Tag: oecd

A Cartoon that Tells You Everything You Need to Know about International Bureaucracies

Okay, I’ll admit the title of this post is an exaggeration. There are lots of things you should know - most bad, though some good - about international bureaucracies.

That being said, regular readers know that I get very frustrated with the statist policy agendas of both the International Monetary Fund and the Organization for Economic Cooperation and Development.

I especially object to the way these international bureaucracies are cheerleaders for bigger government and higher tax burdens. Even though they ostensibly exist to promote greater levels of prosperity!

I’ve written on these issues, ad nauseam, but perhaps dry analysis is only part of what’s needed to get the message across. Maybe some clever image can explain the issue to a broader audience (something I’ve done before with cartoons and images about the rise and fall of the welfare state, the misguided fixation on income distribution, etc).

It took awhile, but I eventually came up with (what I hope is) a clever idea. And when a former Cato intern with artistic skill, Jonathan Babington-Heina, agreed to do me a favor and take the concept in my head and translate it to paper, here are the results.

I think this hits the nail on the head.

Excessive government is the main problem plaguing the global economy. But the international bureaucracies, for all intents and purposes, represent governments. The bureaucrats at the IMF and OECD need to please politicians in order to continue enjoying their lavish budgets and exceedingly generous tax-free salaries.

So when there is some sort of problem in the global economy, they are reluctant to advocate for smaller government and lower tax burdens (even if the economists working for these organizations sometimes produce very good research on fiscal issues).

Instead, when it’s time to make recommendations, they push an agenda that is good for the political elite but bad for the private sector. Which is exactly what I’m trying to demonstrate in the cartoon,

But let’s not merely rely on a cartoon to make this point.

In an article for the American Enterprise Institute, Glenn Hubbard and Kevin Hassett discuss the intersection of economic policy and international bureaucracies. They start by explaining that these organizations would promote jurisdictional competition if they were motivated by a desire to boost growth.

…economic theory has a lot to say about how they should function. …they haven’t achieved all of their promise, primarily because those bodies have yet to fully understand the role they need to play in the interconnected world. The key insight harkens back to a dusty economics seminar room in the early 1950s, when University of Michigan graduate student Charles Tiebout…said that governments could be driven to efficient behavior if people can move. …This observation, which Tiebout developed fully in a landmark paper published in 1956, led to an explosion of work by economists, much of it focusing on…many bits of evidence that confirm the important beneficial effects that can emerge when governments compete. …A flatter world should make the competition between national governments increasingly like the competition between smaller communities. Such competition can provide the world’s citizens with an insurance policy against the out-of-control growth of massive and inefficient bureaucracies.

Using the European Union as an example, Hubbard and Hassett point out the grim results when bureaucracies focus on policies designed to boost the power of governments rather than the vitality of the market.

…as Brexit indicates, the EU has not successfully focused solely on the potentially positive role it could play. Indeed, as often as not, one can view the actions of the EU government as being an attempt to form a cartel to harmonize policies across member states, and standing in the way of, rather than advancing, competition. …an EU that acts as a competition-stifling cartel will grow increasingly unpopular, and more countries will leave it.

They close with a very useful suggestion.

If the EU instead focuses on maximizing mobility and enhancing the competition between states, allowing the countries to compete on regulation, taxation, and in other policy areas, then the union will become a populist’s dream and the best economic friend of its citizens.

Unfortunately, I fully expect this sage advice to fall upon deaf ears. The crowd in Brussels knows that their comfortable existence is dependent on pleasing politicians from national governments.

And the same is true for the bureaucrats at the IMF and OECD.

The only practical solution is to have national governments cut off funding so the bureaucracies disappear.

But, to cite just one example, why would Obama allow that when these bureaucracies go through a lot of effort to promote his statist agenda?

Defending Green Cards

The 2016 GOP platform states that:

“In light of the alarming levels of unemployment and underemployment in this country, it is indefensible to continue offering lawful permanent residence to more than one million foreign nationals every year.”

The GOP platform statement assumes that those on green cards take jobs from Americans, an assumption that is incorrect (see here, here, and here for more information). 

What’s actually indefensible about our green card system is how few of them come here for work purposes.  First, legal immigrant inflows to the U.S. as a percent of our population are small compared to other developed countries (Figure 1).  The only countries with fewer immigrant inflows as a percent of their populations are Portugal, Korea, Mexico, and Japan.  The United States does allow more immigration as an absolute number than any other country but we also have a very large population, making these annual flow figures seem small.

