Topic: General

We Need Real Change at the G8 Meeting

The G8 is meeting in Northern Ireland’s Belfast. The group of important industrial states is chaired this year by British Prime Minister David Cameron.  London’s three top objectives are trade, taxation, and transparency. 

No doubt, there will be a flurry of ponderous public statements and breathless press analyses. But as I argue on National Interest online, the meeting likely will be a waste. 

Trade liberalization is a worthy goal, but the U.S. and European commitment to agricultural subsidies has essentially killed the Doha round under the World Trade Organization. America wants to negotiate the Trans-Pacific Partnership, but including Japan, which wants to protect its farmers, while excluding China, which is the largest economy in Asia, makes the process more than a little complicated. As for a U.S.-European Union agreement, France is standing in the way and other member states are likely to resist liberalization in one area or another.

Only on taxes is more progress likely—unfortunately. As Dan Mitchell long has pointed out, attacks on “tax havens” and such are primarily attempts to mulct more money out of the productive to subsidize the influential. (Influential and greedy. Indeed, higher taxes are used to satisfy perhaps the basest of human emotions, envy.)

Transparency is a better objective, but the greatest offenders are non-G8 members, especially in the Third World. As I point out:

The most important single step in this direction the G8 could take would be to discourage rather than encourage government-to-government transfers, or misnamed “foreign aid.” (G8 gatherings usually include boilerplate promises to up official development assistance.) The wealthy nations should cut the financial windpipe of the most corrupt and wasteful regimes.  Private humanitarian and development assistance from NGOs to private people, and private investment and trade to private companies, are far more likely to deliver positive economic and social results with more limited opportunities for graft and abuse.

Finally, the G8 involves a curious anomaly for the U.S. While Washington pursues greater economic integration in the name of encouraging prosperity and growth, the U.S. could achieve the same result by reducing subsidies to the same countries. The Cold War has been over for 24 years. World War II ended 68 years ago. It really is time for Washington to stop defending Europe and Japan, as well as a number of other, non-G8 defense dependents, such as South Korea.

The Obama administration could make this G8 meeting more useful than normal by adding real substance to the agenda.

Siding with the Heritage Foundation in the “Austerity” Fight with Paul Krugman and the Washington Post

I’m not reluctant to criticize my friends at the Heritage Foundation. In some cases, it is good-natured ribbing because of the Cato-Heritage softball rivalry, but there are also real policy disagreements.

For instance, even though it is much better than current policy, I don’t like parts of Heritage’s “Saving the American Dream” budget plan. It’s largely designed to prop up the existing Social Security system rather than replace the existing tax-and-transfer entitlement system with personal retirement accounts. And while the plan contains a flat tax, it’s not the pure Hall-Rabushka version. One of the most alarming deviations, to cite just one example, is that it creates a tax preference for higher education that would enable higher tuition costs and more bureaucratic featherbedding.

That being said, I’m also willing to defend Heritage if the organization is being wrongly attacked. The specific issue we’ll review today is “austerity” in Europe and whether Senator Sheldon Whitehouse of Rhode Island is right to accuse Heritage of “meretricious” testimony.

Let’s look at the details.

Earlier this month, Paul Krugman wrote that, “a Heritage Foundation economist has been accused of presenting false, deliberately misleading data and analysis to the Senate Budget Committee.” Krugman was too clever to assert that the Heritage economist “did present” dishonest data, but if you read his short post, he clearly wants readers to believe that an unambiguous falsehood has been exposed.

Krugman, meanwhile, was simply linking to the Washington Post, which was the source of a more detailed critique. The disagreement revolves around  whether Europeans have cut spending or raised taxes, and by how much. The Heritage economist cited one set of OECD data, while critics have cited another set of data.

So who is right?

Conn Carroll of the Washington Examiner explains that the Heritage economist was looking at OECD data for 2007-2012 while critics are relying on an OECD survey of what politicians in various countries say they’ve done since 2009 as well as what they plan to do between now and 2015.

