application.” In particular, Google provides its maps for free, unlike complainant Bottin Cartographes, which charges good money and has apparently run into trouble holding onto its customers on that basis. Cory Doctorow at BoingBoing:

Bottin Cartographes argued that Google was only planning to give away the service for free until all the competitors had been driven out of business and then they would start charging. This seems implausible to me, and contrary to Google’s business model (give away services, make money from mining the use of those services). Google says it will appeal.

The problem with being a libertarian satirist is that government’s real-world doings keep matching and outrunning the satire.

P.S. Note that the French case arose not from Google’s furnishing of its free map service to individual end customers, but from its furnishing of its map API to businesses that typically adapt it for use in their own sites; as commenters at BoingBoing note, Google has indeed introduced fees for its largest business users of this type (which has caused some of them to adapt by switching from Google’s API to OpenStreetMap, a free wiki-based map service). In short, the complaints about free pricing of too excellent a product draw on the antitrust theory of predatory pricing, which American courts have held in general disfavor since the Chicago antitrust revolution but which continues to hold sway in some other parts of the world. For more on the predatory pricing theory, see these Cato publications.

France: Google’s Free Map Service Unfair To Commercial Map Sellers is a post from Cato @ Liberty - Cato Institute Blog

Panama is in turmoil due to the efforts of President Ricardo Martinelli to resurrect a defunct specialized court within the Supreme Court that would allow him to pack that body and possibly pave the way for his reelection.

First, some context: The nine-Justice Panamanian Supreme Court is divided in four specialized courts dealing with specific areas of the law (civil, criminal, administrative and general government business). The first three specialized courts have 3 justices each, while the fourth one (dealing with general government business) is formed by the presidents of each of the three other specialized courts.

There used to be a Fifth Court dealing with constitutional issues. However, in 1999 Congress passed a law that abolished that body. Now, constitutional cases are dealt by the nine-Justice Supreme Court as a whole.

Last year the Supreme Court, whose chief justice is a close associate of Martinelli, ruled that the law abolishing the Fifth Court was illegal. This created a legal vacuum since nobody knows for sure whether that means that the old Fifth Court should be reinstated or a new one should be created.

Martinelli seized on the controversial ruling by the Supreme Court and introduced a bill in Congress that would create a Fifth Court. If approved, the new court would have three new justices (appointed by Martinelli) and would deal with constitutional issues, one of them being the constitutionality of presidential term limits. The Panamanian Constitution currently bars a sitting president from running for a consecutive term. The president has to step out for two terms before running again for office. Many in Panama fear that Martinelli’s ultimate goal with the Fifth Court is to get rid of term limits.

Let’s not forget that a similar ploy was recently used by Daniel Ortega in Nicaragua to run for reelection despite the Constitution explicitly barring him from doing it. There, a friendly Supreme Court ruled that presidential term limits were unconstitutional and thus enabled Ortega to run again (and win the election).

Despite enjoying a large majority in Congress, where Martinelli has bought off many lawmakers, the opposition was able to filibuster the bill creating the Fifth Court. However, thanks to the nebulous ruling by the Supreme Court last year, Martinelli is now threatening with appointing the 3 new justices even without a law passed by Congress. A constitutional crisis seems inevitable.

A recent poll published by the daily La Prensa showed that 70 percent of Panamanians regarded Martinelli as “authoritarian” and 73 percent were concerned for the future of democracy their country. Amid strong criticism for his autocratic tendencies, for his attacks against freedom of speech, and for using tax audits to persecute his political opponents, the Fifth Court affair certainly shows that Ricardo Martinelli is the most dangerous man for democracy and rule of law in Central America after Nicaragua’s Daniel Ortega.

A Brewing Institutional Crisis in Panama 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

Pietro Ichino, a professor of labor law at the University of Milan and a senator in the Italian legislature, is known as the author of several “neoliberal” books and studies recommending that the Italian government relax its extraordinarily stringent regulation of employers’ hiring and firing decisions. As Bloomberg Business Week reports, that means that Prof. Ichino must fear for his life: “For the past 10 years, the academic and parliamentarian has lived under armed escort, traveling exclusively by armored car, and almost never without the company of two plainclothes policemen. The protection is provided by the Italian government, which has reason to believe that people want to murder Ichino for his views.”

