Here’s a WSJ article describing a Chinese investment in France, made for the purpose of exporting back to China:
Mayor Christian Troadec is trying a new formula to revive his sleepy town in central Brittany: quenching Chinese thirst for baby milk.
On a recent damp morning at exactly 08:08—a lucky number in Chinese culture—workers broke ground on a 37-acre tract the municipality sold to Synutra International Inc., one of China’s top 10 baby-formula makers, to build a milk plant.
“In Brittany, we produce some of the world’s best-quality milk but we don’t have enough [economic] activity,” said Mr. Troadec, walking the muddy field where a dozen Caterpillar bulldozers and other earth movers lined up to start laying the foundation for the factory.
Synutra is investing €90 million ($125 million) to build what will be the region’s largest milk-drying factory and the first infant-formula plant on French soil entirely in the hands of a Chinese company.The plant feeds two needs. China’s voracious demand for infant formula is surging as the middle class flourishes. But since a 2008 scandal, when Chinese-made formula tainted with the industrial chemical melamine killed six infants and sickened 300,000, parents have preferred to buy formula from well-known Western brands. Now, dairy companies in China, already the world’s largest importers of milk, are racing to win back consumers by tying up with producers abroad.
At the same time, Chinese investment offers a lifeline to Brittany, a farmland on the western tip of Europe that has been hurt by the unwinding of European subsidies.
Synutra plans to ship the entire output from its new plant swiftly to China. The company teamed up with French dairy cooperative Sodiaal to secure access to 300,000 million liters of milk a year over the next decade—the entire milk production of farmers within a radius of 20 kilometers of Carhaix—and 30,000 tons of whey, all of which will be transformed into dried baby milk and sent by boat.
So it’s a win-win. France gets investment; Chinese consumers get high quality products, for babies nonetheless. It can help to put a human face on free trade, especially when it’s this one:
Once again, the Washington Post’s education blogger, Valerie Strauss, failed to do her due diligence before posting a hit piece on school choice. A year ago, she falsely claimed that scholarship tax credit programs benefit corporate donors and wealthy recipients. In fact, donors break even at most and the best evidence suggests that low-income families are the primary beneficiaries even in the few programs that are not means-tested. Unfortunately, Strauss has still failed to issue a correction.
Now Strauss has posted an op-ed from an anti-school choice activist in Florida that contains numerous additional errors, which the good folks at RedefinED.org have thoroughly debunked, including the following canard:
“Any way you look at it, private entities receive public tax dollars with no accountability.”
One can certainly debate whether there is sufficient accountability, but there is certainly more than none. All scholarship students take state-approved nationally norm referenced tests such as the Stanford 10 or Terra Nova. The gain scores are reported publicly, both at the state level and for every school with 30 or more tested scholarship students. Additionally, schools with $250,000 or more in scholarship funds must submit independent financial reports to the state.
Not only did the op-ed’s author fail to correctly explain the law, she failed to understand that school choice is accountability. As explained in an open letter that the Cato Institute recently issued along with the Heritage Foundation, Friedman Foundation for Educational Choice, and others: “True accountability comes not from top-down regulations but from parents financially empowered to exit schools that fail to meet their child’s needs.”
Moreover, the claim that “private entities receive public tax dollars” is also false. The money flows from private donors to private nonprofits to private citizens to spend on their children’s tuition at private schools. That the donors receive a tax credit does not transmogrify their donation into “public” money. Indeed, the U.S. Supreme Court ruled that this view erroneously “assumes that income should be treated as if it were government property even if it has not come into the tax collector’s hands. Private bank accounts cannot be equated with the … State Treasury.” Likewise, neither tax deductions for donations to a church nor the church’s own property tax exemption mean that churches are therefore funded by “public tax dollars.”
The Washington Post has an in-house fact-checking team. They should not have to rely on RedefinED.org or others to ensure the veracity of what their bloggers post.
In today’s Washington Post, Pamela Constable describes the scene in Crimea, and it reminds me of George Orwell’s Animal Farm.
Vladimir Putin is playing the starring role of Napoleon the pig. To consolidate his power, Putin is employing menacing dogs, just as Napoleon did. Constable writes:
As the referendum approached, the capital was calm, but the streets were filled with a swelling number of stocky security men on corners and outside government facilities … For the most part, they stood around looking tough, but their mere presence was intimidating …
As on Orwell’s farm, Crimea has a few skeptical donkeys, but most people are apparently gullible sheep:
Occasionally, I met someone who questioned the official line … One was a stocky former soldier in his 50s named Volodya who was downing shots of vodka between bites of potato salad at a working-class cafe. “They say my pension will go up, but so will this meal,” he said. “People in a crowd tend to hear slogans and get excited.”
In Orwell’s book, the animals are propagandized with “four legs good, two legs bad.” In Crimea, people are being told that the folks in Kiev have two legs. Constable talked to one person who: “confided that his parents had been won over by the barrage of pro-Russian propaganda warning of fascist threats from Kiev. ‘They told me to be careful and not to associate with people there,’ he said with chagrin. ‘It is like a demon that possesses people and they are no longer able to think.’”
