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The views expressed by Andrew Quinlan and Dan Mitchell on this weblog are solely their own and are not necessarily those of their employers, The Center for Freedom and Prosperity Foundation and The Heritage Foundation, respectively. |
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The Market Center Blog |
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Observations and insights on the global fight |
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CF&P's Market Center Blog Archives |
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Tuesday, May 31, 2005 ~ 4:00 p.m., Dan Mitchell Wrote: Business leaders were quick to applaud his drive, and especially Mr Barroso's attempt to revive the ambitious Lisbon agenda, a 10-year plan to boost Europe's competitiveness.
In addition, they had every right to believe that the new Brussels executive would champion initiatives such as the plan to liberalise the bloc's services market, which were launched by the previous Commission.
Yet after France's rejection of the constitutional treaty, those hopes have given way to despondency. Analysts quickly pointed out that the French No was in part fuelled by opposition to free-market reforms, and
fears that further economic integration would hurt French jobs and social standards. ...Ms Mettler said she hoped pro-reform countries would now press ahead without France: "You have to give countries that
genuinely want economic reforms the chance to go ahead. If that's without France, then so be it. My only hope is that France will not hold others back and force its dying economic model on everybody else."
Europe is bad news, the argument goes, but we'd better be inside the tent: From Jacques Chirac to Socialist leader François Hollande, this has been the mantra of the treaty's
supporters. As recently as last Thursday, three days before the vote, Mr. Chirac was on television trying to shore up support for the treaty in a solemn address in which he warned of dire consequences if, within
the EU, advocates of "ultraliberal" policies were left to their own sinister designs -- "ultraliberal," in France, having become the code word for the free-market approach that most other
European governments are now endorsing. As recently as a few months ago, then-Finance Minister Nicolas Sarkozy, now Mr. Chirac's arch-nemesis in his own party, was using scare tactics and the threat of
government intervention to trumpet his desire to fight against labor outsourcing and posturing as the last shield against the European Commission's evil competition policies. The problem for Germany and France is that the new Europe calls for sleek economic efficiency at a time when both are carrying too much weight. "Safety nets" for
people at all levels of society cumulatively promote sloth. Their economies have lost their competitive edge in Europe and the world. Unemployment in Germany is nearly 12% and in France it exceeds 10%. Both
governments are timidly trying to adapt economic policies to the new competitive realities, but the traditionalists, particularly on the left, are fighting to hold back the tide. If Mr. Chirac is in bad shape
politically, his longtime Socialist rivals are even worse off. They are facing an outright rebellion by the rank and file, whose war cry is that ugly capitalism is threatening the French way of life. ...The
appeal of Europe for most members has always been economic integration, not the prospect of eventual submersion into a vast federal state. The very thing that the French left abhors is what the new member states
want, the potential for new economic opportunities. In today's EU, people are free to conduct business in a huge single market, now larger than the U.S. economy, that offers enormous economies of scale. They are
willing to accept the bureaucratic nonsense that flows out of Brussels to win that big prize. The French vote is a victory of democracy against an opaque and elite process that few people really understood. It is also a defeat for those leaders, notably French
President Jacques Chirac, who have been unable to deliver on what they promised from a united Europe. The defeat shouldn't be seen as a renunciation of "Europe" writ large, so much as for a particular
narrow vision of the Continent. The document itself is a monstrosity running to 485 pages. As a flavor of its character, consider that one of the treaty's "annexes and protocols" concerns the right of
the Sami people to husband reindeer. ...The prevailing view among European elites was summed up by a senior EU bureaucrat we spoke to last month who said about the French and the constitution: "They haven't
read it. If they had read it, they wouldn't understand it. If they understood it, they wouldn't like it." Nonetheless, he thought that the French should vote yes anyway. ...the French may well have done the
right thing for the wrong reason. The opposition included much of the political left, which derided the constitution as an ultra-liberal (in the classical sense of liberal), Anglo-Saxon thing, destined to strip
Europe of its social-welfare model. At the same time, Mr. Chirac asserted that the constitution was France's only bulwark against the encroachment of Anglo-Saxon-style capitalism. ...One lesson Americans
shouldn't draw, however, is that this is somehow a defeat for the common European currency, despite its 1% speculative fall against the dollar yesterday. The euro's impact may well have contributed to the French
defeat by exposing the failure of socialist economic policies. The repudiation earlier this month of Chancellor Gerhard Schröder's Social Democrats in their heartland of North Rhine-Westphalia had similar
economic causes. The low-tax challenge from other European nations is precisely what many supporters of the euro, including us, had hoped for. The euro has been a liberalizing force in Europe, while the
constitution was designed to be centralizing force. Tony Blair is preparing to battle with President Chirac of France over Europe's political direction for the coming decades. ...Taking a break from his Italian holiday, he
said: "The question that is being debated by the people of Europe is how do you, in this era of globalisation, make our economies strong and competitive?" The political vacuum has prompted a battle for
the "heart of the Union", with Mr Blair keen to push more liberal economic policies, rather than French-style social protection with a large welfare state. ...Mr Blair has made economic reform the top
priority of his presidency, hoping to make labour markets more flexible in order to tackle record unemployment and sluggish growth across the continent. However, he is now likely to face challenges from
President Chirac, who recently called economic ultra-liberalism the "new communism of our age". Link to this Blog Entry
Tuesday, May 31, 2005 ~ 11:45 a.m., Dan Mitchell Wrote: Our current income tax system is a catalog of favors for special interests and a chamber of horrors for the rest of America. As a country, we spend
more time filing taxes than we spend building every car, truck, and van produced in the United States. To put this in perspective, it takes the average taxpayer over 26 hours to file a standard 1040, which has
caused over 60 percent of Americans to pay a professional to complete their taxes. Simply complying with the complex tax code costs $194 billion each year, or about $650 for every man, woman, and child in
America. ...The flat tax will replace the current tax code with a flat-rate income tax that treats all Americans equally. All income is taxed only
once and at one rate. There are no breaks for special interests and no loopholes for powerful lobbies, just a simple tax system that treats every
American the same. ...Every American will benefit under a flat tax system. An increase in national income will increase charitable giving, lower interest rates will more than offset the loss of the mortgage
deduction in the current system, the income exemption will continue the tax code's progressive precedent, saving for your retirement or children's
education will be easier, the marriage penalty will be eliminated, the deduction for dependent children will double, and every taxpayer will see their tax rates reduced. Link to this Blog Entry
Tuesday, May 31, 2005 ~ 10:30 a.m., Dan Mitchell Wrote: Some of the future economic challenges posed by demographic changes stem directly from the structure of federal programs. In and of itself, an
increase in the share of the elderly in the population need not present a problem. If each individual or household adequately prepared for retirement through its own saving, a greater share of elderly in the
population would place no burden on younger people or the economy in general. However, a substantial share of the elderly's consumption is currently provided by government programs such as Social Security,
Medicare, and Medicaid. ...Social Security outlays are projected to rise from 4.3 percent of gross domestic product (GDP) to 6.3 percent in the next few decades, largely as a result of the aging of the baby-boom
generation. Thereafter, outlays will continue to rise slowly from continued increases in people's life spans, reaching about 6.6 percent of
GDP by 2080. ...if costs per beneficiary continued to rise as fast as they have in the past, overall federal outlays for Medicare and Medicaid could
climb from about 4 percent of GDP to more than 20 percent by 2050 ...the impact of an aging population on the budget will tend to reduce national saving. By 2050, government spending is projected to climb to
well above its historic share of GDP and considerably higher than the historical average share of revenues, which is about 18 percent ...at
some point, it is almost certain that spending will have to be cut or that taxes will have to rise. To the extent that increased taxes involved higher
marginal rates on labor and capital income, they would tend to discourage work and saving, and therefore reduce economic output. For example, the Congressional Budget Office (CBO) has estimated that if all
projected spending was financed by higher taxes, GDP could be 6 percent lower by 2050 than if spending was cut instead. Link to this Blog Entry
Monday, May 30, 2005 ~ 1:10 p.m., Dan Mitchell Wrote: French voters rejected the European Union's first constitution Sunday, a stinging repudiation of President Jacques Chirac's leadership and the
ambitious, decades-long effort to further unite the continent. ...With 92 percent of votes counted, the treaty was rejected by 56.14 percent of
voters, the Interior Ministry said. It was supported by 43.86 percent. Treaty opponents chanting "We won!" gathered at Paris' Place de la
Bastille, a symbol of rebellion where angry crowds in 1789 stormed the Bastille prison and sparked the French Revolution. Cars blared their
horns and "no" campaigners thrust their arms into the air. "This is a great victory," said Fabrice Savel, 38, from the working class suburb of
Aubervilliers. He was distributing posters that read: "Non to a free-market Europe." EU leaders in Brussels, Belgium, vowed to continue their effort to have the constitution approved. ...The Dutch vote
Wednesday, with polls showing opposition to the constitution there running at about 60 percent. On Friday, the constitution's main architect, former French President Valery Giscard d'Estaing, said
countries that reject the treaty will be asked to vote again. France's rejection could set the continent's plans back by years. The nation was a
primary architect of European unity. ...Backers said the constitution, which European leaders signed in October, would streamline EU operations and decision-making, and make the bloc more accessible to
its 450 million citizens. The text would give the EU a president and foreign minister so it could speak with one voice in world affairs. Opponents feared it would strip nations of sovereignty ...Left-wing
opponents argued that the treaty would not protect France's cherished social protections and public services, and would open the door to unfettered capitalism and trample on workers' rights.
Monday, May 30, 2005 ~ 12:34 p.m., Dan Mitchell Wrote: A team from West Middlesex University Hospital said violent crime is on the increase - and kitchen knives are used in as many as half of all
stabbings. ...The researchers said there was no reason for long pointed knives to be publicly available at all. They consulted 10 top chefs from
around the UK, and found such knives have little practical value in the kitchen. ...The researchers say legislation to ban the sale of long pointed
knives would be a key step in the fight against violent crime. "The Home Office is looking for ways to reduce knife crime. "We suggest that
banning the sale of long pointed knives is a sensible and practical measure that would have this effect." ...A spokesperson for the Association of Chief Police Officers said: "ACPO supports any move to
reduce the number of knife related incidents, however, it is important to consider the practicalities of enforcing such changes."
Monday, May 30, 2005 ~ 11:06 a.m., Dan Mitchell Wrote: Regardless of the cause of the current warming, the best available evidence indicates a warmer planet should result in bountiful crops. The
modest warming many scientists expect should result in longer growing seasons, more sunshine and rainfall, while summertime high temperatures change little. And a warmer planet means milder winters
and fewer crop-killing frosts. History shows the Earth's climate is less stormy and more stable in relatively warm eras. ...global warming also
increases carbon dioxide (CO2), which acts like fertilizer for plants. As the planet warms, oceans naturally release huge tonnages of additional CO2. (Cold water can hold much more of a gas than warmer water).
...since 1950, in a period of global warming, these factors have helped the world's grain production soar from 700 million more than 2 billion
tons last year. ...The real famine threat will come not in the present warming, but rather the next Ice Age when huge ice sheets will once again cover Canada and Russia, and the Northern Plains will be too cold
to farm. Fortunately, that test may not come for another 10,000 years. By then, unless regulations interfere, the world should have genetically
engineered a set of even higher-yielding and still more stress-tolerant crop varieties to feed humanity on dramatically reduced acreage.
Monday, May 30, 2005 ~ 9:45 a.m., Dan Mitchell Wrote: Africa's poverty is not due to exploitation by Nike, McDonalds and Microsoft, but rather because it is the continent where multinational
companies are the least active and which is the least capitalist. Above all, the region south of Sahara has since its liberation in the 1960s and
70s been dominated by protectionism, extensive government interference and disregard of market mechanisms. Several countries, such as Somalia, Benin, Ethiopia, Angola and Mozambique, were classical
Marxist-Leninist Communist states for many years. Others opted for the so called "African Socialism", the most typical example probably being
Tanzania. Almost all states in the region resort to extensive tariffs and other restrictions on imports, which hurts trade with multinational companies as well as intraregional trade. ...History has proven that
foreign aid is not the solution to Africa's problems. Total overseas development assistance (ODE) that went to sub-Saharan Africa between 1984-2002 accounted for $319 billion. This corresponds to
approximately 80 percent of the region's total GDP in 2002. Despite this relatively large development investment, 23 countries in the region experienced negative compound annual growth between 1980 and 2002,
while only three achieved growth over 4 percent. During this period, GPD per capita in sub-Saharan Africa fell from $660 to $577 dollars (in constant terms). Foreign aid fosters dependence, corruption, plan
economy and government waste. ...Africa is poor because most countries in the region lack the fundamental elements of a capitalist system:
property rights, free markets, free trade and the rule of law. Africans are like everybody else, and ideas that did not work in China, North Korea and the Soviet Union will not work in Africa either. Link to this Blog Entry
Sunday, May 29, 2005 ~ 1:45 p.m., Dan Mitchell Wrote: ...the epic tragedy of Argentina's slow and tenacious decline from a world-class economic power to world-class basket case remains a work
in progress. Any hope that the 2001 crisis might have been used to bring about constructive reform has been lost. ...By now even Mr. Kirchner and his atavistic Peronist Party must understand the link between
government policy and investment. Making Argentina a prime destination for international investment would require an economic restructuring inconsistent with populist Peronism -- thus the need to keep
expectations low. It is always at least moderately amusing to listen to this government parse its own economic agenda. On the one hand it denounces the savagery of market economics -- so as to keep its labor
base and its hard-left, picketing militants happy -- and on the other hand it flirts with investors by insisting that it does not endorse statism. ...As
other competitors for global capital race along the highway of liberalization, Argentina risks slipping further behind, even if it just stands still. ...Egypt is doing what Mr. Kirchner rejects: moving to
reduce the drag of big government on the economy. Egyptian Finance Minister Youssef Boutros-Ghali could have been describing Argentina when he told us that under the traditional state system, "Government is
a predator and the citizen is the prey. You pounce on him and you squeeze him all you can." Egypt wants to break with that tradition so as
to attract capital and boost economic activity. Speaking like a Reagan supply-sider, Mr. Boutros-Ghali offered that any revenue loss under his
tax plan to cut rates and provide an amnesty would be offset by higher growth and more taxpayers coming into the formal economy. Link to this Blog Entry
Sunday, May 29, 2005 ~ 1:03 p.m., Andrew Quinlan Wrote: ...politicians like spending other people's money. As one wag put in the 1980s, "Today, wanting someone else's money is called 'need,' wanting to
keep your own money is called 'greed,' and 'compassion' is when politicians arrange the transfer." Nothing could be more true of life today under Big Government Conservatism. In Bush's first term, he spent
money like a pimp with only a week to live. ...Bush's people are making the right noises these days and they seem - seem! - to be taking spending
just a bit more seriously. Unfortunately, Bush lost some credibility in his first term. And, to be fair, he was never a small-government conservative
in the first place. He always said he wanted to do more on education, teen pregnancy, social activism and the like. Link to this Blog Entry
Sunday, May 29, 2005 ~ 10:55 a.m., Dan Mitchell Wrote: Among the 2004 campaign promises that aren't close to being fulfilled are making the Bush tax cuts permanent, reforming Social Security and
expanding the market for private health care. Instead of any of those big three, Congress next seems poised to pass a subsidy-laden energy bill and
a highway bill with some 4,000 earmarks for individual Members. For this we elected Republicans? ...Republicans have only made it easier for Democrats on Social Security by caviling and whining that President
Bush is making them face up to this problem, and declaring private accounts all but dead almost before they were proposed. Individual Democrats are not going to break with their party leadership when they
can see that Republicans are divided. Pre-emptive surrender has also been the order of the day on taxes, despite the manifest economic success of the 2003 tax cuts. It took a heroic, one-man lobbying effort by
Arizona's Jon Kyl to persuade his Senate colleagues to extend the 15% dividend and capital-gains tax rate for a mere two years. Too many GOP
Members are cowering in fear over "the deficit"--except when it comes to spending. That they can still do. The Senate blew past Mr. Bush's
already generous $284 billion limit on highways, and overall federal spending is growing by 7% this year. ...We'd have thought that for Republicans this would mean a philosophy of limited but energetic
government when energy is needed, as it is on national defense and law enforcement. ...what is "limited" about a House Financial Services
Committee that wants to increase the moral hazard to taxpayers by raising federal deposit insurance to $130,000 from $100,000? Or that finds itself united with liberal Barney Frank on a bill to let Fannie Mae
continue to rake in private profit while exploiting an implicit taxpayer bailout guarantee?
Saturday, May 28, 2005 ~ 2:11 p.m., Dan Mitchell Wrote: The most important hazard of the [pay-as-you-go] PAYG system is not financial, as economists Isaac Ehrlich and Jinyoung Kim show in their
recent working paper "Pension Systems, Demographic Trends and Economic Growth" (NBER, February 2005). The very principle of the pay-as-you-go system adversely affects demographic structure, rate of
private savings and long term economic growth. The flaw is not in the system's parameters, but in its fundamental nature. ...The demographic crisis (which endangers all PAYG systems to some extent) has not come
out of the blue sky. It's a direct consequence of how PAYG pension systems work. Ehrlich and Kim illustrate this assertion on the panel of data from 57 countries during 1960-92. "We find that PAYG tax
measures account for a sizeable part of the downward trends in family formation and fertility worldwide, and for a slowdown in the rates of savings and economic growth, especially in OECD countries."
...Researchers Michele Boldrin, Mariacristina De Nardi and Larry Jones come to the same conclusion in the working paper "Fertility and Pension
System" (NBER, February 2005). "The data show that an increase in government-provided old-age pensions is strongly correlated with a
reduction in fertility," concludes the study. The effect is massive enough to explain 80 percent of observed differences in cross-country birth rates.
...There is only one way to moderate the damage: to minimize the total value of pensions paid by the government. This may sound harsh, but wait: low government-paid pensions do not mean that pensioners must
starve. Take Iceland. Retirees are paid flat pensions by the government. The total value of the Icelandic PAYG system does not exceed 7 percent
of GDP, vs 12 percent in Italy. The total fertility rate in Iceland is 1.9 child per woman vs. 1.2 in Italy. Link to this Blog Entry
Saturday, May 28, 2005 ~ 1:39 p.m., Dan Mitchell Wrote: If the French and the Dutch reject the EU Constitution on Sunday and Wednesday, they should re-run the referendums, the current president of
the EU, Jean-Claude Juncker, has said. "If at the end of the ratification process, we do not manage to solve the problems, the countries that
would have said No, would have to ask themselves the question again", Mr Juncker said in an interview with Belgian daily Le Soir. ...rejection of
the Constitution would also lead to "external observers" not knowing what direction Europe wants to take anymore, which means that the
"economy will not get better with a No", Mr Juncker pointed out.
Saturday, May 28, 2005 ~ 11:41 a.m., Dan Mitchell Wrote: German opposition party, the Christian Democratic Union has warned that Germany's persistent budget deficit may derail its plans to introduce
tax cuts should it win the next general election, which Chancellor Gerhard Schroeder is seeking to bring forward by one year after the ruling Social Democrats received a bloody nose in a regional election.
