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Richard Rahn

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IRONY – FORMER COMMUNIST COUNTRIES LEAD US IN ECONOMIC FREEDOM

economicfreedom-growth-chart-101717Once again, there is more evidence that economic freedom leads to success. Many of the former communist countries of Central and Eastern Europe and the Soviet Union have made enormous economic progress from the time they became free almost three decades ago.

The first few years after the collapse of communism (1989-92) were very difficult as the countries struggled to make the transition to a capitalist free-market economy, which many had largely achieved by 1995.

The irony is there are some lessons for the United States from some of the successes of the former communist countries.  Here they are.

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WHY ARE TRUMP’S TAX REFORM CRITICS STUCK ON STUPID?

tax-cutsWhat do you call someone who keeps making the same mistake over and over and fails to learn from others who have made a similar mistake?

If one doesn’t know history and basic math, and the fact that people adjust their behavior on the basis of incentives, then one should not prove ignorance by commenting on the likely effects of tax changes.

Much of commentary on the President’s proposed tax cut legislation leads one to think that 1980s never happened, and the basic laws of economics have been repealed. It should be easy to understand that a percentage change in a tax rate and a percentage change in tax revenue are not the same thing.

Many in the media appear to be know-nothings either because they are or they have a political agenda.  Here’s why they – and the Congressional Budget Office – are stuck on stupid.

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RESCUING PUERTO RICO

rescuing-puerto-ricoThe disastrous hurricanes that struck Puerto Rico might provide the excuse for the necessary, fundamental reform on the island.

Puerto Rico has spent most of the past 12 years in recession, leading to its current bankruptcy. The bankruptcy was caused by gross fiscal mismanagement over the last few decades.

Only during the term of Gov. Luis Fortuno (2009-13) was any serious attempt to right the ship, but Mr. Fortuno was ultimately defeated by the government unions.

Puerto Rico now has a federally appointed oversight board to try to sort out the mess. The task was difficult before the latest hurricane, but now it will require even more radical measures.  Here’s what’s needed to rescue Puerto Rico.

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BERNIE SANDERS HATES FREEDOM AND LOVES TYRANNY

Ideological Twins

Ideological Twins

It is a fair bet that Sen. Bernie Sanders (and most of his followers), unlike tens of millions of othes, never read George Orwell’s “Animal Farm” or Friedrich von Hayek’s “The Road to Serfdom.”

Why do so many embrace a system — socialism — that has always failed, whether it was a form of state socialism or the various utopian communities started in the United States and Europe over the last couple of hundred years?

We praise the benign socialism that is practiced within the family, churches, some social or civic groups where the members look out for each other in case of need. It works as long as it is voluntary and members are free to leave.

In contrast, government socialism is coercive and denies the fundamental right to opt out, no matter how repressive or incompetent it becomes.  This is what Bernie Sanders wants.  Let’s review the steps by which he and his ilk are taking to achieve it.

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PRUDENCE AND HURRICANES

chart-of-death-from-major-hurricanesHurricanes Harvey and Irma were as powerful as the big South Florida hurricanes of 1926, 1928, and 1935, but the death toll was very small compared to the earlier hurricanes in the area, even though the population is now more than 10 times the size.

The Great Galveston hurricane of 1900 is estimated to have cost 6,000 to 12,000 lives. The hurricanes that have hit the U.S. in the last 50 years have resulted in relatively few lives lost, with the exception of Hurricane Katrina where an estimated 1,833 died.

The reason so few people die now is the better forecasting, the development of weather satellites, and much better infrastructure. The Katrina disaster was not the fault of the weather forecasters but the fault of state and local government leaders.

Since the end of the last ice age about 8,000 years ago, sea levels have been slowly rising at about 1/8 of an inch or 0.3 centimeters per year (i.e., a foot every 120 years). The rise in sea levels has been slow enough that it has been easy for mankind to adapt. Most buildings and infrastructure are rebuilt every 30 to 70 years, so building the new structures higher is done as a matter of course.

Despite the alarmism coming from some, there is no evidence that sea levels are rising faster than the historic rate – nor has the Arctic ice cap melted, nor has the Earth’s temperature risen at the rate forecasted by virtually all of the major climate models.

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THE PROBLEM OF PAUL RYAN

paul-ryanHave you ever known someone who was exceptionally smart, very personable and highly accomplished, but was not particularly good at managing a large number of independently minded people? I have. His name is Paul Ryan.