They’re not just being alarmist. In 1999 and 2002 leftist gunmen associated with the Red Brigades murdered two other reformist labor law professors, Massimo D’Antona and Mario Biagi. (Details here.) Prof. Biagi, a well-known figure nationally, was shot as he arrived at his Bologna home and dismounted his bicycle. While five members of the Red Brigades are serving prison sentences for his murder, sympathizers remain at large, and Ichino’s name appears on a Brigades hit list. A few years back, reports Bloomberg, police broke up a plot on his life that they said involved two students in his own department. Last year another reformist labor law professor, Carlo Dell’Aringa, “received a death threat, written in red ink on the wall of his university’s bathroom.”

Like his slain colleague Biagi, Ichino started out as a man of the Left — a Communist parliamentarian, in fact — who became convinced that the state-enforced equivalent of lifetime job security actually worked against the interests of ordinary young workers, who were increasingly frozen out from being offered jobs in the first place. Increasingly, moderate European opinion is coming to see that view as persuasive — even if few show as much courage as Prof. Ichino in voicing it. Reports Bloomberg: “For those promoting changes to Italy’s labor laws, the day of Biagi’s shooting has become a rallying point. Sympathizers gather every March 19 to ride their bicycles from the train station to the dead man’s house.”

Labor Law Professors Defy Death Threats in Italy is a post from Cato @ Liberty - Cato Institute Blog

Some people might have been surprised to read in Sunday’s New York Times magazine that I believed “that all that easy money from China helped make the housing bubble much bigger and last longer, which created a far bigger crisis when the bubble finally burst.” As you might suspect, it was only those two little words “from China” that gave me pause. But I’m very grateful to Adam Davidson and his colleagues at NPR’s Planet Money for giving me a chance to elaborate on their blog. Here’s a brief excerpt:

China was eager to buy our debt, both Treasury bonds and Fannie and Freddie’s debt. But it was Congress that ran the deficits, and the Fed that kept interest rates artificially low. We don’t need to go to Beijing to find the villains in this piece….

Our economy could use plenty of reforms – lower, flatter, simpler taxes; a more stable monetary policy or even a move toward free markets in money; reduced regulatory burdens; the de-monopolization of services from education to mail delivery; and less government spending. In all those cases, the problem and the solution are right here in the USA.

Read it all! And special bonus links: Steve Hanke responds to the argument for a tougher policy toward China at Planet Money. And Adam Davidson talked with me about libertarianism in 2010 (plus a much longer version also featuring Mark Calabria).

Chinese Currency and the U.S. Financial Crisis 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

One year ago, I wrote about how the French government was getting unexpected additional revenues following the implementation of lower tax rates.

This is the Laffer Curve in action, and it’s happening again in France, only this time because the government reduced the wealth tax.

Here’s part of the story at Tax-news.com.

France’s solidarity tax on wealth (l’impôt de solidarité sur la fortune – ISF), which was radically reformed by the government in June last year, has served to yield much greater fiscal revenues for the state than initially predicted.

…[T]he government agreed that the solidarity tax on wealth would in future comprise of only two tax brackets: a 0.25% tax rate imposed on individuals with net taxable wealth in excess of EUR1.3m (USD1.7m), and a 0.5% tax rate levied on individuals with net taxable assets above EUR3m. Previously, the entry threshold at which wealth tax was applied was EUR800,000, with the rates varying between 0.55% and 1.8%. To alleviate any threshold effects, a discount mechanism was also instated applicable to wealth of between EUR1.3m and EUR1.4m, as well as to wealth of between EUR3m and EUR3.2m. Although the new provisions provide for lower tax rates and for the abolition of the first tax bracket, effectively exempting around 300,000 taxpayers from the tax, according to latest government figures, the tax yielded around EUR4.3bn in 2011, almost EUR60m more than originally forecast in the collective budget.

This is not to say that France is an example to follow. There shouldn’t be any wealth tax, and income tax rates are still far too high.

And it’s also worth remembering that tax policy is just one of many factors that determine economic performance.

That being said, nations that shift from terrible tax policy to bad tax policy will enjoy better economic performance, just as nations that go from good policy to great policy also will reap benefits.

In other words, incremental changes make a difference. That’s even the case when the politicians impose a “Snooki tax” on indoor tanning services.

The most dramatic Laffer Curve effects, though, occur when there are big changes in policy. The video after the jump looks at some of the evidence.

