Canada’s Economic Reforms
The lead article in the new Cato Policy Report is entitled “We Can Cut Government: Canada Did.” The article reviews Canada’s economic reforms since the 1980s, which have included free trade, privatization, spending cuts, sound money, large corporate tax cuts, personal tax reforms, balanced federal budgets, block grants, and decentralizing power by cutting the central government.
Those all sound like things we ought to pursue in America. The political systems of the two countries are different, but Canada’s pro-market reform lessons are universally applicable.
Canada’s reforms, for example, refute the Keynesian notion that cutting government spending harms economic growth. Canadian federal spending was cut from 23.3 percent of GDP in 1993 to 16.5 percent by 2000. Keynesians and their macro models would predict a crushing economic blow from such a spending reduction. They would argue that the “austerity” would slash “aggregate demand” and “take money out of the economy.”
Yet Canada’s spending cuts of the 1990s were coincident with the beginning of a 15-year economic boom that only ended when the United States dragged its neighbor into recession in 2009. As the government shrank in size during the 1990s, the Canadian unemployment rate plunged from more than 11 percent to less than 7 percent.
Canada still has a large welfare state, and its provincial governments are prone to overspending. However, its experience shows that even a modest dose of public sector austerity combined with pro-market reforms can lead to substantial gains in private-sector prosperity. American and European leaders still under the Keynesian spell should take note.
Diversity & Choice or Regulation & Monopoly?
Stephanie Saul’s anecdote-driven smear piece in yesterday’s NYT has perhaps had one positive effect; a serious discussion of good education tax credit bill design.
John Kirtley, chairman of the only active scholarship organization in Florida and father of the state’s credit program, used the NYT piece as a jumping-off point for legislative guidelines. Kirtley has done tremendous things in Florida for low income children and educational choice, but several of his policy recommendations (shared by others) are either unsupported or contradicted by the evidence.
I’ll use Saul’s brief description of the positive aspects of Florida’s credit program (which Kirtley praises) and his own guidelines as a structure for discussion. (See here for legislative guidelines and model legislation.)
Academic and Fiscal “Accountability”
This is the area in which the guidelines proposed by Kirtley and organizations such as the American Federation for Children are most at odds with research on education markets and government regulation. For decades, policymakers have desperately tried to improve education through accountability to the government. Their efforts have clearly failed. And it would be disastrous to involve the government, which has failed so dismally for so long, more directly in the private education sector and the private decisions of families and taxpayers. As Neal McCluskey showed for Florida specifically, fraud, waste and abuse in the public education system is much more widespread and pervasive than in private school choice programs.
Below are the reasons it is unnecessary and harmful to increase government regulation on education decisions made by families and taxpayers.
What’s ‘Wacky’ About Wanting to Eliminate the USDA?
Over at the Washington Post‘s PostPartisan blog, Jonathan Bernstein discusses the rising influence of the “Ron Paul crowd” on Republican state party platforms. Bernstein cites a derisive piece from Ed Kilgore on a draft platform being considered by the Iowa Republican Party:
Now, a new group — the Ron Paul crowd — is taking over some formal GOP structures, including in Iowa. Ed Kilgore has a great post detailing some of the wackier things they’ve put in the official Iowa Republican Party platform — for example, eliminating the Agriculture Department. In Iowa. Oh, there’s plenty more, including phasing out Social Security and Medicare; overall, it has called for a federal government half the size of what Paul Ryan has advocated.
I don’t take issue with Bernstein’s contention that a platform like the one being proposed by the Iowa GOP would be a problem for most Republican politicians because the overall program “is just spectacularly unpopular with the general public.” I quickly scrolled through the hundreds of proposed “planks” in the platform and, as a libertarian, often found myself shaking my head and rolling my eyes. So it struck me as odd that of all the ideas in the platform that one could deem to be “wacky,” Bernstein chose to focus solely on planks that would cut – admittedly, dramatically – federal spending.