President Trump, who is not as nice as Mr. Ryan but a get-it-done fellow, made a deal with the Democrats, which would have never been necessary if Mr. Ryan and Mr. McConnell had done their jobs.

Students, members of the military, and workers in the private sector are usually penalized, or worse, for not meeting critical deadlines. Why should members of Congress and their leaders get a free pass?

Both Mr. Ryan and Mr. McConnell are too beholden to the traditional way of doing things, unlike their opponents.

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TRUMP WANTS TO SAVE AMERICAN BUSINESS – DOES CONGRESS?

tax-rate-per-country-chartHow much should corporations pay in taxes? The table shows average corporate tax rates by country. You will notice that the United States has by far the highest tax rate.

The U.S. corporate income tax rate is comprised of a federal rate of 35 percent and an average of 5 percent for the states, giving an average 40 percent rate.

The corporate tax has long been recognized by economists as one of the worst taxes. Despite all of the talk about “greedy corporations,” corporations are merely a way of doing business.

The corporation does not “pay” the tax, only individuals pay taxes — so the corporate tax is passed along to consumers in terms of higher prices, to the stockholders in terms of lower dividends and capital gains, and to the workers in terms of lower wages.

President Trump has presented several very sound principles for tax reform. Yet, without the details being presented, the tax reform effort is already being attacked by the Democrat leadership. Reasonable people can differ about how much to reduce the corporate tax rate, but to claim that any corporate tax rate cut is a giveaway to the rich is merely an appeal to ignorance.

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SLAVERY AND REAL HISTORY

Moslem slavery in Africa still exists today

Moslem slavery in Africa still exists today

It is a safe bet that everyone reading this column had an ancestor who was either a slave or slaveholder.

It is also no coincidence that the effort to abolish slavery on a sustained and global basis did not occur until after the advent of the industrial revolution.

Persistent slavery can be found in all cultures once people ceased being exclusively hunter-gatherers. Slavery was in fact “normal” until recent times. Sudan became the last country to legally abolish it in 2007 but, although illegal, it continues to be practiced in some countries.

[Note by JW: these countries are all Moslem because Allah officially approves of slavery in the Koran – see Allah and Slavery from February 2007.]

In most countries throughout history, the slaves were often of the same race as the slaveholder. In the antebellum South, most whites were not slaveholders, and some American blacks were. Well before the Revolution, there were some white slaves — mainly Irish — that the British had brought to America.

Slavery in other words, like most things in history, was a complex institution that differed from time to time and place to place, and to criticize and vilify our ancestors for not having today’s values is not particularly useful.

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HAS THE FED REACHED A DEAD END?

rising-productivity-falling-prices-chart

Is more inflation desirable? Those at the Federal Reserve seem to think so, and they have explicitly said their target is 2 percent, or about double the current level.

Why would they argue for a further erosion of the purchasing power of the dollar? It is on the misguided belief (i.e., the long-discredited Phillips Curve) that moderately higher levels of inflation lead to higher levels of employment.

The unemployment rate numbers indicate that the United States is now at what was traditionally considered full employment — yet the number of people working as a percentage of the work force is close to a three-decade low.

Employers have not had to raise most wages, particularly for the unskilled, because there is such a large pool of unemployed or underemployed people ready to enter the work force when they see the right opportunity.

What you see in the chart above is the dead end the Fed has reached.  Here’s why.

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SUING POLITICIANS FOR FRAUD

politicos-for-fraudIf a political candidate asks you for a donation with a promise that he or she will do some specific act if elected and then fails to do so, should you be able to sue for fraud?

That’s just what a Republican donor in Virginia has done, filing on August 3 a lawsuit in US District Court accusing the Republican Party of racketeering in raising millions of dollars based on the fraudulent promise of repealing Obamacare.

If a contractor offers to build a new deck on your home within a specific time period and then fails to do, so you can sue for nonperformance. Excuses that his competitors were not co-operating, or that all of his workers did not show up, or he wanted to take a vacation, would probably not persuade the judge.

It is well understood that many salespeople and political candidates engage in puffery about what their product does or what they are going to do. But when does puffery go so far as to become fraud?  Let’s see how.

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SOCIALISM IS ALWAYS COMPULSION

collectivismVenezuela is the latest global disaster caused by socialism.