Figure 1

Immigrant Inflows as a Percent of Population, 2013

 

Sources: OECD, EuroStat, E-Stat, Citizenship and Immigration Canada.

These relatively small immigrant flows have only produced an immigrant percentage of our population that is midrange among the OECD countries (Figure 2).  New Zealand has the highest at 28.4 percent of their population while Mexico has the lowest at 0.84 percent of theirs.  The United States is in the middle at 13 percent.  Our legal immigration system is so restrictive that without unauthorized immigrants the U.S. population of the foreign-born would only be about 9.5 percent of our population – a 28 percent reduction in present numbers.

Figure 2

Immigrant Stock as a Percent of the Population, 2013

Source: OECD.

Green card workers admitted as a percentage of the total annual immigrant inflow are far lower here than in other countries (Figure 3).  Only about 7.7 percent of all green cards annually issued by the U.S. government are for workers – virtually all of them high skilled.  The employment-based green card system allowed about 140,000 green cards to be issued annually but that number also includes the family members of those workers.  In 2014, 56 percent of green cards set aside for skilled workers actually went to family while 44 percent were for the workers themselves.  The GOP platform wants to decrease this already small number of green cards for skilled workers even further.  

More Dishonest Data Manipulation from Tax-Happy Bureaucrats at the OECD

The Organization for Economic Cooperation and Development is a Paris-based international bureaucracy. It used to engage in relatively benign activities such as data collection, but now focuses on promoting policies to expand the size and scope of government.

That’s troubling, particularly since the biggest share of the OECD’s budget comes from American taxpayers. So we’re subsidizing a bureaucracy that uses our money to advocate policies that will result in even more of our money being redistributed by governments.

Adding insult to injury, the OECD’s shift to left-wing advocacy has been accompanied by a lowering of intellectual standards. Here are some recent examples of the bureaucracy’s sloppy and/or dishonest output.

Deceptively manipulating data to make preposterous claims that differing income levels somehow dampen economic growth.

Falsely asserting that there is more poverty in the United States than in poor nations such as Greece, Portugal, Turkey, and Hungary.

Cooperating with leftist ideologues from the AFL-CIO and Occupy movement to advance Obama’s ideologically driven fiscal policies.

Peddling dishonest gender wage data, numbers so misleading that they’ve been disavowed by a member of Obama’s Council of Economic Advisers.

Given this list of embarrassing errors, you probably won’t be surprised by the OECD’s latest foray into ideology-over-accuracy analysis.

OECD Scheme to Boost Taxes on Business Sector Will Hurt Global Economy and Enable Bigger Government

Citing the work of David Burton and Richard Rahn, I warned last July about the dangerous consequences of allowing governments to create a global tax cartel based on the collection and sharing of sensitive personal financial information.

I was focused on the danger to individuals, but it’s also risky to let governments obtain more data from businesses.

Remarkably, even the World Bank acknowledges the downside of giving more information to governments.

Here are some blurbs from the abstract of a new study looking at what happens when companies divulge more data.

Relying on a data set of more than 70,000 firms in 121 countries, the analysis finds that disclosure can be a double-edged sword. …The findings reveal the dark side of voluntary information disclosure: exposing firms to government expropriation.

And here are some additional details from the full report.

…disclosure has important costs in allowing exposure to government expropriation… We show that accounting information disclosure can be detrimental to firm development… Such disclosure allows corrupt bureaucrats to gain access to firm-level information and use it for endogenous harassment. …once firm information is disclosed, the threat of government expropriation is widespread. Information disclosure thus allows rent-seeking bureaucrats to gain access to the disclosed information and use it to extract bribes. …Our paper offers a vivid illustration that an important hindrance to institutional development—here in the form of adopting information disclosure—is government expropriation. …The results are thus supportive of Acemoglu and Johnson (2005) on the overwhelming importance of constraining government expropriation in facilitating economic development.

Yet this doesn’t seem to bother advocates of bigger government.

The OECD’s “Perspective” on Swedish Education

The OECD has just released a report offering “its perspective” on Sweden’s academic decline. Its perspective is too narrow. In launching the new report, OECD education head Andres Schleicher declared that “It was in the early 2000s that the Swedish school system somehow seems to have lost its soul.” The OECD administers the international PISA test, which began in the year 2000.

