Earlier this year, I had some fun when it was revealed that the president’s new Treasury Secretary had a lot of money in the Cayman Islands.

After all, leftists want us to believe tax havens are rogue regimes that should be eliminated. Some of them even want military intervention against these low-tax jurisdictions!

Much to my amusement, Mr. Lew even pretended he was financially illiterate to justify making sensible decisions to invest via the Cayman Islands.

And unlike the president’s first Treasury Secretary, Mr. Lew didn’t break the law and cheat on his tax return.

You probably won’t be surprised to learn that Secretary Lew wasn’t the first Democrat to utilize tax havens. Lawmakers such as John Kerry, Bill Clinton, John Edwards, and others on the left also have utilized tax havens to boost their own personal finances.

And it appears that Mr. Lew won’t be the last Democrat to be caught with his hands in the cookie jar.

Here’s some of what’s being reported by the New York Times in regard to the president’s nominee to be U.S. Trade Representative:

Michael Froman, a longtime White House economic aide nominated to be President Obama’s trade representative, has nearly half a million dollars in a fund based in the Cayman Islands, according to financial documents provided to the Senate Finance Committee. …White House officials said Mr. Froman played no role in creating, managing or operating the investment funds and had done nothing wrong. “Mike Froman has paid every penny of his taxes and reported all of the income, gains and losses from the investment on his tax returns,” Mr. Whithorne said.

I don’t remember that compliance with the tax law mattered when Obama and the media were going after Romney in 2012 for legally investing in the Cayman Islands.

Could it be that tax havens are okay, but only if you support big government?

Read the rest of this post »

I’m in Beijing for a conference organized by the International Department of the Central Committee of the Communist Party of China. We have a short but intensive program, with several American and Chinese scholars as well as Chinese political officials. I just hope I will be semi-conscious, since the 12-hour time difference means a flip of day and night.

As we drove into the city I was reminded how much the country has changed over the last two decades or so since my first trip here.  We flew in on Air China, which is fully competitive with Western airlines. The airport is modern. Some of the passport clerks actually smile.

Once clearing passport control, there are no further barriers to entry. No one questions you as you head out of customs on to your next flight or into the Beijing.  A freeway leads into what looks like a modern city. Colorful advertising showcases Western as well as Chinese products and styles. Kentucky Fried Chicken and Pizza Hut make their appearance.

Some of the office buildings sport their names in English as well as Chinese. We are staying at an older hotel, the Wanshou, which was originally built in 1966 to house foreign guests. It retains the overall feel of old communist construction but has been refurbished, making it quite comfortable. The Wanshou passed my test of serving Diet Coke, but the gym opens at 9—which suggests it doesn’t have a lot of Western guests.

However, quibbles aside, Beijing is a modern city. It was moving in that direction 20 or 25 years ago, but it’s now there.

Perhaps the most dramatic and obvious change is the traffic. Chinese cities once were renowned for their swarms of cyclists, who weaved in and out of what appeared to be constant chaos on the roads. Today the swarms are made up of automobiles. To reduce traffic, Beijing actually bars residents from driving certain days depending on their license plate numbers, but, noted one of my hosts, more Chinese are wealthier and therefore can afford a second car—and thus a second license plate.

Rural China remains poor and underdeveloped, but even that is changing.  China poses a serious geopolitical challenge to America, but it is important to keep two basic factors in mind. 

First, hundreds of millions of people who once would have died in immiserating poverty now enjoy much better lives.  Second, while one should never underestimate the appeal of nationalism, all Chinese now have much at stake in a peaceful regional and global order.  While the future remains uncertain, there are good reasons to hope for, and even expect, a productive and cooperative future.

On to the conference!

This is the most important question in economics: Why did the Industrial Revolution happen when and where it did–and not before or elsewhere? Fail to understand that and you may enact policies that will kill the unprecedented human progress it launched: a multiplication in the average worldwide per-capita income of between 16 and 100 times in the span of just 200 years. Compare that to the preceding thousands of years over which worldwide per-capita income was largely unchanged.

In her brilliant 2011 book Bourgeois Dignity, economist and historian Deirdre McCloskey shot down every leading explanation for this “Great Fact,” and then offered a new one: in the Netherlands and then Britain, entrepreneurship was accorded a widespread liberty and respectability it had never before enjoyed in human history. McCloskey will speak at the Cato Institute on this and related topics on June 20th at noon.

This exquisitely elegant explanation packs enormous punch for students of the history of economics. Among other things, it explains why the ancient Greeks–who invented democracy, the core forms of Western literature, joint-stock corporations, commercial insurance, and even steam-powered toys–never enjoyed an industrial revolution of their own. (The ancient Greek elites abhorred the idea of working for a living.)

As yet, though, there is no “implementation detail” for the Liberty and Dignity theory. Bourgeois Dignity is so successful at shooting down earlier explanations for the Great Fact because it describes the mechanisms by which they are proposed to have driven economic growth and then shows that the magnitude of their impact is simply insufficient. So far, it doesn’t seem that anyone has proposed a specific, quantitatively testable mechanism by which the change in popular rhetoric could have precipitated the 16-to-100-times innovation explosion.

To get the ball rolling, below is one proposal for such a mechanism. (Disclaimer 1: this is not my day job. Disclaimer 2: it wouldn’t be that easy to quantify–sorry.)

Liberty and Dignity for entrepreneurs/tinkerers/merchants raised the number of clever, dedicated innovators beyond a threshold that had never before been reached. Below that threshold, would-be innovators would often have hit stumbling blocks that they could not overcome, e.g., needing some as-yet-uninvented process/material/tool/concept to complete/commercialize their own innovation. Without that missing piece, their innovative efforts would have failed. Above that threshold, cross-pollination among innovators would have drastically reduced the number of insurmountable problems–innovators would increasingly have been able to borrow from their predecessors and contemporaries who were working on related problems. This cross-pollination would have required inexpensive information storage and retrieval (i.e., books), but it also would have required a critical mass of innovators simultaneously working on a vast array of problems, a critical mass that the widespread Liberty and Dignity for entrepreneurs created for the first time.

Call it, “James Burke’s Connections meets Deirdre McCloskey’s Dignity.” Just a thought.