Bernstein continues:
Many libertarians have fooled themselves into believing that the American people are with them on their basic program, but if that were the case, Ron Paul would have been a viable presidential candidate, not someone who finds it hard to break 15 percent in primaries. Nor would the polling on government spending be mixed, with majorities for cutting spending overall (good for libertarians!) and for increasing spending on most programs (disaster for libertarians!).
I could be wrong, but I think most libertarians are aware that the average American favors spending cuts in general but is often less enthusiastic when the cuts are specified. And while Paul isn’t going to be the next president of the United States, his campaign has been successful in getting a lot more Americans to understand that the federal government needs to be downsized. Younger people in particular have been drawn to Paul’s limited government message. Paul was never going to win over the older folks who at the end of the day are primarily concerned with making sure that their Social Security and Medicare benefits aren’t touched. But the younger crowd is becoming increasingly aware that they’re eventually going to take it on the chin in order to maintain the federal government’s intergenerational redistribution schemes. Perhaps that’s what concerns people like Bernstein.
Circling back, proposing to eliminate the U.S. Department of Agriculture could be called a lot of things: provocative, controversial, dramatic, etc. But dismissing it as “wacky” is lazy. If Bernstein thinks that it’s a bad idea, then he should just say so (of course, my colleagues and I would argue otherwise).
For more “wacky” ideas, check out Downsizing the Federal Government.
In the Lake Wobegon Fantasy World, All Investments Make Money
I sometimes wonder whether journalists have the slightest idea of how capitalism works.
In recent weeks, we’ve seen breathless reporting on the $2 billion loss at JP Morgan Chase, and now there’s a big kerfuffle about the falling value of Facebook stock.
In response to these supposed scandals, there are all sorts of articles being written (see here, here, here, and here, for just a few examples) about the need for more regulation to protect the economy.
Underlying these stories seems to be a Lake Wobegon view of financial markets. But instead of Garrison Keillor’s imaginary town where “all children are above average,” we have a fantasy economy where “all investments make money.”
I don’t want to burst anyone’s bubble or shatter any childhood illusions, but losses are an inherent part of the free market movement. As the saying goes, “capitalism without bankruptcy is like religion without hell.”
Moreover, losses (just like gains) play an important role in that they signal to investors and entrepreneurs that resources should be reallocated in ways that are more productive for the economy.
Legend tells us that King Canute commanded the tides not to advance and learned there are limits to the power of a king when his orders had no effect.
Sadly, modern journalists, regulators, and politicians lack the same wisdom and think that government somehow can prevent losses.
But perhaps that’s unfair. They probably understand that losses sometimes happen, but they want to provide bailouts so that nobody ever learns a lesson about what happens when you touch a hot stove.
Government-subsidized risk, though, is just as foolish as government-subsidized success.
Gov. Romney, Federal ‘Incentives’ Mean Federal Power
In a speech today, presumptive GOP presidential nominee Mitt Romney will lay out the foundations of his education platform. Based on an outline of his proposals released by Education Week this morning, Gov. Romney seems just a little less disinterested in the Constitution — and the 40-plus years of proven federal education failure – than the man he seeks to replace. And no, calling what you want federal “incentives” neither absolves them of being unacceptable federal intrusions, nor makes them any less coercive.
The heart of what Mr. Romney wants in elementary and secondary education is federal enticements to get states to implement everything from “open-enrollment” policies for schools, to individual school “report cards,” to encouraging “talented individuals to become teachers.”
