The election results in Europe, we are told, are a vote against the austerity of “savage” spending cuts. Veronique de Rugy, in National Review Online, contested this claim, backing up her words with data. The Economist‘s Ryan Avent found her claims outrageous and presented data of his own to show that austerity was sooo there. Veronique has responded with more detail. Her case is essentially that in most countries, “austerity” has been implemented more in terms of tax rises than in spending cuts. The fact that the UK and France, both of which supposedly voted against austerity last week, have not actually implemented spending cuts, is best illustrated by this alarming chart.
It is important here to note that spending cuts are, in this debate, regularly portrayed as being harmful to GDP growth, as if shaving government expenditure results inexorably in a reduction in GDP. That is clearly not the case. The respected British economist Andrew Lilico, for instance, regularly points out that spending cuts in the Uk should lead to growth:
The key ways the government could raise the sustainable growth rate are as follows:
- Cut government spending relative to GDP. The government is already committed to cutting spending below 40% of GDP. If it succeeds, that could add 0.5% to annual GDP growth.
- Raise the efficiency of government spending. If public sector productivity grew as fast as private sector productivity, that could add 0.5% to annual GDP growth. Matching private sector productivity growth should be a modest target, since there is considerable scope for catch-up, with public sector productivity growth having dropped one third behind over the decade to 2007. To achieve private sector levels of productivity growth, use private sector methods – surplus/profit motives; competition; private sector management methods and cultures, etc.. These things will be desperately unpopular, politically. But they won’t be as unpopular as having the banks go bust again and the economy collapsing into another massive recession.
[click to continue…]
George Will warns that America’s system of competitive federalism is threatened by our own “Greeces.” (“In Illinois the bills are coming due,” April 27). Europe has been brought to its knees by the moral hazard from guaranteeing the debt of imprudent entities. Could a default in Illinois create a similar collapse here? Not in the same way.
States are allowed fiscal autonomy and are expected to suffer the consequences of their own fiscal imprudence. Direct federal bailouts are unlikely, but they are not the real threat. The risk Illinois raises for America is that the Federal Reserve may decide that states are “too big to fail” and move to ensure that failing states can continue to borrow and carry on their non-sustainable fiscal and regulatory policies.
That is what happened in Europe, as the European Central Bank (ECB) rushed to ensure that Greece could continue spending. The ECB is outside of normal political controls. Finding ways to restrain the Fed may be the primary challenge of the next administration.
In a column for the FT today, Wolfgang Munchau lays out what may be the only plausible solution to the Eurozone crisis – for governments like Greece to “default into” the European Stability Mechanism. The ESM could then issue bonds, thereby mutualizing the bad debt of the defaulting governments. The Euro survives, the PIIGS (Portugal, Italy, Ireland, Greece, Spain) get their debt off their books and can rebuild without having to do distasteful things like reform their labor markets, and the Euro project continues with its new Banking Union.
Except…
The great unasked and unanswered question with all of these schemes is: where is the money coming from? That’s not the same as the question who will buy this debt. Banks will, of course, if they have a clear idea of where the repayment and yield will come from. If it looks like the debt might not get repaid, they will require too high a yield, and the problem starts again. So who is the ultimate guarantor of this scheme? Together, the PIIGS supposedly contribute 37 percent of the ESM’s cash-flow, but that’s now, before the defaults which will require a much bigger capacity than the ESM’s current E500 billion capacity. France, which contributes 20 percent, is likely going to face similar problems given its likely electoral direction this year (Socialist President elected yesterday, socialist-communist-fascist dominated Parliament likely later in the year). So the answer will be, once again, the German taxpayer.
So the ESM banking union option once again collapses into the basic question — will the German taxpayer stand paying not just for the debts but the ongoing fiscal health of the profligate PIIGS nations? All indications seem to be no. So, despite being a seemingly plausible solution, the ESM banking union solution is probably doomed to failure too.
Of course, that doesn’t mean they won’t try it.
An Immigrant Worker in Idaho
“Our immigration problem’s not going away.” That was the title of my article for Real Clear Policy this weekend. While the Pew Hispanic Center’s conclusion that “the net migration flow from Mexico to the United States has stopped” has some declaring immigration a “non-existent problem,” the reality is that America’s immigration system is as broken as ever. Running near-double digit unemployment in a weak economy may drive a few undocumented workers out of the country, but it is not a solution to America’s immigration problem. The only solution is an immigration system that allows immigrants to come to the U.S.