Over the last couple of hundred years, virtually every variety of socialism has been tried — from communism to national socialism (Nazism) and fascism, to various varieties of “democratic socialism” — with one common characteristic — they all failed.

Despite the economic failures, loss of liberty and the tens of millions of deaths resulting from the socialist experiments, it has an enduring romantic attraction. Bernie Sanders and millions of his followers call themselves socialists, without embarrassment, claiming that next time they will get it right.

Many countries still have socialist parties. How can so many be so ignorant of the never-ending misery socialism has brought?

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THE INNOVATION KILLERS

bureaucracy-free-zoneWhich government agency has done the most to destroy innovation?

The American Founders tried to create an environment to foster innovation, because they understood new inventions would increase the well-being of the citizens. And that is the reason the Constitution enabled Congress to create patents of limited duration.

Most politicians say they favor innovation, but at the same time they create regulations, taxes and government agencies that hobble or prohibit that same innovation.

One of the most notorious innovation-killing agencies is the Securities and Exchange Commission (SEC), whose mission is to “protect investors, maintain fair, orderly, and efficient markets, and facilitate capital formation.”

In reality, it most often does precisely the opposite.  Here’s why.

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DRAIN THE SEWER OF PHONY CRONY CAPITALISM

freemarkets-not-cronycapitalismCalling someone a capitalist is a pejorative term in many media and left-leaning political circles. Malcolm Forbes saw it as a market opportunity — when a number of competing business magazines seemed to almost be embarrassed in having to defend capitalism — so Forbes magazine proudly refers to itself as a “capitalist tool.”

The opponents of capitalism have succeeded in clouding the minds of many, by failing to distinguish between real capitalism and crony capitalism.

Real capitalism exists with private ownership, rule of law, free markets, free trade, and limited government intervention in people’s economic lives.

Crony capitalism exists when politicians and government bureaucrats collude with business people to restrict competition and obtain monopoly advantages.  When President Trump and others talk about the “swamp” of Washington, much of what they are referring to is crony capitalism.

Yesterday (7/24), the President realized the swamp is a sewer:

trump-tweet-072317

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FREEDOM PRESUMES INNOCENCE, TYRANNY PRESUMES GUILT – WHICH IS AMERICA?

fear-the-govtDo you mainly fear government or feel protected by it?

The American Founders wrote a Constitution and designed a system of government that sharply limited the powers of the state — because they understood that the greatest danger to the liberty of the people was the necessary evil of government.

The U.S has succeeded because it was based on the rule of law, with strong protections for property rights, and a judicial system based on due process.

There has been a steady erosion of these basic principles and rights over the last 240 years, resulting in the undermining of economic freedom and the loss of much personal liberty.

Below are several examples.  It was President Trump in Warsaw last week, as noted in the Wall Street Journal, who provided the antidote.

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THE FAKE NEWS OF THE CONGRESSIONAL BUDGET OFFICE

congressional-budget-officeThe Congressional Budget Office (CBO) projected that 21 million people would be enrolled in the Obamacare insurance exchanges by 2016, back when the bill was voted on in 2010.

The actual number turned out to be about 10 million — the projection being off by more than 100 percent.

Did the CBO provide hugely incorrect forecasts because they were under political pressure by the Democrats to report fake news of how beneficial the program would be, or were they sloppy in their work product, or did they pretend to know more than they could have possibly known?

Despite many decades of major forecast errors, Congress continues to rely on CBO projections far more than is warranted. Most recently, the Republicans had been waiting in great anticipation of the CBO witch doctors’ “scoring” of their various repeal-and-replace Obamacare plans.  They are waiting for more CBO fake news.

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WHY DOES THE LEFT HATE LIBERTY AND STILL BELIEVE IN SLAVERY?

dems-failSen. Bernie Sanders keeps repeating that “all Americans have a right to health care” — nice applause line, but what does it mean? There is no such right mentioned in the Declaration of Independence or the Constitution. Health care is not a free good — someone has to pay for it.

Do you have the obligation to pay for someone else’s health care? If so, how much and why?

The 13th Amendment to the Constitution prohibits “involuntary servitude” and slavery. At what point does a tax on someone’s labor — where the proceeds of that tax are largely used to provide income or services to others — constitute “involuntary servitude”?