Finally, the Russian national anthem is stirring the nationalist sole in Crimea, just as “Beasts of England” did on Animal Farm. Constable says:
Even if you don’t know the lyrics, the state anthem of the Russian Federation is one of the most stirring national anthems ever written. This week, on assignment in Crimea, I heard it in full rousing splendor, sung by a chorus of uniformed young men standing at attention, and I had to catch myself from being swept up in the moment.
Today the Advisory Council on Wildlife Trafficking is meeting near the nation’s capital to plot the administration’s impending ban on ivory sales. The plan is typical for counterproductive government regulation.
The panel’s proposals would accelerate the slaughter of African elephants and turn millions of law-abiding Americans into criminals. The Council also would destroy hundreds of millions of dollars worth of property legally acquired by everyone from antique dealers and restorers to tourists and retirees.
Elephants are magnificent creatures—intelligent, social, and expressive—and threatened by widespread poaching. Unfortunately, international activists sometimes appear more interested in feeling virtuous than in deterring poaching. In 1989 an international convention outlawed the sale of new ivory.
Unfortunately, the ban increased the price of ivory, which remains in high demand, especially in Asia. Daniel Stiles of the IUCN/SSC African Elephant Specialist Group explained: “The inconvenient truth is that the CITES ivory trade ban and [subsequent CITES] votes to cut off legal raw ivory supplies are the real causes of the recent elephant holocaust.”
Yet the U.S. Fish and Wildlife Service plans what it calls “a nearly complete ban on commercial elephant ivory” trade.
Talented craftsmen long used ivory to make items both practical and beautiful. Today these objects—created, sold, given, and bequeathed legally over decades and centuries—have made their way into private collections and public museums across America and the world.
Outlawing this trade makes no sense. In September 2012 USFWS admitted: “we do not believe that there is a significant illegal ivory trade into this country.” Most ivory in America, 95 percent or more, is older and legal.
Obviously, buying and selling objects derived from elephants long dead does not endanger elephants today. USFWS argues that it is hard to distinguish between new and old ivory, so the agency’s answer is to turn most everyone who attempts to sell most any ivory into a criminal.
Targeting the law-abiding is a tactic of the indolent, not the serious. Differences between antique and modern items are many and numerous aspects of age are hard to fake. Enforcing the law requires effort, but that is no reason to treat innocent and guilty alike.
Turning everyone into a criminal would accelerate the slaughter of elephants. Greatly increasing the amount of illegal contraband and number of illegal traffickers would dissipate already limited enforcement resources.
Moreover, USFWS would turn every owner of legal ivory today into an enemy. Some Americans would respond by turning to people who know best how to flog illegal ivory objects—those currently dealing in poached ivory.
Criminalizing otherwise legal conduct also would be unfair to the millions of Americans who followed the rules in building businesses and collections involving ivory. Imagine Washington declaring that since it is difficult to distinguish between legitimate diamonds and “blood diamonds” used by warring groups in Africa, diamonds no longer could be sold in America.
Most dramatically, the administration would ban the interstate sale of anything not an antique, meaning 100 years old. Newer, legal items dating before 1989 could be sold only within states: it would be illegal for Americans across the nation to trade with one another!
Sellers also would have to prove age “through documented evidence.” Alas, documentation does not exist for most ivories owned by most people since it has never before been required. Unfortunately, carvers from decades and centuries ago did not provide notarized affidavits and certificates of authenticity. Deceased parents didn’t include original receipts and descriptions with their bequests.
The administration should act. It should develop a strategy targeted against the real criminals—those guilty of killing elephants, poaching tusks, and selling illegal objects.
A ban on ivory sales might appear to be of interest only to a few people. As I point out in my latest Forbes column: “But it raises fundamental questions: Is the U.S. still governed by the rule of law, does government still respect private property, and can citizens expect law enforcement to treat them with basic fairness?” If not, all Americans will have lost something very important.
An op-ed in the Wall Street Journal today indicates that Edwards’ Law of Cost Overruns is an international standard. If a politician says that a project will cost $100 million, it will end up costing $200 million or more.
The WSJ piece by Bent Flyvbjerg and Atif Ansar examines the results of an Oxford University study looking at 245 dam projects around the world. The projects had a “dismal track record” in terms of sticking to their promised budgets. The “actual construction costs of large dams are globally on average 96 percent higher than their budgets,” say Flyvbjerg and Ansar. That means a doubling, which is right in line with Edwards’ Law.
Rachel Maddow has drawn the lesson from Hoover Dam that big government projects are really great. But Flyvbjerg and Ansar describe a more typical government project: “Brazil’s Itaipu Dam was built in the 1970s. It cost nearly $20 billion, 240 percent more in real terms than predicted and it impaired Brazil’s public finances for three decades.”
