Topic: General

Political Inequality: Residents of Washington are Different from the Rest of Us

America is a class-based society. Based on politics, not economics. An elite political class runs the state to their benefit. The rest of us pay the bill.

The differences between the assumptions and values of people within and without Washington’s 68 square miles of fantasy long have been on ostentatious display. The Democrats’ health care “reform” has become the latest example, offering tender treatment for those in the capital who approved the measure despite opposition from those outside the capital.

Critics of ObamaCare successfully pushed an amendment requiring congressmen and congressional staffers to purchase their health insurance through the new government exchanges. Being tossed from their special plans meant the end of federal subsidies, which run $5000 annually for individuals and $11,000 for families.

The new rule was meant to diffuse the anger of tens of millions of Americans who were forced to change plans and pay more for health care coverage. No surprise, residents of Capitol Hill were not happy. Alas, it wouldn’t look good to voters if Congress now enacted a special exemption. So without any legal authority, President Barack Obama maintained existing federal contributions.

Rep. Chris Stewart (R-Utah) observed:  “There’s no question it was the right thing to do. Not just for me, but for my staff. Heavens, I have staff who don’t make much money. This would be a really big bite for them.”

Too bad the president didn’t similarly step in to ensure that the rest of us won’t have to suffer “a really big bite” from ObamaCare.

Mirror, Mirror, on the Wall, Which Nation Has Increased Welfare Spending the Fastest of All?

There’s an old joke about two guys camping in the woods, when suddenly they see a hungry bear charging over a hill in their direction. One of the guys starts lacing up his sneakers and his friend says, “What are you doing? You can’t outrun a bear.” The other guys says, I don’t have to outrun the bear, I just need to outrun you.”

That’s reasonably amusing, but it also provides some insight into national competitiveness. In the battle for jobs and investments, nations can change policy to impact their attractiveness, but they also can gain ground or lose ground because of what happens in other nations.

The corporate tax rate in the United States hasn’t been changed in decades, for instance, but the United States has fallen further and further behind the rest of the world because other nations have lowered their rates.

Courtesy of a report in the UK-based Telegraph, here’s another example of how relative policy changes can impact growth and competitiveness.

Orange Revolution Redux in the Ukraine: America Should Stay Out

Nine years after the so-called Orange Revolution against electoral fraud, opponents of Ukrainian President Viktor Yanukovich hope to stage a repeat.  But the issue today, whether Kiev aligns economically with Europe or Russia, doesn’t much concern the U.S. 

In 2004 the Orange Revolution helped deliver the presidency to Western-favorite Viktor Yushchenko, a disastrous incompetent.  Yanukovich narrowly won the 2009 race. 

He has been negotiating over an Association Agreement with the European Union.  However, Brussels demanded political concessions, most importantly the freeing of opposition leader Yulia Tymoshenko, who had been prosecuted by Yanukovich’s government, and refused to offer cash assistance. 

At the same time Vladimir Putin pushed Kiev to forswear the EU and join the Moscow-led Customs Union.  And Moscow brought cash to the table.  To the consternation of Brussels, last month the Yanukovich government signed an accord with Russia—though without joining the CU.

Brussels and Washington were shocked, shocked.  New German Foreign Minister Frank-Walter Steinmeier said “It is utterly scandalous how Russia used Ukraine’s economic plight for its own ends.”

Sen. John McCain visited Kiev, where he complained that “President Putin has pulled out all the stops to coerce, intimidate and threaten Ukraine away from Europe.”  Former Undersecretary of State Paula Dobriansky demanded “a broad range of measures, including WTO sanctions, Russian expulsion from the Group of Eight and even a boycott of the 2014 Winter Olympics by political leaders, unless Moscow abandons its strong-arm tactics toward Kiev.” 

The hypocrisy is breathtaking. 

After all, the EU was pushing Kiev into making political concessions and choosing Europe over Russia.  In return, the Europeans offered the prospect of economic gain through increased trade.  After Kiev said no European officials said billions in grants and loans would have been forthcoming had Ukraine signed with the EU. 

As I point out in my latest Forbes online column:

Of course, Washington goes not one hour, let alone one day, without attempting to bribe or coerce another government to do something.  The American secretary of state circles the globe constantly lecturing other nations how to behave.  Since the end of the Cold War the U.S. has been the warrior state, routinely using military means to achieve its ends.  Indeed, Sen. McCain has variously supported war against Iran, Iraq, Libya, North Korea, Serbia, and Syria.

Russia is guilty of heavy-handedness?

Yes, the West offers a better, freer path.  Which is why protests have broken out over Ukraine’s abandonment of the EU.  It’s fair for Washington to wish the critics well and warn Kiev against a violent response. 

But why should Brussels or Washington meddle in the decision itself?  The Wall Street Journal insisted that the Obama administration “stand up for America’s interests and values.”  But what are they in Ukraine? 

Assistant Secretary of State for European Affairs Victoria Nuland declared at the opposition rally in Kiev:  “the U.S. stands with you in your search for justice, for human dignity and security, for economic health, and the European future that you have chosen and deserve.” 