This video is part of a three-part series, by the way. Click here if you want to see the entire set.

The Laffer Curve Works, Even in France is a post from Cato @ Liberty - Cato Institute Blog

In the past 20-plus years, I’ve seen all sorts of arguments for class-warfare taxation.These include:

• President Obama says he wants higher tax rates for fairness, even if the government doesn’t collect any revenue.
• Rich leftists say they want higher taxes because they can afford to pay, but then refuse when offered a chance to cough up some cash.
• Elizabeth Warren supports higher taxes because government made it possible for rich people to succeed.
• Warren Buffett wants a big tax hike because…well, because he’s bad at math.
• Some leftists support higher taxes because they assume that rich people obtained money dishonestly.
• The New York Times wants higher taxes on the rich in order to enable higher taxes on the middle class.
• The President said higher tax rates are acceptable because sometimes “you have made enough money.”

I suppose leftists deserve credit for being adaptable. Just about anything is an excuse for soak-the-rich tax hikes. The sun is shining, raise taxes! The sky is cloudy, increase tax rates!

But if there was an award for the strangest argument in favor of higher taxes, it would probably belong to a group of academics who have concluded that “progressive” tax systems make people happier.

I’m not kidding. There’s a new study making that assertion. Here are some passages from an announcement by the Association for Psychological Science.

…a new study comparing 54 nations found that flattening the tax risks flattening social wellbeing as well. “The more progressive the tax policy is, the happier the citizens are,” says University of Virginia psychologist Shigehiro Oishi, summarizing the findings, which will be published in an upcoming issue of Psychological Science, a journal of the Association for Psychological Science. …Well-being was expressed in people’s assessments of their overall life quality, from “worst” to “best possible life,” on a scale of 1 to 10; and in whether they enjoyed positive daily experiences (such as smiling, being treated with respect, and eating good food) or suffered negative ones, including sadness, worry, and shame. …The degree of progressivity was measured by the difference between the highest and lowest tax rates, corrected for such confounding factors as family size, social security taxes paid, and tax benefits received by individuals. The results: On average, residents of the nations with the most progressive taxation evaluated their own lives as closer to “the best possible.”

The actual study isn’t available yet, but the release from APS screams junk science – especially since a study of American states found that high taxes lead to unhappiness.

But we should be skeptical of all this research. There are myriad pitfalls, including cultural differences.

But the most obvious problem is causality. Even if we assume it’s possible to make accurate cross-border comparisons of happiness, is there any reason to think that progressive tax rates are a causal factor, one way or the other? Heck, we may as well assume that crowing roosters cause the sun to appear.

Here’s one very obvious guess about what may cause the APS results. I’m guessing that people in Sweden and Denmark say they are happy. That’s not too surprising. They live in rich countries. But those countries became rich before the welfare state began and before high tax rates became the norm. So does it make sense to say they are happy because of high tax rates?

People in Mongolia and Bulgaria, by contrast, probably aren’t as happy as people in the Scandinavian nations. They live in relatively poor nations that suffered from decades of communist enslavement. In recent years, though, both nations implemented flat taxes in hopes of spurring growth and catching up to the rest of the world. But progress doesn’t happen overnight. So does it make sense to say that they are unhappy because the tax system isn’t “progressive”?

Ironically, the APS release does include the following results.

Higher government spending per se did not yield greater happiness, in spite of the well-being that was associated with satisfaction with state-funded services. In fact, there was a slight negative correlation between government spending and average happiness.

Since we do have good evidence that economic growth suffers as government expands, this conclusion makes a lot more sense.

But I’m still skeptical about happiness studies. Seems like they might suffer from the credibility issues associated with global warming research.

Actually, I retract that statement. Happiness research may be imprecise and susceptible to bias, but I doubt people in that field would ever make a claim as absurd as global warming causes AIDS. And I doubt they would try to do something as stupid as rationing toilet paper or create something as silly as a hand-cranked vibrator.

Soak-the-Rich Taxes Create Happier Nations According to Junk Science Study is a post from Cato @ Liberty - Cato Institute Blog

After months of not releasing official data on the number of drug-related killings, the Mexican government announced yesterday that in the first nine months of 2011, 12,903 people died in episodes of drug violence. The Mexican authorities, struggling to find a silver lining, noted positively that the figure reveals “a significant decrease” in the growth of the murder rate from previous years.