I’ve written in detail about the history of U.S. government dam building, which has been chock-full of economic and environmental mismanagement. One reason for large cost overruns is that policymakers lie or conceal. I wrote that the Bureau of Reclamation “began constructing the Grand Coulee Dam with $63 million in funding from Congress, but it later became clear that the agency had a $270 million project in mind.” And I wrote regarding Jerry Brown’s father that “in pushing for approval of the huge State Water Project in California in 1959, Gov. Pat Brown kept throwing out a bogus cost estimate of $1.75 billion, even though he knew it would cost far more, as he later admitted.”
Liberals, such as Maddow, who hunger for big government infrastructure projects would cure their misguided lust by reading Cadillac Desert. Written by an environmentalist, I think it is one of the best public policy books of recent decades.
Caleb O. BrownEconPop - The Economics of House of Cards
Their debut effort was a quick analysis of some of the economics of Dallas Buyer’s Club.
After considerable debate, the Founding Fathers elected to give the new federal government the power of regulating commerce among the several states. We’ve all seen what’s become of that power, but in the beginning, giving the federal government the ability to regulate—literally, to “make regular”—interstate commerce made good sense as a way to avoid the otherwise inevitable collective-action problems, like trade wars and anti-competitive jockeying for monopolies. The goal was to ensure that federal law would not permit or bestow any unfair competitive advantage to any one state or group of states over the others.
Throughout much of our nation’s history, the federal government has, for the most part, succeeded at this particular goal. Thanks to the Professional and Amateur Sports Protection Act of 1992 (PASPA), however, Congress’s power to keep states from obtaining unfair advantages is being used to grant some states (most notably Nevada, but also Oregon, Montana, and Delaware) an unfair advantage: a special right to license gambling, which PASPA prohibits to other states.
In 2012, New Jersey Governor Chris Christie signed a sports-gambling bill into law, and as a result was sued by the NCAA, NFL, MLB, NHL, and NBA, who believed that additional sports betting would result in corruption and game-fixing. Christie defended his actions by arguing that PASPA violates the 10th Amendment by restricting New Jersey’s right to govern itself, and also that it violates the equal-sovereignty doctrine by giving an unfair advantage on certain states.
The federal district court and the U.S. Court of Appeals for the Third Circuit failed to recognize these constitutional flaws, so New Jersey has now asked the Supreme Court to hear its case. Cato has joined the Pacific Legal Foundation on a brief supporting New Jersey’s petition.
We explain that the principle of equal sovereignty was central to the creation of Congress’s power to regulate interstate commerce, and that conferring state-specific advantages is precisely opposite to the federal power that the Framers created. We think it important that the Supreme Court hear this case because it offers an excellent opportunity to explain the equal-sovereignty doctrine and how it furthers federalism, and to provide guidance as to the scenarios in which the doctrine applies. Congress shouldn’t be able to pick winners and losers among the states.
The Supreme Court will likely decide whether to take the case of Christie v. NCAA before recessing for the summer at the end of June.
This blogpost was co-authored by Cato legal associate Julio Colomba.
How Has Your State's Academic Performance and K-12 Spending Changed over the Past 40 Years? Find out Here.
Andrew J. Coulson
Last summer, I stumbled across a clever 1993 paper by education statisticians Mark Dynarski and Philip Gleason that proved it was possible to adjust average state SAT scores for variations in the test participation rate and demographic factors, making them comparable to one another. Barely able to contain my excitment (hey, don’t judge), I set about extending their method so that it could discern trends in state SAT scores over time, and improving the validity of its estimates by using more data, fewer assumptions, and more exhaustive methods. Last week, I released the technical paper presenting those extensions. Yesterday, I released a paper that uses them to chart academic achievement and spending trends, for every state, back to 1972. How did your state do? Find out here.
To pique your interest, here’s the chart for Masschusetts:
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.”
Back in the Bush II Administration, the American Association for the Advancement of Science (AAAS) nakedly tried to nudge the political process surrounding the passage of the environmentally-horrific ethanol fuel mandate. It hung a large banner from the side of its Washington headquarters, picturing a corn stalk morphing into a gas pump, all surrounded by a beautiful, pristine, blue ocean. They got their way, and we got the bill, along with a net increase in greenhouse gas emissions.
So it’s not surprising that AAAS is on the Washington Insider side of global warming, releasing a report today that is the perfect 1-2-3 step-by-step how-to guide to climate change alarm.
This is how it is laid out in the counterfactually-titled AAAS report “What We Know”:
Step 1: State that virtually all scientists agree that humans are changing the climate,
Step 2: Highlight that climate change has the potential to bring low risk but high impact outcomes, and
Step 3: Proclaim that by acting now, we can do something to avert potential catastrophe.
To make this most effective, appeal to authority, or in this case, make the case that you are the authority. From the AAAS:
We’re the largest general scientific society in the world, and therefore we believe we have an obligation to inform the public and policymakers about what science is showing about any issue in modern life, and climate is a particularly pressing one,” said Dr. Alan Leshner, CEO of AAAS. “As the voice of the scientific community, we need to share what we know and bring policymakers to the table to discuss how to deal with the issue.
