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Updated: 1 hour 53 min ago

Is Free Trade in Energy Finally on the Horizon?

Wed, 01/08/2014 - 13:50

Scott Lincicome

Over the last few months, the media and the policy world have discovered that America’s archaic crude oil export restrictions are really bad policy. Two new and important developments give this welcome and growing movement even more momentum:

  • In a much-publicized speech yesterday, Sen. Lisa Murkowski (R-AK), ranking member of the Senate Energy Committee, advocated modernizing U.S. export restrictions on energy products, particularly natural gas and crude oil. Accompanying her speech was a new white paper on the same topic, which (i) highlights the serious economic problems caused by the current crude oil export licensing system (which is effectively a ban on exports to all countries except Canada); (ii) confirms the widely held view that oil exports won’t cause higher gas prices; and (iii) recommends that the president, the Commerce Department, or–if they continue to do nothing–Congress relax the export ban. Just as importantly, Murkowski’s views were recently echoed by Sen. Mary Landrieu, (D-LA) who stands to take over the Senate Energy Committee this year. Thus, there could be bi-partisan support for easing the U.S. crude oil ban on the Senate committee arguably most integral to any such reforms.
  • Also, today, the American Petroleum Institute’s president and CEO Jack Gerard reiterated his organization’s support for lifting the crude oil export ban:

API’s Jack Gerard on US crude exports: “action should be taken” to free oil trade. “It’s time for a change of mentality” #SOAE2014

— Ed Crooks (@Ed_Crooks) January 7, 2014

Gerards’s formal announcement echoes a few previous statements from folks at API (which is the largest U.S. energy trade association and a big player on Capitol Hill) and is a good sign that they’re going to push harder on this issue in the future. (API’s related blog post, which calls the crude export ban “obsolete,” certainly indicates as much.)

These two developments should be welcome news for anyone concerned with free markets, economic growth, and well-functioning energy markets. As I argued in a February 2013 Cato paper (and subsequent podcast), the crude oil export restrictions–and the similar, more well-known restrictions on U.S. natural gas exports–raise a host of economic, legal, and policy concerns. These restrictions should be replaced with a simple, transparent, and automatic licensing system for all exports of U.S. energy goods (not just fossil fuels).

Does this week’s news and the growing momentum for reform mean that the U.S. crude oil export ban will finally die the fiery death that it deserves in 2014? I’m a bit pessimistic for two reasons. First, Sen. Murkowski is not calling for a complete overhaul of the crude oil export licensing system (or its natural gas cousin): her white paper merely recommends that the Commerce Department or the president exercise their discretion within the current system and thereby approve crude exports to countries other than Canada (which, as noted above, enjoys a presumption of approval). And, according to the Financial Times, Murkowski stated today that any legislation from her on this issue would be “small, targeted bills” to “move the ball forward”–clearly not the systemic reform (or total elimination) that free traders, supporters of U.S. energy production, and America’s trading partners would ideally want. Indeed, the maintenance of an ad hoc discretionary export licensing system for crude oil would do little to provide energy markets with the consistency and predictability that they need to operate most effectively. Additionally, such a system wouldn’t quell concerns that the export restrictions violate World Trade Organization rules.

Second, while API’s support is obviously important, there will undoubtedly be intense opposition to any reform efforts. As National Journal reported yesterday, some uninformed U.S. politicians and certain domestic refiners–who benefit greatly from the ban–have already come out against reform. Combine that opposition with the inevitable push-back from fossil fuel-averse environmentalists–who have a new and sympathetic ear in the White House in John Podesta–and you have a recipe for a big political battle in Washington and diminished hopes for any quick resolution to this problem. (That Podesta’s former digs immediately “blasted” Sen. Murkowski’s remarks may be a good indication of his position.)

In short, crude oil exports could end up being like KeystoneXL or natural gas exports all over again–a frustrating and cripplingly slow process that’s subject not to rational market forces but the mercurial whims of our political class.

And, make no mistake, the crude oil situation really is a problem. As I detailed in June, beyond the legal and policy issues, the export restrictions harm U.S. producers and workers, and even worse problems are on the horizon:

[B]y curtailing exports and subjecting license approvals to the whims of bureaucrats, the current system slows domestic production, breeds economic distortions, discourages investment and destabilizes energy markets.

U.S. oil producers, for example, lose an estimated $10 billion a year due to their inability to sell crude in foreign markets. They’ve also spent hundreds of millions of dollars building “mini-refineries” in the Midwest and Gulf region to circumvent the current restrictions and export a slightly processed, cheaper product — leaving another $1.7 billion in potential profit on the table.

As Rube-Goldbergian as this sounds, producers have few alternatives, given that U.S. oil consumption has collapsed in recent years and building new refinery capacity is virtually impossible in many “environmentally friendly” states. These problems prompted the head of the International Energy Agency to warn recently that U.S. export restrictions put the “American oil boom” at risk.

Unfortunately, the serious oil supply and price disruptions that I contemplated–already experienced for natural gas–could be happening a lot sooner that anyone thought, as a domestic glut of light, sweet crude oil (i.e., the type of oil gushing from U.S. shale finds and spearheading the American energy revolution) finds itself at U.S. ports with literally no place to go.

The obvious solution to this problem is for the U.S. government to completely lift the ban on crude oil exports as soon as possible. Doing so would restore a little sanity to U.S. energy policy (although more definitely needs to be done), avoid global trade conflicts, and provide ample benefits for the domestic economy–all issues that we’ll be discussing at an upcoming Cato forum in February. However, if the aforementioned concerns and the government’s track record with KeystoneXL and natural gas exports are any indication, U.S. energy producers, consumers, and the broader market may endure a lot more pain before any serious, long-term solution is implemented.

If it ever is.

Categories: Policy Institutes

Administration's Good Intentions Could Hurt Black Students' Achievement

Wed, 01/08/2014 - 13:03

Andrew J. Coulson

Today the Department of Education and Justice Department released new discipline guidelines intended to reduce racial disparities in punishment in the nation’s schools. The move stems from a combination of factors: African-American students are disciplined more harshly, on average, by public schools; and suspensions and expulsions are associated with negative long-term educational outcomes for the disciplined students. The guidelines are technically voluntary, but as the Associated Press reports, “the federal government is telling school districts around the country that they should adhere to the principles of fairness and equity in student discipline or face strong action if they don’t.” Unfortunately, this federal pressure may end up hurting black students far more than it helps them.

The problem is that while expelling disruptive students may be associated with negative educational outcomes for the disruptor, it is associated with positive educational outcomes for the rest of his classmates. That is the finding of a uniquely sophisticated study conducted by Joshua Kinsler and published last year in the prestigious International Economic Review (a draft is available here). Kinsler found that cutting out-of-school suspensions in schools with many disruptive students lowers overall student achievement.

In that and earlier work, Kinsler also discovered that the disparity in punishments handed out to students of different races is almost entirely explained by the schools the students attend, and not by racism. Black students, Kinsler found, are more likely to attend schools that have harsh discipline policies, and hence are more likely to receive harsh discipline. But, within a given school, the punishments accorded to white and black students are generally the same. Majority black schools with severe discipline policies apply those policies in the same way to their white students, and majority white schools with more lenient policies also apply those policies in the same way to their black students (see Kinsler’s 2011 study in the Economics of Education Review, a draft of which can be found here).

