Lower Taxes Work

Many thanks to my wonderful cousin for forwarding this WSJ editorial highlighting the benefits of lower taxes. I might add that lower taxes put pressure on Congress to do something about run-away spending. While I have little confidence in Democrats, I hope they can succeed in winning the fight on the other side of the ledger, Government Expenditures.

Great Comment in the WSJ

The following appeared the "Letters to the Editor" section of the WSJ...

I was surprised to learn from your editorial that Hugo Chávez is allowed to sell oil to Joe Kennedy's Citizens Energy Corp. at a 40% discount. Surely a price this far below market runs afoul of the "antidumping" policies beloved by many in Mr. Kennedy's party. Shouldn't the American public be protected from lower prices on oil in the same way they've been protected from lower prices on bicycles, frozen concentrated orange juice, tissue paper, footwear, fishing tackle, hot-rolled carbon steel, televisions, replacement windshields, shrimp and several hundred other imported items. If Democrats allow lower prices here, they may even have to tolerate Wal-Mart.

Bruce E. Ikawa
Professor of Business and Economics Hillsdale College
Hillsdale, Mich.

Thank you to Don Boudreaux for posting this on his blog.

What is Capitalism?

It is captured in this video!

Democrats Win means America Loses!

Free trade is under attach as I predicted it would be if Democrats regained power. Read the following stories:

Financial Times Story
Wall Street Journal Editorial
Washington Post Story

So why is free trade under attack? Well, the Democrats are about to lead the Congress into rejecting a FTA with Colombia and Peru. This is bad news for the poor in those Andean countries and all Americans. Free trade brings more competition to both countries, it widens the marketplace for more businesses to operate and to reach more people. It lowers prices for the consumer and ensures that the most efficient companies survive. It also weakens the federal government by taking away a source of income. Lastly, the economies of the countries that liberalize their trade policies ALWAYS will be better off. These are basic economic principles that apply to all countries.

However, Democrats want to add in labor rights side agreements to these deals. To do so would dilute the freeness of the free trade deal. The essence of free trade is that it frees business from constraints that governments imposes on them (which will lower prices for all).

But why are these labor side agreements pushed by Democrats? Is it because they are worried that poor Colombians and Peruvians (who need jobs desperately) will be "exploited" in their NEW, HIGH PAYING jobs? Even if they were, they would be misguided. However, their real goal is to protect the Labor movement in the US. American Labor is worried that FTAs will ship jobs overseas and they are correct. It will ship the jobs that we are doing inefficiently, allowing Americans to move to higher paying service sector jobs. Labor does not want this. The AFL-CIO is one of the leading lobbyists behind the Democrats push to stop free trade. The AFL-CIO does not like competition, low prices, or capitalism. They want secure jobs such as the ones that the Soviet Union gave to their citizens.

So the question all Americans should ask? Do you want to live in a world of prosperity for all or do you want inefficiency and mediocrity to reign all for the sake of equality? I hope to help the American psyche by quoting Milton Friedman:

"A society that puts equality -- in the sense of equality of outcome -- ahead of freedom will end up with neither equality nor freedom. The use of force to achieve equality will destroy freedom, and the force, introduced for good purposes, will end up in the hands of people who use it to promote their own interests."

Post-mortem: The Good, the Bad, and the Ugly

The election has passed and the Democrats are now firmly in power (at least in the House). I am deeply upset to see the country vote in the wrong direction. When in 2004, Bush was reelected after making the wrong decision to go to war in Iraq. And now in 2006, the Democrats were elected telling the politicians that they want out of Iraq at a time when Iraq needs us the most. It seems that the US electorate is always wrong. But here is the good, the bad, and the ugly...

The Good
-The Republicans will go back to what they should be: hard-nosed, true-blue fiscal conservatives. The fiscal spending is one of the reasons they were kicked out of office. The formation of a more fiscally conservative Republican caucus is one positive that will come out of this election.

-Pay-go - As long as this is on the spending side only, the Democrats can actually HELP reduce the deficit. However, if they include tax hikes in the pay-go plan then the economy could be headed for a recession.

-Oil subsidies - The Democrats are intent on killing these subsidies. HOORAY for this part of the agenda. Unfortunately, the subsidies will simply be passed to another industry that doesn't need them. Probably, the ethanol industry might get them which will make the ethanol industry even more regulated and less efficient. The end result - ethanol NEVER getting off the ground as a viable alternative to oil.

The Bad

-Minimum Wage Hike - The Democrats will pass it but hopefully Bush will veto it. This is another populist/leftist policy that is created to "help" poor people. However, the real result is less jobs for the least paid (companies will simply fire workers that don't merit $7.50 an hour) and could even create inflation.

The Ugly

-Speaker Pelosi - Her record below (very ugly)
* NO on the 1996 Welfare Reform Law (and NO on its reauthorization)
* NO on making the Republican tax cuts permanent
* NO on eliminating the marriage penalty
* NO on eliminating the death tax
* NO on creating Health Savings Accounts
* NO on CAFTA
* NO on US - Oman Free Trade Agreement
* NO on Fast Track Authority
* NO on Normal Trade Relations with China (goodbye cheap Wal-mart goods that make the poor better off)
* YES on Steel Tariffs
* YES on the Bloated Highway Bill
* NO on the Line Item Veto
* NO on DC Vouchers
* YES on No Child Left Behind

-Socialist Bernie Sanders is now a Senator. This man sponsored a bill that would make the US withdraw from the WTO. This man is economically incompetent. And he is a socialist!

In conclusion, I am no die-hard Republican. But they ARE the lesser of the two evils. They believe in Free Trade (more so than the Democrats), low taxes, limited government, etc.

A Voter's Guide!

Tom Kean/Michael Steele/Rick Santorum (The Republican Stance)

Economy

-Taxes in New Jersey–Republican Kean Supports Tax Cuts – New Jersey “gets the worst return on its federal taxes of any state in the country: only 57 cents of every dollar we send to Washington comes back to New Jersey in federal spending.” Lower taxes mean more money for New Jersey residents to spend on New Jersey.

Some more facts about the Bush Tax Cuts that Kean/Steele/Santorum support…

FACT: The 92.1 million taxpayers with annual incomes of less than $50,000 in 2003 saw a 47 percent reduction in their average tax bill from President Bush's 2001-2003 income tax relief. ("Who Benefits Most From Tax Cuts On Investment Income," The New York Times, 4/5/06)

FACT: The 26.9 million taxpayers with annual incomes between $50,000 and $100,000 in 2003 saw a 20 percent reduction in their average tax bill from President Bush's 2001-2003 income tax relief. ("Who Benefits Most From Tax Cuts On Investment Income," The New York Times, 4/5/06)

These low taxes have produced the following…

FACT: Last year, the economy grew at a healthy 3.5 percent rate – faster than any other major industrialized country.