The CDU had pledged to cut the top rate of income tax to 39% from 42% and the bottom rate to 12% from 15% whilst also slimming down the income tax system to three brackets. However, the party has been
forced into an early review of its economic programme after Chancellor Gerhard Schroeder announced that he would seek an early general
election... "The budget situation is far from rosy. All we can promise now is to simplify the tax system," noted CDU budget spokesman Michael Meister, according to Bloomberg. Link to this Blog Entry
Saturday, May 28, 2005 ~ 9:51 a.m., Dan Mitchell Wrote: Tom Daschle may be in forced retirement from the Senate, but it seems Republicans are only too happy to preserve one of his legacies. As the
Senate turns (yet again) to its uninspired energy bill, the majority party is busy passing an enormous ethanol mandate that would make even corn
farmers blush. The taxpayers and drivers who get to fund this special interest extravaganza can thank Missouri Senator Jim Talent, though he's hardly alone in bidding for the subsidy hall of fame. Mr. Talent
pushed an amendment through the Energy and Natural Resources Committee yesterday that would require drivers to use eight billion gallons of ethanol a year by 2012. The proceeds from this forced product
march would be funneled into the pockets of Midwest farmers and giant agribusiness concerns such as Archer-Daniels-Midland. ...The terms of this mandate are munificent, because every gallon of ethanol blended
into gasoline receives a 51-cent subsidy. An eight-billion-gallon mandate translates into an extra $2.3 billion windfall for the ethanol lobby. The
mandate would also raise gas prices, especially outside the Midwest where ethanol is costly to ship. Even a five-billion-gallon mandate is
estimated to add some $8.4 billion to fuel costs over each of the next five years, on top of today's already high pump prices. ...when voters complain about high gas prices, we hope Republicans don't stoop to
blaming the oil companies. The fault will be their own. Link to this Blog Entry
Friday, May 27, 2005 ~ 10:00 a.m., Dan Mitchell Wrote: The European Union, which has a flag no one salutes and an anthem no one knows, now seeks ratification of a constitution few have read. Surely
only its authors have read its turgid earnestness without laughing, which is one reason why the European project is foundering. ...Some French
factions, their normal obstreperousness leavened by paranoia, think the constitution is a conspiracy to use "ultraliberalism" -- free markets -- to
destroy their "social model." That is the suffocating web of labor laws and other statism that gives France double-digit unemployment -- a
staggering 22% of those under age 25. ...The proposed constitution, with 448 articles, is a jumble of pieties, giving canonical status to sentiments
such as "the physical and moral integrity of sportsmen and sportswomen" should be protected. It establishes, among other rights, a
right to "social and housing assistance" sufficient for a "decent existence." Presumably, supranational courts and bureaucracies will
define and enforce those rights, as well as the right of children to "express their views fully." And it stipulates that "preventive action
should be taken" to protect the environment. The constitution says member states can "exercise their competence" only where the EU does
not exercise its. But the constitution gives EU institutions jurisdiction over foreign affairs, defense, immigration, trade, energy, agriculture,
fishing, and much more. If the French and Dutch reject the constitution, they will do so for myriad reasons, some of them foolish. But, the result
will be salutary because the constitution would accelerate the leeching away of each nation's sovereignty. Sovereignty is a predicate of self-government. The deeply retrograde constitution would reverse five
centuries of struggle to give representative national parliaments control over public finance and governance generally. Link to this Blog Entry
Friday, May 27, 2005 ~ 9:38 a.m., Dan Mitchell Wrote: The European Union could have a common corporate tax base in place within three years if all goes to plan, EU Taxation Commissioner Laszlo
Kovacs told a conference in Stockholm this week. ..."At the moment there are 25 different ways to calculate the corporate tax base," noted
Kovacs. "If we manage to have only one EU-wide set of rules that will increase competitiveness." ...According to Kovacs, 20 of the 25 EU
member states are in support of a common corporate tax base. Notable objectors include the United Kingdom, which fears that the move would take away governments' ability to influence domestic tax policy and
represents the first step towards harmonisation of corporate tax rates. Link to this Blog Entry
Friday, May 27, 2005 ~ 8:45 a.m., Dan Mitchell Wrote: No matter which side prevails in this Sunday's French referendum on the EU constitutional treaty, the result will be the same: a victory for
collectivism. This, of course, means that both sides have the same aim but not the same means. So the most important outcome of the referendum is not that the French will say Yes or No, but that they will
reveal themselves yet again as being strongly collectivist. ...France's central role in EU policymaking is a clear threat to Europe's market-based economy. This was highlighted by three recent political
statements: harming cross-border competition by shutting down the Bolkestein directive on liberalization of services; promoting protectionism by forcing China to reduce its textile exports; weakening
property rights when President Jacques Chirac expressed a willingness to expropriate patents on medicine. ...The desire to build a collectivist
society is embodied in Chirac's call for a reinforcement of the European social model. This is a counter-model to a free and open society best represented by some Eastern countries -- such as Estonia -- and
Anglo-Saxon countries. ...French leadership bases its social vision on equality, the very source of collectivism. This does not mean being equal
before the law, it means being socially equal - no one higher, no one lower. This eliminates any notion of competition in the name of social
cohesion. That's why civil servants' jobs are so popular; that's why health coverage is a state monopoly and creates a welfare society; that's why
politicians rave about a social economy. What kind of future can France have when 70 percent of its teenagers dream of being civil servants? ...In
Eastern European and Anglo-Saxon countries, social vision is based on freedom. This involves the social integration of the rule of law and the acceptance of risk. Freedom is a risk and cannot be separated from
responsibility.
Friday, May 27, 2005 ~ 8:13 a.m., Dan Mitchell Wrote: ...the cradle-to-grave welfare model is causing increasing problems and is questioned and revised. Growth is low, dependency on government is
high and the expected welfare services are deteriorating. Over the past decade a series of comprehensive reforms have taken place; taxes have been lowered, private competition in welfare services allowed, and
pensions systems have been changed. But the steps are too small and too slow. Between 1890 and 1950, Swedish economic growth was the highest in the world. Politically, Sweden was what would today probably be
referred to as a neo-liberal country. Taxes as a percentage of gross domestic product increased to 20% from below 10%. In 1950 the tax take was the same as that of the U.S. and below the average in Western
Europe. By 1980, however, the tax pressure had been raised to about 50% of GDP. The state had grown enormously. ...it was harmful to expand the state so dramatically. Sweden today lives off the successes of
the past, before big government. Only one of Sweden's 50 largest companies today was founded after 1970. ...The largest trade union, LO, a strong supporter of the Social Democrats for more than 100 years,
recently admitted that real Swedish unemployment is closer to 20%-25%. Of the Swedish population of working age (5.8 million), 2.2 million
belong to the category "not at work," of which 1.4 million live off government handouts. In 2004, this amounted to 39% of the population
of "working age" -- that is, almost four out of 10 people of working age don't go to work. ...The Swedish welfare state is a model for growth --
but only growth of government. With an annual growth of 3.5%, GDP doubles in 20 years; no amount of government redistribution can match this in terms of prosperity. Link to this Blog Entry
Friday, May 27, 2005 ~ 7:45 a.m., Dan Mitchell Wrote: I buy more from my grocer than he buys from me, and I bet it's the same with you and your grocer. That means we have a trade deficit with our
grocers. Does our perpetual grocer trade deficit portend doom? If we heeded some pundits and politicians who are talking about our national
trade deficit, we might think so. ...International trade operates under the identical principle. When we as consumers purchase goods from China,
and the Chinese don't purchase a like amount of goods from us, it is said that there's a trade deficit. But instead of purchasing goods, the Chinese might purchase corporate stocks, bonds or U.S. Treasury debt
instruments. ...The fact that foreigners are willing to exchange massive amounts of goods in exchange for slips of paper in the forms of currency,
stocks and bonds should be a source of pride. It means America, with its wealth, rule of law and the sanctity of contracts, inspires foreigners to
hold large amounts of their wealth in U.S. obligations. Their willingness to do so means something else: Trade increases competition. Ultimately
it's competition, many producers competing for his dollar, that truly protects the consumer. What protects producers, at the expense of consumers, are restrictions on competition.
Friday, May 27, 2005 ~ 7:19 a.m., Dan Mitchell Wrote: After more than a decade of haggling, the European Union is now just one month away from starting its biggest, coordinated assault on tax
evasion: a new law aimed at uncovering - and taxing - interest earned on the hundreds of billions in savings stashed by EU citizens outside their
home countries. Yet the windfall of new revenue that some cash-strapped countries, led by Germany and France, had been hoping for is unlikely to
materialize, according to bankers in Switzerland and other tax havens. Not only are historic low interest rates keeping the potential pot to be
taxed low, but many investors are restructuring their deposits to legally avoid paying anything, bankers say. Others have already moved their money even farther afield - to places like Singapore - where it can
remain hidden from tax collectors at home. ...The new EU law, which takes effect July 1 ...was eventually whittled down to aim at only interest income from savings and bonds. It covers only individuals, not
companies and trusts, and earnings from other assets, like stocks and derivatives, are exempt. ...In 2007, the EU will review the directive with a view to possibly broadening its scope. ...The German government,
which is one of the biggest losers from tax evasion, estimates its citizens have some EUR300 billion to EUR500 billion, or $378 billion to $631
billion, in so-called offshore bank accounts. But Charles Hermann, a partner at KPMG, an accounting firm, in Zurich, estimates that Switzerland will collect only about 30 million francs to 50 million francs
annually in withholding tax. "The directive is full of loopholes," Hermann said. Rather than spur depositors to bring their money back
home, he expects most will rejigger their accounts to avoid any tax by such methods as moving them into trusts. Funds that are less than 40
percent invested in interest-paying assets, like bonds, are also exempt, according to Kaiser at the banking federation. The chief executive of a
private, Zurich-based bank, who declined to be identified, said large investors have "got their money structured in a way so it doesn't trigger
the taxes." Swiss bankers say the new EU law also has sparked an outflow of money to Singapore, a relatively safe haven that will not come
under the withholding tax. Credit Suisse, Switzerland's second-largest bank after UBS, decided recently to move its head of international private banking, Joachim Straehle, to Singapore from Zurich to take
advantage of faster growth rates in Asia. "We see lots of money flowing in to Singapore from all over the world these days," Straehle said during an interview. |
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Thursday, May 26, 2005 ~ 12:30 p.m., Dan Mitchell Wrote: Much of the gain from reform comes from reducing the code's bias against saving and investment, which slows capital formation and wage growth. Any plan--whether aiming for a
broad tax on income or consumption--should remove taxes on dividends, capital gains, and interest. But that doesn't mean capital income escapes totally. My brand of reform would tax all income only once--wages
at the household level and business income at the business level. That's a big improvement over the convoluted mix of preferences (special provisions or tax shelters) and biases (double taxation or worse) under
current law. Indeed, unlike today's devilishly difficult code, landmark changes can be simple. First, individuals would pay a tax on compensation, but not on income from savings (dividends, capital gains, and
business interest). All businesses would be taxed on sales, less the costs of materials, wages, and a portion of capital expenses. Under an income tax, that capital expense would be a depreciated value over a
period of years. Under a consumption tax, it would be 100% expensed. But both would end the double taxation of income on savings. Link to this Blog Entry
Thursday, May 26, 2005 ~ 11:50 a.m., Andrew Quinlan Wrote: The $35 billion-a-year war on drugs has turned largely into a war on marijuana, and a losing war at that. Pot isn't harmless, but shouldn't law
enforcement focus more of its resources on hard drugs - cocaine, heroin and methamphetamines - that are associated with violence and devastated lives? ...The theory behind the war on drugs is that enough
arrests will curtail both supply and demand. But the impact of increased marijuana arrests appears negligible. According to private and government studies, overall marijuana use is the same as it was in 1990,
while daily use by high school seniors has nearly tripled, from 2.2% to 6%. Since 1992, the inflation-adjusted price of pot has fallen about 16% while potency has doubled, the studies show. So the intensified
crackdown has coincided with cheaper, stronger pot that's readily available. Law enforcement's efforts to arrest marijuana smokers are diverting resources from combating other crimes and those who traffic
in hard drugs. ...The drug war against low-level users also sparks resentment against police, particularly in the minority community. ...The get-tough approach is showing cracks both at home and abroad. Twelve
states have some form of decriminalization or reduced sentences. Great Britain, Canada and Russia have decriminalized possession of small amounts of the drug. ...it's a smoke screen to suggest that rising arrest
numbers show the war on drugs is working. It's time for a serious debate on whether massive arrests of low-level users are worth the cost or having any benefit. Link to this Blog Entry
Thursday, May 26, 2005 ~ 10:15 a.m., Dan Mitchell Wrote: ...the AMT is the parallel tax system designed some 35 years ago by Democrats to make sure the rich can't exploit too many loopholes. But
because it isn't indexed for inflation it is sweeping up more and more middle-class taxpayers, especially in New York, California and other liberal states. As Mr. Grassley noted, "this should get Democratic
support right off the bat because all of these people that are being taxed are in their blue states." ...We're all for repeal, though we'd also like to
know what Mr. Grassley is going to get in return for doing Senate Democrats this favor. Are they going to help him pass a broader tax reform, one that lowers rates in return for broadening the base? Or short
of that, how about making permanent the 15% dividend and capital gains tax rate that has helped the economy so much since it passed in 2003? Among the options for reform-including indexing the system for inflation, adding more deductions and exemptions, and outright repeal of
the AMT-only repeal accompanied by reductions in tax preferences in the regular income tax provides a stable long-term solution to the AMT's
flaws. One advantage of repeal is that it would help refocus tax reform efforts on broadening the tax base and lowering rates in the regular income tax system. Congress' original goal of enacting the AMT was to
ensure that very wealthy taxpayers do not escape tax liability through the abuse of tax preferences. However, the most economically sound way
to achieve that was not to graft additional complexity onto the tax code. It was to eliminate the very tax preferences that were the source of the abuse. Link to this Blog Entry
Thursday, May 26, 2005 ~ 10:02 a.m., Dan Mitchell Wrote: The American sugar industry is so strongly advantaged by quotas, tariffs and subsidies that total sugar imports have declined by about a third
since the 1990s. Cafta would allow additional sugar imports from the Central American nations totaling 107,000 metric tons in the first year. Annual U.S. sugar production is about 7.8 million metric tons, so the
effect of Cafta is to raise sugar imports into America by about one day's sugar production, or as Mr. Portman puts it, "approximately one teaspoon of sugar per week per adult American." That threat--a
teaspoon of sugar a week--has caused the U.S. sugar lobby to focus its efforts on killing Cafta. And it may succeed. The U.S. government agreed not to free up the sugar market in the 2004 trade pact with
Australia. ...U.S. Sugar Corp.'s Senior Vice President Robert Coker believes that "bilateral and regional trade agreements are death by a thousand cuts." Such economic protectionism--no bilateral trade
agreements allowed--is the good old-fashioned socialism that has failed millions of people for hundreds of years. Like Lenin, U.S. Sugar seems to
think that Americans should suffer economically rather than have a free market in sugar. Link to this Blog Entry
Thursday, May 26, 2005 ~ 9:39 a.m., Dan Mitchell Wrote: Asian Americans achieve spectacular academic success. They make up just 4 percent of the US population, but 17 percent of the incoming
students at Harvard, 18 percent at Columbia, 25 percent at Stanford, and 27 percent at MIT. Fewer than 1 New York City student in 10 is
Asian, yet Asians fill half the seats in the city's elite public schools, Bronx Science and Stuyvesant. One-fifth of US medical students are Asian, as
are 10 to 20 percent of the students attending Harvard, Yale, Stanford, and other leading law schools. Asian students score in the highest bracket on the SAT -- both verbal and math -- at far higher proportions
than their share of the public. Likewise the specialized SAT II subject tests, in which Asians amass triple their proportional share of top scores
in writing and history, five times their share in biology, and eight times their share in math, chemistry, and physics. ...On average, Asian students spend twice as much time doing homework as their non-Asian
classmates. They believe they'll get in trouble at home if their grades fall below A-, while for whites the ''trouble threshold'' is B-, and for blacks
and Hispanics, C-. They don't believe that success or failure in school depends on factors beyond their control. Link to this Blog Entry
Thursday, May 26, 2005 ~ 8:30 a.m., Dan Mitchell Wrote: ...no country has implemented a more complete reform of school financing than Sweden did in the 1990s. Two parts of the reform are of
particular interest. A voucher system has replaced the earlier centralized system of financing and a parental choice reform has been instituted. ...
The Swedish experience is of interest for at least three reasons. First, the reforms have been radical. Under the Swedish system, municipal schools
and independent schools receive public financing on close to equal terms. ...the country has experienced a rapid growth in the number of independent schools due to these reforms. The impact of the reform also
differs between different municipalities1 in Sweden. Enrollment in independent schools, at the compulsory school level, ranges between zero and almost twenty per cent. ...increased competition and the risk of
losing students and resources, give public schools incentives to improve education and which may lead to more experimentation with regard to, e.g., pedagogical methods. In addition, competition may have a
beneficial impact on teachers for two reasons. First, it may induce them to increase their work effort, thus reducing x-inefficiency. Second, if public schools in effect form a monopsony for teachers' services,
competition may result in higher salaries, which would attract able people to the profession. Both these effects have been documented empirically. ...productivity increases due to changes in both the
numerator and the denominator: Student achievements improve, while the costs of schooling fall. Hoxby also finds that private school enrollement is lower where the Tiebout choice is more intense, plausibly
because the demand for private education is smaller when public schools are of high quality. ...competition from private schools has a significantly
positive effect on the quality of public schools in terms of educational attainment, measured as the highest grade completed by the age of 24, wages, also measured by the age of 24, and high school graduation
rates. ...The central contribution of the present paper is that we use an extensive data set to study the effects of a truly radical reform of school
financing. Before the reforms began in the early 1990s, Sweden had a completely centralized school system. Financing of schools was mainly provided by the national government. Hardly any independent or private
schools existed. Today, Sweden has more generous rules for the use of public funds to finance independent schools than any other country, with
the possible exception of the Netherlands. ...We find that the extent of competition from independent schools, measured as the proportion of
students in the municipality that goes to independent schools, improves both the test results and the grades in public schools. This is confirmed by the results from the panel data models. The improvement is
significant both in statistical and real terms. This result holds for test results, final grades and for the likelihood that a student will leave
school with no failing grades. Thus, our results confirm findings from earlier research which indicate that competition is beneficial for students in public schools. Link to this Blog Entry
Wednesday, May 25, 2005 ~ 1:00 p.m., Dan Mitchell Wrote: If France votes no, the European Union will face a so-called "rolling no" across much of northern Europe, beginning with the Netherlands on
June 1. To head off that calamity the council of ministers will swiftly declare the present constitution dead and plan another one. They will
parrot Peter Hain and dismiss Giscard's work as just "a tidying-up exercise" which can be handled in other ways. Bits of the constitution
may be implemented under present treaties. Everyone will repair to another chateau and try again. Europe's rulers will always crave what the constitution calls Europe's "primacy over the law of the member
states". Self-aggrandisement must continue and the gravy train keep rolling. Anyone who says there is no plan B does not know his Eurocrat. On the other hand, if France votes yes a glorious prospect opens.
However the Dutch vote, Tony Blair and Jack Straw will be unable to wriggle out of their own referendum commitment, the first on Europe in
30 years. Britons will be offered a choice between Giscard's introverted, high-spending, "social" Europe and the deep blue sea. They will be told
by Blair that the deep blue sea is not an option. That again will be a lie. ...It is near inconceivable that a British no shared with a handful of other
states would fail to precipitate a general renegotiation of the European project. From this would emerge a sincere divergence between those states wanting more centralisation and those wanting less. This tension
would mean two or three "rings" of association. A new Europe would emerge organically from the old one. As the agent of that change, Britain
would be well placed to drive it forward. The French and Germans would move towards closer federation, with Italy and Spain in hesitant alliance. This core would have France at the centre, with the "Roman
empire" states gathered round it. The Mediterranean, not the Atlantic, would be their pond. They would have no truck with global free markets
or fair trade with Africa, with America or the English language. They could retain the habits and horrors of the present EU directorates and parliament. Members would take smug comfort in Churchill's remark to
de Gaulle: "When I have to choose between you and Roosevelt, you should know that I will always choose Roosevelt. And when I have to choose between Europe and the wide open seas . . . I will always choose
the wide open seas." That is just what Blair has done. ...A looser European polity is no longer "the unthinkable". A British no would
render it inevitable. Maastricht showed that some states want to continue with the centrally regulated regime of the post-war settlement. Britain since Margaret Thatcher has taken a different view, one shared
with smaller northern nations. It is clearly time to honour that diversity, to repatriate farm and regional subsidies and to end the absurdity of a
"level regulatory playing field" defined by the entire continental shelf. A globalised economy has rendered that dead and the new constitution with it. Link to this Blog Entry
Wednesday, May 25, 2005 ~ 10:10 a.m., Dan Mitchell Wrote: The U.S. corporate tax system is a patchwork of overly complex, inefficient and unfair provisions that impose large costs on corporate
business. U.S. corporations seeking to minimize the costs imposed by the detrimental provisions in the U.S. corporate tax system have adopted strategies to reduce overall tax exposure and increase profits. Such
strategies include moving operations overseas, corporate inversions, transfer pricing, earnings stripping, and complex leasing arrangements,
all to minimize taxation. Debate surrounding the issue of corporate tax reform has lately focused on whether or not the U.S. corporate tax system contributes to structural declines in manufacturing jobs and,
more generally, to the weakening competitiveness of U.S. firms in a global economy. Furthermore, it is obvious that many U.S. businesses are conducting costly and complex operations that have minimal
economic content but rather seem designed solely to reduce tax exposure. Unless broad and significant corporate tax reforms are enacted, it is likely that U.S. tax competitiveness will continue to suffer.
The results of inaction are undesirable: potential loss of American jobs, movement of production overseas, sale of U.S. companies to foreign multinational firms and general erosion of the corporate tax base.
Wednesday, May 25, 2005 ~ 9:41 a.m., Dan Mitchell Wrote: Liberal Democrats, especially, must keep blacks fearful of racism everywhere, including in an administration whose Cabinet includes
people of Chinese, Japanese, Hispanic, and Jewish ancestry, and two consecutive black Secretaries of State. Blacks must be kept believing that their only hope lies with liberals. ...Black self-reliance would be
almost as bad as blacks becoming Republicans, as far as liberal Democrats are concerned. All black progress in the past must be depicted as the result of liberal government programs and all hope of
future progress must be depicted as dependent on the same liberalism. In reality, reductions in poverty among blacks and the rise of blacks into
higher level occupations were both more pronounced in the years leading up to the civil rights legislation and welfare state policies of the 1960s
than in the years that followed. ...What blacks have achieved for themselves, without the help of liberals, is of no interest to liberals. Nothing illustrates this better than political reactions to academically
successful black schools. Despite widespread concerns expressed about the abysmal educational performances of most black schools, there is remarkably little interest in those relatively few black schools which
have met or exceeded national standards. Anyone who is serious about the advancement of blacks would want to know what is going on in those ghetto schools whose students have reading and math scores
above the national average, when so many other ghetto schools are miles behind in both subjects. But virtually all the studies of such schools have been done by conservatives, while liberals have been strangely
silent. Achievement is not what liberalism is about. Victimhood and dependency are. Black educational achievements are a special inconvenience for liberals because those achievements have usually been
a result of methods and practices that go directly counter to prevailing theories in liberal educational circles and are anathema to the teachers' unions that are key supporters of the Democratic Party.
