European Politicians Want China to Adopt a Welfare State

Guided by the mercantilist superstition that imports somehow are bad, politicians in Europe are trying to figure out how to reduce the amount of Chinese goods available to European consumers. To their credit (to offer a back-handed compliment), the policies they are advocating - for China to adopt European-style levels of income redistribution - would be very effective. High tax rates and excessive levels of government spending would hamstring China’s economy. The EU Observer reports on European efforts to export bad policy:

EU top officials along with employment and social affairs commissioner Vladimir Spidla on Friday went to Beijing to advocate improvement of social welfare and worker protection. … “If we talk to them about health and safety at work, about social security and they see themselves that there is a necessity to change things in order to have a sustainable economy in the long-term that will also decrease possibilities for social dumping,” said Mr Spidla, according to AFP. ”If they decide to copy the European pension model, it means they consider it to be the best,” he continued. Social dumping – when countries with weak labour and safety standards export cheap goods to a state with more rigorous legislation and protection – is a strong point of contention between Brussels and Beijing. …Mr Spidla said he hoped the EU’s dialogue would “help China develop modern systems of social security.”

Financial Times Gives Publicity to Swiss Canton’s Radical Low-Tax Policies

Regular readers know that Canton Obwalden recently voted to implement a 1.8 percent flat tax. That reform, combined with other supply-side policies, is garnering some favorable publicity for the sparsely-populated canton. The Financial Times reports on the pro-growth changes, and acknowledges the vital role of tax competition:

…in recent months, Obwalden, whose population accounts for just 34,000 of Switzerland’s 7.5m total, has been punching above its weight. Desperate to stem a haemorrhage of business and wealthier residents to more cosmopolitan places, the Christian Democrat-dominated cantonal government has turned to taxation to stop the slide. …the government [adopted] an ultra-low, flat-rate tax – that took effect on January 1 this year. The move has attracted attention beyond Switzerland’s borders. The European Commission has taken issue with its most prominent non-member on the allegation that Switzerland’s differential cantonal taxes put European Union companies at a disadvantage. Some EU countries have also been riled by Switzerland’s ability to attract high-profile millionaires through one-off tax deals. Last year, Johnny Halliday, the ageing French rock star, became the latest in a stream of foreigners to up sticks. …Proponents argue that allowing cantons, and even individual towns and villages, to set their own rates stimulates competition and keeps taxes down by boosting efficiency. …The reduction in corporation tax to 6.6 per cent, and a further cut to 6 per cent from January 1, has led to a fivefold increase in the number of new companies setting up in both 2006 and 2007. While Mr Wallimann concedes many are just letterbox operations, some have created genuine jobs. He says there has been no rancour with other cantons or accusations of beggar-thy-neighbour policies. “Everyone in Switzerland understands tax competition. It keeps everyone on their toes.

Don’t Believe Everything You Read

Readers may have noticed that the fringes of the blogosphere have been aflame with attacks on the Cato Institute and several of our staff members—and former staff members, and former Board members, and occasional writers, and friends, and people we once met at a cocktail party—all because of our attempt to separate the grand old cause of classical liberalism from racism and bigotry.

Readers may also have noticed that we haven’t responded to any of these attacks. I published one statement setting forth my view that people who write racist newsletters “are not our comrades, not part of our movement.” And that’s been the extent of our response. (Though of course a few of my colleagues who maintain private blogs have written about the current controversy there.)

Indeed, you might note that this blog has never mentioned the name of the proprietor of the website where many of the vicious attacks have appeared, who is also widely reported to be the author of those reprehensible passages that have so embarrassed his political patron. Some people tell us they deplore “libertarian infighting.” Well, I’d make two responses to that: We’re not fighting. And people who defend racist writings (though almost never by actually quoting them, I note) are not what I’d call libertarians.

Let it not be thought that by ignoring these critics we tacitly concede their wild accusations and innuendos. Many of the things that have been written about us are false, or intentionally misleading, or wildly conspiratorial, or frankly nuts. (Of course, a few of the charges are true. I do in fact live near the Orange Line of the Washington Metro, and Reason magazine’s Washington office is on the Red Line, and red is next to orange in the color spectrum.) The reason we’ve refrained from answering these libels stems from a bit of folk wisdom I learned growing up in the South: Never wrestle with a pig; in the first place, you get dirty; and in the second place, the pig likes it. 

Besides, we’d rather take on bigger game. My colleagues and I will continue to spend our time arguing with big-government liberals and big-government conservatives, criticizing the Iraq war and the federal tax code, publishing the ideas of Bastiat, Mises, and Hayek in languages around the world, and skewering wasteful and unconstitutional government programs.

But I’ll take just a moment to repeat what I said a few days ago:

Libertarians should make it clear that the people who wrote those things are not our comrades, not part of our movement, not part of the tradition of John Locke, Adam Smith, John Stuart Mill, William Lloyd Garrison, Frederick Douglass, Ludwig von Mises, F. A. Hayek, Ayn Rand, Milton Friedman, and Robert Nozick. Shame on them.

The People Who Govern Us

Thank God we have Congress to run our lives:

Congresswoman Marcy Kaptur [(D-Ohio)] came to a House committee hearing on Thursday prepared to ask U.S. Treasury Secretary Henry Paulson tough questions about his involvement in the subprime mortgage crisis.

Unfortunately, she was questioning the chairman of the Federal Reserve.

The Ohio Democrat, at a House of Representatives Budget Committee hearing, said she wanted to know what Wall Street firms were responsible for the securitization of subprime mortgages.