Washington should endorse justice and human dignity, which justifies support for honest elections and warnings against police brutality.  But Ukraine’s “economic health” and “European future” aren’t American values and are barely American interests.  How would Americans feel if Ukrainian politicians showed up at a Republican rally in Washington vowing to stand with protestors in the name of Ukrainian “interests and values”?

A stable, democratic Ukraine would be benefit all.  However, Russia’s activities in Ukraine do not threaten the U.S.  In contrast, bringing NATO up to Russia’s southern border could not help but be seen as threatening by Moscow—imagine the Warsaw Pact expanding to Mexico. 

The West should acknowledge legitimate Russian interests in Ukraine, while offering new incentives for Kiev to look westward.  Moreover, Europe should seek compromise with Moscow.  Ukraine has proposed creation of “a tripartite commission to handle complex issues,” including greater links between the EU and the Russian-lead CU, which might reduce Moscow’s pressure on Kiev.

If Ukraine wants to look east, so be it.  Even with Russia’s money Yanukovich’s reelection prospects are weak and Ukraine is likely to eventually join the West.  If not, the country never was the EU’s or Washington’s to lose.

The Minimum Wage: Immoral and Inefficient

Democratic politicians are desperate to make up for ObamaCare’s disastrous roll-out.  Thirteen states are increasing their minimums this year, and some Democrats believe raising the national minimum wage is a winning campaign issue for November.

There’s no doubt that raising the minimum wage would reduce employment and slow economic growth.  Worse, government wage-setting is immoral.  It is unfair and wrong for politicians to posture as philanthropists while forcing other people to pay higher salaries.

The first question is the minimum’s impact on employment and price levels.  The answer is clear:  the cost of higher wages will be borne in varying degrees by customers, workers, and investors.  As I wrote in the American Spectator:

as Nobel Laureate Milton Friedman observed, there ain’t no such thing as a free lunch.  Arbitrarily raising the cost of labor—there is no principled basis for choosing any particular government minimum—will increase prices, reduce investor returns, and cut employment levels.

Most vulnerable are workers with the least education, experience, and skills, who tend to be young and minorities.  Forcing up wages will not only reduce overall employment, but shift jobs toward higher-skilled workers who are more productive and thus warrant higher pay.  The minimum wage also encourages mechanization, since it makes economic sense for companies to invest more in machines to spend less on labor. 

In effect, the minimum wage is a tax on labor-intensive companies.  No surprise, then, as explained by Mark Wilson of Applied Economic Strategies in a Cato Institute Policy Analysis:  “The main finding of economic theory and empirical research over the past 70 years is that minimum wage increases tend to reduce employment.” 

The strangest claim may come from the Financial Times, which editorialized:  “a higher wage would stimulate the economy without adding a dime to federal spending.”  However, to the extent raising the minimum increases the total amount of wages, it does so by redistributing the money from other people, who end up with less to spend on consumption. 

No doubt, the employment impact of a small increase, especially if salary levels have been rising, would be modest, which explains recent economic studies demonstrating lesser job loss.  But the less significant the increase, the less meaningful any potential benefit.

In contrast, those who claim that raising today’s minimum would have no impact on employer behavior fail to demonstrate the courage of their convictions.  If government can hike wages without harm, why stop at $10 or $15 an hour?  Why not go to $1000 or $1500?  Then everyone in America could be rich at no cost to anyone!

Yet there is an even more fundamental issue.  The minimum wage is the modern perversion of compassion into coercion:  I believe there is a moral imperative for you to earn more, so I force someone else to pay more.  I feel moral while sticking someone else with the bill. 

However, if “we,” the citizens of America, believe people should earn more, then “we,” the citizens of America, not a few labor intensive businesses, should pay for those above-market wages.  Opposing the minimum wage is simple fairness.

While many advocates no doubt are true believers, for some fairness talk is pure twaddle.   John Cassidy wrote in the New Yorker:  “In the current political environment, there is little chance of pushing through another hike in income-support programs.  Raising the minimum wage pushes the burden onto corporations and consumers.” 

Washington should be systematically reducing, not increasing, the cost of doing business.  Yet the regulatory-happy Obama Administration has been imposing multiple burdens on commerce, starting with ObamaCare. 

The next time someone rises to support arbitrary government wage-setting, they should be asked what they are doing personally to help the economically disadvantaged.  Raiding the wallets of others does not count as compassion

Boost Worker Pay - and Make the United States More Competitive - by Gutting the Corporate Income Tax

The business pages are reporting that Chrysler will be fully owned by Fiat after that Italian company buys up remaining shares.

I don’t know what this means about the long-term viability of Chrysler, but we can say with great confidence that the company will be better off now that the parent company is headquartered outside the United States.

This is because Chrysler presumably no longer will be obliged to pay an extra layer of tax to the IRS on any foreign-source income.

Italy, unlike the United States, has a territorial tax system. This means companies are taxed only on income earned in Italy but there’s no effort to impose tax on income earned - and already subject to tax - in other nations.