Wednesday, May 25, 2005 ~ 8:58 a.m., Dan Mitchell Wrote: Lawmakers long ago gave up reading every word of the bills they pass, but maybe they should be forced to read things like the energy bill that
passed the House last month, 249-183, and runs to more than 1,000 pages. Certainly as the bill moves to the Senate, somebody should look at a curious amendment called Section 2053, also known as the
Domestic Offshore Energy Reinvestment Program. It's a lesson in miniature in what's gone wrong with the GOP Congress. ...in 2016, something happens: The formula changes radically, from $50 million a
year to an annual sum equivalent to 25% of all "Continental Shelf revenues" received in 2015. The House Budget Committee estimates this
to be about $1.75 billion a year, and calls it "a new permanent entitlement." ...For a GOP Congress pledged to spending restraint,
that's quite an accomplishment. No less impressive is the skill with which Republicans slipped Section 2053 into the broader bill. According to
Illinois Republican Mark Kirk, the amendment was dropped into the final version of the energy bill just before the window to add amendments
closed. "It took the Budget Committee four hours to figure out" what this was about, the Congressman tells us. ...In case you're wondering
what's so magical about the date 2016, it happens to be one year beyond the Congressional Budget Office's 10-year scoring window. This legislative contrivance allows the CBO to score the provision at "no
cost"; it also allows House leaders to claim they've stayed within the Bush Administration's spending guidelines.
Wednesday, May 25, 2005 ~ 8:15 a.m., Dan Mitchell Wrote: Speaking last week, Israeli Prime Minister Ariel Sharon announced that he supported proposals by Minister of Finance Benjamin Netanyahu for
cuts in company and personal taxation. Under Netanyahu's plan, corporate income tax will be reduced incrementally to 25% by 2009 and the maximum rate of personal income tax, including National Insurance
contributions, will fall to 44% from 49% by 2010. The rate of value added tax will also be cut by 0.5% to 16.5% in June or July this year, with an additional 0.5% cut due in 2007, depending on the state of the
economy.
Tuesday, May 24, 2005 ~ 11:39 a.m., Dan Mitchell Wrote: Then came the miserable stagflation of the mid- and late 1970s, and an upheaval began, at least in America. Regulators began to trim back the
red tape and to pull down the barriers that protected established firms from upstarts. Tax law was changed to inspire entrepreneurial risk, and
new lenders emerged to seed it. Customers began to see price breaks, upgrades, longer retails hours, fresher fare and new products and services. Technology pushed the revolution along as well. Today
competition reigns in the U.S. in a way undreamed of 20 years ago--competition for markets, for labor, for capital, for time and, yes, for attention (just ask the newspaper industry). A lot of people have
enriched themselves in the process, but no one feels safe from a new competitor sailing into view and sending shots across the bow, 24/7. You could argue that this free-for-all--even more than sound money and
lower tax rates--is responsible for the stunning recent outperformance of the U.S. relative to other developed economies, with their more-regulated and rigid business ways. And that is basically what Paul
A. London does in "The Competition Solution." But Mr. London is not, as one might suspect, another Republican acolyte. He is, according to his
publisher, an "ardent Democrat," an economist who served in the Clinton administration from 1993 to 1997. His faith in markets reminds
us why America's economy over the past 20 years, far from stalling when Democrats controlled Congress or the presidency, kept growing and even at times accelerated its pace.
Tuesday, May 24, 2005 ~ 10:44 a.m., Dan Mitchell Wrote: Scores of convicted rapists and other high-risk sex offenders in New York have been getting Viagra paid by Medicaid for the last five years,
the state's comptroller said Sunday. Audits by Comptroller Alan Hevesi's office showed that between January 2000 and March 2005, 198 sex offenders in New York received Medicaid-reimbursed Viagra after their
convictions. Those included crimes against children as young as 2 years old, he said. ...According to Hevesi, the problem is an unintended
consequence of a 1998 directive from federal officials telling states that Medicaid prescription programs must include Viagra. His office discovered that the state was helping sex offenders pay for Viagra by
checking Medicaid pharmacy expenditures against the state's sex offender registry.
Tuesday, May 24, 2005 ~ 10:02 a.m., Dan Mitchell Wrote: When government is involved in producing or subsidizing news coverage or political and historical documentaries - even entertainment - it
amounts to state-supported propaganda. And that conjures up Pravda. But unlike Pravda, the Public Broadcasting Service and National Public
Radio are still around. ...There is bias in news reporting and there always will be. That's hardly the problem. The problem is forcing people to pay
for the bias and propaganda with which they disagree. As Jefferson once wrote, "To compel a man to furnish contributions of money for the
propagation of opinions which he disbelieves and abhors, is sinful and tyrannical." ...Let's cut the cord between government and media. Let's
end taxpayer subsidies for TV and radio - and columnists, for that matter - forever. We don't need a more balanced Pravda. We need to make Pravda, PBS, and NPR private.
Tuesday, May 24, 2005 ~ 8:43 a.m., Dan Mitchell Wrote: This so-called "Constitution" or "Treaty Establishing a Constitution for Europe" (TCE) is unintelligible. No ordinary person has the time or
background to understand it. A Constitution should be comprehensible for the people it will govern. This text completely fails the test. The
Constitution of the United States of America is about 30 pages long - I suggest you check the length of your own national Constitution. The European Constitution is 252 pages long in the French version and with
all the protocols and annexes comes to 850. ...People who have actually read the text almost always come out of this difficult exercise determined
to vote against it. Naturally all the official, economic-financial and media propaganda is in favour of voting Yes - they say it's 'more democratic than what we had".
Monday, May 23, 2005 ~ 1:23 p.m., Dan Mitchell Wrote: When politicians talk about the federal budget, they like to focus on "the deficit," or (once in a great while) the surplus. This is a political disguise
that lets them avoid discussing the components of the budget -- spending and revenues -- lest the voters react in horror and ask them to tax and
spend less. So we thought our readers might like to know that so far this year federal tax revenues are booming. Overall, in the first seven months
of Fiscal Year 2005 through April 30, they climbed by $146 billion to a total of $1.216 trillion. That's an increase of 13.6% over a year earlier,
some four or five times the inflation rate, and the kind of raise that most American families can only dream about. Income tax receipts are driving
this windfall, with individual revenues up $66 billion, or 16%, to $547 billion. Corporate income taxes are rolling in even faster, tsunami-like in
fact, rising 48% to $134 billion. Not even Congress can spend all of this in just a few months, though it is trying. According to the Congressional
Budget Office, spending in the first seven months of FY 2005 rose 7.1%, more than twice the inflation rate, or about $97 billion, to $1.451
trillion. ...There are several lessons here, starting with the fact that somebody is earning all that extra income that the feds are getting their share of. The economy has been doing better than media coverage
admits, with growth lifting employment and incomes and thus the federal fisc. This revenue boom also is taking place in the wake of the 2003
reduction in dividend, capital gains and marginal income tax rates that Robert Rubin and other worthies predicted would be fiscally disastrous.
...It's amazing, amid these results, that some Republicans are reluctant to make the 2003 tax cuts permanent. They should be advertising that their
tax policies have helped the economy and will continue to do so if they are extended. The best solution for federal red ink is continued prosperity combined with spending restraint and entitlement reform, not
a tax increase.
Monday, May 23, 2005 ~ 1:00 p.m., Andrew Quinlan Wrote: ...the federal government costs 33 percent more than in 2001. ...the federal government cannot account for $25 billion it spent in 2003.
That's billion with a "b." Federal auditors know someone spent $25 billion, somewhere on something, but don't know who, where or on what.
...Another audit shows the Defense Department purchased and then left unused approximately 270,000 commercial airline tickets at a total cost
of $100 million. Even worse, the Pentagon never bothered to file to get the money back on these fully refundable tickets. And that's not counting
the 27,000 times the Pentagon paid twice for the same airline ticket, at a total cost of $8 million. ...In a recent 18-month period, Air Force and
Navy personnel used government-funded credit cards to charge at least $102,400 on entertainment events, $48,250 on gambling, $69,300 on cruises and $73,950 on exotic dance clubs and prostitutes. Not to be
outdone, investigators randomly sampled 300 Department of Agriculture (USDA) employee credit cards. They found, over six months, 15 percent charged a total $5.8 million in personal expenses that included Ozzy
Osbourne concert tickets, tattoos, lingerie, bartender school tuition, car payments and cash advances. The USDA has pledged a thorough investigation, but it will have a huge task: 55,000 USDA credit cards are
in circulation, including 1,549 held by people no longer USDA employees.
Monday, May 23, 2005 ~ 11:43 a.m., Dan Mitchell Wrote: The period of time during which class mobility in the United States has become increasingly sluggish has also been a time of unprecedented
social legislation. During the last half-century, in which we've had a war on poverty, affirmative action and minimum-wage laws, income gaps have grown and the class into which one has been born has become an
increasingly reliable predictor of the class in which one will die. Perhaps the chicken and egg are being confused here and the purported solution
is actually part of the problem. ...The Journal reports that "17 percent of whites born to the bottom 10 percent of families ranked by income
remained there as adults, but 42 percent of blacks did." But, the next observation by the Journal reporter is the real kicker. "Perhaps as a
consequence, public-opinion surveys find African-Americans more likely to favor government redistribution programs." The reporter here totally
ignores the possibility that the opposite might be true. Because blacks are more likely to favor government programs, they increase the likelihood that they will do no better than their parents. I would state it
this way. No one can devise a formula for getting rich. But I can devise a formula for getting poor. Don't work. Convince yourself that your life
reflects the decisions of others and not yours. Be the perennial victim. ...Freedom and capitalism do not reduce mobility. Mobility is lost as result of the belief that there is some path other than freedom and
personal responsibility.
Monday, May 23, 2005 ~ 10:52 a.m., Dan Mitchell Wrote: ...the country's heavily regulated economy is already a daunting investment climate, and as the latest issue of Business Week reports,
many U.S. companies are closing up shop in Germany and elsewhere in Western Europe because "their European operations, particularly in Germany, are dragging down companywide sales and profits."
According to a Boston Consulting Group survey, one in five U.S. companies currently in Germany is planning to relocate at least some operations. Thus, thanks to Schröder and the SPD, Germany is not only
an economically dicey investment but a politically dicey one as well. Monday, May 23, 2005 ~ 10:11 a.m., Dan Mitchell Wrote: Given how often Congress has tried to bail out failing airlines, it'd be nice if it felt as strongly about giving healthy carriers access to a freer
market. It could start by repealing an arcane law that serves no purpose other than to restrict low-cost Southwest Airlines from competing
against its more traditional rivals. The law in question limits Southwest to running flights to and from its headquarters in Love Field, in Dallas,
to seven states. This anticompetitive statute was jammed into legislation back in 1979 by then-Democratic House Speaker (and Fort Worth Congressman) Jim Wright. Contrary to some claims, the law was not
intended to "help" Southwest by graciously allowing it a few destinations outside Texas, but was a naked attempt to protect nearby Dallas-Forth
Worth airport from competition after numerous lawsuits to shut down Southwest and rival Love Field had failed. And it's worked like a charm. American Airlines, based out of DFW, has become an uncontested giant
in the market. It flies some 850 departures a day from DFW. (Southwest, in comparison, flies closer to 115 out of Love). American is so dominant
that other airlines have scaled back Dallas operations; Delta quit using DFW as a hub in January, canceling more than 225 daily flights. ...Everyone laments the dismal state of the airline industry, but the
reality is that the government has contributed as much as anyone to its problems. Antitrust limits on mergers, obstacles to foreign investment,
high taxes, labor rules and other policies have prevented the kind of competition that would produce a healthier industry. The Love field limits illustrate once again that when government attempts to protect
one competitor at the expense of another, it ends up hurting everyone.
Sunday, May 22, 2005 ~ 12:02 p.m., Dan Mitchell Wrote: "The French have a great responsibility with this vote", he added. A No would not only be badly perceived both within and outside of Europe,
but it would also influence the European economy negatively. "Investors want to have certainties, security. A No would be a big question mark.
And uncertainty is bad for the economy. It is bad for consumption, and it is bad for investments", said the commission president.
Sunday, May 22, 2005 ~ 10:22 a.m., Dan Mitchell Wrote: Luxembourg is to propose another compromise deal on future EU financing, with crucial cuts in regional aid, research and education, as
well as a cap on the British rebate package, according to the Financial Times. ...It proposes the biggest cuts (about 50 billion euro) in the
commission's plans to raise competitiveness, and in regional funds (40 billion euro). ...However, the proposal - bringing the spending total
below 900 billion euro - would still not meet the condition of six rich contributors to the EU budget (Germany, France, UK, the Netherlands, Sweden and Austria), who insist that future spending should be capped
at 1 per cent of the EU's GDP. ...Luxembourg's prime minister Jean-Claude Juncker suggested earlier that the issue of "own resources"
will be examined seperately by EU finance ministers, as their attempts to make savings is undermining the whole debate on future EU budget.
Sunday, May 22, 2005 ~ 7:42 a.m., Dan Mitchell Wrote: Just over a year ago the conservative New Democracy party was swept into power in Greece, ending the Socialists' almost uninterrupted 24-year
run in office. Since then, little has changed. ...Greece suffers from a public deficit of over 6%, double-digit unemployment, a large and corrupt public sector and a totally dysfunctional incentive structure.
High social security contributions and restrictive labor laws prevent businesses from hiring new workers. A myriad of regulations and red tape discourages businessmen from setting up new enterprises -- as does
rampant corruption. Those problems cry out for free-market remedies, such as liberalizing the labor market, reducing the size of the public sector, privatization and outsourcing. Yet Costas Karamanlis's ND
government isn't tackling any of these needed reforms. Far from it, this "pro-market" party didn't challenge Greece's statist economic regime.
During the campaign, Mr. Karamanlis promised to expand the public sector by creating 50 new regulatory bodies. ...According to Transparency International, in the EU, only Italy and some new member
states like Slovenia and Estonia are rated worse than Greece in their ranking of perceptions of corruption. ...With the state controlling over 60% of the country's GDP, it's not surprising that interest groups,
businesses and individuals would invest considerable energy and resources to influence government decisions related to the economy. The resulting collusion of the state with private interests, as Adam Smith was
first to point out, is what creates the breeding ground for corruption. Only the radical reduction of the state's involvement in the economy can eradicate it.
Saturday, May 21, 2005 ~ 2:39 p.m., Dan Mitchell Wrote: The American Society of Clinical Oncologists met this week in Florida, where it heard promising study results about a host of developmental
cancer therapies. "Just in the last year or so there are many more options," one researcher was quoted as saying. "None of them are
FDA-approved yet. Hopefully soon they will be." The bad news is that "hopefully" really is the operative word here. Former FDA Commissioner Mark McClellan made some progress moving the agency
to speed up the drug approval process. But he was pulled away to run Medicare, and agency bureaucrats have since been working feverishly to
turn back the clock. The latest evidence of backsliding was a recent vote of the Oncologic Drugs Advisory Committee (ODAC) to recommend against approving Johnson & Johnson's leukemia drug Zarnestra. The
drug may not be a miracle cure -- 15% of study patients achieved complete remission. But 15% is nothing to sneeze at either, especially since the company was seeking accelerated approval for the treatment of
elderly patients who might not be able to withstand the punishment of traditional chemotherapy. Yet ODAC voted against adding this weapon to the anti-cancer arsenal. ...A related blow for cancer patients was the
selection last month of Richard Pazdur to head the FDA's newly consolidated oncology drugs division. Drs. Pazdur and Martino share the view that the FDA's mission is to force the pharmaceutical industry to
jump through certain hoops as much as it is to get good drugs to patients. "The purpose of accelerated approval was not accelerated drug
company profits," Dr. Pazdur says, as if the researchers whose work is coming before him are selling snake oil. ...One way Congress could fight back would be with a law ending the moral travesty of
placebo-controlled drug trials for terminal diseases. This has been Dr. Pazdur's main delaying tactic, justified as a way to prove efficacy beyond any doubt, regardless of how many people may die in the interim.
(The oncologist conference also saw data presented questioning the value of lengthy drug trials.) As for the White House, its failure to offer adult supervision of the FDA -- an executive branch agency that
regulates one-quarter of the economy -- is increasingly notable and unfortunate. ...Who would have thought that, five years into a Republican Administration, the FDA would be staffed by people who
regard industry as an adversary, not a partner, in the anti-cancer fight.
Saturday, May 21, 2005 ~ 12:55 p.m., Dan Mitchell Wrote: A quarter of a century ago, Britain saw the rise of one the world's most consequential politicians - Margaret Thatcher. Thatcher's radical vision
of free markets, limited government, and individual freedom changed Britain and continues to change Europe. Continental nations, beset by deep structural problems arising out of their overgenerous welfare
states, look enviously at Britain's relatively high economic growth, low unemployment, and rising standard of living. Though they denounce the
"Anglo-Saxon" way of life in public, the European socialists continue, however cautiously, to privatize state companies and liberalize the labor
markets. Paradoxically, in the Conservative party, Thatcher's legacy seems more uncertain. Their spectacular loss to Labour in 1997 convinced the Tories that their reformist zeal went too far. That was
exactly the wrong lesson to learn from Tony Blair's rise to power. Blair adopted much of Thatcherism as his own and even extended it, however tentatively, to education and healthcare. Thatcherism was now the new
mainstream and the Tory party had no new ideas to offer. Therefore, a succession of Tory leaders, Howard being the latest, decided to "out-Labour" Labour. Not only have the Tories adopted many of
Labour's fiscal policies, but they opposed some of Blair's market-friendly reforms, such as the introduction of the university tuition fees. But, as
the Tory's third successive defeat shows, that was a disastrous electoral strategy. ...The Labour Party may have accepted macroeconomic liberalism, but its appetite for micro-management remains undiminished.
Simply put, the Tories have to provide a coherent alternative to Labour and that alternative is called "choice." The philosophy of choice is
unintrusive. Instead of forcing everyone to comply with one set of values -- in Britain's case the values of 37 percent of the 61 percent of eligible
voters who cast their ballots last Thursday -- the politics of choice would allow every Briton to live his life in accordance with his wishes. It would
allow him to send his child to a school of his choosing, get timely medical help from a doctor he knows and trusts, and keep more of his hard-earned wages out of the taxman's hands. ...The politics of choice
would also contribute toward solving the Tory's European conundrum. At the moment, it is all too easy for Mr. Blair to paint the Conservatives
as a group of reactionary "little Englanders," bent on withdrawing from the European Union. A choice-based Tory party would be more
believable when arguing that their opposition to the centralization of economic and political decision-making in Brussels is based not on nationalism and isolationism, but on Britain's wish to preserve freedoms
unknown on the European continent.
Saturday, May 21, 2005 ~ 10:23 a.m., Dan Mitchell Wrote: Perhaps the most interesting aspect of this study is what it says about class and ideology in America. And what it says is that they don't have
that much to do with each other, which runs contrary to generations of leftish stereotypes. Poor Americans who believe in the American ideal of by-your-bootstraps success are likely to vote Republican. And rich
Americans who cringe at the idea of hanging a flag from their porch vote Democrat. Wealth has become a poor predictor of political affiliation. The richest blocs in the GOP and Democratic Parties - Pew
calls them "Enterprisers" and "Liberals" - are roughly equally affluent. Forty-one percent of both groups make more than $75,000 per year
(though there are nearly twice as many "Liberals" as there are "Enterprisers"). The largest segment of the Republican base - "Social
Conservatives" - make less than Liberals. ...The ideas, assumptions and prejudices held by the statistically typical Democratic voter, according to
the Pew study, are quite simply, European. Europeans believe in a strong social welfare state, for rich and poor alike. Europeans are cynical. They
look askance - these days - on patriotic sentiment (hence the rush to form a new European nation). The church pews of Europe would make a great hideout for bank robbers since they're always empty. The United
Nations is, in the typical European's worldview, the last best hope for mankind. From the death penalty to gay marriage, the more similar you
are to a typical European in your political and social outlook, the more likely you are to be a Democrat. We've seen this before. At the time of
our nation's founding, there were a bunch of Americans who clung to European values. Today we call their descendants "Canadians." Up north, the government isn't something to be distrusted so much as
something to be obeyed. For example, when the government told the people to switch to the metric system, they did. Our government told us to do the same thing at about the same time, and America barely even
noticed.
Friday, May 20, 2005 ~ 1:00 p.m., Dan Mitchell Wrote: Price controls create an incentive for companies not to invest in new medicines; rather it pushes them to copy old, out-of-patent drugs. Several
European countries set artificially low prices for new drugs. Dr. Gottlieb points out that "when government policies explicitly place short-term savings ahead
of long-term research and development, continued business growth favors squeezing pennies out of known chemicals far more than squeezing medical
miracles out of the mysteries of science." Since healthcare is one of the most problematic parts of national budgets, a government's main goal becomes cost
containment, often at the expense of prudence. Companies are urged to forsake profits on new drugs; they are rewarded with relatively higher profits
on generics. As a result R&D activities grow more costly and less profitable. Companies are investing less and less on R&D precisely because of this.
...The driving force behind government interventionism is... government itself. If healthcare had not been nationalized in most European countries,
governments would feel less urged to drive the markets. Thus markets might work better, reflecting the real demand for new drugs (and the willingness to
pay for them). It is no surprise that EU companies invest in R&D far less than American ones: just 12.23 percent of their budget, vis-à-vis 19.22 percent in
the US and 28.68 percent in Japan. Even though in the US a large share of pharmaceutical market is more or less free from government interventionism, it
isn't perfect. In fact, cost containment is a problem in the US, too. American firms have plenty of incentives not to invest in R&D. Gottlieb's fear is that the
US pharma market will get more European over time, moving from R&D to generics. If that is the case, patients should cross their fingers and hope they
get illnesses for which a treatment has already been developed.
