Topic: General

Latvia, the Country Prof. Krugman Loves to Hate, Wins 1st Prize

I constructed a misery index and ranked 89 countries from most to least miserable based on the available data from the Economist Intelligence Unit. My methodology is a simple sum of inflation, bank lending and unemployment rates, minus year-on-year per capita GDP growth. The table below is a sub-ranking of all former Soviet Union (FSU) states contained in my misery index.

For these FSU states, the main contributing factors to misery are high levels of unemployment and high interest rates.

The low misery index scores in Estonia and Lithuania don’t surprise me as I helped both countries establish sound money with the installation of currency boards in 1992 and 1994, respectively. Latvia, a country Paul Krugman loves to hate, takes the prize for the least miserable of the former Soviet Union countries in this sub-ranking.

In Memory of Carlos Ball

I’m sad to report that Venezuelan journalist and Cato adjunct scholar Carlos Ball passed away last week. He was 75. Carlos was a champion of liberty and a long-time friend to so many of us in the freedom movement in the Americas. His life was a testimony to the power of ideas, and he lived it true to his classical-liberal convictions.

Carlos was a co-founder of CEDICE, the market-liberal think tank in Caracas that celebrated its 30th anniversary this year and with whom Cato has worked closely for many years (and that has been severely harassed by the Chavista regime). In the 1980s, Carlos was the editor of El Diario de Caracas, an important daily that was critical of government policies. It was when Carlos represented Venezuelan journalists at an Inter-American Press Association conference in 1987 in San Antonio, Texas and denounced then-President Lusinchi’s attacks on freedom of the press, that Lusinchi demanded that Carlos be fired from the newspaper, conditioning the renewal of the license of the popular television station RCTV—part of the same media company—on that outcome. Carlos was let go from the paper, he was criminally charged by the government, and was told by the judge presiding his case that “I have orders from above.” It was at that time that Carlos left Venezuela, moving to Florida where he would live the rest of his life. RCTV received a 20-year license. It was the expiration of that license in 2007—that Hugo Chavez refused to renew, thus shutting down the television station—that triggered the massive student uprising against the government that year. (As a result, Chavez lost a constitutional referendum and temporarily slowed down his accumulation of power.)

The idea that Venezuela was doomed to repeat such experiences and that the country would only lose more freedoms if economic freedom was not also respected was a long-time theme in Carlos’s writings. In that regard, he was among a very small group of Venezuelan intellectuals who decades ago warned against the ideology of socialism predominant in the political system and much of Venezuelan society. Indeed, he very correctly viewed Hugo Chavez’s regime as a logical, though more extreme, extension of what had come before. “Chavez,” he wrote, “has intensified, accelerated and exacerbated corruption, the concentration of power, the violation of property rights” and the power of the bureaucracy in people’s lives. In a 1992 essay, Carlos wrote that the “fatal date” for his country was January 1976, when President Perez nationalized the petroleum industry. That “meant a radical change; for the first time since the death of General Gomez [1935], political and economic power was again concentrated in the same hands: in those of the head of state.”

He would later write: “Without that concentration of wealth in political hands, Chavez would never have been able to Cubanize Venezuela because it was the economic power of oil that allowed the government to crush the individual liberties of the Venezuelans.” How right he was.

Paul Light on Government Failure

Paul Light of Brookings and NYU is a top expert on the federal bureaucracy. He has a new study on federal government failures over the 2001 to 2014 period.

Light’s paper is useful. He identifies 41 major federal failures, examines the reports completed on each, and classifies the types of mistakes that took place. From the 9/11 terrorist attacks to the recent veterans health care scandal, Light points to failures in both “operations” and “oversight.”

Certainly, government operations and oversight fail frequently. But I look at many of Light’s 41 events and see more fundamental failures than he does. Federal policies, for example, often distort the economy in ways that are bound to cause problems. Federal interventions based on coercion are generally worse than solutions developed in the private, voluntary sphere of society.  

Light classifies the 2008 financial collapse as a failure of federal “oversight.” He says, “after years of risky investments and with little regulation, the banking system collapsed under the weight of toxic assets created by risky mortgage loans, poorly understood financial instruments, and a credit crisis that froze the economy.”

But it was government policies—such as Federal Reserve interest rate policies and federal housing subsidies—that incentivized the bad behavior on Wall Street. Federal oversight may have been poor, but the main problem was that government-created distortions cascaded and undermined markets.

On Hurricane Katrina, Light notes that the federal emergency response was a failure in operations, and it is true that FEMA officials were mired in confusion and indecision when the storm hit. However, it was decades of misguided policies that encouraged many people to live in low-lying and dangerous areas in New Orleans in the first place, which made the disaster much worse.

