January 2012

Against a Value Added Tax

by Ryan Young on November 17, 2009

in Deregulate to Stimulate, Economy

Over at Investor’s Business Daily, Wayne Crews and I make the case against a Value Added Tax. Policy makers have been flirting with the idea as a way to reduce the $1,400,000,000,000 budget deficit.

We argue that a VAT is:

-Complex; it would require roughly doubling the size of the IRS.

-Untransparent; most VATs don’t show up on receipts the way sales taxes do. Taxpayers are clueless as to how much tax they actually pay.

-Vulnerable to special-interest tinkering; politically incorrect goods are routinely penalized with higher rates. Politically favored goods are granted exemptions.

-Prone to increases; 20 out of 29 OECD countries with a VAT have increased their rates since implementing a VAT.

A point we didn’t make is that VATs affect industrial organization. VATs are applied at each stage of the production process. That gives companies an incentive to reduce the number of taxable steps. That means more vertical integration than would otherwise occur. This can decrease the efficiency of the manufacturing process. Which means higher prices and fewer goods. Plus the tax.

Oyster Ban Update: Partial Victory!

by Ryan Young on November 17, 2009 · 1 comment

in Deregulate to Stimulate, Economy, Health and Illness, Nanny State, Personal Liberty, Politics as Usual, Precaution & Risk, Regulation

Remember the raw oyster ban from a recent Regulation of the Day? I am happy to report a partial victory (hat tip to Jacob Grier).

The ban, due to take effect in 2011, has not been repealed outright. But, in response to public outcry, it has been delayed:

The FDA announced it would commission a study to explore alternatives to reducing the illness vibrio vulnificus, and also do an economic analysis of how the ban would impact the oyster industry.

“Before proceeding, we will conduct an independent study to assess how post-harvest processing or other equivalent controls can be feasibly implemented in the Gulf Coast in the fastest, safest and most economical way,” according to an FDA news release.

Stimulus Package Creates Imaginary Jobs, Destroys Jobs in the Real World

by Hans Bader on November 17, 2009 · 4 comments

in Agriculture, Deregulate to Stimulate, Economy, Employment, International, Labor, Legal, Personal Liberty, Politics as Usual, Precaution & Risk, Sanctimony, Stimulus to Nowhere, Trade

President Obama’s $800 billion stimulus package creates imaginary jobs, while destroying ones in the real world.

Billions from the stimulus are being spent on creating tens of thousands of imaginary jobs in 440 phantom Congressional districts, according to the government’s own web site:

Just how big is the stimulus package? Well for one, it has doubled the size of the House of Representatives, according to recovery.gov, which says that funds were distributed to 440 congressional districts that do not exist. . . . The web site operates on an $84 million budget and is tasked with monitoring the distribution of the $787 billion stimulus package passed by Congress–which, for the record, counts 435 members–in early 2009.

The site’s monitors, however, are not too savvy about America’s political or geographic landscape. More than $2 million was given to the 99th District of North Dakota, a state which has only one congressional district. In order to qualify for 99 districts, North Dakota would have to have a population of about 60 million people, almost 24 million more people than California.

From ABC News:

Here’s a stimulus success story: In Arizona’s 15th Congressional District, 30 jobs have been saved or created with just $761,420 in federal stimulus spending. At least that’s what the website set up by the Obama Administration to track the $787 billion stimulus says.

There’s one problem, though: There is no 15th Congressional District in Arizona; the state has only eight Congressional Districts.

There’s no 86th Congressional District in Arizona either, but the government’s recovery.gov Web site says $34 million in stimulus money has been spent there.

In fact, Recovery.gov lists hundreds of millions spent and hundreds of jobs created in Congressional districts that don’t exist.

The Washington Examiner says that “75,000 jobs” Obama has claimed credit for are “clearly imaginary” or “highly doubtful.” Readers can view its interactive map of “Inflated Jobs by State.”

As the Examiner notes, “If his stimulus program was approved, Obama promised, unemployment would not go above 8 percent this year. The reality is that it passed 10.3 percent in October. So now the stimulus books are being cooked to mollify an anxious public worried that real-world jobs continue to disappear and angry that Obama has thrown almost $1 trillion down the stimulus rathole.”

The stimulus package actually destroyed thousands of real world jobs by triggering trade wars with Canada and Mexico that killed jobs in America’s export sector (the stimulus package barred a measley 97 Mexican truckers from U.S. roads, a minor NAFTA violation that led to massive Mexican retaliation against U.S. exports of 40 farm products and kitchen goods worth $2.4 billion).  It also is wiping out jobs by inflicting costly mandates on state governments (such as repealing welfare reform, and imposing costly “prevailing wage” regulations and expensive racial set-asides).