One response to my article was that there is already a legal way for workers to come — the H-2A visa program. But even Labor Department officials recognize that this program has failed. As President Bush’s U.S. Secretary of Labor Elaine Chao said in 2008:
There are 1.2 million hired agricultural workers in the United States today. Estimates show that between 600,000 and 800,000 are undocumented. There simply aren’t enough U.S. workers to fill the hundreds of thousands of agricultural job openings in this country. Farmers can hire temporary foreign workers to harvest their crops through the H-2A visa program… Yet despite the fact that this program is uncapped, agricultural employers hired only about 75,000 H-2A workers in 2007… Farmers report that the H2A program is burdensome, duplicative and riddled with delays. And many who have tried it report such bad experiences that they stopped using it altogether.
As the brother of Idaho’s Lt. Gov. Jim Little, who is also a grain farmer, recently told The Idaho Statesman, “It seems like they take great joy in piling on minutia and things we have to do.” As Little’s daughter who raises sheep told the Statesman, “we needed four new workers from Peru. I started the paperwork in July and our workers didn’t arrive until February. It’s really hard to depend on a program that takes that long to get workers here. We had to sell most of our sheep last year and this was one of the driving factors. It was just getting too hard to manage the labor situation.”
[click to continue…]
Some analysts at Barclays attempt to understand the business case for Planetary Resources, and massively fail:
Their calculations are based on Nasa’s forthcoming OSIRIS-REx mission, which aims to launch a probe in 2016 to pluck samples from an asteroid called 1999 RQ36 and bring them to Earth.
The mission’s acronym stands for “Origins-Spectral Interpretation-Resource Identification-Security-Regolith Explorer” and Nasa hopes it will be home by 2023, with a couple of ounces of dirt. By then, the cost will have reached $1-billion – made up of $800-million for the vehicle, plus another $200-million for the rocket launch.
Since that outlay will return just a couple of ounces of material, the Barclays’ analysts say they could use it as a baseline to estimate break-even prices for asteroid mining. Using the metrics proposed by Barclays, the Financial Times commodities team estimates that copper prices would need to skyrocket from today’s $3.81 per ounce to $476-million for a similarly-funded space mining project to cover its costs. [Emphasis added.]
Ummmmmm…no.
First, this is a NASA mission, and NASA costs are always a poor proxie for how much it would cost private enterprise to accomplish something similar. For instance, SpaceX has spent about a billion dollars total developing two new launch vehicles and a reusable return capsule that it flew in late 2010, and is planning to fly to ISS next week. The Falcon 9 rocket itself cost the company about $300M. But conventional NASA/Air Force cost models predicted that it should have cost somewhere between $1.7B and $4B if developed under a traditional government contract. That is to say, it might have cost an order of magnitude more.
[click to continue…]
The supposed economic “recovery” is faltering. The sugar high of freshly printed money from the world’s central banks is beginning to wear off.
In RealClearMarkets, I address how misguided central bank policy led to Europe’s recession and I explain how to restore growth. Click on the previous link for the entire quantitative analysis.
Europe’s problem is the same as the U.S.’s - insolvency. The past 17 years have seen the greatest expansion of global credit in the history of the world. But this didn’t happen because the world economy became more prosperous. While the world was sleeping, central bankers around the globe have been printing money to fuel the booms of the past two decades. The inevitable result will be an even greater bust than the current one.
…manipulating the interest rate through monetary policy has immense distortionary consequences. The interest rate is the price of borrowing money. The amount of savings in an economy determines that price. But when central bankers set an interest rate, they decouple the interest rate from savings and replace it with politics.
…
The solution is to (pardon the cliché) stop the presses! Instead of being bailed out, malinvestment must be liquidated before Europe and the rest of world can hope to end the stagnation that almost two decades of excessive monetary expansion caused.
For a similar quantitative analysis of central bank policy and the U.S. recession, see my previous OpenMarket post on the matter.
