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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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Tuesday, February 28, 2006 ~ 1:26 p.m., Yesim Yilmaz Wrote: We have two main findings. First, we determine that the offshoring of jobs has been a limited phenomenon: Our comprehensive estimate of the number of jobs embodied in U.S. net
imports is small relative to total employment in the United States1-2.4 percent of the total, at the most- both historically and in recent years. Moreover, this estimate is sometimes positive and sometimes
negative, suggesting that international trade does not necessarily mean a loss of jobs for the United States. Second, we find no evidence to support the claims that a surge in offshoring played a large role in
the jobless recovery. Jobs embodied in net imports did not grow at an accelerated pace after the 2001 recession. In fact, the increase in U.S. jobs sent abroad has averaged about 30,000 per month since 2001- a
deceleration from the monthly average increase of 45,000 jobs during the period from 1997 to 2001. ... More broadly, our results show no clear or necessary relationship between a pickup in jobs lost to
trade and weakness in the U.S. labor market. A case in point is the 1997-2001 acceleration in offshoring, which occurred when U.S. payrolls were expanding steadily. Link to this Blog Entry
Tuesday, February 28, 2006 ~ 12:47 p.m., Sven Larson Wrote: With at least three months before the issue of the European Commission Country Report, an occasion to learn whether Romania becomes an EU
member on January 1, 2007, Bucharest authorities received a yellow card from the EU in relation to the macro-economic chapter. The feedback of the authorities regarding tax policy may lead to a rise of the
flat tax quota as of January 2007. "The Romanian authorities need to adopt new measures of budgetary policy in order to adjust the macro-economic imbalances and to prevent the increase of the
budgetary deficit. We have conveyed our recommendations and our requirements to the Romanian authorities in relation to a more active that the budgetary policy should play in adjusting macro-economic
imbalances and in increasing the taxation base on medium term in order to cope with expenditures", according to those declared on Friday, in a press conference, by the European Commissioner for Economic and
Financial Affairs, Joaquin Almunia. Alumnia drew the attention to the adverse effects triggered by the decrease in taxation applied last year, considering the increasing budgetary needs so that expenditures
incurred by upgrading infrastructure, education and for co-funding the European projects could be covered. During the meeting with the European official, Minister of Public Finances, Sebastian Vladescu,
assured him that new modalities were sought for increasing the revenues to the state budget to over 30 per cent of GDP, the safest method being
to increase the flat tax as of 2007. Most likely, the raise percentage becomes public at the end of March when Minister Vladescu presents a tax strategy to cover the next 3 to 5 years.
Tuesday, February 28, 2006 ~ 11:42 a.m., Yesim Yilmaz Wrote: Hazlitt's principled defense of free markets and politically unpopular positions cost him editorial jobs. He refused to blame capitalism for the
Great Depression (The Nation), promote the New Deal or the Bretton Woods agreement (The New York Times), or endorse the Great Society and the ever-growing welfare state (Newsweek). In 1951, he wrote The
Great Idea (later reprinted as Time Will Run Back), a remarkable novel in which, under new ruler Peter Uldanov-a sort of futuristic Peter the Great-the Soviet Union rediscovers free markets. Although pessimistic
in its portrayal of Soviet domination of the United States, overall the book is optimistic. Peter ultimately triumphs against Bolshevik counterrevolutionaries, and the novel argues that great ideas can never
be permanently lost or repressed because the truth can always be rediscovered by the application of human reason. ...In 1959, Hazlitt published The Failure of the 'New Economics,' his chapter-by-chapter
critique of John Maynard Keynes' The General Theory of Employment, Interest, and Money. Many academic economists dismissed the work because Hazlitt was not one of them. But it remains a fascinating, clear
and hard hitting analysis of many of Keynes' contentions that have come to be seen as weaknesses in The General Theory. Hazlitt also edited a
1960 volume of essays by other economists critical of various aspects of Keynes' doctrines. Link to this Blog Entry
Tuesday, February 28, 2006 ~ 8:55 a.m., Dan Mitchell Wrote: Today [21st February 2006] the Isle of Man Treasury Minister, Hon. Allan Bell, announced a package of measures to further stimulate the
inflow of investment and business to the Isle as part of his 2006 Budget speech to Tynwald, the Isle of Man Parliament. A key component of these measures is the introduction of a 0% Corporate tax as standard,
which will take effect from 5 April 2006. ...This is intended to stimulate inward investment by businesses establishing on the Island, and will also
provide a consistent treatment across all sectors of the economy as part of the Isle of Man's commitment to a diversified economy. Presenting an
integrated strategy of business and individual tax incentives, the Budget also introduces a cap on personal income tax at a maximum level of
£100,000 per annum, irrespective of earnings. It is foreseen that this will attract high-net-worth individuals and active entrepreneurs to the Island
