Archives: May, 2010

Doing Business in Greece and Europe’s Economic Crisis

In a telling editorial today, the Wall Street Journal extensively cites the World Bank’s Doing Business annual survey to explain an underlying cause of the Greek crisis. Burdensome regulations, high taxes, and a costly legal system make it extremely difficult to start and run a business in Greece. The country ranks last in terms of the ease of doing business among the 27 members of the European Union, and it ranks 109 out of 183 countries.

The need for fundamental structural reform, including of public pension systems, there and in much of Europe will be the message of Simeon Djankov, Bulgaria’s deputy prime minister and minister of finance, as he speaks at a Cato policy forum next Tuesday. Cato senior fellow Steve Hanke, “father” of Bulgaria’s successful currency board, will also speak.

Before his current post in Bulgaria, Djankov was the initiator and lead author of the Doing Business report that is now being so widely cited in relation to Greece’s woes. No doubt he’ll have something to say about that.

For a further description of the long-term lack of economic freedom in Greece, see this op-ed by prominent Greek journalist Takis Michas, which was based on his talk at a recent Cato policy forum.

As Goes Greece,…

Today Politico Arena asks:

What are the implications for us of the crisis in Greece?

My response:

The questions posed to Arena contributors this morning, prompted by the unfolding Greek tragedy and its implications, are several, but they go well beyond economics. “Unwise lending and excessive borrowing” led to the tragedy, Steven Pearlstein notes in the Washington Post, but he adds that “there is little doubt that Greece’s debt crisis is of its own making, the result of corruption and tax avoidance and that seductive Mediterranean coupling of high living and low productivity.”

More immediately, in the Wall Street Journal today we find that when it comes to “overall ease of doing business,” the World Bank ranks Greece 109 out of 183 countries — “dead last among the 27 members of the European Union,” the Journal notes.  “You have to go up 30 slots to find the next worst EU performer, Italy.” Pointing to Sacramento, Albany, and Washington, for good reason, the Journal’s editorialists conclude that “Greece shows that the welfare state model of development, dominated by public unions, onerous regulations, high taxes and the political allocation of capital, has hit the wall.”

Indeed it has, but notice that underpinning this tale are political and moral concerns. To touch on just two, the European Union is a textbook example of the downside of political union. To be sure, there is an upside, especially when union eliminates parochial restrictions on free association, as has happened to a substantial extent under the EU. But to move beyond creating a free market, to create instead a regime of mutual obligations as reflected in the phrase “we’re all in this together,” is to invite the very moral hazard we see before us today. Angela Merkel is in a political bind precisely because, as Pearlstein notes, prudent Germans are recoiling “at the thought of bailing out the profligate Greeks.” Milton Friedman put it simply: No one spends someone else’s money as carefully as he spends his own.

And that leads to a second concern, of particular importance in our own case. It was to gain the benefits of union while avoiding its downside that America’s Founders drafted our Constitution so carefully, giving Congress the power to override state restrictions on interstate commerce, for example, but otherwise leaving us free, as private citizens and associations, to plan our own affairs and live our own lives. That, however, was anathema to the social engineers of the Progressive Era, the elites who sought “change” through the collective undertakings of the modern administrative state. “Our task now,” said FDR, is one of “distributing wealth and products more equitably,” precisely what the Constitution forbade. And so Roosevelt, with his Court-packing threat, turned the document on its head — or, as Rexford Tugwell would later put it, “To the extent that these new social virtues [i.e., New Deal policies] developed, they were tortured interpretations of a document intended to prevent them.” There followed, of course, endless redistributive schemes, federal, state, and local, that have brought us today to the “unwise lending and excessive borrowing” that surrounds and suffocates us.

As goes Greece,…

Sarah Palin Needs New Glasses

Sarah Palin has endorsed Carly Fiorina for U.S. Senate in California, showing commendable charity toward a woman who gave her one of her many Bad Headline Days in September 2008 by telling an interviewer that Palin wouldn’t be qualified to run a major company. (Fiorina did add, “But you know what? That’s not what she’s running for.”)