Arizona’s controversial immigration law — SB 1070 — heads to the Supreme Court this week. One can only hope that the Justices do a better job reading the law than much of the media. False claims about the law abound, so here’s an overview directly from the law’s text. Recognizing that this is an artificial distinction, I’ve divided my summary in half by “anti-immigrant provisions” and “anti-business provisions.”
Anti-Immigrant Provisions
SB 1070’s intent is “to make attrition through enforcement the public policy of all state and local government agencies in Arizona… to discourage and deter the unlawful entry and presence of aliens and economic activity by persons unlawfully present in the United States” (Section 1). To that end, the law expressly forbids any state or local agency from adopting “a policy that limits or restricts the enforcement of federal immigration laws to less than the full extent permitted by federal law” (Section 2(A)).
In application of these goals, police must make “a reasonable attempt when practicable to determine immigration status” during “any lawful contact” if “reasonable suspicion” exists that the individual is undocumented. This provision expressly forbids police from considering “race, color, or national origin” and allows individuals to use “any valid United States federal, state or local government issued identification” (Section 2(B)). The same section allows local governments to maintain immigration databases for the purposes of “determining eligibility for any public benefit,” “verifying any claim of residence,” and “determining whether [an alien] is in compliance with federal registration laws” (Section 2(E)).
If any “political subdivision” or “official” “adopts or implements a policy or practice” that violates these provisions, any legal resident “may bring an action to challenge” (Section 2(I)). Police officers are specifically “indemnified by the officer’s agency for costs incurred in connection with any action” (Section 2(J)). The penalties for violation are $1,500 “for each day that the policy has remained in effect after the filing of an action” for “the entity” (Section 2(I)). The section concludes ironically with the assertion that “this section shall be implemented in a manner consistent with federal laws regulating immigration, protecting the civil rights of all persons and respecting the privileges and immunities of United States citizens” (Section 2(K)).
The following section makes the “willful failure to complete or carry an alien registration document” (Section 3(A)) a class 1 misdemeanor with a $500 fine (plus jail costs)—it is considered a class 4 felony for a second offense or if within five years, the individual “has been removed from the United States” (Section 3(D, H)). Section 6 adds to this provision by allowing police “without a warrant” to make an arrest “if the officer has probable cause to believe that the “person to be arrested” has committed a deportable offense (Section 6(A)).
Section 4 outlaws “human smuggling,” and allows police to “stop any person who is operating a motor vehicle if the officer has reasonable suspicion to believe that the person is in violation of any civil traffic law and this section” (Section 4(D)). Section 5 also makes “transporting or harboring” undocumented aliens or “encouraging” them to enter the state a class 1 misdemeanor or a class 6 felony for more than 10 undocumented aliens. Similarly, Section 10 allows police to seize any vehicle that is “transporting” an undocumented alien. Section 11 creates a “gang and immigration intelligence” fund that consists of fines on businesses and immigrants to be “used for gang and immigration enforcement and for country jail reimbursement” (Section 11(A)).
[click to continue…]
Italian Prime Minister Mario Monti is full of optimism these days. He has claimed to achieve “historic” reform in Italy’s la
bor market and to beat the “financial aspect” of the ongoing economic crisis. This is nothing more than political hubris.
Despite all the grandstanding and high rhetoric, the Italian labor market still remains broken and the resurgence in Italian bond yields over the past several weeks signal another impending beating from markets.
As I explain in the City A.M., Monti’s recent labor reforms do not free entrepreneurs from the regulatory straightjacket that has been suffocating them since the 1970’s.
The government and party leaders came to a fragile agreement with Italy’s largest unions. Businesses would be allowed to lay off workers for “economic reasons,” meaning financial distress, while paying up to an exorbitant 24 months of severance. But firms still would not be allowed to fire employees for incompetence.
The centerpiece of Italy’s rigid labour market, and the main issue of contention, is Article 18 of the Worker’s Statute. Under it, “poor performance” is not grounds for employee dismissal. Only “concrete and wanton negligence” justifies that. If a labour court finds a business guilty of firing an incompetent employee, the firm must rehire the worker and compensate for lost pay. If an entrepreneur has fewer than 15 employees, he faces a choice between rehiring or paying up to 14 months of severance. Article 18 protects 87 per cent of private sector workers, according to numbers from Datagiovani – a statistical agency that studies Italian youth.