FACT: The unemployment rate is at 4.8 percent – lower than the average of the 1970s, 1980s, and 1990s.

FACT: The tax cuts have actually created a boost in tax revenue which resulted in a reduction of the deficit of at least $70 billion.

Bob Menedez/Ben Cardin/Bob Casey (The Democrats’ Stance)

Bob Menendez/Ben Cardin/Bob Casey are against the above tax cuts and if re-elected would vote to NOT extend these tax cuts. You might be worried about the deficit and the effect that tax cuts have on the deficit. However, the truth is that lower tax rates lead to higher tax revenue in the near future (more money in your pocket leads to more investment in the economy – this increased investment leads to higher revenue and therefore higher tax receipts). We have seen this fact in 2005 by witnessing the fastest growth in tax revenue in over 25 years. The problem that still needs to be resolved regards spending. While the Republicans have not controlled spending like most would like to see, the Democrats would spend even more. For example, the Democrats’ Alternative Budget for 2006 put forward in the House of Representatives was to increase government spending by $177 billion.

One last note: if Democrats were put in power, they would not pass bills supporting free trade. In fact, they would pass bills restricting trade (such as the Schumer bill that would put a 27.5% tariff on Chinese goods). The Schumer Bill would make most of the things you buy 27.5% more expensive. This does not sound like good economics.

So on November 7^th, remember vote Republican if you want to have a prosperous economy for the next two years.

Who are the extreme politicians?

It is usually claimed that the Bush Administration has polarized America like no other administration has. However, I would like to point to an Economist editorial from its September 23rd edition to prove that this is far from the truth. In fact, it is the current Democrats in politics that have polarized America by being a far left political party.

First, the editorial

Score one for the private sector

As a classic liberal, many people will rush to respond to anything that I have to say with, "You think the market will solve everything! But really, you are just greedy and don't want to pay taxes." However, this is not the truth.

If I believed that socialism or communism or a welfare state could solve the world's problems, I could be persuaded to back the left's agenda. However, as a classic liberal, I believe that a liberal economy gives people freedom economically AND can solve many of the world's problems such as global warming and poverty.

The latter, in the form of education, is the one that a recent FT opinion piece highlights. The writer of the article is James Tooley who won a FT/IFC essay competition on the private sector's role in development. The article starts out with the conventional wisdom about education in the Third World.

"The accepted wisdom says children such as Amaretch need billions more dollars in aid for state education."

He continues his piece by discussing the reality on the ground.

"It ignores the reality that poor parents are abandoning public schools en masse, to send their children to 'budget' private schools that charge low fees - perhaps one or two dollars per month, affordable even to parents on poverty-line wages."

I have always stated that private schools are a healthy alternative to failing schools in America (and other developed countries). However, Tooley brings this view to the Third World with some convincing evidence. He found the following results in private schools in the Third World that were paid for with a fraction of the per-pupil teacher cost in public schools:

-Better drinking water and working toilets in the schools.

-Higher academic achievement.

-Better teacher attendance and performance.

Tooley also notes that many of these schools give some impoverished children and orphans vouchers to attend these schools. In one town in India, 18% of the children in private schools fit this category.

The next issue is funding. Tooley notes the role of micro-finance which provides very small sums of money at commercial (NOT subsidized) interest rates to individuals with few or no assets. This is in stark contrast to the conventional wisdom that calls for more unconditional aid to be spent on public schools. However, Tooley notes the problem with this logic:

“Aid agencies have thrown billions at trying to get schools to improve their curriculums or teaching. These interventions are not sustainable and fade away as soon as the donor-funded experts move on. You will often find the supplied computers and videos in the government head-teachers' homes, not the school.”

Tooley maps out his vision even further with the idea of branding. These private schools can morph into chains that provide education throughout the developing world. This will help break information asymmetries. He also theorizes about joint-ventures and other ways that the thirst for profit by investors can turn into education for the impoverished. Tooley ends with a hopeful view of the future.

“Educating Amaretch (a child in Ethiopia) is a solvable problem. Entrepreneurs who have created private schools serving the poor are eager for investment; they are waiting for the investors who can assist them in pursuing their central role in providing quality ‘education for all.’”

Plea (continued)

One more thing. Check out the record of Senator Menendez:

Voted NO on the following:

-Oman Free-Trade Agreement (FTA)
-CAFTA
-Singapore FTA
-Fast Track Authority (essential for multilateral trade negotiating rounds)
-Repealing the Death Tax
-Reducing Capital Gains Tax
-Tax Relief
-Eliminating the Marriage Penalty on your taxes
-Bush Tax Cuts
-Tax Cuts for Small Business

Do not vote Menendez!!!!

A Plea to New Jersey Friends and Family

Dear Friends and Family in New Jersey:

I recommend that you all vote for Tom Kean. Check out his stance on economic issues here. He is a perfect 10 on economic issues: lower taxes, lower spending, free trade, less regulation.

If you want better paying jobs, cheap goods at the store, and a great economy, vote for this man!

-Jared

NGOs hurt poor people?

Say it ain't so! Oxfam is bad for global poverty? But isn't Oxfam an organization that is fighting to "find lasting solutions to poverty, suffering and injustice?" No. The answer is simply no. The reason: they do not believe in capitalism. They view development as striving towards a world where everyone is happy and making the same amount as everyone else. They despise wealth and do not realize how wealth is the opposite of poverty and how wealth fights poverty. Today's WSJ has a great editorial about the nasty effects of NGOs on citizens in the third world.

The editorial discusses how a new mine in Guatemala will create thousands of jobs for unemployed, poverty-stricken Guatemalans:

Residents of El Estor, a small Q'eqchi community of 40,000 people located in
northeast Guatemala, cheered when they heard that Vancouver-based Skye Resources was interested in reopening a local abandoned nickel mine…It's easy to see why there was such excitement. Skye Resources estimates that it will employ 1,000 people and create four indirect jobs in the community for every new mining
job. That plus an overall investment of at least $539 million is not irrelevant for an impoverished town with one of the highest illiteracy rates in the country -- over 40% for indigenous men and 35% for indigenous women.

However, this mine almost did not get off the ground due to local protests against the mine.

But last year organized and well-funded opposition nearly squelched the deal. In a country with such dire needs for capital and technology to lessen the want of the poor, it is worth exploring whether such anti-mine activism truly expresses the will of the people. Looking behind the scenes, the funding and instigation of the activism appears heavily driven by international nongovernmental organizations that end up discouraging development while trying to fulfill their own mission.

