Policy Institutes

Cutting Business Property Taxes to Improve Competitiveness

Cato Op-Eds - Wed, 09/17/2014 - 08:50

Chris Edwards

Tax Foundation has released a study comparing country tax codes. The “International Tax Competitiveness Index” by Kyle Pomerleau and Andrew Lundeen found that “the United States has the 32nd most competitive tax system out of the 34 OECD member countries.” In other words, the United States is a bad place to invest from a tax perspective.

Factors behind America’s poor score include “the highest corporate tax rate in the developed world” and the fact that we are “one of the six remaining countries in the OECD with a worldwide system of taxation.”

Another cause of our poor score is our high property taxes. Many U.S. jurisdictions impose property taxes not just on land and buildings, but also on business machinery and equipment. These taxes are a strong deterrent to capital investment, and they should be repealed. U.S. state and local governments collect a huge $242 billion a year in business property taxes, according to E&Y.

In an upcoming Fiscal Report Card on America’s Governors, Nicole Kaeding and I mention efforts to cut property taxes on business equipment, including reforms in Indiana and Michigan. I suspect one reason for Detroit’s economic demise has been its very high property tax burden.

Using Tax Foundation data, the chart shows property taxes as a percent of gross domestic product for the 34 OECD countries.

Ryan Ellis highlights some more of the Tax Foundation results here.

Categories: Policy Institutes

Decrying "Wishful Science" on NPR(!)

Cato Op-Eds - Tue, 09/16/2014 - 17:29

Patrick J. Michaels

Global Science Report is a feature from the Center for the Study of Science, where we highlight one or two important new items in the scientific literature or the popular media. For broader and more technical perspectives, consult our monthly “Current Wisdom.”


First, a disclaimer. I don’t listen to NPR. “State radio” bugs me. But I have friends who do, and I was bowled over when one sent me a seemingly innocuous story about the search for a pharmaceutical treatment for Amyotrophic Lateral Sclerosis [ALS], the horrific ailment also known as Lou Gehrig’s Disease.

I knew something big was about to happen when correspondent Richard Harris led off with this zinger:

There’s a funding crunch for biomedical research in the United States—and it’s not just causing pain for scientists and universities.  It’s also creating incentives for researchers to cut corners—and that’s affecting people who are seriously ill.

Predictably, NPR, itself a federally (and privately) funded creature, said the problem was a lack of funding, even titling the piece, “Patients Vulnerable When Cash-Strapped Scientists Cut Corners.”

Allow NPR its sins, because what’s in the article is one key to a very disturbing trend, not just in biomedical science, but in “most disciplines and countries.” It seems that negative results are systematically disappearing from science. Those words appear in the title of a blockbuster 2012 article by University of Montreal’s Daniele Fanelli, more completely, “Negative Results are Disappearing from Most Disciplines and Countries.”

Memo to NPR:  Scientists  are always “cash-strapped.” Just ask one. The reason is very simple, and can be illustrated by my area, climate science.

There are actually very few people formally trained at the doctoral level in this field (yours truly being one of them).  One reason was that, prior to the specter of anthropogenerated climate change, there wasn’t very much money from the federal government. It was about a $50 million a year operation, if that much. We didn’t have enough research dough. 

Now the federal outlay is $2.3 billion. Guess what: we’re all climate scientists now. So ecologists, plant biologists, and even psychologists hitched their wagons to this gravy train. Today’s shocker: we don’t have enough research dough.

What Harris found out about ALS really does apply in a Fanelli-like fashion. It seems that drugs that work fine on mice and rats flop miserably when tested on humans. It turns out that the animal studies were all pretty shoddy.

Story Landis, director of the National Institute of Neurological Disorders and Stroke, explained why.  According to NPR, “There is no single answer, she says, but part of the explanation relates to a growing issue in biomedical science: the mad scramble for scarce research dollars.”  She went on: “The field has become hypercompetitive,” and NPR added, “Many excellent grant proposals get turned down, simply because there’s not enough money to go around. So Landis says scientists are tempted to oversell weak results.”  

“Getting a grant requires that you have an exciting story to tell, that you have preliminary data and you have published”, she says. “In the rush, to be perfectly honest, to get a wonderful story out on the street in a journal, and preferably with some publicity to match, scientists can cut corners.”

According to a research paper published earlier this year, corner-cutting turned out to be the rule, rather than the exception, in animal studies of ALS.

Stefano Bertuzzi, the executive director of the American Society for Cell Biology, says that’s because there is little incentive for scientists to take the time to go back and verify results from other labs;

“You want to be the first one to show something”, he says—not the one to verify or dispute a finding, “because you won’t get a big prize for that.”

Landis noted that “ALS is not the only example of this type of wishful science [emphasis added].”  She found similar problems with other drugs for other diseases.

It’s too bad that NPR didn’t then go to Montreal’s Fanelli, because they would have found that similar problems are infecting science everywhere, which is why Cato now has a Center for the Study of Science.

Coming up: I’ll be posting soon on what this does to science itself.  Teaser: if there’s little incentive to publish negative results, whatever reigning paradigm is operating in a given field will be very resistant to change. As the Center for the Study of Science’s Richard Lindzen has observed, there has been a remarkable lack of paradigm substitution in overall science as research budgets ballooned. Ironically, the more we spend on science, the more science can be harmed.

 

Categories: Policy Institutes

German Uber Ban Lifted

Cato Op-Eds - Tue, 09/16/2014 - 17:09

Matthew Feeney

Today, a court in Frankfurt lifted the temporary ban on Uber’s ride-sharing service imposed at the beginning of this month. Judges were reportedly sympathetic to the claim brought by Taxi Deutschland, an association of taxi dispatchers. However, Judge Frowin Kurth ruled that Taxi Deutschland had waited too long to file for an injunction. A spokesman for the court said that the case must have been filed within two months of Uber’s ride-sharing service launching in Germany.

Taxi Deutschland claimed that Uber’s ride-sharing service was in violation of legislation prohibiting drivers without a commercial license charging passengers more than the operating cost of a ride. 

Although the temporary ban has been lifted the court has not made a judgment on whether Uber’s ride-sharing service is legal in Germany.