But despite promising to inform us as to “what the science is showing,” the AAAS report largely sidesteps the best and latest science that points to a much lowered risk of extreme climate change, choosing instead to inflate and then highlight what meager evidence exists for potential catastrophic outcomes—evidence that in many cases has been scientifically challenged (for example here and here).
The AAAS takes us through the standard litany of scare-scenarios and tipping points. If you can imagine it, the AAAS mentions it. Rapid sea level rise? Check. Heat waves, floods, droughts? Check. Check. Check. Deteriorating public health? Check. National security threat? Check. Ecological collapse? Check. And the list goes on.
The AAAS’s justification for such alarm?
Below are some of the high-side projections and tail risks we incur by following the current path for CO2 and other greenhouse gas emissions. Most of these projections derive from computer simulations of Earth and its climate system. These models apply the best understanding science has to offer about how our climate works and how it will change in the future. There are many such models and all of them have been validated, to varying degrees, by their ability to replicate past climate changes.
Somehow in its haste to scare us, the AAAS seems to have missed (or ignored) the two hottest topics in climate change these days—1) that climate models have done remarkably poorly in replicating the evolution of global temperature during the past several decades , and 2) that high end climate change scenarios from the models are largely unsupported by observations.
Thus, “what the science is showing” completely undermines the AAAS contentions regarding alarming climate change.
So here’s what we are left with.
As to the AAAS’s first point that human actions are causing climate change, this is largely correct, although the degree and details—the most important features—are uncertain and still being intensity studied and debated (a fact left out by the AAAS).
As to the second point, the current best science suggests that coming human-caused climate change is going to be less than expected with a much-diminished risk of abrupt changes with catastrophic outcomes (a fact left out by the AAAS).
Which means that the AAAS’s third point, that immediate action is required to reduce the risk of extreme change, is hardly applicable—especially when recognizing that no matter what action we take in the U.S. (the primary audience of the AAAS report) it will have such a small impact on the course of future climate change as to do nothing to alleviate the overblown worries of the AAAS (a fact left out by the AAAS).
Add this all up and you realize that the AAAS report is the epitome of climate alarmism—long in hype and short in fact and aimed squarely at influencing policymakers. We should expect better, but they drank the ethanol years ago.
Benjamin H. Friedman
Three years ago tomorrow, U.S. and allied states began bombing Libya’s military in support of rebels. Today, Libya is back in the news. An eastern militia’s seizure of an oil tanker prompted the U.S. military to seize it back on behalf of Libya’s fledging government, which just fired its Prime Minister over the matter. Meanwhile, the political chaos that caused Ambassador Chris Stevens’ murder in Bhenghazi in 2012 continues. The New York Times recently reported that “Political Killings Still Plaguing Post-Qaddafi Libya.”
So Cato’s forum tomorrow on whether the intervention in Libya succeeded is well-timed. We will answer the question using the criteria set out by intervention’s advocates. President Obama, and the leaders of other intervening states, offered three major goals. First, it would avert a humanitarian disaster: the mass murder of civilians in Bhenghazi, which the Libyan state forces were poised to capture. Second, intervention would help Libya become a democracy. Third, defending Libya’s rebels would deter other authoritarian rulers in the region from cracking down on uprisings in their own countries.
As Gene Healy notes today in the Washington Examiner, it’s doubtful that we achieved any of those goals. The one thing that the war unequivocally accomplished, the overthrow of Muammar el-Qaddafi, was never an explicit goal of the outsiders. That’s because forming a military alliance against Qaddafi required the pretension, manifest in the U.N. Security Council Resolution authorizing war, that intervention could defend civilians without taking sides.
Christopher Chivvis, who served in the Pentagon at the war’s start, will likely make the argument from his recent book: the action was a moderate success, given its tiny cost. Alan Kuperman, pioneer of the moral hazard critique of humanitarian intervention, will argue that, rather than saving civilians, the intervention backfired, increasing the humanitarian toll and exacerbating the region’s instability.
I’ll say that the war probably did nothing to discourage crackdowns in other nations and might have encouraged them, and the current circumstance in Libya argues against aiding the overthrow of the Mideast’s rulers, even despotic ones. I’ll also criticize Congressional Republicans for obsessing over Bhenghazi without heeding, let alone opposing, the broader U.S. project in Libya. Register here. The event will also stream live on Cato.org.
Whether the Common Core is good policy, or was federally driven, is not dictated by polling results. But the Core’s political fate is tied to public opinion, which is probably why pro-Core pollsters are spinning like mad, and supporters like Bill Gates are undertaking a new PR blitz.
Achieve, Inc., a creator of the Core along with the National Governors Association and Council of Chief State School Officers, has released Common Core survey results for several years running. What these polls have primarily been notable for finding is (1) very few people know much about the Common Core, and (2) if you feed respondents a glowing description of the Core they – surprise! – like it. At the end of last week, Achieve released their latest such survey.