with the drive to further stimulate the Isle of Man's burgeoning economy. ...the Isle of Man represents one of the most successful economies in Europe, and is now in its 21st year of unbroken growth,
with unemployment below 1.5%. In the last ten years, its annual growth has averaged 7.4%, compared to an EU average of 2 ½ per cent. Link to this Blog Entry
Tuesday, February 28, 2006 ~ 8:50 a.m., Dan Mitchell Wrote: Ireland cut its corporation tax rate from 38% in 1996 to 12.5% in 2002. While the rates were cut, corporate tax receipts rose by 170% - from
IR£1.4 bn in 1996 to EUR4.8 bn (equivalent to IR£3.8 bn) in 2002. Corporate tax receipts are projected to increase to EUR5.3 bn in 2004. Annual growth of corporate tax revenue was 24.3% between 1996 and
2002. Australia reduced its corporation tax rate from 36% in 1998 to 30% in 2001. Corporate tax receipts have risen by 116% from A$18.8 bn in 1997/98 to A$40.6 bn in 2004/05. That is equivalent to an annual
growth of 16.6% in corporate tax revenue. South Africa reduced its corporation tax rate from 35% in 1998/99 to 29% in 2004/05. Corporate tax receipts have risen by 259% from R19.7 bn in 1999/00 to
R71 bn in 2004/05. That is equivalent to an annual growth of 43.2% in corporate tax revenue. The Czech Republic has cut its corporation tax rate from 31% in 2000 to 26% in 2005 (it will be cut further to 24% in
2006). Over that period, corporate tax receipts have increased by 54% from CZK76 bn in 2000 to CZK117 bn in 2004. That is equivalent to an annual growth of 10.8% in corporate tax revenue. ...In contrast,
countries which have not cut their corporate tax rates have tended to see corporate tax revenues stall. ...Countries that have been cutting
their rates of corporate tax have seen benefits from higher foreign direct investment (FDI). ...The FDI results are striking when one considers the countries whose business tax policies are considered above. The
countries which reduced corporate taxes between 1995-2004 saw the following increases in FDI: Ireland: net FDI inflow of US$92.7 bn. Australia: net FDI inflow of US$44.4 bn. Czech Republic: net FDI
inflow of US$39.4 bn. In contrast, those countries which did not reduce their corporate taxes saw the following reductions in FDI: UK: net FDI outflow of US$404.1 bn. Japan: net FDI outflow of US$223.5 bn. US:
net FDI outflow of USD $50.2 bn.
Tuesday, February 28, 2006 ~ 7:45 a.m., Dan Mitchell Wrote: After three previous vetoes, Wisconsin Governor Jim Doyle finally did right by inner-city school kids last week and signed on to a bipartisan
compromise that would expand Milwaukee's successful school voucher program. The 16-year-old Parental Choice Program, which provides vouchers for low-income children to attend private schools, is the
nation's largest. But under current law enrollment is capped at about 15,000 students, or 15% of Milwaukee's public school enrollment. The deal being hashed out by Governor Doyle, a Democrat, and State
Assembly Speaker John Gard, a Republican, would lift that cap by 50% to accommodate some 22,500 students. This fix may seem like a no-brainer. After all, the program's success is apparent not only by its
popularity but by study after study showing that vouchers have increased graduation rates and raised education standards. ...a sustained grass-roots campaign led by choice proponents -- along with
flagging poll numbers among Mr. Doyle's pro-voucher black base in an election year -- forced the Governor's hand. A particularly effective
television spot by the Alliance for Choices in Education featured a black father telling the camera, "If school choice is good enough for the
Governor's family, I ought to be able to have it, too." Governor Doyle's son attended a private school. Sometimes it helps to point out the
hypocrisy of public officials who exercise the very freedoms they deny others.
Monday, February 27, 2006 ~ 8:31 a.m., Dan Mitchell Wrote: While there's some truth to the old joke about economists never agreeing on anything, most of us actually agree on a lot, including the
fact that when the minimum wage law confronts the law of demand, the law of demand wins every time. And the losers will be the least-skilled
workers, who will be out of a job. The wage that exists in the absence of a legally mandated minimum reflects the willingness of workers to work
(supply) and the willingness of employers to hire them (demand); and the main determinant of what employers are willing to pay is the productivity of workers. That's why most working people are not
directly affected by the minimum wage: Their productivity and, hence, their pay, are already well above it. The law of demand says that at a
higher price, less is demanded, and it applies to grapefruit, cars, tickets to Terminator movies and, yes, labor. Since a legislated increase in the
price of labor does not magically increase workers' productivity, some workers -- the least-productive ones -- will lose their jobs. That's why economists looking for the effect of the minimum wage on employment
don't look at data on 45-year-old men but, instead, on teenagers and young adults, especially black teenagers and young adults. ...Many Democrats in California who support a higher minimum wage probably
don't understand its nasty effects on younger, less-productive workers. But there's a less benign reason: The Democratic Party and many of its members are closely affiliated with unions. Union members themselves
almost always make more than the minimum wage but support it anyway, because it hobbles competition from low-wage workers.