Who were the organizations?

Boston-based Oxfam America and Toronto's Rights Action are two anti-development NGOs active in Guatemala. Oxfam has partnered with MadreSelva (Mother Jungle), a Guatemala City environmental group headed by affluent urbanites, to block mining projects.

And what do these groups do in Guatemala?

International NGOs in Guatemala train local leaders to "empower" minorities and
indigenous groups and to denounce the mines as "neo-colonial" ventures. But the reality is that the very nature of the NGO saves it from having a real stake in the communities it affects through its activism. It can blow through town like a hurricane disrupting development and then be gone.

And what does the "evil" mine do?

The mines, on the other hand, have long-term relationships to manage. Concerned
about its role in Sipacapa, for example, Glamis funded the construction of a local road that was not needed for the mine but was beneficial to the poor community. It offered to fund 32 new teaching positions to help meet the increasing demand for public education in the area. The company also took an unprecedented step by helping to launch an independent monitoring association that will provide environmental studies, while ensuring that Glamis reports back to the communities and to other stakeholders.

The mayor of the town benefiting from foreign investment and who fought off unelected, socialist NGOs put it best:

"They justify their campaigns with our poverty," he says. "That's unfair." On the day of the pro-mine rally, he declared Sept. 30 to be El Estorian Dignity and Foreign and National Investment Day.

Some quotes

William F. Buckley - I'd rather entrust the government of the United States to the first 400 people listed in the Boston telephone directory than to the faculty of Harvard University.

David D. Boaz - The difference between libertarianism and socialism is that libertarians will tolerate the existence of a socialist community, but socialists can't tolerate a libertarian community.

The New York Times, in a 1909 editorial opposing the very first income tax - When men get in the habit of helping themselves to the property of others, they cannot easily be cured of it.

Milton Friedman - It is a mystery to me why... it is regarded as a sign of Japanese strength and American weakness that the Japanese find it more attractive to invest in the U.S. than Japan. Surely it is precisely the reverse - a sign of U.S. strength and Japanese weakness.

Ronald Reagan - Government's view of the economy could be summed up in a few short phrases: If it moves, tax it. If it keeps moving, regulate it. And if it stops moving, subsidize it.

And my favorite...

Ayn Rand - I am rich and proud of every penny I own. I made my money by my own effort, in free exchange and through the voluntary consent of every man I dealt with — the voluntary consent of those who employed me when I started, the voluntary consent of those who work for me now, the voluntary consent of those who buy my product. I shall answer all the questions you are afraid to ask me openly. Do I wish to pay my workers more than their services are worth to me? I do not. Do I wish to sell my product for less than my customers are willing to pay me? I do not. Do I wish to sell it at a loss or give it away? I do not. If this is evil, do whatever you please about me, according to whatever standards you hold. These are mine. I am earning my own living, as every honest man must. I refuse to accept as guilt the fact of my own existence and the fact that I must work in order to support it. I refuse to accept as guilt the fact that I am able to do it and do it well. I refuse to accept as guilt the fact that I am able to do it better than most people — the fact that my work is of greater value than the work of my neighbours and that more men are willing to pay me. I refuse to apologize for my ability — I refuse to apologize for my success — I refuse to apologize for my money.

Defending the President

I used to be quite anti-Bush. However, this was before I read anything by Milton Friedman and before my newspaper of choice became the Wall Street Journal. Now when I go out to parties or meet new people or hang out with friends, I try to tell them why outright hatred of the president is unmerited. In a bid to convince more people of this fact, I have created an easy to follow guide to why George W. Bush is not the worst president:

1) Supply-Side Economics – Conventional wisdom and many economists have scoffed at the concept of this theory. However, Art Laffer provided economics with a great theory for taxation (the Laffer curve – cutting taxes can bring in more revenue). His wisdom has found its way into the Bush administration who has lowered taxes considerably. These lower taxes have actually brought in MORE tax revenue (as the theory would predict). In fact, growth in tax revenue (11.4%) is at highest level in twenty-five years. Add a booming economy (2005 GDP growth – 4.4%) and you have a President who has helped move America more in the direction of economic freedom.

2) Israel – Unlike Clinton, he knows that you cannot negotiate with terrorists. This was a hard one to swallow for me because I believe diplomacy is essential between democracies. However, the world is facing a big threat in the Middle East. Clinton's assumption for negotiations was that Arab anger was over occupation. However, today's events where Hizbollah and Hamas have attacked from unoccupied land disproves this assumption. These groups are committed to the destruction of all Western interests. The only response should be self-defense; this is why Bush has allowed Israel to do just that.

3) War on Terror – While I believe that the invasion of Iraq was misguided, I understand why Mr. Bush went there. Iraq supported terrorism in the Middle East. My belief was that the costs outweighed the benefits of an Iraqi invasion. I think today's events are proving this. With that said, the Iraq adventure would be worth it if we continued the fight with a war against Iran and Syria. It would show the world that we are serious in our fight against terrorism. This fight would be a lot easier if Europe was behind us.

4) Stem Cell Research – The debate of stem cells has been incomplete. Most people who talk about this issue do not realize that stem cell research is legal. The only thing that Mr. Bush has made sure of is that FEDERAL money is not used for this research. I understand this especially considering, as a libertarian, the government should stay out of the business of most things. Many Americans believe stem cell research is immoral and while I disagree with them, I understand them. Furthermore, considering that government spending is the spending of every Americans' hard-earned money, Mr. Bush is telling his constituents that he will not spend their money on things that they see as immoral. So where do I believe stem cell research should go? The private sector. The Cato Institute put it best with the following: "By its very nature, government politicizes everything it touches. Science is no exception. Stem cell research needs neither government money nor politics. It is better is to get the government out and let the private sector continue its good work. Those people calling for increased funding could take out their checkbooks and support it. Those who oppose embryonic stem cell research would not be forced to pay for it."

5) Social Security – Mr. Bush is trying his best to remedy the coming doom of the Baby Boomer's retirement effect on Social Security. However, Democrats have blocked any attempt to fix Social Security. Social Security is a policy that destroys economic freedom. It forces everyone to give money to the government who will save it for them in low-yielding bonds until they are 65. It also gives politicians access to raiding social security to pay for other things. Mr. Bush proposes that workers be given the CHOICE to put money into an account that will yield returns that mirror such devices as the US stock market. For example, "For the 129-year period of 1872 through 2000, average real return on the S&P 500 was 8.8 percent per year." This means that the money you contribute to your personal retirement account (if it was linked to S&P growth), would double every eight years. Not bad!