Uber has been facing opposition across Europe. In June, London cabbies protested how Uber was being regulated by the city’s transportation agency. In March, Milan taxi drivers held a strike protesting Uber. According to Reuters, Milan’s taxi unions believed Uber was operating illegally:

Milan’s taxi unions say that because the app allows drivers to be summoned while in their car, it violates a 1992 law which describes hired drivers as a service ordered from the garage where their business is based, as distinct from taxis, which can pick up passengers on the move.

 In Germany and the U.K. the Uber protests reportedly resulted in an explosion in signups.

Categories: Policy Institutes

Grenade Launchers: The Newest Must-Have School Supply

Cato Op-Eds - Tue, 09/16/2014 - 15:04

Jason Bedrick

The Wall Street Journal reports [$] today that government-run schools are stocking up on military surplus equipment—including M-16 rifles, grenade launchers, and even multi-ton armored vehicles—through a controversial federal program. 

In the wake of school shootings in Sandy Hook, Conn., and elsewhere, some school security departments developed SWAT teams, added weapons to deal with any contingency and called on the federal government to help supply the gear. But now the program is facing renewed scrutiny from both outside observers and police using the program.

In south Texas, near the Mexican border, the sprawling Edinburg Consolidated Independent School District has 34,700 students and operates its own SWAT team, thanks in part to military gear it was given in recent years.

The department received two Humvees and a cargo truck from the surplus program, as well as a few power generators, said district Police Chief Ricardo Lopez. The district applied for weapons, too, but wasn’t given any, so instead purchased its own M-4 and AR-15 assault-style rifles, he said.

The Humvees have turned out to be helpful in responding to events such as burglaries at some remote elementary schools on ranchlands, he said, though the 12-member SWAT team hasn’t responded to any major incidents.

They need Humvees to respond to burglaries? And under what conceivable scenario is a grenade launcher needed in a school? At least the officials at L.A. Unified claim that they never intended to put grenades in the grenade launchers:

Some school districts, including the Los Angeles Unified School District, stocked up on grenade launchers, M-16 rifles and even a multi-ton armored vehicle, only to realize the downside of the free gear is the cost to maintain it and train officers to use it.

The district is getting rid of the grenade launchers, which it never intended to use to launch grenades or use in a school setting, said Steven Zipperman, chief of police of the Los Angeles Schools Police Department. The launchers, received in 2001 and classified “as less lethal munitions,” might have been useful to help other police forces in the county disperse crowds by shooting foam or rubber bullets, he said.

Reason’s Zenon Evans reports that officials claim they need the wanna-be tanks “victim rescue vehicles” to extract students from a school shooting:

The L.A. school cops also have a mine-resistant ambush protected vehicle (MRAP), a piece of equipment that often weighs upwards of 14 tons and was designed to fight asymmetrical warfare against Iraqi insurgents, not provide backup during study period patrol. Los Angeles school officers also have 61 M-16 rifles, presumably to prevent food fights from breaking out. The MRAP is worth $733,000 and each rifle is worth $499, but the DoD gives equipment away for the price of shipping.

L.A. cops aren’t the only ones with MRAPs this back to school season. The San Diego Unified School District has one, too. Oakland got stuck with a “tactical” utility truck. 

“We recognize the public concern over perceived ‘militarization of law enforcement,’ but nothing could be further from the truth for School Police,” Capt. Joseph Florentino of the San Diego district told NBC yesterday. Apparently, his department is converting it to a “victim rescue vehicle” that will “be designed for us to get into any hostile situation and pull kids out.”

Professor Jay P. Greene of the University of Arkansas cuts right through the absurdity of schools stocking up on military equipment:

This is a toxic combination of 1) school districts lining up for anything the feds are handing out, 2) the excessive militarization of local police (and apparently school security) forces, and 3) schools focusing on incredibly rare events, like school shootings, as opposed to incredibly common ones, like incarcerating millions of children in schools that fail to serve their needs.

Perhaps the U.S. Department of Education could set an example for school districts by dismantling its SWAT team

Categories: Policy Institutes

The Disappointing Continuing Resolution

Cato Op-Eds - Tue, 09/16/2014 - 14:32

Nicole Kaeding

The House of Representatives is set to vote on a continuing resolution (CR) tomorrow to fund the federal government until December 11, 2014. A CR is stop-gap measure often used when the parties and chambers cannot agree on a full-year budget.

The CR package, as presented in draft form, is disappointing. It fails to institute much-needed fiscal reforms.

  • Spending Levels: The CR keeps the level of discretionary spending constant at $1.012 trillion. Not growing the size of government is a positive step for Congress, but there are plenty of ways to cut and reform spending. As I noted recently, the sooner Congress reforms spending the better.
  • Export-Import Bank: The CR extends the Export-Import Bank’s charter until June 30, 2015. Ex-Im subsidizes exports for American companies, but at a large cost to other American firms.
  • Internet Tax Moratorium: In 1998, Congress passed a law making it illegal for federal, state, or local governments to impose taxes on internet access, such as bandwidth or email taxes. This moratorium expires on November 1, 2014. The CR extends the moratorium until December 11, 2014, but it does not permanently extend it as  previously-passed House legislation would have. This sets up an important tax fight after the congressional elections.
  • Overseas Contingency Operations: The supplemental war budget, known as the Overseas Contingency Operations (OCO) budget, provides funding for military activities in Iraq and Afghanistan. OCO funding is supposed to decrease as those activities wind-down. But this CR increases OCO above planned levels. It includes $26 billion, at an annual rate, more than the Obama Administration’s request earlier in the year. One problem with OCO funding is that it is not subject to the same federal budgetary rules and disciplines as other types of spending, which allows Congress to treat it like a slush fund.

In sum, this CR allows members to again punt on any sort of meaningful entitlement reforms or spending cuts to reduce our half trillion dollar deficit.

Categories: Policy Institutes

Share Better Coalition Takes Aim at Airbnb

Cato Op-Eds - Tue, 09/16/2014 - 13:00

Matthew Feeney

Airbnb, which allows for homeowners to temporarily rent some or all of their property, is the target of “Share Better,” a New York City-based campaign group launched last Friday which claims that the company worsens the affordable housing crisis, allows for tenants to violate lease agreements, and poses a safety risk to property owners and guests.

