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Archive for June, 2010

That’s the title of Richard Rahn’s new column in the Washington Times, which discusses the delusional Keynesian policy being advocated – in America and around the world – by the current administration. As Richard explains, the evidence is overwhelming that government spending does not promote prosperity.

In the face of the unprecedented congressional spending binge, President Obama has been asking Congress to spend even more. Not content with actively promoting the eventual bankruptcy of the United States, Mr. Obama is urging foreign leaders also to increase their government spending – which is truly bizarre. Look at the facts. All of the major European countries have been increasing government spending and deficits at unsustainable rates. The talk for the past couple of months has been about which countries would follow Greece in going over the financial cliff. Responsible economists, financial leaders and, most important, the markets have been telling European leaders they must cut government spending.

…The president still seems to believe in the imaginary world of spending multipliers – whereby each dollar of additional spending results in something in the order of $1.40 in additional output. Proponents of such ideas normally refer to themselves as Keynesians (followers of the ideas of John Maynard Keynes, 1883-1946).

…The Keynesians and socialists have run hundreds of experiments around the world for the past 70 years, inducing governments to try to spend themselves into prosperity. It doesn’t work. In the 1970s, Keynesian prescriptions led to “stagflation” in the U.S. and many other countries. It was only when Ronald Reagan, Margaret Thatcher and eventually many other leaders (using the ideas of F.A. Hayek and Milton Friedman) reversed course by cutting tax rates and curtailing spending growth that their economies began to grow rapidly without inflation.

Mr. Obama seems to have never learned these lessons, and some of his advisers, who once understood what works and what doesn’t, seem to have forgotten. By nature, people like to spend other people’s money, and too many in Congress loved what was billed as Keynesian economic theory because it gave them a rationale to be irresponsible spenders.

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I don’t know what will happen when the Senate Judiciary Committee grills Obama’s Supreme Court nominee, but I hope at least one member reads George Will’s column and uses some of his suggested questions. They are all worth reading, but here are my three favorites: 

The government having decided that Chrysler’s survival is an urgent national necessity, could it decide that “Cash for Clunkers” is too indirect a subsidy and instead mandate that people buy Chrysler products? …Can you name a human endeavor that Congress cannot regulate on the pretense that the endeavor affects interstate commerce? …Should proper respect for precedent prevent the court from reversing Kelo? If so, was the court wrong to undo the 1896 ruling in Plessy v. Ferguson that segregating the races with “separate but equal” facilities is constitutional?
http://www.washingtonpost.com/wp-dyn/content/article/2010/06/24/AR2010062403178.html 

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Europe’s economy is stagnant, the euro currency is in danger of collapse, and many nations are on the verge of bankruptcy. But one thing you can count on in this time of crisis is for prompt, thoughtful, and intelligent action by the super-bureaucrats of the European Commission. Right? Well, maybe not. You can be confident, however, that they will generate idiotic regulations that increase costs and trample national sovereignty. The latest example is some new red tape that will prohibit grocers from selling items based on numerical quantity. I’m not joking. Here’s a blurb from the UK-based Telegraph:

Under the draft legislation, to come into force as early as next year, the sale of groceries using the simple measurement of numbers will be replaced by an EU-wide system based on weight.

It would mean an end to packaging descriptions such as eggs by the dozen, four-packs of apples, six bread rolls or boxes of 12 fish fingers.

…The changes would cost the food and retail industries millions of pounds as items would have to be individually weighed to ensure the accuracy of the label.

Trade magazine, The Grocer, said food industry sources had described the move as “bonkers” and “absolute madness”. Its editor, Adam Leyland, said the EU had “created a multi-headed monster”.

Caroline Spelman said: “This goes against common sense. Shopkeeping is a long standing British tradition and we know what customers want. They want to buy eggs by the dozen and they should be allowed to – a point I shall be making clear to our partners in Europe.”

…Andrew Opie, food director of the British Retail Consortium, which represents 90 per cent of UK shops, said: “This is a bad proposal – we need to help consumers, not confuse them.”

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The lazy politician looks at deficits and screams, “soak the rich!”  But as CBO’s latest analysis of federal average tax rates shows, they are already paying a highly disproportionate share of taxes.

The graphs above show that the highest earners are already paying considerably more in taxes than their share of total income due primary to the individual income tax.  This is why the OECD said in 2008 that the U.S. “has the most progressive tax system.”  The U.S. beats out France, Sweden and all the other great welfare states for that title.

Politicians that want to further raise taxes have painted themselves into a bit of a corner by adopting such a hyper-progressive income tax structure.  Their own past rhetoric prevents broad based increases that might hit lower-income earners, and there just isn’t much room left to soak the rich without returning to the age of Jimmy Carter and stagnation.  This is why they’ve turned their attention toward a value-added tax, which is itself a terrible idea.

Politicians are just going to have to accept that they need a different approach to closing deficits, such as reducing the size of our bloated government, than further squeezing our biggest economic producers.

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In addition to noting that gun control tends to increase crime by reducing the cost of being a criminal (i.e., thugs are less likely to meet armed resistance), Tom Sowell also explains that people who don’t like the Constitution should amend the document rather than appointing ideologically-motivated Justices who ignore what it says. 