There are much better approaches to school discipline than those practiced in most public schools today, but until such time as those policies become widely adopted, simply pressuring districts to mete out less severe punishments seems likely to drive down the academic achievement of the very students it is meant to help.

What are those better discipline policies and how can we encourage their widespread adoption? I offered some suggestions in my Senate testimony on the subject a little over a year ago.

Categories: Policy Institutes

Progressives in Space

Wed, 01/08/2014 - 10:00

Marian L. Tupy

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According to the Wall Street Journal:

“If all goes according to plan, Hollywood icon Leonardo DiCaprio will blast into space aboard the maiden voyage of Richard Branson’s Virgin Galactic spaceship sometime this year, opening up a new era of civilian space travel….Mr. DiCaprio is on the board of trustees of the Natural Resources Defense Council and has decried overconsumption. ‘We are the number one leading consumers, the biggest producers of waste around the world,’ the actor said in 2008.”

Leo’s 6 minutes of weightlessness will cost him a cool $250,000 and while it is his money to burn, lecturing the rest of us about overconsumption and waste is, well, hypocrisy of galactic proportions.

Categories: Policy Institutes

Japan and South Korea: The Other Worrisome Spat in East Asia

Tue, 01/07/2014 - 16:45

Ted Galen Carpenter

Considerable attention has focused on the rising tensions between Japan and China, with some experts now warning that we should not underestimate the possibility of war between the region’s two major powers. Relations between Tokyo and Beijing have certainly become hostile over the past year or so. The ongoing, highly emotional dispute over the Diaoyu/Senkaku Islands in the East China Sea has been the principal source of friction, but Japanese Prime Minister Shinzo Abe’s late December 2013 visit to the Yasukuni Shrine, which contains the remains of 14 high-level, World War II war criminals, also infuriated the Chinese.

Washington is understandably concerned about the deterioration of Sino-Japanese relations, but the surging animosity between those two countries is not the only source of worry for U.S. policy makers. Although it has received less attention, relations between Japan and South Korea are also on an ominous trajectory. The reaction in South Korea to Abe’s pilgrimage to Yasukuni was as angry as the response in China. Seoul also has its own territorial disputes with Tokyo, primarily over a chain of small islands called Dokdo in Korea and Takeshima in Japan, and those controversies are intensifying.

All of this might be a matter of limited concern to the United States if it were not for Washington’s defense treaties with Japan and South Korea. U.S. leaders have already taken the dubious step of insisting that the bilateral defense pact with Tokyo applies not only to indisputable Japanese territory but also to the highly contested Diaoyu/Senkaku Islands. That stance has drawn sharp objections from Beijing and puts the United States on the front lines of a worsening confrontation between China and Japan.

Although an armed conflict between Tokyo and Seoul is less likely than a Sino-Japanese war, Washington’s defense obligations put the United States in an extremely awkward position if the Japanese-Korean relationship crumbles. Clearly, Washington would not be able to honor its obligations to both parties, if they came to blows. One wag suggested that the U.S. Army could fight alongside the Koreans, while the U.S. Marines (based mainly on Okinawa) could assist the Japanese.

It’s no laughing matter, though, and the current tensions underscore the pitfalls of Washington’s tendency to acquire allies or security clients in a promiscuous manner. At a minimum, such ties cause diplomatic headaches; at worst, they can entangle the United States in unwanted, even irrelevant, conflicts. It’s not a new problem. During the Cold War, Washington repeatedly found itself trying to keep NATO allies Greece and Turkey from going to war against each other.

That history, along with the current turmoil in East Asia, should cause U.S. leaders to conduct a thorough re-assessment of the country’s overgrown alliance commitments. Alliances are supposed to advance America’s interests and enhance its security, not drag this country into unnecessary, dangerous quarrels.

Categories: Policy Institutes

Downsize the Department of Agriculture

Tue, 01/07/2014 - 15:23

Caleb O. Brown

The Department of Agriculture spends over $150 billion dollars per year on various programs related to agriculture and food. It spends tens of billions on farm subsidies that largely go to growers of just a few crops: wheat, corn, soybeans, rice, and cotton. Beyond this, it subsidizes food through the federal food stamp program, which is rife with waste and corruption. It also regulates many agricultural products, most notably milk and sugar, setting minimum prices which artificially keep food prices high for consumers.

The federal government has little reason to be engaging in any of these activities, which should be left to the states in the case of food stamps, or eliminated entirely in the case of regulations or subsidies. This could save taxpayers $140 billion per year. To that end we’ve created a short video which makes these and other points, which you can watch below:

Categories: Policy Institutes

The Good Old Days of Global Poverty

Tue, 01/07/2014 - 12:32

Simon Lester

Noah Smith has a piece in the Atlantic in which he tries to revitalize the anti-WTO Seattle protests. We were wrong to mock them, he says. They were “mostly right”! And “on nearly every count”!

All right, I’ll bite.  How, exactly, were they right?

His damning evidence against globalization starts with those dastardly “cheap imports,” which supposedly put Americans out of work. He acknowledges that such imports lower prices for consumers, but says those benefits are “spread very thinly.”

There are a lot of ways to refute this argument. I’m going to focus on two.

First, regardless of whether the benefits of low prices are spread thinly, such benefits outweigh any lost jobs arising from foreign competition. That is to say, the benefits of free trade outweigh the costs.  Just be clear, this isn’t controversial, and is not contested by the economists he cites.  Furthermore, the impact of Chinese and other imports on U.S. workers isn’t really all that great, and imports actually support many U.S. jobs.  So, overall, his argument in this respect is a bit underwhelming.  Oh, and by the way, if it’s poor Americans you are worried about, they are the ones who benefit most from trade with China.

Second, there is a larger point. Smith wants to present the issue as whether free trade takes jobs from the middle-class in order to give benefits to consumers and the rich. But that’s not the right way to think about things. The better way to understand the situation is the following: Protectionism takes a lot of money from everyone, in order to give concentrated benefits to a small group of politically connected interest groups. This is the kind of policy that is usually condemned by both the left and right. In the case of the trade debate, however, some well-respected opinion leaders seem OK with such policies. Why is that? My best guess is that it taps into an emotional “us versus them” worldview. It isn’t really about economics at all. It’s about patriotism and nationalism. “They” are bad. “We” are good. So let’s punish them, even if in doing so we are really punishing us.

Smith makes several other points: imports can be unsafe, free trade leads to environmental destruction, globalization is bad for poor workers. On the last two, Smith successfully refutes his own arguments, so I don’t need to do any more work here. As for imports being unsafe, just to be clear, WTO rules allow governments to regulate imported and domestic products for safety and health.  Smith is free to argue that the U.S. government does a bad job regulating food and product safety. But that’s not the WTO’s fault.

Now, perhaps the Seattle protesters’ real beef was not with the WTO, but with globalization itself. They would rather live in a world where China had not experienced industrialization and rising living standards.  In other words, a world where Chinese people are much poorer. But I don’t think the Chinese people want to live in that world, and neither do I. And it doesn’t seem that Smith does either, as he says:

The industrialization of China and (to a lesser degree) India has been the biggest and most effective anti-poverty program the world has ever seen. Capitalism has its flaws, but it works.

