Quote of the Day

My favorite quote of the moment - both for its timelessness and insight from CS Lewis:

Of all the tyrannies, a tyranny sincerely exercised for the good of its victims may be the most oppressive. It may be better to live under robber barons than under the omnipotent moral busybodies. The robber barons cruelty may sometimes sleep, his cupidity may at some point be satiated; but those who torment us for our own good will torment us without end, for they do so with the approval of their own conscience.

Flashback: Earth day predictions of 1970

Just for context for the predictions you hear today (ihatethemedia via Instapundit).

Do "Buy America" policies really help Americans?

No (Reason.com):

Lindell's Buy-American policy raises other questions. Are American parts more expensive than foreign parts? If so, does he try to pass the higher costs to his customers? If so, he makes it harder for poorer Americans to buy his pillows. A higher price also puts his product—and therefore his company and employees—at a disadvantage in the marketplace. Does he think American consumers care where products are made? Whatever they may tell pollsters, what Americans really care about—judging by their actions—is the combination of price and quality. Let Lindell advertise: "Every part of my product is made in the USA—so we charge you more than our competitors do." The response would be informative.

However, maybe he doesn't pass along the extra cost. Maybe he accepts lower profits. If so, how does he improve his factory, increase employee productivity, and pay competitive wages? If his profit is lower, he also has less money to spend on other American and foreign products and less to invest.

Again, my point is not to criticize Lindell. It's to show that he's not helping America as a whole.

Even the poorest countries are getting wealthier, so it's time to redefine poverty?

That's the argument Bill Gates makes (WSJ):

Today, more than 70% of the world’s poorest people—those living on less than $1.90 per day—live in countries defined as middle income, according to the World Bank. Once countries cross the threshold from low-income to middle-income status, the grants and below-market loans that have helped them rise often come to an end. Countries with huge pockets of poverty like Nigeria, India, Pakistan, Ghana and Vietnam could lose as much as 40% of their development assistance in the next few years, a study sponsored by our foundation found.

For example, the average income in Nigeria is nearly twice what it is for sub-Saharan Africa as a whole. Yet, more than half of Nigerians still live in extreme poverty. And although Nigeria has a higher average income than countries like Ghana and Vietnam, World Bank data indicate it ranks lower across a range of human development indicators such as life expectancy, literacy, and maternal and child mortality.

Isn't that the point that aid is meant, not as a crutch, but as a path to sustainable development? Further, how much of the improvement in the condition of these poorest countries are the result of aid? Shouldn't that be the argument made? And why isn't it?

What passes as a successful government intervention...

Marc Levinson critiques "The Smartest Places on Earth" (Amazon) at the WSJ:

Albany is now a hub of nanoscale science. But getting it off the ground was expensive: Every job created cost taxpayers nearly $1 million. [...] The authors seem unworried by the possibility that some brainbelts may prove as ineffectual as Massachusetts’ centers of excellence. Rather blithely, with no evidence whatsoever, they assert that “there are far more examples of successful government participation in helping innovation than there are of misfires.” That confidence is not reassuring to anyone who wonders whether the $1.2 billion of public funds used to build a semiconductor plant was well spent.

Remembering Massachusett's Barbara Anderson

Reason has a write up on a remarkable woman who was at the forefront of reforming Taxachusetts with lessons for us all:

How did Anderson achieve her remarkable success?

Particularly refreshing in the context of the current presidential campaign is that she did it with civility. A leftist activist and radio host, Jim Braude, told the Eagle-Tribune that the two traveled the state together debating tax policy. "People find this hard to believe but we drove to every debate together," he told the paper.

She was nonpartisan. The Eagle-Tribune reports that while she "generally espoused libertarian to conservative political views," she "was not a member of any political party." That's an increasingly popular stance, and, again, in the context of the current presidential race, some might find it understandable.

She was a bottom-up person, not a top-down person. "Everything starts at the grass roots level,'' she told The New York Times for a 1985 article. "None of the important issues start at the government level."

She was not an "expert." Anderson's success disproves the idea that you need a Nobel prize or a Ph.D. in economics from some fancy university to influence the tax policy debate. Governor Weld was inducted into Phi Beta Kappa at Harvard as a junior. Governor Romney has both a J.D. and an M.B.A. from Harvard. Anderson dropped out of Penn State. Before joining Citizens for Limited Taxation part-time, she had been, by the Globe's account, working as a swim teacher and lifeguard at a YMCA.