As I wrote last week, while “incentive” sounds kinda harmless, an incentive program is really all that No Child Left Behind is. No state has to do anything in NCLB. It only has to follow the law if it wants the federal money attached to it. The funding is only an incentive, but it is so big an incentive it is irresistible, even with the law being a huge millstone around the neck of American education. And, of course, taxpayers had no choice about furnishing the ducats to begin with. (Well, I suppose they were incentivized by a trip to prison…)
Where Romney’s K-12 offering is most enticing is his proposal that federal money be attached to low-income and special-needs children and made portable even to private schools. (Portable, that is, “in accordance with state guidelines,” a proviso the outline doesn’t flesh out.) But the very real threat, as with all federal funding , is federal control. What Washington funds it will regulate — though usually for political show, not efficiency or effectiveness — and that is something we should strenuously avoid for private schools when states can implement more varied — and less regulation prone — choice mechanisms such as education tax credits. And, of course, the Constitution gives the federal government no more authority to deliver school choice than to dictate curricula. That is, except in Washington itself, and to his credit Mr. Romney is proposing to save the D.C. voucher program that Mr. Obama, for whatever shoddy reason, seems determined to suffocate.
The good news about Gov. Romney’s outline is that it directly addresses the primary problem in higher education, and one of its primary causes: insane tuition inflation fueled by massive federal student aid. Indeed, though he will no doubt get flayed for it by the higher ed establishment, who will publically deny it like so many naked emperors, Mr. Romney’s outline is refreshingly straightforward in identifying the root problem:
Governor Romney realizes that more spending will not solve the problem of tuition increases – to the contrary, it has helped fuel the problem. When Washington puts more money into student aid programs to help families and individuals pay for higher education, colleges and universities raise tuition rates.
So what grade does Mr. Romney get on education, at least from this initial outline? About a 30 percent for K-12, and a 90 percent for higher ed. That works out to 60 percent — a woeful D-minus – but that’s probably a tad bit better than most presidents would have gotten since the 1960s.
NYT Channels Monty Python’s Black Knight
America’s growing school choice movement is a bridge to educational freedom—an escape from our failing state school monopolies. And with all the tenacity (and veracity) of Monty Python’s Black Knight, the New York Times stands athwart that bridge, declaring: “None shall pass.”
The Times’ latest attempt to parry the thrust for educational freedom is this story attacking education tax credit school choice programs: “Public Money Finds Back Door to Private Schools.” No doubt this story has legs…but not for long.
Let’s begin with the title, which claims that private donations to private scholarship organizations are “public money” because they qualify for a tax credit. It’s a simple claim that is simply not true. As has been recently reported:
the genius of [tax credit programs] was that the money would never go into public accounts, making it less susceptible to court challenges…. As predicted, tax credits have thus far withstood legal challenges, most recently when the Supreme Court upheld Arizona’s program last year.
Perhaps the editors of the NYT were simply unaware of the report above—and unaware of the Supreme Court decision it cites (ACSTO v. Winn) explicitly stating that tax credited donations are not public money. But here’s the thing, the quote above is actually from the same story on which the Times slapped the “Public Money…” headline. So either the NYT’s editors don’t read their own stories, or they’re knowingly presenting a false statement to their readers in big, bold type. I can understand someone not wanting to read the NYT every day, but surely they’ve managed to find editors willing to do so?
Next, let’s talk about the story’s lede….
Public Financing of Vikings Stadium a Bad Deal for Fans, Taxpayers
The collusion between big business and big government that fleeces the rest of us has struck again — Tim Carney, iMessage your office – this time in the sports world.
Minnesota governor Mark Dayton recently signed the midnight deal that state lawmakers struck with the owners of the state’s football team, the Minnesota Vikings, to build the team a new stadium. This caused plenty of celebration in Minneapolis and elsewhere across the Gopher State. Alas, the hangover is about to come for taxpayers regardless of their gridiron allegiance or level of fandom.
As former Cato legal associate (and Minnesotan) Nick Mosvick and I write in the Huffington Post, these stadium deals hurt most fans:
That’s because they lead to increased taxes and higher prices, squeezing the average fan for the benefit of owners and sponsors. And that’s not even counting the overwhelming majority of taxpayers, regardless of fandom, who never set foot in these gladiatorial arenas.