It sounds to me like his real conclusion here is that the protesters were, in fact, wrong!

So what is his complaint about the WTO and globalization exactly?  He says:

…  a WTO-led globalization could have been implemented a lot better.

Could trade rules be implemented better?  Sure. But couldn’t everything?  That’s not much of a critique.  In the end, it turns out he doesn’t have any specific suggestions or proposals, just general angst. Which kind of reminds me of the Seattle protests.

Categories: Policy Institutes

NYT Reports on Indigent Defense Vouchers in Texas

Mon, 01/06/2014 - 19:21

Tim Lynch

Yesterday, the New York Times reported on a pilot program involving indigent defense vouchers that will soon begin in Comal County, Texas.

Some background: Fifty years ago, the Supreme Court held that anyone accused of a crime who could not afford an attorney would have one appointed to him by the court. The Court did not say how these attorneys would be financed, but jurisdictions around the country have drifted toward the public defender model. To the extent that indigent defense is debated among policymakers, it has pretty much centered on how much money should be spent on the public defender offices.

That’s about to change. In Comal County, policymakers are going to try using a system of vouchers. Like the school voucher concept, the idea is to put money directly into the hands of the customers, who will then decide which attorney they would like to retain. If a certain law firm earns an excellent reputation for handling criminal cases, more customers will turn to them for help, and they will hire and train more lawyers. The attorneys who do a lousy job will get less and less business. The market process in action.

According to the NYT article, the Texas Indigent Defense Commission became aware of the voucher proposal when the Cato Institute advanced the idea in a 2010 paper:

The intellectual parents of the movement toward letting poor people choose a lawyer are the law professors Stephen J. Schulhofer of New York University and David D. Friedman of Santa Clara University, who first published their idea in American Criminal Law Review in 1993. A revised and compressed 2010 version, in Policy Analysis, a Cato Institute publication, caught Mr. Bethke’s attention.

Here is how the Cato paper summarizes the benefits to be realized from a voucher system:

We maintain that defense vouchers will improve the quality of legal representation for the poor. Better legal representation will, in turn, produce at least three benefits to the community:

  • Improving defense services will reduce the liklihood of mistakes. That is, it will be less likely that innocent persons will be wrongfully convicted of crimes.
  • Improving defense services will also minimize adverse consequences to the innocent persons who would have been acquitted under current systems of indigent defense. That is, a better defense means it is more likely that those innocents will be released from custody even sooner (pre-trial) and with less disruption to their lives and the lives of their family members.
  • Improving defense services will bring more complete information to the sentencing phase of the criminal justice system—making it more likely that just punishment will be imposed on those who are guilty of committing criminal offenses.

This is a good example of how think tank work can have an impact on policy. And one of the benefits of our decentralized criminal justice system is that jurisdictions can try different policies and we can then see what works well. 

Stay tuned on the defense voucher experiment.

Categories: Policy Institutes

'Worse Than We Thought' Rears Ugly Head Again

Mon, 01/06/2014 - 15:56

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.”

Our last post was a brief run-through of some items of interest from the recent scientific literature that buck the popular alarmist meme that human-caused climate change is always “worse than we thought.” But as we said in that post, finding coverage of such results in the dinosaur media is a fool’s errand. Instead, it thrives on “worse than we thought” stories, despite their becoming a detriment to science itself.

Not to disappoint, headlines from the first major climate change story of the new year claim “Climate change models underestimate likely temperature rise, report shows,” and it’s clearly Worse Than We Thought. In its January 5 (Sunday) paper, the editorial board of the Washington Post points to the new results as a call for action on climate change.

The trumpeted results appear in a paper published in the January 2nd 2014 issue of Nature magazine by a team led by University of New South Wales professor Steven Sherwood and colleagues which claims that the earth’s equilibrium climate sensitivity—how much the global average surface temperature will rise as a result of a doubling of the atmospheric carbon dioxide content—is being underestimated by most climate models. Sherwood’s team finds “a most likely climate sensitivity of about 4°C, with a lower limit of about 3°C.”

Sherwood’s most likely value of 4°C is about twice the value arrived at by a rather largish collection of other research published during the past 2-3 years and lies very close to the top of the likely range (1.5°C to 4.5°C) given in the new report from the U.N.’s Intergovernmental Panel on Climate Change (IPCC).

While there are a host of reasons as to why our understanding of the true value of the climate sensitivity is little better constrained now that it was some 20+ years ago (it was given as 1.5°C to 4.5°C in the IPCC’s first report issued, almost a quarter-century ago), it is widely recognized that our understanding of the role of clouds in a changing climate is central to the issue.

In describing the why climate models have such different climate sensitivity values, the IPCC writes, in the 2013 edition of it’s science compendium,

There is very high confidence that uncertainties in cloud processes explain much of the spread in modelled climate sensitivity.

Sherwood and colleague set out to see if they could help nail down the specific cloud processes involved in the model spread and to see if recent observations could help better understand which models were handling  processes related to cloud behavior better than others.

The rate of vertical mixing in the lower atmosphere has a direct role in the formation of clouds. In a broad sense, according to the authors, the more vertical mixing that takes place in the lower atmosphere, the more drying that occurs in the lowest levels of the atmosphere, and therefore cloud amounts must decrease. 

Sherwood and colleagues then compared the amount of mixing simulated by a collection of climate models with some observations of the mixing rate derived from weather balloon observations and other observation/model hybrids (called “reanalysis” products). They found that the climate models which most closely match the observations turned out to be the climate models with the highest climate sensitivity. Climate models with low sensitivities largely failed to contain the observations at all.

Based on this general finding—that climate models with a greater sensitivity to carbon dioxide increases produce a better match to observations of low level mixing rates—Sherwood and colleagues conclude that future global warming is going to progress much faster than is generally accepted.

This is the EEBE (“everything else being equal”) trap in big print.

While Sherwood et al., and press coverage of their paper, emphasize model comparisons with the “real world” they fail to show the “real world” comparison that makes the most sense—how do the climate model projections of global temperature changes compare with observations of real world temperature changes?

If they aren’t strongly related to vertical motion changes, then everything else is most decidedly not equal.

Our Figure 1 below shows the observed global surface temperature history from 1951-2013 compared with the temperature evolution projected by the collection of models used in the latest IPCC report. We broke the climate models down into two groups—those  which have a climate sensitivity greater than 3.0°C (as suggested by Sherwood et al.) and those with a climate sensitivity less than 3.0°C.  Figure 1 shows that while neither model subset does a very good job is capturing evolution of global temperature during the past 15-20 years (the period with the highest human carbon dioxide emissions), the high sensitivity models do substantially worse than the lower sensitivity models.

How in God’s getting-greener earth did the reviewer boffins at Nature miss this? (Hint:  it messes up the meme.)

Figure 1. Observed global average temperature evolution, 1951-2013, as compiled by the U.K’s Hadley Center (black line), and the average temperature change projected by a collection of climate models used in the IPCC Fifth Assessment Report which have a climate sensitivity greater than 3.0°C (red line) and a collection of models with climate sensitivities less than 3.0°C (blue line) (climate model data source: Climate Explorer).

