Category Archives: Economics

John Oliver Takes on Mandatory Minimum Sentences

For those of you who don’t have HBO and are unfamiliar with Last Week Tonight With John Oliver (very much in the same vein as The Daily Show only uncensored) the segment below is a must watch. While John Oliver is certainly of the Left, he definitely has a libertarian streak on social and criminal justice issues. In this segment, Oliver takes on the travesty known as mandatory minimum sentences (i.e. zero tolerance policies with even more severe consequences).

Jeb Bush, Greece Crisis, and How to Help the Workers

Jeb Bush Hillary Clinton barb

That week where you’ve obliterated all previous fundraising records and amassed a campaign war chest of $114 million, but get yourself into trouble for saying other people need to work harder.

Oh you don’t have weeks like that?

Jeb Bush did.

…[W]e have to be a lot more productive. Workforce participation has to rise from its all-time modern lows. It means that people need to work longer hours and through their productivity gain more income for their families. That’s the only way we are going to get out of this rut that we’re in.

Hillary Clinton Jeb Bush barb

Bush has clarified he did not mean full time workers needed to put in more hours, but that people looking for more work need to be able to find it. That has not stopped the campaign of newly revealed political mastermind Hillary Clinton from sending some well-aimed Twitter barbs Bush’s direction.

I have an idea.

Let’s ask Greece.

Greece is currently in the end stages of a long social experiment in massive, unprofitable jobs programs, political graft, and crony capitalism. In addition to soul-sucking tax rates, Greece also ran up colossal debt during the loose lending years of the pre-2008 boom.

Podesta Bush barbNow Greece’s foreign debt is 177% of its GDP. Its unfunded liabilities are 875%. Its unemployment rate is more than 25%, and its labor participation rate 53%.

Despite taking in 50% of GDP in taxes, its government does not earn enough to fund its basic functions. And because Greece is incapable of paying its debts, no one is particularly interested in lending it any more money.

Its national railroad loses $4 million a day. Its citizens receive free university educations, but there are no jobs waiting for those who graduate. As a result, many of its best and brightest have already fled the country.

Its banks have been closed for two weeks and no one can take more than €60 per day out of the ATMs (which due to a shortage of €20 bills results in an effective limit of €50).

Hey, I have an idea, John Podesta. Let’s just pay them more!

Greeks agree! They rejected by a decisive margin a proposal for paying back all that debt that allowed their free university education, their jobs-program national railroad, their jobs-program schools and their generous early-retirement pension programs.

Tellingly, Greek’s hard left Prime Minister Alexis Tsipras almost immediately turned around and offered the same concessions anyway.

“The ‘No’ in the referendum appears to be turning into a ‘Yes’ from Tsipras,” Commerzbank analyst Markus Koch said.

Even Tsipras has seen the writing on the wall, glimpsed the final stages of a national government that has run out of other people’s money.

What does a government do when it doesn’t “earn” enough (in taxes) to fund its basic functions, much less make payments against its overwhelming debt, and cannot find new lenders to keep that financial house of cards standing?

Not work more hours! That would be mean.

Jeb Bush mean.

Well, Greece could just default. Of course, it won’t get any more loans after that, so it would have to live within its means: only spend what its citizens can afford to pay in taxes.

That’s mean too!

They could go off the Euro and print as much as their own currency as they want. At least one economist has argued that periphery Euro-nations like Greece have been harmed by the monetary policies of the European Central Bank, and that non-Eurozone nations able to set their own monetary policies fared better during the financial crises that began in 2008.

Moving to the drachma, however, is not without its difficulties. The drachma will fall in value against the euro. The more drachmas “printed” to service the debt, the more its will fall. Greece will still face the problem of wary lenders and having to live within its means.

Printing currency to service debt or grow an economy has limitations.

Perhaps Greeks could raise taxes. On the rich, natch.

But Greeks already face punishing tax rates. In addition to paying 22-45% in income taxes and another 44% in payroll taxes, they also pay a 23% VAT.

Why even look for a job?

It turns out Bush v.3.0 might be onto something.

His focus on “hours” was regrettable only because over the long run, advances in technology, innovation and specialization should theoretically allow increases in labor outputs without corresponding increases in hours worked. But he was right that the only way to increase the wealth of a nation is to increase the outputs of labor.

Simply infusing money into a system is not sufficient.

Don’t believe it? Imagine sitting on a virgin planet with all of Earth’s gold in the cargo hold of your space ship. Or being castaway on an uninhabited island with a duffle bag full of bank notes.

Are you rich?

It is not currency that makes people wealthy, but the outputs of labor that can be purchased with that currency. Increasing the available currency relative to the outputs of labor only precipitates a rise in prices (while real wages lag).

So what would it look like for the Greeks to be more productive? Half-clad single mothers chained in mines as sweat drips down their faces and IMF overlords crack whips over their heads? Children toiling in sweat shops as flies buzz around their demoralized brows?

No.

