Trade Can Help the Poor Escape Poverty
Professor William Easterly, the economic development expert from New York University, has written an excellent comment for the Financial Times online. He writes, “The Millennium Development Goals [summit that wraps up in NY today] tragically misused the world’s goodwill to support failed official aid approaches to global poverty and gave virtually no support to proven approaches. … But current experience and history both speak loudly that the only real engine of growth out of poverty is private business, and there is no evidence that aid fuels such growth.”
At the Center for Global Liberty and Prosperity, we have continuously emphasized the power of trade to help the poor escape poverty. Unfortunately, politicians in rich countries find it easier to waste billions of taxpayers’ dollars in the form of foreign aid than to take on special interests that thrive on trade protectionism; hence European and American agricultural tariffs and subsidies.
However, the impact of rich countries’ protectionism should not be exaggerated. African countries are typically more protectionist than rich countries. In fact, they are more protectionist against one another than against rich countries. The sad truth is that poor countries are perfectly able to shoot themselves in the foot by following growth-killing economic policies – irrespective of what the rich countries do.
Foreign aid, incidentally, has been ineffective at promoting liberalization.
AP: Obama Misleads Voters about ObamaCare’s Effects on Premiums
Buyers, beware: President Barack Obama says his health care overhaul will lower premiums by double digits, but check the fine print…
The [Congressional Budget Office] concluded that premiums for people buying their own coverage would go up by an average of 10 percent to 13 percent, compared with the levels they’d reach without the legislation…
“People are likely to not buy the same low-value policies they are buying now,” said health economist Len Nichols of George Mason University. “If they did buy the same value plans … the premium would be lower than it is now. This makes the White House statement true. But is it possibly misleading for some people? Sure.”
Nichols’ comments are also misleading — which makes the president’s statement not just misleading but untrue.
Under ObamaCare, people would not have the option to buy the same low-cost plans they do today. That’s the whole problem: under an individual mandate, everybody must purchase the minimum level of coverage specified by the government. That minimum benefits package would be more expensive than the coverage chosen by most people in the individual market. Their premiums would rise because ObamaCare would take away their right to choose a more economical policy.
Note also that the CBO predicts premiums would rise by an average of 10-13 percent in the individual market. Consumers who currently purchase the most economic policies would see larger premium increases.
Finally, the Obama plan would also force millions of uninsured Americans to purchase health insurance at premiums higher than current-law premium levels, which they have already rejected as being too high. Their premium expenditures would rise from $0 to thousands of dollars. Yet the CBO counts that implicit tax as reducing average premiums, because those consumers are generally healthier-than-average. Only in Washington is a tax counted as a savings.
Son of the Stimulus
Like the sequel to a horror film, the politicians in Washington just passed another stimulus proposal. Only this time, they’re calling it a “jobs bill” in hopes that a different name will yield a better result.
But if past performance is any indicator of future results, this is bad news for taxpayers. By every possible measure, the first stimulus was a flop. But don’t take my word for it. Instead, look at what the White House said would happen.
The Administration early last year said that doing nothing would mean an unemployment rate of nine percent. Spending $787 billion, they said, was necessary to keep the unemployment rate at eight percent instead.
So what happened? As millions of Americans can painfully attest, the jobless rate actually climbed to 10 percent, a full percentage point higher than Obama claimed it would be if no bill was passed.
The President and his people also are arguing that the so-called stimulus is responsible for two million jobs. Yet according to the Department of Labor, total employment has dropped significantly — by more than three million — since the so-called stimulus was adopted. The White House wants us to believe this sow’s ear is really a silk purse by claiming that the economy actually would have lost more than five million jobs without all the new pork-barrel spending. This is the infamous “jobs saved or created” number. The advantage of this approach is that there are no objective benchmarks. Unemployment could climb to 15 percent, but Obama’s people can always say there would be two million fewer jobs without all the added government spending.
