Topic: International Economics and Development

America Ranks Only 14th in Property Rights Index

In an interesting new report, the Property Rights Alliance has published the first index measuring property rights. Not surprisingly, the report finds that nations with stronger protections of property rights also have more prosperous economies. It was discouraging to read, though, that America is tied for 14th place, behind welfare states such as Denmark, Sweden, and Germany (though the U.S. beat France):

…countries in the higher rankings of the IPRI are primarily advanced industrialized economies, particularly Western Europe (Scandinavia) and North America. Countries that show a weak performance with respect to property rights protection are African and Latin American nations, in addition to the Central European nations. … better performing countries (1st Quartile in ranking) enjoy, on average, a GDP per capita income of more than eight times their counterparts at the lower quartile of the Index. … citizens of countries in the top quartile in the IPRI ranking enjoy a per capita income that is more than seven times that of their counterparts in the bottom quartile. … the correlation between the IPRI rating and GDP per capita amounts to a value of eighty-nine percent.

Europe’s Insane Agriculture Subsidies

American politicians have created a wretched system of agricultural subsidies, but it seems that Europe’s lawmakers win the prize for concocting the most perverse ways to squander tax money. The Times reports that there is now a secondary market in buying and selling agricultural subsidy entitlements:

City dwellers are making huge profits out of an EU loophole that allows people who have never set foot on a farm to claim European farm subsidies. …Auctioneers and brokers who used to sell cattle and farm-land are now focusing their attention on selling the rights to receive European taxpayers’ money — known as entitlement trading — in what one described as a “ferocious” market with the rights to subsidies “flying off the shelf”. …Open auctions are being held — with one in Aberdeen due next Friday — while investors are also buying the rights to subsidies over the telephone, through brokers, through internet auction sites and inter-active trading. …Under EU regulations, only someone classified as a farmer can buy the right to receive subsidies, but to be classified officially as a farmer, people need only hold a lease on a minimum of 1.7 acres for ten months of the year, and never need to visit it. Scottish landowners are now leasing out vast tracts of rocky highland for as little as £5 an acre a year, so that investors can claim to be farmers. For each acre you lease, you can buy annual subsidies averaging £100 an acre, but which can rise to over £1,000 an acre.

A newspaper in Scotland, meanwhile, reports that one dairy farmer has figured out how to scam the system for about $2 million per year - most of which is received as a subsidy for milk that does not exist:

A Scottish dairy farmer has exploited a glaring loophole in European law to annually earn the right to claim more than £1million in subsidies. William Hamilton and Sons, of Meldrum Farm, Blairdrummond, Stirling, has taken advantage of a flaw that allows it to get handouts on almost nine times the amount of milk it produces. Under EU law, the business will continue to qualify for the lottery-size payment annually until 2012 - even if it stops producing milk.

British Taxpayers Pay to Give Self-Esteem Massages to Welfare Recipients

In the global contest to waste taxpayer money, the U.K. has a very strong entry. According to the Times, people who already receive handouts are now getting taxpayer-financed shopping sprees, beauty treatments, and other goodies to supposedly build their confidence. Not surprisingly, European Union funds also are subsidizing this boondoggle, so at least British taxpayers can take comfort from the fact that some of the cost is shifted to people in other parts of Europe:

The government is paying for unemployed single parents to have massages, beauty treatments and shopping sprees to “boost their confidence” and encourage them to attend job centre appointments. The treats, part of a programme named Big Brother…, include £30 to spend on a day out, as well as lunch and childcare. …A brochure describes it as a “free two-week scheme that will boost your self-esteem and supercharge your confidence”. Organisers said it would be “nice” if participants found work, but this was not vital. …A man from Whitley Bay, Tyne and Wear, whose teenage daughter works at a salon involved in the scheme, said: “She was baffled when she was told these women were getting treatment for nothing. They had their make-up done, they had facials, they had their nails filed and some even had their ears pierced. “My daughter doesn’t get a penny from the government and will earn less than these single mothers get in benefits. What message does this send out?” …Martin Callanan, a Conservative MEP for the North East, said: “There are lots of other parents, not to mention pensioners, who would like the state to pay for their pampering. It is suspicious that they are unable to tell us how much this is costing taxpayers.”

An Extra $15 Billion for Farm Programs

Further to David’s post yesterday, some telling details about the Senate Budget Committee’s ideas for “fiscally responsible” farm policy. Starting on page 54 of this document, section 306 the “Deficit-Neutral Reserve Fund for the Farm Bill” (which is a cute name – what chances do you give of this staying a “reserve fund”?) states that:

The Chairman of the Senate Committee on the Budget may revise the allocations, aggregates, and other appropriate levels and limits in this resolution for a bill, joint resolution, amendment, motion, or conference report that- 

  1. reauthorizes the Food Security and Rural Investment Act of 2002;
  2. strengthens our agriculture and rural economies;  
  3. provides agriculture-related tax relief; 
  4. improves our environment by reducing our Nation’s dependence on foreign sources of energy through expanded production and use of alternative fuels; or 
  5. combines any of the purposes provided in paragraphs (1) through (4); 

by the amounts provided in that legislation for those purposes up to $15,000,000,000 over the total of fiscal years 2007 through 2012, provided that such legislation would not increase the deficit over the total of the period of fiscal years 2007 through 2012.

