Tag: government intervention

Grading the Camp Tax Reform Plan

To make fun of big efforts that produce small results, the Roman poet Horace wrote, “The mountains will be in labor, and a ridiculous mouse will be brought forth.”

That line sums up my view of the new tax reform plan introduced by Rep. Dave Camp (R-Mich.), chairman of the House Ways and Means Committee.

To his credit, Chairman Camp put in a lot of work. But I can’t help but wonder why he went through the time and trouble. To understand why I’m so underwhelmed, let’s first go back in time.

Back in 1995, tax reform was a hot issue. The House Majority Leader, Dick Armey, had proposed a flat tax. Congressman Billy Tauzin was pushing a version of a national sales tax. And there were several additional proposals jockeying for attention.

To make sense of the clutter, I wrote a paper for the Heritage Foundation that demonstrated how to grade the various proposals that had been proposed.

Defending Cato from Paul Krugman’s Inaccurate Assertions

Writing for the New York Times, Paul Krugman has a new column promoting more government spending and additional government regulation. That’s a dog-bites-man revelation and hardly noteworthy, of course, but in this case he takes a swipe at the Cato Institute.

The financial crisis of 2008 and its painful aftermath…were a huge slap in the face for free-market fundamentalists. …analysts at right-wing think tanks like…the Cato Institute…insisted that deregulated financial markets were doing just fine, and dismissed warnings about a housing bubble as liberal whining. Then the nonexistent bubble burst, and the financial system proved dangerously fragile; only huge government bailouts prevented a total collapse.

Upon reading this, my first reaction was a perverse form of admiration. After all, Krugman explicitly advocated for a housing bubble back in 2002, so it takes a lot of chutzpah to attack other people for the consequences of that bubble.

But let’s set that aside and examine the accusation that folks at Cato had a Pollyanna view of monetary and regulatory policy. In other words, did Cato think that “deregulated markets were doing just fine”?

Hardly. If Krugman had bothered to spend even five minutes perusing the Cato website, he would have found hundreds of items by scholars such as Steve Hanke, Gerald O’Driscoll, Bert Ely, and others about misguided government regulatory and monetary policy. He could have perused the remarks of speakers at Cato’s annual monetary conferences. He could have looked at issues of the Cato Journal. Or our biennial Handbooks on Policy.

The tiniest bit of due diligence would have revealed that Cato was not a fan of Federal Reserve policy and we did not think that financial markets were deregulated. Indeed, Cato scholars last decade were relentlessly critical of monetary policy, Fannie Mae, Freddie Mac, Community Reinvestment Act, and other forms of government intervention.

Heck, I imagine that Krugman would have accused Cato of relentless and foolish pessimism had he reviewed our work  in 2006 or 2007.

I will confess that Cato people didn’t predict when the bubble would peak and when it would burst. If we had that type of knowledge, we’d all be billionaires. But since Krugman is still generating income by writing columns and doing appearances, I think it’s safe to assume that he didn’t have any special ability to time the market either.

Krugman also implies that Cato is guilty of historical revisionism.

…many on the right have chosen to rewrite history. Back then, they thought things were great, and their only complaint was that the government was getting in the way of even more mortgage lending; now they claim that government policies, somehow dictated by liberals even though the G.O.P. controlled both Congress and the White House, were promoting excessive borrowing and causing all the problems.

I’ve already pointed out that Cato was critical of government intervention before and during the bubble, so we obviously did not want government tilting the playing field in favor of home mortgages.

It’s also worth nothing that Cato has been dogmatically in favor of tax reform that would eliminate preferences for owner-occupied housing. That was our position 20 years ago. That was our position 10 years ago. And it’s our position today.

I also can’t help but comment on Krugman’s assertion that GOP control of government last decade somehow was inconsistent with statist government policy. One obvious example would be the 2004 Bush Administration regulations that dramatically boosted the affordable lending requirements for Fannie Mae and Freddie Mac, which surely played a role in driving the orgy of subprime lending.

And that’s just the tip of the iceberg. The burden of government spending almost doubled during the Bush years, the federal government accumulated more power, and the regulatory state expanded. No wonder economic freedom contracted under Bush after expanding under Clinton.

But I’m digressing. Let’s return to Krugman’s screed. He doesn’t single out Cato, but presumably he has us in mind when he criticizes those who reject Keynesian stimulus theory.

…right-wing economic analysts insisted that deficit spending would destroy jobs, because government borrowing would divert funds that would otherwise have gone into business investment, and also insisted that this borrowing would send interest rates soaring. The right thing, they claimed, was to balance the budget, even in a depressed economy.

Actually, I hope he’s not thinking about us. We argue for a smaller burden of government spending, not a balanced budget. And we haven’t made any assertions about higher interest rates. We instead point out that excessive government spending undermines growth by undermining incentives for productive behavior and misallocating labor and capital.

But we are critics of Keynesianism for reasons I explain in this video. And if you look at current economic performance, it’s certainly difficult to make the argument that Obama’s so-called stimulus was a success.