Monday, February 27, 2006 ~ 7:14 a.m., Dan Mitchell Wrote: If you think Republicans on Capitol Hill have troubles, take a look at Virginia, where GOP lawmakers are busy writing an instruction manual
on how to become a minority party. Republicans in that ostensibly "red" Southern state got their clocks cleaned in November's elections after
they refused to take a coherent stand on taxes, and Democrat Tim Kaine squeezed to their right on pocketbook issues. As GOP state senator Ken
Cuccinelli explained, "We ran on a message of almost being for tax cuts, almost for smaller government, almost for protecting Second Amendment rights, and almost being pro-life. As a result, the voters
almost came out and voted for us." And they apparently have learned nothing from that rout. When the legislature reconvened last month, the
first proposal from the majority Republicans in the state senate was to endorse a $1 billion tax hike for roads and transit projects -- the second
huge tax increase in two years. The GOP plan would increase auto fees, the gas and diesel tax, and even taxes on batteries and tires. This is the
same party that last won the governorship under Jim Gilmore in 1997 promising to abolish the very car taxes they now want to increase. Last week the senators floated another tax plan that is so bizarre and
complicated it has made them a laughing stock. This scheme would raise the gas tax by 5%, but the sponsors insist that "no one would have to
pay the tax if they didn't want to," because motorists could get a rebate at the end of the year if they keep shoeboxes full of tiny scraps of service
station receipts. This would add immeasurably to the joys of April 15. ...over the past decade, the state budget has swollen at twice the rate of
inflation plus population growth in the state. That's an $11 billion bonanza for state agencies, or about $500 more spending annually per Virginian.
Sunday, February 26, 2006 ~ 4:00 p.m., Sven Larson Wrote: Hong Kong Financial Secretary Henry Tang, going some way to meet public demands, has announced a modest tax concession coupled with
start of consultations on introducing a goods and sales tax (GST). In his annual budget speech, Tang said he will cut taxes by 1.5 billion Hong
Kong dollars (192 million US) this year through rejigging the tax bands as the territory had made a full recovery from the 1997-98 Asian financial crisis. The move was aimed to remove the burden on
taxpayers, particularly middle-class families, he said. He forecast the city's first budget surplus of 4.1 billion dollars (526 million US) in the
year to March 2006, the first in seven years, but he opposed major tax concessions considering future challenges and uncertainties. "As a government that manages public finances prudently and keeps
expenditure within the limits of revenues, we should not rush into deciding on substantial tax reductions," he said. Tang said he understood demands for restoring salaries tax to its 2002-03 levels but
feared a major tax reduction would shrink the city's already narrow tax base still further.
Saturday, February 25, 2006 ~ 1:30 p.m., Dan Mitchell Wrote: $1,401,104,263. That's how much of our hard-earned money has gone to subsidize the spring break-style trips and conferences of the federal
government over the last five years. Spending on bureaucracy boondoggles has increased some 70 percent in that time period. ...Why are we paying for HUD employees to attend the New York State
Governor's Dr. Martin Luther King Symposium? Or to a conference held by the radical, left-wing, open-borders advocacy group, the National Council of La Raza? Did the Department of Justice really need to
dispatch workers to the "Women Are Sacred" conference in sunny Phoenix? Was it necessary to send a whopping 200 HHS employees to a
Netherlands "International Symposium on Night and Shiftwork"? Wouldn't it have saved us all time and money if the HHS researchers traveled to a nearby 7-11 or nursing home instead? The spendthrift HHS
has been among the worst transgressors -- burning through more than $300 million on conferences between 2000-2005.
Friday, February 24, 2006 ~ 9:02 a.m., Dan Mitchell Wrote: ...the "lump of tax revenue fallacy", which is based on the notion that changes in tax rates have absolutely no impact on individual or business
behaviour and, hence, on the arithmetic link between tax rates and revenue. Given certain tax rates, there will be a "lump" of tax revenue.
In a crude example, cutting income tax rates by 10pc (say from 22pc to 20pc) will result in a 10pc reduction in revenue. But tax changes have
significant "dynamic" impacts on individual and business behaviour and, hence, on revenues. They can crucially influence investment decisions, how much people work and save, or whether businesses move
their operations overseas to avoid confiscatory tax rates. All these decisions will have major knock-on effects for the overall ability of the
economy to grow - and thus generate tax revenue. The static "lump of tax revenue" notion, which crucially ignores these dynamic effects of
tax changes, is, therefore, "fallacious". Significantly, it completely fails to allow for the proven fact that judicious tax cuts can stimulate growth and employment and, hence, revenues.
Friday, February 24, 2006 ~ 8:47 a.m., Yesim Yilmaz Wrote: We find that the [import price] index overstates import price inflation by 1.2 percentage points per year for the 1972-2001 period. The real
cost of imports was almost 30 percent lower at the end of this period than the conventional price index would suggest. This drop in import prices, we contend, has raised U.S. welfare by $260 billion, or about 3
percent of 2001 GDP. The magnitude of this gain from trade suggests that the effects of variety growth on prices and welfare merit further exploration. Link to this Blog Entry
Friday, February 24, 2006 ~ 8:03 a.m., Sven Larson Wrote: Brazil exempted foreign investors from a capital-gains tax on local government bonds in a bid to lure more capital to the country's $465
billion debt market. President Luiz Inacio Lula da Silva scrapped the 15 percent tax on foreigners' gains from federal government bond trading,
bringing Brazil's debt market tax regulations in line with other countries in the region including Mexico and Argentina. Chile also said today it
plans to eliminate a 35 percent capital gains tax that some foreign investors have to pay on domestic bonds. The move will help Brazil, the most indebted emerging-market country, sell bonds with longer
maturities and lower interest rates by drumming up more demand from foreigners, said Nuno Camara, an economist at Dresdner Kleinwort Wasserstein. Treasury Secretary Joaquim Levy said he expects
foreigners' holdings of local bonds to double to $10 billion within a year. Link to this Blog Entry
Friday, February 24, 2006 ~ 7:18 a.m., Dan Mitchell Wrote: Financial Secretary Henry Tang used Hong Kong's annual budget announcement yesterday to lecture the city's industrious inhabitants on
the need to fulfill "their civic responsibility by paying some tax." He refused to reverse the bulk of the previous tax increases, and -- for good
measure -- also proposed a sales tax. ...he missed the real lesson from resilience of the U.S. economy; that the Bush tax cuts have paid for themselves many times over by stimulating economic activity and
ultimately generating more tax revenue as a result. The same could be done in Hong Kong. Economist Tim Condon of ING has written on this page that a 25% cut in Hong Kong's tax rates would pay for itself within
5-10 years. ...That doesn't mean Hong Kong's low tax regime is under threat -- at least not just yet. The city abolished the estate duty in last
year's budget and its top income tax rate for individuals...still stands at an enviable 16%.