Share Better is a coalition of predictable groups: New York state and NYC elected officials, activists, and hotel industry representatives.

The Share Better campaign is a notable example of established market participants (hotels) working to stifle competition. Airbnb has proven popular in NYC, and many New Yorkers believe that the type of short-term renting facilitated by Airbnb should be permitted. A Quinnipiac poll from earlier this month shows that only 36 percent of NYC voters believe that residents should not be “permitted to rent rooms in their homes for a few days at a time to strangers, similar to a hotel.”

Given Airbnb’s popularity some in the NYC hotel industry are understandably concerned. However, some of the claims made by the group are unfounded. 

Is Airbnb contributing to NYC’s affordable housing crisis? It’s hard to see how given the number of Airbnb rentals and the number of households in NYC. Airbnb claims that there are approximately 25,000 listings in NYC. In a city of roughly 3 million households it’s hard to see how Airbnb could be significantly contributing to a lack of affordable housing in NYC.

If New York and NYC elected officials and activists are concerned about affordable housing in NYC they should turn their attention to rent controls, which economists almost universally agree are bad policy. As Swedish economist Assar Lindbeck noted, “In many cases rent control appears to be the most efficient technique presently known to destroy a city—except for bombing.”

Read Cato’s Policy Analysis “How Rent Control Drives Out Affordable Housing” by William Tucker here.

The Share Better campaign released a video highlighting negative reviews of Airbnb rentals imposed over footage of grim-looking properties. No one who supports the sharing economy claims that every Airbnb experience will be good, just as no one will claim that every hotel visit will enjoyed by every guest. However, given the rise of the Internet it is easy for those interested in staying at a hotel to look up reviews of hotels made by previous guests. Similarly, Airbnb hosts and guests review each other, making it unlikely that a host offering dirty or unsafe accommodation will be able to use Airbnb’s services for long. 

Libertarians and Share Better can agree that, if an apartment tenant has signed a lease with a landlord that forbids him from temporarily renting his apartment, he should not be hosting Airbnb guests.

Categories: Policy Institutes

Argentina: One More Step toward Venezuela

Cato Op-Eds - Tue, 09/16/2014 - 09:57

Juan Carlos Hidalgo

This week the Argentine Congress is likely to pass legislation that would bring that country one step closer to suffering the economic disaster that currently besets Venezuela.

First, let’s keep in mind that when it comes to the economy, Argentina is already the country that comes closest to following Venezuela’s flawed policies (expansionary monetary policy, arbitrary expropriations and nationalizations, price controls, etc.).

High inflation remains the country’s number one problem. According to private consulting firms, year-to-year inflation in August was 40.4%. The black market exchange rate is 70% higher than the official rate, which has led to a growing shortage of dollars. We have seen this movie before in Venezuela.

President Cristina Fernández now wants to tackle inflation by having Congress pass an amendment to the “Supply Act” of 1974 that would allow her government to go after businesses that are deemed to be raising prices “unjustifiably or artificially,” or that enjoy “abusive profits.” In those cases, the bill authorizes the Secretary of Commerce to regulate and establish profit margins in each stage of production and commercialization, set price controls, and force companies to continue producing even though they are incurring losses. The bill also empowers the Secretary of Commerce to raid, fine and temporarily close businesses, and also to confiscate merchandise. (In fairness, the bill also aims to eliminate the prison sentences, massive confiscations and permanent closing of businesses that are stipulated in the original law —although they have been rarely implemented.)

The Argentine bill is very similar to Venezuela’s “Just Prices and Costs Act” passed in July, 2011. That law has greatly contributed to the country’s further decimation of the private sector and to widespread shortages of basic goods. The last time the Venezuelan Central Bank published its scarcity index in March, it reached 29.4%, meaning that over one out of four basic products is out of stock at any given time.

Since the Fernández administration enjoys a comfortable majority in the House of Deputies (the Senate already passed the bill), it’s very likely that the legislation will be approved this week. If that happens, Argentina will be one step closer to becoming the next Latin American basket case.

Categories: Policy Institutes

Is it “Moral” to Restrict Fossil Fuel Use to Mitigate Future Sea Level Rise?

Cato Op-Eds - Tue, 09/16/2014 - 09:20

Patrick J. Michaels and Paul C. "Chip" Knappenberger

Global Science Report is a feature from the Center for the Study of Science, where we highlight one or two important new items in the scientific literature or the popular media. For broader and more technical perspectives, consult our monthly “Current Wisdom.”

Organizations of all sorts are scrambling to get their ducks in a row in preparations for The People’s Climate March (we are not making this up) scheduled in NYC on September 21st as a prelude to the U. N.’s Climate Summit on the 23rd.  President Obama has pledged to be at the Summit.  The leaders of China, India, Japan, Australia, Germany, Canada, among others, have better things to do.

One of the pre-Summit events being held by several sponsors of The People’s Climate March is a Capitol Hill briefing scheduled for Thursday, the 18th. The Franciscan Action Network, the Friends Committee on National Legislation, and the Kingdom of the Netherlands (there is no way we could have made up that collaboration) are hosting a briefing titled “The Impact of Sea Level Rise Right Now: Stories of the Lived Experience and the Moral Call to Action.”

The bottom line of the briefing will be that:

Climate change is a moral, non-partisan and pragmatic issue which can be addressed by solutions with multiple co-benefits. We urge legislators to join global business, faith, scientific, health and military leaders in acknowledging that climate disruptions are real, happening now, and requiring our nation’s leaders to act.

It is interesting that they juxtapose a “moral issue” with calls for “policies to reduce national and global greenhouse gas emissions.” Interesting, we say, because there is a soon-to-be released and incredibly compelling book written by the Center for Industrial Progress’s Alex Epstein titled The Moral Case for Fossil Fuels. Its main premise is that both the short- and long-term benefits of using fossil fuels greatly outweigh the risks of any climate change that may occur as the result of the accompanying carbon dioxide emissions. Epstein argues that the “moral” thing to do is to continue (and expand) the use fossil fuels:

If we look at the big picture of fossil fuels compared with the alternatives, the overall impact of using fossil fuels is to make the world a far better place. We are morally obligated to use more fossil fuels for the sake of our economy and our environment.

The primary case against expansion of current fossil fuel use involves the risk from anthropogenic climate change.  However, here, the threats are overstated—especially by organizations (like many of those behind The People’s Climate March) that favor centralized government control of energy production (and most everything else).

The sea level rise concerns that are to be described in the Hill briefing will undoubtedly fall into the “overstated” category. According to the briefing’s flier:

“The U.S. National Climate Assessment projected that sea levels will rise 1 to 4 feet by 2100, affecting 39 percent of the U.S. population and impacting the very futures of many coastal communities and small island nations.”

We imagine that the focus will be on the high end of the 1 to 4 foot range (and beyond), even as a plethora of new science argues for an outcome nearer to the low end.

The current decadal rate of sea level rise is about 3 mm (.12 in) per year, which would result in about a foot of sea level rise during the 21st century. There  is a lot of recent research that concludes that a large increase in this rate of rise as a result of the melting of Greenland’s and/or Antarctica’s glaciers is unlikely.

The statistical models most responsible for the high-end sea level rise projections used have been shown to be questionable and thus unreliable. And finally, and perhaps most importantly, the future projection of temperature rise made by climate models (upon which the sea level rise projections are based) have been shown by a growing body of scientific research to be overestimated by about 40 percent.

Taken together, the latest science argues that the case for rapid and disruptive sea level rise is flimsy at best.

Undoubtedly, sea levels will continue to rise into the future, in part, from the earth’s temperature increase as a result of human carbon dioxide emissions resulting from our use of fossil fuels. Appropriate adaptations will be necessary. However, signs point to a rather modest rise in sea levels accompanying a rather modest rise in temperature—a pace at which our adaptive response can keep up.

So long as this is remains case, the continued use of fossil fuels to power the developed world and the expanded use to help provide safe, reliable, and cheap electricity to the more than 1 billion people in the underdeveloped world that currently live without any (or very minimal) access to it is a no-brainer.  That’s where the moral imperative should lie.

Categories: Policy Institutes

Anthony Burgess on "the Duty to Distrust the State"

Cato Op-Eds - Tue, 09/16/2014 - 09:11

David Boaz

Anthony Burgess wrote some 50 books, but he became most famous for one that was made into a hit movie – A Clockwork Orange, published in 1962 and filmed by Stanley Kubrick in 1971. Two years later Burgess wrote an essay reflecting on the book, the film, and their message. But the essay was not published until 2012, in the New Yorker, where it could be seen only by subscribers. Only this summer did the New Yorker open access to its archives, if only temporarily. So at last I have a chance to draw attention to the section of it I particularly enjoyed, on the dangers of the modern state:

We probably have no duty to like Beethoven or hate Coca-Cola, but it is at least conceivable that we have a duty to distrust the state. Thoreau wrote of the duty of civil disobedience; Whitman said, “Resist much, obey little.” With those liberals, and with many others, disobedience is a good thing in itself. In small social entities—English parishes, Swiss cantons—the machine that governs can sometimes be identified with the community that is governed. But when the social entity grows large, becomes a megalopolis, a state, a federation, the governing machine becomes remote, impersonal, even inhuman. It takes money from us for purposes we do not seem to sanction; it treats us as abstract statistics; it controls an army; it supports a police force whose function does not always appear to be protective.

This, of course, is a generalization that may be regarded as prejudiced nonsense. I personally do not trust politicians or statesmen—very few writers and artists do—and consider that men enter politics for the negative reason that they have little talent for anything else and the positive reason that power is always delicious. Against this must be set the truth that government makes healthful laws to protect the community and, in the great international world, can be the voice of our traditions and aspirations. But the fact remains that, in our own century, the state has been responsible for most of our nightmares. No single individual or free association of individuals could have achieved the repressive techniques of Nazi Germany, the slaughter of intensive bombing, or the atomic bomb. War departments can think in terms of megadeaths, while it is as much as the average man can do to entertain dreams of killing the boss. The modern state, whether in a totalitarian or a democratic country, has far too much power, and we are probably right to fear it.

It is significant that the nightmare books of our age have not been about new Draculas and Frankensteins but about what may be termed dystopias—inverted utopias, in which an imagined megalithic government brings human life to an exquisite pitch of misery. Sinclair Lewis, in “It Can’t Happen Here”—a novel curiously neglected—presents an America that becomes fascist, and the quality of the fascism is as American as apple pie. The wisecracking homespun Will Rogers-like President uses the provisions of a constitution created by Jeffersonian optimists to create a despotism which, to the unthinking majority, at first looks like plain common sense. The trouncing of long-haired intellectuals and shrill anarchists always appeals to the average man, although it may really mean the suppression of liberal thought (the American Constitution was the work of long-haired intellectuals) and the elimination of political dissidence. Orwell’s “1984”—a nightmare vision which may conceivably have prevented the nightmare fact from being realized: no one expects the real 1984 to be like Orwell’s—shows the unabashed love of power and cruelty which too many political leaders have hidden under the flowers of “inspirational” rhetoric. The “Inner Party” of Orwell’s future England exerts control over the population through the falsification of the past, so that no one can appeal to a dead tradition of freedom; through the delimitation of language, so that treasonable thoughts cannot be formulated; through a “doublethink” epistemology, which makes the outside world appear as the rulers wish it to appear; and through simple torture and brainwashing.

Both the American and the British visions conjoin in assuming that the aversive devices of fear and torture are the inevitable techniques of despotism, which seeks total control over the individual. But, as long ago as 1932, Aldous Huxley, in his “Brave New World,” demonstrated the submissive docility that powerful states seek from their subjects as being more easily obtainable through non-aversive techniques. Pre-natal and infantile conditioning makes the slaves happy in their slavery, and stability is enforced not through whips but through a scientifically imposed contentment. Here, of course, is a way that man may take if he really desires a world in which there are no wars, no population crises, no Dostoyevskian agonies. The conditioning techniques are available, and perhaps the state of the world may soon frighten man into accepting them. 

The whole thing is worth reading, with its reflections on freedom and conformity, good and evil, Orwell and B. F. Skinner (he was big in 1973).

Categories: Policy Institutes

Prof. Krugman Snared By 364 Trap

Cato Op-Eds - Mon, 09/15/2014 - 22:05

Steve H. Hanke

In his New York Times column of September 15, 2014, How to Get It Wrong,Paul Krugman pleas for open-mindedness and reason. From whence did Prof. Krugman convert from his embrace of dogmatism?

Well, it’s clear that he has not converted. Indeed, the evidence resides about three quarters of the way through his column:

“The great majority of policy-oriented economists believe that increasing government spending in a depressed economy creates jobs, and that slashing it destroys jobs — but European leaders and U.S. Republicans decided to believe the handful of economists asserting the opposite. Neither theory nor history justifies panic over current levels of government debt, but politicians decided to panic anyway, citing unvetted (and, it turned out, flawed) research as justification.”

This passage brings back vivid memories of the 364. In 1981, Margaret Thatcher was prime minister and my friend and collaborator, the late Sir Alan Walters, was her economic guru. Britain’s fiscal deficit was relatively large, 5.6% of its gross domestic product, and the economy was in the middle of a nasty slump. To restart the economy, Thatcher instituted a fierce fiscal squeeze, coupled with an expansionary monetary policy. This was immediately condemned by 364 dyed-in-the-wool Keynesian economists - virtually all of the British establishment. In a letter to the Times, they wrote, “Present policies will deepen the depression, erode the industrial base of our economy and threaten its social and political stability.”

Thatcher and Walters were vindicated quickly. No sooner had the 364 affixed their signatures than the economy turned around and boomed for the next five years. That result provoked disbelief among the Keynesians. After all, according to their dogma, the relationship between the direction of a fiscal impulse and economic activity is supposed to be positive, not negative.

The 364’s dogma was proven wrong. Thatcher and Walters were right.

Categories: Policy Institutes

Middle East and North Africa: A Fatal Attraction

Cato Op-Eds - Mon, 09/15/2014 - 15:21

Steve H. Hanke

Last week, President Obama addressed the nation to proclaim that the U.S. and an unspecified coalition were going to once again ramp up our military operations in Middle East and North Africa (MENA). This time, the target is the Islamic State, the group terrorizing Iraqi and Syrian citizens.

Just what is the economic condition of that troubled MENA region? This is a question that must be addressed by anyone who is looking over the horizon. After all, the state of an economy today will have a great influence on post-war prospects tomorrow.

My Misery Index allows us to obtain a clear picture of the current economic situation. The Index is the simple sum of the inflation rate, unemployment rate and bank lending rate, minus per capita GDP growth. I calculated a misery index for the countries in MENA where sufficient data were available.

As the chart shows, many of the countries in MENA are, well, miserable. Indeed, a score of over twenty indicates that serious structural economic problems exist. To correct these problems, thereby reducing misery, major economic reforms (read: free-market reforms) must be implemented. But, even if the respective governments approve such changes, it is unclear whether they can be implemented. To put a bit of color on that conjecture, consider that only 13 of the 21 countries in MENA reported the four pieces of economic data that are required to calculate my Misery Index. The regional governments’ inability to produce reliable economic data is a canary in a coal mine. When it comes to MENA, most of the countries have been singing for a long time. The region is, by and large, miserable.

Categories: Policy Institutes

Chile's Proposed Education Reforms Would Kill the Goose that Lays the Golden Eggs

Cato Op-Eds - Mon, 09/15/2014 - 12:17

Andrew J. Coulson

For the past three decades, Chile has had a nationwide voucher-like school choice program. Parents can choose among public and private schools, and the government picks up most or all of the tab. But, since the election last fall of a left-leaning government led by Michelle Bachelet, the future of the program has been in doubt. In May, President Bachelet introduced a first round of reforms aimed at dismantling aspects of the program, though these are still under debate. I’ve written about what that could mean for Chile’s educational performance and equality in today’s edition of the Santiago-based El Mercurio. Here’s the original English version:

Chile’s elementary and secondary education system has been harshly criticized in recent years for academic underperformance and for having large gaps in achievement between lower-income and higher-income students. There is significant truth to both charges. What is less widely known is that Chile has been improving substantially in both respects for at least a decade, and that president Bachelet’s proposed reforms are likely to reverse that improvement.

Though Chilean students perform in the bottom half of countries on the Programme for International Student Assessment (PISA) test, many of the nations that participate in that test are rich and fully industrialized. When compared to other Latin American countries, Chile is number one across all subjects. More importantly, Chile is one of the fastest-improving countries in the world on international tests, and so it is gradually closing the gap with rich nations.

Crucially, the bulk of Chile’s improvement has been coming from traditionally lower-performing, lower-income students, so the nation has also been narrowing its own achievement gap between rich and poor. One way that researchers measure inequality is to compare the performance of students who have many economic and educational resources in the home with the performance of those who lack such resources. By 2009, the gap in performance between the high- and low-resource students was already smaller in Chile than in most industrialized countries, including Australia, Denmark, France, Germany, and the United States. Another measure of inequality is the difference in the number of years of schooling that high- and low-income children complete. By that measure, Chile has the least inequality of any country in Latin America.

Chile, in other words, is the top performer in the region and one of the fastest improving in the world. Not only have researchers noticed these golden eggs of Chilean education, they have also begun to understand the goose that lays them. Most studies find that Chilean private schools outperform municipal schools, but the difference is sometimes quite small. A more important discovery, by Professor Francisco Gallego and others, is that increased competition from private schools improves outcomes across the board. As the ratio of private to municipal schools in a given area rises, so too does the performance of students in both sectors.

Professor Gregory Elacqua has added another important insight: chains of private schools tend to outperform independent private schools. On top of that, the larger chains outperform the smaller ones.

And which type of private schools are the most likely to grow and form new chains? The answer is for-profit schools. Though Catholic schools can also be thought of as a network or chain, and though they, too, perform well academically, they have not expanded as rapidly as for-profit schools in recent decades and they have been less likely to locate in the very poorest neighborhoods.

So an obvious recipe for continuing Chile’s pattern of educational improvement and the shrinking of its educational gaps is to encourage the growth of networks of high-performing for-profit schools. This is of course the precise opposite of the reforms proposed by president Bachelet, who wishes to ban for-profit schools and forbid parental co-payments. If implemented, schools serving roughly one million students would have to shut down.

Sadly, the government seems unaware of how successful the existing system has been. It wants to kill the goose that lays the golden eggs without even having noticed the eggs. The Bachelet government, and the student leaders who encouraged it to adopt these reforms, want to believe that a centrally planned school system would work better than the more free enterprise approach that exists today. Camila Vallejo, for instance, once said that Venezuela’s centrally planned education system is more advanced than Chile’s. But on the famous PISA international test, Venezuela’s most developed state performs far below Chile’s national average. And the avowed mission of Venezuela’s system is to indoctrinate youth with the government’s ideology. There seems to be little appetite for that sort of system in Chile.

It is good that Chileans are unsatisfied with the status quo and eager to improve it. High standards are crucial for the advancement of nations as well as individuals. But if the desire for improvement is to be satisfied, it must be accompanied by an honest appraisal of what works and what does not—in the real world. Chile’s entrepreneurial approach to education has elevated it above its regional peers, narrowed its educational gaps, and is helping it to improve overall. Central planning, as Venezuelans are rediscovering, has a less encouraging record.

Categories: Policy Institutes

Imperialist Tourist Spots Help Explain Chinese Aggressiveness Today

Cato Op-Eds - Mon, 09/15/2014 - 11:29

Doug Bandow

BEIJING—Modern China continues to rise.  But ancient China remains.  And bears witness to a history the West would prefer to forget.

The Summer Palace is one of Beijing’s most enchanting tourist destinations.  But some of the old buildings are in ruins—courtesy of the Western powers.

Imperial China long was a cultured and advanced civilization that eventually fell into decay.  By the 1800s the Western powers had begun to carve out concessions and colonies.

The Summer Palace first was created in the 12th century and was meant to ease the life of the royal family.  In 1860 during the Second Opium War French and British troops destroyed most of what is now called the Old Summer Palace.

In 1886 the Empress Dowager Cixi used funds planned for a navy to rebuild the royal playground.  She called the site the Garden of Peace and Harmony, an appropriate name, except for the garden’s unwanted guests.

In 1900 came the Boxer Rebellion, named for the violent xenophobic, spiritual movement named the “Righteous and Harmonious Fists.”  The Boxers targeted foreigners, especially missionaries, and Chinese Christians.  The revolt, supported by the Empress Dowager, reached Beijing, in which Western diplomats were killed and legations were besieged.  The Western nations raised an eight-nation rescue force, including American troops.

The allied forces eventually relieved the city—alas, the Boxers discovered that their training did not render them immune to bullets.  One of the casualties was the New Summer Palace. The gardens and buildings were burned by the allies, objects contained within were plundered.

The Empress Dowager had to rebuild again on her return to Beijing, which she had fled in advance of the allies.  She died in 1908 and the republican revolution occurred three years later.

This unseemly history is of more than just academic interest.  It helps explain Beijing’s behavior today.

No doubt, some Chinese, both in and out of the People’s Republic of China, have an exaggerated sense of Chinese history, civilization, and destiny.  And Imperial China, despite the fascinating esoterica surrounding it, was an unfriendly place for most of the humane values which we value today.  Nevertheless, China has been treated badly, especially by the Western powers which today are most insistent on Beijing following Western standards.

This historical experience helps explain the nationalism which afflicts even young Chinese who are liberal in many other ways.  The same students believe in a strong, even dominant China.

In fact, many ethnic Chinese living outside of the PRC cheered Hong Kong’s 1997 reversion to Beijing’s control.  For them, the issue was CHINA, not the particular regime ruling the territory known as China at this moment.

More important, those in charge feel a special responsibility as their nation gains the resources, influence, and power necessary to reverse a century or more of humiliation.  That may not justify increasing Chinese assertiveness, especially in the West’s eyes.  But it helps explain the behavior.

This doesn’t mean other nations should automatically concede the PRC’s claims.  But it suggests that Chinese assertiveness involves something other than malevolent aggression.

In which case, as I write in my new article on China-US Focus, “Washington is foolish to militarize disputes which are, at most, of only moderate geopolitical interest.  Other nations, especially those, like Japan, whose behavior has been, shall we say, less than exemplary, have a special responsibility to accommodate Beijing’s perceptions and interests.”

History helps explain Beijing’s policies and politics today.  While those in the West might have amnesia about what their ancestors did to the forebears of China’s leaders, the latter are not so likely to forget.  Policymakers in the U.S. would do well to consider that history in designing their approach to Beijing.  A peaceful and prosperous 21st century might depend on it.

Categories: Policy Institutes

Immigration's Real Impact on Wages and Employment

Cato Op-Eds - Mon, 09/15/2014 - 11:23

Alex Nowrasteh

The Center for Immigration Studies (CIS) has been releasing a series of reports claiming that immigrants are benefiting from the slightly recovering job market while natives are not.  Of course, if immigrants were even less likely to gain jobs than Americans, CIS would use that as evidence that immigrants are a drain on the economy.  No matter.  

The implicit assumption in CIS’ publications is that if those millions of immigrants weren’t working in the United States, more native-born Americans would have jobs – a static view of the economy.  CIS’ fixed pie implication is inappropriate to any kind of reasonable economic analysis of the effects of immigration on the labor market.  That is the primary reason why labor economists do not use CIS’ methods when attempting to measure the labor market impacts of immigration.  Even if CIS’ numbers were compiled correctly, they are not measuring anything useful.

A large body of academic economic research has found that immigration has a relatively small effect on U.S-born American wages and their employment prospects.  For wages impact, the estimates are that immigrants either lower the wages of some American workers by about 2 percent or raise them by about 2 percent in a dynamic economy (this, this, and this).  The employment effects vary little but, like wages, the effects are small and clustered around zero.  Nowhere will you find a tradeoff where one additional immigrants means that one American loses a job in the economy.

The CIS papers make no counterfactual dynamic economic estimates of the strength of the labor market without immigrants.

Here are some additional facts you won’t see in CIS’ papers:

Unemployment rates for the native born and immigrants move in the same direction with a correlation coefficient of 0.92.  Immigrants and natives tend to cluster in different occupations but the unemployment rate for both groups is very similar over time.  They both respond to a growing or shrinking labor market.


Source: Bureau of Labor Statistics

Employed adult immigrants as a percent of all adult employed workers has edged up from about 15 percent in 2005 to about 16 percent in 2014.  Employed adult natives as a percent of all employed adults declined from about 85 percent in 2005 to about 84 percent in 2014.


Source: Bureau of Labor Statistics

The job market also looks pretty poor for all workers.


Source: Bureau of Labor Statistics

Most employment gains since 2010, the depths of the Great Recessions, have gone to natives.  But immigrants have also done pretty well considering their lower percentage of the population and workforce.  There are several reasons why this could be true.  Immigrants are much less likely to have access to unemployment insurance and other means tested welfare programs, so their reserve wages are lower – meaning they’re willing to re-enter the labor force for a lower wage rather than stay unemployed.  Welfare discincentivizes some unemployed Americans from reentering the workforce.  And Immigrants are more mobile than similarly skilled native-born workers.

A new NBER working paper by Brain C. Cadena and Brian K. Kovak observed that low skilled workers were disproportionately affected by job losses during the Great Recession and are typically the least mobile workers – meaning they do not move very far for new low skilled job openings.  They found no measurable shift in the local supply of native-born low skilled workers with a high school degree or less in response to declines in the number of local jobs.  Low skilled Mexican born workers are the exception – they are the most mobile workers in the United States.  Between 2006 and 2010, Cadena and Kovak found that a 10 percentage point larger employment decline drove a 7.6 percentage point larger decline in population for Mexican workers in local labor markets, all else remaining equal.  The same employment decline drove a 5.3 percentage point decline in local population for highly skilled workers.  As discussed already, the native low skilled population did not move in response to changes in the local labor market.

Mobility is influenced by the availability of welfare benefits, but many immigrant are self-selected for mobility – they did move here from another country after all so they are less tied down to any particular region of the United States.  Immigrant labor mobility smoothens labor markets over geographical areas and has other benefits, and it likely explains some of their job gains.


Source: Bureau of Labor Statistics

Unauthorized immigrants are very mobile workers.  If they come from geographically closer places like Mexico or Latin America then they can respond very rapidly to changes in the U.S. labor market.  They are then very mobile once they arrive in the United States.  The stock of unauthorized immigrants peaked in 2007 before the Great Recession and dipped after that as the unemployment rate for immigrants rose (-0.42 correlation coefficient).  By the way, the worst period for native job growth occurred during the period when the number of unauthorized immigrants also declined.  If immigrants really did substantially decrease employment opportunities for Americans, we wouldn’t see that effect.


Source: Bureau of Labor Statistics and Pew Research

The CIS papers do not attempt any type of regression analyses or to analyze the effects of immigration on a dynamic labor market.  What would happen to the labor market if millions of immigrant workers, consumers, and entrepreneurs disappeared?  The CIS report sheds zero light on that despite a vast peer-reviewed academic economics literature that finds immigrants are attracted to growing economies and improve them once they arrive.

Categories: Policy Institutes

More Headaches in Obamacare Open Enrollment

Cato Op-Eds - Mon, 09/15/2014 - 09:51

Nicole Kaeding

Open enrollment for Obamacare’s second year begins in two months. Recent reports suggest that this year’s enrollment period will not be a smooth process.

According to Ricardo Alonso-Zaldivar of the Associated Press, individuals face many hurdles in signing up for or renewing coverage:

  • For the roughly 8 million people who signed up this year, the administration has set up automatic renewal. But consumers who go that route may regret it. They risk sticker shock by missing out on lower-premium options. And they could get stuck with an outdated and possibly incorrect government subsidy. Automatic renewal should be a last resort, consumer advocates say.
  • An additional 5 million people or so will be signing up for the first time on HealthCare.gov and state exchange websites. But the Nov. 15-Feb. 15 open enrollment season will be half as long the 2013-2014 sign-up period, and it overlaps with the holiday season.
  • Of those enrolled this year, the overwhelming majority received tax credits to help pay their premiums. Because those subsidies are tied to income, those 6.7 million consumers will have to file new forms with their 2014 tax returns to prove they got the right amount. Too much subsidy and their tax refunds will be reduced. Too little, and the government owes them.
  • Tens of millions of people who remained uninsured this year face tax penalties for the first time, unless they can secure an exemption.

These won’t be the only issues. In July, the Government Accountability Office told Congress that the HealthCare.gov website is still not complete. The back-end system that links the website to insurers and distributes the subsidies is not operational. Additionally, thousands, possibly millions, of insurance policies will be cancelled over the next several months for not including all of Obamacare’s mandates which will increase the confusion for individuals.

The Obama administration says that this year’s open enrollment period will be better than the last, but the complexity and short enrollment period will still create lots of headaches for consumers. Shockingly, overhauling a large swath of the United States economy is not easy work.

Categories: Policy Institutes

War Powers in the Bush-Obama Era

Cato Op-Eds - Sun, 09/14/2014 - 22:25

Gene Healy

Over at the National Interest, I have a piece examining President Obama’s claim, in his nationally televised address Wednesday night, that “I have the authority to address the threat from ISI[S].” 

Just where he’s supposed to get that authority isn’t clear—even to the Obama administration itself. In the last week, Obama officials have invoked (1) the War Powers Resolution, (2) the 2002 Authorization of Military Force (AUMF) against Iraq, and (3) the AUMF that Congress passed three days after 9/11. Any AUMF in a storm, it seems. 

As I explain in the article, not one of those claims survives a good-faith reading of the relevant legislative text. The WPR specifically forecloses any interpretation that it grants the president a “free pass” for elective bombing. And invoking the 2001 or 2002 AUMF for a new war against a new enemy over a decade later is the sort of statute-stretching that makes using TARP to bail out car companies look timid by comparison. 

You could describe the president’s approach as “three bad arguments in search of a theme.” Near as I can discern it, that theme is, “I’m not George W. Bush.” 

Apparently, it’s very important to Barack Obama to make clear that he doesn’t subscribe to the Congress-be-damned, I’m the “Decider” approach of his predecessor. Justifying war on a pure presidential power theory is for bad people like Dick Cheney and John Yoo, the legal architect of the Bush-Cheney “Terror Presidency.”