…
Entrepreneurs are afraid to grow. Within the EU, Italy boasts the highest proportion of employment in both micro-firms – businesses with fewer than 10 employees – and micro and small firms combined. It also faces the lowest proportion of employment in medium-sized enterprises.
[click to continue…]
The International Traffic in Arms Regulations (ITAR) have been a thorn in the American space industry’s side for almost fourteen years, ever since Congress moved the maintenance of the munitions list from the Department of Commerce to the State Department in the wake of the Loral/China satellite scandal. One of the more absurd legal consequences of the new rules is that Virgin Galactic, Richard Branson’s space tourism venture, had to consider non-U.S. nationals who flew to the edge of space from the American west as exports requiring a license from the State Department for each and every foreign passenger (presumably including Sir Richard himself, who is a British).
But recently, in a rare fit of regulatory sanity, Virgin Galactic’s U.S. flight operations were removed from ITAR control:
New Mexico-based Virgin Galactic, which now expects to fly its first paying customers in 2013, was told by the U.S. government that the company may fly non-U.S. citizens to the edge of space without first obtaining an export license from the State Department.
Virgin Galactic asked “that their operations be removed from the scope of the International Traffic in Arms Regulations (ITAR),” Mark Sundahl, an associate professor of law at Cleveland State University in Ohio, told Space News in an April 10 phone interview. Early this year, the State Department announced “a favorable EAR99 ruling, which means that [Virgin Galactic’s] operations will not be ITAR-controlled.”
Virgin’s flight hardware, Sundahl added, would remain under export control. However, he said the determination was, on the whole, “good news for Virgin Galactic and the entire space tourism industry.”
Presumably, the ruling will also apply to XCOR Aerospace, Armadillo Aerospace and Jeff Bezos’s Blue Origin, other companies that plan to fly passengers and researchers into suborbit, as well as SpaceX, Boeing and Sierra Nevada Corporation, which hope to deliver passengers all the way to orbit within a few years. It’s not complete relief, however:
The licensing exemption Virgin received in January from the U.S. government would not make international operations dramatically easier, according to Sundahl. He said that as long as Virgin’s hardware is made in the United States — and the company has not announced plans to manufacture elsewhere — the U.S. government will have regulatory authority over anything Virgin sends overseas to support tourist sorties to the edge of space.
This is the reason why XCOR’s recent deal with Space Experience Curaçao is based on the concept of a “wet lease.” That is, the Dutch investors won’t operate the vehicle on the island, but instead pay (American) XCOR personnel to do so. Undoubtedly they’d prefer to simply purchase the rocket planes and operate them on their own, but due to the nature of ITAR, it is simply too cumbersome legally for XCOR to apply and get approval for the export license to allow this, which may put a continuing damper on the international market for their products.
On Monday, CEI published an Issue Analysis on a possible new approach to establishing private real estate off planet under the existing international treaties, and yesterday, we held a press briefing on the Hill. There has been no reaction to the latter yet (some photos of the event can be found here), but there has been some coverage of the issue itself, some better than others.
On Tuesday, the Daily Caller had a story on it. It also included some always-useful commentary on the ongoing bipartisan porkfest that the NASA budget has become. Over at the Space Politics site, there is a lot of discussion of it, as is the case at NASASpaceFlight.com and my own blog. In all three cases much of the discussion is by people who have clearly not read the proposal, but for some reason don’t let that slow them down from weighing in with their opinions on it. What has Al Gore’s Internet come to (yes, that was sarcasm)?
Yesterday, there was a reasonable story on it at Wired (for which I and space-lawyer Michael Listner were interviewed. But the most amusing story so far has been the one based on the Wired piece, telephone-game style, with the hilariously (in the inimical style of the publication) hyperbolic headline at the Daily Mail: “Billionaires should be allowed to BUY up planets and rip up an out-of-date space treaty, claims expert.”
Well, that’s not exactly what I claimed.
RSS Updates 
RSS E-Mail Updates 
Twitter 
Facebook 
CEI.org 
WorkPlaceChoice.org 
GlobalWarming.org 
CEI On Demand Video 
Liberty Week Podcast 