It means getting rid of the entrenched bureaucracy, bloated government, and corrupt police and political regimes that keep investors from making investments that result in jobs that allow people to work more hours. It means lowering the effective 90% tax rate individuals pay so that working those hours is remunerative. It means fewer cartels and licensing requirements that keep would-be entrepreneur sidelined leaving no jobs for all those free university graduates. It means getting rid of the minimum wage and price controls that prevent the economy from responding to supply and demand.

I’m not sure the Greeks have the political will for any of the foregoing, or whether the ECB/IMF negotiators have the imagination to focus on the necessary fundamental reforms to the Greek economy. Without them though, there is no way out of the morass. More loans in the lean years cannot help a country that overspends in the fat years.

Interestingly, even as the Eurozone debates Greece’s future, here across the pond, the national campaign spokesperson for Ted Cruz also took a swipe at Jeb Bush:

“It would seem to me that Gov[ernor] Bush would want to avoid the kind of comments that led voters to believe that Governor Romney was out of touch with the economic struggles many Americans are facing. The problem is not that Americans aren’t working hard enough. It is that the Washington cartel of career politicians, special interests and lobbyists have rigged the game against them.”

Paging the Syriza party, paging party of Syriza.

The Greeks don’t need higher taxes, more austerity or more bailouts. What they need is a functioning economy.

Sarah Baker is a libertarian, attorney and writer. She lives in Montana with her daughter and a house full of pets.

Donald Trump: Corporatist Bully (Re-post)

I originally wrote the following post in the very early days of the 2012 presidential campaign. At the time, Donald Trump was threatening to enter the race but decided not to do so. A little over four years later, Trump has decided to run in an already very crowded 2016 Republican primary. I have friends and family members who are intrigued (who ought to know better) with the Donald. The reason I decided to re-publish this post is to remind readers why a President Donald Trump would be no friend of limited government or liberty.

I do not like Donald Trump. I don’t dislike him because of his wealth; he probably earned most of his wealth honestly. Some dislike Trump because he is a self promoter. I don’t dislike Trump for this reason either. Many successful individuals are great at self promotion and developing a successful brand (a very good attribute to have to have a successful political campaign).

No, the reason I really dislike Donald Trump – even putting aside his becoming the new face of the Birther movement in recent weeks, his support of the auto bailouts, raising taxes, his anti-free trade proposal that would place a 25% tariff on all Chinese products, and his support for single payer universal healthcare – is quite simply that he is a corporatist bully.

For those who don’t quite understand the difference between a capitalist and a corporatist, I highly encourage you to read Brad’s post “Mercantilism, Fascism, Corporatism — And Capitalism.” This distinction is an important one. Donald Trump is the poster child for what many on the Left as a greedy capitalist; a caricature of everything that is wrong with capitalism as preached by the Ralph Naders and Michael Moores of the world.

But those of us who know better know that Donald Trump isn’t a capitalist at all but a corporatist. Trump doesn’t try to work within a framework of a free market as a true capitalist would, but like far too many businessmen, he uses his wealth and influence to encourage the government to work on his behalf to his advantage (and at the expense of anyone else who would dare get in his way).

In the early 1990’s, an elderly widow by the name of Vera Coking was in the way. Coking’s home that she had lived in for 30 years was on a plot of land that the Donald coveted. The Donald wanted the property so he could add a limousine parking area to one of his Atlantic City casinos. When Coking turned down his $1 million offer to buy the property, the Donald decided to enlist the help of his goons on the New Jersey Casino Reinvestment Authority. In 1994, these government thugs filed a lawsuit to take Coking’s property for $251,000 and gave her 90 days to leave her property (if she were to stay beyond the 90 days, men in uniforms with guns would forcibly remove her from her home).

Fortunately, Coking’s case gained enough media publicity to gain the attention and help of The Institute for Justice (think a more libertarian ACLU with a focus on property rights). With the IJ’s help, Coking was able to keep her property. In 1998, a judge made a decision that turned out to be final finding that the Donald’s limousine parking area was not a “public use.”

John Stossel confronted the Donald about his failed attempts to take the widow’s home away; he reprinted this exchange in his book Give Me A Break on pages 152 and 153:

Donald Trump: Do you want to live in a city where you can’t build roads or highways or have access to hospitals? Condemnation is a necessary evil.

John Stossel: But we’re not talking about a hospital. This is a building a rich guy finds ugly.

Donald Trump: You’re talking about at the tip of this city, lies a little group of terrible, terrible tenements – just terrible stuff, tenement housing.

John Stossel: So what!

Donald Trump: So what?…Atlantic City does a lot less business, and senior citizens get a lot less money and a lot less taxes and a lot less this and that.

Earlier in the book (page 25) Stossel gives his impressions of this confrontational interview:

Donald Trump was offended when I called him a bully for trying to force an old lady out of her house to make more room for his Atlantic City casino. After the interview, the producer stayed behind to pack up our equipment. Trump came back into the room, puffed himself up, and started blustering, “Nobody talks to me that way!”

Well, someone should.

Had this case taken place after Kelo, the Donald may well have prevailed. In the wake of the Kelo decision, Neil Cavuto interviewed the Donald on Fox News (7/19/05) to get his reaction.

Trump:

I happen to agree with [the Kelo decision] 100 percent, not that I would want to use it. But the fact is, if you have a person living in an area that’s not even necessarily a good area, and government, whether it’s local or whatever, government wants to build a tremendous economic development, where a lot of people are going to be put to work and make area that’s not good into a good area, and move the person that’s living there into a better place — now, I know it might not be their choice — but move the person to a better place and yet create thousands upon thousands of jobs and beautification and lots of other things, I think it happens to be good.

Donald Trump is not one who respects property rights (other than his own). “Tremendous economic development” and “jobs” are great reasons to employ the full police power of government to take away someone’s property in the Donald’s world view.

I shudder to think of what a Donald Trump presidency would look like. Imagine the Donald with control of our CIA and our military. The Donald doesn’t have any problem using force to get what the Donald wants.

Now consider President Trump with a vacancy on the U.S. Supreme Court. What sort of Justice would he appoint? Most likely one who would view Kelo quite favorably.

This bully, Donald Trump is the guy who is polling second place in some early Republican primary polls? Wake the hell up Republicans!

Quote of the Day: Jason Pye on the Smarter Sentencing Act

pye

Jason Pye, former contributor to The Liberty Papers and current Director of Justice Reform at FreedomWorks posted an article yesterday for Rare Liberty about some promising political developments in the area of criminal justice reform. Perhaps one of the most promising of these developments at the federal level is a bill being considered is S.502 – The Smarter Sentencing Act.

Jason explains why he believes this reform is a step in the right direction:

With federal prison spending booming, an unlikely bipartisan alliance has emerged to bring many of these successful state-level reforms to the federal justice system. Sens. Mike Lee (R-Utah), Ted Cruz (R-Texas), and Rand Paul (R-Ky.) have joined with Dick Durbin (D-Ill.), Cory Booker (D-N.J.), and Sheldon Whitehouse (D-R.I.) to reform federal mandatory minimums – a one-size-fits-all, congressionally mandated approach to sentencing.

[…]

The Smarter Sentencing Act would expand the federal “safety valve” – an exception to federal mandatory minimum sentences for low-level nonviolent offenders with little or no criminal history – and cuts in half mandatory minimum sentences for nonviolent offenders. This more rational approach to sentencing will reduce costs on already overburdened taxpayers. The nonpartisan Congressional Budget Office estimated a net $3 billion cost-savings over a decade. The Justice Department believes the bill will save an eye-popping $24 billion over 20 years.

The benefits of the Smarter Sentencing Act may not end with the fiscal savings. It could also reverse the damage done by federal mandatory minimum sentences in certain communities, which, as Lee recently explained, “have paid a high cost for the stiff sentences that mandatory minimums require.”

Today’s Nasdaq Illustrates the Phenomenon of Creative Destruction

Those of you who are old enough to remember the dot com bubble bursting some 15 years ago might also remember the handwringing about how Microsoft was becoming a monopoly. Microsoft was the juggernaut that could only be taken down with antitrust suits by the federal government. Other companies simply could not compete with such a well-established corporation; the free market was inadequate.

Fast forward to where Microsoft stands today. The once seemingly invincible company has succumbed to the realities of competition and now finds itself in third place on the Nasdaq index.

James B. Stewart writing for The New York Times explains:

The Nasdaq composite that peaked at 5,048.62 on March 10, 2000, in what turned out to be the height of the technology bubble, bears little resemblance to today’s Nasdaq index. Of the top 20 Nasdaq companies by market capitalization in 2000, only four — Microsoft, Cisco Systems, Intel and Qualcomm — remain in the top 20 today. Eight no longer exist as independent companies, most as a result of bankruptcy or acquisition, and several are shadows of their former selves. The current Nasdaq composite index has only about half as many companies as it did in 2000.

“Joseph Schumpeter was spot on when he said capitalism is all about creative destruction,” said Richard Sylla, an economics professor at New York University’s Stern School of Business and a specialist in the history of markets, referring to the Austrian-American economist who described the phenomenon in 1942 in “Capitalism, Socialism and Democracy.”

In the intervening 15 years, a new generation of entrepreneurs, newly public companies and entire industries have emerged and seized the dominant positions in the Nasdaq index even as their predecessors faltered. Apple, now the world’s largest company by market capitalization, barely registered in 2000, and the first iPhone was not announced until 2007. Over a billion smartphones were shipped in 2014.

The chart below which accompanies the article illustrates this creative destruction of the past decade and a half quite clearly.
Capture

What this tells me is that no matter how large these corporations get, they cannot rest on their laurels. They cannot assume that just because consumers like their product(s) more than the competition today that the same will be true tomorrow. How many people use Myspace today as opposed to Facebook?

It’s the creative destruction of the free market – not additional regulations which ultimately allow consumers to have more choices.

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