201506

June 30, 2015 4:16PM

Greece: Central Government Bloat

It’s hard to find anything written or spoken about Greece that doesn’t contain a great deal of hand wringing about the alleged austerity – brutal fiscal austerity – that the Greek government has been forced to endure at the hands of the so-called troika. This is Alice in Wonderland economics. It supports my 95% rule: 95% of what you read about economics and finance is either wrong or irrelevant.

The following chart contains the facts courtesy of Eurostat. The central government in Greece is clearly bloated relative to the average European Union country. The comparison is even starker if you only consider the 16 countries that joined the EU after the Maastricht Treaty was signed in 1992. To bring the government in Athens into line with Europe, a serious diet would be necessary – much more serious than anything prescribed by the troika.

Central Government Exenditure Per Capita

June 30, 2015 2:05PM

Free Market Capitalists Should Celebrate Ex‐​Im’s Demise, But the “Eternal Vigilance” Thing

Media Name: us-export-import-bank-via-afp1.jpg

At midnight tonight, the gears of crony capitalism will grind to a halt at 811 Vermont Avenue, NW, Washington, D.C. After 81 years of funneling taxpayer dollars to favored companies, projects, and geopolitical outcomes under the guise of advancing some vague conception of the “U.S. economic interest,” the Export-Import Bank of the United States will end its financing operations at midnight tonight. No more subsidies to Fortune 100 businesses. No more siphoning revenues from unwitting U.S. firms and industries. No more loan guarantees to wealthy, autocratic foreign governments. No more crowding out of private lending. No more taxpayer exposure to a Fannie Mae-like fiasco. No more bribery and corruption scandals. No more collaboration and lending to China’s Export-Import Bank – you know, the entity whose support for Chinese companies is alleged to threaten U.S. exporters and jobs, and is the most frequently cited imperative for reauthorizing Ex-Im. No more of any of this…for now.



Champions of small government and market capitalism should savor this rare victory. It was won with solid arguments, including over 20 years of analyses from Cato Institute scholars including Ian Vasquez, Aaron Lukas, Steve Slivinsky, Chris Edwards, Doug Bandow, Sallie James, and – perhaps most comprehensively and tirelessly – Veronique de Rugy. 

It was won because of columnist/scholar Tim Carney’s persistence in focusing the public’s attention on the corruption bred of corporate welfare and because of the analytical contributions of Heritage’s Diane Katz, the Competitive Enterprise Institute’s Ryan Young, and others who continued to make compelling arguments for shuttering the Bank, despite steep odds against that outcome.

It was won because certain libertarian groups and conservative activists made the issue a priority, recognizing that corporate welfare is as great a threat to liberty as is the Welfare State, and that reining it in should be a priority because success there would lend greater credibility to the effort to rein in the Welfare State.

It was won against great odds, including vast political expenditures and arm-twisting by U.S. business interests on Capitol Hill, a mainstream media that is reflexively unsympathetic to any cause associated with “Tea Party Types,” and a general aversion among establishment organizations to any challenges to the status-quo. Radical and reckless, excessive and extreme, ideological and idiotic have been the characterizations assigned by media, politicians, and Boeing lobbyists in their attempts to discredit legitimate efforts to purge “crony” and make “market” the new brand of capitalism.

And it was won because House Financial Services Committee Chairman Jeb Hensarling and Senate Banking Committee Chairman Richard Shelby, knowing the case against Ex-Im reauthorization was more substantive than the New York Times would allow, made good gatekeepers by putting the onus on Ex-Im proponents to answer the critics – a task at which they failed.

So, tonight at midnight, the Export-Import Bank will cease in its capacity to issue new financing. That is something to cheer. It may also be short-lived.  Proponents of the Bank have been regrouping and strategizing to move legislation to reauthorize the Bank at the soonest possible chance. In fact the White House is hosting a conference call this afternoon for the purpose of advancing that outcome. Here’s the text of the email:

Dear Friend,

Please join us for a conference call on Tuesday, June 30th, at 2:35 PM with President Barack Obama, Senior Advisor to the President, Valerie Jarrett, and Director of the National Economic Council, Jeff Zients, to discuss the importance of reauthorizing the Export-Import Bank of the United States. The Export-Import Bank is a critical tool to help U.S. businesses and workers succeed in global markets and grow their exports – it supports high-quality jobs, is a vital tool for small businesses, and doesn’t cost taxpayers a penny.  Its reauthorization is vital to U.S. competitiveness and leveling the playing field for American small business owners and workers.