Sherwood et al. prefer models that better match their observations in one variable, but the same models actually do worse in the big picture than do models which lack the apparent accuracy in the processes that Sherwood et al. describe.

It’s Worse Than We Thought all right—but for the climate models, not the real world.  The result can only mean that there must still be even bigger problems with other model processes which must more than counteract the effects of the processes described by Sherwood et al. After all, the overall model collective is still warming the world much faster than it actually is.

Predictably, such a conclusion is absent from popular coverage of these results and from call-to-action editorials based upon them.

 

Reference:

Sherwood, S. C., S. Bony, and J-D. Dufresne, 2014. Spread in model climate sensitivity traced to atmospheric convective mixing. Nature, 505,37-42, doi:10.1038/nature12829.

Categories: Policy Institutes

Even the Establishment Media Is Now Admitting the French Economic Model Is Fatally Flawed

Mon, 01/06/2014 - 12:37

Daniel J. Mitchell

Some things in life are very dependable. Every year, for instance, the swallows return to Capistrano.

And you can also count on Dan Mitchell to wax poetic about the looming collapse of French statism.

Geesh, looking at that list, I guess I’m guilty of - in the words of Paul Krugman - being part of the “plot against France” by trying to discredit that nation’s economy.

Or maybe I’m just ahead of my time because we’re now seeing articles that almost sound like they could have been written by me appearing in establishment outlets such as Newsweek. Check out some amazing excerpts from an article by Janine di Giovanni, who lives in France and serves as the magazine’s Middle East Editor.

…what is happening today in France is being compared to the revocation of 1685. …the king closed churches and persecuted the Huguenots. As a result, nearly 700,000 of them fled France, seeking asylum in England, Sweden, Switzerland, South Africa and other countries. The Huguenots, nearly a million strong before 1685, were thought of as the worker bees of France. They left without money, but took with them their many and various skills. They left France with a noticeable brain drain.

It’s happening again, except this time the cause is fiscal persecution rather than religious persecution. French politicians have changed the national sport from soccer to taxation!

Since the arrival of Socialist President François Hollande in 2012, income tax and social security contributions in France have skyrocketed. The top tax rate is 75 percent, and a great many pay in excess of 70 percent. As a result, there has been a frantic bolt for the border by the very people who create economic growth – business leaders, innovators, creative thinkers, and top executives. They are all leaving France to develop their talents elsewhere.

It’s an exaggeration to say “they are all leaving,” but France is turning Atlas Shrugged from fiction to reality.

Many of the nation’s most capable people are escaping - ranging from movie stars to top entrepreneurs.

What I find most amusing is that France’s parasitical political elite is whining and complaining that these people won’t remain immobile so they can be plundered.

And when the people who have the greatest ability leave, that has an impact on economic performance - and ordinary people are the ones who suffer the most.

…the past two years have seen a steady, noticeable decline in France. There is a grayness that the heavy hand of socialism casts. It is increasingly difficult to start a small business when you cannot fire useless employees and hire fresh new talent. Like the Huguenots, young graduates see no future and plan their escape to London. The official unemployment figure is more than 3 million; unofficially it’s more like 5 million.

The article also gives some details that will help you understand why the tax burden is so stifling. Simply stated, the government is far too big and pays for things that should not be even remotely connected to the public sector.

Part of this is the fault of the suffocating nanny state. …As a new mother, I was surprised at the many state benefits to be had if you filled out all the forms: Diapers were free; nannies were tax-deductible; free nurseries existed in every neighborhood. State social workers arrived at my door to help me “organize my nursery.” …The French state also paid for all new mothers, including me, to see a physical therapist twice a week to get our stomachs toned again.

Government-subsidized “toned” stomachs. Hey, maybe big government isn’t all bad. Sort of reminds me of the taxpayer-financed breast augmentation in the United Kingdom (British taxpayers also have paid for sex trips to Amsterdam).

More seriously, all the wasteful spending in France erodes the work ethic and creates a perverse form of dependency.

I had friends who belonged to trade unions, which allowed them to take entire summers off and collect 55 percent unemployment pay. From the time he was an able-bodied 30-year-old, a cameraman friend worked five months a year and spent the remaining seven months collecting state subsidies from the comfort of his house in the south of France. Another banker friend spent her three-month paid maternity leave sailing around Guadeloupe – as it is part of France, she continued to receive all the benefits. Yet another banker friend got fired, then took off nearly three years to find a new job, because the state was paying her so long as she had no job. “Why not? I deserve it,” she said when I questioned her. “I paid my benefits into the system.”

So what’s the bottom line? Well, the author sums up the issue quite nicely.

…all this handing out of money left the state bankrupt. …The most brilliant minds of France are escaping to London, Brussels, and New York rather than stultify at home. …“The best thinkers in France have left the country. What is now left is mediocrity.” From a chief legal counsel at a major French company: “France is dying a slow death. Socialism is killing it…”

As the old saying goes, this won’t end well. Maybe France will suffer a Greek-style meltdown, but perhaps it will “merely” suffer long-run stagnation and decline.

Which is a shame because France is a beautiful country and is ranked as one of the best places to live, at least if you happen to already have a considerable amount of hard-to-tax wealth.

But bad government can screw up a country, even if it does have lots of natural advantages.

And that’s exactly what generations of French politicians have done to France. The tax system has become so bad that more than 8,000 French households had to pay more than 100 percent of their income to the government in 2012.

The French government has announced, by the way, that it intends to cap taxes so that no household ever pays more than 80 percent to the state. Gee, how merciful, particularly since the French President has echoed America’s Vice President and asserted that it’s patriotic to pay higher taxes.

That’s why I’ll stand by my prediction that President Obama will never be able to make America as bad as France. Heck, France has such a bad approach on taxes that Obama has felt compelled to oppose some of that country’s statist initiatives.

P.S. The big puzzle is why the French put up with so much statism. Polling data from both 2010 and 2013 shows strong support for smaller government, and an astounding 52 percent of French citizens said they would consider moving to the United States if they got the opportunity. So why, then, do they elect statists such as Sarkozy and Hollande?!?

Categories: Policy Institutes

Criminalizing "Emotional Blackmail"

Mon, 01/06/2014 - 09:50

Walter Olson

From Britain: “Domestic abuse involving ‘emotional blackmail’ – but no violence – could become a criminal offense carrying a heavy jail term under tough new measures published for the first time.” While the cross-party group of Members of Parliament who are introducing the bill do not speak for the Cameron administration, notes David Barrett in the Telegraph, they have a track record of some success at getting their ideas on domestic abuse enacted into legislation:

“Critically, its [the draft’s] definition of abuse includes “controlling or coercive behavior” which would “encompass but is not limited to physical, financial, sexual, psychological or emotional abuse”.

“Controlling behavior” would also lead to criminal charges, including when a partner makes another person “subordinate”, “exploits their resources” or “deprives them of the means needed for independence”.

The offense would apply to abuse committed against any spouse, partner or former partner, regardless of gender.