Thursday, February 23, 2006 ~ 12:17 p.m., Yesim Yilmaz Wrote: What is the difference between services of "general interest" (out) and services of "general economic interest" (in)? No one can honestly say:
it's a question of how you interpret a messy and contradictory text. Is consumer protection included as a reason to impose new rules affecting
foreign service providers? But those behind the compromise think they have achieved a quiet move in the right direction. "Constructive
ambiguity" is the polite way of putting it. ... Commission President Jose Manuel Barroso was fearful a defeat in the parliament would sent an
appalling signal across Europe that the protectionists had won, and that his agenda of liberalisation was dead. Some argue this demonstrated a lack of courage and he should have had a showdown. They say he
would have won a smaller majority for a much more radical plan. But that is not the way the EU tends to work. The Socialists and a majority of the Christian Democrats thought that something was better than
nothing. ... Some of a New-Labourish bent argue it is the best of both worlds: some liberalisation along with sensible protection. Others say
that it is a foot in the door, a message to the 25 nation states (or do I mean the French?) that they cannot stand in the way of opening up their
economy to competition. But the ball is now in the court of the countries to decide what they want to make of this measure. And I think it will be
in the law courts for many years after that. Whether this is a major defeat or a tactical withdrawal, it is going to be a long war.
Thursday, February 23, 2006 ~ 10:45 a.m., Sven Larson Wrote: Finance Minister Jim Flaherty is refusing to guarantee the Conservatives will move quickly to fulfill all the spending and tax-cut
promises his party laid out in the election campaign. Flaherty, who is to deliver his first federal budget this spring, said he is assessing the government's ability to implement its spending and tax-cut pledges
without running a deficit. "I have only been there less than two weeks. I can tell you I'm not in a position to say one way or the other where we're
moving with these," the former Ontario finance minister told CTV's Question Period. "But we will keep our commitments going forward."
On the way to winning a minority government, Prime Minister Stephen Harper showered voters with $75 billion in spending and tax-cut promises over a five-year period. He also committed to transferring
more federal resources to the provinces. With this in mind, analysts say Flaherty could end up with limited room to manoeuvre if he wants to ensure that the Tories do not allow the federal government to wind up
running a deficit for the first time since 1997.
Thursday, February 23, 2006 ~ 8:47 a.m., Dan Mitchell Wrote: One of the more amusing lines in President Bush's State of the Union Address last month was his call for yet another commission to study the
problem of entitlement spending. ...Bush's call for an entitlement commission is laughable is because he is largely responsible for the growing crisis of entitlement spending. That is because he rammed a
vast expansion of Medicare through a Republican Congress in 2003 that increased the unfunded liability of that program by almost 40 percent.
According to Medicare's trustees, the unfunded liability of Medicare is $68.1 trillion. Of that, $18.2 trillion is accounted for just by the new drug benefit.
Wednesday, February 22, 2006 ~ 12:50 p.m., Andrew Quinlan Wrote: Government bureaucracies are wasteful, sluggish and ineffective, and they impose burdens on the productive sector of the economy.
International bureaucracies, not surprisingly, are even worse. The Organization for Economic Cooperation and Development (OECD) is a good example. ...Because it is dominated by nations such as France and
Germany, it leans to the left, especially on fiscal policy issues. It often publishes reports calling for higher taxes, and the OECD has become
infamous for its antitax competition campaign that seeks to penalize low-tax jurisdictions that attract jobs and capital from Europe's high-tax welfare states. It's not exactly a big surprise to learn Europeans
support higher taxes and bigger government, and a bureaucracy filled with Europeans is almost sure to reflect this statist mindset -- especially
a Paris-based bureaucracy. But it is surprising that American taxpayers pay nearly one-fourth of the OECD's budget, to the tune of some $70
million per year. To put it mildly, we don't get much for our investment. ...The OECD wants higher taxes in America, including a European-style value-added tax (a form of national sales tax). Other tax increases
endorsed by the OECD include energy taxes, Social Security taxes, and even fertilizer and SUV taxes. ... Former Rep. Connie Morella, our ambassador to the OECD, did a briefing on Capitol Hill and
unambiguously said the OECD does not support a VAT for the United States. Indeed, she claimed the OECD doesn't support higher taxes of any kind in the U.S. Mrs. Morella doesn't seem to understand what the
group is doing. At least 16 documents on the OECD's Web site promote higher taxes. Ten specifically advocate a value-added tax. (All of them can be read also at www.freedomandprosperity.org.)