To participate in this conversation, please find details below:

•            Date: Tuesday, June 30th, 2015

•            Time: 2:35PM EDT

To receive the call-in information, please RSVP here:

For those who wish to access live captioning of our call, please access the link here.

This call is off the record and is not for press purposes nor amplification on social media.

Thank you,

The White House Business Council

The battle may be over but the war continues.  Given the sway that conservatives have had on this issue, it will be interesting to see whether and how Speaker Boehner tries to circumvent Hensarling's committee to get a reauthorization bill to the floor.  Majority Leader McConnell believes there's enough support in the Senate for reauthorization, but most of the Republican presidential hopefuls have expressed opposition to reauthorization.  It seems to me that if Ex-Im reauthorization resurfaces in the weeks and months ahead, it will be an issue that provides Republicans with yet another opportunity to demonstrate commitment to limited government, free market principles. Maybe this time they'll see the value in reclaiming that brand.

June 30, 2015 1:43PM

Supreme Court to Consider Ending Forced Public‐​Sector Union Dues

Today, the U.S. Supreme Court announced that it would hear Friedrichs v. California Teachers Association, which asks the court to consider whether compulsory public-sector union dues violate the First Amendment right to free speech--which includes the right to be free from compulsory speech. The Cato Institute filed an amicus brief supporting the petitioners' request that SCOTUS hear the case.

In 26 states, public-sector unions can force non-members to pay dues anyway. As I noted last year: 

The unions contend that these compulsory dues are necessary to overcome the free rider problem (non-union members may benefit from the collectively-bargained wages and benefits without contributing to the union), but plaintiffs in Friedrichs v. California Teachers Association point out that numerous organizations engage in activities (e.g. – lobbying) that benefit members and non-members alike without giving such organizations the right to coerce non-members to pay. That’s especially true when the individuals who supposedly benefit actually disagree with the position of the organization. 

But even if unions could demonstrate that the dues were necessary to prevent freeriding, the U.S. Supreme Court held in Harris v. Quinn last year that “preventing nonmembers from freeriding on the union’s efforts” is a rationale “generally insufficient to overcome First Amendment objections.” Federal law allows dues-payers to opt out of the portion dedicated to express political activities (e.g. - lobbying), but the petitioners argue that public-sector collective bargaining itself is inherently political. As the Cato Institute's legal eagles explain:

Ever since the 1977 case of Abood v. Detroit Board of Education, it has been unconstitutional for unions to spend nonmembers’ compulsory dues on blatant political activity such as political ads. But unions can still collect so-called “agency fees” from nonmembers in order to fund activities “germane to [the union’s] functions as exclusive bargaining representative” such as the costs of collective bargaining to secure “advantages in wages, hours, and other conditions of employment.” Every year, public-sector unions must separate their political spending from their “agency fees” and give nonmembers an opportunity to opt-out of the political spending.

Yet, when it comes to public-sector unions, it is somewhat bizarre to say that some of the spending is “political” and some isn’t. A teachers union may run political ads advocating for particular public policy positions, but it also collectively bargains in order to fight for similarly “political” gains, such as class size, school year length, and teacher qualifications. In a sense, a teachers union is just another political party that lobbies the government for preferred policies, and, whether it is spending on political ads or collectively bargaining, both are “political.” 

In Harris v. Quinn, the majority appeared to signal that they agree with the petitioners' assertion and they cast a gimlet eye on Abood:

The Abood Court’s analysis is questionable on several grounds. Some of these were noted or apparent at or before the time of the decision, but several have become more evident and troubling in the years since then. [...]

Abood failed to appreciate the difference between the core union speech involuntarily subsidized by dissenting public-sector employees and the core union speech involuntarily funded by their counterparts in the private sector. In the public sector, core issues such as wages, pensions, and benefits are important political issues, but that is generally not so in the private sector. 

In other words, at least five justices appear inclined to hold that public sector collective bargaining is inherently political and that forcing someone to contribute toward it would violate the First Amendment right to be free from compulsory speech. If so, it would be a major blow to the teachers unions--significantly reducing their revenue and their political clout--and therefore a major victory for education reform. 

