Should We Execute Bad Regulators?

I just sent this letter to the editor of the Washington Post:

The lack of outrage about China’s horrific execution of a corrupt food and drug regulator in a recent editorial [“Rough Justice,” July 14] was itself outrageous.
 
Zheng Xiaoyu was put to death for (allegedly) taking bribes that enabled unsafe products to reach the market. The death toll thus far is hundreds of lives lost in China and Panama.
 
Dr. David A. Kessler was commissioner of the U.S. Food and Drug Administration (FDA) from 1991 through 1996. In 1988, researchers at Harvard University had demonstrated that widespread use of aspirin at the onset of a heart attack and daily for 30 days afterward could save 5,000 lives per year in the United States. Yet Dr. Kessler’s FDA refused to let aspirin manufacturers advertise that extremely important information until 1996. That policy resulted in as many as 30,000 unnecessary deaths during Dr. Kessler’s tenure. No one has ever accused Dr. Kessler of taking bribes. But he surely benefited personally from his position and from his aggressive regulatory policies, going on to be named dean of Yale University’s medical school.
 
If Dr. Kessler’s political opponents in the U.S. government had put Dr. Kessler to death for his actions as a regulator, I think the Post would denounce his execution as barbaric. But then why be so blithe about an equally barbaric execution in China?

I’m used to people valuing the lives of the FDA’s Type I victims more than the lives of its Type II victims. But valuing the lives of Type I victims more than the lives of the regulators themselves is a new one by me.

Norway’s Hypocritical Statists

The socialist government of Norway is leading a new campaign against tax havens. Norwegian workers can be thankful, though, that the state pension fund is not consumed by the same big-government ideology. According to a Norwegian newspaper, the oil-enriched fund invests billions of dollars in tax haven companies, thus ensuring that more money actually winds up in the hands of retirees rather than politicians. But if the Norwegian government’s anti-tax competition campaign is successful, all workers will be hurt since politicians all around the world will be more likely to raise taxes if they think the geese that lay the golden eggs cannot fly away:

Norway’s center-left government coalition has made an issue of battling offshore tax havens. Both Finance Minister Kristin Halvorsen and the minister in charge of foreign aid, Erik Solheim, have harshly criticized companies, both Norwegian- and foreign-owned, that avoid taxes by registering themselves in countries with low or non-existent tax obligations. At the same time, however, the state’s massive pension fund that’s fueled by Norway’s oil revenues has been investing billions in companies that are registered in tax havens. This includes companies “based” in places like the Cayman Islands, Bermuda and Cyprus. … Finance Minister Halvorsen has characterized Norwegians who invest in tax havens as a “provocation against Norwegian taxpayers.” She’s not demanding, though, that the state pension fund blacklist tax haven investments.

America’s Anti-Competitive Corporate Income Tax

The Wall Street Journal editorializes about America’s corporate income tax, which now has the dubious honor of imposing the highest rate in the developed world. This punitive system is bad for workers, as the WSJ notes, but it is even counter-productive for politicians because the high tax rate probably results in less tax revenue:

At least 25 developed nations have adopted Reaganite corporate income tax rate cuts since 2001. The U.S. is conspicuously not one of them. …Even in France, of all places, new President Nicolas Sarkozy has proposed reducing the corporate tax rate to 25% from 34.4%.

What do politicians in these countries understand that the U.S. Congress doesn’t? Perhaps they’ve read “International Competitiveness for Dummies.” In each of the countries that have cut corporate tax rates this year, the motivation has been the same — to boost the nation’s attractiveness as a location for international investment.

Germany’s overall rate will fall to 29.8% by 2008 from 38.7%. Remarkably, at the start of this decade Germany’s corporate tax rate was 52%. All of which means that the U.S. now has the unflattering distinction of having the developed world’s highest corporate tax rate of 39.3% (35% federal plus a state average of 4.3%), according to the Tax Foundation.

…Lower corporate tax rates with fewer loopholes can lead to more, not less, tax revenue from business. …Tax receipts tend to fall below their optimum potential when corporate tax rates are so high that they lead to the creation of loopholes and the incentive to move income to countries with a lower tax rate.

Ireland is the classic case of a nation on the “correct side” of this curve. It has a 12.5% corporate rate, nearly the lowest in the world, and yet collects 3.6% of GDP in corporate revenues, well above the international average. The U.S., by contrast, with its near 40% rate, has been averaging less than 2.5% of GDP in corporate receipts. …[M]ost economists understand that corporations don’t ultimately pay any taxes. They merely serve as a collection agent, passing along the cost of those taxes in some combination of lower returns for shareholders, higher prices for customers, or lower compensation for employees. In other words, America’s high corporate tax rates are an indirect, but still damaging, tax on average American workers.

The Futility of Government Education Standards

Parents want to know how well prepared their children are academically. Employers want to know what job applicants know. Educational standards and testing are thus useful tools. Leaping from that fact to the belief that state or federal government should impose a single set of standards or tests on all students is utterly unjustified.

When the government imposes, for instance, a high-school leaving test that students must pass in order to graduate, one of two things happens: the test is watered down to the point of meaninglessness to ensure that virtually every student receives a diploma, or the test is deferred or eliminated to ensure that every student receives a diploma.

The latter course was adopted by Washington state several months ago, and by Texas two days ago. Once a government gets into the business of handing out diplomas, it is compelled by political expediency to ensure that virtually all students are awarded diplomas. You can’t get re-elected if voters think that you’ve ruined their children’s career prospects by denying them a government diploma.