Friday, May 20, 2005 ~ 11:29 a.m., Dan Mitchell Wrote: There is no better symbol of free market than the trading of stocks. For a state that is used to controlling markets, the ultimate temptation is to
control the core of capitalism. And so President Jacques Chirac along with the French Parliament is launching an offensive against the stock
exchange. In January, Chirac declared "I am asking to the government to study specifically an adjustment of taxation, in order to tax more a
person who would buy a stock and sell it quickly, but reduce taxation for the long term investor." This clearly shows a political will to control
exchange operations and above all to tax profits. ...This, an old Gaullist idea that intended to organize redistribution of profits to workers. De
Gaulle wanted businessmen, employees and workers to get together and decide salaries. "They would all receive by law and according to their
hierarchy, a salary proportioned to the global return of the company," declared stated the former president. This collectivist economy for the
market is France's third way between communism and capitalism, an idea the French Right is raving about. And indeed, Nicolas Sarkozy, former minister of finance and now president of the UMP, is so worked
up about this proposal that he vigorously defended the idea that employees have the right to "share profits" like shareholders do. ...Quite
obviously Marxist, this proposal shows a deep misunderstanding of what is a profit. The source of profit does not lie in workers or employees but
in businessmen who have the abilities to create something new, to create an added value that will make the difference and bring money to their
company. Therefore, only businessmen and shareholders own profits and they are the only ones to decide what they want to do with it. But the French presidential party ignores this notion and goes on with its
collectivist agenda. ...French authorities should be reminded of what former German Chancellor Helmut Schmidt once said: "Today's profits are tomorrow's investments, and tomorrow's investments are the day
after tomorrow's employments." But the French Right sacrifices common sense economical principles and real social policies in order to calm
down union pressure and beat the Left at its own game. France is about to create an economic context hostile to companies and stocks. Far from benefiting from such policies, France may meet economic growth
difficulties and social failure. This would be the result of President Chirac's core value: collectivism.
Friday, May 20, 2005 ~ 9:26 a.m., Dan Mitchell Wrote: Norwegian corporations will have to make significant changes to their governing boards or face liquidation by the hands of the Norwegian
state. Sound scary? Wait for the really scary part: By July 1 of this year, the law mandates that companies must have a governing board made up of at least 40 percent women. ...The Confederation of Norwegian
Business and Industry recently released a headcount showing that only 20 percent of its members have reached the required threshold of female
representation. It is safe to assume that the remaining 80 percent will not be able to get above the minimum within the next two months. The beneficent Norwegian government will grant these misguided companies
a two-year stay to correct their erroneous ways. ...Norway is, contrary to popular belief, a very corrupt country. Friends in high places exchange
favors and bend administrative practices without actually breaking any laws. The problem with this form of corruption is that you need friends in high places, of which the larger companies have plenty. Smaller
companies without political pull will be liquidated if they don't fill the quota; larger companies will be left alone. ...The requirement to have women on corporate boards will weaken corporate governance in
Norway. A large number of women will be put on boards without the skills needed to be good governors. This will marginalize both skilled and unskilled female board members, because the good ones have to work
even harder to prove that they are equipped for the job. The collectivist feminists have given successful women another burden to carry when they passed the equal opportunity regulation of corporate governance.
Weaker corporate boards may also pave the way for corporate misconduct scandals. Strong boards do not necessarily prevent misconduct, but they are a vital check on deceitful executive officers.
This is important because of the prevalent corruption in Norway, even in the private sector.
Thursday, May 19, 2005 ~ 2:45 p.m., Dan Mitchell Wrote: Alan Blinder of Princeton emphasized this point in a 1980 study: "The richest fifth of families supplied over 30% of the total weeks worked in
the economy," he wrote, "while the poorest fifth supplied only 7.5%. Thus, on a per-week-of-work basis, the income ratio between rich and
poor was only 2-to-1. This certainly does not seem like an unreasonable degree of inequality." Experienced supervisors earn twice as much as
young trainees. Median income for households headed by someone age 45 to 54 was $60,242 in 2003, compared with $27,053 for those younger than 24. When we define people as poor or rich at any moment in time,
we are often describing the same people at earlier and later stages of life. Lifetime income is a moving picture, not a snapshot. ...To repeat,
there is no evidence that it has become harder to get ahead through hard work at school and on the job. Efforts to claim otherwise appear intended to make any gaps between rich and poor appear unfair,
determined by chance of birth rather than personal effort. Such efforts require both a denial that progress has been widespread and an exaggeration of income differences. ...But many dysfunctional families
do have low incomes, and collecting more taxes from functional families in order to send more transfer payments to dysfunctional families can
have perverse results. Mr. Heckman points out that "generous social welfare programs . . . discourage work and hence investment in workplace based skills. . . . Subsidizing work through the EITC . . . can
reduce the incentives to acquire skills and so perpetuate poverty across generations." Recent "news" reports implying it has become more
difficult for young Americans to live better than their parents fail to identify any genuine problem. And they suffer from one added handicap: They are demonstrably untrue. Link to this Blog Entry
Thursday, May 19, 2005 ~ 1:30 p.m., Dan Mitchell Wrote: Social Security reform in the United States has become a nationally debated topic, but privately managed, funded plans are already a
component of the social security systems of more than 30 nations around the world. Chile, Switzerland, the Netherlands and the United Kingdom
were the first countries to reform, in the 1980s. Most countries in Latin America, Eastern and Central Europe, as well as some in the Asian-Pacific region, created similar systems during the past 10 years.
The Latin American and Eastern European countries funded their worker-based personal account systems by diverting money from a pre-existing payroll tax. By contrast, the industrial countries in Western
Europe, along with Australia and Hong Kong, made employer-based retirement plans mandatory, in addition to their tax-financed systems. Examining these reformed systems may offer useful insights for the
United States as we consider our own social security reforms. The experience of other countries suggests problems to be avoided and solutions to be emulated. In particular, we can learn how to keep
administrative costs low, how to reduce risk, how to handle payouts and how to ensure that the elderly are kept out of poverty. ...All countries with individual retirement accounts guarantee a minimum benefit to
workers who participate in the system. This is usually financed by the government, out of general revenues. Most Latin American countries guarantee a minimum income from private accounts, while most Eastern
and Central European countries maintain a floor on the traditional pay-as-you-go benefit. Most countries with employer-based plans accompany these with a flat benefit that is paid to all older residents
regardless of earnings and contributions, although in some cases these benefits have been partially replaced with means-tested benefits. Most commonly, the minimum pension varies between 20 percent and 30
percent of the average wage.
Thursday, May 19, 2005 ~ 12:28 p.m., Dan Mitchell Wrote: How many times have we heard advertisements from law firms that specialize in elder law urging, "If you anticipate that you may have to
enter a nursing home down the road, an elder care attorney may be able to help you create a plan that will both protect much of your assets and
make you eligible for government benefits"? Boiled down to basics, the lawyers are suggesting that they can arrange for you to live off others
should you ever require long-term care instead of having to spend the assets you've accumulated during your lifetime. The quest to allow senior
citizens to live off others doesn't stop there. If you're a senior citizen, you might be eligible for property tax reductions, subsidized prescription
drugs, reduced fare on public transportation... The bottom line is that seniors are far richer than their mid-life counterparts who are in the workforce paying income taxes. They're being taxed to care for those
who are not only less likely to be in the labor force paying income taxes but are wealthier than they. That's a particularly perverse form of
income redistribution... Of course, there's another, more traditional, alternative for older people. It's the one found in the Ten Commandments: "Honour thy father and thy mother." There was a day
when children cared for their aging parents. Parents used to die in the homes of their children. Often today they die all alone in a hospice room.
There's less honoring of parents. Why? Through the tax code, children can force someone else to honor their parents.
Thursday, May 19, 2005 ~ 11:19 a.m., Andrew Quinlan Wrote: What's meaningful about the bill the Senate passed yesterday, however, is just how quickly and utterly some Republicans have abandoned all
spending principle. The 89-11 Senate vote for a $295 billion highway bill exceeds the $284 billion limit that President Bush has said is acceptable.
But more than that, it also defies the budget resolution that Congress adopted only last month. We wonder if the ink on that document is even
dry. ...It's also worth noting that the $284 billion ceiling set by the President is a record high level of funding and $73 billion, or 35%, more
than the last six-year bill enacted in 1998. Which is to say that the White House strictures are far from unreasonable. ...That said, if House-Senate
negotiations don't produce a bill within the President's price range, a veto is in order. Make that imperative. Mr. Bush has been preaching spending restraint since his re-election, and to let Congress get away
with busting the first big spending bill of his second term is to guarantee that he won't be taken seriously again.
Thursday, May 19, 2005 ~ 10:55 a.m., Dan Mitchell Wrote: The most important thing the "Treaty Establishing a Constitution for Europe" would do is to replace the present EU with a new Union in the
constitutional form of a supranational Federal State. It would make us real citizens of this new EU for the first time, and no longer just national
or honorary EU citizens as now. We would owe this EU Federation the prime duty of citizenship, namely to obey its laws and to give it our loyalty and allegiance. The new Union would be a young and immature
State. It would not yet have all the features of a fully developed Federation. It would not have taxations powers or the capacity to force
its constituent states to go to war against their will. But historically all the classical Federations have developed in such gradualist fashion.
...Member States would still retain their national constitutions under the proposed EU Constitution, but these would no longer be constitutions of
sovereign States but of provincial states, just as Texas, California and New York still retain their own constitutions within the Federal USA. It
is truly a momentous historical development, this attempt to incorporate 25 Nation States of Europe into a supranational Federation. One may
regard it as a good thing or a bad thing, as realistic or misguided, but it would surely be ludicrous for the educated, politically sophisticated
peoples of our continent to debate and vote on the EU Constitution without being aware that this is the central thing that is at issue.
Thursday, May 19, 2005 ~ 9:22 a.m., Dan Mitchell Wrote: Norwegian corporations will have to make significant changes to their governing boards or face liquidation by the hands of the Norwegian
state. Sound scary? Wait for the really scary part: By July 1 of this year, the law mandates that companies must have a governing board made up of at least 40 percent women. ...The Confederation of Norwegian
Business and Industry recently released a headcount showing that only 20 percent of its members have reached the required threshold of female
representation. It is safe to assume that the remaining 80 percent will not be able to get above the minimum within the next two months. The beneficent Norwegian government will grant these misguided companies
a two-year stay to correct their erroneous ways. ...Norway is, contrary to popular belief, a very corrupt country. Friends in high places exchange
favors and bend administrative practices without actually breaking any laws. The problem with this form of corruption is that you need friends in high places, of which the larger companies have plenty. Smaller
companies without political pull will be liquidated if they don't fill the quota; larger companies will be left alone. ...The requirement to have women on corporate boards will weaken corporate governance in
Norway. A large number of women will be put on boards without the skills needed to be good governors. This will marginalize both skilled and unskilled female board members, because the good ones have to work
even harder to prove that they are equipped for the job. The collectivist feminists have given successful women another burden to carry when they passed the equal opportunity regulation of corporate governance.
Weaker corporate boards may also pave the way for corporate misconduct scandals. Strong boards do not necessarily prevent misconduct, but they are a vital check on deceitful executive officers.
This is important because of the prevalent corruption in Norway, even in the private sector.
Wednesday, May 18, 2005 ~ 5:41 p.m., Dan Mitchell Wrote: Lift a glass of the bubbly -- Californian, not French -- to the U.S. Supreme Court, which yesterday struck down state laws barring
out-of-state wineries from shipping directly to consumers. Such laws "discriminate against interstate commerce," wrote Justice Anthony
Kennedy for the 5-4 majority. ...The big losers are the state liquor cartels, which are being cut out as distribution middlemen. The ruling is
also a big victory for Internet commerce, which is where more and more wine sales take place. The precedent will make it harder for states to
impose restrictions on Internet sales of other products or services; think real estate, insurance or contact lenses.
Wednesday, May 18, 2005 ~ 2:15 p.m., Dan Mitchell Wrote: While mandates make health insurance more comprehensive, they also make it more expensive because mandates require insurers to pay for
care consumers previously funded out of their own pockets. Based on our analysis presented in this paper, mandated benefits currently increase the
cost of basic health coverage from a little less than 20% to more than 50%, depending on the state. Mandating benefits is like saying to someone in the market for a new car, if you can't afford a Lexus loaded
with options, you have to walk. Having that Lexus would be nice, as would having a health insurance policy that covers everything one might want. But drivers with less money can find many other affordable
options; whereas when the price of health insurance soars, few other options exist. ...By the late 1960s, state legislatures had passed only a
handful of mandated benefits; today, the Council for Affordable Health Insurance (CAHI) has identified more than 1,800 mandated benefits and providers. More are on their way. In January 2004 alone, CAHI followed
the introduction of 295 new mandates in states across the country. This number only increased as the legislative sessions progressed.
Wednesday, May 18, 2005 ~ 1:52 p.m., Andrew Quinlan Wrote: ...the United Nations is proceeding with plans to upgrade its Manhattan headquarters. The organization's headquarters at Turtle Bay were
completed in 1950 and renovated in the 1970s. The United Nations now believes that another renovation project is necessary, and has prepared
a $1.2 billion plan to carry out the work. ...The U.N.'s Capital Master Plan states that a total of 2,651,000 square feet will be renovated. Assuming that figure to be correct, the per square foot cost would be
$452. But, as reported by the Sun, real estate experts question whether the U.N.'s facilities contain anywhere near that amount of space. ...If
these estimates are correct, only around 1,029,000 square feet will be renovated under the U.N.'s proposal. At a total cost of $1.2 billion, the
project would then weigh in at over $1,100 per square foot. ...It appears there are serious questions about the U.N.'s renovation project. Depending on which assumptions one accepts about cost and square
footage, anywhere from $500 million to $1 billion in expense is unaccounted for. Given the U.N.'s history, is there any reason to doubt that the costs projected by that organization include substantial sums
representing, as Trump put it, incompetence or fraud? Given what we know about the oil-for-food program, is there any reason to trust the U.N.'s business or accounting practices? American taxpayers have a
legitimate interest in knowing the answers to these questions. The renovation is to be financed by a low-interest, 30-year, $1.2 billion loan from the U.S. government. (Kofi Annan's original request for an
interest-free loan was turned down.) And, of course, the loan will then be repaid largely by American taxpayers, who foot a little over 20 percent of the U.N.'s bills.
Wednesday, May 18, 2005 ~ 12:30 p.m., Dan Mitchell Wrote: Tradition has it that any serious discussion on the financial perspectives of the European Union (EU) also leads to heated debates on the EU's
need to decide on its own resources. This is not surprising since the power to raise taxes is often seen as a central element of state sovereignty. Neither is it a new issue or one that is specific to the
European Union. As early as 1787, Alexander Hamilton, one of the founding fathers of the USA, strongly advocated the collection at a central level of certain taxes in preference to a system limiting central
revenues to customs duties and contributions by the States of the Union. Personal taxes constitute one of the most direct and visible links between
taxpayers/citizens and elected authorities. The attraction of an EU personal income tax partly rests on the opportunity to exploit this direct link in order to enhance accountability. ...The harmonised European
income tax could be progressive. The progression could notably result from a tax-free basic allowance. ...Being a tax on revenues, the harmonised EU personal income tax would probably allow collection of
more receipts in richer countries.
Wednesday, May 18, 2005 ~ 11:14 a.m., Andrew Quinlan Wrote: In some areas, such as air pollution, the improvements over the last 30 years are larger in magnitude than the improvements we have
experienced in reducing the crime rate and welfare dependency, both of which are widely celebrated as immense public policy success stories. The year 2004, for example, recorded the lowest level of air pollution
since we started measuring the problem seriously in the 1950s. The number of EPA monitors showing elevated levels of fine particle pollution--the kind that lodge deep in the lungs and contribute to
respiratory diseases--has fallen by two-thirds just in the last four years. Ozone levels also came in a record low level. More reductions are on the
way: The EPA's own computer models predict a more than 80 percent decline in pollution from cars and trucks over the next 20 years as new technologies come on line. America's forestlands have expanded by
nearly 10 million acres over the last decade and have, in fact, been expanding since the 1920s. No less an environmental authority than Bill
McKibben noted that this trend was "the great environmental story of the United States, and in some ways of the whole world." Closely related
to this is the reversal of wetlands loss; as recently as the 1970s we were losing 100,000 acres of wetlands a year. The most recent government data say we are gaining wetlands at the rate of about 26,000 acres a
year. Other measures of invisible environmental threats such as toxic chemicals show similar huge improving trends. Dioxin levels are down more than 90 percent since 1980; levels of PCBs and other chemicals in
wildlife in the Great Lakes are down by 90 percent or more since 1970. ...But the broader point is more important to grasp. The doom-and-gloom outlook of conventional environmentalists is, as the
kids like to say, so yesterday. As New York Times columnist (and professed environmentalist sympathizer) Nicholas Kristof put it in a recent column, "Environmental alarms have been screeching for so long
that, like car alarms, they are now just an irritating background noise."
Tuesday, May 17, 2005 ~ 2:36 p.m., Dan Mitchell Wrote: Flat-tax momentum is the big fiscal-policy story of the year in much of Europe, with potential fallout in the U.S. In Asia the punishing effect of
high tax rates is being felt as wage and salary costs begin to rise toward First World levels. Increasingly, entrepreneurial capitalists and skilled
talent are in the driver's seat, able to move their activities to an ever-wider range of places to do business. No wonder musty high-tax
fiefdoms are feeling besieged. ...A flat tax is defined here as lower single rates of personal income tax, and the momentum is now spreading to
corporate taxation as well. In the mid-1990s, about the time U.S. reform advocates (most notably Steve Forbes) picked up on a notion tried
successfully in Hong Kong for decades, the newly free Baltics and central Europe put the idea into practice. Then, ironically, it took root in Russia
itself, thanks to U.S. Tax Court Judge David Laro, who was also a consultant to Moscow. By lowering the rate and implementing a flat tax, these states are counter-intuitively increasing their total tax revenues
through better compliance and economic expansion. The next flat-tax countries will probably be Hungary and the Czech Republic. But don't be
misled in these parts! Look also at the social taxes for flat-tax countries in the Misery Index; for example, in Romania they reach almost 47%.
...France and Germany have been fighting the flat-tax trend in the EU by calling for uniform tax rates among all EU members. That can only occur with unanimity of the EU 25--not likely. Meantime there are
discussions of a flat tax in the Netherlands, Spain and even in the minority party in Germany. Now German Chancellor Gerhard Schröder will create a 19% national corporate tax rate, which is expected to
become law. But Germany's high local taxes, such as those included in our table entry for Berlin, undercut its recent federal cuts. (For its part,
France continues to layer a flat tax on top of its 200 other levies--not exactly the point of this revolution!)
Tuesday, May 17, 2005 ~ 12:41 p.m., Dan Mitchell Wrote: Against a backdrop of weakening economic growth and growing unemployment, the German government has confirmed a bleak outlook
for tax revenues for the period through to 2008, which are expected to fall way short of targets. Following a meeting of a panel of tax experts
last week, Gerhard Schroeder's government now expects tax receipts to fall EUR67 billion ($85.6 billion) short of targets over the next three
years, the finance ministry confirmed in a statement. Federal tax income alone will fall EUR10 billion below previous estimates next year. ...Germany, the European Union's largest economy, is forecast by the
European Commission to be the slowest-growing economically in the 25-nation EU this year.
Tuesday, May 17, 2005 ~ 11:30 a.m., Dan Mitchell Wrote: In a bid to encourage home ownership at all levels of American society, US President George W. Bush has indicated his support for the retention
of the tax deduction for interest paid on mortgages as the country braces itself for potentially major tax reform in the coming years. "One thing
we've got to make certain is to understand that the mortgage interest deduction enables more Americans to be able to own their own home. It
is an important part of our tax code," Bush told a gathering of the National Association of Realtors in Washington on Friday. Mr Bush also revealed that he supports further tax measures to include home
ownership among low and middle-income groups, and urged Congress to approve the Single Family Home Ownership Tax Credit, which will give a tax credit to builders of affordable homes. The scheme has a budget of
$2.5 billion over five years.
Tuesday, May 17, 2005 ~ 9:17 a.m., Dan Mitchell Wrote: Full marks for honesty to Florida Congressman Robert Wexler, who today will become the first Democrat to propose an alternative to
President Bush's ideas for Social Security. The non-surprising news is that he wants a tax increase. To anyone paying attention, a payroll tax hike has long been the preferred policy of most Democrats and AARP,
though they'd rather not have to say so in public. Mr. Wexler has the courage of their convictions. Press reports suggest the Congressman will propose that both employer and worker pay an additional 3% payroll
rate on all earnings above $90,000. They already pay a combined rate of 12.4% on all earnings up to $90,000, so Mr. Wexler is proposing one of
the largest marginal-rate tax increases in decades. This would have a damaging effect on job creation, since it is a direct tax on labor. But as a
political matter the idea has the virtue of candor, since Mr. Wexler is merely showing taxpayers what they can look forward to if Social Security (and we'd add Medicare) isn't reformed.
Tuesday, May 17, 2005 ~ 7:56 a.m., Dan Mitchell Wrote: Rapid growth of output per employee in China and India, combined with improved productivity growth in north America, eastern Europe, the
Middle East and Africa drove the world economy forward, according to a report published today by the Conference Board, a global business organisation. Only in Europe and Latin America has productivity growth
slowed. ...Europe's relative productivity performance has declined since 1995. The report said this was a sign that Europe needed to develop a
new business model, particularly in the service sector. It also dismissed worries from members of the European parliament that longer hours could tire workers, making them less efficient. The report argued that
the European working week was short compared to other regions. In Europe productivity was not the main driver of living standards. Income per head was 30 per cent lower than in the US because fewer people
were in work and employees worked fewer hours.