To be fair, this does not mean that Obama’s supposed stimulus caused unemployment to jump to 10 percent. In all likelihood, a big jump in unemployment was probably going to occur regardless of whether politicians squandered another $787 billion. The White House was foolish to make specific predictions that now can be used to discredit the stimulus, but it’s also true that Obama inherited a mess — and that mess seems to be worse than most people thought.
Moreover, it takes time for an Administration to implement changes and impact the economy’s performance. Reagan took office in early 1981 during an economic crisis, for instance, and it took about two years for his policies to rejuvenate the economy. It certainly seems fair to also give Obama time to get the economy moving again.
That being said, there is little reason to expect good results for Obama in the future. Reagan reversed the big-government policies of his predecessor. Obama, by contrast, is continuing Bush’s big-government approach. Heck, the only real difference in their economic policies is that Bush was a borrow-and-spender and Obama is a borrow-and-tax-and-spender.
In Praise of Libertarian Fickleness
A few follow-ups on the post by David Boaz, below.
Libertarians are basically a sect of conservatives, say John Zogby & Zeljka Buturovic in the National Review Online. That’s because libertarians care more about economics than about foreign policy, cultural, or other issues:
Let us for a moment [assume] that a person’s ideology is solely determined by his policy views. And let us also assume that social and economic liberties can largely be disentangled and that libertarians are as close to liberals on social issues as they are to conservatives on economic ones — a view implicit in the argument for liberaltarianism. Still, our data show that different aspects of ideology are not equally important for a person’s ideological identity, and, somewhat ironically, that this is especially true of libertarians. For all their insistence that liberty has multiple facets, libertarians appear to cherish one of them much more than others.
Supporting data shows that 60% of self-described libertarians find “economics” more important than the “social/cultural,” “foreign policy,” “energy/environment” or “other/not sure” issue areas.
I’m not convinced. A common libertarian approach to any issue is to begin with the economics of that issue. Certainly it’s true of energy and the environment. It’s also very likely true of foreign policy, because wars aren’t cheap, and it’s at least plausibly true of social and cultural issues. Libertarians see economics everywhere, not just in “economic” policies. It’s a common belief in our tribe that we are among the very few to grasp sound economic principles at all.
We can (and should) debate whether this is true, of course, but such is libertarian belief. And when conservatives abandon what we see as sound economics — as with the George W. Bush administration — well, we start looking for the exits.
Lately, though, it’s been easy for libertarians to return to conservatism. To no one’s great surprise, the Obama administration has continued the profligate spending. We may have hoped that the new administration would compensate in other areas, but this just hasn’t happened. The Guantanamo Bay detention camp should have been closed by now. On military tribunals, search and seizure issues, indefinite detention, and our expensive, never-ending foreign wars, there’s little difference between this administration and the last.
I don’t want to say that liberaltarianism is dead. But is it endangered? Sure. It deserves to be.
If libertarians seem more conservative lately, it’s not only that we’ve been pushed away by the left. Attendees at this year’s CPAC ranked “reducing size of federal government” and “reducing government spending” as by far their highest policy priorities. They also chose Ron Paul as their preferred presidential candidate. Those same attendees even booed speaker Ryan Sorba for condemning gay Republicans:
(Though many seem to share it, I wouldn’t personally trust Sorba’s understanding of Aquinas.)
Today’s young conservatives appear embarrassed by the culture wars, which must seem to them like a relic from someone else’s past. Many young conservatives have known a literal state of war for their entire adult lives. They may not even remember the last balanced federal budget. And they know that putting a Democrat in the White House hasn’t helped. Personally, I’m no conservative. But there is strength in fickleness, and if conservatives can do better, then good for them.
Globalization: Curse or Cure?
Globalization holds tremendous promise to improve human welfare but can also cause conflicts and crises. How will competition for resources, employment, and growth shape economic policies among developed nations as they attempt to maintain productivity growth, social protections, and extensive political and cultural freedoms?
In a new study, Cato scholar Jagadeesh Gokhale offers policy recommendations for developed nations to reduce globalization’s negative effects and, indeed, harness it for solving economic challenges.
Do Democratic Presidents Create More Jobs?