Palin is way off base, though, when she writes:

I support Carly as she fights through a tough primary against a liberal member of the GOP who seems to bear almost no difference to Boxer, one of the most leftwing members of the Senate.

Ignoring conservative Chuck DeVore, who probably has the support of a lot of Palin fans, Palin is taking aim at frontrunning former congressman Tom Campbell. But if her aim was that far off on a moose hunt, she’d come back empty-handed. Tom Campbell is often described as a moderate Republican, and sometimes as a (moderately) libertarian Republican. But he’s certainly no liberal, and it’s just nuts to say that he’s no different from Barbara Boxer. Here are the ratings that Boxer and Campbell received from various rating organizations in 2000, the last year they were both in Congress:

Campbell Boxer
Americans for Democratic Action 20 85
Republican Liberty Caucus 79.5 16
American Conservative Union 64 4
National Taxpayers Union 73 (21st in House) 14 (73rd in Senate)
Campbell’s record isn’t perfect from either a conservative or a libertarian perspective. But anybody who can look at the respective records of Tom Campbell and Barbara Boxer and see “almost no difference” needs new glasses.

Federal Reserve 1, Transparency 0

It is being reported that the Senate has reached a “compromise” on Bernie Sanders’ amendment to audit the Federal Reserve.  This amendment was a companion to Ron Paul’s House bill that would have subjected both the Federal Reserve’s lending facilities and monetary policy to a GAO audit.  The compromise?  Drop the monetary policy audit.  It is hard to match Ron Paul’s reaction:  “Bernie Sanders has sold out.”

Congressmen Paul is 100% right on this.  While it is important to get details on the Fed’s emergency lending facility, those decisions are behind us.  The public has a right to know who benefited from the Fed’s actions, but the reality is that such an audit would change little going forward.  The real action is monetary policy.

After having spent seven years as a staffer on the Senate Banking Committee, I can attest that most senators, congressman and their staff have little understanding of the mechanics of monetary policy.  Just listen to any random appearance of the Fed chairman before Congress and you will immediately know what I mean.  But then, congressman in general don’t understand the workings of most federal programs.  That is one of the purposes of the GAO: to help explain to Congress how programs work and evaluate how well those programs are working.  I can think of no area more in need of such understanding than monetary policy.

Of course, some worry that an audit would undermine the claimed independence of the Fed.  For instance, former Hartford insurance exec, now Obama Treasury official, Neal Wolin praised the compromise, claiming the original language would “threaten the central bank’s independence from Congress.”  Sadly, Mr. Wolin is confused about the nature of the Fed.  If there is a constitutional basis for the Fed, it is Article I, Section 8’s delegation to Congress of the ability “to coin money, regulate the value there of,”  which Congress has delegated to the Fed.  The supposed independence of the Fed is from the Executive branch, not Congress.  And one of the very reasons for an audit is for the public to have a window into the dealings of the Fed with the Executive branch, most importantly the Treasury.  What Mr. Wolin and others are trying to protect is the favored relationship between Treasury and the Fed.  A GAO audit would shift the balance of power over the Fed away from the Executive and back to Congress, who despite its many problems, is directly accountable to the American public.

The gutting of the Sanders’ amendment is a huge win for both Wall Street and the Treasury (is there any longer a difference between the two?), and a massive loss and missed opportunity for the American public, and its representatives in Congress, to regain some control over an agency (the Fed) that has acted as a piggybank for both Presidents Bush and Obama.

Not Enough Power … Additional Measures Needed

The Wall Street Journal reports that the federal government has insufficient power:

The attempted Times Square bombing has underscored the challenge of managing security threats from citizens with clean records, but U.S. authorities are limited in the tools they can employ to legally monitor travel and other behavior of Americans who haven’t otherwise aroused suspicion.

That’s rich.