Offenses will carry a sentence of up to 14 years in prison. As Pamela Stubbart notes at the Daily Caller, when based on purely psychological and emotional interactions and states of dependence, concepts like “control” and “coercion” are at best a highly subjective affair, inviting unpredictable legal application as well as he-said-she-said legal battles in the wake of breakups or other relationship failures. The measure would also threaten criminal liability for some speech (e.g., emotionally hurtful insults not involving threats of violence) that would often be included in definitions of free speech. Meanwhile, a ban on exploiting partners’ resources or denying partners financial independence threatens to throw a shadow of criminal liability over many marital and romantic arrangements long deemed unproblematic, whether or not egalitarian. What’s most obviously “controlling or coercive” here is the proposed law itself.

Related: periodic proposals in state legislatures and elsewhere to ban “workplace bullying” (more) raise some of the same issues, as do enactments (like “Grace’s Law” in Maryland) endeavoring to ban “cyber-bullying.” [cross-posted and slightly adapted from Overlawyered]

Categories: Policy Institutes

Bernanke’s Fallacious Fiscal Facts

Mon, 01/06/2014 - 08:38

Chris Edwards

In a speech on Friday, outgoing Fed Chairman Ben Bernanke defended his record of extraordinary policy interventions. One of his framing techniques is to claim that extreme monetary efforts were needed in the last few years—from his Keynesian perspective—to offset “contractionary” fiscal policy.

Here’s what Bernanke said about federal fiscal policy:

To this list of reasons for the slow recovery … I would add one more significant factor—namely, fiscal policy. Federal fiscal policy was expansionary in 2009 and 2010. Since that time, however, federal fiscal policy has turned quite restrictive.

Here I show that federal deficits in 2011, 2012, and 2013 were an enormous $1.3 trillion, $1.1 trillion, and $680 billion, respectively. In Keynesian terms, those deficits are the farthest thing from “quite restrictive” fiscal policy. To Keynesians, those deficits should have made the economy boom, yet the United States has had the slowest recovery since World War II.

Here’s what Bernanke said about state fiscal policy:

In addition, throughout much of the recovery, state and local government budgets have been highly contractionary, reflecting their adjustment to sharply declining tax revenues. To illustrate the extent of fiscal tightness, at the current point in the recovery from the 2001 recession, employment at all levels of government had increased by nearly 600,000 workers; in contrast, in the current recovery, government employment has declined by more than 700,000 jobs, a net difference of more than 1.3 million jobs. There have been corresponding cuts in government investment, in infrastructure for example, as well as increases in taxes and reductions in transfers.

Bernanke is trying to pull the wool over your eyes here. He calls state/local budgets “highly contractionary,” but notice how he does not give the actual budget numbers, and instead jumps to employment and infrastructure.

The following chart shows total state/local government spending from BEA Table 3.3. Spending in recent years has been “flat,” not “highly contractionary.” (For 2013, I used the average of the first three quarters). By the way, this BEA table also shows that state/local deficits have been up in recent years compared to before the recession, which is also not “contractionary.”

On employment, Bernanke resorts to the convoluted statistic of 1.3 million and provides no context. Total employment at all levels of government is available here from the BLS. In November, there were 21.9 million government workers in the United States. As Bernanke notes, that is down about 700,000 since the end of 2009. But that’s only a cut of three percent, which surely is not “highly contractionary.”

Besides, the government worker reduction is “contractionary” to Keynesians in the sense that wage payments are ended for 700,000 workers. But those aggregate wage payments are tiny in the $17 trillion U.S. economy. If those workers had earned, on average, say $60,000 a year, that amounts to only $42 billion less in government spending. And those wages are part of overall state/local spending, which the chart showed has been flat, not declining.

The bottom line is that efforts by Keynesian economists to blame the slow U.S. recovery on government fiscal contraction is not supported by the facts, even if such a theory made any sense.

Categories: Policy Institutes

Is Warmer Better? Florida Soon to Surpass New York as Nation’s Third Most Populous State

Fri, 01/03/2014 - 11:57

Paul C. "Chip" Knappenberger

Hmmm. A pounding blizzard hits the Northeast, followed by an Arctic cold blast. All the while, Florida is set to oust New York and join California and Texas as the top 3 most populous states in the U.S.

Here is the story according to the Associated Press:

Florida to Surpass New York in Population

So while some folks yammer on about the perils of a warming climate (and try to force regulations upon us aimed at “doing something” about it), a great many others are actively seeking out warmer places to live. Perhaps not entirely for the climate, but that factor is almost assuredly not out of mind.

Maybe the public doesn’t think that its “health” is as “endangered” by a warmer climate as the U.S. Environmental Protection Agency contends.

Categories: Policy Institutes

Emergency UI Benefits: Reasons Against

Fri, 01/03/2014 - 11:29

Chris Edwards

The Senate is considering legislation to revive the emergency unemployment insurance program. These federally funded benefits were in place from mid-2008 to the end of 2013.

Federal policymakers like to spend money helping people in need, but there are large and less visible costs to such welfare legislation. Here are some reasons why new UI spending is not a good idea:

  • The U.S. economy has been out of recession and growing for more than four years. The unemployment rate is down to 7 percent and jobs are being created. The time for “emergency” UI benefits has passed and it’s time for us to go back to the regular benefit structure of 26 weeks. We all want the economy to grow faster and create more jobs, but the way to do that is to enact free market policies, not more welfare spending.
  • There is no free lunch. Extending UI benefits for another year would cost approximately $25 billion, which is money the federal government does not have. It would have to borrow every cent of the added spending, and thus impose those costs (plus interest) on working Americans in the future. Proponents of more UI spending point to sad stories of individuals out of work, but there will be far more pain inflicted on millions of Americans in coming years unless we get federal spending and debt under control.
  • Large UI benefits are counterproductive because they push up unemployment, as discussed here. Long-term unemployment has been particularly high in recent years. Meanwhile, employers may have a bias against hiring people who have been unemployed a long time. The upshot is that if generous UI benefits discourage people from taking less-than-optimal job offers early on, it ends up hurting them later when it is harder to find any job. Government “help” often backfires.
  • States can fund their own benefits. Nevada Sen. Dean Heller wants to “shrink the size” of the federal government, yet he is co-sponsoring legislation to revive emergency federal UI benefits because his state has high unemployment. But there is nothing stopping Nevada from funding its own extra UI benefits, and thus no need for Heller to try to impose the cost of his state’s problems on the other 49 states.
  • From a political perspective, it would be a big mistake for Republican leaders to go along with the push to spend more on UI. GOP leaders already caved in with more spending on the recent Ryan-Murray budget deal. If they cave in on UI, cave in on the costly farm bill, and cave in on upcoming debt-limit legislation, there would be no reason for fiscal conservatives to show up and vote Republican in November.    

Our current UI system is economically damaging, hugely complex, and fraud-ridden. Rather than adding to the system’s problems with higher benefits, policymakers should consider moving to a pro-growth savings-based UI system, as Chile has done.

Categories: Policy Institutes

Dean’s Dilemma: Capitalism or Welfare for Senator Heller?

Fri, 01/03/2014 - 08:15

Chris Edwards

Republican Senator Dean Heller of Nevada has co-sponsored a bill to revive the emergency unemployment insurance program. Senator Harry Reid is pleased as punch that Heller is breaking with the “tea party folks” on the issue.

What’s Heller justification for taking the big government side and jacking up welfare spending? He says: “Providing a safety net for those in need is one of the most important functions of the federal government. As Nevada’s unemployment rate continues to top the charts nationwide, many families and individuals back home do not know how they are going to meet their basic needs.”