Politifact.com looked into a remark from Rep. Carolyn Maloney, D-N.Y., that “Democrats have been considerably more effective at creating private-sector jobs.”
The statement was rated true, as a purely statistical matter. Yet the poltifact researcher did a good job questioning the significance of his own figures. He noted, correctly, that the president usually “deserves less credit for the good times — and less blame for the bad times.” And he added that job figures can be driven by outside factors such as oil price shocks, demographic changes or soldiers coming home after World War Two. He wryly noted “how surprised we are that Eisenhower, who presided over the ‘happy’ 1950s, managed an anemic half-percent job growth per year, while Jimmy “Malaise” Carter finished second with 3.45 percent annual job growth.” Anyone who remembers the runaway inflation of the Carter era will realize that annual rates of job growth are not enough to describe the overall economic situation.
The author also quoted me making the point that “timing can be hugely important.” It is so important, in fact, that we may need to add another dimension to politifact’s true-false meter to deal with political comments that are simply meaningless.
For the record, what follows is the full text of my email on this topic:
The error involved with assigning rates of job growth to Presidential terms is that six recent Presidents took office within a few months of the start of a recession: Obama (recession began December 2007), H.W. Bush (July 1990), G.W. Bush (Mar 2001), Reagan (July 1981), Nixon (Dec. 1969) and Ike (July 1953). As it happens, four of the five were Republicans.
One might argue that recessions launched near the end of the previous administration helped get these men elected. But these recessions were clearly left over from events that began previous years. It didn’t help that the first Pres. Bush passed a tax increase three months after the 1990 recession began, but the start of that recession is more plausibly blamed on the earlier spike in oil prices when Iraq invaded Kuwait.
Since employment is a lagging indicator (one of the last things to improve), that means average job growth among Presidents who took office near the start of recessions is bound to look bad in comparison with Presidents who took office after an expansion was well underway. Bill Clinton took office in 1993, long after recession ended in March 1991. The same was true of Truman, LBJ and Carter. JFK took office a month before the 1960 recession ended.
Two-term Presidents also have more time to show good numbers, but only if they’re lucky enough to get out of office just before the next recession starts. Clinton squeaked by (despite falling stock prices and industrial production 2000), but Nixon, Eisenhower, Carter and G.W. Bush did not.
Since Bush 2nd began and ended office in recession, averages over 8 years outweigh 4 reasonably good years. This unprecedented bad timing is exaggerated by Paul Krugman’s comparison of “decades” [and President Obama’s recent reference to “the lost decade” of 1999-2009] which relies on starting and ending each decade in boomy 1959 rather than slumping 1960, ditto 1969 rather than 1970, 1979 rather than 1980, 1989 rather than 1990, and 1999 rather than 2000.
In short, statistics about employment growth over Presidential terms are dominated by the timing of the “business cycle” (including Federal Reserve policy), and have no apparent connection to economic policies attributed to the White House (as opposed to Congress).
Thursday Links
- Helping out the “Wall Street fat cats:” Bankers are responding to the incentives generated by the economic policies of the Treasury and the Federal Reserve.
- How charter schools can save states big education dollars.
- Doug Bandow: “Congress has spent the country blind, inflated a disastrous housing bubble, subsidized every special interest with a letterhead and lobbyist, and created a wasteful, incompetent bureaucracy that fills Washington. But now, legislators want to take a break from all their good work and save college football.”
- In case you missed it last week, watch Cato’s Jerry Taylor on the premier episode of Stossel.
- Podcast: “Urban Planners Romanticize Immobility“
Dollar Crisis
Over the weekend, Liu Mingkang, a senior Chinese official, blasted the economic policies of the Obama Administration. He identified low interest rates in the U.S. as the cause of “massive speculation” that was inflating asset bubbles around the world. The U.S. dollar is being used in what is known as a carry trade and is borrowed cheaply to finance the purchase of real estate in Asian cities like Hong Kong and Singapore. The easy money policies of the Fed are also fueling a boom in commodity prices.
