Topic: International Economics and Development

Even the Establishment Media Is Now Admitting the French Economic Model Is Fatally Flawed

Some things in life are very dependable. Every year, for instance, the swallows return to Capistrano.

And you can also count on Dan Mitchell to wax poetic about the looming collapse of French statism.

Geesh, looking at that list, I guess I’m guilty of - in the words of Paul Krugman - being part of the “plot against France” by trying to discredit that nation’s economy.

Or maybe I’m just ahead of my time because we’re now seeing articles that almost sound like they could have been written by me appearing in establishment outlets such as Newsweek. Check out some amazing excerpts from an article by Janine di Giovanni, who lives in France and serves as the magazine’s Middle East Editor.

…what is happening today in France is being compared to the revocation of 1685. …the king closed churches and persecuted the Huguenots. As a result, nearly 700,000 of them fled France, seeking asylum in England, Sweden, Switzerland, South Africa and other countries. The Huguenots, nearly a million strong before 1685, were thought of as the worker bees of France. They left without money, but took with them their many and various skills. They left France with a noticeable brain drain.

It’s happening again, except this time the cause is fiscal persecution rather than religious persecution. French politicians have changed the national sport from soccer to taxation!

Since the arrival of Socialist President François Hollande in 2012, income tax and social security contributions in France have skyrocketed. The top tax rate is 75 percent, and a great many pay in excess of 70 percent. As a result, there has been a frantic bolt for the border by the very people who create economic growth – business leaders, innovators, creative thinkers, and top executives. They are all leaving France to develop their talents elsewhere.

It’s an exaggeration to say “they are all leaving,” but France is turning Atlas Shrugged from fiction to reality.

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.

Ending the Year on a Positive Note

Throughout the year, we are constantly bombarded by bad news. Stories about hunger, violence, oppression and illness flow from our television sets and radios, and fill the pages of our newspapers. And true enough, for far too many people, 2013 was not a good year. We must, however, distinguish between stories of individual unhappiness and disaster, and long term trends – which are, on the whole, positive. Over the last couple of weeks a number of stories pointed to these positive developments and I include them below:

NPR Morning Edition “Tired of Doom And Gloom? Here’s the Best Good News of 2013”

Cracked.com “5 Amazing Pieces of Good News Nobody is Reporting”

Washington Times “Most Things are Better Now”

TheAtlantic.com “Is the Pope Right About the World?”

China Grapples with Mao Zedong’s Legacy at His 120th Birthday

December 26 is the 120th anniversary of Mao Zedong’s birth, typically a date of great celebration in China. But this year the Chinese government seems somewhat ambivalent about celebrating Mao’s disastrous achievements. It’s about time. 

Many countries have a founding myth that inspires and sustains a national culture. We’ve just seen South Africa and the world celebrate the accomplishments of Nelson Mandela, the founder of that nation’s modern, multi-racial democracy. In the United States we look to the American Revolution and especially to the ideas in the Declaration of Independence of July 4, 1776. 

The Declaration of Independence, written by Thomas Jefferson, is the most eloquent libertarian essay in history, especially its philosophical core:

We hold these truths to be self-evident, that all men are created equal, that they are endowed by their Creator with certain unalienable Rights, that among these are Life, Liberty and the pursuit of Happiness.–That to secure these rights, Governments are instituted among Men, deriving their just powers from the consent of the governed, –That whenever any Form of Government becomes destructive of these ends, it is the Right of the People to alter or to abolish it, and to institute new Government, laying its foundation on such principles and organizing its powers in such form, as to them shall seem most likely to effect their Safety and Happiness.

The ideas of the Declaration, given legal form in the Constitution, took the United States of America from a small frontier outpost on the edge of the developed world to the richest country in the world in scarcely a century. The country failed in many ways to live up to the vision of the Declaration, notably in the institution of chattel slavery. But over the next two centuries that vision inspired Americans to extend the promises of the Declaration—life, liberty, and the pursuit of happiness—to more and more people.