Let’s look at this particular deal. The stadium costs $975 million on paper, with over half coming from public funds, $348 million from the state and $150 million from Minneapolis—not through parking taxes or other stadium-related user fees, but with a new city sales tax. In return, the public gets an annual $13 million fee and the right to rent out the stadium on non-game-days.
Vikings ownership, NFL commissioner Roger Goodell, and local politicians make a typical pitch for the deal: the stadium will attract investment to the area; local establishments will see a rise in game-day sales of $145 million; jobs will be created, including 1,600 in construction worth $300 million ($187,500 per job?!); tax revenues will increase $26 million; property values will rise; and, of course, the perennially underachieving team’s fortunes will improve.
Such arguments are always trotted out for these sweetheart deals, but the evidence regarding the economic effects of publicly financed stadiums consistently tells a different story. For example, Dennis Coates and Brad Humphreys performed an exhaustive study of sports franchises in 37 cities between 1969 and 1996 and found no measurable impact on per-capita income. The only statistically significant effects were negative ones because revenue gains were overshadowed by opportunity costs that politicians inevitably ignore.
An older study looked at 12 stadium areas between 1958 and 1987 and found that professional sports don’t drive economic growth. A shorter-term study looked at job growth in 46 cities from 1990 to 1994 and found that cities with major league teams grew more slowly. Even worse, taxpayers still service debt on now-demolished stadiums, including the $110 million that New Jersey still owes on the old Meadowlands and the $80 million that Seattle’s King County owes on the Kingdome. And we shouldn’t forget that local governments often employ property-rights-trampling eminent domain to facilitate these money-squandering projects.
Read the whole thing. It’s not a matter of ideology; we even quote Keith Olbermann approvingly!
The point is that these deals benefit team owners and the politicians who get to wrap themselves in team colors to the exclusion of taxpayers or fans (who are priced out of the games their increased taxes support). If luxury stadiums were hugely profitable, why would the savvy businessmen who own the teams let the politicians in on the windfall?
House Appropriations Chairman Behind Military Pork
After the Republicans took back control of the House following the November 2010 elections, the GOP leadership went with Kentucky Rep. Hal Rogers—a.k.a. “The Prince of Pork”—to chair the powerful House Appropriations Committee. I wrote at the time that “The support for Rogers from House Republican leaders is a slap in the face of voters who demanded change in Washington.”
I haven’t changed my mind.
A recent article in the New York Times offers up another reminder that the 30-year House veteran’s priority is to funnel taxpayer money back to his district—not downsize the federal government:
In the 1980s, the military had its infamous $800 toilet seat. Today, it has a $17,000 drip pan. Thanks to a powerful Kentucky congressman who has steered tens of millions of federal dollars to his district, the Army has bought about $6.5 million worth of the “leakproof” drip pans in the last three years to catch transmission fluid on Black Hawk helicopters. And it might want more from the Kentucky company that makes the pans, even though a similar pan from another company costs a small fraction of the price: about $2,500…The Kentucky company, Phoenix Products, got the job to produce the pans after Representative Harold Rogers, a Republican who is now the chairman of the House Appropriations Committee, added an earmark to a 2009 spending bill. While the earmark came before restrictions were placed on such provisions for for-profit companies, its outlays have continued for the last three years.
According to the Times, Phoenix Products’ president and his wife have been “frequent contributors” to Rogers’s political committee and the company has spent at least $600k on a DC lobbying firm since 2005. Those efforts apparently haven’t gone unrewarded as Rogers “has directed more than $17 million in work orders for Phoenix Products since 2000.”
Readers should keep this story in mind the next time a Republican member of Congress calls for a Balanced Budget Amendment, complains about the growth in government under Obama, and then argues against “dangerous defense cuts.” The bedtime story that Americans often hear is that the federal government must spend gobs of money on defense in order to “keep us safe from our enemies.” I once believed that story—and then I spent some time in the U.S. Senate watching policymakers treat military spending like any other pot of taxpayer money.
[See here for more on downsizing the Department of Defense.]