The ordinary American, if not the political class, recognizes that neither the Fed’s monetary actions nor the trillions in spending have helped them. Unemployment is in double digits. Former senior Bush economic adviser Larry Lindsey is reported to have estimated that Americans’ net worth has dropped $13 trillion since the beginning of the recession in December 2007. Americans suffer while speculators profit.
We are on the cusp of a dollar crisis. President Jimmy Carter faced a similar crisis in his presidency. Carter ousted his own choice for Chairman of the Fed and appointed Paul Volcker to that position. Volcker recognized that the dollar crisis needed to be ended and instituted painful but necessary sound money policies. President Reagan re-appointed Volcker and together they restored American prosperity. Volcker advises President Obama and can explain to the president why he must act now.
Reflections on China’s 1949 “Liberation”
During a speaking trip to China three years ago, the young tour guide in Beijing kept referring to “the liberation.” I soon realized that she meant the October Revolution of 1949, in which Mao Tse Tung and the communists seized power and began their rule 60 years ago today.
Far from liberating China, the reign of Mao represents one of the worst tyrannies in the history of mankind. Opposition parties, free speech and freedom of religion were quickly eliminated. The Great Leap Forward of 1958-61 forced the collectivization of agriculture, resulting in a famine that killed tens of millions. The Cultural Revolution of 1966-76, while not as deadly, unleashed chaos that crippled the economy and scarred a generation. As Gordon Chang writes in a Wall Street Journal op-ed this morning, the celebration by the Chinese people will be understandably muted.
China’s real liberation began not 60 years ago, but 30 years ago, with the reforms of Deng Xiaoping. While China remains an oppressive, one-party state politically, its economy has taken a true great leap forward in the past three decades because of market reforms in agriculture, industry, and trade. China’s liberation has far to go, but the Chinese people today are much more free of government interference in their personal, daily lives than they were in the time of Mao.
When I point to China’s economic progress as an example of what trade liberalization can deliver, my debate opponents will sometimes counter that China is a communist country. But China’s dramatic growth has not occurred because of its residual communism. For 30 years now, its government has been in the process of abandoning the communist economic policies of Mao and his fellow “liberators,” much to the benefit of the Chinese people and the world.
Stop the War, Stop the Spending
One of the great things about Ron Paul’s presidential campaign was its cross-ideological appeal. Libertarians, free-market conservatives, and antiwar young people all found his candidacy appealing. As someone who has despaired for years about the split between free-marketers and civil libertarians, who ought to be part of the same broad freedom movement, I looked forward to seeing that combination continue. So here’s a suggestion.
President Obama’s frightening tax-spend-and-take-over-private-businesses policies are re-energizing a free-enterprise constituency that had been depressed and dispirited by the reality of a Republican government giving us bigger, more expensive government for eight years. Cato’s full-page newspaper ads against the “stimulus” bill generated much enthusiasm and media discussion. CNBC’s Rick Santelli and South Carolina governor Mark Sanford have become folk heroes for speaking out against Obama’s economic policies. Now there are anti-tax “tea parties” planned in more than 300 cities. The growing resistance to Obama’s spending agenda is encouraging.
But meanwhile, where’s the antiwar movement? President Obama rose to power on the basis of his early opposition to the Iraq war and his promise to end it. Now he has doubled down on the war in Afghanistan and has promised to keep the war in Iraq going for another 19 months, after which we will have 50,000 American troops in Iraq for as far as the eye can see. If McCain had proposed this sort of minor tweaking of the Bush policy, I think we’d see antiwar rallies in 300 cities. Calling the antiwar movement!
So here’s my suggestion. Some libertarian group — which may or may exist already; the Internet makes it amazingly easy to organize a new group at a moment’s notice — should start a campaign to unite the antitax and antiwar constituencies with a simple message:
Stop the War, Stop the Spending
Or maybe it should be “Stop the Wars, Stop the Spending.” But it would pick up on Ron Paul’s appeal with his TV ads in which he said, “I’m the only presidential candidate who’ll bring our troops home from Iraq immediately and stop wasteful government spending.” Millions of Americans are tired of the war and worried about soaring federal spending. Somebody should give them a rallying point.
