economic growth

A Tsunami is Not a Stimulus

by Ryan Young on March 11, 2011

in Economy, International, Stimulus to Nowhere

Tragedy struck Japan this morning. It will be some time before we know just how many lives the tsunami took, and how much damage was done. But pundits are already saying dumb things.

Larry Summers, who should know better, committed the economists’ cardinal sin this morning: he fell for the broken window fallacy. The sunny side of the destruction is that it will boost the economy. Just think of all the jobs that will be created by the rebuilding process!

Over at the Daily Caller, I gently correct Summers. Natural disasters are bad for the economy. All the rebuilding activity in the next few years will only get Japan back to where it was. If the tsunami had never happened, all that energy could be put to creating new wealth. Disasters are just that: disasters.

The Nobel Case for Immigration

by Ryan Young on October 26, 2010

in Deregulate to Stimulate, Economy, International, Labor

Over at The American Spectator, my colleague Alex Nowrasteh and I make the case for expanding skilled immigration. Our main points:

  • 1 in 8 Americans are foreign-born, but 1 in 4 American Nobel laureates since 1901 are foreign-born. Immigrants, it seems, are chronic overachievers. America would benefit by letting more in.
  • The H-1B visa for skilled immigrants is capped at 85,000. In non-recession years, those 85,000 spots are typically filled in a single day.
  • Genius-level intellects are missing out on the chance to flower at the world’s best universities. They’re also missing out on one of the world’s best entrepreneurial environments. And Americans are missing out on cutting-edge jobs in high-tech fields. Consumers lose out on products that are never invented.
  • The number of Nobel-caliber intellects who have lost their opportunity to do research in this country is unknown. What is known is that the U.S. government has kept out millions of the most inventive, brilliant, and entrepreneurial people in the world for no good reason.

Read the whole piece here.

Exploiting the Poor: International Trade

by Alex Schibuola on October 20, 2010 · 3 comments

in International, Labor, Trade

On last week’s Stossel (no video available yet), was mentioned that rich countries gain their wealth through the exploitation of poor countries. Professor Marc Hill of Columbia University opined that businesses operating in poor countries ought to pay workers an extra dollar per hour for their services. It’s a very nice thought at first; however, there’s no such thing as a free lunch (as I’ve mentioned — but it’s one of those things one can never say enough).

While companies could pay an extra dollar per hour of work, this increases the costs of producing their output. Let’s say that it’s shoes. Higher wages increase the costs of production and lead to a reduced supply of shoes. A lower supply of shoes entails a higher price for shoes and a lower quantity of shoes demanded (because people can’t afford the same amount at the higher prices). The reduced supply of shoes also means something more subtle: you need fewer workers to produce a reduced supply. While the workers who keep their jobs do benefit, what about the workers who lose their jobs?

This is one aspect of “fair trade” advocates that I find abhorrent. After imposing fairness, they completely ignore the unintended consequences of their “fairness.” They forget about the workers who lost their jobs as a result of “fairness.” In instances where attempts at free trade were subverted under the guise of waiting for fair trade, they forget about the workers who never even got the chance to take jobs.

Fair traders, by virtue of their actions, say, “Yes, so they’re starving and impoverished, and have lower economic growth, but at least they don’t have to work in sweatshops earning unfair wages. Besides it’s not a consequence of my fairness, it’s because of greedy capitalists. Now, I can sleep better at night, knowing that I created some positive benefits.” Even though the costs were far greater.

This same logic applies to the minimum wage as well.

The Rahn Curve

by Ryan Young on July 1, 2010

in Economy, Personal Liberty, Regulation

A little government can do a lot of good. A lot of government can do little good.

Rules protecting life, liberty, and property can create the stable conditions that entrepreneurs need to flourish. It works best when these rules are simple, clear, and few. But problems emerge when government takes on other missions.

Rules that are complicated, opaque, and numerous create instability. Entrepreneurs are less likely to invest or innovate if they fear the rules of the game might change tomorrow on a whim. Complying with regulations takes up time and effort that could be spent creating wealth. When governments get involved in business, businesses will involve themselves with government. This is an invitation to corruption, rent-seeking, and regulatory capture. Many backs get scratched, but economic growth suffers.

Dan Mitchell‘s latest video introduces the Rahn Curve, named after top-notch economist Richard Rahn, to illustrate that concept visually. Most academic studies on the subject estimate that governments that take up 15 to 25 percent of GDP is about the right size. The U.S. government consumes roughly 40 percent of GDP. That wide range is because different government policies have different effects, and because the complexity of even the smallest economies makes any macro-level study uncertain.

The academics might be guessing too high, though. Historical data from the 19th century show that the best-performing economies had governments around 10 percent of GDP. That includes the U.S. and most of Europe.

Returning to that size government wouldn’t even be particularly austere. the U.S. government would have a $1.4 trillion budget. Roughly what we had during the Clinton years.

I hope you’ll take a few minutes to watch. The Rahn curve contains valuable insights.

Nobel Prize Winning Economist Says Obama Policies Delaying Economic Recovery

by Hans Bader on January 8, 2010 · 3 comments

in Deregulate to Stimulate, Economy, Employment, Energy, Environment, Global Warming, Health and Illness, Healthcare, Insurance, International, Labor, Politics as Usual, Precaution & Risk, Regulation, Sanctimony, Stimulus to Nowhere, Trade

In the Wall Street Journal, Nobel Prize-winning economist Gary Becker and others explain how President Obama’s policies are delaying and retarding the inevitable economic recovery, keeping unemployment high even though the recession Obama inherited was similar to others in the past that gave way to rapid recoveries:

In terms of U.S. output contractions, the so-called Great Recession was not much more severe than the recessions in 1973-75 and 1981-82. Yet recovery from the latest recession has started out much more slowly. For example, real GDP expanded by 7.7% in 1983 after unemployment peaked at 10.8% in December 1982, whereas GDP grew at an unimpressive annual rate of 2.2% in the third quarter of 2009. Although the fourth quarter is likely to show better numbers–probably much better–there are no signs of an explosive take off from the recession. …

In terms of discouraging a rapid recovery, other government proposals created greater uncertainty and risk for businesses and investors. These include plans to increase greatly marginal tax rates for higher incomes. In addition, discussions at the Copenhagen conference and by the president to impose high taxes on carbon dioxide emissions must surely discourage investments in refineries, power plants, factories and other businesses that are big emitters of greenhouse gases.

Congressional ‘reforms’ of the American health delivery system have gone through dozens of versions. The separate bills passed by the House and Senate worry small businesses, in particular. They fear their labor costs will increase because of mandates to spend much more on health insurance for their employees. The resulting reluctance of small businesses to invest, expand and hire harms households as well, because it slows the creation of new jobs and the growth of labor incomes. …

Even though some of the proposed antibusiness policies might never be implemented, they generate considerable uncertainty for businesses and households. Faced with a highly uncertain policy environment, the prudent course is to set aside or delay costly commitments that are hard to reverse. The result is reluctance by banks to increase lending–despite their huge excess reserves–reluctance by businesses to undertake new capital expenditures or expand work forces, and decisions by households to postpone major purchases.

Several pieces of evidence point to extreme caution by businesses and households. A regular survey by the National Federation of Independent Businesses (NFIB) shows that recent capital expenditures and near-term plans for new capital investments remain stuck at 35-year lows. The same survey reveals that only 7% of small businesses see the next few months as a good time to expand. Only 8% of small businesses report job openings, as compared to 14%-24% in 2008, depending on month, and 19%-26% in 2007.

Obama’s $800 billion stimulus package, which failed to cut unemployment, is now pressuring states to raise taxes, thanks to costly requirements it imposed on states at the behest of powerful public-employee unions.

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 Obama Administration claims credit for creating imaginary jobs in non-existent Congressional districts.

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).

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.

Defending free trade: the pending FTAs

by Fran Smith on October 15, 2009

in Economy, Employment, International, Trade

The pending U.S. Free Trade Agreements with South Korea, Panama, and Colombia are languishing in limbo, despite the fact that all three agreements will improve the flow of goods and services, foster economic growth and create jobs, and enhance the close relationships between the U.S. and those countries.   That was the theme of the panel of speakers at The Heritage Foundation’s seminar today, “Getting America’s trade agenda back on track.”

The panel featured H.E. Han Duk-soo, Ambassador of the Republic of Korea; Francisco Álvarez de Soto, Vice Minister for International Trade Negotiations, Republic of Panama; and Ricardo Triana, Director, Colombian Government Trade Bureau.  The speakers pointed principally to the FTAs’ benefits to the U.S., not only in economic terms but in its national interests.  Ambassador Terry Miller, the moderator, noted that the three countries are entering into trade agreements with other major trading partners, while the U.S. holds up action on their trade pacts. That disadvantages the U.S., which can’t yet take advantage of significantly lower tariffs on exports of numerous goods and services that the FTAs include.

Representative Bob Goodlatte (R-VA) rounded out the presentations by emphasizing the benefits of free trade, especially in the current downturn, when increased trade can lead to more vibrant economic growth and job creation.  In his closing remarks, Goodlatte hit the cap-and-trade bills currently being considered for the job losses they will create.  He also noted that the proposed sanctions on imports from countries that don’t enact a CO2 repression regime would be a huge mistake and a blow to the world trading system.

LibertyWeek 63: Suing the Government into Honesty

by Richard Morrison on October 5, 2009

in CEI Projects, Features, Podcast, Zeitgeist

Your host Richard Morrison welcomes guest co-host Jeremy Lott and Editorial Director Ivan Osorio for Episode 63 of the LibertyWeek podcast. We start with CEI’s FOIA fight with the U.S. Treasury, 7-Eleven’s attempt to give consumers a big gulp of government and the solution to a jobless recovery. We then move on to union pension politics, Ireland’s regrettable embrace of EU hegemony and some scantily-clad Olympic News.

Tories Retreat From Green Taxes

by Iain Murray on November 14, 2008 · 2 comments

in Economy, Energy, Environment, Global Warming, International, Sanctimony

A major part in the rebranding of the British Conservative Party following a traumatic election defeat (sound familiar?) in 2005 was a turn to environmentalism. Part of this was a plan to introduce “green taxes,” theoretically shifting the focus of taxation from labor (taxing a ‘good’) to carbon production (taxing a ‘bad.’) This morning, however, The Guardian confirms what many have been saying for some time; the Tories have decided

To downgrade green taxes in response to growing unease that these could be punitive in a recession.

Now how would green taxes be punitive when they are taxing bads rather than goods? Simple. Given the current strong correlation between the use of affordable energy and economic growth, taxing carbon use upstream (ie at source of carbon production) is a direct attack on desperately needed wealth-creation. Tax it downstream (ie apply the tax when consumers buy the goods associated with carbon production) and you are increasing household bills in a recession in a regressive fashion. Oh, and if Gordon Brown is advocating a Keynesian tax cut as response to the recession, it looks bad politically too.

Green taxes may have made sense if you thought that wealth could be created out of thin air by, oh for example, ever-rising house prices. In a less fantastic world, they are a luxury we literally cannot afford.