Wednesday, February 22, 2006 ~ 12:15 p.m., Yesim Yilmaz Wrote: Complaining about globalization is as pointless as trying to turn back the tide. There are, I notice, no such debates in China. They are not
worrying about potential threats but are busy seizing the opportunities in ways that are transforming their society and ours as well. So, too, are the other emerging economies in Asia and South America. …Each of
these fast-developing economic powerhouses has labor costs a fraction of those in Europe and North America. All can import technology and are working hard to develop their own. Foreign capital is flowing in to
help them. We have to understand that competition can't be shut out. In the end, it can only be beaten. Link to this Blog Entry
Wednesday, February 22, 2006 ~ 10:37 a.m., Sven Larson Wrote: Efforts to cut the UK's budget deficit below 3 per cent in 2006-07 are likely to fail, according to another embarrassing critique of the Government's handling of the public finances from the European Commission. An updated assessment by officials in Brussels says that the Chancellor Gordon Brown may be using over-optimistic growth assumptions when he says that the deficit will be brought quickly below the 3 per cent ceiling.The document, which will form the basis of an official analysis of UK financial plans, is the latest broadside to be delivered by the Commission against the Treasury. There is no prospect of Mr Brown changing course and ordering spending cuts or tax increases to satisfy the Commission. But the criticism from Brussels is damaging to the Chancellor at a time when his handling of the economy is coming under growing scrutiny. Last month, the European Commissioner for Economic and Monetary Affairs, Joaquin Almunia, delivered a formal reprimand to Mr Brown, designating the UK's deficit as "excessive" and ordering it to be "brought below 3 per cent by the forthcoming 2006-07 financial year". http://news.independent.co.uk/business/news/article346498.ece Link to this Blog Entry
Tuesday, February 21, 2006 ~ 7:35 a.m., Dan Mitchell Wrote: ...the first energy bill that Congress wants to enact this year would make America more dependent on foreign energy companies. ...For example,
the $4 billion to $5 billion windfall tax on inventories applies only to the reserves of U.S.-based oil producers (such as Exxon and Chevron),
while foreign producers pay nada. This is an energy policy only Arab oil sheiks could love, because it drives their production and profits up, at the expense of home-grown producers. When Congress last passed a
windfall tax on oil in 1980, America's domestic crude oil production plunged and demand for foreign oil increased by almost 15%. We imposed a tax on ourselves and OPEC nations got the windfall. Equally
wacky is New York Senator Chuck Schumer's idea to deny the same companies the U.S. foreign tax credit -- a fixture of the corporate income tax since 1917. If this took effect, American oil companies would
have to pay the U.S. corporate tax rate and the taxes in the country where it produces the oil. Almost no other nation in the world requires
companies to pay a double tax on foreign profits. So if Mr. Schumer has his way, U.S. oil companies would have to pay as much as a 25% higher
tax on foreign-produced oil than if it were drilled from the ground by a French, Chinese or Danish firm. Mind you, the U.S. would still import
the oil, but any profits from that oil would flow to foreign, rather than U.S., firms and investors. Link to this Blog Entry
Tuesday, February 21, 2006 ~ 6:49 a.m., Dan Mitchell Wrote: When people own property and are fully responsible for losses due to their poor land use or development decisions, they are less likely to build
or rebuild in areas regularly prone to flooding or erosion. This link -- between a person's property ownership and responsibility for their land use decisions -- disciplines people who use their property badly.
Unfortunately, a host of government programs break this link by subsidizing unwise development. All too often the result is lost lives, destroyed property and diminished livelihoods. The U.S. Army Corps of
Engineers (Corps) flood control program and federal flood insurance subsidize construction in flood-prone areas and encourage high-risk development by shifting the cost of insurance and physical protection
against floods from property owners to taxpayers. Link to this Blog Entry
Monday, February 20, 2006 ~ 8:56 a.m., Dan Mitchell Wrote: One is immediately stricken...when having a glance at the website detailing a new Bush administration initiative called "expectmore.gov."
A particularly cringe-worthy aspect of the program comes in the website's choice of a domain name, which ironically reads as, "expect more government." ...Yes, government corruption, redundancy,
power-hoarding, and plain bureaucratic idiocy are all grave problems. But think of the proposed solution...another government program.
...Perhaps the most egregiously telling line on the page is, "If we believe a program is ineffective and can't be fixed, or has outlived its usefulness,
the Administration may recommend Congress spend the money on higher priority programs" Link to this Blog Entry
Monday, February 20, 2006 ~ 8:41 a.m., Dan Mitchell Wrote: ...firing Mr. Chertoff would do nothing to solve the real problem -- which is that vast bureaucratic landmass known as Homeland Security.
If any heads deserve to roll over Katrina, we have a different suggestion. How about the resignations of all the Congressional chairmen who voted three years ago to integrate 22 semi-autonomous
agencies into a single Homeland Security Department and then expected it all to run like General Electric? ...Congress created DHS in a fit of
political self-preservation and then hoped for miracles, which are rare enough in religion but impossible in government. Even an executive of
the caliber of Mr. Welch, the former GE boss, would be hard-pressed to run the 184,000-man, $40 billion Department of Homeland Security with any efficiency. Mr. Welch's famous Six Sigma principles of management
couldn't possibly work when the board of directors is made up of 535 Members of Congress, each out to get as big a share of the pie as possible for his home district. Take emergency-preparedness grants.
DHS has no choice but to allocate its spending according to a formula set by Congress that provides every state with a guaranteed minimum. These pork-barrel allocations eat up 40% of the
emergency-preparedness budget, with the result that Wyoming and Alaska rank Numbers 1 and 2 in per-capita allocations while California and New York finish last.
Monday, February 20, 2006 ~ 8:17 a.m., Dan Mitchell Wrote: Gov. Arnold Schwarzenegger's administration is expected this month to release a plan to combat global warming that recommends raising
petroleum prices and requiring industries to report, for the first time, their greenhouse gas emissions. The increase in gas prices would fund
research into alternative fuels. ...Conservative activists have begun to complain about the idea, branding it a gas tax. The proposal could be
released just before the state Republican Convention, which begins Feb. 24, where GOP activists already are preparing to debate resolutions condemning other Schwarzenegger proposals.
Sunday, February 19, 2006 ~ 3:40 p.m., Sven Larson Wrote: The IRS said that unpaid taxes amounted to $345 billion in 2001, due mostly to underreporting of taxes owed. The statistic refines an estimate
released last year that found taxpayers failed to pay between $312 billion and $353 billion in 2001. Late payments and IRS collections will recover about $55 billion in unpaid taxes, leaving a net gap of about
$290 billion. The IRS estimated the tax gap, the difference between taxes owed and taxes paid, after auditing 46,000 people and combining those findings with previous estimates of unpaid corporate, payroll and
unemployment taxes. IRS Commissioner Mark Everson said complex tax laws played a significant role.
Sunday, February 19, 2006 ~ 2:30 p.m., Dan Mitchell Wrote: The nuns of the Holy Name Monastery say they have been swept into the net cast by the nation's antiterrorism laws. The sisters say the
monastery's main bank account was frozen without explanation in November, creating financial headaches and making the Benedictine nuns hopping mad. ...The nuns didn't know anything was amiss until
Nov. 10, when their checks started bouncing without warning and the account wouldn't accept deposits, including paychecks from state agencies where some of the sisters hold jobs. ...the troubles started
because one 80-year-old nun who is a signatory to the account didn't have her Social Security number and photo ID on file. "Clearly an
international spy," Abbott said wryly. None of the nuns has given the bank that information, Abbott said. "We've been in business 116 years.
No one's ever asked." ...Louis Harvey, president of Dalbar Inc., a securities research firm in Boston, said banks are required by law to
make sure their records are in order. He said there are good reasons the bank didn't notify the monastery its account was under scrutiny. "Let's
assume that it was not nuns and it was some money-laundering scheme run by terrorists," Harvey said. "The last thing in the world you'd expect
the bank to do is notify the terrorists." He said banks look for patterns of activity, such as large transactions that could raise red flags. But
exactly what constitutes a pattern of activity is unclear, Harvey said. The rules are vague by design.
Saturday, February 18, 2006 ~ 1:09 p.m., Dan Mitchell Wrote: The government squandered millions of dollars in Katrina disaster aid, including handing $2,000 debit cards to people who gave phony Social
Security numbers and used the money for such items as a $450 tattoo, auditors said Monday. Federal money also paid for $375-a-day beachfront condos and 10,777 trailers that were stuck in mud and
unusable. ...The GAO report found that up to 900,000 of the 2.5 million applicants who received aid under the emergency cash assistance program - which included the debit cards given to evacuees - based their
requests on duplicate or invalid Social Security numbers, or false addresses and names. In other instances, recipients improperly used their debit cards intended for food and shelter for $400 massages, a
$450 tattoo, a $1,100 diamond engagement ring and $150 worth of products at "Condoms to Go." ...Homeland Security Secretary Michael Chertoff rebuffed the idea that his department was preoccupied with
terror threats at the expense of natural disasters. Chertoff announced the creation of a full-time FEMA response force of 1,500 new employees
and the establishment of a more reliable system to report on disasters as they unfold. The audits released Monday do not try to estimate a total
dollar figure on waste and abuse, but GAO auditor Gregory Kutz told senators during a hearing that it was "certainly millions of dollars; it
could be tens or hundreds of millions of dollars." That includes money for hotel rooms for evacuees that were paid at retail cost. Among the
charges: $438 rooms in New York City and beachfront condominiums in Panama City, Fla., at $375 a night. FEMA also may have bought too many temporary homes, including 10,777 units that currently sit empty
in sinking mud in Hope, Ark. ...Of more than 700 FEMA contracts valued at $500,000 or greater, more than half were awarded without competition, often to politically connected companies such as Bechtel
Corp. and AshBritt Inc.
Friday, February 17, 2006 ~ 2:19 p.m., Yesim Yilmaz Wrote: For most of its modern history, Japan resisted creative destruction by trying to tamp down capitalism's creation and carnage. .. For example,
the country's business closure and start-up rates are a third to a half the United States', with the least change coming in Japan's showcase sector—manufacturing. ... Many of the explanations for Japan's malaise
focus on structural issues, recognizing Schumpeter in spirit, if not by name. There is, for example, the "zombie hypothesis" that Japanese
banks concealed bad credit issued to large money-losing firms, keeping them alive by discounting interest rates and constantly renewing loans.
Throwing good money after bad led to a scarcity of investment funds for more productive enterprises, and the overall economy's productivity and growth rates sagged. ... These views are on the right track. They
recognize structural reform in the financial, industrial and government sectors as necessary for recovery. Their fault lies in being incomplete. A
Schumpeterian approach offers the necessary breadth and depth for a proper diagnosis of Japan's ills.
Friday, February 17, 2006 ~ 11:20 a.m., Sven Larson Wrote: Eurozone recovery hopes were jolted on Tuesday by data showing that German economic growth ground to a halt in the final three months of
last year. The unexpected slowdown revealed underlying weaknesses in Europe's largest economy, especially in consumer spending. The figures took the gloss off recent data showing economic optimism soaring
among German industrialists. French economic growth also slowed significantly at the end of last year. The 12-nation eurozone saw gross domestic product rise by 0.3 per cent in the final quarter of 2005, down
from 0.6 per cent growth in the previous three months, according to figures from Eurostat, the European Union's statistical unit. For the whole of 2005, eurozone GDP grew by 1.3 per cent, compared with 3.5
per cent in the US. Many economists, however, believe eurozone prospects are the brightest they have been since early this decade and expect a clear rebound in the first quarter of 2006. The European
Central Bank is expected to raise its main interest rate by another quarter percentage point, to 2.5 per cent, next month.
Friday, February 17, 2006 ~ 8:41 a.m., Dan Mitchell Wrote: ...columnists and editorial writers...bemoan the "savings crisis." ...Since the purpose of saving is to add to wealth, the best measure of saving is
the addition to wealth. In the third quarter of last year, the Fed's measure of household net worth amounted to $51.1 trillion -- up by more than $5 trillion from a year earlier. Net worth measures assets
minus debts, so that 10.9 percent wealth gain also debunks any "debt crisis." Homeowners' equity accounted for only 21 percent of total
wealth, so it was not just a housing boom. ...First of all, savings is defined as income less consumption. Because such investments as home remodeling and college tuition are miscounted as consumption, they
reduce the savings rate. Making a big down payment on an existing house lowers the savings rate, as does paying cash for a new car. Yet homes and cars are assets. Second, corporate saving is also personal
savings because stockholders own the corporations. When corporate profits are retained and reinvested, that increases assets per share and
results in greater capital gains for 401(k) plans. Undistributed corporate profits accounted for more than 72 percent of total net private savings
in 2004, when total private savings hit a record high despite a drop in so-called "personal saving." Third, an increase in the value of old
savings accomplishes the same thing as new savings -- it increases net worth. Yet capital gains are not counted as income or savings, so they are excluded from both the numerator and denominator of the savings
rate. ...Last year's below-zero savings rate was: 1) partly a statistical illusion due to counting investments as consumption and ignoring corporate savings; 2) partly a sensible way to spread out the financial
pain of surging energy prices; and 3) partly a rational response to the $5 trillion gain in household wealth. I am not opposed to more saving, or to
virtue in general. But last year's low personal savings rate was no "crisis."
Friday, February 17, 2006 ~ 8:04 a.m., Dan Mitchell Wrote: Growing and harvesting the corn, and heating and reheating the fermented corn to produce ethanol of a high enough quality to replace
some of the gasoline in your car requires an enormous amount of energy. How much? A recent careful study by Cornell University's David Pimentel and the University of California at Berkeley's Tad Patzek
added up all the energy consumption that goes into ethanol production. ...Putting it all together, they found that it takes 29 percent more energy
to make ethanol from corn than is contained in the ethanol itself. It's not that corn is a bad source for ethanol. The other sources mentioned by the president look even worse. Wood biomass takes 57 percent more
energy to produce than it contains. Switch grass takes about 50 percent more. Ethanol is just a highly uneconomical product. ...no matter how
expensive fossil fuels become, ethanol will never be economical because it takes so much fossil fuel to produce. It might be possible that someday
technological processes will emerge that make production of ethanol less reliant on fossil fuels, but the billions in subsidies to this point have
left us with a process that is still a disgrace and an absurd waste of energy and taxpayers' money. ...The arguments against ethanol are so persuasive you have to ask yourself: Why does Congress keep throwing
money at it? The answer appears to be that elected officials from corn- growing states such as Iowa and Illinois see it as a cash cow for their
constituents. The ethanol business is a pretty good source of cash for the lawmakers too. The political action committee of Archer Daniels Midland Co., the world's largest producer of corn-based ethanol fuel,
gave $69,000 to federal candidates for the 2004 elections, according to the Center for Responsive Politics. In 2002, before such unlimited "soft
money" donations were outlawed, ADM gave $1.8 million to political parties. Its political action committee gave close to $200,000 to individual campaigns and committees.
Thursday, February 16, 2006 ~ 2:17 p.m., Sven Larson Wrote: China needs to boost spending on health and education and to allocate public funds more effectively, according to a new OECD report aimed
at helping the Chinese government in its drive to modernise the economy while meeting its social objectives. At the heart of the new study is a call for a reform of relations between central and regional
government over taxation and expenditure. "Challenges for China's Public Spending: Towards Greater Effectiveness and Equity" finds that
public spending on health and education may be too low and inefficient to meet China's development needs. Official spending in these areas, along with culture and science, amounted to the equivalent of 5.5% of
GDP in 2002 compared with an average of 28.2% for OECD countries. Local authorities, responsible for funding health, education and social programmes in China, are often insufficiently resourced and hampered
by limited autonomy. The way funds are transferred from the central government is inefficient, the report says. To make up for funding gaps, local governments have resorted to a range of unofficial levies and
charges. The recourse to debt by local government is also widespread despite the fact that under Chinese law it is illegal for these authorities
to borrow or issue bonds. Although official government spending overall has grown rapidly in China - from 17.7% of GDP in 1995 to 27.4% of
GDP in 2003 - it is still well below the OECD average of 44.5%.
Thursday, February 16, 2006 ~ 2:03 p.m., Yesim Yilmaz Wrote: The competition among cantons to entice rich people and international companies with the lure of low taxes has heated up. On January 1 this
year Obwalden introduced the lowest corporate rates in the country. A recent survey showed that 18 of the 26 cantons intend to lower their taxes this year. However, canton Zurich has accused others of
freeloading on their amenities and officials have agreed to set up a working group to review taxation guidelines. Part of the debate centres around Obwalden's decision to also introduce a degressive (or
regressive) income tax system that reduces rates as income rises. Obwalden reduced taxes for all residents, but especially for those earning over SFr300,000 ($233,000) a year. The centre-left Social
Democrat Party initially raised an objection, but the baton has been taken up by communist parliamentarian Josef Zisyadis, who moved from Lausanne to Obwalden to oppose the tax changes. Zisyadis, along with
three other Obwalden residents, has lodged an appeal with the Swiss Federal Court on the matter. If the Federal Court decides there is a case to answer, it will set a legal precedent, according to tax experts.
Thursday, February 16, 2006 ~ 8:41 a.m., Dan Mitchell Wrote: ...wage growth rates in countries with more flexible and less corporatist models of the labor markets were consistently higher than in the
"partnership"-styled Eurozone countries. In fact the US - the economy that is commonly cited throughout the old Europe as an example of
"race-to-the-bottom" capitalism - saw higher wage growth in business sector than both the Euro zone and the average flexible-wage economy.
This month a study by US and European researchers showed that since 1976, the wage and benefits returns to long-term employees in France
were consistently lower than in the US. The authors conclude that "in a low-mobility country such as France, there is little gain in compensating
workers for long tenures because they tend to stay in the firm for most... of their career. In contrast, [in] a high-mobility country such as the
United States... firms are induced to pay the premium... to avoid losing their most productive workers." In fact, the long-term workers in
France tend to earn 3.05 times less per each extra year they stay with the firm than their American counterparts. IZA-Berlin and Stockholm Institute reported similar trends for Sweden and Germany. ...This stated
objective of the European corporatist model is not supported by the hard evidence. In fact, the cumulative wage growth in the US since 1996 was 55.7 percent - a full 24.6 percent higher than labor productivity
gains alone, making US workers the greatest beneficiaries of total productivity growth. For the Eurozone, the cumulative wage growth was just 24.2 percent as opposed to 44.6 percent in the group of flexible
labor market economies.
Thursday, February 16, 2006 ~ 7:49 a.m., Dan Mitchell Wrote: Europe's population will be slightly smaller, and significantly older, in 2050. ...the workingage population (15 to 64) is projected to fall by 48
million (or 16%) by 2050. In contrast, the elderly population aged 65+ will rise sharply, by 58 million (or 77%) by 2050. The old-age dependency ratio, that is the number of people aged 65 years and above
relative to those between 15 and 64, is projected to double, reaching 51% in 2050. Europe will go from having four people of working age for every elderly citizen currently to a ratio of two to one by 2050.
...potential GDP growth is projected to decline in the decades to come. For the EU15, the annual average potential GDP growth rate will fall from 2.2% in the period 2004-2010 to 1.8 % in the period 2011-2030
and to 1.3% between 2031 and 2050. ...Overall, ageing populations is projected to lead to increases in public spending in most Member States by 2050 on the basis of current policies...for the EU15 and the Euro
area as a whole, public spending is projected to increase by about 4 percentage points between 2004 and 2050.
Wednesday, February 15, 2006 ~ 8:58 a.m., Dan Mitchell Wrote: Mr. Baker is normally a free-market advocate who has been brave enough to challenge the bad practices of such politically powerful
institutions as Fannie Mae and the New York Stock Exchange. So it's surprising that he is now proposing a new Fannie Mae-type entity called the Louisiana Recovery Corporation (LRC). Under the Baker plan, as
many as 200,000 properties would be purchased by the LRC. Current homeowners in these areas would receive 60% of the "pre-Katrina value" of the house, and banks would receive 60% of the unpaid
mortgage. Uncle Sam would clean up debris, rebuild homes and whole neighborhoods, then put the refurbished properties up for sale. Mr. Baker tells us he expects revenues from these sales would recoup some
of the costs. ...In a single stroke, the Baker plan would make the U.S. government the largest property owner/real estate agent in New Orleans. And property development is not the federal government's
strong suit, to say the least (think HUD and Cabrini-Green in Chicago). By paying out at pre-Katrina values, the feds would also deter private investors from going in and buying up properties and thus creating a
new market floor. Who knows what prices should be if Uncle Sam is setting them at what might be inflated pre-Katrina values?
Wednesday, February 15, 2006 ~ 8:28 a.m., Dan Mitchell Wrote: | ||||||||||