Obama claimed the stimulus package was needed to prevent the economy from suffering from “irreversible decline,” but the Congressional Budget Office admitted that the stimulus package actually would shrink the economy “in the long run.”  Unemployment has skyrocketed past European levels, as big-spending countries have fared worse than thrifty ones.

The stimulus package has since spawned countless examples of government waste and corruption.  Recently, Obama fired an inspector general, Gerald Walpin, who uncovered millions of dollars of waste and fraud in the AmeriCorps program, including by a prominent Obama supporter, endangering the Obama supporter’s ability to administer federal stimulus spending in Sacramento.  Obama’s alleged justification for firing the inspector general turned out to be false.

LibertyWeek 69: Feeding the World with Property Rights

by Richard Morrison on November 17, 2009

in CEI Projects, Podcast

Richard Morrison throws in with Jeremy Lott and William Yeatman to bring you Episode 69 of the LibertyWeek podcast. We start by pigging out on swine flu statistics, putting off action on global warming and wagging our finger at a corrupt judge. We proceed with the fight between Intel and AMD and wrap up with an interview with CEI Senior Fellow Gregory Conko on how to end world hunger.

30 Jobs “Created or Saved” in a Phantom Congressional District

by Elizabeth Jacobson on November 17, 2009 · 7 comments

in Features, Odds & Ends, Politics as Usual, Stimulus to Nowhere, Zeitgeist

ABC News broke the story this week of an executive administration that, ambitious to appear in control of the economy during this steep recession, reported patently false stimulus-related employment information. The Recovery Board, a task force created to track the $787 billion in federal stimulus spending, published on its website data for jobs “created or saved” in congressional districts that don’t even exist!

In one example, the stimulus tracking website reported that 30 jobs have been “created or saved” in Arizona’s 15th congressional district. Arizona only has eight congressional districts.

Late Monday, officials with the Recovery Board created to track the stimulus spending, said the mistakes in crediting nonexistent congressional districts were caused by human error.

“We report what the recipients submit to us,” said Ed Pound, Communications Director for the Board.

Pound told ABC News the board receives declarations from the recipients – state governments, federal agencies and universities – of stimulus money about what program is being funded.

Has the government ever heard of research assistants? Fresh college grads willing to do menial tasks (like research and fact-checking) for a small pittance are in no short supply in Washington DC. Hiring a small staff of people to double-check the validity of reported numbers would be a minor cost for the Recovery Board, but it would save them the embarrassment of looking either shady and deceptive or downright incompetent.

England’s “migrant children; US “orphan trains”

by Fran Smith on November 16, 2009 · 1 comment

in Odds & Ends

A little known part of British history is coming to light – its migrant program for young children in England , who were sent to Australia, Canada, and other British Commonwealth countries. Such programs, which began in the late 1800s and persisted well into the 1960s, shipped about 150,000 poor children, orphans, and illegitimate children to Commonweath countries where they were sent to institutions, foster homes, farms, and other places where they worked as laborers.  A House of Commons report published in 1998 noted that “hardship and emotional deprivation were the common lot of child migrants, and that cases of criminal abuse were not infrequent.”

In Australia Prime Minister Kevin Rudd provided an apology for his country, and British Prime Minister Gordon Brown is expected to issue his own country’s apology for initiating these child migrant programs.

According to the parliamentary report, the shipping out of children was done for a mix of reasons: 1) philanthropic – to remove children from the streets or from parents who posed a serious risk; 2) economic – in England, to lower the budgetary costs of the government providing for neglected children, and in the other countries, to provide a source of cheap labor; 3) racist – as the report states, “the importation of ‘good white stock’  was seen as a desirable policy objective in the developing British Colonies.”  In Victorian England, poor families were moving to the cities, many living in tenements and “rookeries,” or destitute and homeless, in the streets.

The British program mirrors to some extent the migrant program in the U.S. known as the “Orphan Trains,” in which from 100,000 to 200,000 children – mainly from immigrant families in New York – were sent in trains to other states, where they were put into foster homes and institutions or were put to work.  In New York, life for many of the poor, uneducated immigrants was grim, and many children were abandoned because the families could not care for them. The U.S. “Orphan Train” program, begun in 1854 by the Children’s Aid Society, persisted until about 1929. Under the auspices of philanthropic organizations, rather than the government, children, sometimes against the wishes of their parents, were herded onto trains in New York and shipped to 47 other states and Canada.