June 30, 2015 12:04PM

Will Immigrants Affect Economic Policy?

The New York Times has some wonderful Room for Debate pieces debating whether the American electorate is getting more liberal.  From Molly Worthen bemoaning the rise of secular libertarianism to Robert Reich repeating the mantra of the New Deal to Kay Hymowitz arguing that Millennials are not so liberal, all are worth reading. 

If the U.S. government does adopt more liberal economic policies over the next few decade, immigrants and their descendants will not be to blame.  There are four pieces of research that lend support to this view.

First, according to a working paper authored by Zac Gochenour at Western Carolina University and myself, the number of immigrants and their descendants has not affected the size of welfare benefits or spending on the state level from 1970 to 2010.  States have the power to set the benefit levels for numerous means-tested welfare programs and also have radically different flows of immigrants into or out of their borders - producing an ideal environment to test how immigrants and growing ethnic diversity affect the size of welfare benefits.  Although immigrants don’t shrink the welfare state, they don’t grow it either.  For every state like California and New York with many immigrants and a large welfare state, there is a state like Texas or Florida with many immigrants and a small welfare state.   

Second, according to an academic paper I co-authored with economists J.R. Clark, Robert Lawson, Benjamin Powell, and Ryan Murphy, increasing levels of immigration in the past predict more economic freedom in the future – both in the United States and internationally.  The story is slightly negative when looking at American states but the negative effect there is more than counter-balanced by the positive shift on the national level.  Although we can’t say that immigration caused that improvement in policy, we can say that immigration didn’t cause the economy to become less free.

Third, throughout American history the size of the federal government grows most rapidly when immigration is closed off.  The federal government grows much more slowly when the borders are more open, prior to 1930 and after 1970, than when they are closed during the 1930 to 1970 period.  What happened from 1930 to 1970?  Besides immigration being closed off, the New Deal, the Great Society, and a whole panoply of expensive government programs were initiated that were only possible because immigration was closed off.  Don’t believe that closing the borders was politically necessary to gain broad public support for those programs?  Paul Krugman and Vernon M. Briggs Jr. of the anti-immigration Center for Immigration Studies disagree with you (pg. 81-82).

Fourth, immigrants and their children have political opinions very similar to native-born Americans going back several generations.  In order to change public policy, immigrants and their descendants must first have significant differences of opinion with natives over these policies.  As Sam Wilson of George Mason University and myself found when we examined the General Social Survey data, immigrants have political and ideological opinions virtually indistinguishable from those of Americans.  Where small differences exist, they are entirely gone by the second-generation.  If immigrants and their children don’t differ from Americans very much, they won’t change public policy either.

One political party may gain more than another because of immigration but that doesn't mean that national policy will shift.  Policy, not the partisan identity of politicians, is what interests us.  American public opinion on economic and other policy matter might change in the near future but that change won’t come from the differing opinions of immigrants or their children - unless something big changes.    

June 30, 2015 11:04AM

Washington Is Fostering Anti‑U.S. Cooperation between Russia and China

Relations between the United States and Russia continue to deteriorate, with the U.S.-led NATO alliance planning to station troops and heavy weaponry on Russia’s border.  At the same time that U.S.-Russian relations are reaching frosty levels not seen since the days of the Cold War, ties between China and Russia are growing noticeably closer.  Symbolizing that trend was a powerful visual seen on television sets around the world in early May.  Chinese president Xi Jinping not only attended the celebration in Moscow marking the 70th anniversary of the end of World War II, he occupied the position of honor at the side of Russian president Vladimir Putin.  The image was especially powerful because the United States and several other major Western powers pointedly refused to attend the gathering to show their continuing displeasure with Russia’s annexation of Crimea and aid to rebel forces in eastern Ukraine. 

As I point out in a recent article in Aspenia Online, the events in Moscow were only one signal of a Russian-Chinese rapprochement that seems  motivated by a joint desire to curb America’s global dominance.  Bilateral economic agreements between Moscow and Beijing are on the rise, including a May 2015 $400 billion deal to sell Russian natural gas to the voracious Chinese economy.  In addition, Russia has now replaced Saudi Arabia as China’s principal source of oil.