"I believe the best way to achieve this goal (of fixing Social Security) is to give younger workers the option, the opportunity if they so choose, of putting a portion of their payroll taxes into a voluntary personal retirement account."- George Bush, April 28, 2005

6) Affirmative Action – The Bush administration is against and this is a simple issue. While, I used to support it, affirmative action is the ultimate policy that strips citizens of its freedom (to hire and admit who they want). Can we not trust people not be racist? Are we creating a racist society by telling people that they MUST hire black people? The government has done enough harm to the black community in the past, it should leave them alone from now on. Frederick Douglas put it best with: "What shall we do with the Negro? I have had but one answer from the beginning. Do nothing with us! Your doing with us has already played the mischief with us! Do nothing with us...just let him alone! Your interference is doing him a positive injury!"

There are definitely things I do not like about the president but there are also many places where we agree. I think the American public would do a great service to the country by looking at all the issues and not just say, "Bush is a terrorist!"

America stands with Israel

I went on my lunch break to Freedom Plaza. At the plaza, DC's Jewish community was holding a rally supporting Israel. It was great to see so many people supporting such a great cause. Governor Ehrlich (Maryland), Ambassador Ayalon (Israel), Congressman Ben Cardin (MD), Congressman Wexler (Florida), Congresswoman Debbie Wasserman-Schultz (Florida), and Senator Sam Brownback (Nebraska) were there. There was a rabbi there who was VERY loud (somebody needed to tell him that the microphone was working). Here are some of the pictures that I took of the rally.
Approaching the rally - a good size crowd!
A little Yentaing before the speeches (Notice the sign thanking President Bush. No matter our party affiliation, I think we should all THANK the president for being the only leader to fully support the Israeli operation. This is in stark contrast to the unfortunate response from Europe.)
Exactly!
A good crowd (there are a lot more people behind me) settles into the 100 degree heat for the speeches to start.
The first politician (Ehrlich) takes the stage to tell the audience that America is behind Israel 100%. This is a nice picture with the Capital in the background and a great sign to the right. Amen my Jewish brother!
The crowd gets bigger!
Ambassador Ayalon with his bodyguard (who I met a couple months ago at the embassy - ONE SCARY DUDE!)
Am Yisrael Chai!
Senator Brownback
Congressman Wexler
Congressman Cardin
A random Rabbi from the back of the crowd!
Big Blue!
Quite a crowd!!!!

Some closing remarks: Alan Dershowitz put it best when he said the following: If a bank robber uses somebody else as a human shield to escape a bank robbery and the human shield is killed, the criminal is morally and legally responsible for that person's death. Not the police. The same applies to the civilians that Hizbollah hides behind when shooting their Katushyas from Lebanon. Hizbollah is responsible for every civilian death in this war so far. The world must stop condemning Israel and get behind Israel in their fight against the fascist Muslims of Hizbollah!

Also, I was pleased to see that many of the Congressmen today stated that this is not just Israel's fight, but it is America's as well. Hizbollah killed 249 US servicemen in Beirut in 1982. Hizbollah, Iran, and Syria are all enemies of the United States AND Israel. While it is completely infeasible to do it now (due to the Iraq situation) but the US should form a coalition to take out Hizbollah, Iran, and Syria once and for all.

Krugman is an economist?

Paul Krugman does it again. He knocks the "greatest story never told" regarding the amazing US economy. In today's column he starts with the following, belittling mock conversation:

Bush supporter: ''Why doesn't President Bush get credit for a great economy? I blame liberal media bias.''
Informed economist: ''But it's not a great economy for most Americans. Many families are actually losing ground, and only a very few affluent people are doing really well.''
Bush supporter: ''Why doesn't President Bush get credit for a great economy? I blame liberal media bias.''

This is a typical problem for liberal economists to swallow. When those at the top are doing well, when companies are doing even better, the public benefits, how? Companies don't lay off people, companies HIRE more people, and companies can give raises and bonues. This is in stark contrast to what happens during a recession (and can be much worse in a prolonged recession).

Krugman is convinced that the bottom 99% are not benefiting and views inequality as rising. I agree that inequality is rising but how. Well, the rich are getting richer and the poor are getting richer (but not on the same scale as rich people). This is good. I highly doubt poor people should get raises to the level that rich people do. Does the secretary deserve a raise as big as a CEO does? No, because the CEO provides more of a benefit to more people, making them all richer. The secretary can't say the same thing.

Krugman ends with:

Can anything be done to spread the benefits of a growing economy more widely? Of
course. A good start would be to increase the minimum wage, which in real terms
is at its lowest level in half a century.

A minimum wage? Wow, an economist supporting a minimum wage. First of all, that limits economic freedom. If I want to offer my services for $3 an hour that is my perrogative. Second, it increases unemployment. Some people don't have skills that merit a company paying $7 an hour. Therefore, that company will simply not hire them ($5 is better than $0). There is evidence for this. Simply look at the America's declining unemployment rate. At the same time as this decline, the REAL minimum wage has declined as well (the nominal wage has remained steady). This translates to less wage controls = less unemployment.

New York Times Friday

I took a look at the NYT editorial page today to look at Tom Friedman's article regading the war in Israel. However, what I got was a barrage of articles of which I had comments for each. But let's first look at Friedman's.

Ever since my conversion to libertarianism, I have started to distance myself from Tom Friedman's economics. However, his view towards the Middle East still lies deep in my heart. Today is no different.

In his piece entitled, "The Kidnapping of Democracy," he discusses the failure of democracy in three places, Iraq, Lebanon, and the Palestinian territories. While he acknowledges the great strides the world has seen in Middle Eastern elections, he also looks at the problems that still exits:

But the roots of democracy are so shallow in these places and the moderate majorities so weak and intimidated that we are getting the worst of all worlds. We are getting Islamist parties who are elected to power, but who insist on maintaining their own private militias and refuse to assume all the responsibilities of a sovereign government. They refuse to let their governments have control over all weapons. They refuse to be accountable to international law (the Lebanese-Israeli border was ratified by the U.N.), and they refuse to submit to the principle that one party in the cabinet cannot drag a whole country into war.

While there are elections, there is no order and a tyranny of the minority is created AFTER the elections:

Boutros Harb, a Christian Lebanese parliamentarian, said: ''We must decide who has the right to make decisions on war and peace in Lebanon. Is that right reserved for the Lebanese people and its legal institutions, or is the choice in the hands of a small minority of Lebanese people?''

Ditto in the fledgling democracies of Palestine and Iraq. When cabinet ministers can maintain their own militias and act outside of state authority, said Mr. Ezrahi, you're left with a ''meaningless exercise'' in democracy/state building.