At various times, many countries, including the United States, have tried to place very high tax rates on the “rich” or others — and it always fails. The “rich” withdraw their taxable labor by taking more leisure time or move to the shadow economy, or to where they are more lightly taxed.

Those who think they have the right to the labor of those they revile, i.e., the “rich,” have the same mentality of the Southern slaveholder who also thought he had the right to others’ labor.

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GOP RECIPE FOR SURVIVAL – NO SUMMER VACATION AND IGNORE THE CBO

beach-off-limitsThe Republicans claim they are going to get tax reform done this year — but this is not going to happen unless they do two necessary things.

First is to extend their number of work days and forget Summer Vacation. Second is to ignore the Congressional Budget Office (CBO) revenue forecasts from the proposed tax changes.

Congress has scheduled a July 4 holiday and an August recess. Members’ spouses have already made plans for August — trips to faraway places or to see relatives — and promised fun events for the kids.

But most kids know there is no TV until the homework is done. First responders, like policemen and firemen, do what they need to do before going home. Businesses with deadlines don’t stop at 5 o’clock.

Speaker Paul Ryan and Senate Majority Leader Mitch McConnell are smart enough to know that without a tax cut this year, their control of Congress after next year’s election is only going to be a memory. Real leaders understand that making the troops unhappy in the short run is at times necessary to achieve victory in the long run.

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WHY SHOULD GOVERNMENTS HAVE A MONOPOLY ON MONEY?

money-monopolyIf mankind can figure out how to give everyone instant communication and all the world’s knowledge via the smartphone, why are we not smart enough to figure out equally convenient, quick, low-cost and secure ways of paying for goods and services to everyone on the planet?

Actually, we are.

The Monetary Authority of Singapore has just announced that by working with a number of banks and blockchain tech firms, they have just completed the first phase of “tokenizing” a Singaporean dollar through an Ethereum blockchain that is largely anonymous but can be used to transfer value instantaneously like paper currency (unlike checks, credit and debit cards, and standard electronic transfers).

Last week, the UN announced it was using the Ethereum Blockchain to send World Food Program aid to Syria.

The idea of money has been around for several thousand years, along with precious metal coins to serve as money. The question has remained as to whether governments, private parties or both should create money.   Why not both?  What gives governments the right to enforce its money monopoly at the point of police guns?

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FINANCIAL PRIVACY MUST BE PROTECTED, NOT DESTROYED

frederic-bastiat-quoteDo you want your relatives, friends, business competitors and government bureaucrats to know precisely how much wealth you have, in what form, and how you spend all of your money?

Most people were appalled when they learned the extent of monitoring of telephone and electronic communications by the various intelligence agencies.

But what is even more shocking is the extent to which various government organizations monitor and, in many cases, restrict financial freedom, and seize assets without criminal conviction.

The government argues that it must collect financial data and then share it with many domestic and foreign government organizations in order to stop tax evasion, money laundering, drug dealing, other assorted criminality, and terrorist finance — all of which sounds good at first glance, until one looks at what really happens.

If you think that the war on drugs has been a failure, look at the war on money laundering, tax evasion and terrorist finance for an even bigger failure.

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THE REAL DENIERS

real-deniersNo one knows what is going to happen 100 years from now — what problems human beings will face and what advances they’ll make.

Are you willing to double your electrical bill now — to European rates — to reduce global temperatures by two-tenths of 1 degree 100 years from now?

Are you aware that England has only been an island for about 9,000 years or so? Up until the end of the last ice age, our ancestors could walk from France — which they can, in theory, again do, thanks to the Chunnel.  Back then, the English Channel was a river, with the Thames in England, the Seine in France, and the Rhine in Germany its tributaries.

A hundred years ago, air conditioning was almost non-existent. Now we have huge, rich cities such as Singapore, Panama City and even Miami, thriving in the tropics, because air conditioning has made them very livable all year around.

A hundred years ago, antibiotics had not been invented, nor had the semiconductor, let alone the smartphone and iPad.

At the present, we do not know how to cost-effectively reduce many carbon-dioxide emissions, but we do know how to adapt to slowly rising sea levels and slightly warmer temperatures. Sea levels have been rising since the end of the last ice age, with no evidence that this rate of rise has increased during the past half-century — and mankind has adapted just fine.

Despite rising sea levels, the island of Manhattan has grown in size over the last four centuries — because it makes economic sense to create landfills.