After-Action Report on Cato’s Panel on the Future of the Navy Surface Fleet
Yesterday’s event on the U.S. Navy was a big success and generated a vigorous discussion. Ben Freeman from POGO spelled out his concerns about the littoral combat ship, specifically the Freedom (LCS-1) (documented here and here) and CBO’s Eric Labs raised a few additional ones pertaining to the program as whole. Under Secretary of the Navy Robert Work delivered an impassioned defense of the LCS within the context of the entire fleet design, drawing on examples from history to demonstrate how the Navy learns and adapts. Consistent with past practice, Work is confident that the fleet will put the LCS through the paces—two completely different ships—and figure out how to use them.
It was refreshing to engage in a serious discussion among people who are committed to a Navy that is second-to-none, and who care enough to raise questions designed to make it stronger. I focused my remarks on the LCS’s operating characteristics, but especially on the decision to buy two different LCS types. The original plan was for the Navy to select just one. The advantage of having two ships, Work stressed, was that the Navy would learn about each vessel’s unique capabilities. The disadvantage, as I see it, is the loss of economies of scale, including in parts, logistics and training.
I do think it is important to move past the specific technical problems identified in both LCS-1 and LCS-2. These are the first ships in the class, and such ships always have their share of problems (I was assigned to a first-in-class ship, USS Ticonderoga, from March 1990 to May 1993, and we were working through some problems nine years after the ship was launched). The blogger Galrahn (aka Raymond Pritchett) at Information Dissemination last week tweeted that the information in the POGO and Aviation Week reports was all old news, but that hadn’t stopped members of Congress from calling for another investigation. Under Secretary Work stressed that he believes the problems have been addressed, or will be, and he is committed to making this program successful.
But this discussion about fixing problems and learning as we go along reminds me of a conversation that I had a few months ago with a person who believes we should increase military spending. This individual is advising Gov. Romney, who has pledged to boost Pentagon spending quite substantially—perhaps as much as an extra $2.5 trillion over the next ten years, by my estimates—if he is elected president.
While talking, I raised the subject of the LCS, not the first time that the subject has come up between us. He was nonplussed and claimed that the problems with the ship could easily be fixed. More specifically, he said “It is nothing that money can’t fix.” That is pretty much a direct quote.
Nothing that money can’t fix.
There are two problems with that statement. First, Mitt Romney might not become the 45thpresident of the United States in January 2013—the polls say that it is basically a 50-50 proposition that he won’t—and I think it highly unlikely that the Navy’s shipbuilding budget will grow substantially if he isn’t elected.
PoliceMisconduct.Net Launch
Today, Cato is launching a new web site, PoliceMisconduct.net, which is one component of our new National Police Misconduct Reporting Project. We will be tracking news stories concerning misconduct so policymakers can make more informed assessments of its nature and circumstances. Our objective is to identify policies that consistently uphold high standards of ethics, honesty, and professionalism from police officers and critique the policies that do not.
Here is a recent item from Denver, Colorado: Alexander Landau was brutally beaten after a routine traffic stop. The City Council this month unanimously agreed to pay him $795,000 to settle his brutality lawsuit. What happened to Landau was awful, but even more disturbing from the news report is that the Internal Affairs Unit declined to begin a formal investigation after the incident, let alone a rigorous one. And note that two of the three officers involved in the Landau case were recently fired for lying on reports concerning other violent incidents!
Just the latest example of why a police misconduct tracker is needed. Related item here.
Negotiations with Iran: What Has Changed?
May 23, the permanent five members of the UN Security Council, plus Germany (P5+1) will enter into talks with the Iranian leadership about the latter’s nuclear program. The Baghdad talks come on the heels of talks last month in Istanbul. A number of observers have raised expectations for the talks in Baghdad. The latest hopeful development is IAEA chief Yukiya Amano’s declaration, on the heels of his visit to Tehran, that he expects a structured agreement for inspections to be signed “quite soon.” Any progress toward a diplomatic solution would be preferable to backsliding or a collapse. Unfortunately, the talks are unlikely to live up to the high expectations.