But Krugman will argue that the government should have squandered even more money. Heck, he even asserted that the 9-11 attacks were a form of stimulus and has argued that it would be pro-growth if we faced the threat of an alien invasion.

In closing, I will agree with Krugman that there’s too much “zombie” economics in Washington. But I’ll let readers decide who’s guilty of mindlessly staggering in the wrong direction.

No Matter How Hard He Tries, Obama Will Never Be as Bad as FDR

I’ve explained on many occasions that Franklin Roosevelt’s New Deal was bad news for the economy. The same can be said of Herbert Hoover’s policies, since he also expanded the burden of federal spending, raised tax rates, and increased government intervention.

So when I was specifically asked to take part in a symposium on Barack Obama, Franklin Roosevelt, and the New Deal, I quickly said yes.

I was asked to respond to this question: “Was that an FDR-Sized Stimulus?” Here’s some of what I wrote.

President Obama probably wants to be another FDR, and his policies share an ideological kinship with those that were imposed during the New Deal. But there’s really no comparing the 1930s and today. And that’s a good thing. As explained by Walter Williams and Thomas Sowell, President Roosevelt’s policies are increasingly understood to have had a negative impact on the American economy. …[W]hat should have been a routine or even serious recession became the Great Depression.

In other words, my assessment is that Obama is a Mini-Me version of FDR, which is a lot better (or, to be more accurate, less worse) than the real thing.

To be sure, Obama wants higher tax rates, and he has expanded government control over the economy. And the main achievement of his first year was the so-called stimulus, which was based on the same Keynesian theory that a nation can become richer by switching money from one pocket to another. …Obama did get his health plan through Congress, but its costs, fortunately, pale in comparison to Social Security and its $30 trillion long-run deficit. And the Dodd-Frank bailout bill is peanuts compared to all the intervention of Roosevelt’s New Deal. In other words, Obama’s policies have nudged the nation in the wrong direction and slowed economic growth. FDR, by contrast, dramatically expanded the burden of government and managed to keep us in a depression for a decade. So thank goodness Barack Obama is no Franklin Roosevelt.

The last sentence of the excerpt is a perfect summary of my remarks. I think Obama’s policies have been bad for the economy, but he has done far less damage than FDR because his policy mistakes have been much smaller.

Moreover, Obama has never proposed anything as crazy as FDR’s “Economic Bill of Rights.” As I pointed out in my article, this “would have created a massive entitlement state—putting America on a path to becoming a failed European welfare state a couple of decades before European governments made the same mistake.”

On the other hand, subsequent presidents did create that massive entitlement state and Obama added another straw to the camel’s back with Obamacare. And he is rigidly opposed to the entitlement reforms that would save America from becoming another Greece. So maybe I didn’t give him enough credit for being as bad as FDR.

P.S.: Here’s some 1930s economic humor, and it still applies today.

P.P.S.: The symposium also features an excellent contribution from Professor Lee Ohanian of UCLA.

And from the left, it’s interesting to see that Dean Baker of the Center for Economic and Policy Research basically agrees with me. But only in the sense that he also says Obama is a junior-sized version of FDR. Dean actually thinks Obama should have embraced his inner-FDR and wasted even more money on an even bigger so-called stimulus.

Correcting a Massive Typo by USA Today

Although this line is attributed to many people, Wikiquote says that Gideon Tucker was the first to warn us that “No man’s life, liberty, or property are safe while the legislature is in session.”

This cartoon about Keynesian economics sort of makes the same point, but not with the same eloquence.

But that’s not the point of this post. Instead, I want to focus on this grossly misleading headline in USA Today: “This Congress could be least productive since 1947.”

I don’t think it’s a case of media bias or inaccuracy, as we saw with the AP story on poverty, the Brian Ross Tea Party slur, or the Reuters report on job creation and so-called stimulus.

But it does blindly assume that it is productive to impose more laws. Was it productive to enact Obamacare? What about the faux stimulus? Or the Dodd-Frank bailout bill?

Wouldn’t the headline be more accurate if it read, “This Congress could be least destructive since 1947”?

Here are the relevant parts of the USA Today report.

Congress is on pace to make history with the least productive legislative year in the post World War II era. Just 61 bills have become law to date in 2012 out of 3,914 bills that have been introduced by lawmakers, or less than 2% of all proposed laws, according to a USA TODAY analysis of records since 1947 kept by the U.S. House Clerk’s office. In 2011, after Republicans took control of the U.S. House, Congress passed just 90 bills into law. The only other year in which Congress failed to pass at least 125 laws was 1995. …When Democrats controlled both chambers during the 111th Congress, 258 laws were enacted in 2010 and 125 in 2009, including President Obama’s health care law.

To be sure, not all legislation is bad. Now that the Supreme Court has failed in its job, Congress would have to enact a law to repeal Obamacare. Laws also would need to be changed to reform entitlements, or adopt a flat tax.

And some laws are benign, such as the enactment of Dairy Goat Awareness Week or naming a federal courthouse.

But I’m guessing that the vast majority of substantive laws are bad for freedom and result in less prosperity.