It is odd that many in the media and “public intellectuals” call people “climate deniers” who merely want to have a civil discussion about the rate of climate change and how much is caused by man — while, at the same time, being in deep denial about the real costs, particularly to the poor, of many of their proposed solutions.

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WHY POLITICIANS HATE THE TRUMP BUDGET

trump-budget-chartWhich portion of government spending provides little or no value? The president just released his budget proposal, and the predictable chorus of complaints immediately began from those who want more spending for “whatever.”

Politicians and government officials all too often measure success by how much is spent on something rather than the value received for the expenditure.

If government operated more like business, each year the citizens ought to receive more government “service” for the same real cost, because of productivity gains. But government agencies and their lobbyists mostly demand bigger budgets each year with no corresponding increase in “service.”

The goal should be fewer people being dependent on government — but many politicians and government bureaucrats have a power-and-money interest in more people being dependent.

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TAXES AND POPULATION DEATH SPIRAL

rr-population-chart-052317Vilnius, Lithuania.  It is hard to succeed if everyone is leaving. Some of the former communist countries are suffering from a population death spiral, with double-digit population declines over the last 25 years, as can be seen in the chart.

The problem is not only that people are leaving these countries, but all too often it is the most productive who are leaving -- i.e., young adults. Those who are the least mobile -- the unskilled, those with physical or mental disabilities and the elderly -- i.e., the dependent class are staying.

Latvia has lost almost a third of its population since it regained its independence in 1992. This would be equivalent to the United States losing approximately 100 million people. Other former communist countries have also lost major portions of their populations. The population loss is not only a result of emigration, but also very low birth rates (well below replacement).

As noted, as taxes on employment are raised, it both discourages work and drives people to places where the real after-tax wage is higher. But the real job-killer is not income taxes, it’s….

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A MODEST SOLUTION FOR POOR COUNTRIES TO DO MUCH BETTER

rrchart_051617Zurich, Switzerland.  “It was the best of times, it was the worst of times” (with apologies to Dickens).

Despite the attempts to unify Europe into an economic and partial political whole over the past 70 years, the grand experiment is unraveling, and it increasingly looks like the Humpty Dumpty we call Europe cannot be put back together again.

Parts of Europe are enjoying unparalleled freedom and prosperity, but other parts are sinking both economically and politically. What explains the growing divergence?

The table above is a partial snapshot of the divergence problem. The different outcomes can be almost fully explained by corruption or the absence thereof, and the degree of economic freedom.

Here is a modest solution for how poor countries can improve themselves – put up their sovereignty as collateral to countries run better.

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WILL SOUTH KOREA KILL OR KEEP ALIVE ITS GOLDEN GOOSE?

Seoul Skyline

Seoul Skyline

Seoul, South Korea.  By the time you read this today (5/09), South Korea will have just elected a new president.

There will be a peaceful transfer of power, coming after the previous president was impeached for corruption, but all done in proper democratic way. Few would have bet after the end of the Korean War, more than 60 years ago, that South Korea would now be a rich, developed, democratic country.

This city of 10 million has the fourth-highest gross domestic product (GDP) of any city in the world, only being outdone by Tokyo, New York and Los Angeles.

It is both a very old city with a history going back more than 2,000 years, and a very new city. During the Korean War (1950-53) the city changed hands several times and was largely destroyed, What one sees today is almost an all new city, filled with international-style, modern glass-wall skyscrapers with at least one well over 100 stories.

From many vantages in this city, one can look out a window or stand on a high hill and look down on one people under two systems. North Korea is the ultimate consequence of socialism, which always contains the seeds of its own destruction.  But can the success of capitalist South Korea last?

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WHY HIGH-TAX POLITICIANS ARE ALWAYS WRONG

high-tax-chartIf you were really hungry and given the choice of half of an eight-inch pizza or a third of a twelve-inch pizza, which would you choose?

Already, the normal group of know-nothings among the political class and the press are proclaiming that President Trump’s proposed reduction in the corporate tax rate will only benefit the rich. The safe bet is all those folks are wrong, once again.

Those who view the world in static rather than dynamic terms, including some of the official revenue-estimating offices, claim that reducing the tax rate on a company that made a $100 million profit from the current 35 percent to the proposed 15 percent will cost the U.S. Treasury $20 million.