Whitehouse believed he had caught Furth and The Heritage Foundation in a bald face lie. …There is just one problem with Whitehouse’s big gotcha moment: The staffer who spoon-fed Whitehouse his OECD numbers on “the actual balance between spending cuts and tax increases” failed to also show Whitehouse the front page of the OECD report from which those numbers came. That report is titled: “Fiscal consolidation targets, plans and measures in OECD countries.” Turns out, the numbers Whitehouse used to attack Furth for misreporting “what took place in Europe” were actually mostly projections of what governments said they were planning to do in the future (the report was written in December 2011 and looked at data from 2009 and projections through 2015). At no point in Furth’s testimony did he ever claim to be reporting about what governments were going to do in the future. He very plainly said his analysis was of actual spending and taxing data “to date.” Odds are that Whitehouse made an honest mistake. Senators can’t be expected actually to read the title page of every report from which they quote. But, considering he was the one who was very clearly in error, and not Furth, he owes Furth, and The Heritage Foundation an apology. Krugman and Matthews would be well advised to revisit the facts as well.

In other words, critics of Heritage are relying largely on speculative data about what politicians might (or might not) do in the future to imply that the Heritage economist was wrong in his presentation of what’s actually happened over the past six years.

So far, we’ve simply addressed whether Heritage was unfairly attacked. The answer, quite clearly, is yes. If you don’t believe me, peruse the OECD data or peruse the IMF data.

Now let’s briefly touch on the underlying policy debate. Keynesians such as Krugman assert that there have been too many spending cuts in Europe. The “austerity” crowd, by contrast, argues that strong steps are needed to deal with deficits and debt, though they are agnostic about whether to rely on spending reforms or tax increases.

I’ve repeatedly explained that Europe’s real problem is an excessive burden of government spending. I want politicians to cut spending (or at least make sure it grows slower than the productive sector of the economy). And rather than increasing the tax burden, I want them to lower rates and reform punitive tax systems.

The bad news is that Europeans have raised taxes. A lot. The semi-good news is that spending no longer is growing as fast as it was before the fiscal crisis.

In the grand scheme of things, however, I think Europe is still headed down the wrong path. Here’s what I wrote back in January and it’s still true today.

I don’t sense any commitment to smaller government. I fear governments will let the spending genie out of the bottle at the first opportunity. And we’re talking about a scary genie, not Barbara Eden. And to make matters worse, Europe faces a demographic nightmare. These charts, reproduced from a Bank for International Settlements study, show that even the supposedly responsible nations in Europe face a tsunami of spending and debt over the next 25-plus years. So you can understand why I don’t express a lot of optimism about European economic policy.

By the way, I’m not optimistic about the long-term fiscal outlook for the United States either. In the absence of genuine entitlement reform, we’ll sooner or later have our own fiscal crisis.

The Framers and Love

As some of you are aware, I recently got married, right here on Cato’s roofdeck, overseen by the eagle of liberty. I’ll spare you the details – there were plenty of “constitutional moments,” including personalized pocket constitutions as one of our wedding favors – other than to highlight my sometime co-author Josh Blackman’s excellent reading on the Framers and love:

We can look to the same patriots that gave us our Constitution to glean some lessons about love, liberty, and forming more perfect unions.

A successful marriage is not that much different from a successful republic. Both require the union of different parties to utilize their comparative advantages more efficiently. Both require a federalist system that structures powers and rights. And most importantly, both must aspire to a higher charter to bond them into one. For the United States it is our Constitution. For Kristin and Ilya, it is their vows.

First, we look to Federalist 51, Ilya’s favorite, where Madison wrote that if men were angels, we would not need government. Alas, neither husband nor wife is always an angel, so both Kristin and Ilya will need to structure a government for themselves to promote their happiness.

Second, to avoid any strife, we should heed Jefferson’s words in the Declaration of Independence, for mere “light and transient” causes are not enough. They must maintain tranquility, as they “mutually pledge to each other their Lives, their Fortunes and their sacred Honor.”