This tactic is similar to Washington’s creative accounting when it comes to spending “cuts:” spending continues to increase, but at a smaller percentage than previously planned. Thus, spending has been “cut.” Similarly, the number of people killed in Mexico’s drug war continued to rise in 2011, but at a lower pace than 2010. Thus, the murder rate has declined. Moreover, the 11 percent increase in murders in 2011 follows a record setting number in 2010.

* BBC estimate.
Source: Mexico’s Federal Attorney General’s office.

According to an estimate from the BBC, the total number of drug deaths in 2011 is approximately 16,700. That means over 51,000 people have been killed in Mexico since president Felipe Calderón launched a war on drug cartels in December 2006. And the number may be higher.

As Mexico’s former foreign minister Jorge Castañeda said last November at the Cato conference “Ending the Global War on Drugs,” the number killed in Mexico’s war on drugs will soon equal the number of U.S. deaths in Vietnam. And let’s remember that Mexico’s population is a third of the United States’ and the Vietnam conflict lasted twice as long as Calderón’s drug offensive.

The main worry for 2012 is not that drug killings stabilize at a high rate—although that would be terrible—but that violence engulfs other areas of the country that have remained relatively peaceful, such as Mexico City. If that happens, Mexican authorities will find it even more difficult to identify “victories” in their war against cartels.

Another Pyrrhic Victory in Mexico’s Drug War is a post from Cato @ Liberty - Cato Institute Blog

I’m not a big fan of Mitt Romney. I hammered him the day before Christmas for being open to a value-added tax, and criticized him in previous posts for his less-than-stellar record on healthcare, his weakness on Social Security reform, his anemic list of proposed budget savings, and his reprehensible support for ethanol subsidies.

But I also believe in being intellectually honest, so I’ll defend a politician I don’t like (even Obama) when they do the right thing or when they get attacked for the wrong reason.

In the case of Romney, some of his GOP opponents are criticizing him for job losses and/or bankruptcies at some of the companies in which he invested while in charge of Bain Capital. But I don’t need to focus on that issue, because James Pethokoukis of AEI already has done a great job of debunking that bit of anti-Romney demagoguery.

In this post, I want to focus on the issue of tax havens.

Regular readers know that I’m a big defender of these low-tax jurisdictions, for both moral and economic reasons, and I guess that reporters must know that as well because I’ve received a couple of calls from the press in recent weeks. But I suspect I”m not being called because reporters want to understand international tax policy. Instead, based on the questions, it appears that the establishment media wants to hit Romney for utilizing tax havens as part of his work at Bain Capital.

As far as I can tell, none of these reporters have come out with a story. And I’m also not aware that any of Romney’s political rivals have tried to exploit the issue.

But I think it’s just a matter of time, so I want to preemptively address this issue. So let’s go back to 2007 and look at some excerpts from a story in the Los Angeles Times about the use of so-called tax havens by Romney and Bain Capital.

While in private business, Mitt Romney utilized shell companies in two offshore tax havens to help eligible investors avoid paying U.S. taxes, federal and state records show. Romney gained no personal tax benefit from the legal operations in Bermuda and the Cayman Islands. But aides to the Republican presidential hopeful and former colleagues acknowledged that the tax-friendly jurisdictions helped attract billions of additional investment dollars to Romney’s former company, Bain Capital, and thus boosted profits for Romney and his partners. …Romney was listed as a general partner and personally invested in BCIP Associates III Cayman, a private equity fund that is registered at a post office box on Grand Cayman Island and that indirectly buys equity in U.S. companies. The arrangement shields foreign investors from U.S. taxes they would pay for investing in U.S. companies. …In Bermuda, Romney served as president and sole shareholder for four years of Sankaty High Yield Asset Investors Ltd. It funneled money into Bain Capital’s Sankaty family of hedge funds, which invest in bonds and other debt issued by corporations, as well as bank loans. Like thousands of similar financial entities, Sankaty maintains no office or staff in Bermuda. Its only presence consists of a nameplate at a lawyer’s office in downtown Hamilton, capital of the British island territory. … Investing through what’s known as a blocker corporation in Bermuda protects tax-exempt American institutions, such as pension plans, hospitals and university endowments, from paying a 35% tax on what the Internal Revenue Service calls “unrelated business income” from domestic hedge funds that invest in debt, experts say. …Brad Malt, who controls Romney’s financial trust, said Bain Capital organized the Cayman fund to attract money from foreign institutional investors. “This is not Mitt trying to do something strange,” he said. “This is Bain trying to raise some number of billions from investors around the world.”