Farm lobby groups were relatively happy with the 2002 Farm Bill, and would be still were it not for the inconvenient fact that market prices of some commodities are so high, and projected to remain high, that government spending on price-linked subsidies will probably be relatively low over the next few years (falling from about $15 billion annually to about $8 billion). Apparently, high market prices are not sufficient to please some farm groups, hence the extra $15 billion of your money that the Senate has seen fit to allocate to “any of the purposes provided in paragraphs (1) through (4).”

On today’s agenda, a group of congressmen are introducing a bill regarding the reauthorization of the farm bill. From the press release (via Ken Cook):

The bill reforms the Farm Bill to make a major new investment in the development of renewable energy on American farms, promote resource conservation, provide consumers with healthier food choices, and boost farm profitability. The Healthy Farms, Foods, and Fuels Act of 2007 also includes provisions to reduce greenhouse gas emissions on farms and fight global warming, and to expand programs to bring healthier foods to school cafeterias.

That’s quite a wish list.

Cato’s Center for Trade Policy Studies is on the case, though. Stay tuned for our alternative ideas for the farm policy, released shortly.

Tax Harmonization Equals Higher Taxes

The politicians and bureaucrats in Brussels argue that taxes have to be equalized to improve the “efficiency” of the market. They make this rather absurd claim and then vehemently deny that tax harmonization has anything to do with making taxes higher. So why, then, does every tax harmonization decision in Europe inevitably result in higher taxes? The latest effort to increase the minimum diesel tax in the European Union, as reported by the EU Observer, is ample proof that tax harmonization is about giving politicians more money and power:

The European Commission has tabled a controversial bill to raise the minimum duty on diesel from 2012, aimed at stamping out so-called fuel tourism … Mr Kovacs’s paper suggests harmonizing the minimum level of excise duties at €359 per 1,000 litres of diesel in 2012 and subsequently at €380 in 2014, something which would force 21 EU states to increase their current rates. …fuel tourism cost Germany – believed to be the strongest advocate of the tabled proposal - €1.9 billion in 2004, as excise duties represent roughly between 30 to 60 percent of the pump price and are responsible for six to 18 percent of the running costs of a road haulage business.

Tax Competition Forces Lower Tax Rates in Germany

The Wall Street Journal celebrates the putative announcement of a nine percentage point reduction in Germany’s corporate tax rate. There is a dark lining to this silver cloud since there are hidden tax increases included in the proposal. The initiative also leaves in place some loopholes that could have been used to finance even lower tax rates, but it is nonetheless encouraging to see that one of Europe’s biggest cheerleaders for tax harmonization is being forced to join the tax-cutting bandwagon: 

Europe’s vibrant tax competition has finally reached Germany, which usually prefers to sit back and tut-tut while its neighbors cut taxes and grow their economies. Chancellor Angela Merkel’s cabinet today is expected to slash the top corporate tax rate to 29.8% (the average federal-municipal rate) from 38.7%. That’s still a far cry from flat-tax Slovakia’s 19% or Ireland’s 12.5%. But it would move Germany from the third-highest corporate tax rate in the OECD, after Japan and the U.S., to a more comfortable middle position. …The Finance Ministry missed the opportunity to simplify the tax system in one go. Getting rid of tax exemptions for corporations – thereby broadening the tax base – would have been a useful move. It would have had the added benefit of giving Berlin more room to cut rates beyond the planned nine percentage points. …Over the long run, the corporate tax cuts will likely increase revenues by encouraging economic activity and tax compliance.

The Good News behind Today’s Trade Deficit Report

America’s broadest trade account reached another record deficit in 2006, according to a report this morning from the U.S. Commerce Department. The U.S. current account deficit reached $857 billion last year, which will predictably unleash a lot of wailing and gnashing of teeth in Washington today about the alleged failure of U.S. trade policy and the menace the deficit poses to U.S. economic growth.

The deficit doomsayers are wrong yet again. Far from being a sign of failure, today’s report contains a lot of good news if you care about the freedom of Americans to engage in international commerce. U.S. exports of goods and services last year were up by 12.7 percent from 2005, and imports grew by 10.5 percent, stoked by strong demand from American consumers and producers alike. Driving the record deficit last year were continued inflows of foreign capital, including a 67 percent jump in foreign direct investment. Growing levels of trade and foreign investment have boosted U.S. growth, job creation, and rising real wages.

As I have argued for a long time now, the trade deficit does not mean what our politicians and cable commentators keep telling us it means. For example, in a Free Trade Bulletin of mine published this week, I found no evidence that rising trade deficits are associated with slower economic growth. In fact, more robust economic growth typically translates into a rising current account deficit. 

If the expanding current account deficit is a drag on growth, somebody forgot to tell the U.S. economy.