That statement is only true if the tax change was made retroactive for last year’s income. The wiser person understands that there are no constants, perhaps with the exception of the speed of light. When everything is a variable, including time, first-order observations are usually at least in part wrong.

This is why models that claim to statically forecast entire economic systems (which depend on accurately predicting human behavior) or climate systems over long periods of time are close to useless.

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WHY SHOULD WE SHUT UP AND GO AWAY?

what-left-has-becomeColumbia University, from which I have a degree, has set aside rooms where straight white males — like me — are told they are unwelcome. How should I respond to their annual fund drives, when I am told to shut up and go away?

The global warming establishment treats anyone as a heretic who asks basic questions, labeling them as a “climate change denier” as morally depraved as a Holocaust denier.  These immoral outsiders are told to shut up and go away.

As Trump tries to get a rational budget, the Congressional Budget Office (CBO) is likely once again to get it wrong, as it always has.  The mainstream media, of course, will treat any disagreement with the CBO numbers as heresy. Those of us who have the audacity to point out the CBO errors will be treated as partisans and told to shut up and go away.

But why should all of us shut up and go away?

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THE FREE MARKET INCENTIVE SOLUTION TO GOVERNMENT PROBLEMS

free-mkt-incentive-solutionHere’s a question:  Is rewarding efficiency is more effective than punishing inefficiency?

Kinder and gentler governments use market-based price incentives and less coercion. Yet all too many government officials forget about the superiority of the price system, and resort to the threat of or actual violence to get the people to do what they want.

Business people use the price system to attract customers with lower prices and good employees by offering higher wages (the price of work) rather than coercion.

Then you have the occasional business (United Airlines, for example) that forgets that prices tend to work better than violence, and acts like coercive government. Just think of the amount of money and grief United would have saved itself by offering a price sufficiently high to get one passenger to give up his or her seat rather than dragging a random customer out of his seat.

Prices allocate scarce resources and motivate future production. It is a basic concept that seems to elude many who think like socialists.

One of the major reasons the Soviet Union collapsed was the massive misallocation of resources because of a nonfunctional price system. A major reason Obamacare is collapsing is because it relies too much on coercion and bureaucrat pricing (as contrasted with market pricing).

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THE ADMINISTRATIVE STATE AND LIBERTY CANNOT COEXIST

america-flagThe administrative state began in earnest 134 years ago with the creation of the Interstate Commerce Commission in 1883, which was a major power giveaway by Congress to an independent agency.

From that time, Congress has continued to delegate law and rulemaking to executive agencies, such as the Internal Revenue Service and the Environmental Protection Agency, and to so-called independent agencies, such as the Securities and Exchange Commission, the National Labor Relations Board and the International Trade Commission.

Despite increasingly delegating and shirking its constitutional responsibilities, Congress has become more and more dysfunctional in recent decades.

Over the last few weeks, many members of Congress, both Republicans and Democrats, have demonstrated that they do not understand their jobs or don’t care.

The solution is to force them to their job – to legislate – by taking away the power to legislate from unelected bureaucrats of administrative agencies.

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CATASTROPHIC CONSEQUENCES OF THOUGHTLESS ACTIONS

consequences-of-ww1

April 6 marks the 100th anniversary of the U.S. entry into World War I — a war that claimed the lives of about 38 million people. It is correctly known as the “war about nothing,” so why was it fought? The United States entered the war near the end, after much of Europe had been bled into exhaustion. Relatively speaking, U.S. deaths were few, about 118,000 from all causes, but a great tragedy for each of the families that suffered a loss.

There was no great principle at stake. The global bloodbath took place because none of the leaders could think beyond stage I — that is, they failed to evaluate the possible consequences of each step they took.

Part of the tragic irony is that the leaders of three of the major protagonists, Emperor Wilhelm II of Germany, Emperor Nicholas of Russia, and King George V of the United Kingdom were all cousins (grandsons of Queen Victoria), who, even though on speaking terms, because of personal pride, were unable to say “this is madness” and reason together — so 38 million people died. But that was just the beginning.

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TRUMP TAX REFORM AND DISCONNECTED BRAINS

no-brains-no-problemPresident Trump has said he is going to move on to tax reform after the debacle with Obamacare repeal. Is there any reason that we can expect greater success with the tax reform effort?

I argue no, unless the rules in the House and Senate are modified, and those in Congress whose brains are connected enough to distinguish between tax rates and tax revenues take control.