There are a couple of things worth noting about these excerpts.

1. Nobody has hinted that Romney did anything illegal for the simple reason that using low-tax jurisdictions is normal, appropriate, and intelligent for any business or investor. Criticizing Romney for using tax havens would be akin to attacking me for living in Virginia, which has lower taxes than Maryland.

2. Jurisdictions such as Bermuda and the Cayman Islands are good platforms for business activity, which is no different than a state like Delaware being a good platform for business activity. Indeed, Delaware has been ranked as the world’s top tax haven by one group (though American citizens unfortunately aren’t able to benefit).

3. America’s corporate tax system is hopelessly anti-competitive, so it is quite fortunate that both investors and companies can use tax havens as vehicles to profitably invest in the United States. This helps protect the economy and American workers by attracting trillions of dollars of investment to the U.S.

These three points are just the tip of the iceberg. Watch this video for more information about the economic benefit of tax havens.

Last but not least, here’s a prediction. I think it’s just a matter of time until Romney gets attacked for utilizing tax havens, though the press may wait until after he gets the GOP nomination.

But when those attacks occur, I’m extremely confident that the stories will fail to mention that prominent Democrats routinely utilize tax havens for business and investment purposes, including as Bill Clinton, John Kerry, John Edwards, Robert Rubin, Peter Orszag, and Richard Blumenthal.

It’s almost enough to make you think this cartoon is correct and that the establishment press is biased.

Mitt Romney and Bain Capital Were Right to Utilitize So-Called Tax Havens is a post from Cato @ Liberty - Cato Institute Blog

I had an op-ed in the December 28th Wall Street Journal titled “The Federal Reserve’s Covert Bailout of Europe.” It generated a lot of discussion. Yesterday (January 5th), the Journal printed a letter from William C. Dudley, president of the New York Fed, responding to my piece.

In my op-ed, I focus on the currency swaps between the Fed and other central banks. The largest amount is with the European Central Bank (ECB). The Fed “swaps” dollars to the ECB and receives a like amount of euros in return as collateral. The ECB promises to return the dollars in the future at a fixed exchange rate. In the meantime, the ECB lends the dollars to European banks of its choosing. The Fed does not even know their identity.

Among other things, I point out that, thanks to prior Fed policy actions, there is no shortage of dollars in the world. The ECB could lend euros to their banks and the banks could then purchase however many dollars they needed on foreign-exchange markets.

I conclude that “the Fed is, working through the ECB, bailing out European banks and, indirectly, spendthrift European governments.” (The banks are major lenders to governments.)

President Dudley’s letter is non-responsive to the arguments of my op-ed. He never addresses my observation that there is no shortage of dollars in the world. He gives the game away in the following passage: “Banks with surplus dollars are more likely to lend to banks in need of dollars if they know that the borrowing bank will be able to obtain the dollars it needs to repay the loan, if necessary, from its central bank.”

Dudley is not describing a dollar shortage, but another reality. The reason one bank becomes reluctant to lend to another bank is that the potential lender has doubts about the solvency of the would-be borrower. The reality in Europe today is that banks have good reason to doubt the solvency of other banks because they know their own condition is none too strong.

By implication, Dudley’s letter acknowledges my main point: there is a Fed-financed bailout of European banks in progress. The Fed is implementing it through currency swaps because swaps obscure the nature of the transaction, which is in reality a loan. (The Greek government used currency swaps to hide the size of its fiscal deficits.)

It was widely reported that, in a December 14th meeting with Republican senators, Fed Chairman Ben Bernanke told them that he neither intended nor did he have the authority to bail out Europe. A reasonable person would see a conflict between the chairman’s words and those of the New York Fed president. Moreover, the swap arrangement is non-transparent and at odds with Bernanke’s promise of greater openness within the Fed. That is why I call for congressional hearings on it in my op-ed, and I repeat that call here.

A Fed Bailout for Europe is a post from Cato @ Liberty - Cato Institute Blog

Last year, I came up with a saying that “Bad Government Policy Begets More Bad Government Policy” and labeled it “Mitchell’s Law” during a bout of narcissism.