The prevailing assumption in the West that Russia and China would become geopolitical competitors, if not outright adversaries, in Central Asia also apparently needs to be reassessed.  Following the May 8 Putin-Xi summit in Moscow, the two leaders signed a new declaration announcing the coordinated development of the so-called Silk Road Economic Belt in Central Asia.  Although Russian and Chinese ambitions in that region are still in conflict over the long run, it appears that both governments have declared a truce in their rivalry.

Significant bilateral arms sales agreements are creating yet another dimension to the relationship.  That point is apparent with Moscow’s recent commitment to sell the sophisticated S-400 air defense system to China.  Talks between leaders of the two militaries are also on the rise.

These diverse developments have one feature in common.  Moscow and Beijing now seem to worry more about Washington than they do about each other, and that shared apprehension is driving them to cooperate against the United States and its allies.  That trend should greatly concern U.S. policymakers.   Secretary of State Henry Kissinger once argued that it should be an important objective of the United States to make certain that its relations with both Russia and China are closer than their relations are to each other. 

That remains wise counsel.  The last thing that American officials should want is to drive two major powers that are natural adversaries into an alliance of convenience directed against the United States.  Yet Washington’s uncompromising policy regarding the Ukraine issue and the increasingly transparent U.S. containment policy directed against China are creating the possibility of such a nightmare.  A reassessment of the Obama administration’s strategy on both fronts is badly needed.

June 30, 2015 10:29AM

Marriage Policy Is a Mess. Here’s How to Make Sense of It.

Give Rand Paul points for trying: His opinion piece about marriage policy in the wake of Obergefell did better than many other Republicans have done. He did not call for resurrecting the dead – and politically toxic – Federal Marriage Amendment. He would appear to be actually considering the issues at stake, which is a good start.

But contrary to the promise of the headline (which he probably didn’t write anyway), the measures that Senator Paul recommends would not get government “out of the marriage business altogether.” Judging by what he actually wrote, local government would still control entry and exit from civil marriage, and civil marriage itself would apparently still continue to exist. Many federal consequences, like Social Security survivorship and the ability to sponsor an immigrant spouse, would presumably continue to flow from marital status - and they’d still be unavailable in any other way.

This isn’t such a terrible thing, necessarily. Marriage policy is really, really complicated. As long as we have a government, and as long as it’s making important decisions about our families and property, at least some parts of civil marriage may actually be worth saving. Marriage can serve as a protection against the state, one that (among lots of other things) keeps families together and makes the Social Security system run marginally more justly: If anyone deserves to recoup some of what the government takes by way of the payroll tax, it's the widow of the worker who "contributed.” And if anyone is competent to sponsor a new citizen, it must be that new citizen’s spouse.

Meanwhile, leaving the entry conditions of marriage to the states would have been neither crazy nor unprecedented. It’s what has very often happened throughout our country’s history, and if the Supreme Court had gone that route, we'd likely have had ubiquitous gay marriage soon enough anyway. Historically speaking, states have commonly set very diverse requirements to enter into a marriage. These state-level requirements have included blood tests, waiting periods, and varying limits on consanguinity and age, to name just the big ones. (Also, notoriously, some states formerly set racial requirements, which I obviously deplore.)

Although the Supreme Court has repeatedly called marriage a fundamental right – including in Obergefell – the Court has also historically left the entry conditions of civil marriage to the states. It has intervened only seldom in this area. Interventions have included permitting interracial marriage, forbidding polygamy, allowing convicts to marry, and now permitting same-sex marriage, a decision I certainly approve of. If the state is to extend civil marriage, it ought to do so without respect to gender.

Not that I approve of everything that the civil aspect of marriage does. Far from it.

Contrary to what Senator Paul seems to claim, I am not aware that government has ever taxed marriage per se. The reality is a lot more complicated than that. There’s a marriage penalty to the income tax, but there’s also a marriage bonus. Which one you get depends on your income, your spouse’s income, and the distribution between them, as this baffling chart from the Tax Foundation shows.

Media Name: ff352_chart_small.png

As if the perverse incentives of the above chart were not enough, there’s a deeper problem: The weird income tax effects of marriage can’t be eliminated until we either scrap the graduated income tax or cease to levy it on anything other than an individual basis. (Neither of those would be a bad idea, necessarily, though the latter would leave households of equal incomes taxed unequally if their income distributions were unequal. I’m not sure why we’d want to do that, but when you make the tax rates progressive, that’s what you’re stuck with. It's that or a marriage penalty and/or bonus. Mathematically, it just can’t be any other way.) Ultimately the tax effects of marriage are one of those areas where marriage policy would better off if we hit the reset button - on the tax system.