Perhaps Heller should spend more time with the “tea party folks.” They would direct him to this document to see whether hand-outs are indeed “one of the most important functions of the federal government.” And they would explain to him the concept of federalism: If Nevadans want larger UI benefits, their own legislature could provide them without having to loot the national treasury.

Yet Heller styles himself as a staunch fiscal conservative—a tea partier—so he should know this. From Heller’s biography on his Senate website:

Since coming to Congress, Heller has fought for smaller government, the elimination of wasteful spending, and a balanced budget. He has been at the forefront of the fight for fiscal responsibility in Washington, voted against hundreds of billions in tax increases, and fought the expansion of government and out-of-control spending. Heller is also the only member of the Nevada delegation to vote against the Wall Street bailout. In addition, Heller has fought for fiscal policies that promote economic recovery and believes controlling government spending will create an environment where businesses can flourish and foster long-term economic growth.

Not only that, but Heller thinks that “big government is not the answer to fixing our economy. Congress needs to control wasteful spending and shrink the size of government … Capitalism is the foundation of America’s prosperity. We should embrace these principles, not run from them.”

Furthermore, Heller argues that “this government has been on a massive spending spree for too long, and it is time for this reckless behavior to end. As an opponent of the stimulus and the only member of the Nevada delegation to vote against the bailout, I believe it is critical to rein in spending, address the yearly deficits, and get government debt under control.”

These are all laudable goals. I couldn’t have said it better myself. But it is just empty rhetoric if one also goes around supporting borrow-and-spend welfare legislation.

Categories: Policy Institutes

Boost Worker Pay - and Make the United States More Competitive - by Gutting the Corporate Income Tax

Thu, 01/02/2014 - 12:15

Daniel J. Mitchell

The business pages are reporting that Chrysler will be fully owned by Fiat after that Italian company buys up remaining shares.

I don’t know what this means about the long-term viability of Chrysler, but we can say with great confidence that the company will be better off now that the parent company is headquartered outside the United States.

This is because Chrysler presumably no longer will be obliged to pay an extra layer of tax to the IRS on any foreign-source income.

Italy, unlike the United States, has a territorial tax system. This means companies are taxed only on income earned in Italy but there’s no effort to impose tax on income earned - and already subject to tax - in other nations.

Under America’s worldwide tax regime, by contrast, U.S.-domiciled companies must pay all applicable foreign taxes when earning money outside the United States - and then also put that income on their tax returns to the IRS!

And since the United States imposes the highest corporate income tax in the developed world and also ranks a dismal 94 out of 100 on a broader measure of corporate tax competitiveness, this obviously is not good for jobs and growth.

No wonder many American companies are re-domiciling in other countries!

Maybe the time has come to scrap the entire corporate income tax. That’s certainly a logical policy to follow based on a new study entitled, “Simulating the Elimination of the U.S. Corporate Income Tax.”

Written by Hans Fehr, Sabine Jokisch, Ashwin Kambhampati, Laurence J. Kotlikoff, the paper looks at whether it makes sense to have a burdensome tax that doesn’t even generate much revenue.

The U.S. Corporate Income Tax…produces remarkably little revenue - only 1.8 percent of GDP in 2013, but entails major compliance and collection costs. The IRS regulations detailing corporate tax provisions are tome length and occupy small armies of accountants and lawyers. …many economists…have suggested that the tax may actually fall on workers, not capitalists.

Regarding who pays the tax, shareholders bear the direct burden of the corporate tax, of course, but economists believe workers are the main victims 

because the levy reduces investment, which then means lower productivity and lower wages.

Statists would like us to believe that capitalists and workers are enemies, but that’s utter nonsense. Both prosper by cooperating. There’s a very strong correlation between a nation’s capital stock (the amount of investment) and the compensation of its workers.

So it’s no surprise to see that’s precisely what the authors found in their new research.

This paper posits, calibrates, and simulates a multi-region, life-cycle dynamic general equilibrium model to study the impact of U.S. and global corporate tax reforms. …when wage taxation is used as the substitute revenue source, eliminating the U.S. corporate income tax, holding other countries’ corporate tax rates fixed, engenders a rapid and sustained 23 to 37 percent higher capital stock… Higher capital per worker means higher labor productivity and, thus, higher real wages.

The impact is significant, both for worker compensation and overall economic output.

…real wages of unskilled workers wind up 12 percent higher and those of skilled workers 13 percent higher. …on balance, output rises - by 8 percent in the short term, 10 percent in the intermediate term, and 8 percent in the long term… The economy’s endogenous expansion expands existing tax bases, with the increased revenue making up for roughly one third the loss in revenue from the corporate income tax’s elimination.

By the way, the authors bizarrely then write that “we find no Laffer Curve,” but that’s presumably because they make the common mistake of assuming the Laffer Curve only exists if a tax cut fully pays for itself.

But that’s only true for the downward-sloping side of the Laffer Curve.

In other cases (such as found in this study), there is still substantial revenue feedback.

And I guess we shouldn’t be surprised that full repeal of the corporate income tax doesn’t raise revenue. The Tax Foundation, after all, estimates that the revenue-maximizing rate is about 14 percent.*

Now that I’m done nit-picking about the Laffer Curve, let’s now look at one additional set of results from this new study.

…each generation, including those initially alive, benefits from the reform, with those born after 2000 experiencing an 8 to 9 percent increase in welfare.

I should point out, incidentally, that economists mean changes in living standards when they write about changes in “welfare.” It’s a way of measuring the “well being” of society, sort of like what the Founders meant when they wrote about “the general welfare” in the Constitution.

But, once again, I’m digressing.

Let’s focus on the main lesson from the paper, which is that the corporate income tax imposes very high economic costs. Heck, even the Paris-based Organization for Economic Cooperation and Development (which is infamous for wanting higher tax burdens on companies) admitted that the levy undermines prosperity.

The study even finds that workers would be better off if the corporate income tax was replaced by higher wage taxes!

To learn more about the topic, here’s a video I narrated many years ago about cutting the corporate income tax. There was less gray in my hair back then, but my analysis still holds today.

Cutting the U.S.’s Corporate Tax Rate

* For the umpteenth time, I want to emphasize that the goal should not be to maximize revenue for politicians. Instead, we should strive to be on the growth-maximizing point of the Laffer Curve.

Categories: Policy Institutes

Great Moments in Border Control

Thu, 01/02/2014 - 10:35

Walter Olson

From the Boston Globe, “Virtuoso’s flutes destroyed by U.S. Customs”:

…Flute virtuoso [Boujemaa Razgui], who performs regularly with The Boston Camerata[,] lost 13 handmade flutes over the holidays when a US Customs official at New York’s JFK Airport mistook the instruments for pieces of bamboo and destroyed them. 

“They said this is an agriculture item,” said Razgui, who was not present when his bag was opened. “I fly with them in and out all the time and this is the first time there has been a problem. This is my life.” When his baggage arrived in Boston, the instruments were gone. He was instead given a number to call. “They told me they were destroyed,” he says.