What did they find? According to the main point of their summary, “solid majorities of voters support common standards, common assessments, and allowing teacher (sic) and students time to adjust to these new expectations.” But the really important finding was this: Of the people who reported knowing about the Common Core – those not relying on the loaded description of the Core as all wonderfully state-led and egalitarian – 40 percent reported having unfavorable opinions of the Core, versus 37 percent favorable.
Alas, Achieve blamed this, essentially, on people being misinformed by vocal Core opponents:
It is likely this mixed number is attributable to CCSS opponents who in the past year have made their opposition known through all media outlets, leaving a more negative “impression” among voters.
Opposition couldn’t be based on evidence and logic. No! Common Core is too pure and beloved. It must be coming form a lot of light-thinking, highly impressionable people. In contrast, respondents reporting that they agree with a loaded, glowing description they were just read? That’s real support!
Distaste for the Core among people who report being knowledgeable about it is mirrored in recent polling in New York, the state, along with Kentucky, that is furthest along implementing the Core. After massive “proficiency” decreases under its first round of Core testing, New York is also the state that is most convulsed. A February Siena College poll found Empire Staters very closely split on the Core.
That support cracks after people learn about the Core is almost certainly why defenders like the U.S. Chamber of Commerce and Bill Gates are undertaking a massive PR campaign to push the Core. Unfortunately, based on an ABC News interview with Gates this weekend, and longstanding pro-Core practice, the main messages are likely going to be that the Feds have nothing meaningful to do with the Core; high standards will revolutionize education; and anyone who tells you otherwise is willfully misleading you.
But here’s the thing: Core supporters can spin and spread gloss wherever they want, the more the public experiences the Core, the less they seem to like it. And then, of course, there is all the evidence and logic showing what a policy failure the Core is likely to be. You know, showing that the Feds have driven and must drive the Core; high standards – if the Core even is that – will not fix education; and many Core opponents know exactly what they’re talking about.
Walter OlsonThe Chieftains - The Green Fields of America
“With no taxes or tithes there to devour up your wages/When you’re on the green fields of America.” A classic emigration song for St. Patrick’s Day, sung here by Kevin Conneff of the Chieftains, and from the repertoire of the great Paddy Tunney.
According to textbook economics, government funding is crucial to scientific progress and technological innovation. The reasoning is that pure science (e.g., the structure of DNA) underlies most applied science (e.g., genetic testing). Pure science, however, is easily copied once discovered, so it cannot earn significant profits. Private actors therefore underinvest in pure science, and applied science suffers. In economics lingo, pure science is a public good because knowledge is non-excludable.
This perspective is reasonable but hardly decisive. Government funding suffers bureaucratic inefficiences and risks politicization of the nation’s research agenda (e.g., an excessive focus on defense research). And even if some role for government makes sense, the right amount is hard to gauge; no evidence shows that current amounts are insufficient.
In addition, the textbook argument assumes that private actors will not fund basic research. Yet as this New York Times piece documents, private actors contribute mightily to scientific research:
Paul G. Allen, a co-founder of Microsoft, .. set up a brain science institute in Seattle, to which he donated $500 million, and Fred Kavli, a technology and real estate billionaire, … then established brain institutes at Yale, Columbia and the University of California. …
The new philanthropists represent the breadth of American business, people like Michael R. Bloomberg, the former New York mayor (and founder of the media company that bears his name), James Simons (hedge funds) and David H. Koch (oil and chemicals), among hundreds of wealthy donors. Especially prominent, though, are some of the boldest-face names of the tech world, among them Bill Gates (Microsoft), Eric E. Schmidt (Google) and Lawrence J. Ellison (Oracle). …
So far, Mr. Ellison, listed by Forbes magazine as the world’s fifth-richest man, has donated about half a billion dollars to science. …
The philanthropists’ projects are as diverse as the careers that built their fortunes. George P. Mitchell, considered the father of the drilling process for oil and gas known as fracking, has given about $360 million to fields like particle physics, sustainable development and astronomy — including $35 million for the Giant Magellan Telescope, now being built by a private consortium for installation atop a mountain in Chile. …
Eli Broad, who earned his money in housing and insurance, donated $700 million for a venture between Harvard and the Massachusetts Institute of Technology to explore the genetic basis of disease. Gordon Moore of Intel has spent $850 million on research in physics, biology, the environment and astronomy. The investor Ronald O. Perelman, among other donations, gave more than $30 million to study women’s cancers — money that led to Herceptin, a breakthrough drug for certain kinds of breast cancer. Nathan P. Myhrvold, a former chief technology officer at Microsoft, has spent heavily on uncovering fossil remains of Tyrannosaurus rex, and Ray Dalio, founder of Bridgewater Associates, a hedge fund, has lent his mega-yacht to hunts for the elusive giant squid.
Whether a role remains for government funding is not clear; perhaps the projects funded by private investors will not address the breadth of important questions in basic science.
And government funding has undoubtedly supported huge amounts of valuable research; that is not in dispute, only whether the research would have occurred even without government.