Friedman continues to acknowledge the fact that people within these countries don't stand up to these thugs because they will either be called "Infidel Backers" or killed.

However, this is where I start to disagree with my friend, Mr. Friedman. Personal responsibility should be brought into this discussion. We should not provide excuses for the failures of Arab countries around the Middle East. They must reign in the terrorists and thugs among them. If not, the victims of their attacks (Israelis) will be forced to (and should) attack back until these thugs are eliminated.

Tom Friedman ends with pondering whether the skeptics of democracy-promotion are correct:

It may be the skeptics are right: maybe democracy, while it is the most powerful form of legitimate government, simply can't be implemented everywhere. It certainly is never going to work in the Arab-Muslim world if the U.S. and Britain are alone in pushing it in Iraq, if Europe dithers on the fence, if the moderate Arabs cannot come together and make a fist, and if Islamist parties are allowed to sit in governments and be treated with respect -- while maintaining private armies.

The whole democracy experiment in the Arab-Muslim world is at stake here, and right now it's going up in smoke.

While I agree that democracy is at stake with these recent developments, skeptics of democracy-promotion are seriously misguided. While democracy will be hard in the Middle East, it must be promoted. Promoting dictators never worked very well for the United States anyway.

Evil

The Israeli people are being attacked by pure evil. Click here for video of Lebanese people rejoicing over the kidnapping of two 18 year old Israeli boys.

Demagoguery and Incompetence - The Democrats' Strategy

Nancy Peloci unveiled to the Journal what the Democrats would do if they took over the House...

The California Democrat anticipates some resistance from within her party, but
returned to the theme of fiscal prudence in an interview with The Wall Street
Journal. When asked to outline the Democrats’ agenda, she listed initiatives
that she said wouldn’t strain the government’s coffers: cutting interest rates
on student loans, raising the minimum wage and demanding higher royalties from
oil companies.

Add raising taxes (she would rescind the Bush Tax Cuts) to that agenda and you have every reason to vote Republican in 2006!

WSJ vs. FT

Our new enemy of economic freedom is an American and a Democrat. His name is Tom Vilsack and has an opinion piece in the FT today. But I must point out that we have somebody (another American) that sits in the other corner who is a champion of economic freedom, Susan Schwab, who has a piece in my beloved WSJ (More Trade, Less Poverty - A GREAT title).

First I must analyze what Vilsack has to say. He starts out with

While some businesses in my own state of Iowa are excited at the opportunity to export their products to new markets, powerful new competitors are challenging US economic leadership, threatening the nation’s growth and exposing Americans to a new kind of insecurity.

Mr. Vilsack wants us to believe that globalization will only help American exporters. The United States MUST be the economic leader. For a Democrat, that idea is not very democratic (small d) or liberal. Then he states that competition threatens our growth and creates insecurity. Competition is what makes capitalism great. Competition forces one to work harder, think outside the box, charge lower prices to your customer. Without competition, we would be stuck with inefficient monopolies like Mexico where the entire southern part of the country lives in near to total poverty.

Next, Mr. Vilsack discusses how he thinks the government should fight this competition. He organizes them into four pillars. The first...

We should create a “supersized” tax credit for research and experimentation, and establish a network of university-based venture capital funds to finance loans for start-up companies willing to find commercial applications for scientific and technological advances. We should also foster a new generation of scientists and engineers by establishing a national network of 250 publicly financed but independent science and technology academies.

This supersized tax credit is little more than a handout by the government for research. To make this proposal even better, let's have FEMA decide what kind of research we will fund. Then he states that we need a new fund a venture capital firm, a government sponsored one. Now we will have government deciding which companies deserve to be lifted off the ground. Sounds like China or Korea. Lastly, he proposes 250 new schools to be financed by who? Yes, you guessed it, the same government that is running a deficit.

Next suggestion...

It is time to provide transitional health insurance for all unemployed workers and create a new “universal pension” that can be carried from job to job.

The Universal Pension sounds like the personal accounts that President Bush talks about. While I believe Social Security promotes a lack of savings and destroys economic freedom of investment choices, Bush's ideas on Social Security are a step in the right direction. I highly doubt that Mr. Vilsack believes this universal pension contain individual investment choice. He probably thinks Americans are too stupid to decide how to invest their money.

Vilsack goes on to suggest that America should tighten its labor market with new laws and welfare payments that will in my view increase unemployment and widen the government's deficit...

We should cut through the bureaucracy and offer dislocated workers access to money for skills training, while modernising and expanding eligibility for unemployment insurance and trade adjustment assistance such as skills training. We also need to modernise labour laws to preserve the eroding ability of workers to form unions and bargain collectively for wages and benefits. This new compact for worker security is a worthy project that should unite all progressives and all Democrats.

With humor I provide Mr. Vilsack's next target which is the deficit. Hypocrisy follows...

Restoring fiscal sanity in Washington means dealing with a deficit crisis that represents a permanent handicap for our economic competitiveness, a threat to the prosperity of future generations and a dangerous dependence on creditor nations.

Mr. Vilsack ends with the following...

Surrendering to global competition is immoral and unpatriotic; pretending it can be made to go away is an illusion. Americans must do what they have always done in changing times: use their brain power to adapt and succeed.

Interesting way to end. First, he attacks competition again. But I think he is saying that we need to take part in competition and not just waive a white flag. So I agree with him here. But the interesting part is that he tells Americans to use their brains to succeed. The unfortunate part of this apt statement is that the paragraphs that preceded it told Americans that only their government could save them from the evil force of globalization.

Governor (Corzine?)

A great song is "Governor" by Robert Bradley's Black Water Surprise. But is also a great song that speaks of how big government HURTS poor people. It might be my campaign song when I run for president...

I wish the governor would just leave the poor man alone
He's messing up my home
I wish the governor y'all would just leave the poor man alone
He's screwing up my home

You know my taxes
Are gettin too high
I can't pay the rent
Oh Lord how can I make it by
My woman wanna leave
They cut off the phone
Now I got to spend all of my nights alone

I wish the governor would leave me alone
He's messing up my home
I wish the governor y'all would just leave the poor man alone
He's messing up my home

I went down to the grocery store
They got a food tax
I got to sleep on the floor
Tired of workin three jobs but I know the governor he ain't got it so hard, so hard

I wish the governor (oh Lord)
would just leave me alone (I'm doing alright out here by myself)
I wish the governor (would get his hands out of my pocket)
would just leave me alone I ain't bothering nobody (here we go)

I wish the governor all you folks down there in Washington DC
I wish you would just leave me alone you know
I need to go to work and get some money for the baby
I wish the governor
All y'all up on capitol hill I know you gettin your thrills but I just want you to leave me alone
Me and my cat and my dog and my car in the garage
Just leave us alone
You know I get nervous hey hey hey hey
Leave my mother and my brother why don't you just leave us alone
I'm gonna say goodbye now

Funny You Should Bring That Up

Madeline Albright has been reported in the FT pointing out the following:

Put in perspective, the $31bn (€25bn, £17bn) donation announced this week by
Warren Buffett, the investment guru, to the Bill and Melinda Gates Foundation
exceeds annual US government spending on foreign development and humanitarian
assistance.