After an initial coding of failures between “operations” and “oversight,” Light does proceed to look more deeply into why the government failed in each of the events. He finds multiple causes behind all of the failures, with the most common factor being poorly designed policies.

Still, there are deeper reasons why the government fails than the potentially fixable problems that Light identifies. Superficially, the veterans health care scandal is just a failure of “operations,” but the fundamental problem is the federal attempt to centrally plan an industry rather than relying on markets.

Light’s study is a thoughtful piece that will hopefully generate a broader discussion about government failure. The 15 factors in this recent testimony are my initial stab at identifying some of the more fundamental reasons for government failure.

Still No Halbig v. Burwell Ruling, But Plenty of Halbig Chatter

The latest bit of chatter about a someday-forthcoming ruling from the D.C. Circuit in Halbig v. Burwell is the banter between myself and Washington & Lee University law professor Timothy Jost. (For a quick primer on the Halbig cases, click here. For a comprehensive reference guide to the cases, click here.) Or as my email traffic has described it, “The subtle repartee between Michael Cannon and Tim Jost continues.” And, “What a summer! Argentina vs. Germany, Cannon vs. Jost. What’s next?“ 

Jost’s contribution appeared on the oped page of the Washington Post. Mine…didn’t.

Jost explains that while the Supreme Court’s ruling against the government in Hobby Lobby will not have much of an impact on the Patient Protection and Affordable Care Act, “a number of ACA lawsuits percolating up through the courts could be much more destructive. The theory of these suits seems to be that the drafters of the ACA planted a secret bomb in the heart of the statute.” Jost, along with a federal judge he quotes approvingly, thinks it’s “preposterous” that Congress would have intended to give states the power to block the expansion of health-insurance coverage that’s supposed to happen through the PPACA’s health-insurance “exchanges.”

Never mind that Congress did exactly that with the other coverage expansion – the Medicaid expansion – in the very same bill. Or that Congress has allowed states to block the entire Medicaid program for the past 49 years. Or that that’s how Jost himself proposed Congress could set up the bill’s health insurance Exchanges. Or that in 2009, both Republicans and Democrats introduced legislation that would have conditioned health-insurance subsidies on states establishing Exchanges. Or that, in particular, the other leading bill advanced by Senate Democrats in 2009 also gave states the power to block Exchange subsidies. Or that that’s what Jost admits the plain language of the PPACA “clearly” says.

Forget all that. Following the clear, consistent, uncontradicted language of the statute, which is completely consistent with the law’s legislative history, would be preposterous. Why? Because if the courts implement the law as Congress intended, then not even ObamaCare’s supporters would like how ObamaCare works. 

Subsidies Make Businesses Weaker

The technical arguments against the Export-Import Bank are provided in this excellent summary by Veronique de Rugy. However, one argument against Ex-Im and other business subsidies is not stressed enough in policy debates: subsidies weaken the businesses that receive them.

Subsidies change the behavior of recipients. Just like individual welfare reduces work incentives, corporate welfare dulls business competitiveness. Subsidies give companies a crutch, an incentive not to improve efficiency or to innovate, as I noted here.

Yesterday, I looked at Chapter 1 of Burton and Anita Folsom’s new book, Uncle Sam Can’t Count, which examines federal fur trading boondoggles of 1795-1822. 

Now let’s look at Chapter 2, which focuses on the steamboat industry of the 19th century. The historical lesson is clear: subsidies make companies weak, inefficient, and resistant to innovation.

Here is a thumbnail sketch of the Folsoms’ steamboat story:

  • In 1806 New York gives Robert Fulton a legal monopoly on steamboat travel in the state. Breaking this misguided law, a young Cornelius Vanderbilt launches a competitive service in 1817.
  • The U.S. Supreme Court strikes down the New York law in 1824. The effect is to usher in an era of steamboat innovation and falling prices for consumers.
  • Vanderbilt launches many new steamboat routes whenever he sees an opportunity to drive down prices.
  • With subsidies from the British government, Samuel Cunard launches a steamship service from England to North America in 1840. In response, Edward Collins successfully lobbies Congress to give him subsidies to challenge Cunard on the Atlantic route. With this unfortunate precedent, Congress proceeds to hand out subsidies to steamship firms on other routes.
  • By the 1850s, Congress is providing Collins a huge annual subsidy of $858,000. Irked by the subsidies and Collins’ inefficient service, Vanderbilt builds a better and faster ship and launches his own Atlantic service.
  • In 1856 two of Collins’ inferior ships sink, killing almost 500 people. Collins builds a new ship, but it is so shoddy that it is scrapped after only two trips.
  • Congress finally realizes that the aid to Collins is damaging, as it has spawned an inferior and mismanaged business. Congress cuts off the subsidies in 1858. Without subsidies, Collins’ steamship company collapses.
  • Vanderbilt also out-competes subsidized steamship companies on the East Coast-to-West Coast route through Central America.
  • In England, an unsubsidized competitor to Cunard—the Inman Line—is launched and begins out-competing and out-innovating the subsidized incumbent.
  • The subsidized Cunard and Collins aim their services at the high-end luxury market. The more efficient and unsubsidized Vanderbilt and Inman focus on driving down prices for people with more moderate incomes.
  • Government subsidies “actually retarded progress because Cunard and Collins both used their monopolies to stifle innovation and delay technological changes in steamship construction.”