The wealth of private funding nevertheless suggests that outrage over cuts to science budgets is misguided. The private sector will fill much, perhaps all, of the gap.
From a Baltimore Sun article on the regulatory fate of car-sharing services Uber and Lyft, bitterly attacked by their more highly regulated taxi competitors:
At a recent work session on the issue, Kelley [Sen. Delores G. Kelley, D-Baltimore County] rejected the contention from Lyft and Uber that it’s a matter of consumer choice about whether to use the application to book a ride and they won’t do it if the price is too high.
“We regulate all sorts of things because the general public is not smart enough to know when they’re about to be fleeced,” Kelley said.
But what about members of the general public who are smart enough to know they’re about to be fleeced, but are unable to do anything about it because it’s lawmakers and market incumbents combining to make that happen?
“IMF Warns on the Dangers of Inequality,” screams the headline of a story by Ian Talley in the Wall Street Journal. The IMF – which Talley dubs “the world’s top economic institution”– is said to be “warning that rising income inequality is weighing on global economic growth and fueling political instability.”
This has been a familiar chorus from the White House/IMF songbook since late 2011, when President Obama’s Special Assistant David Lipton became Deputy Managing Director of the IMF. It echoes a December 2012 New York Times piece, “Income Inequality May Take Toll on Growth,” and a January 14, Financial Times feature, “IMF warns on threat of income inequality.” This isn’t news.
Talley writes, “The IMF … says advanced and developing economies need to raise more revenues through taxes, focusing on progressive taxation that moves more of the burden for social security, health care and other state benefits to the high-income earners.” That isn’t news either. The IMF has an ugly history of advising countries to raise tax rates, with disastrous results. The inequality crusade is just a new pretext for old mistakes.
The only news in the Journal article is “a 67-page paper detailing how the IMF’s 188 member countries can use tax policy and targeted public spending to stem a rising disparity between haves and have-nots.” That paper is just one of many “staff discussion notes” which “should be attributed to the authors and not to the IMF.” The main “warning” from those authors (Jonathan Ostry, Andrew Berg, and Charalambos Tsangarides) is that “the data are particularly scarce and unreliable for redistribution, even more so than for inequality.” Despite unreliable data, the IMF economists nevertheless claim that” higher inequality seems to lower growth. Redistribution, in contrast, has a tiny and statistically insignificant (slightly negative) effect.”
This IMF discussion draft relies on “a recently-compiled cross-country dataset (Solt 2009) that carefully distinguishes net from market inequality and allows us to calculate redistributive transfers—defined as the difference between the Gini coefficient for market and for net inequality.” Frederick Solt of Southern Illinois University reconstructed the usual pretax, pre-transfer Gini indexes to estimate a “net” Gini – adjusted for direct taxes and cash transfers, but not sales taxes or in-kind transfers.
The Solt Gini index is scaled from zero to 100, where zero would be total equality (everyone has the same income) and 100 would be total inequality (one person has all the income). The U.S., for example, had a pretax, pre-transfer Gini of 46.5 in 2011, but a much lower net Gini of 37.2 after adding cash transfers and subtracting taxes. The net Gini would be much lower if the data accounted for America’s unique reliance on refundable tax credits and in-kind benefits (which makes U.S. inequality appear higher than in countries that pay transfers in cash).
According to The Wall Street Journal, “Inequality in several advanced economies, including the U.S., has returned to levels not seen since before the Great Depression, the fund said.” Irrelevant nonsense. The IMF study’s data only go back to 1960. The authors once rehashed rhetorical comparisons to 1928 in a blog, but that is a stale fallacy repeated uncritically from Thomas Piketty and Emmanuel Saez. It wrongly compares prewar data based shares of personal income with incompatible postwar data based on shares of a much narrower measure of income reported on individual tax returns after subtracting all transfer payments.
Getting back to the Solt list of 153 countries, inequality is lowest in countries with a net Gini around 30 and highest with a Gini over 45. Yet most countries The Wall Street Journal singles out as suffering from high inequality actually have low inequality.
“For the fund,” says the Journal, “protests in Athens, Lisbon, Caracas and Tripoli … are manifestations of the broader underlying reality of income inequality.” That might work for Lebanon, but not the others. The latest net Gini is a low 33.1 for Greece, 33.2 for Portugal, and 35.6 in Venezuela. The Journal also claims income inequality “helped propel widespread unrest” in Egypt and Ukraine, but the latest Gini was a super-low 30.9 in Egypt and an amazing 25.6 in Ukraine (much lower than even the USSR in 1992). Mr. Tally may mean these egalitarian governments went broke trying to redistribute too much, but that would contradict the IMF paper’s other claim – that redistribution is innocuous.
Contrast the very low inequality numbers from countries like Greece and Ukraine with the much higher Gini estimates for all the rapidly-expanding BRIC countries. The latest net Gini is 46.4 for Brazil, 49.9 for Russia, 49.7 for India and 47.4 for China. Among these fastest-growing economies the Gini is virtually the same with or without taxes and transfers, suggesting no redistribution. Minimal redistribution just lowers the Gini from 47.9 to 47.4 in China and from 50.6 to 49.7 in India.
