Topic: General

Trump and Trade on the Cato Daily Podcast

This week the Cato Daily Podcast (Subscribe!) focuses on the importance of trade as the Trump Administration arrives next week. Here’s a quick rundown.

Monday:

Daniel J. Ikenson and Daniel J. Mitchell discusses the backgrounds and new roles for Trump’s “protectionist triumvirate” of Wilbur Ross, Peter Navarro, and Robert Lighthizer.

Tuesday:

Simon Lester discusses the potential fallout of President-elect Trump’s taking to Twitter to threaten companies like Carrier, Ford, Toyota, and General Motors.

Nat Hentoff, RIP

Cato Senior Fellow Nat Hentoff passed away on Saturday evening at age 91.  He was a leading authority on the Bill of Rights and most especially the First Amendment.  He authored 37 books and countless newspaper and magazine articles.  He is perhaps most well-known for his opinion articles in the Village Voice, where he wrote for 51 years, from 1957 until 2008.  He joined the Cato staff in 2009 and never stopped researching and writing.  A few years ago, he told me that he was following Duke Ellington’s guide with respect to his own work in defense of the American Constitution:

Rule 1: Don’t Quit

Rule 2: Reread Rule #1

Nat actually knew Duke and many other luminaries, from Malcolm X to Supreme Court Justice William Brennan.  He was a jazz expert, writing on music for the Wall Street Journal.  He often said that “jazz and the Constitution were his main reasons for being.”  He said his passion for jazz and liberty overlapped because they were both about respecting everyone’s individuality.  

Nat was bemused by both his fan mail and hate mail as the years passed.  He didn’t play the political game—he would condemn Democrats and Republicans alike if they attacked constitutional principles. And he was always enthusiastic when he found a member of Congress coming to the defense of the Constitution, such as Senator Russ Feingold’s (D-WI) lone vote (in the Senate) against the Patriot Act in 2001, or, more recently, Senator Rand Paul’s (R-KY) efforts to scale back the surveillance state.  Go here to view an interview with his thoughts on other current events.

Nat said one of the best things about losing his job at the Village Voice in 2008 was that it afforded him the opportunity to (sort of) read his own obituaries.  “Dig this one!,” he would tell me over the phone with a chuckle. 

Interestingly, when asked about his proudest achievement, he would say it was not anything he wrote.  He got an opportunity to work as a producer for a television special about jazz music in 1957.  He jumped at the chance to bring beautiful jazz music into the living rooms of folks who had never really been exposed to it before.  Here is Billy Holiday’s Fine and Mellow from that special.  According to Nat’s relatives, he passed away while listening to his favorite jazz tunes.

We’re sad you’re gone, but we celebrate your good life.  Rest in peace.

Federal R&D Funding

The federal government spent $147 billion on research and development in 2016, including $77 billion on defense and $70 billion on nondefense. Federal R&D spending has risen in recent decades on a constant-dollar basis, but has dipped as a share of gross domestic product. The AAAS has the data here.

How much should the federal government spend on R&D? AAAS data show that 23 percent of federal spending is for “basic” research, 25 percent is for “applied” research, and 52 percent is for “development.” Most economists would support the basic part, but be more skeptical of the applied and development parts because the private sector handles those activities.

The largest portion of federal nondefense R&D is for health care. In the Wall Street Journal today, a professor emeritus at Harvard Medical School questions the value of this funding. Tom Stossel argues that the private sector makes most medical advances:

The assumption seems to be that the root of all medical innovation is university research, primarily funded by federal grants. This is mistaken. The private economy, not the government, actually discovers and develops most of the insights and products that advance health. The history of medical progress supports this conclusion.  

… In America, innovation came from physicians in universities and research institutes that were supported by philanthropy. Private industry provided chemicals used in the studies and then manufactured therapies on a mass scale.

… Since then, improvements in health have accumulated. Life expectancy has increased. Deaths from heart attack and stroke have radically decreased, and cancer mortality has declined. New drugs and devices have ameliorated the pain and immobility of diseases like arthritis. Yet the question remains: Is the government responsible for these improvements? The answer is largely no. Washington-centric research, rather, might slow progress.

… By contrast, private investment in medicine has kept pace with the aging population and is the principal engine for advancement. More than 80% of new drug approvals originate from work solely performed in private companies.