Monday, May 16, 2005 ~ 4:23 p.m., Dan Mitchell Wrote: EU finance ministers on Saturday (14 May) agreed to a voluntary tax on airline tickets as a way of bringing extra money to the world's poor
countries - but the non-compulsory nature of the deal lets countries against the levy off the hook. ...A formal EU-wide tax on tickets proved
too controversial to find consensus and the resulting agreement leaves it up to member states. A document prepared for the meeting estimated that a tax of ten euro within the EU and 30 euros on flights to
destinations outside the bloc would generate some six billion euro per year. However, both countries against any form of EU tax and countries
highly-dependent on tourism were firmly opposed to the idea. ...The idea came to be discussed by finance ministers following a proposal by French president Jacques Chirac in January that there be a general air
tax to boost aid to developing countries.
Monday, May 16, 2005 ~ 7:30 a.m., Dan Mitchell Wrote: Last week a judge said that United Airlines, now in its third year of bankruptcy protection, can, as a step toward leaving bankruptcy, default
on four pension programs covering about 120,000 current and former employees, programs currently $9.8 billion underfunded. The PBGC will guarantee payments of $6.6 billion, so promised benefits will be reduced
by $3.2 billion. This will improve United's competitive position by relieving it from making more than $3 billion in pension fund payments over the next five years. But what, then, of United's competitors? When
the PBGC took over responsibility for $3 billion of US Airways' promised benefits for current and retired employees, that put pressure on United to lighten its load. And now that the PBGC has lightened it, what
is Delta, which has lost $6.3 billion in the last five quarters, to do? What about American, Continental and Northwest? The mere existence of the
PBGC encourages a chain reaction. And outside the airline industry, many other corporations under stress are watching. ...The judge, practicing industrial policy, said the deal reached through collaboration
between United and the PBGC will help United attract financing to keep flying. But perhaps United -- or US Airways, or a carrier contemplating
bankruptcy as a means of escaping "legacy" costs -- should go out of business. ...But muscular interests have huge stakes in keeping all
existing airlines flying. The government has invested $9.5 billion in various subsidies for the big carriers, which, in dire straits, might try to
hand another $20 billion in pension obligations to Washington. Since Sept. 11, General Electric, which manufactures and maintains jet engines and leases more than 700 aircraft to airlines, wants all carriers
to survive.
Monday, May 16, 2005 ~ 2:15 a.m., Dan Mitchell Wrote: As Amtrak's high-speed Acela Express trains sit idle on sidetracks due to faulty brakes, we need to ask ourselves what have taxpayers gotten for
the $29 billion put into Amtrak thus far? ... The answer: Not much. Amtrak wants the highest subsidies ever now, in asking for $1.82 billion
for 2006. Its chairman explained that without this support, the railroad would have no cash by September. Year after year Congress allocates funds to keep Amtrak from going bankrupt. ...The train was supposed to
be the railroad's crown jewel and help "save Amtrak." In fact, the Acela shows that Amtrak lacks the distinctive competencies required to design
a high-technology train to serve the consumer-travel market. Acela is a case study in poor design, excessive delivery delays, component failures,
and rising costs. Problems started in May 1993 when Amtrak began the procurement process, promising that all Acela trains would be running
by 1998. In June 2003 five years behind the initial schedule the last train was delivered. ...Not only does Amtrak fail at designing trains, the
railroad fails at fixing a market-insensitive national route system. After all, more than half of Amtrak's traffic rides over only ten percent of the
system. If ever the federal government had a calcified organization that needed to be cut, it is Amtrak. Congressional pork-barrel spenders assert
that Amtrak's problems stem from inadequate government subsidies. But Amtrak fails because it has never learned fiscal discipline. Amtrak has
vaporized billions in federal subsidies and wants more. It's time to phase out Amtrak and stop designing and running trains that are lemons.
Sunday, May 15, 2005 ~ 12:50 p.m., Andrew Quinlan Wrote: For decades, there has been lofty talk about the "social responsibility" of businesses or about a "social contract" between the generations when it
comes to Social Security. Do you remember signing any such contract? I don't. What all this pious talk amounts to is that when third parties want
somebody else to pay for something, they simply call it a "social responsibility," an "obligation" or a "social contract." ...Should people
be paid according to what they "need" instead of according to what their work is worth? Should they decide how big a family they want and
then put the cost of paying to support that family on somebody else? If their work is not worth enough to pay for what they want, is it up to
others to make up the difference, rather than up to them to upgrade their skills in order to earn what they want? ...Think about it: What the
busybodies are saying is that third parties like themselves -- who are paying nothing to anybody -- should be determining how much somebody else should be paying those who work for them. It would be devastating
to the egos of the intelligentsia to realize, much less admit, that businesses have done more to reduce poverty than all the intellectuals put together. Ultimately it is only wealth that can reduce poverty and
most of the intelligentsia have no interest whatever in finding out what actions and policies increase the national wealth. They certainly don't
feel any "obligation" to learn economics, out of a sense of "social responsibility," much less because of any "social contract" requiring
them to know what they are talking about before spouting off with self-righteous rhetoric.
Sunday, May 15, 2005 ~ 11:17 a.m., Dan Mitchell Wrote: Big Sugar is doing everything it can to kill Cafta, for the sin of opening a mere 1% of the U.S. sugar market to imports from these poor countries.
Or to put it another way: An industry that employs just 52,000 Americans and generates only 1% of U.S. farm revenue may squash a free-trade deal with six developing countries to increase what is already
a two-way trade relationship of $33 billion a year. If this sounds bizarre, it's only in keeping with a U.S. sugar program that, pound for pound,
may be the most destructive policy in Washington. Here's how it works: The Department of Agriculture supports the price of U.S. sugar by offering loans that allow domestic processors to unload their sugar on
Uncle Sam if market prices fall below their costs. The loan rate for cane sugar works out to 18 cents a pound and almost 23 cents a pound for beet sugar -- compared with a world price of between five and nine
cents. To avoid having to pay for huge sugar-loan forfeitures, the USDA restricts imports and imposes marketing allotments to hold down domestic production. And so prices remain high, while producers and
processors roll in the dough. ...Sugar is a classic case of what Milton Friedman once called the Law of the Few -- that in a democracy the
intense interests of a few can often trump the diffuse costs spread among many. If Little Big Sugar kills Cafta, the gains for the Fanjuls would be
dwarfed by the loss of potential new export markets for U.S. meats, grains, fruit, beans, potatoes, poultry and eggs, fertilizers, dairy products
and feed. The American Farm Bureau Federation estimates that market at $1.5 billion a year. One other political irony is that Big Sugar is trying
to do all this even though the Bush Administration has tried mightily not to offend it. Former Trade Rep Robert Zoellick protected sugar from the 2004 trade pact with Australia, to Canberra's great and deserved
irritation, and the imports allowed under Cafta are tiny. In dealing with the sugar lobby, as with the old Soviet Union, appeasement doesn't work. Mr. Bush should tell the Fanjuls and their friends that if Cafta
fails he will use his executive authority to raise the U.S. sugar quota by one million tons, or about 10% of the American market. In policy terms,
that would treat sugar like every other farm commodity. But the real message would be to show the sugar lobby that it won't be allowed to run U.S. trade policy with impunity.
Saturday, May 14, 2005 ~ 12:13 p.m., Dan Mitchell Wrote: Indian Finance Minister Palaniappan Chidambaram pledged to reduce the level of taxation in India to that seen in ASEAN members
(Association of South East Asian Nations), whilst also promising additional measures to improve tax compliance. Talking up the government's commitment to tax reform, Chidambaram promised that
India would soon have the best tax rates in the world. "In the course of time, it is our endeavour to bring down tax rates to the ASEAN level,"
he said during an announcement which also heralded the launch of new facilities to smooth tax administration for large firms, including the introduction of help centres for small business taxpayers.
Saturday, May 14, 2005 ~ 11:29 a.m., Dan Mitchell Wrote: A bankruptcy court's decision this week to permit United Airlines to default on four underfunded pension plans is no surprise. This is what
happens when Congress puts the taxpayer on the hook as the insurer of last resort. ...United's default means that responsibility for the pensions
of 120,000 workers and retirees now falls on the federal government in the form of the Pension Benefit Guaranty Corp. ...But the PBGC itself is
in financial hot water, with obligations that currently exceed its assets by $23.3 billion. The full faith and credit of the U.S. government stands
behind the PBGC. So unless Congress can come up with a way to bolster the agency's finances, it'll be up to the taxpayers to make up the deficit.
If United's default creates a domino effect in the rest of the industry, the taxpayer bailout could grow to north of $40 billion for the airline sector
alone. American, Continental, Delta and Northwest are all struggling and, facing a pension-free competitor in United, they will have every incentive to follow a similar flight plan and unload their pension
obligations on Uncle Sam too. ...If there's a silver lining to the United default, it could be that it will light a fire under Congress to come up
with a comprehensive overhaul of the PBGC. In a speech in January outlining the Administration's proposed reforms, Labor Secretary Elaine Chao cited $450 billion as the estimated amount of underfunding in
private, defined-benefit pension plans. The 1980s saving-and-loan bailout was "only" $200 billion.
Saturday, May 14, 2005 ~ 10:41 a.m., Dan Mitchell Wrote: Tax reform is in the political air, but not all reforms are created equal. Consider the current effort in Ohio, where the Republicans who
dominate state government are using the cause of reform to compensate for their lack of any spending control. At Republican Governor Bob Taft's urging, Ohio's state House has passed a two-year, $51 billion
budget that now awaits Senate approval. Its centerpiece is a tax reform that includes nearly $2 billion in tax cuts, most usefully a 21% reduction
in the personal income tax rate over five years. The problem is that these cuts are more than offset by a $4 billion increase in other taxes and fees,
plus a troubling new general consumption tax. Mr. Taft's budget includes a real-estate transfer tax, doubles the levies on alcohol and tobacco, raises commercial property taxes by 10% and increases the
kilowatt-hour tax on electricity consumption by 30%. Earlier plans to index the personal income tax to inflation would be scrapped, and part
or all of two taxes that had been sold to Ohioans as "temporary" -- a tax on trusts and a 20% sales tax increase -- would become permanent.
...But we think economist Richard Vedder of Ohio University has more credibility when he points out that the CAT "opens the door to a humongous new tax that's a money machine in a state where there's been
no constraint on the expenditure side." Broad-based consumption taxes can be economically beneficial in lieu of income taxes, but not in
addition to them. And that's the real rub: Spending restraint has been a problem in Columbus for the better part of 30 years, no matter which
party has been in control, and the problem's getting worse. Since 1994, Ohio's expenditures have risen faster than any state in the nation. A
Buckeye Institute study released in December noted that "state spending increased by 63.4 percent between Fiscal Year 1994 and FY 2002, almost
three times the rate of inflation." This in turn has had to be financed by a gradually rising tax burden that is now one of the worst in the nation.
According to the Tax Foundation, in 1970 Ohio's state and local tax burden was the 4th-lowest in the country; today, it's the 7th-highest. ...Republicans run for office as the party of smaller government, but
Ohio's GOP has ingratiated itself with special interest groups and forgotten why it was elected.
Friday, May 13, 2005 ~ 9:41 a.m., Dan Mitchell Wrote: The rhetoric of class warfare is as old as dirt. Even Pharaoh kept the slaves fighting among themselves to extend their captivity. But there is
nothing classy about stirring people's jealousy and envy, making people feel as if the world owes them something, or bashing people who take risks to create jobs and help drive our economy. It is classless
exploitation to appeal to a person's weakness of understanding instead of their strength of character. ...Liberals love to divide us by economic
class, and discuss policies in terms of which class will benefit or suffer by their passage. The problem is that class is a moving target. What are the
magical income levels that define poor, middle, and rich? Further, Democrats assume that no one has the ability to rise above the economic situation into which they were born. People climb up the income ladder
everyday when they work at it. My dad worked three jobs at one time in his quest to become financially comfortable. His dream was to own a house he could be proud of, own a nice automobile, accumulate enough
savings to help send his two sons to college, and have enough left over to supplement his and my mom's golden years. ...In a free society which
elects its leaders, leftist politicians cannot force citizens at gunpoint or the threat of a prison camp to support their policies. Instead, they must
convince those with the least economically to support policies that force redistribution of resources from the wealthiest to the poorest. ...Economies based on the redistribution of wealth, and not wealth
creation, are not sustainable long term. History and economics have demonstrated that only societies whose economies are based on the free market model can produce the food and capital necessary for the nation
and its citizens to prosper. And yet, blind to history and the laws of economics, each generation of American political leaders contains a group who falls prey to the false promises of power and use the language
of classless warfare rhetoric. The content of a person's character is the key to success and happiness. It is not the content of a government program or someone else's bank account.
Friday, May 13, 2005 ~ 8:26 a.m., Dan Mitchell Wrote: A lot of people marvel that U.S. GDP per capita is about 30% higher than the West European average, but the main reason is surprisingly
simple: Americans just work more. The U.S. labor-force participation rate is more than six percentage points higher and unemployment is about half the European level. And while German and French workers
clock in about 1,400 hours per year, Americans work almost 1,800 hours. The one major European economy that is similarly industrious is the U.K. But yesterday, the Socialist, Labor and Green members of the
European Parliament decided they would no longer tolerate this aberration. They voted in favor of scrapping an opt-out clause that exempts the U.K. from an EU law limiting the average working week to
48 hours. More precisely, the clause allows British workers to opt out from this EU law -- if they so wish. No employer can force a worker to
do overtime. And no country has to follow Britain's lead here. While the opt-out clause preserves the British workers' right of contract, Europe's
lawmakers want to take it away, claiming they know best what's in the interest of those workaholics across the channel. ...Socialist lawmakers
are engaged in the time-honored practice of raising their competitors' costs. In this case, the competitor is the U.K., whose more liberal employment policies make it an attractive destination for investment and
jobs within the EU. This in turn puts pressure on Europe's more-socialist countries to reform or lose jobs. But the socialists have found a third
way -- make the U.K. less competitive by making its labor market less flexible.
Thursday, May 12, 2005 ~ 10:45 a.m., Dan Mitchell Wrote: Therefore, we must face the reality that taxes are going to rise a lot in coming years. I believe that a VAT is the least bad way of getting the
hundreds of billions of dollars per year that will be needed. The alternative is higher tax rates that will be far more debilitating to economic growth. If we end up with a VAT, the fault will not be mine.
The blame will lie with those Republicans who created an extraordinarily expensive new entitlement program just to buy a few lousy votes. It is they who will bear ultimate responsibility when financial markets
demand that deficit reduction is once again the order of the day and tax increases become mandatory.
Thursday, May 12, 2005 ~ 10:03 a.m., Andrew Quinlan Wrote: Oregon won't complete its study until 2007. But it's already clear the state is looking to influence behavior in addition to raising revenue by
implementing a "vehicle mileage tax." Under a VMT a motorist would pay a tax for each mile driven, probably around 1.25 cents. To administer this tax, a global positioning system would be mounted in
each car. As a driver fuels up, the device would relay mileage information to the gas pump, which would calculate the VMT. A simple electronic odometer-reading device would do the trick, but Oregon is
looking at GPS devices because they would also allow for charging higher VMT rates for miles driven in "congested" areas during rush hour or to exempt miles driven out of state.
Thursday, May 12, 2005 ~ 7:49 a.m., Dan Mitchell Wrote: Texas's status as one of only nine states without an income tax is in serious peril. Both the state Senate and House have endorsed what Mr.
Dewhurst -- whose post of Lieutenant Governor is nearly as powerful as Governor in the state -- is calling a "wage tax." A wage tax is of course
a fancy disguise for a personal income tax, and imposing one is a sure way to put a state on the path to slower growth. Since 1990 the nine states without income taxes have enjoyed twice the rate of job growth
and 2.5 times the population growth of the highest income tax states. Capital, jobs and economic development in America are migrating from high-tax states to low, and from blue states to red. Why would
fast-growing Texas want to imitate New York and Massachusetts? ...At one time or another this year GOP legislators have proposed the wage tax, a one percentage point hike in the sales tax that would give Texas
the highest sales tax in the nation at 9.75%, a business value-added tax, a 4% business-profits tax, a tax on cars, and an assortment of sin taxes
on cigarettes, liquor and even snack foods. All of these taxing schemes are allegedly necessary to fix the Texas school system. Along these lines
the Legislature is set to lift outlays for its two-year budget to $137.5 billion from $118 billion, or 12.5% a year -- the biggest two-year bulge in
Texas history. ...We hope Governor Rick Perry, who heroically closed a $10 billion budget deficit without a penny of new taxes at the start of his
term, is listening. Mr. Perry has pledged to veto "any tax bill that would be a job killer." A wage tax is a toll on employers for hiring workers,
and according to one study the latest Senate plan would cost about 40,000 jobs, or the equivalent of eight auto factories. In 2002 Texas voters gave Republicans control of the Legislature for the first time in
100 years on a pledge to keep government spending under control and maintain a pro-growth tax system. The Dewhurst plan violates both of those conservative governing principles and is the surest way to get the
GOP thrown out of office.
Wednesday, May 11, 2005 ~ 12:06 p.m., Dan Mitchell Wrote: Treasurer Peter Costello of the recently re-elected National/Liberal coalition government announced more than A$21billion (US$16.3
billion) in personal tax cuts plus further tax breaks for Australian business. ...Some of the key taxation measures will mean that: The 17 per cent tax rate will be reduced to 15 per cent from 1 July 2005. The
tax threshold for the 42 per cent and 47 per cent rates will be raised on 1 July 2005 and again on 1 July 2006. This means that taxpayers will not
reach the highest marginal tax rate until they earn around 3 times average weekly earnings. The Government will abolish the superannuation surcharge on contributions and termination payments
made or received from 1 July 2005 to encourage private savings. The Dutch State Secretary for Finance, Joop Wijn has placed proposals before Parliament which would reduce corporation tax and make other
improvements in order to attract new businesses to the Netherlands. ...As from 1st January, 2007, the starting rate of corporation tax will be lowered to 20% on the first EUR41,000 of profit, compared with the
current 27%, and the headline rate of corporation tax will be reduced from 31.5% to 26.9%.
Wednesday, May 11, 2005 ~ 11:32 a.m., Dan Mitchell Wrote: The laws of supply and demand work just the same for capital and labor as they do for other commodities. Raise the price of a good and you will
sell less of it. Lower its price and you will sell more of it. Therefore, firms can't maximize their revenue by simply raising their prices. They must
optimize prices by finding the one unique price - not too high, not too low - that will lead to just the right amount of sales to maximize revenues.
The dynamic consequences of changes in tax rates, like any other price changes, ripple across all sectors of the economy. Raise taxes on labor,
for example, and you lower workers' after-tax wages. Workers will work less at the prevailing wage, which means some or all of the higher revenues Krugman calculated will evaporate as fewer workers report to
work. Moreover, firms must counteract or circumvent workers' reaction to higher labor taxes by paying them higher wages, substituting capital
for labor to compensate for fewer workers willing to work at prevailing wages or by producing and selling fewer goods and services, probably
some combination of all three. ...Raise taxes on capital, and the story is the same. Firms will produce and sell fewer goods and services at current prices. Less labor will be hired, and fewer inputs will be
purchased. Again, after all dynamic adjustments have rippled through the economy, tax revenues will not increase as much as Krugman might project. In fact, depending on the circumstances, revenues may actually
decline from their pre-tax-increase level. ...Krugman would call this voodoo economics, but listen to what his hero, John Maynard Keynes said, "Nor shall the argument seem strange, that taxation would be so
high as to defeat its object and that given sufficient time to gather the fruits, a reduction of taxation will run a better chance than an increase
of balancing the budget. To take the opposite view today is to resemble a manufacturer who, running at a loss, decides to raise his price. And when his declining sales increase the loss, wrapping himself in the
rectitude of plain arithmetic, he decides that prudence requires him to raise the price still more. And who, when at last, his account is balanced
with naught on both sides, is still found righteously declaring that it would have been the act of a gambler to reduce the price when you were already making a loss."
Wednesday, May 11, 2005 ~ 10:27 a.m., Dan Mitchell Wrote: Unfortunately, there are a lot of leftists who were born with a silver spoon in their mouth -- and, instead of being grateful, are venomous
against American society. Conversely, there are people like yours truly who were born on the other end of the economic scale and think this is a
great country. ...Once you have ever had to go hungry, it is hard to get worked up over the fact that some people can only afford pizza while others can afford caviar. Once you have ever had to walk to work from
Harlem to a factory south of the Brooklyn Bridge, the difference between driving a Honda and driving a Lexus seems kind of petty as well. ...Differences between people in different income brackets tell you
absolutely nothing about who those people are or how long they have been in those brackets. Most Americans who are in the bottom 20 percent in income at one point in their lives are in the top 20 percent at
some other point. They usually start at the bottom and work their way up, with a few blips up and down along the way. The more affluent the
country becomes, the less those transient statistical differences really matter, except to those with the money, the leisure, and the inclination to
adopt indignation as a way of life. ...Of all the romantic self-indulgences of the affluent and the wealthy, few are more ridiculous than their
passion to "save" farmland. This country has no shortage of farmland or of food. One of our biggest problems is over-eating and, even so, there
are huge agricultural surpluses that cost the taxpayers billions of dollars every year. Yet the greenies with lots of green are pushing for laws and
policies to prevent farmers from selling their land to people who want to build houses on it.