…there is no obvious reason why issues like gun control should be ideological issues in the first place. It is ultimately an empirical question whether allowing ordinary citizens to have firearms will increase or decrease the amount of violence. Many people who are opposed to gun laws which place severe restrictions on ordinary citizens owning firearms have based themselves on the Second Amendment to the Constitution. But, while the Supreme Court must make the Second Amendment the basis of its rulings on gun control laws, there is no reason why the Second Amendment should be the last word for the voting public. If the end of gun control leads to a bloodbath of runaway shootings, then the Second Amendment can be repealed, just as other Constitutional Amendments have been repealed. Laws exist for people, not people for laws. There is no point arguing, as many people do, that it is difficult to amend the Constitution. The fact that it doesn’t happen very often doesn’t mean that it is difficult. The people may not want it to happen, even if the intelligentsia are itching to change it. …As for the merits or demerits of gun control laws themselves, a vast amount of evidence, both from the United States and from other countries, shows that keeping guns out of the hands of law-abiding citizens does not keep guns out of the hands of criminals. It is not uncommon for a tightening of gun control laws to be followed by an increase– not a decrease– in gun crimes, including murder. Conversely, there have been places and times where an increase in gun ownership has been followed by a reduction in crimes in general and murder in particular. Unfortunately, the media intelligentsia tend to favor gun control laws, so a lot of hard facts about the futility, or the counterproductive consequences of such laws, never reach the public through the media. We hear a lot about countries with stronger gun control laws than the United States that have lower murder rates. But we very seldom hear about countries with stronger gun control laws than the United States that have higher murder rates, such as Russia and Brazil.
http://townhall.com/columnists/ThomasSowell/2010/06/29/gun_control_laws 

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President Bush was a big spender, but President Obama is taking profligacy to the next level. In his first year in office, Obama pushed through a pork-filled “stimulus” that was supposed to increase jobs and prosperity (at least according to the discredited Keynesian theory). Instead, the economy has been weak and unemployment increased. In his second year in office, Obama rammed through a giant new healthcare entitlement, in part based on the absurd claim that bigger government would reduce red ink (the Congressional Budget Office should be abolished for aiding and abetting that fraud). Now we just witnessed the amazing spectacle of Obama actually getting to the left of Europe’s socialist leaders and arguing with them at the G-20 summit that government spending should be even higher.

Unfortunately for taxpayers, government already is too big, and that is true on both sides of the Atlantic Ocean. This new Center for Freedom and Prosperity video explains that there is a spending version of the Laffer Curve, and that it shows that government is much larger than the “growth-maximizing” level. As shown in the mini-documentary, academic research reveals that government spending should consume only 20 percent of gross domestic product. Thanks to the Bush-Obama spending spree, however, total government spending in America now amounts to about 40 percent of economic output.

It is quite likely, by the way, that the real growth-maximizing level of government spending is much lower than 20 percent of GDP. As noted in the video, the academic research is constrained by a lack of data for nations with small government. Free-market jurisdictions such as Hong Kong and Singapore enjoy the fastest growth, and they both have public sectors that consume about 20 percent of economic output,  so it should come as no surprise that scholars conclude that growth is maximized when government is about that size.

But what if there were nations with smaller levels of government? Indeed, the video shows that most nations in North America and Western Europe did have very small governments in the 1800s and early 1900s – often amounting to less than 10 percent of GDP. Does anyone actually think that the United States would have grown faster 100 years ago if the burden of government spending was doubled?

We’ll never know the answer to that rhetorical question, but one thing we surely know is that government today if far too large. It doesn’t really matter whether the growth-maximizing level of government is 10 percent of GDP or 20 percent of GDP. We have a bloated public sector today that is consuming 40 percent of GDP and the long-run projections indicate that the problem will get much worse because of entitlements and demographic changes.

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John Lott is one of America’s leading scholars of gun rights and the 2nd Amendment. His Foxnews.com column explains today’s ruling in favor of the Constitution and explains how the 2008 Heller decision led to less murder in Washington, DC. 

With another closely decided 5 to 4 decision, the Supreme Court ruled today that state governments are not able to ban most Americans from owning most types of handguns. The court ruled that firearms are “essential for self-defense.” The court found that if the Second Amendment indeed protects an individual right to own a gun, the notion that the government can’t ban all handguns is the minimum protection the Constitution can offer. …When the “Heller” decision was handed down in 2008 striking down Washington, D.C.’s handgun ban and gunlock regulations, Chicago’s Mayor Richard Daley predicted disaster. He said that overturning the gun ban was “a very frightening decision” and predicted more deaths along with Wild West-style shootouts and that people “are going to take a gun and they are going to end their lives in a family dispute.” Washington’s Mayor Adrian Fenty similarly warned: “More handguns in the District of Columbia will only lead to more handgun violence.” Yet, Armageddon never arrived. Washington’s murder rate has plummeted — falling by 25 percent in 2009 alone. This compares with a national drop of only 7 percent last year. And D.C.’s drop has continued this year. Comparing Washington’s crime rates from January 1 to June 17 of this year to the same period in 2008, shows a 34 percent drop in murder. This drop puts D.C.’s murder rate back to where it was before the 1977 handgun ban. Indeed, the murder rate is as low as was before 1967. Other gun crimes have also fallen in Washington. While robberies without guns fell by 7 percent, robberies with gun fell by over 14 percent. Assaults with weapons other than guns fell by 7, but assaults using guns fell by over 20 percent. …Neither the latest justice, Sonia Sotomayor nor the next potential justice, Elena Kagan are sympathetic to an individual’s right to self-defense.
http://www.foxnews.com/opinion/2010/06/28/john-lott-supreme-court-guns-ban-washington-chicago-daley-kagan-sotomayor/

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