Government subsidies have similar negative effects today, whether it is subsidies to energy companies, aid to farm businesses, or the Ex-Im program.

The difference is that in the 19th century Congress eventually cut off subsidies when the damage became clear, as it did with steamship subsidies in 1858 and fur trading subsidies in 1822. Maybe I’m overlooking something, but I can’t think of a business subsidy program terminated by Congress in recent years, or even in recent decades.  

Century Old Terrorists Still Creating Wars From Iraq To Ukraine

The conflict in Iraq started a century ago. So did the civil war in Syria. And so did Russia’s dismemberment of Ukraine. 

All of those conflicts, and much more, grew out of World War I.

At the turn of the 20th century, Europe was prospering. But on June 28, 1914, 19-year-old Serb nationalist Gavrilo Princip assassinated Franz Ferdinand, heir to the Austro-Hungarian Empire, and his wife Sophie.

The following weeks were filled with ultimatums, plans, and pleas. But governments soon found that “control has been lost and the stone has begun to roll,” as German Chancellor Theobald von Bethmann-Hollweg put it.

Among the Great War’s participants, Great Britain enjoyed the best reputation because it was on the winning side and ran the war’s most brilliant public relations operation. Germany’s franchise was in fact broader, though Wilhelmine Germany’s political structure was flawed. Belgium looked to be the most innocent, but its rule killed millions of Africans in the Belgian Congo. France was a revenge-minded democracy. Austro-Hungary was less democratic, but the empire contained important checks and balances within.

A member of the Entente—the allies that included Britain, France, and ultimately the United States—was the antisemitic despotism of the Tsar. Its protégé, Serbia, backed Princip as an act of state terrorism against Austro-Hungary. The sclerotic and authoritarian Ottoman Empire and Bulgaria completed the Quadruple Alliance, while Romania, Italy, and Japan, joined the Entente.

The United States had nothing at stake in this quarrel. Unfortunately, America’s president, the haughty, sanctimonious, and egotistical Woodrow Wilson, imagined himself as being annointed by God to bring peace to the earth.

With Germany facing defeat, an armistice was reached in November 1918. The vainglorious Wilson enunciated high-minded principles for peace, but was out-maneuvered at the Versailles Peace Conference the following year.

The allies plundered the defeated while dictating a vengeful peace. Like the journey from Princip to World War I, the path from Versailles to Adolf Hitler was long but clear.

Uh Oh: The North Koreans are Mad and Won’t Take it Any More!

It’s hard being dictator of North Korea.  You’re a god, or the nearest human thing to it, but you aren’t allowed any time to yourself.  The rest of the world privately admires you and publicly envies you. 

Some of them even mock you. 

In 2002 Pierce Brosnan played a hero in fighting against the Korean people in the James Bond movie “Die Another Day.”  Worse, two years later the great and wonderful “Dear Leader” Kim Jong-il was mercilessly insulted by the movie “Team America:  World Police.”  Unable to stop him from impoverishing his desperate people to build nuclear weapons, the U.S. government turned loose the most fearsome of weapons against the movie-loving Kim:  Hollywood.

Of course, the Dear Leader was a convenient target, with his bouffant hairdo and platform shoes.  As I point out in my article at American Spectator online:  “The great and wonderful man-god was too busy traveling the country giving guidance to farmers and workers whose farms and workplaces were no longer operating to take time off to retool his appearance to satisfy international critics.  But he persevered, drowning his many sorrows in Hennessy cognac while comforting the beautiful young virgin girls who flocked to his side.”

Now “Great Successor” Kim Jong-un has taken over the sacred mission of his grandfather and father:  to reinvigorate monarchy in Asia.  He has shown the way to the next century by dancing with Mickey Mouse and partying with Dennis Rodman.

Naturally, Washington has rejected Kim’s friendly demands for tribute to remedy the economic injustices created by the unfair success of market economics compared to Stalinesque central planning.  Now the common criminals who run Washington—at least there is one thing Americans and North Koreans can agree upon—have turned again to their secret agents in the movie industry.