These programs raise difficult issues.  Does the state or a private entity have a right to remove a child — not yet able to make decisions — from his biological parents or from his environment if the child is homeless or uncared for?  What are a child’s rights and interests in relation to organizations – state or private – that place the child in another environment?  Philosophical and legal questions relating to children and their rights have been debated often in libertarian and other circles.  These issues aren’t easy to resolve with a satisfactory answer.

[Ed.’s note: The mother of one of my close friends was a three-year-old Orphan Train migrant.]

Wireless Customers Don’t Like Variable Billing

by Elizabeth Jacobson on November 16, 2009

in Tech & Telecom

The Sunday New York Times ran an article over the weekend that digs into the apparent madness behind cell phone and wireless mobile service pricing. Athour Saul Hansell eschews traditional economics and instead turns to behavioral economic insights to explain consumers’ seemingly irrational behavior when it comes to selecting cell phone plans:

Neither the cellphone companies nor their customers, as it turns out, always act in the rational way that economists might predict. Consumers often put immediate gratification and the avoidance of unpleasant surprises above their long-term interests. The companies, meanwhile, are trying to meet the sometimes irrational expectations of investors, who want growth without too much nasty volatility, even if their profits suffer.

The article cites several unintuitive examples of customers and wireless carriers acting “irrationally”:  consumers switching to costlier plans when given the choice of a discounted or variable-priced plan; carriers charging a flat fee for data services even though they are expensive to provide; and consumers’ unwillingness to shop for lowest cost-per-minute deals.

It would seem that consumers dislike having variable monthly cell phones bills. Hansell cites the example of Sprint’s 2004 “Fair and Flexible Plan” offering. Fair and Flexible was a two-tiered pricing plan in which customers would pay a flat $35 for the first 300 minutes per month, and then $2.50 per each additional block of 50 minutes. While this plan makes sense economically, customers didn’t warm up to it, and instead signed on to plans that are more typical of today’s offerings among the Big Four: a flat-but-higher monthly fee for a bigger basket of anytime minutes, plus overage charges. Compared to a more variably-priced contract, this pricing plan doesn’t result in the lowest possible per-minute charges, but consumers have revealed a preference for consistent monthly bills over variable, usage-based pricing.

On the sellers’ side of the equation, cell phone service providers have difficulty determining their per-unit costs. Customers vary in their average monthly usage, and what’s more, usage among individuals isn’t static from month to month either. Thus, it’s hard for the companies to accurately estimate their costs-per-minute. As a result, the business strategy employed is to try to get a consistent amount of money from subscribers every month, and to have enough subscribers to cover total costs. For example, it costs very little for a wireless carrier to transmit a text message, yet the big four carriers each charge $0.20 per message. At the same time, they each offer an “unlimited texting” plan for $10-$20 per month. Again, consumers have shown a preference for consistent billing, and have signed up almost en masse for unlimited texting plans.

For whatever reason, consumers have shied away from lower-cost mobile plan options in favor of higher flat fees and plans with perks when given the choice. Whether it’s because we’re all just risk-averse and hate wildly-varying bills, or we’re drawn towards extra goodies like unlimited texting or in-network calling, the best way to discern what consumers want is to look at what they’ve chosen in the past. While critics of the cell phone industry complain that the wireless industry isn’t competitive or that wireless providers don’t compete on price, this article explores that American consumers’ preferences have guided those companies to the pricing system we have today.

“How ACORN Destroyed the Housing Market”

by Hans Bader on November 16, 2009

in Bailout Watch, Economy, Legal, Personal Liberty, Politics as Usual, Precaution & Risk, Sanctimony

Federal affordable-housing mandates were a major factor in the mortgage crisis, fueling the housing bubble and the subsequent collapse of the housing and financial markets, which helped bring down the economy.  Even the liberal Village Voice has admitted that.  Who drafted those awful mandates?  ACORN, reports the Washington Examiner, in “How ACORN Destroyed the Housing Market.”

How did ACORN cause the “housing bubble” and “financial collapse”?  ACORN lobbyists drafted “affordable-housing” mandates to pressure the mortgage giants to buy up more risky loans and mortgages from low-income communities, loans that banks in turn were pressured to make by the Community Reinvestment Act, explains The Wall Street Journal.

ACORN also helped spawn the mortgage crisis by promoting “liar loans.”   It has a long history of  financial fraud, vote fraud, tax evasion, waste, and mismanagement.

Lawmakers and the Obama administration have studiously ignored ACORN’s role in spawning the financial crisis, because many liberal lawmakers have long had close ties to ACORN.  ACORN is a left-wing group that launched Obama’s career as a community organizer.  (ACORN stands for Association of Community Organizations for Reform Now.)  Obama has long-standing ties to ACORN, and an ACORN affiliate received received $800,000 from Obama’s campaign.