Third, we turn to the father of our country, General George Washington, whose eternal love for his wife Martha carried him towards victory. In one of the rare letters, which Martha did not burn at George’s death, the General wrote to her, “I retain an unalterable affection for you, which neither time nor distance can change.” May the two of you always be in such love, no matter where you are.

May the passion our framers had for our Constitution and Republic, mirror the love you have for each other. And as the history of our nation has witnessed, despite the dividing difficulties, insurmountable challenges, and specters of oppression, the union shall always prevail. As you pursue happiness together, may Kristin and Ilya always cherish their life, and liberty–and hopefully accumulate vast amounts of property, both personal and real. And that way, they can “secure the Blessings of Liberty to their many Posterity.”

If you’re curious about the rest of the ceremony, including Josh’s presentation, you can view it here (the audio is patchy at first, but kicks in before the vows). Yes, I got permission from my wife to post that and, yes, we’ll be going on honeymoon soon – but, like most couples, we’re waiting for the end of the Supreme Court term before getting away.

On Iran’s Inflation Bogey

With Friday’s Iranian Presidential election fast approaching, there has been a cascade of reportage in the popular press about that opaque country. When it comes to economic data, Iran has resorted to lying, spinning and concealment – in part, because of its mores and history, and more recently, the ever-tightening international sanctions regime. In short, deception has been the order of the day.

The most egregious example of this deception concerns one of Iran’s most pressing economic problems – rampant inflation. Indeed, while the rest of the world watched Iran’s economy briefly slip into hyperinflation in October of 2012, the Statistical Centre of Iran and Iran’s central bank both defiantly reported only mild upticks in inflation.  

It is, therefore, rather surprising that the major international news outlets have continued to report the official inflation data without so much as questioning their accuracy. Even today, with official data putting Iran’s annual inflation rate at a mere 31 percent, respectable news sources faithfully report these bogus data as fact.

As I have documented, regimes in countries undergoing severe inflation have a long history of hiding the true extent of their inflationary woes. In many cases, such as the recent hyperinflation episodes in Zimbabwe and North Korea, the regimes resort to underreporting or simply fabricating statistics to hide their economic problems. Often, they stop reporting economic data all together; or, when they do report economic statistics, they do so with such a lag that the reported data are of limited use by the time they see the light of day.

Iran has followed this course – failing to report important economic data in a timely and replicable manner. Those data that are reported by tend to possess what I’ve described as an “Alice in Wonderland” quality. In light of this, it is fair to suggest that any official data on Iran’s inflation be taken with a grain of salt.

So, how can this problem be overcome? At the heart of the solution is the exchange rate. If free-market data (usually black-market data) are available, the inflation rate can be estimated. The principle of purchasing power parity (PPP), which links changes in exchange rates and changes in prices, allows for a reliable estimate. Indeed, PPP simply states that the exchange rate between two countries is equal to the rates of their relative price levels. Accordingly, if we can obtain data on free-market exchange rates, we can make a reliable estimate of the inflation rate.

In short, changes in the exchange rate will yield a reliable implied inflation rate, particularly in cases of extreme inflation. So, to calculate the inflation rate in Iran, a rather straightforward application of standard, time-tested economic theory is all that is required.

Using this methodology, it is possible to estimate a reliable figure for Iran’s annual inflation rate. At present the black-market IRR/USD exchange rate sits at 36,450. Using this figure, and a time series of black-market exchange rate data that I have collected over the past year from currency traders in the bazaars of Tehran, I estimate that Iran’s current annual inflation rate is 105.8 percent – a rate almost three and a half times the official annual inflation figure (see the accompanying chart). 