One reader recalled the travel woes of distinguished Polish pianist Kristian Zimerman, as recounted by the L.A. Times

Zimerman has had problems in the United States in recent years. He travels with his own Steinway piano, which he has altered himself. But shortly after 9/11, the instrument was confiscated at JFK Airport when he landed in New York to give a recital at Carnegie Hall. Thinking the glue smelled funny, the TSA decided to take no chances and destroyed the instrument.   

Yes, by all means, let’s put federal agencies in charge of as many aspects of our lives as possible.

Categories: Policy Institutes

California Thinks Your Time Is Worthless

Thu, 01/02/2014 - 08:49

Randal O'Toole

California’s S.B. 375 mandates that cities increase the population densities of targeted neighborhoods because everyone knows that people drive less and higher densities and transit-oriented developments relieve congestion. One problem, however, is that transportation models reveal that increased densities actually increase congestion, as measured by “level of service,” which measures traffic as a percent of a roadway’s capacity and which in turn can be used to estimate the hours of delay people suffer.

The California legislature has come up with a solution: S.B. 743, which exempts cities from having to calculate and disclose levels of service in their environmental impact reports for densification projects. Instead, the law requires planners to come up with alternative measures of the impacts of densification.

On Monday, December 30, the Governor’s Office of Planning and Research released a “preliminary evaluation of alternative methods of transportation analysis. The document notes that one problem with trying to measure levels of service is that it is “difficult and expensive to calculate.” Well, boo hoo. Life is complicated, and if you want to centrally plan society, you can either deal with difficult and expensive measurement problems, or you will botch things up even worse than if you do deal with those problems.

The paper also argues that measuring congestion leads people to want projects that might actually relieve congestion, such as increasing roadway capacities. This would be bad, says the paper, because increased capacities might simply “induce” more travel. The fact that such increased travel might actually produce some economic benefits for the state is ignored. Instead, suppressing travel (and therefore suppressing economic productivity) should be the goal.

The document suggests five alternative measures of the impacts of densfication on transportation:

  1. Vehicle miles traveled;
  2. Auto trips generated;
  3. Multi-model level of service;
  4. Auto fuel use; and
  5. Motor vehicle hours traveled.

There are many problems with these alternatives. First, they really aren’t any simpler to reliably calculate than levels of service. Second, they ignore the impact on people’s time and lives: if densification reduces per capita vehicle miles traveled by 1 percent, planners will regard it as a victory even if the other 99 percent of travel is slowed by millions of hours per year. Third, despite the “multi-modal” measure, these measures ignore the environmental impacts of transit. For example, they propose to estimate automotive fuel consumption, but ignore transit energy consumption.

Worst of all, the final “measure” proposed by state planners is to simply presume, without making any estimates, that there is no significant transportation impact from densification. After all, if you add one vehicle to a congested highway and traffic bogs down, can you blame that one vehicle, or is everyone else equally to blame? If the latter, then it seems ridiculous, at least to the planners, to blame densification for increased congestion when the existing residents contribute to the congestion as well. By the same token, if an airplane is full, and one more person wants to take that flight, then the airline should punish everyone who is already on board by simply delaying the plane until someone voluntarily gets off.

The real problem is that planners and planning enthusiasts in the legislature don’t like the results of their own plans, so they simply want to ignore them. What good is an environmental impact report process if the legislature mandates that any impacts it doesn’t like should simply not be evaluated in that process?

All of this is a predictable outcome of attempts to improve peoples’ lives through planning. Planners can’t deal with complexity, so they oversimplify. Planners can’t deal with letting people make their own decisions, so they try to constrict those decisions. Planners can’t imagine that anyone wants to live any way but the way planners think they should live, so they ignore the 80 to 90 percent who drive and want to live in single-family homes as they impose their lifestyle ideologies on as many people as possible. The result is the planning disaster known as California.

Categories: Policy Institutes

Europeans Debate Creating a Bigger Military Policy with a Smaller Military

Tue, 12/31/2013 - 15:11

Doug Bandow

A second marriage, it is said, is the triumph of hope over experience.  So is a European Union debate over defense.  At the latest European Council meeting in late December, European leaders again promised to do more than free ride on the U.S. 

It was hard enough to get the Europeans to divert cash from their generous welfare states during the Cold War when there was a plausible enemy.  The financial crisis, enduring recession, and Eurozone imbroglio have sapped what little interest most Europeans had in maintaining real militaries.  Earlier this year a top NATO official admitted at a private luncheon that “there is no chance for budget increases, not even for keeping spending levels as they are.” 

The Europeans have been embarrassed when going to war.  They ran out of missiles when fighting the grand legions of Libya’s Muammar Gaddafi.  France’s Little Napoleon, Francois Hollande, had to turn to the U.S. for air “lift” to get his forces to Mali in 2012. 

So European leaders have been issuing calls for better if not more spending—in fact, “smart defense” has become a NATO mantra.  But it doesn’t matter how smart you spend if you don’t spend much.

The latest Council meeting delivered what we have come to expect from the European Union: grandiose promises and minimal expectations.  Europe will grow only more dependent on America—at least if Americans allow it.

According to the Stockholm International Peace Research Institute, only Britain, France, Germany, Italy, and Spain fall within world’s top 20 military spenders.  Even that sounds more impressive than it really is.  London spends 8.9 percent of Washington’s outlays on the military.  Madrid spends 1.7 percent. 

Even the Central and Eastern Europeans, who claim to worry about Russia, are laggards.  As I point out in the American Spectator:

Whatever their rhetoric, these countries either don’t feel threatened or don’t want to be bothered to create even a minimal deterrent capability.  They all prefer that NATO, meaning America, prepare for a war which would be disastrous and would serve no conceivable U.S. interest.

The European Council admitted as much in its discussion of the Common Security and Defense Policy:  “Defense budgets in Europe are constrained, limiting the ability to develop, deploy and sustain military capabilities.”  Instead of urging more outlays, the Council called “on the Member States to deepen defense cooperation.”  But what if even the continent’s “big” powers, Britain and France, are shrinking their militaries? 

Indeed, Council members indicated they weren’t very serious even as they approved the latest communiqué.  First, Great Britain sought to keep Europe dependent on America through NATO.  Prime Minister David Cameron explained:  “It isn’t right for the European Union to have capabilities, armies, air forces and the rest of it.”

Second, France found little support from its fellow EU members for French military operations in Mali and the Central African Republic.  Paris did, however, win a Council call for a report on how the EU could address the “challenges and opportunities arising for the Union.” 

Europe will almost certainly continue its downward military descent.  The Europeans don’t believe they have to do anything, other than the bare minimum necessary to quiet U.S. complaints.  Their only fear is that Washington might eventually tire of playing GloboCop for countries that prefer to devote their resources to economic development and social welfare.

However, the U.S. should start saying no to European dependency.  The American military’s job is to most effectively and inexpensively defend America—its people, territory, liberty, and prosperity.  Safeguarding the European welfare state should not be Washington’s objective.

The U.S. should turn responsibility for Europe’s defense over to Europe and bring America’s troops home.  It’s time to dismantle the Cold War alliance and treaty structure.  And for America to invite Europe to take up its proper military responsibilities in a new and changing world.