She then asked: “Seeing as how you were the former CEO of Goldman Sachs…” But the only person testifying at the hearing interrupted.

“No, no, no, you’re confusing me with the Treasury Secretary,” said Federal Reserve Chairman Ben Bernanke.

“I’ve got the wrong firm? Paulson, Oh, OK. Where were you sir?” Kaptur said.

Bernanke noted that he was head of the Princeton University economics department.

I guess her staff didn’t brief her very well. But really, if she can’t tell the difference between the secretary of the Treasury and the chairman of the Federal Reserve Board, should she be overseeing the budget of the United States government?

And you know how critics of term limits say that we don’t want to lose all the expertise of the experienced members of Congress? Representative Kaptur has been in Congress for 25 years. I guess that expertise will be kicking in real soon.

Hat tip: Jon Henke.

Economic Retardant Package

Whether you have faith that a blast of demand-side fiscal stimulus can jump start the economy or not, policymakers are moving with dispatch to rig up a defibrillator. 

A couple hours ago, President Bush announced his support for a $140 billion “tax relief” package (scare quotes because, as Chris Edwards points out, we’re talking about money borrowed by the Feds on our and our children’s credit to be repaid by us and our children with interest), which amounts to about 1 percent of GDP.

The president is leaving to Congress the details of which citizens in which income groups get checks and how much. Chances are good that the Democratic Congress will produce a plan to get bigger checks into the hands of those who are most likely to spend it all and quickly — lower- and middle-income Americans. But if getting lower- and middle-income Americans to spend more is the key to reversing our slowing economy, why is the next big item on the House Ways and Means Committee’s docket antagonistic trade legislation that would make Chinese-produced goods more expensive? The committee is reportedly planning to put together a “China Bill” from the dozens of pieces of legislation introduced in the first session, including bills aimed at Chinese subsidization, dumping, and currency misalignment.

Think about it. Americans spent about $325 billion on imports from China in 2007 (actually, that figure is the customs value at the U.S. port, so U.S. consumers probably spent 10 to 20 percent more than that after factoring in the transportation, selling, and administrative expenses and profits reflected in the final prices). Lower- and middle-income Americans likely accounted for the majority of that spending.

Since the Chinese yuan was unhitched from a pure dollar peg in July 2005, it has appreciated against the dollar by almost 15 percent. Theory suggests that U.S. imports should decline in light of the higher relative prices to U.S. consumers, but they haven’t. Between July 2005 and July 2007, the yuan appreciated by about 10 percent against the dollar, yet imports from China increased by 36 percent between January-July 2005 and January-July 2007. (This paper goes into more detail about currency values and trade flows).

If, in 2008, the yuan increases in value 25 percent against the dollar (which is what many in Congress would like to see and is the object of some of the pending legislation) and U.S. demand is identical to 2007 (no new demand and old demand remains unresponsive to higher Chinese prices), then imports from China would total about $406 billion. In other words, $80 billion ($406 – $325) of the $140 billion “tax relief” package would go down the tubes, not supporting an ounce of additional U.S. economic activity.

So, is Congress not working at cross-purposes when it doles out cash to Americans to support economic activity and then limits the activity that can be supported by pursuing other policies that devalue that cash? Some might say that spending money on imported consumables doesn’t support U.S. economic activity, but they would be wrong. There is plenty of U.S. value-added in an import purchased on American retail shelves AND some percentage of the revenue that goes to China will be devoted to purchasing U.S. exports.

Perhaps the slowing U.S. economy juxtaposed against surging U.S. exports to a growing world economy will give Congress a fresh perspective on the benefits of trade.

Thomas Jefferson at Cato

Today’s Wall Street Journal gives a warm review to the new book Twilight at Monticello by Alan Pell Crawford:

Alan Pell Crawford treats his subject with grace and sympathetic understanding, and with keen penetration as well, showing the great man’s contradictions (and hypocrisies) for what they were…. Drawing on new archival sources, Mr. Crawford reconstructs daily life at Monticello and depicts a colorful supporting cast of eminent personages, family members and retainers.

Alan Crawford will discuss Twilight at Monticello at the Cato Institute on Tuesday, February 19. He promises to discuss Jefferson’s growing concerns about slavery and how he became a radical decentralist and admirer of the New England townships, where, he believed, the real fire of liberty burned bright. The event will begin at 6:30 p.m., so our hard-working friends can work a full day and still join us for a glass of wine and a new look at the man George Will called “the man of the millennium.”

The Corruption of Barack Obama

Barack Obama stands accused of moral shortcomings regarding money in politics: he has not invited the press to all of his fundraisers.

Obama has voluntarily disclosed his bundlers and opened some fundraisers to the media. But that is not enough. He is not inviting the media to all his fundraisers, probably to protect the privacy of his supporters. After all, Hillary may yet become president, and like most politicians, she is not known for forgiving and forgetting.

Obama might learn a lesson here. If you give the media what they want, they will only demand more. If you give them access to all your fundraisers, they will write stories about how big donors are corrupting the once-promising reformer.  On the other hand, if you don’t let them come to the fundraisers, they will write stories about how big donors are corrupting the once promising reformer.

The media have only one storyline about private money in politics: it corrupts the process. You don’t get a pass by supporting their crusade to restrict private money in elections (Obama does) or by giving in to their endless demands for access. They will write the same story.

Obama has shared that narrative until now. He has promised to move against big money when he has power. He is also famously open-minded. Perhaps his own “corruption” might occasion some rethinking about the politics of “reform.”