Unfortunately, countries begging for IMF loans may have to swallow IMF advice to push their highest tax rates even higher, and redistribute the added revenue (if any) to appreciative political supporters. Such loans may shore up unworthy governments, but the attached strings will surely strangle the nascent private economy.
In the 1996 case Auer v. Robbins, the Supreme Court ruled that where there is any ambiguity or disagreement over what a federal regulation means, courts should defer to the interpretation favored by the agency that issued the regulation. The practical consequence of this decision has been that government agencies have had the power not just to create and enforce their own rules but also to definitively interpret them. Given the mind-boggling number of federal regulations that exist—and the exceptional breadth of behavior that they govern—the importance of this “Auer deference” can’t be overstated.
While handing the powers of all three branches of government to the bureaucracy is problematic in and of itself, a recent decision by the U.S. Court of Appeals for the Ninth Circuit further extended the deference courts show to agency rulemakers by declaring that an agency’s interpretation of its own rule is authoritative even if the agency has altered its interpretation dramatically since the regulation came into effect. Under that logic, an agency could spend decades saying that its regulation governing footwear only applied to shoes—and then, without warning or consultation, unilaterally decide to extend the rule to sandals and slippers (despite explicitly saying for years that they were not covered by the regulation).
Such a power to rewrite regulations through after-the-fact “reinterpretation” is incredibly tempting, freeing agencies to change the rules of the game without further legislation or congressional oversight, or even the formalized rulemaking process required by the Administrative Procedure Act.
Peri & Sons, a family-run farm in Nevada (one of America’s largest onion producers), is caught in just such an Kafkaesque morass. In its case, the Ninth Circuit ruled that even though the Department of Labor for over five years interpreted regulations issued under the Fair Labor Standards Act to mean that employers aren’t required to pay employees for the costs of moving for a job (including passport and visa applications), DOL is free to change its interpretation to now require employers to cover those costs.
Cato, along with the Center for Constitutional Jurisprudence and the National Federation of Independent Business, filed a brief urging the Supreme Court to hear this case. We argue not just against the Ninth Circuit’s extension of Auer to cases where the agency has reversed its position, but also that Auer itself was incorrectly decided. Granting agencies post-hoc control over their regulations’ textual meaning is an abdication by the courts of their constitutional duty to zealously guard against executive encroachment on the judiciary’s role as interpreters of the law. And we’re not alone in questioning the wisdom of Auer; as recently as 2011, Justice Scalia criticized the ruling as being “contrary to [the] fundamental principles of separation of powers.”
The Supreme Court will be deciding this spring whether to hear Peri & Sons Farms v. Rivera.We urge the Court to take the case and restore a modicum of the Constitution’s separation and balance of powers.
The great classical liberal sociologist Henry Sumner Maine theorized that societies progressed from status to contract: In a status-based society, one is born into a place in a hierarchy. That place may change, but typically it doesn’t change very much, and your place governs your rights and obligations. Societies of status are stable, rigid, and often deeply illiberal. They tend to be dominated by kinship groups, or clans, and those can be quite collectivist and hostile to individual liberty.
Contract-based societies are very different: In a contract-based society, individuals tend to be legally equal at birth. Family ties are affective and not quite so legally binding. Obligations tend to be voluntarily undertaken rather than assumed at birth. Societies of contract are flexible, may change rapidly, and will often act to protect individual liberty.
At Cato Unbound, this month’s lead essayist, legal historian Mark S. Weiner, argues that the state performs a sometimes unappreciated role in keeping away the status-based society: without a state that’s strong enough to break the power of the clans, then the clans will return, and individual liberty will suffer.
But how real is the danger? Do we really have the strong state to thank for our liberty? Economist Arnold Kling argues that other institutions, including the nuclear family and consensual transfers of property, make clannishness unappealing. The American Conservative’s editor, Daniel McCarthy, suggests that even liberal government is at times a very collectivist, and thus clannish, activity. Legal historian John Fabian Witt will weigh in on Monday, and we welcome your comments as well.
My op-ed in today’s New York Times has prompted numerous critical comments on the NYT website. Let me address some of them.
Some readers questioned the linked source for my statement that infrastructure spending in the United States is about the same level as in other high-income countries. This fact does need some explanation, but I didn’t have room to include it in the op-ed. The data I cited were emailed to me by the author of the linked OECD report. It is national accounts data on gross fixed investment. I charted the data here in Figure 2.
Some readers wondered about my definition of “infrastructure.” That word is often used loosely. The definition that makes sense to me is the broad one of gross fixed investment, which includes such items as government highways and private pipelines and factories. The data are available from BEA Table 1.5.5, where you can see that private investment—even aside from residential—dwarfs government investment.
One reader expressed a common view that in traveling abroad you often find nicer airports than in this country. I think that’s correct, and often those foreign airports are private or partly private, while ours are government-owned.