Obama’s nothing like that, he’ll have you know. He’s the guy who told us on the campaign trail that “The separation of powers works. Our Constitution works. We will again set an example for the world that the law is not subject to the whims of stubborn rulers,” and affirmed that the president lacks the power to launch military attacks absent an “actual or imminent threat to the nation.”  (His eventual veep, Joe Biden, went further, promising to “impeach [Bush] if he takes the nation to war against Iran without congressional approval.”)

And yet, it’s hard to escape the echoes of Obama’s predecessor in Wednesday night’s speech, from his case for preventive war against an enemy that “if left unchecked… could pose a growing threat beyond that region—including to the United States,” to his promise to “support Iraq’s efforts to stand up National Guard Units” (When they stand up, we will stand down). As John Yoo himself said last week: “Obama has adopted the same view of war powers as the Bush administration.”

Tortured, bad-faith constructions of authorization passed by past Congresses for different wars can’t hide that underlying reality. Obama may not be George W. Bush, but he’s doing a pretty decent imitation.

Categories: Policy Institutes

Should Scotland Reclaim Its Independence?

Cato Op-Eds - Fri, 09/12/2014 - 17:42

David Boaz

At USA Today, I write about Scottish independence, which the Scottish people will vote on this coming Thursday. I note that the late Nobel laureate Gary Becker wrote in 2005, like Simon Lester today, that the disadvantages of small nations are much reduced in a world of free trade:

My conclusion is that developments in the global economy during the past 50 years have greatly reduced the economic disadvantages of small nations enumerated for his time by Hamilton. In fact, being small now may even have efficiency advantages…. [As trade barriers have come down over the past half-century,] small countries can now gain the advantages of large markets through trading with other nations.

I go over arguments on currency, tax rates, and the likelihood that an independent Scotland could be as socialist as some of its political leaders would like if it has to create its own prosperity. In the end, I write:

In any case, the economic arguments will go on till the vote on September 18. Scotland certainly has the elements necessary to be a successful European country. The real question is whether the Scots themselves desire, to borrow an Irish anthem, “that Scotland long a province be/A nation once again.” As a descendant of Scots who helped America secure its independence, I hope so.

I wrote previously about Scottish independence here

Categories: Policy Institutes

Scottish Independence: Not That Big a Deal in Today's World

Cato Op-Eds - Fri, 09/12/2014 - 09:52

Simon Lester

Yesterday, my colleague Doug Bandow blogged about Scottish independence, concluding with the following: “Whatever the Scots choose on September 18, Americans should wish them well.” I just wanted to add a quick point here, drawing on something law professor Eric Posner said on this issue: “the benefits of a large country—mainly, security and a large internal market—are of diminishing significance in a world of free trade and relative peace.”

To me, this is a very important consideration. If Scottish independence meant an increased chance of war or high tariffs designed to separate the Scottish market from the rest of the world, it would be worrying. But those seem unlikely. In terms of war and peace, there have been no Mel Gibson sightings that I’m aware of. On trade, there may be some bureaucratic challenges, but it seems clear the goal is for Scotland to join the EU and be part of its large, single market. As for trade with the rest of the world, Scotland will take on the EU’s trade policy–which is not perfect of course–but has followed the trend toward liberalization that the rest of the world has pursued over the past few decades. In all likelihood, Scotland will continue to search for export markets for its whisky and allow the free flow of imports.

If Scottish independence meant it would become like North Korea, I’d be concerned. But it doesn’t seem like that’s the path it is on. With the exception of a few regions, we live in a highly integrated, peaceful world. Scottish independence would not change that.

Categories: Policy Institutes

Argentina: Down The Tubes, Again

Cato Op-Eds - Thu, 09/11/2014 - 17:32

Steve H. Hanke

President Christina Fernández de Kirchner has turned up her left-wing rhetoric as the economy goes down the tubes. Indeed, GDP has contracted for the past two quarters; inflation is galloping at 56%, not the official 15.01%; and the country has defaulted on its debt, again. Never mind. The President claims Argentina’s financial system is “one of the most solid in the world.” She asserts that Argentina’s woes can be laid squarely at the feet of foreign “vulture funds” and greedy capitalists who have speculated against the peso. Yes, the peso has lost 42.6% of its value against the U.S. dollar on the black market since the first of the year, and for very legitimate reasons.

But, for realists like me, a fact check is always worth a peso. Recently, Bloomberg’s Charlie Devreux and Pablo Gonzales penned some most edifying reportage on one thing that’s booming in Argentina: criminality. Bandits have put cargos of grain headed for the port of Rosario in their crosshairs. And why not – grain is traded in greenbacks, not pesos.

Property’s worst enemy is theft: theft makes property insecure. And unless property is secure, it can’t be accumulated and it is wasted. The increasing incidence of heists on grain, Argentina’s most valuable export, indicates that property rights are becoming more insecure and that the economy only has one way to go: down the tubes.

Categories: Policy Institutes

Indonesia Reform, Please

Cato Op-Eds - Thu, 09/11/2014 - 15:26

Steve H. Hanke

The Indonesian stock market has just hit a record high on the hope that the incoming President, Joko Widodo, will push through economic reforms. But, what path should he follow? My advice to President Widodo is the same as that I gave President Suharto, when I was his advisor in 1998: follow Singapore and Lee Kuan Yew.

When Singapore gained independence in 1965, Lee Kuan Yew developed a set of sound principles, which proved to be highly successful. Indeed, their implementation propelled Singapore to the top of the world’s competitiveness rankings. I have dubbed these principles the “Singapore Strategy.” It contains the following five elements:

  • First and foremost, stabilize the currency. Singapore achieved stability with a currency board system – a simple, transparent, rule-driven monetary regime.
  • Second, don’t pass the begging bowl. Singapore refused to accept foreign aid of any kind.
  • Third, foster first-world, competitive, private enterprises. Singapore accomplished this via light taxation, light regulation, and completely open and free trade.
  • Fourth, emphasize personal security, public order, and the protection of private property.
  • The final key to Lee Kuan Yew’s “Singapore Strategy” is the means to accomplish the previous four goals: a small, transparent government that avoids complexity and red tape. And one that is directed by first-class civil servants who are paid first-class wages.
Categories: Policy Institutes

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