An example of brains that are not connected.  New York State has been running TV ads, claiming that it is a good place to do business because it offers special tax breaks for new businesses moving into the state.

On one hand, these same people who gave New York some of the highest taxes in the country on the argument that it would not hurt job creation and growth, are also telling us that special tax breaks will create jobs and growth — talk about brain disconnect!

Here’s how to overcome policy-brain disconnect on tax reform.

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WHICH SIDE ARE REPUBLICANS ON?

good-or-bad-pubsDo you think the federal government spends too much? Taxes too much? And should reduce the deficit?

Most Americans agree except when it comes to specific spending programs they like. The people “hire” members of Congress to make these difficult choices.

President Trump released his “short budget” this past week, which is a general statement of his priorities and changes he wishes to make in the “discretionary” portion of the budget.

Predictably, the special interests immediately sent out their press releases and videos explaining that if the program they are wedded to is cut or eliminated, it will mean the end of civilization as we know it, and worse.

The question now is:  Will Republicans in Congress side with their President, or with the corrupt special interests?

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FOLLOWING RUSSIAN MONEY LEADS TO HILLARY’S DOORSTEP

comrade-hillaryAre you shocked that the Russians might have had an interest in who won the U.S. presidential election?

Nations have always had an interest in who rules the nations they deal with — both opponents and friends — and that they often try to influence the outcomes should come as no surprise.

Mr. Putin had a clear-cut Russian national interest in discouraging oil and gas fracking in the United States and elsewhere. The Russian economy and budget are highly dependent on foreign oil and gas sales — and high oil prices. Increases in the world supply of oil and gas depress the prices of these commodities.

So it is completely rational for the Russians to do whatever they can to discourage production by others, including the U.S.  If you follow the money they spent to do this, where do you think it leads to?

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PRESIDENT TRUMP – PLEASE AIM HIGHER!

trump-thumbs-upWhat changes in government policy should be made to achieve an annual average of 4 percent economic growth?

That is the question President Trump and his team should be asking, if they are serious about achieving a lower deficit while increasing spending on defense and the infrastructure.

The Congressional Budget Office and many private economists are forecasting only a little over 2 percent growth (a bit higher than the recent past), and the president has said he hopes to achieve 3 percent — which is too little for the president to achieve his goals.

Is 4 percent growth per year achievable? An average of more than 4 percent growth was achieved during the last seven years of the Reagan administration and during the last term of the Clinton administration.

Like now, in both cases, many in the economic and political establishment claimed that such growth rates were not possible. They were wrong then and are now.  Here is why 4 percent is possible and how to achieve it.

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THE DISASTERS OF HYPE

hypeIt can be dangerous to believe one’s own or others’ hype.

President Obama’s $800-billion spending package in 2009 was supposed to restore economic growth, yet the economy has only limped along in the years since. It grew by only 1.6 percent last year -- and the Obama administration set the record of never having at least one year of 3 percent or more growth.  How could Mr. Obama have been so wrong?

The often-wrong blowhard, New York Times economist Paul Krugman, made the widely quoted comment on election night when it became apparent that Donald Trump would win the presidency and the markets had initially fallen: “If the question is when markets will recover, the first-pass answer is never.”

The next day, the Dow Jones set a record high -- and since Election Day the markets have increased in value by about $3 trillion.  How could Mr. Krugman been so wrong?

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PANAMA PROSPERITY

Panama City

Panama City

Panama City, Panama.  Panama has come a long way in a short time.

In the past decade, it has more than doubled its per capita gross domestic product. At the end of June 2016, it opened the new canal next to the old one that could no longer accommodate the current generation of post-Panamax ships.

Panama City has a spectacular skyline with many very tall, modern buildings — the Trump Tower being the tallest at 932 feet — with eye-catching designs and with many new ones under construction.  

As can be seen in the table below, Panama has by far the highest income in Central America. The question is, why has Panama done so much better than its regional competitors?  The answer is…

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THE BEST AND THE WORST STATES

rahnchart_021617If you were going to start a new business in the United States that was not location dependent, what state would choose?

Countries, states and cities all compete to attract businesses — both large and small. More businesses mean more jobs and usually greater prosperity.

On Feb. 8, the Small Business and Entrepreneurship Council (SBE) released its annual ranking of the 50 states “according to 55 policy measures, including a wide array of tax, regulatory, and government spending measures.”