Numerous readers pointed to shortcomings of particular private companies, and some of those complaints are surely correct. Private companies often screw up, but my experience is that governments screw up more because of deep, structural incentive problems. Furthermore, private markets have the powerful built-in mechanism of competition to fix problems over time, whereas government shortcomings often go unaddressed. Where there is a lack of competition in private markets, policymakers should focus on opening entry to increase it.
A number of readers thought my mention of the Iron Bridge spurious. I thought of that very old cast iron structure after reading this WNYC story about Wednesday’s gas explosion in Harlem. A Con Ed senior VP says that the company checked the Harlem pipes less than two weeks ago and found no leaks. The story notes,
The bulk of the main on that block, however—about 150-feet—is cast iron from 1887. Con Edison has been working to replace such aging pipe citywide. [Con Ed VP] Foppiano said cast iron mains can be in the ground for a couple hundred years and age is not necessarily a factor.
Finally, one reader pointed to rising congestion as a reason to invest more in highways, even aside from the highway quality issue that I touched on. I agree that congestion is a big problem, and in this essay I discuss how we can improve the efficiency of our investment to better solve it.
The Democratic People’s Republic of Korea long has been recognized as one of the globe’s most difficult challenges. For two decades concern over Pyongyang’s nuclear program has dominated international attention toward the Korean peninsula.
What to do about The North Korea Problem has troubled three successive U.S. administrations. The result is a tentative nuclear state seemingly ruled by an immature third-generation dictator willing to terrorize even his own family.
Particularly unlucky are the residents of North Korea. There never has been any question about the extraordinary nature of DPRK tyranny. But the United Nations just released its own gruesome analysis.
The finding is simple: “systematic, widespread and gross human rights violations have been and are being committed” by the DPRK. “In many instances, the violations found entailed crimes against humanity based on State policies.”
Yet the challenge facing the U.S. and other nations regarding human rights in the North is a lot like the security problem: what to do? The Kim dynasty has demonstrated no interest in disarming. Nor has it ever hinted at the slightest interest in treating the North Korean people better. Arguing that human rights should be an international priority doesn’t change matters.
Trying to convince the isolated and militaristic regime that a more pacific policy is in its interest so far hasn’t worked. Trying to convince the same leadership that it also should dismantle the political system that it dominates is even less likely to succeed.
However, the human rights report might be more effectively directed at another nation, the People’s Republic of China. The PRC is North Korea’s chief enabler. (For a time South Korea shared that title, with its bountiful subsidies as part of the Sunshine Policy.)
The reasons are understandable if not necessarily laudable. Washington’s push for Beijing to press the DPRK more seriously, repeated during Secretary of State John Kerry’s recent China visit, founders on the PRC’s perception of its interests.
The North is unpredictable, except for always being ever unreasonable and difficult. Nevertheless, Beijing fears destabilizing the peninsula more than it fears North Korea nuclearizing the peninsula.
To change China’s position requires addressing that government’s concerns, particularly regarding the impact of a united Korea allied with America at a time when the U.S. appears committed to a policy of soft containment. The DPRK’s growing reputation as a human rights outlaw might help.
Beijing obviously is sensitive to the issue, given its own human rights failings. Nevertheless, there is no comparison between the two nations. China also has much at stake in the global order, including its reputation, which will be tarnished if it continues to be widely seen as the only reason the Kim regime survives.
Simply bashing Pyongyang won’t be enough. Washington needs to develop a positive package for a reform North Korean leadership: peace treaty, trade, aid, and integration. The U.S. also should involve South Korea and Japan.
This approach should directed as much at the PRC as North Korea. Even Chinese officials frustrated with the DPRK tend to blame the U.S. for creating the hostile threat environment which led the North to develop nuclear weapons.
The PRC still might decide the price of cooperating with America is too high. But the allies have no better alternative approach. The DPRK has spent recent years alternating whispers of sweet nothings with screams of blood-curdling threats, tossing in occasional missile and nuclear tests for good measure. Nothing suggests that the younger Kim has abandoned brinkmanship as Pyongyang’s preferred policy and decided to negotiate away his nation’s most important weapon.
Some day monarchical communism will disappear from the Korean peninsula. It will do so sooner if China uses its considerable influence—and threatens to withdraw its even more important aid—to press Pyongyang to reform. The UN’s scathing report on DPRK human rights practices might help win Beijing’s cooperation.
Steve H. Hanke
During his State of the Union address, President Obama announced that he intended to raise minimum wages to $10.10/hour for certain workers. Based on data from EU countries, it is clear that minimum wage laws kill jobs. I concluded that hiking the minimum wage will kill jobs in the U.S., too. Executives surveyed in the Duke University/CFO Magazine Global Business Outlook Survey agree.
Chief Financial Officers from around the world were interviewed and the majority of them concurred: a minimum wage increase from $7.25/hour to $10.10/hour would kill a significant number of jobs.
Here’s what the CFOs had to say: