In The Washington Post, Allan Sloan points out that while President Obama wants to cap American citizens’ IRAs at $3 million or substantially less—discouraging saving and investment in the process—Obama’s own-taxpayer-subsidized retirement benefits are worth more than twice as much, a generous $6.6 million. A sweet pension for me, but not for thee, seems to be Obama’s thinking. Discussing the president’s “proposal to limit the value of 401(k)s, pensions and other tax-favored retirement accounts to about $3.4 million” (or much less, as interest rates rise), Sloan notes that Obama want “to limit savers’ tax-favored accounts to only about half the value of what he stands to get from his post-presidential package. Based on numbers from Vanguard Annuity Access, I value his package at more than $6.6 million. . . .And that doesn’t include [his] IRA . . . Or the $18,000 (plus cost of living) a year he will get at age 62 for his service in the Illinois Senate.”
He also notes that “the point at which Obama wants to eliminate the ability of you and your employer to deduct contributions to your retirement account isn’t actually the $3.4 million in his budget proposal—that’s just an estimate. The real number is how much a couple age 62 would have to pay for an annuity that yields $205,000 a year. That $3.4 million—which applies to the combined values of your pension and retirement accounts—is subject to a sharp downward change in the future because annuity issuers charge significantly less for an annuity when interest rates are higher than they do today, with rates at rock-bottom levels.”
Obama has discouraged saving in other ways, such as raising taxes on capital gains and dividends, imposing a new Obamacare tax on investment income, and by giving costly bailouts to irresponsible people who, despite ample incomes, saved so little money that they could not “afford” more than a tiny downpayment, and thus ended up with negative equity on their home later on due to declines in the value of their home, qualifying them for the bailouts that certain favored underwater mortgage borrowers have received.
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The earth below the United States contains 5 percent of the world’s known recoverable uranium deposits. More than a quarter of U.S. uranium is found in southern Virginia at Coles Hill near Chatham in Pittsylvania County. The two uranium deposits at Coles Hill are valued at $7 billion and together constitute the seventh largest deposit in the world.
Yet all of it is still in the ground. Over 30 years ago, Virginia placed a moratorium on uranium mining in the state. This prohibition was to be lifted once the state went through the arduous process of drafting uranium mining regulations. Unfortunately, Virginia never got around to writing the rules and the “temporary” ban is still in place. The property owners at Coles Hill and some outside investors formed a company in order to mine uranium once the moratorium is lifted and the onerous regulations recommended by the Uranium Working Group [PDF] are promulgated, but still face stiff opposition from the sadly typical alliance of anti-development environmentalists and ignorant NIMBYs.
This underscores the problem with relying on unreliable and arbitrary regulatory regimes for the ostensible purpose of protecting residents and the environment. Few dispute that responsible, safe uranium mining is possible and indeed practiced throughout the world, especially in major uranium-producing countries such as Australia and Canada. Instead of increasing regulation on mining, however, a more thoughtful approach would focus on strengthening property rights so that those doing the mining face incentives to extract natural resources without harming adjacent property owners.
Robust private property rights — those which are well defined, well defended, and voluntarily transferable — are the most critical underpinning of any free society. It should not be surprising that they are also the best tools to protect others and the environment from potential hazards. (For a brief discussion and defense of free-market environmentalism, see “Liberty, Markets, and Environmental Values” by Mark Pennington.) Pollution in this context constitutes a trespass against those rights and the injured owner can file suit to halt harmful activity and collect damages. But relying on the regulatory state in an attempt to protect the environment essentially grants polluters additional rights while preventing property owners from exercising their rights to defend their own property from pollution. This false commons is forced upon society by government and the predictable tragedies result again and again. Unfortunately, these state-caused disasters often only embolden far-left environmentalists in their calls for doubling down on failed regulations.
A firm engaged in uranium mining under state and federal regulations has the incentive to follow the regulations to the letter, regardless of how arbitrary or counterproductive they may be. In contrast, robust property rights would incent miners to allocate resources efficiently (after all, pollution is just a form of waste), take immediate risks into account, and prevent expensive trespasses against neighbors.
While this vision of a free society is far different from our current reality — meaning a complex regulatory regime will be practically necessary for uranium mining to take place in Virginia anytime soon — it is important to remember that it is an absence of liberty, rather than an excess, that increases harm done to people and the environment in the first place.
The progressive Georgetown University constitutional law professor Louis Michael Seidman argued Monday in The New York Times that we should just ignore the Constitution and its limits, since it led to the “fiscal cliff” (a combination of painful tax increases and long-overdue spending cuts that would have cut the federal budget deficit in half). “As the nation teeters at the edge of fiscal chaos, observers are reaching the conclusion that the American system of government is broken. But almost no one blames the culprit: our insistence on obedience to the Constitution, with all its archaic, idiosyncratic and downright evil provisions,” Seidman wrote in an op-ed entitled, “Let’s Give Up on the Constitution.” Congress and the President averted the so-called “fiscal cliff” by extending the Bush tax cuts for all but high-income households, and delaying for two months the automatic budget cuts that it contained. Many economists view this “cure” for the fiscal cliff as being worse than the disease.
But the comically left-wing and irresponsible Seidman thought that gutting the entire constitution (including its separation of powers and the requirement “that revenue measures originate in the” House of Representatives), would have been worth it to eliminate the measures contained in the fiscal cliff. In my opinion, the so-called “fiscal cliff” contained too many tax increases, and not enough budget cuts (although those cuts were extremely valuable and helpful), but it still reflected thoughtful attempts to get the deficit under control (the cuts were adopted in the 2011 deal between Congress and the president to allow the national debt ceiling to increase in exchange for budget cuts later on), not a systemic government failure that justified shredding the Constitution. And as the Congressional Budget Office and the GAO noted earlier, while the fiscal cliff’s painful medicine would have shrunk the economy in the short-run, it would have increased the size of the economy in the medium and long run, since, by reducing the size of the national debt, it would have reduced mushrooming debt service costs, costs that crowd out productive private investment.
(Sadly, in law school, I was forced to buy a constitutional law textbook co-authored by Seidman, a cartoonish caricature of the Constitution that celebrated court rulings twisting the Constitution into a pretzel, and ignored many of its politically incorrect structural safeguards on government power. Seidman’s contempt for the Constitution is not new, but now, as he approaches retirement, he no longer bothers to cloak it in disingenuous progressive “living constitution” claptrap.)
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Today, the Federal Trade Commission (FTC) cleared Google of accusations of “Search Bias,” and inappropriately harming rivals.
The investigation lasted nearly two years. CEI released a statement today, “Web Users Dodge Bullet as FTC Closes Google Probe.”
Google rivals naturally object, but those protests are revolts against the objective reality that people like Google.
The FTC did secure certain concessions from Google, which will alter how it presents bits of information, such as that from review sites such as Yelp (a criticized practice it was already modifying in some areas); and Google will make it easier for firms to advertise across other search engines when they have an arrangement with Google.
Antitrust purports to address consumer harm, or compulsion. The FTC got it right; there is no harm created by Google reasonably address with top-down force. Options abound for consumers. If only the investigation had been avoided at the outset.
As my colleague Ryan Radia noted:
Today’s ruling…affirms that every company is free to compete by serving its users, no matter how high its market share or how much its rivals suffer as a result. America’s antitrust laws are designed not to punish companies for growing too big…but to ensure no company stifles competition itself. The thriving Internet sector — a bright spot in America’s otherwise lackluster economy — shows no signs of suffering from too little competition.
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The first Thanksgiving didn’t usher in a time of plenty for the Pilgrims. The Pilgrims continued to confront the specter of starvation until they ditched their collective farming practices in favor of individual property rights, which finally brought them prosperity by increasing incentives to produce and manage farms wisely. Property rights were also a feature of many Native American cultures, contrary to later claims that Native Americans had no concept of property rights (claims first invented by those who dispossessed them, and later repeated by radical environmentalists who sought to depict property rights as an institution peculiar to white settlers). I debunk some of these myths at this link.
Italy’s legal system, already deeply unfriendly to business, has sunk to a new low this week. In the town of Trani, prosecutors requested to charge five Standard & Poor’s officials with “aggravated and continuous market abuse” because they announced the reasons for S&P’s downgrade on Italian sovereign debt three days after the announcement of the downgrade itself in May 2011.
Prosecutors claim this delay created unnecessary market volatility and investor flight. But it seems more like a case of shooting the messenger. It’s no secret European governments revile the credit raters for communicating to markets Europe has been living beyond its means for quite some time. Look no further than the bombastic rhetoric against the credit raters and the European Commission’s proposal to require European Union approval of credit rating methodologies — a ploy to make the raters a puppet of bankrupt governments. Like other European countries, Italy wanted to keep its unsustainable finances a secret. Now, Italy wants a chance to go after the messenger.