There are two points I must make. First, the comparison of one individual to one bloated US government is interesting. However, the donation is spread out over many years as opposed to annual foreign aid expenditure which happens to be spread over (believe it or not) one year. Second, while Ms. Albright was making the above point to push America to spend more on foreign aid, the above point actually highlights why foreign aid is a failure.

Foreign aid finances consumption (if it reaches people) and corruption (if it does not). On the other hand, charity (in Buffet's case, $31 billion) is carefully monitored by the donor to make sure his hard-earned money is spent wisely. Furthermore, as evidenced by Buffet, rich people almost always give away millions and in this case billions to charity. These people would probably give even more to charity if they were not taxed as much. While Ms. Albright would like to see more aid money wasted on BMWs for Robert Mugabe, America should instead end its aid programs and start doing the only thing a government can do to alleviate poverty in the third world, move forward with trade liberalization.

Aid CAN work, but it must be voluntary. If it is mandatory and handed out through a bureaucracy, the money will be useless and in come cases harmful.

The right thing to do

Even before Sharon's historic decission regarding Gaza, I always stated that Israel must pull out of Gaza and the West Bank (however, for the West Bank - Israel should be able to make the borders considering the facts on the groung). The reason I stated was not because Israel was wrong in wanting to occupy land to defend itself; Israel needed to do something to stop Arabs from constantly trying to destroy it. My reasoning had to do with the World Opinion. Leftists (and anti-semites) around the world will always state that Israel is not acting under international law and has no right to occupy Arab land (they never cite the fact that Israel is fighting for its life). However, with Palestinians given their own land, Israel has every right under "international" law to attack.

As the recent events have shown, the Palestinians only want to destroy Israel. Therefore, when they act on this desire Israel will have every right to defend itself. They are no simply protecting themselves against an attack from their neighbor (in this case, Gaza).

Side Note: Leftists around the world love to slam Israel. However, where is the outrage over the abduction of an 18-year-old named Gilad and two other supposed kidnappings by Palestinian terrorists over the past week (yesterday, one of these victims was killed by Palestinian terrorists. On top of this horror, the Palestinian government (Hamas) actually condones these action.

One more note: As I search the news stories on this, I find more appalling news. France (no surprise) committs another act of anti-semitism. They are no condemning the actions that Israel is forced to take after an Israeli solidier is abducted (and this solidier is actually a FRENCH citizen).

NYT Rant

The New York Times has a wonderfully biased and uneducated ode to their favorite candidate in the Mexican elections, AMLO (the leftist Andres Manuel Lopez Obrador). Check it out here.

If you want to read the real story, check out my prof's article in the journal from a few weeks back.

Laffer Curves for the Article Below

The original Laffer Curve sketched onto a cocktail napkin by Art Laffer for Dick Cheney.

A simple sketch of the curve.

The Laffer Curve Lives

Art Laffer is a genius. This man created the Laffer Curve as seen below. This curve is the basis behind the supply-side economics. It sates that if you lower tax rates, you get MORE (not less) tax revenue. Conversely, if you move tax rates higher, you receive LESS (not more) tax revenue.

This is not the conventional wisdom nor does it seem logical. So how does it work. First, think about a world where you are taxed 100%. Are you going to work? Of course not. Why should you work hard if all your money will wind up going to the government? You might work, but you will hide all your money so that the government doesn't take it all. Also, if you had a 0% tax rate, the government would receive NO money. Obviously! (Even leftists agree to that)

The middle of the curve is where people get confused. The Laffer curve states that there is some optimum level of tax rates that net the government the most tax revenue it could possibly ask for. Let's think about you, the worker making $100,000 a year. Let's say that the tax rate is 40% and you were offered a raise of $50,000 a year with the caveat of working an extra 10 hours per week. With this tax rate, you would only see $30,000 of that raise and you might not take the promotion because the extra money does not merit extra hours at work. On the other hand, let's say that the tax rate is 15%. Now that raise will net you an extra $42,500 (an extra $1,000 a month over the raise at a 40% tax rate). This type of money might merit the extra work and you accept the promotion.

With the lower tax rate, now the government receives the extra taxes ($7,500) because you took the raise. Now lets apply this back to the Laffer Curve. The curve states that the government will receive higher revenues as it lowers taxes until it reaches the optimum tax rate. So what does this tell us about today. Well, Bush has based the economic side of his presidency on tax cuts. The highest tax rate on income has been lowered to 35% and the capital gains tax has been lowered to 15% (from the absurd 30% level pre-Bush). The results show that we are still at tax rates ABOVE the optimum as evidenced by yesterday's FT article on tax receipts ("Surge in US tax receipts eats away at budget deficit").

Figures from the Treasury and the Congressional Budget Office, the non-partisan
body advising US lawmakers, showed revenues climbing by 13 per cent to $1,545bn
in the first eight months of the fiscal year to May. A month ago, estimates suggested revenues were rising at 11 per cent.

The 13 per cent rise is the second-highest rate of growth for that period in the past 25 years, surpassed only by last year's 15.5 per cent.

So much for the leftist argument of "Tax Cuts for the Rich." In fact tax cuts for the rich (the job creators) make EVERYONE (including the government) wealthier.

Kristof does it again

(Please note: the below article that I refer to is located here if you have a nYT subscription. If you don't, email me at jaredkotler@hotmail.com and I will send you a copy.)

In today's New York Times, the leftist writer at the paper, Nicholas Kristof, has a wonderful expose of how leftists think. The title of his piece is 'Foreign Aid has Flaws, So What?" The piece is a critique of the superb economist's, William Easterly's, new book that points to how foreign aid does NOT help the world's poor.

First, Mr. Krsitof acknowledges the following…

Don't tell anyone, but a dirty little secret within the foreign aid world is
that aid often doesn't work very well.

Well there is a shock. As I have written before and Kristof cites in his piece, the countries who are flooded with aid wind up poorer in the future (Niger) and those who are not wind up rich in the future (China). Next he points to the left's disregard for the facts…

Mr. Easterly… has tossed a hand grenade at the world's bleeding hearts -- and,
worst of all, he makes some valid points.

God forbid, a conservative economist is actually correct!