Beyond Amano’s visit to Tehran, the big change since last month’s talks is French President Nicolas Sarkozy’s loss to the socialist, François Hollande, who appears less truculent on Iran than was Sarkozy. Previously, Sarkozy was the hardest-driving member of the P5+1, so Hollande’s victory is likely to bring the P5+1 into closer harmony. More broadly, the considerable anxiety over the prospect of an outright collapse of the Euro is likely to diminish European interest in focusing too much attention overseas.
Despite these changes, however, one wonders how the underlying calculus of negotiations has changed. The United States is still threatening to bomb Iran in order to prevent it from developing a nuclear deterrent. Israeli Prime Minister Binyamin Netanyahu is continuing to define “success” in a way such that it cannot realistically be achieved, and warning that anything less than total Iranian capitulation is failure. Like-minded U.S. legislators, such as Senator Lindsey Graham (R-SC), agree that the only acceptable Iranian move is immediate surrender. And high-ranking Iranian military officials are declaring that Iran is “standing for its cause that is the full annihilation of Israel.”
Given these two sets of developments, the question remains: Have sanctions by the United States and its partners caused enough pain and fear of instability in Iran that its leadership will forego a nuclear program that it likely feels is vital for its legitimacy and security? Most skeptics, this writer included, would like to be proved wrong, but they still appear to have the better of the argument.
Should International Bureaucracies Get Taxing Powers or Direct Funding?
Over the years, I’ve strenuously objected to schemes that would enable international bureaucracies to levy taxes. That’s why I’ve criticized “direct funding” proposals, most of which seem to emanate from the United Nations.
- A scheme to let the United Nations tax services such as air travel.
- A proposal, pushed by George Soros and other statists, for U.N. taxes on things such as energy use.
- And, of course, the favorite of the big-government crowd, a global tax on financial transactions.
Interestingly, the American left is somewhat divided on these schemes. House Democrats have expressed sympathy for global taxes, but the Obama administration has come out against at least certain worldwide tax proposals.
Unfortunately, proponents of global taxes are like the Energizer Bunny of big government, relentlessly pushing a statist agenda. If the world economy is growing, it’s time for a global tax. If the world economy is stagnant, it’s time for a global tax. If it’s hot outside or cold outside, it’s time for a global tax (since “global warming” is one of the justifications for global taxation, I’m not joking).
Given this ongoing threat, I’m glad that Brian Garst of the Center for Freedom and Prosperity has put together a two-page Libertas explaining why international bureaucracies should not get taxing powers or direct funding.
…it would be imprudent to give international bureaucracies an independent source of revenue. Not only would this augment the already considerable risk of imprudent budgetary practices, it would exacerbate the pro-statism bias in these organizations. …The issue of taxing powers and direct funding has become an important issue because international organizations are challenging the contribution model and pushing for independent sources of revenue. The United Nations has been particularly aggressive in pushing for global taxes, seeking to expand its budget with levies on everything from carbon to financial transactions.
He then highlights one of the most dangerous proposals, a scheme by the World Health Organization to impose a “Solidarity Tobacco Contribution.”
Another subsidiary of the United Nations, the World Health Organization (WHO), is also looking to self-fund through global taxes. The WHO in 2010 publicly considered asking for global consumer taxes on internet activity, online bill paying, or the always popular financial transaction tax. Currently the WHO is pushing for increased excise taxes on cigarettes, but with an important condition that they get a slice of the added revenue. The so-called Solidarity Tobacco Contribution would provide billions of dollars to the WHO, but with no ability for taxpayers or national governments to monitor how the money is spent.
I have to give the left credit. They understand that few people are willing to defend tobacco, so proposing a global tax on cigarettes sounds noble, even though the real goal is to give the WHO a permanent stream of revenue.
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