This after last month’s manslaughter conviction of seven Italian scientists who were ruled guilty of not accurately predicting the severity of a deadly earthquake in 2009. The ruling was scapegoating at its finest — using the courts to cover up the Italian government’s failure to adequately prepare for the disaster.
Unsurprisingly, the World Bank ranks Italy dead last among OECD high-income countries in the integrity of its legal system. Ironically, the poor nature of Italian courts is partly a cause of the stagnation in Italian entrepreneurial activity – and subsequently, credit downgrades. When businesses can’t trust the legal system to act in a consistent manner, they lose a fundamental principle underpinning the functioning of the market economy: protection of property rights.
Attacking the credit raters will lead only to further downgrades and even more fleeing investors.
Italian ex-Prime Minister Silvio Berlusconi told news sources last week that his party — Popolo della Libertà — would soon decide whether or not to revoke support for the current technocrat government headed by Prime Minister Mario Monti. Berlusconi’s threat against the Monti government represents why implementation of his polices won’t induce Italian recovery and why financial markets forced him out of office in the first place. His condemnation of Monti’s policies is also indicative of the broader reform-cowardice problem within the entire Italian political establishment.
Silvio’s guns are cocked and loaded to shoot down reform.
At the heart of Berlusconi’s dismay with the Monti government is the implementation of “German-style” austerity. He claims that government spending cuts and structural reforms “lead just to recession and pain.” While he is correct in assessing the short-term effects of austerity, he is incorrect in assuming that the long-term effects are the same.
The Baltic States, such as Estonia, are the paragons of austerity. To restore competitiveness, Estonia slashed deeply into public wages and government expenditure in 2009. Flexible labor laws allowed for private sector workers and employers to agree upon wage cuts too. Estonian GDP sharply declined by 14 percent in 2009. Unemployment shot up to 17 percent. But Estonia recorded positive 2 percent growth by the very next year, and unemployment had also declined by 5 percentage points. Growth has since continued to increase and unemployment has since continued to decline. Moreover, Estonian industry has been growing over twice as fast as that of Germany for the past two years, according to Eurostat data. Further, Estonian industrial growth has outperformed that of Italy by threefold in 2010 and by 16-fold 2011. Austerity, done quickly and severely, leads to growth and prosperity in the long run — not recession and pain.
Berlusconi must suffer from amnesia, because he forgets that it was exactly his failure to implement proper austerity measures that forced him from office in November 2011 and put Monti in his place. As the spread between Italian and German bonds soared last fall, markets expressed their rejection of Berlusconi’s cowardice in implementing bold reform.
Market fears were rightly founded. Italy is badly in need of coliseum-sized economic repairs.
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There is no alternative way, so far discovered, of improving the lot of the ordinary people that can hold a candle to the productive activities that are unleashed by a free enterprise system
~Milton Friedman
Proponents of privatizing Washington State’s liquor sales said that such a change would benefit consumers, businesses, and the state coffers. Ending the state monopoly on liquor, they said, would increase the number of places where alcohol could be purchased and reduce prices as retailers competed for patrons. However, upon looking at what has happened since liquor sales were privatized in the state, some voters are beginning to regret their support of the initiative and doubt the benefits of private enterprise. Along with the increase in the places Washington State residents can buy liquor, residents saw significant increases in the prices of alcohol. As a result, many in Washington are reportedly hopping the boarder to buy their booze in Idaho and Oregon and some are pointing to the situation as evidence that free markets do not benefit consumers as so many argued in the push to privatize.
However, as the Oregonian editorial board pointed out in their article published last Sunday, it is important to point out to folks that capitalism and privatization are not to blame for the increasing prices of Washington’s booze. Taxes and fees—meant to make up for revenue that would be lost to the state and other businesses—are the root cause for the increasing prices and are the reason Washingtonians have been robbed of the benefits of free enterprise.
“…Washington distributors pay the state 10 percent of sales for their first two years of operation and 5 percent for subsequent years. Retailers pay 17 percent of sales to the state, and taxes that were in place before the adoption of I-1183 remain. These include a levy of $3.77 per liter and a retail sales tax of 20.5 percent.
Also at play, says Smith, is a floor for distributors’ state contributions. They’re on the hook for generating $150 million in state revenue by March 31, 2013, and they’ll have to pony up any portion that isn’t covered by their 10 percent-of-sales contribution. Early estimates suggest they may come up short, says Smith, which might also be a factor in pricing.
Then there’s the matter of turning a profit, which requires a further markup.”