Cato’s Terence Kealey is also a skeptic of government-funded science.

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Concerns about the”Border Adjustable” Tax Plan from the House GOP, Part II

I wrote yesterday to praise the Better Way tax plan put forth by House Republicans, but I added a very important caveat: The “destination-based” nature of the revised corporate income tax could be a poison pill for reform.

I listed five concerns about a so-called destination-based cash flow tax (DBCFT), most notably my concerns that it would undermine tax competition (folks on the left think it creates a “race to the bottom” when governments have to compete with each other) and also that it could (because of international trade treaties) be an inadvertent stepping stone for a government-expanding value-added tax.

Brian Garst of the Center for Freedom and Prosperity has just authored a new study on the DBCFT. Here’s his summary description of the tax.

The DBCFT would be a new type of corporate income tax that disallows any deductions for imports while also exempting export-related revenue from taxation. This mercantilist system is based on the same “destination” principle as European value-added taxes, which means that it is explicitly designed to preclude tax competition.

Since CF&P was created to protect and promote tax competition, you won’t be surprised to learn that the DBCFT’s anti-tax competition structure is a primary objection to this new tax.

First, the DBCFT is likely to grow government in the long-run due to its weakening of international tax competition and the loss of its disciplinary impact on political behavior. … Tax competition works because assets are mobile. This provides pressure on politicians to keep rates from climbing too high. When the tax base shifts heavily toward immobile economic activity, such competition is dramatically weakened. This is cited as a benefit of the tax by those seeking higher and more progressive rates. …Alan Auerbach, touts that the DBCFT “alleviates the pressure to reduce the corporate tax rate,” and that it would “alter fundamentally the terms of international tax competition.” This raises the obvious question—would those businesses and economists that favor the DBCFT at a 20% rate be so supportive at a higher rate?

Brian also shares my concern that the plan may morph into a VAT if the WTO ultimately decides that is violates trade rules.

Second, the DBCFT almost certainly violates World Trade Organization commitments. …Unfortunately, it is quite possible that lawmakers will try to “fix” the tax by making it into an actual value-added tax rather than something that is merely based on the same anti-tax competition principles as European-style VATs. …the close similarity of the VAT and the DBCFT is worrisome… Before VATs were widely adopted, European nations featured similar levels of government spending as the United States… Feeding at least in part off the easy revenue generate by their VATs, European nations grew much more drastically over the last half century than the United States and now feature higher burdens of government spending. The lack of a VAT-like revenue engine in the U.S. constrained efforts to put the United States on a similar trajectory as European nations.

And if you’re wondering why a VAT would be a bad idea, here’s a chart from Brian’s paper showing how the burden of government spending in Europe increased once that tax was imposed.

The Lavish Life of Overcompensated Bureaucrats

Yesterday I shared some very good news about Brazil adopting a spending cap.

Today, I also want to share some good news, though it’s not nearly as momentous.

Indeed, it’s not even good news. Instead, it’s just that some bad news isn’t as bad as it used to be.

I’m referring to the fact that the nation’s capital region used to be home to 10 of the nation’s 15-richest counties.

Ralph Raico, RIP

I was saddened by the news of Ralph Raico’s passing on December 13.

At Cato summer seminars during the 1980s, he delivered fabulous lectures about the history of liberty and its adversaries. He focused on European intellectual history and the development of classical liberalism. He was clear, concise and passionate, and his talks sparkled with memorable details. I still cherish audio cassettes of those lectures.

Ralph attended the Bronx High School of Science, earned a B.A. at the City College of New York, and joined the New York libertarian underground during the 1950s. His friends included Ronald Hamowy, Leonard Liggio, George Reisman, Robert Hessen, and other eager students of liberty. For a while, Ralph and his group, calling themselves the “Circle Bastiat,” met for discussions with Ayn Rand’s group, “the Collective.” Ludwig von Mises invited Ralph to attend his graduate seminars at New York University. Ralph became a close friend of Murray and Joey Rothbard.