Wednesday, May 11, 2005 ~ 9:15 a.m., Dan Mitchell Wrote: Germany is facing a shortfall in tax revenues approaching EUR50 billion at federal, state and local level over the next three years after the
government slashed its growth forecast and unemployment reached a post-war record in Europe's largest economy. According to a report in the Berliner Zeitung newspaper on Monday, a source close to the panel
of so-called economic 'wise men' confirmed that there will be a "dramatic" shortage of tax revenues in the coming years, although declining to speculate on the precise figure. However, federal
government tax receipts alone are estimated to be around EUR3 billion below forecast for 2005, a shortfall which is set to double in 2006. Last
month, the German government was forced to cut its growth forecast for 2005 to 1% from 1.6%. Its attempt to reduce the country's welfare bill has also been negated by rising unemployment which is now at a
post-war record high. In a bid to help kickstart the ailing economy, Chancellor Gerhard Schroeder's Cabinet have approved a cut in the basic rate of corporate tax to 19% from 25% which Finance Minister
Hans Eichel wants to see signed into law before parliament's summer recess. Philippine lawmakers have finally decided to bite the tax bullet by agreeing to increase both corporate income tax and value added tax in
order to narrow the government's yawning budget deficit and reduce escalating levels of debt. The compromise legislation reportedly calls for an increase in corporate tax to 35% from 32% for a period of three
years and an additional 2% to be added to the rate of VAT, currently 10%. ...In comments made last month, Ignacio Bunye, a spokesman for
President Gloria Arroyo, urged the country to "bite the tax bullet" in order to avoid its "worst nightmare" of losing the confidence of
investors. "Our worst nightmare would come from failure to act to protect the public interest in the long run. If we lose market confidence,
we will lose the strength to (attract) investment which will create the jobs and livelihood opportunities," he warned.
Wednesday, May 11, 2005 ~ 9:00 a.m., Dan Mitchell Wrote: Three years and eight months after the terrorist attacks that changed our lives and after spending $4.5 billion on screening devices to monitor
airports, seaports, mail and the air we breathe, the Department of Homeland Security has acknowledged what many of us frequent fliers already suspected. The money was misspent on equipment that has failed
to do the job. As with most things governmental, failure does not mean having to try something else. It means spending more money on even more expensive equipment. ...I knew the system wasn't going to find real
terrorists when I suddenly showed up on a "no fly" list last year. I had to copy my passport and driver's license and submit other notarized
documents to prove I am not the Thomas they are looking for. It wasn't until I wrote about it that my name was removed from the list. My name
is now back on the list ...At Newark Airport last week, I spoke to a TSA supervisor about my "mark of Cain." He gave me a "special" TSA
number to call to register my complaint. I am wise to this tactic, having tried the number before, so I asked him to make the call. As he dialed, I
said he could expect a recording to tell him to "press one for English" and then to leave a message. He would be promised a "prompt" reply,
which he would not get. He stayed on long enough to hear the "press one for English" and hung up. He suggested I might try e-mailing TSA
headquarters. I said I had and I received an automated response also promising a "prompt reply." I received no reply at all. ...The government
is going to spend billions more on new equipment, while continuing its harassment of the innocent. Don't you feel safer?
Wednesday, May 11, 2005 ~ 7:58 a.m., Dan Mitchell Wrote: ...over the last half-century wealthy nations have poured hundreds of billions of dollars into the developing world with minimal results. Much
of the money has been stolen. Even more has been squandered. Little has been used to promote long-term economic growth. Local politicians established money-losing prestige projects and used state companies to
win popular favor. Borrowers and lenders alike favored creating new roads and buildings rather than repairing old ones. Even more important, absent market reforms, economies won't develop. Prosperity
and growth correlate with economic liberty, nothing else. ...Giving money to incompetent socialist politicians benefits no one. Foreign transfers often hindered reform by relieving the price of economic
failure. Ruling regimes used foreign aid to remain in power even as they impoverished their peoples. ...it is an illusion that government-to-government aid can create prosperity. Nevertheless,
Jeffrey Sachs, leading the U.N. Millennium Project, proposes spending about $200 billion annually on a grand new initiative. World central economic planning is to succeed where national central economic
planning failed. ...The world's poor desperately need help. But for years much foreign aid has ended up doing more harm than good. Congress should not let history repeat itself.
Tuesday, May 10, 2005 ~ 8:37 p.m., Andrew Quinlan Wrote: Would you like fries with that? Either way, the Detroit city treasury would like a bite. Faced with a $300 million budget hole, Mayor Kwame
Kilpatrick is hoping people in this already heavily taxed city won't mind forking over a few extra cents for their Big Macs and Whoppers. Kilpatrick wants to ask Detroit voters to approve a 2 percent fast-food
tax - on top of the 6 percent state sales tax on restaurant meals. ..."Just tell him we're going to go to Bloomfield Hills to McDonald's if he puts a
tax on it," said 18-year-old Ebony Ellis, referring to an affluent Detroit suburb, as she and four friends ate at a Golden Arches in Detroit. The
high school classmates eat at McDonald's every day after school because their schedule doesn't leave them time for lunch. ...In a study by the District of Columbia comparing Washington and the biggest cities in
each state, Detroit in 2003 had the 10th-highest tax burden for a family of four with an income of $75,000. State and local taxes combined totaled 11 percent, according to the study. Link to this Blog Entry
Tuesday, May 10, 2005 ~ 4:10 p.m., Dan Mitchell Wrote: Patients waiting for medically necessary services in Canada often suffer financial and physical setbacks that are directly related to the
government's inability to deliver health services in a timely manner. Though some will suffer health-related difficulties because of the delay in treatment, many more will suffer financial losses and a reduced
enjoyment of life while waiting because of the mental anguish and unnecessary pain and discomfort that must be endured while waiting for care. These costs are not insignificant. ...In 2004, the estimated 815,663
Canadians who were waiting for treatment endured at least $732 million, if not substantially more, in lost productivity/ leisure time. These costs go unaccounted for by the bureaucrats who force the long wait
times on everyone, and since this lost time is "free" to the government, while the costs of providing additional treatments and/or reducing wait
times are not, patients' time is used profligately, as most "free" goods are. When borne by government agencies however, these costs are
quickly accounted for, and are replaced with private surgeries provided in Canada when it is economically efficient to do so. Link to this Blog Entry
Tuesday, May 10, 2005 ~ 11:46 a.m., Dan Mitchell Wrote: Hell hath no fury like a French Communist denied a Christian day of leisure. Peace won't reign in the land of cheese and wine, proclaim the
prophets from the country's trade unions, until Paris gives back the Whitmonday holiday. Monday? For the religiously inclined the holy day
Whitsunday, or Pentecost, falls as always on the seventh Sunday after Easter. A state fiat won't change that, and the French Catholic Church didn't protest when the authorities proposed to cancel the national
holiday called "Pentecost" to raise €2 billion -- a cut of that day's work -- for a special fund to care for the elderly created in the wake of the
2003 heat wave, which claimed thousands of seniors. But the majority of Frenchmen -- 66% according to a survey in Le Parisien daily -- consider
that Monday sacred. ...The government even implores the public in quasi-religious terms to make this "sacrifice" in the name of "national
solidarity." "This is not solidarity, this is a rip-off!" responds the Confédération Génélake du Travail (CGT), a big union. Righteous anger
over Pentecost could break out in national strikes next Monday after France's highest state body upheld the holiday cancellation last week. We tried to reach CGT for comment, but no one answered the phone at
their offices Friday, officially a working day. You see, Thursday was Ascension, a holy Christian day that remains a state holiday, which emptied France's cities and offices for the long weekend. In France, the
state religion, it seems, is vacation. Link to this Blog Entry
Tuesday, May 10, 2005 ~ 7:30 a.m., Dan Mitchell Wrote: Legislation that seeks to abolish estate tax in Hong Kong was gazetted last Friday. According to a government spokesman, the move is seen as
vital in attracting and retaining foreign investment in Hong Kong, and is supported by the majority of respondents to a public consultation on the
proposals, carried out last year. "In recent years, global financial services have experienced phenomenal growth. The financial markets in the Asia-Pacific region have also quickened the pace of their
development. Hong Kong is looking at unprecedented opportunities in this sector, but at the same time faces increasing competition," the
spokesman observed, continuing: "A number of countries in the region, including India, Malaysia, New Zealand and Australia, have abolished
estate duty over the past 20 years. Hong Kong must not lose out in this race. ...It is estimated that the proposal to abolish estate duty will cost
the Government annual tax revenues of around $1.5 billion. However, the abolition of estate duty is expected to encourage investments in both financial assets and the property market in Hong Kong, thereby
contributing additional revenue from stamp duty and other taxes. Under the proposal in the Bill, estates of persons who pass away after the commencement of the Revenue (Abolition of Estate Duty) Ordinance
2005 will not be subject to estate duty.
Tuesday, May 10, 2005 ~ 7:02 a.m., Dan Mitchell Wrote: After two accounting scandals and years of denial, Congress finally seemed ready to protect taxpayers from the financial high-flying of
Fannie Mae and Freddie Mac. But that was before Republican Mike Oxley and others on Capitol Hill decided to ride to their rescue. You may remember Mr. Oxley as the Ohio Congressman who helped give us
"Sarbanes-Oxley." With that pedigree, you'd think he'd want to hold two financial giants that have an implicit taxpayer guarantee to the toughest
regulatory standards. But the draft reform bill that he's introduced in the House falls well short of what's needed to protect taxpayers, not to
mention the U.S. economy, from a financial crisis. The disappointment is especially acute because the reform effort had been going along so well. Both the Federal Reserve and the Bush Administration have been
focusing on the major source of risk at the giant mortgage companies -- their portfolios of mortgage-backed securities, or MBSs. ...The sensible policy response is to wind down their portfolio of MBSs. As Fed
Chairman Alan Greenspan has testified, repurchased MBSs do little or nothing to fulfill the companies' Congressional mandate to promote housing. Apart from a small amount needed for liquidity, they merely
pad Fannie's private profit while increasing the public risk to taxpayers if something goes awry. ...Mortgage finance can be technical, and most Members of Congress barely understand it. They bend instead to the
strongest political incentives, which means the Beltway homebuilders and Realtors who've been in bed with Fan and Fred so long that they don't even care that their repurchased MBS portfolios do nothing for
home ownership. Mr. Schumer and other politicians are in it for the campaign contributions, and it is especially amusing to see liberals fight
for MBS portfolios that merely enrich already rich Fannie executives. However, there is a larger issue of protecting taxpayers, and the financial system, from the risk of a Fannie or Freddie crisis.
Tuesday, May 10, 2005 ~ 6:12 a.m., Dan Mitchell Wrote: The European Union's much-ballyhooed "Lisbon Agenda" -- which was supposed to revive growth in Europe -- was really not an agenda for
reform at all. It was, instead, simply a statement of nice things the EU would like to see happen to the European economy to help it compete with the U.S. -- such as raising employment levels, increasing R&D
spending, and so on. ...Why does anyone think that a system of generous welfare benefits, high taxes and harsh restrictions on hiring and firing would ever produce anything like a dynamic, growing economy? Why
does anyone assume that there is such a thing as a "European model," rather than just a collection of ill-conceived policies having a predictably
depressing effect on the economy and job creation? ...Europe had low unemployment and high growth in the past, so it can again. Unfortunately, the argument is wrong. A fundamental change occurred
in Europe between the salad days of the 1950s and '60s and today, and Europe never recovered. In a word, the 1970s happened. In 1965, government spending as a percentage of GDP averaged 28% in Western
Europe, just slightly above the U.S. level of 25%. In 2002, U.S. taxes ate 26% of the economy, but in Europe spending had climbed to 42%, a 50% increase. Over the same period of time, unemployment in Western
Europe has risen from less than 3% to 8% today, and to nearly 9% for the 12 countries in the euro zone. These two phenomena are related; in a country with generous welfare benefits, rising unemployment increases
government spending rapidly. ...In the 1970s, unemployment went up everywhere in the developed world. But on the Continent, it never went down. Britain and the U.S. both saw major economic reforms in the
early 1980s and subsequently recovered from the '70s. The Continent did not, and it's endured the pain of that lost decade ever since. ...In the U.S.
and the U.K., a combination of tax cuts, labor-market reforms and deregulation starting in the 1980s broke the downward spiral in which the Continent still finds itself. In the 1990s, the U.S. added welfare
reform to the mix. Unfortunately, the prospects for Europe are not particularly bright right now. German unions -- and even some members of the German government -- have in recent weeks taken to denouncing
American capitalists as "locusts" and "bloodsuckers." Italian Prime Minister Silvio Berlusconi, perhaps the only politician in Europe who
counts Ronald Reagan as a hero -- and admits it -- just had his coalition emasculated by special interests at home.
Monday, May 9, 2005 ~ 11:00 a.m., Andrew Quinlan Wrote: After spending more than $4.5 billion on screening devices to monitor the nation's ports, borders, airports, mail and air, the federal
government is moving to replace or alter much of the antiterrorism equipment, concluding that it is ineffective, unreliable or too expensive
to operate. ...In its effort to create a virtual shield around America, the Department of Homeland Security now plans to spend billions of dollars more. Although some changes are being made because of technology
that has emerged in the last couple of years, many of them are planned because devices currently in use have done little to improve the nation's
security, according to a review of agency documents and interviews with federal officials and outside experts. ...Some critics say that even though
federal agencies were pressed to move quickly by Congress and the administration, they made some poor choices. In some cases, agencies did not seek competitive bids or consider cheaper, better alternatives.
And not all the devices were tested to see how well they worked in the environments where they would be used. "After 9/11, we had to show how committed we were by spending hugely greater amounts of money
than ever before, as rapidly as possible," said Representative Christopher Cox, a California Republican who is the chairman of the Homeland Security Committee. "That brought us what we might expect,
which is some expensive mistakes. This has been the difficult learning curve of the new discipline known as homeland security." ...The Transportation Security Administration bought 1,344 machines costing
more than $1 million each to search for explosives in checked bags by examining the density of objects inside. But innocuous items as varied as
Yorkshire pudding and shampoo bottles, which happen to have a density similar to certain explosives, can set off the machines, causing false alarms for 15 percent to 30 percent of all luggage, an agency official
said. The frequent alarms require airports across the country to have extra screeners to examine these bags. ...the likelihood of detecting a hidden weapon or bomb has not significantly changed since the
government took over airport screening operations in 2002, according to the inspector general at the Department of Homeland Security. ...Counting machinery and personnel, aviation screening has cost more
than $15 billion since 2001, a price that Representative John L. Mica, Republican of Florida, says has hardly been worthwhile. ....But given the inevitable imperfection of technology and the vast expanse the
government is trying to secure, some warn of putting too much confidence in machines. "Technology does not substitute for strategy," said James Jay Carafano, senior fellow for homeland security at the
Heritage Foundation, a conservative research group. "It's always easier for terrorists to change tactics than it is for us to throw up defenses to
counter them. The best strategy to deal with terrorists is to find them and get them."
Monday, May 9, 2005 ~ 10:37 a.m., Dan Mitchell Wrote: In sports, it would be a scandal were one team (let's call them the Incumbents) to write the rules under which they and their opponents
(say, the Challengers) played. Why, Congress would be outraged! And compelled to hold show hearings, mugging for the cameras and talking so tough in front of the microphones that you'd think the congressmen
were on steroids. It would be even worse if that same team, after each season, went back to re-rigging those rules. Yet, that's American politics
today . . . now that the First Amendment has been nullified by Congress's Bipartisan Campaign Reform Act, commonly known as McCain-Feingold. President Bush signed the monstrosity, reversing his
position while admitting his "constitutional reservations." Reservations the Supreme Court ignored when it upheld the Act. Now, the
constitutional guarantee of free speech has been relegated to a relic for tourists to filter past at the National Archives a few blocks away. ...The
last election was made far more interesting to voters by the ability of groups to accumulate the capital necessary to go on television and reach
a mass audience. Without million-dollar donations, the liberal groups funded by George Soros and wealthy liberals - as well as the Swift Boat Vets funded by wealthy conservatives - would not have communicated to
such a wide audience. This round of campaign finance reform, like those before it, is designed to silence voices the political establishment doesn't
want heard. Less speech is not merely the unintended consequence of these acts; when it comes to campaign finance regulation, the very goal is less speech. ...America has become a land in which committees and
commissions in the nation's capital decide who can speak, when, where, and how much. Yet more control by self-interested political hacks is no
solution at all, it's more of the problem. We need more speech, not less. We need more freedom, not less.
Monday, May 9, 2005 ~ 8:17 a.m., Dan Mitchell Wrote: Progressive indexation is means testing politely labeled, and means testing, however labeled, is an attribute of welfare programs. Which is
why in 1997 -- eight years before Bush's attempt to attract Democratic support by proposing progressive indexation to make Social Security more redistributive -- Moynihan understood why a combination of
progressive indexation and personal accounts ``carved out'' of Social Security would repel Democrats. Moynihan wrote: ``Once the great majority of citizens found that they would do better in the private
investment part of this new system, support for the redistributive aspects of Social Security would quickly erode. It would become a residual relief
program for the poor elderly, possibly turned over to the states as is done with welfare.''
Sunday, May 8, 2005 ~ 1:17 p.m., Dan Mitchell Wrote: We are all taught that saving is good-indeed, Americans are often chided for spending too much and saving too little. But what if the problem of
today's global economy is that people elsewhere, in Europe, Asia and Latin America, are saving too much and spending too little? ...As a rule,
saving is good. It helps individuals afford big-ticket items (a home, college tuition), protect against emergencies and prepare for retirement. For societies, it provides funds for productive investments in new
factories, technologies and businesses. In economics textbooks, a country's savings usually stay within its borders. Americans save in America, Germans in Germany. Also, savings automatically balance
with new investment, mainly through interest rates... In the 1970s and 1980s, most countries dismantled the "capital controls" that restricted
their citizens from shifting funds into foreign stocks, bonds and companies. In practice, banks, insurance companies, mutual funds and governments-the repositories of nations' savings-do much of this global
shifting. The amounts are huge: in 2003, the French had $3.3 trillion of savings abroad, reckons the International Monetary Fund. No longer do saving and investment automatically balance within a country. For
example: in 2004, the Japanese saved 28 percent of their national income and invested only 24 percent at home. The rest went abroad, a lot to the United States. ...The huge U.S. trade deficits result because our
strong spending sucks in imports, while their weak spending hurts our exports. Japan, Canada and the "euro area"-all with savings surpluses-account for about 45 percent of U.S. exports. ...To say a
country has surplus saving is simply another way of saying that it lacks good investment opportunities at home or discourages its citizens from consuming. Asian countries favor export-led growth, de-emphasizing
local consumption. Latin America's volatile politics deters investment. Europe's heavy taxes and regulations do likewise. Whatever the problems, Americans can't fix them. The common view that our budget
deficits (which Bernanke correctly thinks should be reduced) cause our trade deficits is simply wrong.
Sunday, May 8, 2005 ~ 12:27 p.m., Dan Mitchell Wrote: Denmark should follow the lead of many eastern European countries and impose a flat, single-level tax rate, according to many tax experts. The
Institute of State Authorized Public Accountants (FSR) and the Taxpayers Association, a taxpayer interest group, told daily newspaper Jyllands-Posten that they agreed with many other academics and tax
specialists that a flat tax could prevent the brain drain some political leaders have warned about in recent months. The newspaper reported
that since Estonia had imposed a flat tax in 1994, nine other eastern and central European countries had adopted the model. It now stands on political agendas across western Europe as well. 'When foreigners hear
that we have tax rates over 60 percent, they think it's a lie, even if many other countries aren't that far behind us when you count the entire tax
burden,' accountant John Bygholm of FSR said. 'The signal is disastrous. Nobody leaves a 30 percent tax rate for a 60 percent tax rate of their own volition.'
Sunday, May 8, 2005 ~ 11:16 a.m., Dan Mitchell Wrote: It is possible that the investigations now underway will establish that he had no direct involvement in the transformation of the UN's
Oil-for-Food program from humanitarian relief into the biggest financial swindle in world history. It is even possible that he was ignorant about
what was taking place in a project that he shaped, presided over and expanded -- and, by the way, one from which his own son profited. If that's so, however, Mr. Annan has to be the most negligent and
incompetent manager ever to lead a major international organization. Yet through the cloud that hangs over Mr. Annan, a ray of sunshine has found its way to him. Amy Gutmann, president of the University of
Pennsylvania, that prestigious Ivy League seat of learning, has invited Mr. Annan to serve as this year's commencement speaker. And that's not all: In what can only be seen as an expression of wacky collegiate
humor, the university also will award Mr. Annan an honorary - yes, honorary - doctorate of law - yes, law. ...Nor does Mr. Annan deserve high marks for the work he did before becoming Secretary-General. As
head of UN peacekeeping operations, he failed to raise alarms over rising ethnic violence in Rwanda. As a result, the Rwandan genocide took place on his watch. The mass murders at Srebenica and Darfur also
occurred during his tenure in top UN jobs. And straight out of a George Orwell novel has been the UN Human Rights Commission -- a body where the worst human rights violators gather to criticize others. There
have been other scandals as well - too many to detail here and perhaps some we'll never know about: A UN survey last year showed that a significant portion of Mr. Annan's staff fear retaliation if they call
attention to management failings. So, recently I wrote to Dr. Gutmann to share these concerns about her decision to honor Mr. Annan. To do so, I
argued would be an embarrassment to the institution she leads. Leslie Laird Kruhly, the "Secretary of the University," responded on Dr.
Gutmann's behalf. She said she was "sorry to learn" I disagreed with the choice of a commencement speaker. Nonetheless, she added, "I believe
that UN Secretary General Kofi Annan is deserving of this honor" in recognition of "his career of devoted service to the goals of development, international peace and security, human rights, and the
rule of law." That he has failed to make progress toward these goals is, apparently, irrelevant. What lesson might graduating seniors draw from
that? That there is nothing wrong with failing as long as you convince people you're "devoted"?