There are lots of examples of this phenomenon, such as the misguided War on Drugs being a precursor to intrusive, costly, and ineffective money laundering policies.

Or how about government healthcare subsidies driving up the price of healthcare, which then leads politicians to decide that there should be even more subsidies because healthcare has become more expensive.

But if you want a really stark example of Mitchell’s Law, the Internal Revenue Code is littered with examples.

The politicians created a nightmarishly complex tax system, for instance, and then decided that enforcing the wretched system required the erosion of civil liberties and constitutional freedoms.

The latest example of this process involves the Foreign Account Tax Compliance Act, a piece of legislation that was imposed in 2010 because politicians assumed they could collect lots of tax revenue every single year by getting money from so-called tax havens.

This FATCA law basically imposes a huge regulatory burden on all companies that have international transactions involving the United States, and all foreign financial institutions that want to invest in the United States. It is such a disaster that even the New York Times has taken notice, recently reporting that:

[T]he Foreign Account Tax Compliance Act, or Fatca, as it is known, is now causing alarm among businesses outside the United States that fear they will have to spend billions of dollars a year to meet the greatly increased reporting burdens, starting in 2013. American expatriates also say the new filing demands are daunting and overblown.

…The law demands that virtually every financial firm outside the United States and any foreign company in which Americans are beneficial owners must register with the Internal Revenue Service, check existing accounts in search of Americans and annually declare their compliance. Noncompliance would be punished with a withholding charge of up to 30 percent on any income and capital payments the company gets from the United States.

…The I.R.S., under pressure from angry and confused financial officials abroad, has extended the deadline for registration until June 30, 2013, and is struggling to provide more detailed guidance by the end of this year. But beginning in 2012, many American expatriates — already the only developed-nation citizens subject to double taxation from their home government — must furnish the I.R.S. with detailed personal information on their overseas assets.

It’s worth noting at this point that FATCA only exists because of bad tax law. If the United States had a simple and fair flat tax, there would be no double taxation of income that is saved and invested. As such, the IRS wouldn’t have any reason to care whether Americans had bank accounts and/or investments in places such as London, Hong Kong, and Panama.

But as is so often the case with politicians, they chose not to fix bad policy and instead decided to impose one bad policy on top of another. Hence, the crowd in Washington enacted FATCA and sent the IRS on a jihad.

By the way, the New York Times was late to the party. Many other news outlets already have noticed that the United States is about to suffer a big self-inflicted economic wound.

Indeed, what’s remarkable about Obama’s FATCA policy is that the world in now united. But it’s not united for something big and noble, such as peace, commerce, prosperity, or human rights. Instead, it’s united in opposition to intrusive, misguided, and foolish American tax law.

Let’s look at some examples.

* From the United Kingdom, a Financial Times column warns, “This summer, the senior management of one of Asia’s largest financial groups is quietly mulling a potentially explosive question: could it organise some of its subsidiaries so that they could stop handling all US Treasury bonds? …What is worrying this particular Asian financial group is … a new law called the Foreign Account Tax Compliance Act… [T]he new rules leave some financial officials fuming in places such as Australia, Canada, Germany, Hong Kong and Singapore. Little wonder. Never mind the fact that implementing these measures is likely to be costly. …Hence the fact that some non-US asset managers and banking groups are debating whether they could simply ignore Fatca by creating subsidiaries that never touch US assets at all. “This is complete madness for the US – America needs global investors to buy its bonds,” fumes one bank manager. “But not holding US assets might turn out to be the easiest thing for us to do.”

* From India, the Economic Times reports, “FATCA, or the Foreign Account Tax Compliance Act, will require overseas banks to report U.S. clients to the Internal Revenue Service, but its loose definition of who is a U.S. citizen will create a huge administrative burden and could push non-residents to slash their U.S. exposure, some bankers say. …Bankers say the scheme will be extremely costly to implement, and some say that as the legislation stands, any bank with a client judged to be a U.S. citizen will be also obliged to supply documentation on all other clients. ‘FATCA will cost 10 times to the banks than it will generate for the IRS. It is going to be extremely complicated,’ said Yves Mirabaud, managing partner at Mirabaud & Cie and Swiss Bankers Association board member.”