A good deal of the confusion about the meaning of marriage could also be remedied by admitting that there are in fact two kinds of marriage in the United States, private and civil. They usually happen at the same time, but they are quite distinct, legally. Private marriages can and should be recognized (or not) by individuals, churches, and families, freely and on a case-by-case basis. This is a matter of religious and associational liberty, and as such it should remain fully protected by the First Amendment. “Marriage” in this sense is not a government matter at all.

This private sort of marriage is a fundamental and negative right; it doesn't need the government's help to come into being. On this Rand Paul is absolutely correct, and I share his concern that churches and religiously observant businesses will be compelled to celebrate marriages that they find unconscionable. This they should not be forced to accept. (It hardly matters that these are scruples that have only lately appeared: Same-sex marriage itself has only lately appeared.)

The supporters of same-sex civil marriage, myself included, need to be magnanimous in victory, and we should now strive to protect those who are not inclined to celebrate our civil marriages in their private associations. We gays and lesbians in particular have felt the sting that can come from being in a politically powerless minority, and we ought not to inflict it on others.

So much for the private aspects of marriage, which are matters of natural (and negative) right. Civil marriage, meanwhile, is a civil right, like the right to vote, or the right to a trial by jury. Civil rights wouldn't exist in the state of nature, but in a governed state they can, and many of them clearly should. Our current implementation of civil marriage is tied up with welfare and tax policy in ways that libertarians correctly find troubling, as discussed above. But civil marriage also helps to clean up a lot of otherwise serious disputes in property and child custody law, and in matters of medical care and legal representation. Having marriage settles many questions and closes off many avenues by which the government might otherwise make itself troublesome.

All of this is to say that civil marriage is a bundle, and not all of it in my opinion is bad. Some of it can make our family lives more orderly and more predictable, more stable and actually less governed by judges and lawyers (and nosy relatives) – and more governed by ourselves, in exactly the ways that we see fit.

That’s a thing that libertarians perhaps should want after all: If the government ever got out of the marriage business, we might suddenly find it much more in all of our family lives.

June 30, 2015 8:44AM

It’s Time To Add More Than A Second

To avoid clock drift, the world’s computer clocks will gain an extra second at midnight Greenwich Mean Time, as June turns to July. This adjustment is necessary so that computer clocks can remain synchronized to Universal Time and to the time it takes the earth to rotate around the sun. Don’t worry, you probably won’t notice anything. But, since it takes milliseconds to make a flash trade, the one-second adjustment allows for enough time for problems to arise.

And speaking of time, let’s go beyond the leap second adjustments, and consider meaningful time reform. Since January 2012, my Johns Hopkins colleague Prof. Richard Conn Henry and I have advocated abolition of all time zones, as well as of daylight saving time, and the adoption of atomic time — in particular, Greenwich Mean Time, or Universal Time (UTC), as it is called today. The embrace of UTC would be beneficial.

For example, the adoption of UTC would give new flexibility to economic management in the vast east-west expanse of Russia, for example: everyone would know exactly what time it is everywhere, at every moment. Opening and closing times of businesses could be specified for every class of business and activity. If thought desirable, banks and financial institutions throughout the country could be required to open and to close each day at the same hour by the UTC. This would mean that bank employees in the far east of Russia would start work with the sun well up in the sky, while bank employees in the far west of Russia would be at their desks before the sun has risen. But, across the country, they could conduct business with one another, all the working day. This would have a second benefit: at least in the far east and far west, the banks would be open either early, or late, convenient for those who are working “sunlight hours,” such as farmers.

With UTC, agricultural workers, critically dependent on the position of the sun, could rise with the sun, without producing any impact on other aspects of cultural and economic life. The readings on the clocks would be the same for all. But, times of work would be attuned with precision to Russia’s local and national needs. China already has adopted a single time zone for the same purposes. And all aircraft pilots, worldwide, use UTC exclusively, for exactly the same reason that we are advocating its broad adoption, as well as for obvious safety reasons.