Cato Daily Dispatch for November 9, 2005
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Big Government Questions Big Profits'Go to Hell,' Says Mugabe
Fixing Runaway Spending
Big Government Questions Big Profits
"[The nation's top oilmen] have been summoned by the Republican leadership of the Senate to appear today before two congressional panels and explain why prices climbed as high as they did and what they intend to do with their companies' soaring profits," reports The Washington Post. "The executives hope to persuade legislators not to take tough punitive action."
In a working paper "Economic Amnesia: The Case against Oil Price Controls and Windfall Profit Taxes," Cato senior fellows Jerry Taylor and Peter Van Doren demonstrate that government intervention would likely create fuel shortages and reduce investment in new gas supplies. They argue that prices are established by the interplay of supply and demand and that competition ensures consumers face the lowest possible prices. Today's relatively high prices will do more to encourage conservation and new supply than any combination of federal policies.
Warning that denying investors profits, but allowing them to book losses, amounts to one-way capitalism, the scholars argue: "Denying the industry the opportunity to make substantial profits when supplies are tight is both unfair (unless their losses are likewise alleviated during low-price periods) and counterproductive in that it will discourage investment in the oil business."
'Go to Hell,' Says Mugabe
"President Robert Mugabe told the U.S. ambassador to Zimbabwe to 'go to hell' on Tuesday, after the envoy blamed the country's economic and political crisis on mismanagement and corrupt rule," according to The New York Times. "State media said the ambassador, Christopher Dell, risked expulsion from the southern African country for his 'undiplomatic' criticism of the government in a public lecture."
In his speech, Dell quoted an article in the latest Cato Journal by economics professor Craig Richardson. In "The Loss of Property Rights and the Collapse of Zimbabwe," Richardson says that "the primary cause of Zimbabwe's 2000-03 collapse was its misguided approach to land reform. By revoking commercial farmland property titles for commercial farms, three disastrous consequences occurred: (1) Foreign investors lost faith in the rule of law and quickly moved money out of the country; (2) Three-quarters of the value of commercial farmland evaporated, leading to a net loss of wealth that far exceeded all the World Bank aid ever given to Zimbabwe; and (3) Agricultural production levels sharply dropped as commercial farmers took their sophisticated knowledge of farming practices to other countries."
The author continues: "The collapse of the manufacturing and banking sectors followed as a result. According to regression estimates made in this article, the overall ripple effects of the land reforms dragged economic growth rates down by an annual average of 12.5 percentage points for the years 2000-03, which made Zimbabwe the fastest shrinking economy in the world."
Fixing Runaway Spending
"The showdown isn't until Thursday, when the House is to vote on a plan to cut nearly $54 billion from the federal budget over five years," according to The Milwaukee Journal Sentinel. "Republicans say they want to trim the growth of entitlement spending and enact reforms to programs that are outdated, inefficient or too costly."
In a new book that came out today, Cato's budget expert Chris Edwards provides policymakers with solutions to the growing federal budget mess. Downsizing the Federal Government identifies more than 100 federal programs that should be terminated, transferred to the states, or privatized in order to balance the budget and save hundreds of billions of dollars. Proposing a balanced reform package of cuts to entitlements, domestic programs, and excess defense spending, Edwards argues that these cuts would not only eliminate the deficit, but also strengthen the economy, enlarge personal freedom, and leave a positive fiscal legacy for the next generation.
Downsizing the Federal Government discusses the systematic causes of wasteful spending, and it overflows with examples of federal programs that are obsolete and mismanaged. The book examines the budget process and shows how policymakers act contrary to the interests of average Americans by favoring special interests.
Greg Garner, editor, ggarner@cato.org
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