Mr. Kristof then tells us on the right that we shouldn't read it.

Let me say right off that stingy Republicans should not read this book. It might
inflame their worst suspicions.

Mr. Krsitof exposes the left's dirty little secret. The argument that leftists always fall back on is that conservatives are stingy and greedy. We don't want to spend money on foreign aid or for local welfare programs because we do not care for poor people's welfare. However, the truth is that we believe welfare and aid actually hurts people. On top of this, we feel that US citizens shouldn't be forced to fund programs that destroy communities and small countries in Africa. In fact, foreign aid finances consumption (as opposed to investment) which makes those countries dependent on foreign aid or it finances corrupt dictators who allow his/her people to starve on the streets. Welfare also has disastrous effects. It discourages ambition and innovation at the same time it promotes inefficiency and laziness.

Mr. Kristof continues his piece by agreeing with all the flaws of foreign aid discovered by Easterly, Rajan, Subramanian, and other economists. Kristof admits that…

All these findings can be pretty shattering to a bleeding-heart American.

But Kristof tells the lefties to cheer up because…

Some other studies indicate that aid does improve growth (economists don't agree
about this any more than they agree about anything else). And whatever the
impact on economic growth rates, aid definitely does something far more
important: it saves lives.

Interesting that he now chooses to stop citing ACTUAL economists or ACTUAL studies when he wants to make HIS point.

He goes on to point out that all Americans should do as the righteous Mr. Kristoff does…

For my whole adult life, I've sponsored children through Plan USA, and in
visiting my ''adopted'' child in places like the Philippines and Sudan, I've
seen how the kids' lives are transformed by American sponsors. Aid is no
panacea, but it is a lifesaver.

This is my favorite part because, without realizing it, Mr. Kristof has proven the point of Milton Friedman and other conservative economists. The point is that PRIVATE charity is the best form of help for the poor in the world. Private charities have efficient practices that make sure aid is not abused by kleptocrats because the money is dependent on donors seeing results. This is the result of people having the CHOICE to give. Forced charity will never work and we must all continue to state this fact so that Mr. Kristof and his ilk do not continue to try to steal from the rich and give to the poor (which, unfortunately, is a transaction that hurts all individuals involved).

What type of equality?

Equality means nothing if a country is full of poor people. As Milton Friedman said, "A society that puts equality - in the sense of equality of outcome - before freedom will wind up with neither."

Who is really selfish (or does he mean greedy) ?

Donald J. Boudreaux of the brilliant economics department at GMU has posted a response to his letter in the NYT which calls for lower taxes. The response ends with

I am probably in the top 10% of earners. I am perfectly happy to pay more than people of modest means. It is the obligation of a responsible society.

I hope George Mason students are not learning the virtues of selfishness.

The first paragraph states that since the writer is happy to pay more taxes then ALL people should be forced to pay higher taxes. I used to think the same thoughts during my leftist days. However, this idea is based on the notion that people that are rich are lucky. This is not true. People who are rich have worked hard to attain their wealth. In a free society, an individual should NOT be forced to send all of his earnings to Washington to spend on wars, poorly design flood walls, and a failing school system. If these three subjects were left to the private sector, 2,500 dead soldiers would be alive today, New Orleans might have been saved, and our children would be getting a much better education. The obligations of a responsible society is not to force others to spend money on things they disagree with.

The second paragraph resorts to name calling. The leftist will usually use the terms selfish, greedy, etc. to describe economic conservatives. Here I will leave to Mr. Boudreaux to defend the “righteous” economic conservatives who retorts with the following against his detractor…

I assume -- I truly do -- that my correspondent is a decent human being. I would not say to him "I hope your children and friends and co-workers are not learning from you the virtues of greed" -- I would not say this despite his obvious preference for a government larger than one that I believe is optimal -- a government that, I believe, greedily takes from the unorganized and gives to the rapaciously greedy organized -- a government that officiously assumes that it knows better how individuals should conduct their lives than these individuals know.

Walmart is better than Welfare

Walmart has been the best thing to happen to low-income families since, well, sliced bread. They provide products at low, low prices that these families would normally not be able to buy or lose a good chunk of their pay check to. How liberals have turned Walmart into an idea that is worse than Satan-Worship I will never know.

Now, Walmart has done it again. They are providing tasty, healthier food to our country's low-income families (yours truly included) at low, low prices. They are doing this by introducing organic food at its stores. The WSJ has a great piece regarding this development. In the piece, Ms. Ward describes how the 'original' ogranic movement is upset that people don't have to spend $10 for a piece of organic lettuce at Whole Foods anymore. They disguise their argument by saying that the organic movement has sold out to big corporations. However, they should rejoice. People are demanding it and therefore big business is responding. If these liberal elites want everyone to live healthy lifestyles then they should support the only portion of society that can deliver organic food to rich and poor alike, big business. Wal-mart's CEO put it best with the following quote that closes Ms. Ward's piece...

"We don't think you should have to have a lot of money to feed your family
organic foods," Wal-Mart's CEO has said. To some, this sounds like a
threat--especially to the ethical eating elites who will have to find new ways
of distinguishing themselves from the hoi polloi--but for most of us it sounds
like good news about better food.

Another enemy of Israel

I meant to post this long ago...

On May 23rd, the FT ran an opinion piece entitled, "Why Israel cannot always rely on America's helping hand." In this piece, Tony Judt discusses Israel's immaturity. I will attempt to point out all the flaws to his argument. He starts out with

By the age of 58 a country - like a man - should have achieved a certain
maturity… But the state of Israel, which has just turned 58, remains
curiously immature.

This first sentence exposes Judt's ignorance to the situation. The following is a list of country's around Israel, type of government they have, and how old they are:

Saudi Arabia: A religious monarchy governed by Sharia law (74 years young and women still can not drive a car)
Jordan: A constitutional monarchy (60 years young)
Syria: An authoritarian, military-dominated dictatorship ruled by one family since 1963 (60 years young)
Egypt: A Republic with the People's Assembly basically appointing the President (84 years young and basically a dictatorship with the same president (Mubarak) since 1981)
Libya: A Military Dictatorship (55 years young with a law system based on Italian law and Islamic Law)
Kuwait: A Consitutional Hereditary Emirate (ruled by an Emir who is a descendant of the last Emir – The Emir appoints the government – political parties are illegal) (45 years young)
Iraq: Chaos
(Source: CIA Factbook)

I need say no more!

Judt goes on to state…

Before 1967 Israel may have been tiny and embattled, but it was not typically
hated: certainly not in the west. Most admirers (Jews and non-Jews) knew little
about the Palestinian catastrophe of 1948.