Most people want to know how well students are actually performing, especially at the end of high school, but government diplomas cannot tell us that because they must be easy enough for virtually everyone to obtain.

There is an obvious solution to this dilemma: get the government out of the diploma business. While it is important for diplomas to be meaningful, to connote some specific set of skills and body of knowledge, it is not necessary for every student to earn precisely the same diploma, or for diplomas to be awarded by the government. The private sector handles knowledge certification all the time. In the computer industry, for instance, database and networking companies certify workers as competent to use their products. These certifications are meaningful, but different from one another.

Diplomas that connote more advanced skills in a wider range of subjects would be more difficult to obtain, but would have more value in the eyes of employers and institutions of higher education. Every student could seek to obtain the most advanced diploma he or she is capable of attaining, and hence diplomas would become a useful source of information about a student’s competencies. Diplomas could be awarded by individual schools or by educational certification agencies. There is no need for the government to get involved. In fact, government involvement, as noted above, would muck up the process.

Government intervention in any industry is fraught with unintended consequences, and this is true most of all in education, the field into which governments have intruded most aggressively.

Big-Government Surgeon General

I have written before about how the U.S. surgeon general has become the national nanny, nagging us to stop smoking, lose weight, exercise more and never leave home without a condom. James W. Holsinger, a surgeon and cardiologist from Kentucky, is President Bush’s latest nominee for the post. His nomination has been in trouble because of some retrograde comments and writings on homosexuality. But it is also worth noting that Dr. Holsinger testified yesterday he also supports:

  1. Universal health insurance;
  2. Banning pharmaceutical advertising;
  3. Banning the advertising of sugary cereals and other “junk food” on television;
  4. Federal regulation of vending machines in schools; and
  5. Increasing tobacco taxes as part of a campaign to “make America a tobacco-free nation.”

All in all, a perfect national nanny, and another example of President Bush’s big-government conservatism at work.

French Drivers Defy Speed Cameras

French politicians may be hopeless statists, but at least the French people still have a bit of laissez-faire spirit. Not only do they evade taxes at nearly twice the U.S. rate, they’ve also figured out a clever, market-based strategy for dodging part of the penalty when caught on the roads by speed cameras.

The UK-based Times reports:

It is the latest ruse on the roads of France: drivers are avoiding disqualification by trading licence points on the internet. Complete strangers are taking the rap for speeding offences in return for up to €1,500 (£1,000), and police admit they are powerless to intervene. Even pensioners who have not driven for many years are getting in on the act. The online scam is also popular in Spain and other European countries, and authorities believe it may soon be introduced in Britain. It threatens to make a mockery of a French crackdown on road safety and embarrass President Sarkozy….

The technique is simple. In return for money, the seller provides his or her name and licence number in response to the speed camera ticket. The notice that is automatically sent to the owner of the offending vehicle includes a form for identifying another driver. Checks are extremely rare. The black market, which the authorities admit they are unable to prevent, is an unintended consequence of stronger enforcement of the highway code and especially of an exploding number of speeding tickets since automatic radar was installed on French roads on 2003.

…It has become routine in families of all classes for repeat offenders to ask friends and relatives with clean licences to lend their names. This explains an apparently steep rise in bad driving by older citizens. The rate of offences by drivers over 65 jumped 38 per cent from 2003-05, when the speed cameras began to bite. 

…One internet user in Spain listed his grandmother’s licence points for €250 each, plus the cost of any traffic fines. “I have persuaded the poor woman to renew her licence, with the sole objective of having more points,” he said.

British “Fat Tax” Would Mean More Intrusive Government

According to a Reuters report, a new study from the United Kingdom estimates that more than 3,000 lives would be extended if the 17.5 percent value-added tax was imposed on supposedly unhealthy foods. Without endorsing the specific estimates, the underlying economic analysis is sound. Certain foods presumably are unhealthy (at least for people who already are overweight) and taxing those foods will change behavior (just like taxing work, saving, and investment changes behavior).

But this does not mean, as a matter of principle, that the government should use the tax code to dictate private choices. Once politicians wander down that path, what will stop them from taxing people at higher rates if they don’t jog at least three times a week? Or how about tax credits for eating green vegetables? Some might respond that taxpayers have a right to insist on healthy behavior since they are paying – via the government-run health care systems – the medical costs of unhealthy people. But this highlights the problem of a socialized health care system. If people are responsible for the consequences of their own choices, then there is less temptation for nanny-state policies. For what it’s worth, this does not mean that the U.K. should maintain a VAT exemption for food. But the exemption should be eliminated as part of a plan to reduce the general tax burden, not as a scheme to control people’s lives:

A “fat tax” on salty, sugary and fatty foods could save thousands of lives each year, according to a study published on Thursday. Researchers at Oxford University say that charging Value Added Tax (VAT) at 17.5 percent on foods deemed to be unhealthy would cut consumer demand and reduce the number of heart attacks and strokes. The purchase tax is already levied on a small number of products such as potato crisps, ice cream, confectionery and chocolate biscuits, but most food is exempt. The move could save an estimated 3,200 lives in Britain each year, according to the study in the Journal of Epidemiology and Community Health. …Any “fat tax” might be seen as an attack on personal freedom and would weigh more heavily on poorer families, the study warned. A food tax would raise average weekly household bills by 4.6 percent or 67 pence per person. Former Prime Minister Tony Blair has previously rejected the idea as an example of the “nanny state” that might push people away from healthy food.