Finally, as skeptical of big government as Anderson was, she was never cynical about the people that really matter most in a democracy—the voters and the citizen-activists. Rather than shrugging and complaining about high taxes or mediocre politicians or grinning and bearing it, she actually tried to do something to improve things, getting people to join her organization, sign petitions for ballot questions, and turn out to vote.

How Germany reformed its labor markets

It's relative but the change Germany has undergone is remarkable (CityJournal):

Prompted by Hartz’s analysis and a clear record of economic failure, Germany’s socialist government asked him to lead the newly formed Commission for Modern Labor Market Services.

At some political risk, the government quickly adopted the group’s recommended pro-market reforms. To give firms more flexibility, Germany slashed labor regulations, making it easier to fire and lay off workers—and far less risky to hire new ones. Allowing labor contracts to settle on a firm-by-firm basis, rather than insisting on a national settlement, the government empowered individual firms to adjust to changing economic conditions. Another reform gave management more freedom to hire temporary workers and write fixed-term contracts with individuals, introducing flexibility into management decision-making and further reducing the risks of hiring.

The Hartz reforms set quantitative goals for placing the unemployed in jobs and authorized unemployment offices to serve as temporary work agencies. As a further spur to job placements, the new system encourages unemployment offices to use private-placement services, which job-seekers pay for using government-issued vouchers. Perhaps most significantly, the reforms ended the old system’s no-questions-asked benefit system. The new system focuses on what reformers call “rights and duties.” The unemployed can collect full benefits for six to 12 months, but after that, the able-bodied are obliged to enroll in training programs and take any “suitable work” offered. Failure to comply could cost them all or some of their benefits. Disabled and older workers can get stipends to compensate for declines in pay, but they must work to get them, and the payments diminish over time. Similar stipends are available to unemployed workers looking to start new businesses, provided their plans pass muster with the local chamber of commerce.

In good Teutonic fashion, the government has rigorously monitored outcomes. More than 20 research institutions and 100 researchers have worked on the reform project, and—remarkably, for anything in the political-economic realm—independent research, detailed econometric work, and qualitative institutional assessments have all judged the reforms to be successful. An independent assessment by the International Monetary Fund (IMF) concurs. Since the Hartz measures took effect in 2005, the German economy has closed the growth gap with its global competitors. And at 4.5 percent, Germany’s unemployment rate is lower than that of every other major Western economy.

Puerto Rico is only the beginning...

As Glenn Reynolds is fond of saying, things that can't go on forever, won't AmericanInterest via Instapundit

Puerto Rico’s rolling bankruptcy crisis is just a taste of the fiscal storm that lies ahead if American state and local governments can’t find a way to bring their own gaping pension shortfalls under control. For decades, rapacious public sector unions and craven politicians on the mainland have also been also been propping unsustainable state employee retirement systems, and—crucially—using accounting tricks to dupe the public and conceal the magnitude of their unfunded obligations. Congress’s proposed relief package for Puerto Rico would require the island to be more forthright about its pension costs going forward, but it would allow state and local governments to continue downplaying the size of their debts…

The resistance to honest accounting is apparently coming not from Congressional Democrats, but from Republican state legislators eager to keep their pension Ponzi schemes in place—a reminder that corrupt blue model practices are thoroughly bipartisan. Hopefully Congressional Republicans will have the good sense to reverse course and require state and local governments to come clean as well.

Yes, people really do "go Galt"...

From New Jersey (BusinessInsider):

Tepper, the founder of the hedge fund Appaloosa Management, moved to Florida last fall. This, according to Bloomberg, has leaders of his former state very concerned. [...]

New Jersey relies on personal income taxes for about 40 percent of its revenue, and less than 1 percent of taxpayers contribute about a third of those collections, according to the legislative services office. A one percent forecasting error in the income-tax estimate can mean a $140 million gap, Haines said.

And Minnesota (TCB):

During the last two years, Minnesota lost or began losing an estimated $2.1 billion in taxable income from 3,099 taxpayers, according to a research study on wealth migration conducted by Twin Cities Business with help from research firm The Morris Leatherman Company (see “The Research” at the bottom of this page). These same individuals have $17 billion in median net worth and $31 billion in median gross estate value.

In almost three-quarters of those moves, respondents said the reason for leaving had to do with Minnesota’s tax policy and collection practices. This amounts to an estimated loss of approximately $1.5 billion in annual taxable income, $12 billion in average net worth and $22 billion in gross estate value due to Minnesota’s tax and collection activities.