So let’s cross our fingers that future Congresses are even less productive (and therefore less destructive) than the current one.

Time to Fight Statism by Shutting Down the G-20

For the most part, international summits like the recently concluded G-20 meeting in Mexico are pointless - but expensive - publicity stunts for incumbent politicians.

They pose for photo-ops, have boring meeting, and draft up empty communiques, always at some posh location so that everybody - from bureaucrat flunkies to servile reporters - can have a good time.

But these soirees are more than just money-wasting junkets. They also encourage bad policy. With everything that’s happening around the world, the evidence is stronger than ever about the adverse economic consequences of bloated public sectors and punitive tax regimes.

But when politicians get together at gab-fests like the G-20, they inevitably push for more of the same. Here’s some of what David Malpass wrote today for the Wall Street Journal.

…the two-day G-20 summit this week—the diplomatic equivalent of speed dating—did little but drain more money from deeply indebted nations. …the “Los Cabos Growth and Jobs Action Plan” …mostly commits Europe’s struggling economies to still more government control… The clearest decisions that came out of the summit promoted governments, not private sectors, pointing to even more deficit spending, an IMF expansion led by China and another expensive G-20 meeting next year in Russia. The outcome raises fundamental doubts about the G-20’s value in furthering free markets, strong private economies and global living standards.

David goes on to note that economic problems are rooted in the bad policies of individual governments, so it is illogical to expect that they can be solved by an international summit.

The obstacles to global growth in 2012 are clear and need to be addressed in national capitals, not in summits. Europe’s policy initiatives are probably the most urgent. Europe’s growth focus should be maintaining the euro and setting up decisive mechanisms to reduce borrowing costs while governments sell assets, downsize and remove private-sector obstacles. …the leaders’ time would have been better spent in Europe hammering out the actual mechanisms. …Fast global growth is achievable, but the G-20 summits aren’t helping. Country-specific tasks—not further institutionalization of global financial governance—are the solution.

The final point about “global financial governance” is worth emphasizing. While it is true that nothing good has ever happened because of a G-20 summit, some bad things have occurred - most notably the big push a couple of years ago to attack low-tax jurisdiction as part of a campaign by high-tax governments to cripple tax competition and facilitate higher tax burdens.

International summits also tend to be the types of gatherings where other bad policies occur, such as agreements to subsidize more bailouts by giving more money to the fiscal pyromaniacs at the International Monetary Fund.

The moral of the story is that the G-20 is a great idea…but only if you think the entire world should become more like France, Italy, Spain, and Greece.

P.S. I also dislike international summits since the thugs at the Organization for Economic Cooperation and Development threatened to throw me in a Mexican jail for the “crime” of standing in the public lobby of a public hotel and advising low-tax jurisdictions during one of the OECD’s “global tax forums.”

Argentina’s Point of No Return

The most important development this week in Latin America is the decision of the Argentine government to seize control of Yacimientos Petrolíferos Fiscales (YPF), the country’s largest oil company. On Monday, President Cristina Fernández de Kirchner announced the expropriation of the controlling stake of YPF that is owned by the Spanish company Repsol. The Spanish government, backed by the European Union, has announced that it will take retaliatory measures against Argentina, noting that “all options are on the table.” The Economist Intelligence Unit has a very good analysis on the case and the implications for Argentina.

The big question after Fernandez’s overwhelming reelection last fall was whether she would deepen the economic model she and her late husband (and predecessor) implemented since arriving to power in 2003—marked by high government spending, tight economic controls on industries, and selective nationalizations of businesses—or instead change course given the growing signs of exhaustion: high inflation, growing fiscal deficit, increasing capital flight, fall in foreign direct investment, the weakening peso, etc.

Any doubt is now gone. With the nationalization of YPF, Argentina firmly joins Venezuela, Ecuador, and Bolivia in the club of Latin American nations that espouse high-octane economic populism. In the upcoming months, we can expect more protectionist measures, further controls on the economy and, once the government runs out of the money that it seized in the past three years from the private pension funds and the Central Bank’s reserves, we should not be surprised if it moves to take control of the banks.

Things will only get worse for Argentina.

EPA and the ‘Necessary Bankrupting’ of Coal

In its proposed rulemaking on emissions from coal-fired power plants, the Environmental Protection Agency has fulfilled President Obama’s campaign statement that his administration would “essentially bankrupt” anyone who had the audacity to hope to build a new generation facility. By essentially prohibiting the production of new plants, the administration is again picking winners and losers in our energy economy, something which is best done by the market.

Supporters of this policy will claim that it is cheaper to generate electricity from natural gas, and that is true for now.  But major producers using hydraulic fracturing and new horizontal drilling techniques in shale formations have recently stopped drilling new wells because the price is so low.

If it ultimately costs more to produce electricity from gas than it does from coal, the administration will have slapped yet another energy price hike on us—in addition to what we already pay to subsidize solar power, windmills, and Chevrolet Volts while taxpayers absorb the debt from the multiple bankruptcies of other politically correct energy concerns like Solyndra, Range Fuels, and a host of others.

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