* Discussing the impact in Canada, Reuters notes, “The new regulation has drawn criticism from the world’s banks and business people about its reach and costs. …’Hundreds of millions of dollars spent on developing compliance processes to target Canadian citizens would not be a useful exercise, and they are, for the most part, people who actually have no tax liabilities because they do not earn income in the United States,’ [Canadian Finance Minister] Flaherty said.”

* A Taiwan news outlet said, “Taiwan’s domestic banks will reportedly reduce holdings of American bonds worth an estimated NT$100 billion (US$3.33 billion) due to the U.S. government’s recent decision to impose 30% tax on foreign-investment income in U.S. securities as bonds. Taiwan’s eight government-linked banks reportedly hold U.S. financial products worth over US$2 billion… On April 8, 2011, the U.S. government issued a notice advising foreign financial institutions to meet certain obligations under the Foreign Account Tax Compliance Act (FATCA), under which foreign financial institutions are subject to complex reporting rules related to their U.S. accounts.”

* From the Persian Gulf, the Bahrain Daily News noted, “A US law … has drawn the criticism of the world’s banks and business people, who dismiss it as imperialist and ‘the neutron bomb of the global financial system.’ The unusually broad regulation, known as FATCA, or the Foreign Account Tax Compliance Act, makes the world’s financial institutions something of an extension of the tax-collecting Internal Revenue Service—something no other country does for its tax regime. …Even the European Commission has objected, and experts say other countries may create their own FATCA-style regimes for US banks or withdraw from US capital markets. In a barrage of letters to the Treasury, IRS and Congress, opponents from Australia to Switzerland to Hong Kong assail FATCA’s application to a broad swath of institutions and entities.”

* A story from Singapore finds, “For many years, thousands of foreign investors have put their money into American shares or other investments. Now, however, a somewhat obscure law called the Foreign Account Tax Compliance Act (FATCA) may make investments in the United States for everyone, from billionaires to the man on the street, here in Singapore far less attractive. …[S]ome banks or investment managers may advise customers not to invest in the US. … ‘[P]rivate bankers are publicly advising their clients to clear their portfolios of all US securities’. A fund manager here told me his company is also advising clients to avoid US investments, and other companies may similarly start telling large clients as well as smaller ones the same story. Investors could then see recommendations not to invest in the US, and they may put their money elsewhere. …As consulting firm PwC said, ‘some institutions could decide that complying with the due diligence and verification provisions may not be cost effective’ so they may stop making investments in the US. Banks or other asset managers may similarly decide it is easier not to offer US investments than to try and comply with the FATCA.”

o From Switzerland, a story “about the backlash from United States expats and the financial sector to the Foreign Account Tax Compliance Act (FATCA)” reports that, “Growing numbers of American expatriates are renouncing their US citizenship over a controversial new tax law and ever more burdensome fiscal and reporting obligations. …[B]anks and business people who are supposed to enforce it on behalf of the US tax man are worried about its costly administrative burden… [I]t’s just too expensive. The consequence will be that they cut out US clients and stop investing in the US. …Three or four years ago no one talked about renouncing nationality – now it’s an open discussion. That’s a major shift in mentality.

o Writing about the reaction from Europe, one columnist noted, “FATCA encourages foreign financial institutions to limit their exposure to U.S. assets. In a joint letter to the Treasury and the IRS, the European Banking Federation and the Institute of International Bankers, which together represent most of the non-U.S. banks and securities firms that would be affected by FATCA, warned that ‘many [foreign financial institutions], particularly smaller ones or those with minimal U.S. investments or U.S. customers, will opt out of U.S. securities rather than enter into a direct contractual agreement with a foreign tax authority (the IRS) that imposes substantial new obligations and the significant reputational, regulatory, and financial risks of potentially failing those obligations.’ A widespread divestment of U.S. securities by institutions seeking to avoid the burdens of FATCA could have real and harmful effects on the U.S. economy.”

These press excerpts help demonstrate the costs of FATCA, but what about the benefits? After all, maybe the law will lead to lots of good results that offset the high regulatory costs and lost investment for the American economy.

Well, the only “benefit” anybody had identified is that FATCA will transfer more money from the productive sector of the economy to the government. Indeed, Obama argued during the 2008 campaign that cracking down on “tax havens” with proposals such as FATCA would give politicians lots of additional money to spend.