The TCB study also found this trend will continue for at least the next five years, during which time an estimated 12,172 Minnesotans will leave, taking with them a combined $5.2 billion in taxable income, $65 billion in net worth and $122 billion in gross estate value.

The real lesson of the Panama Papers

Megan McArdle: It's not that capitalism is to blame... but the opposite (Bloomberg):

What we seem to have learned from the documents so far is that this particular sort of corruption isn’t a big local problem for the U.S. We do of course have some law breakers, because there is no such thing as a law that won’t be broken. But it seems to be a minor, furtive thing, rather than the mass habit you see in parts of the developing world. The IRS is very good at finding offshore tax cheats, and getting better all the time. I am confident that if U.S. scofflaws should be revealed by these documents, the tax authorities will waste no time ensuring that they get what is coming to them.

Other governments may fail to enforce their laws, perhaps because the named figures sort of are the local government. That is a big problem. But that doesn’t mean that it’s our problem. Global capitalism didn’t create the issues plaguing weak states. And global anti-capitalism won’t fix them, either.

More (Reason.com): "Instead of going after countries such as Panama and the important and legal structures they offer to international businesses and investors, high-tax nations and the media should wait to see whether any laws were actually broken. And while they're waiting, they should reform their own governments' self-destructive fiscal systems. That's the real financial scandal."

Is China artificially cheapening its currency?

According to Barron's, the RMB is "way overvalued" (Barrons):

Indeed, the yuan is overvalued, as shown by capital flight totaling upwards of $1 trillion last year. Rich Chinese are voting with their pocketbooks to get their money out of the country, buying up property in Canada and the U.S. Chinese businesses also are striving to repay dollar loans before the greenback becomes dearer. And China corporations are seeking to acquire foreign properties, exemplified by Anbang’s attempt to buy Starwood Hotels & Resorts (ticker: HOT ), the operator of the Sheraton and Westin hotels, for $14 billion.

Goldman points out that the real effective exchange rate of the yuan (which takes into account China’s trade and differences in inflation with its trading partners) is twice as high as two decades ago and 40% higher than it was in 2008. The latter rise is largely because the trade-weighted dollar rose by 25% since early 2014, when the Federal Reserve said it would end its quantitative easing policy. After China’s currency moved up in the wake of the dollar, Beijing let it ease slightly last summer.

But China’s previous refusal to let its currency fall against the greenback had two, deleterious effects on that nation’s economy. It forced the People’s Bank of China to impose the highest real interest rates in the world to prop up the yuan. That, in turn, throttled back exports, especially those to the U.S.

Interesting times ahead...

More here: "The more circuitous the routes to propping up its currency, the less conviction investors may have in its stability." (WSJ)

Are payday loans evil?

Not according to the people who want them - so does that make the regulators who want to take away their free choice evil? (Freakonomics)

If we take an objective look at the folks who use payday lending, what we find is that most users of the product are very satisfied with the product. Survey results show that almost 90 percent of users of the product say that they’re either somewhat satisfied or very satisfied with the product afterwards.

Why the Canadian government will fail at building the "next Silicon Valley"

From Reason.com:

Canada is not alone in their push to create the next great hub of genius. Dubai, London, Rwanda, and Shenzhen are just a few cities investing in the idea. But according to Eric Weiner, author of The Geography of Genius: A Search for the World's Most Creative Places, From Ancient Athens to Silicon Valley, these attempts will inevitably fail. "I wish I could sit here and tell you that there was a formula and if you applied that formula you could create the next Silicon Valley," he explained during an interview with Reason TV earlier this year. "There is no formula."

The real minimum wage is zero

As California moves to increase the minimum wage to $15, and New York follows, it's like they're entirely oblivious to the possibility of automation as a viable alternative (AmericanInterest):

Brown’s minimum wage scheme will, of course, artificially raise the cost of hiring the most at-risk workers. Though the robots are not ready to take over quite yet, an onerous wage floor only incentivizes further research into automation. This whole situation is a bizarre illustration of the layered contradictions contained in the blue coalition: anti-inequality crusaders want a radical minimum wage hike, which will likely have the effect of raising unemployment (and welfare eligibility) among economically deprived blue constituencies. Meanwhile, those most likely to benefit down the line from these kinds of moves are the socially liberal Silicon Valley executives and venture capitalists, who bankroll the Democratic Party despite some of their dearly held libertarian beliefs.

On the other hand, maybe that's the goal - "[like other policies supposedly aimed at helping the poor, this] will have the opposite of its intended effect, favoring privileged insiders at the expense of those it is intended to help."