Categories: Policy Institutes

Inflation and Injustice

Tue, 12/31/2013 - 13:35

Jim Harper

More than a few places in this world people are trying to better themselves by saving money. Many people without access to formal financial services (or awareness of their benefits) are trying to amass capital by squirreling away cash. If wariness and luck prevent that money from being stolen, their nest-eggs might provide life-saving health care, seed capital for businesses, the means to move, education for children, and numerous other enhancements to poor people’s well-being. I say good for them. But there are people out there who don’t care if government policy stands in the way.

Unknown to many cash-hoarders—unsophisticated investors who should have our sympathy—official government policy in many countries is to inflate the currency. Under stable conditions, such policies might reduce the value of the existing stock of money at a rate of about 2% per year.

That is a boon to governments, of course, which are typically debtors. The policy quietly reduces real government debt by 2% annually without need of raising official taxes. And whether they spend the money themselves or infuse their banking sectors with liquidity, governments use monetary policy to curry favor with important political constituencies, thus solidifying power.

Inflation is a mixed bag for the business sector. In some ways, it can make planning more difficult—the government’s willingness and ability to maintain inflation at a constant rate is often in doubt. But inflation can also help the business sector by spurring exports. (Nevermind that it raises the cost of imports. Those costs are mostly paid in small increments by the great mass of politically disorganized consumers.)

Inflation does a wonderful favor for business owners by awarding them the gains from increased productivity at the expense of workers. As George Selgin articulated in the pages of Cato Policy Report fifteen years ago, when the costs of inputs fall, competition should ordinarily cause prices to drop. This “good” deflation would cause a worker making the same wage year over year to enjoy increased purchasing power and a better life. But inflation deals workers whose wages remain constant a continuing real pay cut. That means employers don’t have to reduce the pay of stagnant workers in a deflationary environment. Workers have to get a raise from employers to keep up or get ahead.

All of us wealthy and well-educated—we, the “upwardly mobile”—seek and get raises or change jobs often enough to keep our salaries ahead of inflation. And we know enough to invest our savings in assets that will maintain value or increase in value relative to inflationary cash.

But not everyone is in a position to do this. Whether it’s lack of knowledge or lack of access, a person starting out to accumulate wealth by saving money will climb a slope made slippery by inflation. A person who saves $10 cash per month for 10 years at 2% inflation will lose more than $110 dollars-worth of value—nearly a year’s worth of savings—over that decade. That’s when inflation is steady and low.

More than once, I’ve come across commentators who are so interested in inflation as an economic matter that the existence of people seems to have come out of the equation. There are people in the world who are trying to better themselves in the best way they know how. Inflation is making that harder for them, and that’s wrong.

If government policy were to send armed personnel into the homes of the less-well-off to seize 2% of their wealth every year, or 10% every ten years, I have little doubt that our smart, thoughtful, and considerate commentator class would object to the rank unfairness of such a policy. But their green eyeshades seem to blind them to the fact that inflation is unjust.

There are parries to this argument. Inflation is not the greatest concern of many of the world’s poorest. That’s true, but nothing about that denies the injustice of taking wealth from poor people. A more subtle argument is that there is no guarantee that money will hold value. That’s also true, but when a government says things like “full faith and credit” about the money it is debasing, we are in the realm of fraud. We could at least let our sympathies lie with the poor and under-educated people who think they can store value by holding governments’ fiercely defended “legal tender.”

Categories: Policy Institutes

Libertarian Views in the Republican Party: An Outlier

Tue, 12/31/2013 - 12:07

David Kirby

Last week, Ross Tilchin at Brookings asked whether a stronger appeal to libertarian voters could help Republicans win elections. He was skeptical:

First, according to the [Public Religion Research Institute] PRRI poll, libertarians represent only 12% of the Republican Party. This number is consistent with the findings of other studies by the Pew Research Center and the American National Election Study. This libertarian constituency is dwarfed by other key Republican groups, including white evangelicals (37%) and those who identify with the Tea Party (20%).

Tilchin’s use of the phrase “consistent with” to describe the findings of other studies is, well, interesting. In fact, other studies have found almost three times more libertarians in the Republican Party than PRRI’s poll.

As I blogged at Cato and found in a study for FreedomWorks, libertarian views in the Republican Party are the highest level in a decade. According to my analysis of American National Election Studies data, libertarians represent 35 percent of the Republican Party, an increase of 9 percentage points since 2000. Gallup’s own studies confirm this trend: libertarian views represent 34 percent of the Republican Party, a 19 percentage point increase since 2002. See chart below.

How exactly are 35 percent and 34 percent “consistent with” 12 percent? A better word to describe PRRI’s finding would be “outlier.”

As Karlyn Bowman pointed out at Brookings’ own forum on the subject, PRRI’s finding that libertarians are 7 percent of Americans is at the very low end of other estimates of libertarian voters. In 2011, Pew’s Typology Survey found 9 percent libertarians. In 2012, Gallup’s Governance Survey found 25 percent libertarians. Emily Ekins averaged seven Reason-Rupe polls from 2011 to 2012 and found libertarians represented 24 percent of Americans.

David Boaz and I, in our original study on the “Libertarian Vote,” took a conservative middle ground, estimating that libertarians were 15 percent of voters in 2004. Of course, even a conservative 15 percent is twice as many libertarians as the 7 percent PRRI choose to recognize. And, picking a smaller number, as PRRI does, makes it easier to question or dismiss libertarian’s importance.

Fortunately, there’s a simple way to make PRRI’s data “consistent with” other findings. PRRI’s methodology defines libertarians based on nine issue questions, ranking answers for their libertarian-ness on a 7-point scale, with 1 being the most libertarian, and 7 being the least. Robbie Jones and the other authors at PRRI defined “libertarians” as respondents who score between 9 and 25 points. Respondents who scored 26-33 were categorized as “lean libertarian.”

If we add PRRI’s two categories of “libertarian” and “lean libertarian,” the data find 23 percent of Americans are broadly libertarian. Using this definition, PRRI’s data are actually quite “consistent with” the findings from other studies:

  • PRRI’s data show libertarians represent 36 percent of Republican Party in 2013, consistent with ANES and Gallup data;
  • Libertarians are about the same size as other key constituencies in the Republican Party, such as white evangelicals; 
  • Libertarians represent 56 percent, or half, of the tea party, consistent with the finding in Emily Ekins and my Cato study, “Libertarian Roots of the Tea Party.”

Of course, how to define libertarians and who counts as a “real” libertarian is a favorite parlor game of libertarian intellectuals. Do you count only those “hard core” libertarians who have rigorously consistent beliefs? Or, do you count those who hold broadly libertarian views or instincts that are different than conservatives or liberals? If you think this is a simple question, just amuse yourself with GMU economist Bryan Caplan’s 64-question “Libertarian Purity Test.”

What is missing from the PRRI study is that it doesn’t deal with this past literature, or make an argument for its methodology, one way or the other. Particularly when your definition of libertarians is an outlier, your readers deserve to have the finding placed in context.

Regardless, the very fact that PRRI and Brookings did this study is an important milestone. For many years, libertarian voters were a research topic of interest to a small group of think tankers, writers, and contrarian political strategists, as well as a handful of curious academics. But when the Ford Foundation funds a major study on libertarian voters, and Brookings hosts a panel with scholars PRRI, AEI, Cato, and the Ethics & Public Policy Center, I take this as a sign that libertarians are no longer politically ignorable.

That’s a good thing.

Categories: Policy Institutes

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