But when the legislation was approved in 2010, the Joint Committee on Taxation estimated that the new law would raise only $8.7 billion over 10 years, not the $100 billion that Obama claimed could be collected every single year. This video has some of the damning details.

One final point demands attention:

While it appears that the rest of the world is against FATCA, that’s not completely true. Some international bureaucrats in Paris, funded by American tax dollars, actually want the rest of the world to adopt the same Orwellian system. Here’s a blurb from the New York Times story:

Jeffrey Owens, a tax expert at the Organization for Economic Cooperation and Development, said catching tax evaders was “a concern that many member countries share.” If countries could agree to new global reporting standards for exchanging information, he said, then “maybe there’s a way forward.”

In other words, the pinhead bureaucrats at the OECD think FATCA’s such a swell idea that they want to create a global network of tax police. So not only would America erode the sovereignty of other nations because of our bad tax law, but those other nations would be able to impose their bad tax law on income earned in America!

And just in case you think that’s just irresponsible demagoguery, it’s already beginning to happen. Check out this IRS regulation, proposed by the Obama administration, that would require American banks to put foreign law above American law.

Obama Has United the World … in Opposition to Bad U.S. Tax Policy is a post from Cato @ Liberty - Cato Institute Blog

A powerful trend in today’s more globalized world is the growing competition among nations to attract and keep human capital — people with the skills and education necessary to make a modern, open, market economy hum.

Nobody has done a better job of describing this phenomenon than British journalist Robert Guest in his new book, Borderless Economics: Chinese Sea Turtles, Indian Fridges, and the New Fruits of Global Capitalism, just out from Palgrave Macmillan.

Guest is the business editor of the Economist magazine. He’s traveled widely in the United States and across the world. He has a keen understanding of the market forces shaping the global economy today, as well as a reporter’s eye for interesting people, places, and companies that tell the story.

The author summarized Borderless Economics in a recent Wall Street Journal op-ed, and the book was favorably reviewed in the same newspaper this week. The reviewer, Katherine Mangu-Ward of Reason magazine, highlighted an immediate application of the book’s thesis to U.S. immigration policy:

Mr. Guest notes that the U.S. annually awards only 85,000 H-1B visas for highly skilled workers; more than that number have been known to apply on the first day that applications can be submitted. America is strong because it has long been the nation richest in the resource that matters most: talent. Yet the U.S. government every year turns away tens of thousands of the most talented, motivated people in the world.

The Cato Institute hosted a book forum for Robert Guest in November, with comments from Edward Alden of the Council on Foreign Relations. You can view the event here.

U.S. Falling Behind in Global Competition for Human Capital is a post from Cato @ Liberty - Cato Institute Blog

Entrepreneur Richard Branson has just blogged about his recent trip to Portugal where he was investigating that country’s drug policies.  Branson cites Cato’s landmark study, “Drug Decriminalization in Portugal,” several times in his post.  Here’s an excerpt:

I will set out clearly what I learned from my visit to Portugal and would urge other countries to study this:

In 2001 Portugal became the first European country to officially abolish all criminal penalties for personal possession of drugs, including marijuana, cocaine, heroin and methamphetamines.

Jail time was replaced with offer of therapy. (The argument was that the fear of prison drives addicts underground and that incarceration is much more expensive than treatment).

Under Portugal’s new regime, people found guilty of possessing small amounts of drugs are sent to a panel consisting of a psychologist, social worker, and legal adviser for appropriate treatment (which may be refused without criminal punishment), instead of jail. 

Critics in the poor, socially conservative and largely Catholic nation said decriminalizing drug possession would open the country to “drug tourists” and exacerbate Portugal’s drug problem; the country has some of the highest levels of hard-drug use in Europe. The recently realised results of a report commissioned by the Cato Institute, suggest otherwise. …

Portugal’s 10 year experiment shows clearly that enough is enough. It is time to end the war on drugs worldwide. We must stop criminalising drug users. Health and treatment should be offered to drug users – not prison. Bad drugs policies affect literally hundreds of thousands of individuals and communities across the world. We need to provide medical help to those that have problematic use – not criminal retribution.

Read the whole thing. Check out the recent Cato conference on the Global War on Drugs here.

Richard Branson: Time to End the War on Drugs is a post from Cato @ Liberty - Cato Institute Blog