National Journal: Top Obama Advisers Admit IRS Could Have Been Asked to Suppress Political Dissidents

I have already blogged about Ron Fournier’s remarkable National Journal column on how President Obama’s many scandals make it hard to support big government. But there’s an item buried in that column that bears highlighting:

If investigators uncover even a single email or conversation between conservative-targeting IRS agents and either the White House or Obama’s campaign, incompetence will be the least of the president’s problems.

Team Obama has publicly denied any knowledge of (or involvement in) the targeting. Privately, top advisers admit that they don’t know if the denials are true, because a thorough investigation has yet to be conducted. No emails have been subpoenaed. No Obama aides put under oath.

It seems Fournier has multiple sources close to the president who have basically said, “Did someone in the administration tell the IRS to suppress our opponents? Ehh, maybe.”

There’s No Such Thing as ‘Good Government’

National Journal’s Ron Fournier:

I like government. I don’t like what the fallout from these past few weeks might do to the public’s faith in it…

The core argument of President Obama’s rise to power, and a uniting belief of his coalition of young, minority and well-educated voters, is that government can do good things–and do them well.

Damn. Look at what cliches the past few weeks wrought.

Fournier then runs through how the various Obama scandals show:

Government is intrusive … Orwellian … incompetent … corrupt … complicated … heartless … secretive … [and] can’t be trusted.

And that’s when the good guys are running the show!

Maybe Fournier needs to brush up on his Common Sense:

Society in every state is a blessing, but Government, even in its best state, is but a necessary evil… Government, like dress, is the badge of lost innocence… For were the impulses of conscience clear, uniform and irresistibly obeyed, man would need no other lawgiver; but that not being the case, he finds it necessary to surrender up a part of his property to furnish means for the protection of the rest; and this he is induced to do by the same prudence which in every other case advises him, out of two evils to choose the least.

Translation: there’s no such thing as “good government.”

Rising Religious Intolerance in Indonesia

Indonesia could become a significant Asia power and counterweight to China. It is the world’s most populous Islamic nation but sports a tolerant reputation.  Indonesians evicted the Suharto dictatorship and created a democratic and increasingly prosperous state. So far, the artificial country has successfully countered multiple secessionist pressures.

Perhaps even more important, Indonesians could encourage Islam to move in a more liberal direction. Muslims make up nearly 90 percent of the population, but Indonesia’s politics traditionally have been secular. In its new report, “In Religion’s Name: Abuses Against Religious Minorities in Indonesia,” Human Rights Watch noted that “Indonesia is rightly touted for its religious diversity and tolerance.”

Unfortunately, however, as in the Middle East, the end of dictatorship in Indonesia has loosed intolerant religious forces. The victims are many. Reported HRW: “Targets have included Ahmadis (the Ahmadihay), Baha’is, Christians, and Shias, among others.” Offenses include state discrimination and mob violence. 

As I explained in my new column on American Spectator online:

HRW pointed to the use of blasphemy and conversion laws “to impose criminal penalties on members of religious minorities in violation of their rights to freedom of religion and expression.”  Such abuses are common in Pakistan, where violent jihadist sentiments are strong.  All religious minorities, as well as atheists, are at risk.

Expansive state control gives government many other avenues for discrimination if not persecution. HRW reported: “state discrimination on the basis of religion extends beyond the building of churches, mosques, and temples. Various government regulations discriminate against religious minorities, ranging from the provision of ID cards, birth and marriage certificates, and access to other government services.”

For instance, officials refuse to register marriages if the government doesn’t recognize the religion of one of the parties.  Without registration children are not issued birth certificates listing both parents.  National ID cards are required, but sometimes cannot be obtained without choosing among five officially recognized religions.  Refusing to list a religion can lead to charges of atheism and blasphemy.

The worst problem may be the government’s failure to protect religious minorities from violence. Such attacks are becoming more frequent. I have visited a church and Bible school destroyed by mobs, as well as a church that was bombed. In none of these cases was anyone ever punished. 

Indonesia could become a regional and even global leader. However, to do so, it needs to protect the lives and liberties of all of its citizens, irrespective of their religious beliefs.