Saturday, May 7, 2005 ~ 1:08 p.m., Dan Mitchell Wrote: The Bush administration received some unexpected good news on the fiscal front this week after the US Treasury stated that the budget deficit
will swing into surplus during the April through June quarter. However, the longer term outlook remains less optimistic for the government's finances. The Treasury Department this week reported that there would
be a $54 billion swing from projected deficit to surplus in the three months from April through June, largely as a result of a glut of tax payments which poured into the Treasury prior to the April 15 deadline.
...The Bush administration has cut some $1.85 trillion in taxes since coming to office. However, deficits have been exacerbated by an increase in spending. Indeed, a new report from the Cato Institute has
suggested that George W. Bush is the highest spending president since Lyndon Johnson. According to Cato, during Bush's term, government spending has risen to 20.3% of gross domestic product, up from 18.5%
when Bill Clinton left office in 2001, and the highest level since 1995.
Saturday, May 7, 2005 ~ 10:45 a.m., Dan Mitchell Wrote: EU agriculture commissioner Mariann Fischer Boel on Wednesday (4 May) again called for developed countries to eliminate all export subsidies as part of the current negotiations in the World Trade Organisation. While meeting in Paris with agriculture and trade ministers from the "Five Interested Parties", which includes the EU, US, Australia, India
and Brazil, she said export subsidies should be phased out in three steps. Some export subsidies would be phased out immediately upon implementation of new trade rules expected in 2006 while others would
be phased out over the medium and long term.
Friday, May 6, 2005 ~ 11:15 a.m., Dan Mitchell Wrote: We, Ministers of OECD countries, gathered at the OECD Ministerial Council Meeting on 3-4 May 2005 in Paris, reaffirm our strong
commitment to the implementation of the Millennium Declaration and the Monterrey Consensus and for achieving the internationally agreed development goals, including those contained in the Millennium
Declaration... We are committed to significantly increase the volume of our collective aid as agreed in the Monterrey Consensus. ...Five DAC
countries currently meet the target of 0.7 per cent of GNI as ODA and a further seven countries have committed to reaching the target by a specific date. Fulfilments of these commitments would further increase
aid volumes from $78.6 billion in 2004 to $115 billion by 2010. We urge all donors, including emerging donors, to make their best efforts. ...We
also recognise that even greater resources, including aid, are needed to reach the MDGs by 2015 and for supporting regional and global collective action. This is a challenge in the preparations for the UN High
Level Meeting in New York in September 2005. In this context a number of innovative financing measures have been proposed for development.
Friday, May 6, 2005 ~ 10:49 a.m., Dan Mitchell Wrote: ...non-withheld receipts from capital gains, dividends, stock options, and other sources came to $144 billion for the April tax-payment month.
That's an incredible 29 percent increase from a year ago when receipts fell by 5 percent. ...And the real story behind the numbers is the successful supply-side experiment that began in the middle of 2003, when
investment tax rates were slashed on capital gains and dividends. With new incentives to counter the deflation of investment during the 2000-02
period, both capital formation and economic growth came back from the dead. Real GDP since the tax cuts has averaged 4.3 percent at an annual rate, whereas growth was only 2.4 percent during the anemic recovery
that preceded the tax cuts. The latest government data on tax collections for calendar-year 2004 confirm a tax-cut-led recovery through the
explosion of tax receipts at lower tax rates. Once again, the Laffer curve is working.
Friday, May 6, 2005 ~ 9:37 a.m., Andrew Quinlan Wrote: A gasoline price war erupted in St. Mary's County last week after one station slashed its price for regular to $1.999 a gallon and spurred three
others to follow suit, giving drivers some hope of relief at the pump. But the price dip proved fleeting. Maryland regulators quickly stepped in and
told the stations that their prices were too low. They needed to go up by 5 cents. In as much time as it takes to fill the tank of an SUV, prices at
BJ's Wholesale Club, Sheetz and two Wawa outlets bounced to $2.049 a gallon. The sudden fluctuation in the Lexington Park area was the result
of a little-noticed Maryland law that took effect in 2001. The General Assembly mandated that stations cannot charge less than what they pay
for gas -- unless they're lowering prices to compete with a nearby station. ...With prices in Maryland averaging $2.20 a gallon for regular, drivers
said they were displeased to learn the state had ordered the stations to boost their prices. Mark Culbert, who lives near Lexington Park, was thrilled when he saw prices come down to $1.999 a gallon. But by the
time he pulled his Ford van with a 35-gallon tank into the Sheetz, it was too late. "That kind of makes me upset that the state is going to say you
have to pay a higher price," said Culbert, 36, a military contractor. "As a consumer, I'd like to see the lowest prices possible."
Friday, May 6, 2005 ~ 8:58 a.m., Dan Mitchell Wrote: The Democratic leadership, supported by misleading headlines around the country, denounced these "cuts" as the work of a party that never
did believe in Social Security and now wants to kill it. Yes, these are cuts, but only in the growth of promised benefits in the future -- based on
formulas written in the pre-baby boomer retirement era that so inflate benefits that they are entirely unsustainable. They cannot possibly be paid by the taxes of the fewer workers in the future who will be
supporting the many retirees. ...Democrats have a wonderful smoke screen. These "cuts" are not only destructive but unnecessary, they claim, because the insolvency does not kick in until sometime in
mid-century -- the Democrats' latest comically precise number is 2052 -- when the "trust fund" runs out. (So much for their month-ago concern
about solvency.) As I have been writing for years with stupefying redundancy -- and obvious lack of success -- this idea is a hoax. There is
no trust fund. The past Social Security surpluses were spent the year they were created. The idea that in 2017, when the surpluses disappear, we
will be able to go to a box in West Virginia to retrieve the money we need to make up the shortfall (between what Social Security takes in and
what it pays out that year) is a deception. There is no money there. It will have to be borrowed or garnered from new taxes.
Friday, May 6, 2005 ~ 7:13 a.m., Dan Mitchell Wrote: One draft law approved by ministers on Wednesday aims to cut the basic tax rate on earnings at companies to 19% from 25% in 2006. Another
bill seeks to defer payments of inheritance tax by people who inherit family-owned businesses, exempting heirs if they continue to run the companies for 10 years. Under the draft inheritance-tax rules, the levy
will be progressively reduced by a tenth for every year the heir keeps the company in business, on the proviso that the company in question is
worth less than EUR100 million. ...Eichel, who is calling for the laws to be passed before parliament's summer break is reportedly reconsidering
a proposal to increase the rate of dividend tax to help meet the revenue shortfall resulting from a corporate tax cut. The planned corporate-tax cut would lower the overall tax burden on large companies to 33.4%
from 38.7%, including local taxes.
Thursday, May 5, 2005 ~ 3:50 p.m., Dan Mitchell Wrote: Despite President Bush's promise not to negotiate with himself on Social Security, he keeps tossing out ideas intended to placate Democrats that
end up having the opposite effect. In his April 28 press conference, he said, "I propose a Social Security system in the future where benefits for
low-income workers will grow faster than benefits for people who are better off. By providing more generous benefits for low-income retirees, we'll make this commitment: If you work hard and pay into Social
Security your entire life, you will not retire into poverty." ...When the president embraced the notion of having benefits grow least rapidly for
high-income workers, the idea received the harshest criticism from egalitarian Democrats. New York Times columnist Paul Krugman called
it a vicious "attempt to turn Social Security into nothing but a program for the poor." Kerry adviser Jason Furman called Pozen's plan "a
system ... in which upper-income people would have less of a stake in traditional Social Security, potentially undermining political support for
it." ...All proposed solutions we've seen so far from Democrats would further undermine popular support for Social Security by tilting today's
heavily means-tested Social Security system even more severely against those who pay the most in payroll taxes. The Brookings Institution
volume "Saving Social Security" would cut benefits substantially for "the highest earners" -- meaning those fat cats with lifetime earnings
"above about $44,000 in 2003." Top earners would also pay an extra 3 percent or more in payroll taxes, called a "legacy tax." ...President Bush
added that he "will work with Congress on any good-faith proposal that does not ... harm our economy." But the Pozen plan would inflict serious
damage to work incentives. As economist Alfred Tella explained in The Washington Times: "Workers' skills are hard-won. If too big a chunk of
the rewards of greater efficiency is taken from the more productive and transferred to the less productive, perverse disincentives inimical to
economic growth can result." ...Sustainable reform must enhance rather than diminish the link between what is paid in taxes and what is received
in benefits. Personal accounts do just that. Most other proposals move in the wrong direction, politically as well as economically.
Thursday, May 5, 2005 ~ 2:14 p.m., Andrew Quinlan Wrote: Many among the intelligentsia portray the black redneck culture today as the only "authentic" black culture and even glamorize it. They
denounce any criticism of the ghetto lifestyle or any attempt to change it. Teachers are not supposed to correct black youngsters who speak "black
English" and no one is supposed to be judgmental about the whole lifestyle of black rednecks. In that culture, belligerence is considered being manly and crudity is considered cool, while being civilized is
regarded as "acting white." These are devastating, self-imposed handicaps that prevent many young ghetto blacks from getting a decent
education or an opportunity to rise to higher levels. Multiculturalism today celebrates all cultures but it is the poor who ultimately pay the
price of that celebration in stunted development, missed opportunities and blighted lives. No one today would dare to do what Northern missionaries did after the Civil War, set up schools for newly freed black
children in the South with the explicit purpose of removing them from the redneck culture that was holding back both races there.
Thursday, May 5, 2005 ~ 9:00 a.m., Andrew Quinlan Wrote: Ownership motivates people to think long term and to maximize the value of their assets. People act differently with borrowed goods than
with owned goods; nobody washes a rental car, for instance. But the Left wants to keep working Americans in the Social Security rental car precisely because they know people tolerate more government when
ownership rights are restricted. The Left views private retirement accounts as the biggest threat to Big Government since Ronald Reagan. And they are right. That's the real reason Senator Kennedy is fighting to
stop ordinary Americans from having the same ownership rights over retirement funds that he has.
Thursday, May 5, 2005 ~ 8:16 a.m., Dan Mitchell Wrote: Labour has committed to raise public spending to 42% of national income by 2007-08 -- a full 5 percentage points higher than 1999-00. The Conservatives would normally oppose that. During the 1980s, Margaret
Thatcher's party transformed Britain. By cutting taxes and deregulating, the Conservatives reversed the country's long decline, turning Europe's
"sick man" into a dynamic, flexible economy, based on high-valued added services rather than old-style "smokestack" industries. Today's
Conservatives -- under Michael Howard, a Thatcher-era minister -- have been hi-jacked by Labour's "progressive consensus." Public spending in
areas like health and education has recently rocketed... the Conservatives' spending plans are almost identical to those of Labour. Under Mr. Howard, too -- despite one or two (rather timid) tax cuts --
the overall tax burden would rise. With little resistance, then, tax will soon eat up more than 40% of Britain's national income -- the highest for
two decades. Slowly, but surely, the U.K. is quietly "Europeanizing." Wednesday, May 4, 2005 ~ 4:00 p.m., Dan Mitchell Wrote: Several sections of the Constitution expressly grant Congress the authority to tax and spend money to establish military forces to defend
the nation against its enemies. Not one says anything about buying drugs for retired people. Had Congress exercised its alleged "discretion" not to
fund a military in, say, 1941, or 2001, the American way of life could have been destroyed. But the republic has done quite well for 216 years
without "mandatory" spending on prescription drugs. American freedom would not diminish one whit if the Medicare prescription drug program
now scheduled to take effect in January were cancelled. Indeed, American freedom would be enhanced because seniors would not become dependent on the federal government for their medicines and
taxpayers would not be liable for the $740 billion this program is now projected to cost over the next 10 years. ...In 2000, when President Bush was elected, the federal government spent $33.9 billion on the
Department of Education. Next year, according to the Office of Management and Budget, it will spend $64.2 billion. Neither Congress nor the White House is talking about rolling it back to $33.9 billion. The
president and many Republicans in Congress strongly advocate naming to the federal courts only judges who will be "strict constructionists,"
meaning they will apply the Constitution as it was written and ratified. But do they practice "strict construction" themselves when it comes to
creating and funding government programs? You can search the Constitution looking for a clause that gives Congress the discretion to create a Department of Education, and you will have no more luck
finding it than you would finding the clause that mandates a federal prescription drug benefit. Wednesday, May 4, 2005 ~ 2:14 p.m., Dan Mitchell Wrote: According to TNS Financial Services' 2004 Affluent Market Research survey, there are an estimated 8.2 million American households with assets, excluding primary residences, worth over $1 million. ...80 percent
of today's American millionaires are first-generation rich. ...Being first-generation rich is not new for Americans. Drs. Stanley and Danko say, "More than 100 years ago the same was true. In The American
Economy, Stanley Lebergott reviews a study conducted in 1892 of the 4,047 American millionaires. He reports that 84 percent were nouveau
riche, having reached the top without the benefit of inherited wealth." ...According to IRS tax data, 85.8 percent of tax filers in the bottom fifth
in 1979 had moved on to a higher quintile, and often to the top quintile, by 1988. ...What are we to make of people who preach pessimism and
doom to people -- telling them that they're poor because others are rich or telling blacks that they'll never make it because of societal racism?
What are we to make of politicians, media pundits and college professors who preach the politics of envy -- telling people lies that the rich became
rich off the backs of the poor? I grew up poor in a housing project in North Philadelphia, and those weren't the lessons prevalent a half-century ago. My mother used to preach that "We have a beer
pocketbook but champagne tastes." And my stepfather used to admonish, "If you want to make it in this world, you have to come early
and stay late." Those messages are far more beneficial to a poor person than those of victimhood and pity. Wednesday, May 4, 2005 ~ 12:05 p.m., Dan Mitchell Wrote: Americans are angry about high energy prices, so it's the right moment to focus on why those prices are often higher than they have to be.
Consider the political campaign against natural gas, which was once plentiful but is now in increasingly short supply because of restrictions on
its production and delivery. ...The main political bottleneck is that the professional green lobby has turned hostile to natural gas. The Sierra
Club and the Nader retinue have successfully pushed moratoriums for most new offshore drilling of the fuel, have fought to keep the most
gas-rich federal lands off-limits to exploration, and have used lawsuits to tie up those pieces that are accessible. According to the American Public
Gas Association, some 213 trillion cubic feet of natural gas is basically off-limits to production. That's a 10-year supply at current demand. The enviros are also blocking an even quicker path to lower prices:
importing more liquefied natural gas. Currently, less than 1% of gas consumed by the U.S. is LNG, in part because the U.S. has only four port
facilities equipped to take it ashore. But many countries are eager to export LNG, and at prices significantly lower than those domestically.
...The larger political problem here is that the public hasn't been told about the connection between high prices and political opposition to energy production. ...All Americans are paying for this anti-energy
nonsense, in higher heating bills and fewer jobs.
Wednesday, May 4, 2005 ~ 10:44 a.m., Andrew Quinlan Wrote: A council committee has approved legislation to create a new "illegal trade practice" - selling drugs for more than city politicians decide is
fair. The bill would allow Washington, D.C. to transfer the companies' patent rights to other firms through compulsory licensing. It's a truly
nutty idea. Imagine the District setting "fair" prices for automobiles, heart pacemakers, and other products. ...Unfortunately, new medicines
don't magically appear on the ground every morning like manna from heaven. The U.S. pharmaceutical and biotech industry spends about $50 billion annually on R&D. Failures far outnumber successes. Often
several firms spend millions or billions of dollars seeking remedies to the same diseases but only one company succeeds. Sometimes none do. Only
one of every 5,000 to 10,000 substances makes it to market. Just 30 percent of those that do make it actually earn enough to cover their own development costs. But only paying for themselves isn't enough. The
sales of these few drugs must cover everything - the dry holes, administration, new lab equipment, regulatory compliance, lobbying against bad legislative proposals. ...No arbitrary government-imposed
price could reflect all of these considerations. Even businessmen can't be certain of product value before actual sales. Some expected big sellers
flop; some medicines produced with only modest hopes flourish. If businessmen so often guess wrong with their own money, what kind of results should one expect from politicians who spend other people's
money? Politicians who are most concerned about winning votes in the next election a year or two hence rather than ensuring the availability of
medicines a decade or two hence. Yet price controls remain politically attractive because in the short-term they can cut medical expenses without reducing product availability. The inevitable impact on R&D
won't be evident for years.
Wednesday, May 4, 2005 ~ 10:31 a.m., Dan Mitchell Wrote: The Schröder government, looking for a scapegoat, brings back out the "anti-social radicals" and "profiteers," as the locust swarms are
alternatively described in the party document. From the Social Democrats' perspective, the alternative explanation for Germany's troubles isn't a good sell: The Schröder government lowered taxes and
loosened labor codes, but not nearly enough and, in former case, too late. ...The anti-capitalist rhetoric reflects a short-term political calculation on the part of the Social Democrats. Many Germany voters
will see it that way, too. But something else is happening here as well. Old leftist slogans and policies are coming back after a period of sensible
if limited reform failed to produce expected results. They tap into real anxiety in Germany about the future, as well as in other once prosperous
but ailing European economies. In France, the campaign against the EU constitution is banking on this sentiment, too -- it's a rejection, to cite but
one leaflet, of a Europe "of markets and multi-nationals." As in Germany, the mainstream French parties are bending to the popular
wind. It's ironic that the physical Berlin Wall fell in Germany, since the mental wall remains very much in place. At heart, much of Germany and
Western Europe know that globalization puts pressure on their welfare states, and are now fighting back.
Wednesday, May 4, 2005 ~ 9:22 a.m., Dan Mitchell Wrote: The overarching strategic driver of substantive educational gains visible in the public school system today is the mechanism of free market-based
competitive pressure exerted through parental choice options. The introduction of competition is the single most important innovation necessary to improve the K-12 public education system. ...Despite wave
upon wave of touted educational "reforms" over the past several decades, this failed government monopoly has succeeded in producing a sclerotic bureaucracy that has flatlined American K-12 academic
achievement for the past 35 years. Interestingly, this same timeframe has seen the birth and rapid growth of modern teachers' unions and a nationwide explosion in average annual per pupil spending, which has
more than doubled since 1970 - from $4,700 to roughly $10,100 today in constant dollars. Basic economics tells us that when expenditures increase by more than 100% while outputs remain unchanged, we are
witnessing a huge productivity decline in the public education sector. Money is clearly not the problem. ...The educational bureaucracies and their political allies have largely managed to maintain what Milton
Friedman rightly calls "a tyranny of the status quo" in their fight against school vouchers for impoverished inner-city children trapped in the most
dysfunctional parts of this failed government monopoly.
Tuesday, May 3, 2005 ~ 3:18 p.m., Dan Mitchell Wrote: By leading the House Committee on Financial Services last week in approving an increase in federal deposit insurance to $130,000 from
$100,000 for individual accounts at savings and loans institutions and banks, Mr Bachus proved that many in Congress have forgotten what happened in 1980, the last time it increased deposit insurance. The effect
was to let savings and loans executives off the hook for their actions. They responded like boys at a paintball party - spraying money wildly and making colourful messes of their balance sheets. Congress also
whooped it up, tolerating - even supporting - their rampage. In the end, came the crash of the Federal Savings and Loan Insurance Corp (FSLIC), the government-backed agency managing the insurance. The
bailout institution itself had to be bailed out - by taxpayers, at a cost of $125bn. ...The savings and loans story is an example of moral hazard,
the creation of incentives for irresponsible behaviour. It matters because this season Congress has the opportunity to prevent another moral hazard crisis. This time the moral hazard involves traditional defined
benefit pensions and their government-backed insurance office, the Pension Benefits Guaranty Corp. United Airlines unwittingly underscored the urgency of reform recently when it announced that the
PBGC would assume United's multi-billion dollar pension obligations. ...By rescuing United workers, PBGC is letting the company off the hook. Observing this dynamic, even relatively solvent companies, with
traditional pension arrangements may now feel that they too can promise the sky. ...The old FSLIC guaranteed deposits when thrift institutions could not cover them. PBGC guarantees pensions when
companies cannot provide them. FSLIC collected premiums from members; so does PBGC. FSLIC set premiums too low; PBGC does too. ...The ideal would have been to end government-sponsored deposit
insurance altogether, so that lenders could be certain there was no chance of a bail out. Instead, it gave the deposit insurance job to another agency, the Federal Deposit Insurance Corp. New rules allowed
premiums to be adjusted so that they more accurately reflected the risks involved. The effect was to make federal deposit insurance something
closer to - but hardly identical to - a genuine insurance business. The shift caused a dramatic personality change among thrift executives. Paintballer boys became relatively prudent investors. The good news in
the PBGC case is that it is still early enough to forestall disaster. Elaine Chao, the labour secretary, has not proposed to kill off the PBGC nanny.
But she has put forward reform proposals that would make it easier for PBGC to peg its premiums to reality. ...The bad news in the PBGC story is that nobody is acting boldly enough. The correct thing to do with
PBGC is not to improve it. It is to privatise it.
Tuesday, May 3, 2005 ~ 12:49 p.m., Dan Mitchell Wrote: In order to offset the regressivity of the NRST, it would establish a massive new government entitlement program costing hundreds of
billions of dollars that would send rebate checks to every American on a monthly basis. This system would be based on the poverty level income
established by the Census Bureau. People would get 23 percent of this amount annually in 12 monthly installments based on their family status. Quite apart from the massive complexity of this proposal, it would
clearly require an enormous enforcement mechanism to avoid fraud and would undoubtedly be manipulated by politicians. It would be very tempting to change the formula to aid the poor and penalize the rich,
just as the current tax code does. ...There is a very severe problem of taxing business inputs under a sales tax. These must be exempt from tax in order to avoid cascading -- taxes being levied on taxes -- which
creates serious economic distortions. To avoid this under a NRST, every business, no matter how small, would need some sort of exemption certificate, which would create unlimited opportunities for evasion, or
they will have to be extensively audited in ways at least as onerous as under the income tax. ...Since it is not in the interest of either retailers or
consumers to pay the tax, and because all of the revenue is collected at the point of final sale, it will be too easy for tax-free deals to be made
with producers and wholesalers. Although evasion of state sales taxes is relatively small, that is only because the rates are low enough that it is
not worth the trouble. However, where rates are high on things like tobacco, evasion is also high. A vast amount of foreign experience indicates that retail sales taxes cannot be collected much above 10
percent without breaking down.