In recent months, lawmakers distanced themselves from ACORN, and cut off its federal housing funds, after it was caught on videotape in a child prostitution promotion scandal.  (ACORN is now suing the federal government in court, to force it to resume funding ACORN.  Earlier, it sued the private citizens who exposed its role in the scandal for $2 million).

However, in the long run, ACORN is likely to continue to benefit from its close ties to liberal lawmakers and the administration.  Entities related to ACORN stand to reap millions from Obama’s financial regulation proposals and health-care reform proposals.

Meanwhile, the Obama administration is busy promoting the junky, risky mortgages that fueled the housing bubble, showing that it has learned nothing from history.  One result is that the Federal Housing Administration, which is making many such loans, has gone into a “nose dive” and may need a multibillion-dollar taxpayer bailout, reports the Washington Post.

Obama wants to create a bureaucracy called the Consumer Financial Protection Agency. “The agency would be in charge of enforcing the Community Reinvestment Act, a law that prods banks to make loans in low-income communities.” The Community Reinvestment Act was a key contributor to the financial crisis.  Yet Obama’s plan would empower the CFPA to enforce the Community Reinvestment Act without regard for banks’ financial safety and soundness.

The mortgage crisis was also caused by the reckless government-sponsored mortgage giants (”GSEs”) Fannie Mae and Freddie Mac, and by federal affordable-housing mandates.

But Obama’s proposed financial rules overhaul does absolutely nothing about Fannie Mae and Freddie Mac, admits Obama’s Treasury Secretary, tax cheat Timothy Geithner, even though he admits that “Fannie and Freddie were a core part of what went wrong in our system.”

Worse, Obama’s plan is “largely the product of extensive conversations” with two lawmakers responsible for the corrupt status quo, Chris Dodd and Barney Frank, and it expands the reach of regulations that have been used by left-wing groups to extort pay-offs from banks.

Recently, the administration got rid of the inspector general for Fannie Mae and Freddie Mac, after making Freddie Mac run up $30 billion in losses from the Obama administration’s mortgage bailouts, which bailed out even high-income borrowers who irresponsibly mismanaged their finances.  Earlier, Obama fired an inspector general, Gerald Walpin, who uncovered misuse of funds by a prominent Obama backer, smearing the inspector general with allegations that turned out to be false.

DOJ Asks For News Site’s Visitor Info

by Evan Banks on November 16, 2009

in Privacy

Declan McCullagh is reporting that earlier this year the Department of Justice subpoenaed the left-of-center news aggregation site Indymedia.us for information including visitor lists and IPs, then issued a gag order forbidding them to talk about it unless authorized to do so. From CBSNews.com:

The subpoena (PDF) from U.S. Attorney Tim Morrison in Indianapolis demanded “all IP traffic to and from www.indymedia.us” on June 25, 2008. It instructed Clair to “include IP addresses, times, and any other identifying information,” including e-mail addresses, physical addresses, registered accounts, and Indymedia readers’ Social Security Numbers, bank account numbers, credit card numbers, and so on.

This gag order presents a particular problem for any news organization in a nation that prides itself on it’s freedom of the press.

Indeed, McCullagh says that news organizations are entitled to special limiting processes when they are subpoenaed, such as requiring “the express authorization of the attorney general.” Information gained from a subpoena issued to a news organization must also be limited in nature.

Apparently the Department of Justice isn’t at liberty to say why the subpoena was issued, although the demand request was retracted after the Electronic Frontier Foundation caught wind of the situation via an Indymedia server administrator and offered to represent the organization free-of-charge. The Attorney General’s office reportedly has no knowledge of the request. Naturally.

Fixing TARP: Is Transparency Enough?

by Ryan Young on November 16, 2009

in Bailout Watch, Economy, Features, Regulation, Zeitgeist

The House is voting today on a bill to improve transparency in the TARP bailout program. TARP is, shall we say, rather opaque. 25 different agencies administer TARP funds. Each one uses different accounting standards. Keeping track of everything is almost impossible.

I wrote an article not too long ago saying that transparency is welcome symptomatic relief. But TARP itself is a disease. The only way to cure the disease of bailout programs is to abolish them. Russ Roberts said much the same thing:

[C]apitalism is a profit and loss system. The profits encourage risk-taking. The losses encourage prudence. If the taxpayer almost always eats the losses for the losers, you don’t have capitalism. You have crony capitalism.

Transparency is a good start. But the goal should be to not have government bailing out politically favored companies in the first place.

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