As a result of lawmakers attempting to make up for lost revenue through fee-collection, they have incentivized patrons to buy their booze in other states—losing the entire amount of tax revenue they would have otherwise received. On the bright side, some of these taxes and fees will sunset in subsequent years. After two years the distribution tax will be halved and the $150 million revenue requirement only applies to the 2013 deadline. But that may be little comfort to the consumers experiencing sticker-shock in Washington right now.
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The Obama Administration’s Home Affordable Modification Program (HAMP) gave “banks $1,500 bonus payments and servicers $1,000 bonus payments for each loan modification they processed. This system encouraged mortgage servicers to approve temporary ‘trial’ loan modifications, even as they continued the foreclosure process against borrowers. Ultimately, after collecting the bonuses, they would deny permanent mortgage modifications,” notes the Washington Examiner, citing the findings of Neil Barofsky, a former special inspector general for the Troubled Asset Relief Program.
Barofsky’s “damning indictment” of this waste of taxpayer money is contained in a new book, Bailout: An Inside Account of How Washington Abandoned Main Street While Rescuing Wall Street. The conclusions aren’t the result of any partisan hostility to the Obama Administration; Barofsky is “a registered Democrat and Obama donor.”
Some homeowners ended up being made much “worse off by Obama’s bailouts,” notes The Washington Examiner in its review of the book. “One California business owner who could have sold his house at a loss, but maintained some savings and his credit history, was enticed into a HAMP trial modification that was supposed to cut his payment in half. Instead, thanks to HAMP, he lost his house, his savings, his credit and his business.” The program seems almost to have been designed to delay foreclosures until just after the 2010 election, and delay formal recognition of banks’ losses: “By delaying millions of foreclosures, HAMP gave bailed-out banks more time to absorb housing-related losses . . . According to Barofsky, Treasury Secretary Tim Geithner even had a term for it. HAMP borrowers would ‘foam the runway’ for the distressed banks looking for a safe landing.” (This reminds me of how federal officials successfully pressured taxpayer-subsidized Solyndra to delay its announcement about upcoming layoffs resulting from its bankruptcy until just after the 2010 election, to avoid embarrassing the Obama administration.)
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Way back when the DOJ brought an antitrust suit against Microsoft in 1990s, Milton Friedman had this to say to The Wall Street Journal:
“We’ve gradually come to the conclusion that, on the whole, [antitrust] does more harm than good.” Antitrust laws, he says, “tend to become prey to the special interests. Right now, who is promoting the Microsoft case? It is their competitors, Sun Microsystems and Netscape.”
Unfortunately, this tendency for antitrust to become prey for special interests continues today. Antitrust law is supposed to be about promoting competition and assuring business conduct does not negatively affect consumer welfare. All too often, though, self-interested actors in both public and private roles attempt to use these laws to further more nefarious goals.
The Supreme Court has repeatedly stated that antitrust laws “were enacted for ‘the protection of competition not competitors.’” Copperweld Corp. v. Independence Tube Corp., 467 U.S. 752, 767 n.14 (1984) (quoting Brunswick Corp. v. Pueblo Bowl-O-Mat, Inc., 429 U.S. 477, 488 (1977) (quoting Brown Shoe Co. v. United States, 370 U.S. 294, 320 (1962))) (emphasis in original). This is because competition is vital for promoting consumer welfare. Nonetheless, one competitor of Google’s, Nextag CEO Jeffrey Katz, has recently used the pages of The Wall Street Journal to argue for antitrust enforcement against the search engine giant because of perceived harms to his company. But once his argument is broken down and analyzed, it becomes apparent that this is essentially a complaint akin to Burger King criticizing McDonald’s for failing to prominently display where consumers can get Whoppers. If such complaints can be the basis of government intervention, then the antitrust laws will effectively become anti-competitive themselves, with economic liberty being destroyed along the way.
Katz starts his complaint by noting the size of Google’s market share: “It is the most popular search engine in the world, controlling nearly 82% of the global search market and 98% of the mobile search market.” While one could be tempted to simply answer with congratulations to Google for its success, the more apt response is that Google’s search market share may not be relevant for antitrust purposes. This is because Google is engaged in what economists call a “two-sided market.” While most people use Google for its free search engine, Google makes its money by selling advertising space. And, as an advertiser, Google’s shares take up a drastically smaller fraction of the whole market (estimated around 7.5 percent of total world advertising). Once this is recognized, it becomes very difficult to argue Google is a monopolist capable of antitrust violations under Sherman Section 2.
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