Week in Review: No End to Spending and Regulation in Sight
Geithner to Propose Unprecedented Restrictions on Financial System
The Washington Post reports, “Treasury Secretary Timothy F. Geithner plans to propose today a sweeping expansion of federal authority over the financial system… The administration also will seek to impose uniform standards on all large financial firms, including banks, an unprecedented step that would place significant limits on the scope and risk of their activities.”
Calling Geithner’s plan another “jihad against the market,” Cato senior fellow Jerry Taylor blasts the administration’s proposal:
What President Obama is selling is the idea that government must be the final arbiter regarding how much risk-taking is appropriate in this allegedly free market economy. It is unclear, however, whether anybody short of God is in the position to intelligently make that call for every single actor in the market.
Cato senior fellow Gerald P. O’Driscoll reveals the real reason behind the proposal:
Federal agencies have long had extensive regulatory powers over commercial banks, but allowed the banking crisis to develop despite those powers. It was a failure of will, not an absence of authority. If the authority is extended over more institutions, there is no reason to believe we will have a different outcome. This power grab is designed to divert attention away from the manifest failure of, first, the Bush Administration, and now the Obama Administration to devise a credible plan to deal with the crisis.
A new paper from Cato scholar Jagadeesh Gokhale explains the roots of the current global financial crisis and critically examines the reasoning behind the U.S. Treasury and Federal Reserve’s actions to prop up the financial sector. Gokhale argues that recovery is likely to be slow with or without the government’s bailout actions.
In the new issue of the Cato Policy Report, Cato chairman emeritus William A. Niskanen explains how President Obama is taking classic steps toward turning this recession into a depression:
Four federal economic policies transformed the Hoover recession into the Great Depression: higher tariffs, stronger unions, higher marginal tax rates, and a lower money supply. President Obama, unfortunately, has endorsed some variant of the first three of these policies, and he will face a critical choice on monetary policy in a year or so.
Obama Defends His Massive Spending Plan
President Obama visited Capitol Hill on Wednesday to lobby Democratic lawmakers on his $3.6 trillion budget proposal. Both the House and Senate are expected to vote on the plan next week.
In a new bulletin, Cato scholar Chris Edwards argues, “Sadly, Obama’s first budget sets a course for more government bloat, more economic distortions, and ultimately lower standards of living for everyone who is not living off of federal hand-outs.”
On Cato’s blog, Edwards discusses Obama’s misguided theory on government spending:
Obama’s budget would drive government health care costs up, not down. But aside from that technicality, the economics of Obama’s theory don’t make any sense.
Obama’s budget calls for a massive influx of government jobs. Writing in National Review, Cato senior fellow Jim Powell explains why government jobs don’t cure depression:
If government jobs were the secret of success, then the Soviet Union wouldn’t have collapsed, because it had nothing but government jobs. Communist China, glutted with government jobs, would have generated more income per capita than Hong Kong where, at least before the Communist takeover, there were hardly any government jobs, but Hong Kong’s per capita income was about 20 times higher than that on the mainland.
Multiplying the number of government jobs did nothing then and does nothing now to revive the private sector that pays all the bills, in large part because of the depressing effect of taxes required to pay for government jobs.
Cato on YouTube
Cato Institute is reaching out to new audiences with our message of individual liberty, free markets and peace. Last year, we launched our first YouTube channel, which has garnered thousands of views and subscriptions. Here are a few highlights:
Now He Tells Us!
President Barack Obama now says the economy isn’t as bad as we thought. Reports the New York Daily News:
President Obama said Thursday the nation’s economic woes are not as dire as they seem and said his economic policies will get the country back on track.
“I don’t think things are ever as good as they say, or ever as bad as they say,” Obama told CEOs at a meeting of the Business Roundtable in Washington.
“Things two years ago were not as good as we thought because there were a lot of underlying weaknesses in the economy,” he said. “They’re not as bad as we think they are now.”
Does this mean we can cancel the “stimulus” bill and reverse all those bail-outs that were promoted as necessary to save us from disaster?
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