Certainly Sweden’s academic performance has fallen since the early 2000s, but its decline was substantially faster in the preceding decade. PISA cannot shed light on this, but TIMSS—an alternative international test—can, having been introduced several years earlier. On the 8th grade mathematics portion of TIMSS, Sweden’s rate of decline between 1995 and 2003 was over five points per year. Between 2003 and 2011 it was less than two points per year. Still regrettable, but less grievously so.

Wall Street Journal Condemns OECD Proposal to Increase Business Fiscal Burdens with Global Tax Cartel

What’s the biggest fiscal problem facing the developed world?

To an objective observer, the answer is a rising burden of government spending, which is caused by poorly designed entitlement programs, growing levels of dependency, and unfavorable demographics. The combination of these factors helps to explain why almost all industrialized nations—as confirmed by BIS, OECD, and IMF data—face a very grim fiscal future.

If lawmakers want to avert widespread Greek-style fiscal chaos and economic suffering, this suggests genuine entitlement reform and other steps to control the growth of the public sector.

But you probably won’t be surprised to learn that politicians instead are concocting new ways of extracting more money from the economy’s productive sector.

They’ve already been busy raising personal income tax rates and increasing value-added tax burdens, but that’s apparently not sufficient for our greedy overlords.

Now they want higher taxes on business. The Organization for Economic Cooperation and Development, for instance, put together a “base erosion and profit shifting” plan at the behest of the high-tax governments that dominate and control the Paris-based bureaucracy.

What is this BEPS plan? In an editorial titled “Global Revenue Grab,” The Wall Street Journal explains that it’s a scheme to raise tax burdens on the business community:

After five years of failing to spur a robust economic recovery through spending and tax hikes, the world’s richest countries have hit upon a new idea that looks a lot like the old: International coordination to raise taxes on business. The Organization for Economic Cooperation and Development on Friday presented its action plan to combat what it calls “base erosion and profit shifting,” or BEPS. This is bureaucratese for not paying as much tax as government wishes you did. The plan bemoans the danger of “double non-taxation,” whatever that is, and even raises the specter of “global tax chaos” if this bogeyman called BEPS isn’t tamed. Don’t be fooled, because this is an attempt to limit corporate global tax competition and take more cash out of the private economy.

The Journal is spot on. This is merely the latest chapter in the OECD’s anti-tax competition crusade. The bureaucracy represents the interests of
high-tax governments that are seeking to impose higher tax burdens—a goal that will be easier to achieve if they can restrict the ability of taxpayers to benefit from better tax policy in other jurisdictions.

More specifically, the OECD basically wants a radical shift in international tax rules so that multinational companies are forced to declare more income in high-tax nations even though those firms have wisely structured their operations so that much of their income is earned in low-tax jurisdictions.

OECD Study Admits Income Taxes Penalize Growth, Acknowledges that Tax Competition Restrains Excessive Government

I have to start this post with a big caveat.

I’m not a fan of the Paris-based Organization for Economic Cooperation and Development. The international bureaucracy is infamous for using American tax dollars to promote a statist economic agenda. Most recently, it launched a new scheme to raise the tax burden on multinational companies, which is really just a backdoor way of saying that the OECD (and the high-tax nations that it represents) wants higher taxes on workers, consumers, and shareholders. But the OECD’s anti-market agenda goes much deeper.

Now that there’s no ambiguity about my overall position, I can admit that the OECD isn’t always on the wrong side. Much of the bad policy comes from its committee system, which brings together bureaucrats from member nations.

The OECD also has an economics department, and they sometimes produce good work. Most recently, they produced a report on the Swiss tax system that contains some very sound analysis, including a rejection of Obama-style class warfare and a call to lower income tax burdens.

Shifting the taxation of income to the taxation of consumption may be beneficial for boosting economic activity (Johansson et al., 2008 provide evidence across OECD economies). These benefits may be bigger if personal income taxes are lowered rather than social security contributions, because personal income tax also discourages entrepreneurial activity and investment more broadly.

I somewhat disagree with the assertion that payroll taxes do more damage than VAT taxes. They both drive a wedge between pre-tax income and post-tax consumption. But the point about income taxes is right on the mark.

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