The findings were not surprising — Nevada, Texas, South Dakota, Wyoming and Florida were at the top, while Vermont, Minnesota, New York, New Jersey and California were at the bottom.

What is troublesome is that year after year the business-unfriendly states do so little to improve their rankings. As the author of the study, Raymond J. Keating, chief economist of the SBE Council, noted: “Too many elected officials choose to ignore the basic economic realities of how government affects entrepreneurship, business, and investment.”

Politicians endlessly cry about the “need” for more taxes and regulations in order to “protect the people.” But in most places, government is already far larger than optimum, and so more taxes and regulations only make things worse.

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PRIVATE CURRENCIES MAY BE THE FUTURE OF MONEY

currencyWe all think we know what money is, but economists have many different definitions of money (e.g., M1, M2, M4, and others) -- and the problem is getting worse.

One basic function of money is to serve as a store of value. Because the dollar and all of the other government fiat currencies (those without backing of real assets like gold and silver) have proven to be unreliable as a store of value, the dollar as a global currency is less useful and efficient than it should be.

The United States and most of the other developed countries have also been engaged in a global war on financial privacy, which in practice, means that governments are demanding access to everyone’s accounts and transactions.

Those who value their financial privacy as a way of protecting themselves from corrupt governments, institutions and individuals (and the criminal class) have a strong incentive to use private money-like products, such as bitcoin, which may provide them with more privacy.

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LOOKING AHEAD TO 2024

ahead-to-2024Most new cars sold in 2024 will have self-driving capabilities so that the number of auto fatalities will be falling rapidly.

That is an easy prediction, because the technologies have already been developed and roll-outs of the new cars are being planned and, in some cases, are underway.

There will be many seen and unseen new technologies in the next eight years, so by the end of the Trump administration (assuming he is re-elected), the world will look very different. Unfortunately, economic advances take place more slowly, and political advances even more slowly — without much advancement in 2,000 years.

Removing counterproductive regulations and taxes and reducing wasteful government spending should lead to higher growth and, hence, more and better jobs. However, new technologies have been rapidly eliminating manufacturing jobs everywhere — even in China.

If not in manufacturing, where will all the new jobs be? The truth is no one knows, but they are likely to appear as they always have in the past.

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CLIMATE BIAS AND IGNORANCE VS CLIMATE REALITY

california-rainsThe rains have returned to California, and the six-year drought appears to be largely over.

We have heard countless assertions from journalists and politicians, ignorant of the weather history of California and the other western states, that the drought was a result of global warming.

In the January edition of Scientific American, there is a well-told story, “California Megaflood: Lessons from a Forgotten Catastrophe” by B. Lynn Ingram, a professor of earth and planetary science at the University of California, Berkley. She notes:

“Geologic evidence shows that truly massive floods, caused by rainfall alone, have occurred in California every 100 to 200 years. The only megaflood to strike the American West in recent history occurred during the winter of 1861-62. California bore the brunt of the damage.

 

This disaster turned enormous regions of the state into inland seas for months, and took thousands of human lives. The costs were devastating: One quarter of California’s economy was destroyed, forcing the state into bankruptcy.”

The floods, by the way, followed “two exceptionally dry decades.”

People are endlessly surprised by some unusual weather, geological, political or economic event, often with the erroneous assumption that such a thing has never happened before. This lack of historical knowledge is not confined to the poorly educated, but often experts in some field or another do not know the history of their own discipline.

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A LETHAL ABUNDANCE OF CAUTION

rahnchart_011017Did the authorities, in “an abundance of caution,” take too long to reinstate operations after the tragic shootings in the Fort Lauderdale airport this past Friday (1/06)?

The airport was shut down immediately after the shootings and remained shut for more than 12 hours, even though the shootings were carried out by a lone gunman who had been captured almost immediately.

Passengers who were on planes that had landed but not yet been unloaded were kept on the tarmac for many hours — in some cases, without adequate food, water and lavatories. Some of them were probably suffering health problems and the delay may have done them real damage. Was all of that necessary?

Predictably, some commentators immediately called for more security at airport baggage counters and for more restrictions on guns.

More thoughtful people noted that the costs and inconveniences of more “hardening” of airports and surrounding areas would be counterproductive. Each additional step to make flying (and airports) “appear” safer increases costs, time and inconvenience, causing more and more people to drive — and die — rather than fly.

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