Under America’s worldwide tax regime, by contrast, U.S.-domiciled companies must pay all applicable foreign taxes when earning money outside the United States - and then also put that income on their tax returns to the IRS!

And since the United States imposes the highest corporate income tax in the developed world and also ranks a dismal 94 out of 100 on a broader measure of corporate tax competitiveness, this obviously is not good for jobs and growth.

No wonder many American companies are re-domiciling in other countries!

Maybe the time has come to scrap the entire corporate income tax. That’s certainly a logical policy to follow based on a new study entitled, “Simulating the Elimination of the U.S. Corporate Income Tax.”

Written by Hans Fehr, Sabine Jokisch, Ashwin Kambhampati, Laurence J. Kotlikoff, the paper looks at whether it makes sense to have a burdensome tax that doesn’t even generate much revenue.

The U.S. Corporate Income Tax…produces remarkably little revenue - only 1.8 percent of GDP in 2013, but entails major compliance and collection costs. The IRS regulations detailing corporate tax provisions are tome length and occupy small armies of accountants and lawyers. …many economists…have suggested that the tax may actually fall on workers, not capitalists.

Germany Lurches Left: Sacrificing German Liberty and Germany’s Future

BERLIN—Germany’s Christian Democrats and Social Democrats have formed another “Grand Coalition.”  The political center in Europe’s wealthiest and most populous state now swallows most of the ideological spectrum. However, the entire political spectrum has lurched to the left.

The Christian Democratic Union-Christian Social Union combination (sister parties which run as one) is a pale version of the Republican Party.  The CDU-CSU long ago made peace with Germany’s generous welfare state. 

Even less inclined to act is CDU Chancellor Angela Merkel. She pulled her party leftward in 2005 into a Grand Coalition with the Social Democratic Party, which went on to do essentially nothing. 

She won a second term in 2005 but did little more to liberate German life. Her latest reelection campaign was based on keeping everything the way it was.

The CDU-CSU fell only five votes short of a majority. However, the poll was a disaster for the CDU-CSU’s coalition partner, the Free Democratic Party. Created in 1948 out of the ruins of the Third Reich, the FDP emphasized civil liberties, economic freedom, and entrepreneurship. In 2009, the Free Democrats enjoyed their best showing ever, 14.6 percent, and their support made Merkel Chancellor.

However, they proved to be less adept in governing. As the September election approached, the Free Democrats lacked any noticeable achievements. 

A new political competitor, Alternative for Germany criticized the endless Euro bail-outs while backing the same market-oriented economic policies as the Free Democrats. Many FDP voters shifted allegiance.   

The FDP fell just short of the five percent threshold, receiving 4.76 percent of the vote. It went from 93 Bundstag seats to none. The Free Democrats still hold some seats in regional parliaments and the European Parliament, but have no obvious path back to national power. The AFD came in just behind the FDP, with 4.7 percent, and also won no seats. However, it is well-positioned to advance, putting the FDP’s survival at risk.

The Free Democrats’ collapse left the Bundestag with a narrow left-wing majority.  However, both the SPD and Greens pledged not to join forces with Die Linke, or Left party, since it was the successor to the Communists who once ruled East Germany. 

As I pointed out in my Forbes online column:

Although the CDU-CSU was much stronger in the Bundestag, the Social Democrats demanded specific concessions, such as a national minimum wage, which will reduce Germany’s employment advantage over its European neighbors, limitations on temporary employment, which will cut job opportunities, expanded pension benefits, which will add to the financial burden of an aging society, higher than necessary state pension contributions, which will be looted to fund political initiatives, and urban rent controls, which will discourage apartment construction and maintenance.

The Economist magazine warned of “Die Grosse Stagnation” likely to come. Europe’s largest economy faces slow labor productivity, falling investment, and minimal reforms since the start of the Euro crisis. 

It is not just the government which has moved left. During the last Grand Coalition the FDP was the largest opposition party, leaving its leader the unofficial opposition leader. In this Bundestag the largest opposition party will be Die Linke. Just behind will be the Greens, traditionally known for their environmental commitment but of late pushing leftist economic nostrums as well. 

Nor does the drift stop with the left-wing parties. The Free Democrats held a special party congress in Berlin and responded to the election debacle by making Christian Lindner of North Rhine-Westphalia the new party chairman. Lindner is seen as less committed to the party’s liberal principles.

Like Americans, the German people have worked hard to prosper despite an ever-expanding regulatory welfare state. But they will find it ever more difficult to succeed as their government moves further left.  Then they will come to miss having a voice for economic and social liberty in the Bundestag. 

“Power 5” Power Play: Just Higher Ed Being What It Is

Though the NCAA still runs ads suggesting that college sports is all about students who happen to be athletes, big-time college football and basketball programs have basically given up the pretense of being about anything other than big bucks and big wins. See, for instance, the latest power play by the “BCS” football conferences.

That’s fine – better they be open about what drives them. Unfortunately, as I write in this SeeThruEdu post, the rest of higher ed is similarly self-interested. Problem is, it won’t admit it, and uses the notion that it’s all about the “common good” to get taxpayer money, often without producing any real benefit for the people paying the bills.