China of course followed a different vision, the vision of Mao Zedong. Take Mao’s speech on July 1, 1949, as his Communist armies neared victory. The speech was titled, “On the People’s Democratic Dictatorship.” Instead of life, liberty, and the pursuit of happiness, it spoke of “the extinction of classes, state power and parties,” of “a socialist and communist society,” of the nationalization of private enterprise and the socialization of agriculture, of a “great and splendid socialist state” in Russia, and especially of “a powerful state apparatus” in the hands of a “people’s democratic dictatorship.”

Tragically, unbelievably, this vision appealed not only to many Chinese but even to Americans and Europeans, some of them prominent. But from the beginning it went terribly wrong, as really should have been predicted. Communism created desperate poverty in China. The “Great Leap Forward” led to mass starvation. The Cultural Revolution unleashed “an extended paroxysm of revolutionary madness”  in which “tens of millions of innocent victims were persecuted, professionally ruined, mentally deranged, physically maimed and even killed.” Estimates of the number of unnatural deaths during Mao’s tenure range from 15 million to 80 million. This is so monstrous that we can’t really comprehend it. What inspired many American and European leftists was that Mao really seemed to believe in the communist vision. And the attempt to actually implement communism leads to disaster and death.

Scientific Breakthroughs of the Year 2013

I hope that many of you had a chance to check out Cato’s new website: www.humanprogress.org.

In the same vein, here is a just-released video put together by the folks at Science Magazine summing up the greatest scientific advances of 2013:

As G.K. Chesterton put it, ”The world will never starve for want of wonders; but only for want of wonder.”

Vigilantes in Mexico: Another Reason to Repudiate Drug Prohibition

A relatively new development in Mexico’s ongoing drug wars is the increasingly active role of vigilante groups.  That is especially true in Michoacán and other states in the western portion of the country.  I discuss that development in a new article over at the National Interest Online.

The initial temptation might be to cheer on the vigilantes.  After all, the rise of “self defense militias” indicates that a growing number of Mexicans are now willing to resist the power of the brutal cartels and fight back, if necessary.  But for two reasons one ought to resist the temptation to applaud.  First, the nature of many of the militias is exceedingly murky.  Some of them may even be front groups for rival trafficking organizations seeking to displace the dominant cartel in a particular region.

Second, even in cases where the vigilante groups are genuine anti-cartel forces, the growth of vigilantism is a worrisome sign.  It is an emphatic vote of “no confidence” in the government’s ability to maintain order and the rule of law.  That is similar to what occurred in Colombia from the late 1980s through the early years of the 21st century.  As the power of drug gangs and their radical leftist guerrilla allies surged, frightened and angry Colombians formed right-wing militias in many rural areas.  But some of those groups soon became little more than death squads, and for a time, Colombia seemed to be heading down the path toward becoming a failed state.  We certainly do not want to see a comparable trend in our next door neighbor.

The rise of vigilantism in Mexico is yet another reminder of the disastrous consequences of drug prohibition.  That strategy greatly raises the retail price of a product that a large number of consumers insist on using.  Creating such a lucrative black market premium fills the coffers of those willing to defy the law to traffic in that product.  And the vast majority of individuals and groups willing to take that path are ruthless criminal elements.  Prohibition, in short, empowers and enriches thugs.

Washington’s enthusiasm for and insistence upon preserving an international drug prohibition policy has caused enormous problems for Mexico and other drug-source countries. As the leading consumer of illegal drugs and the most powerful member of the international community, the United States largely determines the direction of policy on this issue.  Fortunately, there are signs of changing attitudes on both the domestic and international fronts.  Public opinion surveys show that a majority of Americans are now in favor of legalizing marijuana, the mildest of illegal drugs, and such states as Colorado and Washington have already adopted modest legalization measures.  Uruguay has gone even further, legalizing not only the possession and use of marijuana but also commerce in that drug.

Uruguay’s course is the correct one.  It’s not enough to legalize drug possession—the trade itself needs to be taken out of the hands of criminal syndicates.  And if we wish to defund the cartels, abolishing prohibition must apply to all currently illegal drugs, not just marijuana.  Our policy makers need to internalize the lesson that prohibition not only does not work, it causes horrific unintended consequences.  That was true of America’s foolish crusade against alcohol in the 1920s and early 1930s, and it is true in spades of the current crusade against illegal drugs.  The surge of vigilantism in Mexico and the threat of chaos it embodies should spur policy makers to finally recognize that reality.