Tuesday, May 3, 2005 ~ 8:17 a.m., Dan Mitchell Wrote: Judging any reform plan relative to scheduled benefits is misguided. The schedule represents the benefits we have promised but do not have the
money to deliver. That is why Social Security has a long-term deficit with a present value of $3.8 trillion. If the litmus test of a reform plan is not
cutting scheduled benefits for any significant group of workers, then no viable plan to restore Social Security's solvency will pass muster. ...If
Congress decided to close the whole long-term deficit of Social Security through payroll taxes, it would have to extend this 12.4% rate to all
earnings (assuming minimal retirement benefits were paid in connection with these new payroll taxes). Thus, attaining solvency for Social Security in this manner would require one of the largest tax increases in
the history of the United States.
Tuesday, May 3, 2005 ~ 7:51 a.m., Dan Mitchell Wrote: Every product has illegitimate uses and undesirable consequences, but even lawsuits have had their limits. In 2002 in the U.S., car accidents
killed 45,380 people and injured another 3 million, 838 children under the age of 15 drowned, 474 children died from residential fires, and 130 children died in bicycle accidents. Fortunately, local governments
haven't started recouping medical costs or police salaries by suing auto or bicycle companies, pool builders or makers of home heaters. All sorts of products, including cars and computers, are also used in the
commission of crimes. But again, no one yet seriously proposes that these companies be sued for the losses from these crimes. People understand
what makes a car useful for everyday life also makes it useful to escape a crime and that you can't hold a car company liable for a product that's
working exactly as it should. They understand that the penalty should be on the person who uses the product improperly. Yet suing manufacturers
for costs cities incur from gun injuries and deaths is exactly the theory behind government lawsuits by cities against gun makers. ...Obviously,
bad things happen with guns. But the suits ignore that guns also prevent bad things by making it easier for victims to defend themselves. Unlike the tobacco suits, gun makers have powerful arguments about the
benefits of gun ownership. More than 450,000 crimes, including 10,800 murders, were committed with guns in 2002. But Americans also used guns defensively more than 2 million times that year, and more than 90
percent of the time merely brandishing the weapon was sufficient to stop an attack. Police are important in reducing crime rates, but they virtually always arrive after a crime has been committed. When
criminals confront people, resistance with a gun is by far the safest course of action. A 2004 survey found that 94% of 22,600 chiefs and sheriffs questioned thought that law-abiding citizens should be able to
buy guns for self-defense.
Tuesday, May 3, 2005 ~ 7:21 a.m., Andrew Quinlan Wrote: The study finds that decreasing the size of school districts has a substantial and statistically significant positive effect on graduation
rates. Conversely, consolidation of school districts into larger units leads to more students dropping out of high school. The results of the analysis
indicate that decreasing the average size of a state's school districts by 200 square miles leads to an increase of about 1.7 percentage points in
its graduation rate. This finding is particularly important for states with very large school districts. For example, if Florida decreased the size of
its school districts to the national median, it would increase its graduation rate from 59% to 64%. Decreasing the size of school districts could improve educational outputs, including graduation rates, because
it would increase the choice that parents have in the school system that educates their child. By making it easier to relocate from one school
system's jurisdiction to the next, smaller school districts make it possible for a larger number of families to exercise choice among different school
districts. The more families are able to move from district to district, the less students can be taken for granted by schools, which, for a variety of reasons, don't want to lose enrollment.
Tuesday, May 3, 2005 ~ 6:32 a.m., Dan Mitchell Wrote: ...it is in our national interest to undercut U.S. corporate tax rates. In 2003, the Department of Finance touted the "Canadian tax advantage"
by publishing analysis to show how Canadian federal and provincial corporate tax rates will be lower than U.S. federal and state rates by more than 8 per cent in 2008. Even with these proposed rate reductions,
many tax economists assert that overall Canadian corporate tax burdens will remain above those in the United States, even after taking into
account the previously proposed rate reductions by the Liberals, in part because the U.S. tax system offers more favourable ways to expense business assets. Until its recent volte-face, the Liberals told us that
reduced tax burdens for corporations would lead to greater levels of investment activities, bringing in more tax revenues and more job opportunities. There are good reasons to believe that shrewd tax policy
can, in fact, promote a vibrant economy, along with other growth-friendly economic reforms. Because Canada has a relatively small economy in a North American free-trade area, lower corporate tax
burdens could create a number of benefits. Ireland, for instance, which slashed tax rates for most corporations to 12.5 per cent, has managed to
attract multinational businesses to its shores in order to serve the European Union market. Irish citizens now enjoy greater wealth on average (measured by gross domestic product per capita) when
compared to Canadians. ...At the end of the day, the Conservative Party views on corporate tax policy are to be preferred. The Tories would reduce taxes on businesses to encourage more investment in the
Canadian economy, which should ultimately generate more tax revenues and more employment opportunities for working families. Let's hope the Liberals rethink their recent deal to scrap reduced tax rates for
businesses.
Monday, May 2, 2005 ~ 12:15 p.m., Dan Mitchell Wrote: As Daniel Patrick Moynihan and other Democrats once acknowledged, current policy increases real, inflation-adjusted benefits over time. That's
because benefits are tied to growth in wages, rather than to increases in prices (which rise somewhat more slowly). Though Democrats invoke FDR, this wasn't his idea; guaranteed annual increases were introduced
in 1972 as politicians of both parties competed for elderly votes. Reversing this blunder would still protect all seniors from inflation and also go a long way toward addressing Social Security's financing
shortfall. But Mr. Bush is going further and proposing to keep wage-indexing for the bottom 30% of all workers, which means their benefits will actually increase by about 40% by the time they retire.
Other workers would see more of their benefits price-indexed on a gradual basis as their income rose. And in any case, the indexing adjustment would apply only to the current program's benefits; whatever
higher returns workers get from private accounts would be theirs to keep. If Bill Clinton were the President proposing this, Democrats would
be doing "fairness" cartwheels. ...The overriding problem, however, is that solvency pushes the entire reform debate into what Americans will
lose rather than what they can gain. The great appeal of private accounts is the chance for workers to own their retirement savings rather than depend on the promises of politicians. Especially for
lower-wage workers who find it hard to save, it is the chance to build wealth that they can control and pass along to their heirs. If they now die
at age 64, they lose all of the taxes they've paid over a lifetime of work. That's the "fairness" argument we wish Mr. Bush and Republicans were stressing.
Monday, May 2, 2005 ~ 11:00 a.m., Dan Mitchell Wrote: The Republican chairman of the Corporation for Public Broadcasting is aggressively pressing public television to correct what he and other
conservatives consider liberal bias, prompting some public broadcasting leaders - including the chief executive of PBS - to object that his actions
pose a threat to editorial independence. ...Mr. Tomlinson said that he was striving for balance and had no desire to impose a political point of
view on programming, explaining that his efforts are intended to help public broadcasting distinguish itself in a 500-channel universe and gain
financial and political support. "My goal here is to see programming that satisfies a broad constituency," he said, adding, "I'm not after removing
shows or tampering internally with shows." But he has repeatedly criticized public television programs as too liberal overall, and said in
the interview, "I frankly feel at PBS headquarters there is a tone deafness to issues of tone and balance."
Monday, May 2, 2005 ~ 10:41 a.m., Andrew Quinlan Wrote: Regardless, gasoline prices aren't particularly consequential in the grand scheme of things. Sure, we're approaching the record prices paid for
gasoline in 1981 - about $2.42 a gallon in today's dollars - but on average we're a bit more than half again as wealthy today as we were then. If we consider gasoline prices in relation to per capita disposable
income, they are only 58 percent of what they were in 1981, 44 percent of what they were in 1955, and about 90 percent of what they were in
1972. That probably explains why gas-guzzlers are still selling as well as ever and politicians are hearing little outrage from constituents. What's
driving the oil market is demand - not primarily from American SUVs, mind you, but from the awakening economic giant that is China. U.S. consumption grew by about 700,000 barrels a day between 2002 and
2004, but Chinese consumption grew more than twice as fast: by 1.47 million barrels a day. But, even accounting for China, global oil consumption has increased by only 5.3 percent since 2002. How could
that have resulted in a near doubling of world oil prices? There are two reasons. First, the excess production capacity that characterized the
world oil market since the price collapse of 1986 had finally all but disappeared by 2002. Accordingly, the recent surge in demand caught the market short. The only way to increase supply substantially is for
producers to spend billions of dollars on new production capacity that won't come online for several years hence. Producers, however, fear another boom-and-bust cycle of over-investment followed by a price
collapse. That explains why the recent surge in oil prices has not led to a corresponding surge of new supply for the market. Second, consumers
have been slow to adjust their behavior in response to rising prices. Trading in SUVs for Dodge Neons, moving closer to work, and rearranging commute routines to take advantage of mass transit and
car-pooling can be costly in time and money. Motorists aren't about to pay those costs without evidence that the price hikes are here to stay. Even then, consumers may not respond as robustly as they have in the
past, given that those increased gas prices are less of an annoyance thanks to higher incomes. With both supply and demand relatively inelastic in the short run - meaning that neither responds very much to
price signals - small changes in either will lead to very large price movements. That's because it takes a big price spike to get producers to cough up even a little more product and to get consumers to moderate
their demand for oil.
Monday, May 2, 2005 ~ 9:59 a.m., Dan Mitchell Wrote: More than 70 percent of Americans own a car, a VCR, a microwave, air conditioning, cable TV, and a washer and dryer. In 1900, no homes had
the modern conveniences of today. Today's poor Americans have choices that yesterday's millionaires could have only dreamt of, such as cell
phones, computers and color television sets. Added to all this progress, most adults have twice as much leisure time as their turn-of-the-20th-century counterparts. ...The productive people who
made this progress possible are often painted as villains. I'm talking about the innovators and the risk-takers, in a word -- entrepreneurs.
Today's heroes are often seen as the people who attack entrepreneurs -- among them lawyers, politicians, media people, leftist organizations,
college professors and others who often contribute little or nothing to human progress. ...The attack on the pharmaceutical industry is particularly vicious, led by lawyers looking to make a financial killing
like their colleagues who sued the tobacco industry and Microsoft. One target of today's talkers is Merck drug company, the maker of Vioxx, because for some individuals it poses an increased risk of heart attack
and stroke. But for other individuals, it is safe and effective for pain relief from arthritis. The operational question for any drug is whether its
benefits exceed its costs -- not whether some people are harmed. Moreover, some patients would willingly accept the risk of heart attack and stroke to obtain relief from painful, crippling arthritis. Why should
the FDA or the plaintiff's bar prevent them from doing so? If we developed the practice of removing products from the market because some people are harmed by them, we might starve to death. Anaphylaxis
is a sudden, severe, potentially fatal reaction that some people have to foods such as milk, wheat, soy, peanuts, fish, shellfish and eggs.
Monday, May 2, 2005 ~ 9:43 a.m., Dan Mitchell Wrote: In 1979, many county workers were concerned about the soundness of Social Security, as many people are today. We could either stay with it -
and its inevitable tax increases and higher retirement ages - or find a better way. We sought an "alternative plan" that provided the same or
better benefits, required no tax increases and was risk-free. Furthermore, we wanted the benefits to be like a savings account that could be passed on to family members upon death. Our plan, put
together by financial experts, was a "banking model" rather than an "investment model." To eliminate the risks of the up-and-down stock
market, workers' contributions were put into conservative fixed-rate guaranteed annuities, rather than fluctuating stocks, bonds or mutual funds. Our results have been impressive: We've averaged an annual rate
of return of about 6.5 percent over 24 years. And we've provided substantially better benefits in all three Social Security categories: retirement, survivorship and disability. Galveston officials held meetings
that included debates with Social Security officials and put it to a vote: Galveston County employees passed it by a 3-to-1 margin in 1981 - just in time. The Galveston Plan was implemented just before the U.S.
Congress passed a reform bill in 1983 that closed the door for local governments to opt out of Social Security. ...In Galveston, if the worker dies before retirement, the survivors receive not only the full
survivorship but get generous accidental death benefits, too. Galveston County's disability benefit also pays more: 60 percent of an individual's
salary, better than Social Security's. ...We sought a secure, risk-free alternative to the Social Security system, and it has worked very well for
nearly a quarter-century. Our retirees have prospered, and our working people have had the security of generous disability and accidental death
benefits. Most important, we didn't force our children and grandchildren to be unduly taxed and burdened for our retirement while these fine
young people are struggling to raise and provide for their own families.
Monday, May 2, 2005 ~ 8:17 a.m., Dan Mitchell Wrote: According to the Census Bureau's annual survey released this week, state receipts last year grew 8.1% to $593 billion, a $44 billion increase from
2003. ...So while state politicians plead poverty as an excuse to raise taxes and fees, the revenue boom continues. This good news isn't surprising, since tax receipts always increase as an economy expands.
It's just not something politicians like to highlight when they're pitching tax hikes to fund more spending. Last year, while Virginia's receipts were
rising by 9.7%, Democratic Governor Mark Warner pushed through the largest tax increase in Commonwealth history. Over in New Jersey, where revenues were growing by more than 5%, former Democratic
Governor James McGreevey was backing a "millionaires' tax" (that kicked in at $500,000 of household income) and hiking the state's top
marginal income tax rate by 41%. ...In Ohio, where state tax receipts jumped nearly 8.8% last year, Republican Governor Bob Taft was busy
fighting efforts to repeal his "temporary" 20% increase in the sales tax -- half of which he's now trying to make permanent, but never mind. Then
there's Indiana, where GOP Governor Mitch Daniels has pushed for an income tax increase even as state revenues grew by 6.6% last year. On
the all-too-rare bright side is California, where state receipts grew 8.2% and Governor Arnold Schwarzenegger has resisted pressure to raise taxes that would hurt businesses and retard economic growth.
Monday, May 2, 2005 ~ 7:54 a.m., Andrew Quinlan Wrote: During six years in the House, Coburn's campaign against pork-barrel spending made him anathema to Republican leaders. He planned a lower
profile in the Senate, but the ethics complaint made that impossible. He also had an agenda ensuring him more attention than ordinary freshmen: bringing free market principles to health care, oversight of
federal programs (as chairman of the Federal Financial Management Subcommittee) and assaulting congressional pork. For the first time since Phil Gramm left the Senate, Sen. John McCain had an anti-pork
partner. In the April 20 debate on the supplemental appropriations bill, Coburn was the only senator to support McCain against Sen. Arlen Specter of Pennsylvania, who was mandating that a $40 million project
go to a "Philadelphia-based company." "I believe this is the wrong way we should be doing things," Coburn told the Senate. "We need to stop.
Our future depends on the integrity of a budgeting and appropriations process that is not based on politics but is based on having the future
best will for our country." It is hard to exaggerate how much Coburn's rhetoric riles pork-loving colleagues, explaining the absurd ethics proceeding against him.
Sunday, May 1, 2005 ~ 2:14 p.m., Dan Mitchell Wrote: With a centralized and hyper-bureaucratic public sector that swallows 55% of the country's gross national product, the burden of France's
government is ranked 122 on the Fraser Institute's index of economic freedom. ...From early childhood on, a Frenchman walks into a centralized universe worthy of the late Soviet regime. Public schools
boast a rigid structure inimical to learning, where all creativity and ambition are killed off. ...Then there is our chronic unemployment, which
for the past 20 years has oscillated between 8.5% and 12%. The main victims are our youth, those between 15 and 24. Only 25% of this age group is employed, compared with 54% in the U.S. People stay
unemployed over 16 months on average in France, while in the U.S. it's less than five months. ...President Chirac has blocked the principal reforms that the silent majority here longs for. The infamous annual
wealth tax, which reaches 1.8% of the value of one's property, wasn't changed, despite the continuing exodus of the very wealthy who are sick and tired of being subject to this confiscatory charge. ...Mr. Chirac
himself appears to be closer and closer to the ideology of what we call the altermondialistes -- extreme-left antiglobalists. He has literally
become their ambassador in offering the world that French specialty -- new taxes. Witness his recent proposal for a "solidarity tax" on financial
transactions to raise funds for developing countries or his idea for a kerosene tax to fight poverty.
Sunday, May 1, 2005 ~ 12:17 p.m., Dan Mitchell Wrote: The European Union should be the largest sugar importer in the world, but thanks to a EUR1.8 billion-a-year subsidy program, it is instead the
world's largest sugar exporter. The European Commission's own studies indicate that in the absence of subsidies, Europe would import more than
half its sugar needs; instead, it dumps more than a quarter of its sugar production on the world market -- and subsidizes those exports to boot.
The EU's sugar-subsidy regime was put in place in 1968 to ensure that Europe could meet all of its internal demand without dependence on imports. But predictably, the generous subsidies and high guaranteed
prices have encouraged overproduction. ...here's hoping the EU and U.S. alike take a serious look at the damage their farm subsidies do -- not only to their own budgets and consumers but to world markets
Sunday, May 1, 2005 ~ 11:45 a.m., Dan Mitchell Wrote: The first shuttle launch to follow the Columbia loss is expected on May 22; if the date holds, the shuttle fleet will have been grounded almost
two-and-a-half years. Since shuttle operations and support are roughly a $4 billion annual budget line for NASA (some shuttle costs are shared
among programs so the accounting is imprecise), this means roughly $10 billion has been wasted since Columbia, as shuttle ops spending has
continued but no shuttles have actually flown. The $10 billion spent since Columbia has bought, essentially, zilch. Mainly the money has gone to
pay the salaries of the astronaut corps (and the astronaut support corps, a far larger group), plus the salaries of everyone associated with the program--keeping them standing around doing nothing because no
shuttles are flying. Technical changes have been made in the three surviving shuttles since the Columbia loss, but those changes amount to tweaks. The insulation on the cryogenic tank, a hunk of which broke off
to start the Columbia tragedy, has been strengthened. Cockpit electronics have been updated. Flight-plan details have been adjusted to
create a "lost in space" option: If, as with Columbia, something happens during liftoff that makes the shuttle incapable of return, it can now stay
in orbit for weeks while a rescue mission is mounted. The shuttle upgrades are nothing remotely like a return on the $10 billion that's been poured down the drain since that dark day in February 2003. ...Twice
now, first with Challenger in 1986 and then with Columbia, space shuttles have exploded on national television, killing all crewmembers and destroying many billions of dollars worth of hardware--yet neither
Congress nor NASA has made any underlying change in the shuttle program. Shuttle launches costing half a billion dollars or more per shot are still used to place into orbit satellites or space-station parts that
could be launched far more cheaply on expendable rockets.
Sunday, May 1, 2005 ~ 10:34 a.m., Dan Mitchell Wrote: ...advocates of bus belts are charging that this nation is sacrificing its young people because we are too cheap to install the proper safety
equipment. As Alan Ross, Connecticut dentist and president of the National Coalition for School Bus Safety, informed Katie Couric, "It's all
about money." To be sure, some people have expressed concern about the expense of outfitting buses with seat belts, cost estimates of which
range from $1,500 to a whopping $7,000 per vehicle. And while it would be nice to pretend that money is no object when it comes to public safety
(especially for children), we all know that cost-benefit analyses factor into every expenditure made by either the public or private sector. Even
so, in this instance, budget issues do not seem to be the reason that only four states currently require seat belts on large buses like the one
Lilibeth was riding. Rather, there seems to be considerable doubt as to the effectiveness of seat belts on buses, including the possibility that they
could actually make children less safe. The NHTSA has concluded that simple lap belts (the type currently required by New York, New Jersey,
and Florida) could heighten the risk of serious injury during crashes by pinning a child's bottom half in place while throwing her top half forward. More elaborate shoulder harnesses (soon to be mandatory in
California) could potentially offer added protection, assuming they fit even small children properly and assuming the children use them correctly. The reasonable fear, however, is that many boys and girls
would squirm out of their shoulder straps, tucking them behind backs or under arms, and render themselves vulnerable to the same heightened
risk as kids wearing regular lap belts. Of course, financial issues were also taken into consideration by the NHTSA, which found that installing
shoulder harnesses could reduce seating capacity on buses, increasing school systems' transportation costs and effectively reducing bus service.
This, in turn, would leave more kids looking for other--less safe--ways to get to school.
Sunday, May 1, 2005 ~ 9:43 a.m., Dan Mitchell Wrote: Like most disastrous liberal schemes, astronomic gas taxes have already been tested on the British, where taxes account for 76 percent of the
pump price, and regulation has further forced prices up to £3.73 ($7.13) per gallon. Even though the whole of Britain is essentially urban, and
people are never far from a variety of kind of public transportation, roads are just as full in the United Kingdom as they are in the United States. For all the promises of environmental salvation through gas
taxation, car use has been limited more by the fact that roads are so jammed that people now get to places quicker by train. Yet despite the
enormous popularity of cars in the face of a high gas tax, Britons still hear claims that an even higher tax is what is needed to save the environment. The fig-leaf of economic rationale has, however, fallen.
With taxes accounting for such a large share of the gas price, this would imply that the benefit to society of road transportation is less than a quarter of its external cost!
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