By 1960, Ralph was at the University of Chicago for a Ph.D. in intellectual history. F.A. Hayek was his thesis advisor. Ralph started a quarterly student journal called New Individualist Review and served as editor-in-chief. Each issue featured about a half-dozen articles. The first issue appeared in April 1961. The lead article was “Capitalism and Freedom” by Milton Friedman. The second issue featured “Freedom and Coercion” by Hayek. And so it went, a cavalcade of scholarly stars, including three future Nobel Laureates. The authors included George Stigler, Yale Brozen, Karl Brunner, Henry Hazlitt, W.H. Hutt, David Levy, Walter Oi, Sam Peltzman, Wilhelm Roepke, B.R. Shenoy, Gordon Tullock, Joe Cobb, and E.G. West, in addition to Hayek and Friedman. A few conservatives joined the fun, too—William F. Buckley, Jr., M. Stanton Evans, and Russell Kirk.

As it happened, in 1962, when I had to decide on a college, I received a subscription flyer for New Individualist Review. I was familiar with a number of the authors, because I had read issues of The Freeman that my father had in his home office, and they published some of the same authors. So, the University of Chicago was where I had to go. While many college kids did fraternities or football, I did NIR. I met Ralph, joined the staff of New Individualist Review, and altogether 17 issues were published. NIR involved insightful, inspiring, and sometimes amusing exchanges among students and professors in history, economics, philosophy, science, law, and business. For better or worse, NIR was a spontaneous phenomenon that never focused on becoming an institution. Gradually, everybody got their degrees and moved on. I was the last editor-in-chief (1968).

Ralph had so much literary talent that there were hopes he might produce a glorious history of liberty, like Lord Acton talked so much about but never started. Alas, time slipped through their fingers and—for now—that big story is still out there.

Nonetheless, Ralph became known for elegantly-crafted articles, pamphlets, and chapter contributions that helped illuminate the history of liberty.

Ralph translated Mises’ 1927 book Liberalismus, an excellent basic statement of classical liberalism, into English (1962), and a number of publishers have reissued his splendid translation.

He also wrote:

  • Die Partei der Freiheit: Studien zur Geschichte des deutschen Liberalismus (1999), about the fateful struggles of German classical liberals during the 19th century.
  • The Place of Religion in the Liberal Philosophy of Constant, Tocqueville, and Lord Acton (2010), his University of Chicago Ph.D. thesis.
  • Classical Liberalism and the Austrian School (2012). 
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Thank You, John Stossel

Stossel bookSeven years ago tonight John Stossel’s show debuted on Fox Business. This week he announced that the show will end next week.

Some years ago – I’m not sure whether he was still on ABC’s “20/20” then or had moved to Fox – I introduced John at a Cato event as “the most visible, most valuable libertarian in America.” That’s still an accurate assessment.

I first noticed John’s interest in freedom at the end of 1989 when he did a “20/20” piece on “The Positives of Deregulation,” reporting on the new and improved products and services that deregulation had delivered during the 1980s. I remember especially the afterword, when John sat at the anchor desk with Barbara Walters and Hugh Downs, and Downs said, “That was very interesting. It had never occurred to me that there was anything good about deregulation.” I thought to myself, “Really? I understand why some people favor regulation. You just thought deregulation was delivered by space aliens or Mr. Potter of Potterville?”

Then in 1994 John got to do his first hour-long special on ABC, “Are We Scaring Ourselves to Death?” I had the good fortune to attend a taping of a late-night followup where people with varying views watched the show and then discussed it with John. As the segments were shown, I could hear the gasps in the audience around me. Environmentalists and others had never seen a major network program question their claims. But on ABC and later on Fox, he went on doing hour-long investigations of such topics as “Freeloaders,” “Greed,” “Stupid in America,” “Whose Body Is It Anyway?” and “Is America Number 1?” (featuring Cato senior fellow Tom G. Palmer).

I was proud to appear on his shows many times, including this 2015 special on spontaneous order.

John Stossel isn’t retiring. Reportedly, he’ll continue appearing on Fox shows and will also work with Reason.tv and other libertarian organizations on video projects. Meanwhile, much of his work is made available to teachers and students by Stossel in the Classroom, and lots of his specials and regular shows can be found online.

From “The Positives on Deregulation” in 1989 through last night’s “Death by Socialism” and no doubt next Friday’s final show, John Stossel has been bringing a needed dose of reality – and a lot of libertarian scholars and activists – to network television.