First, Judt asserts that 1948 was a catastrophe for Palestinians. While I agree, I assume he believes that this "catastrophe" was Israel's fault. However, if the Arabs agreed to the UN mandate and did not go to war against the infant Israel, the Arabs would never have known of any hardships resulting from a "catastrophe." Michael Bard puts it best with his view of the Palestinian "refugee":

The Palestinians left their homes in 1947-48
for a variety of reasons. Thousands of wealthy Arabs left in anticipation of a
war, thousands more responded to Arab leaders' calls to get out of the way of
the advancing armies, a handful were expelled, but most simply fled to avoid
being caught in the cross fire of a battle. Had the Arabs accepted the 1947 UN
resolution, not a single Palestinian would have become a refugee
and an independent Arab state would now exist beside Israel.

At this point in Judt's article, he explodes with why Israel is NOW hated:

But today everything is different. We can see, in retrospect, that Israel's
victory in June 1967 and its occupation of the territories it conquered then
have been the Jewish state's very own nakba: a moral and political catastrophe.
Israel's actions in the West Bank and Gaza have magnified its shortcomings to a
watching world. The routines of occupation and repression were once familiar
only to an informed minority; today, computer terminals and satellite dishes put
Israel's behaviour under daily global scrutiny. The result has been a complete
transformation in the international view of Israel.

Once again, Judt fogets that Israel was attacked and occupies former Arab land because it must protect itself. An analogy is sufficient for explanation. If you neighbor repeatedly bombs your house from a tree sitting between your two houses (but owned by your neighbor), you will be forced to "occupy" that tree and protect it from evil use.

Judt goes on to state that pro-Israeli advocates claims that anti-Israel sentiment is inherently anti-Semitic is self-fulfilling. While I agree that anti-Semitism is on the rise, it is not because of this assertion. This assertion is correct because Israel's justification for defense is sound and claims against this basic fact must be based on ignorance, bigotry, anti-Semitism, or all three.

Judt finishes with his explanation of why Israel is so aragant: US support. He also points to the flawed Mearsheimer/Walt essay. He continues this essay's questioning of the US support of such a small country that presents only a "strategic burden." However, Israel and the US have much in common: a robust economy, a democratic government, and they are both targets of political Islam and its attempts to destroy liberty and freedom around the world.

Judt's states that the US will not always back up Israel (he underestimates the American people's commitment to freedom and liberty). He also recommends that Israel start to dismantle settlements and open up negotiations with the Palestinians. He bases this recommendation on the fact that Israel is so distrusted that it must give in. I think he should read the history of Yasser Arafat's problems with the truth and currently Hamas's view towards Israel as a state.

Finally, Judt states that "colonies are always doomed unless you are willing to expel or exterminate the indigenous population." I think the public must be exposed to how the anti-Israel lobby views the world. They see the US and Israel as colonizers and apologizes for France, middle-eastern dictatorships, and socialism.

Stolen from two greats...

Larry Kudlow (a hero) has quoted Milton Friedman (a hero) on his blog so I will steal from both by posting these famous quotes...

"Nobody spends somebody else's money as carefully as he spends his own. Nobody uses somebody else's resources as carefully as he uses his own. So if you want efficiency and effectiveness, if you want knowledge to be properly utilized, you have to do it through the means of private property."

"The greatest advances of civilization, whether in architecture or painting, in science and literature, in industry or agriculture, have never come from centralized government."

"Underlying most arguments against the free market is a lack of belief in freedom itself."

Chirac does it again

On my website, I have two articles. One by Chirac and one by Wolfowitz. Chirac states that he believed Europe should unite to take on globalization. He highlighted how his government (along with Germany) spent money on the "most promising sectors." He also reinforced the idea that if he helps to reform CAP, then other nations must "give and take" (reinforcing the mistaken view that trade liberalization is a zero sum game). On the other hand, Paul Wolfowitz's article points to trade liberalization as the best remedy for enriching the wealth all nations around the world.

And now in yesterday's Financial Times, President Chirac does it again. He continues his misguided fight to "protect" European wealth. This time he is opposed to foreign interests (in this case - America) taking over Euronext (a European conglomerate of exchanges). This is the third fight against foreign takeovers of French companies by Chirac in a couple months. First, it was his block of Enel's (Italy) potential takeover of Gaz de France (France) with a government-backed merger of Gaz de France with Suez (France). Then it was Chirac's opposition to the potential hostile takeover by Mittal Steel's Lakshimi Mittal of France's Arcelor (the world's second largest steelmaker). Now it is the potential NYSE/Euronext merger.

The problem is that mergers should be purely based on economics and shareholder interests. If politics were to get involved, efficiency would be its victim. Chirac might favor a "Franco-German" solution. However, if a politically forced merger were to take the place of the current one, the company might be set up for failure. This fact is best summed up by the difference in opinions between Chirac and his German counterpart, Merkel:

Mr Chirac said: "I will not hide the fact that I favour the Franco-German
solution for reasons of principle, and I would regret it if this solution is not
adopted in the end."Angela Merkel, Germany's chancellor, was more reserved,
saying: "We have always thought that in Europe it is good to build strong
economic units." But she added that any merger would be "a purely economic
decision" and said "these are events over which we can exert no influence".

The one of the largest shareholders of Euronext said it best with the following quote:

Yes, a merger makes sense with one or the other. But to decide which partner is
best, we must put them in competition until the very last moment.That is the
role of management, not to block one and to throw yourself into the arms of the
other.

A case study on how welfare fails

Welfare was near and dear to my heart. By being somebody with a big heart, I used to let my heart crowd out my brain. Therefore, I saw welfare as a way to help those that are less fortunate. However, after re-learning economics and studying the virtues of liberty and freedom, I realize that my faith was misplaced. It is with charity that we help the less fortunate. With welfare, we promote inefficiency and laziness and impede growth and creativity.

The Economist has a great article showing why Puerto Rico has failed to grow. Up until 1970, PR was growing at the same pace and vigor as the Asian Tigers. However, things started to deteriorate as welfare payments continued to invade the island from the do-good mainland Americans. The Economist describes PR's economy...

Puerto Rico's annual income per person was around $12,000 in 2004, less than half that of Mississippi, the poorest state. More than 48% of the island's people live below the federally defined poverty line. That poverty rate is nearly four times the national average, and more than twice as high as in poor states such as Kentucky, Louisiana, Mississippi and West Virginia

.

Half the working-age men in Puerto Rico do not work. Officially, only 46% of those who are not pursuing a degree have formal jobs, compared with a United States average of 76%.

The Economist goes on to state the culprits...

Many things have gone wrong. Most important, however, is that the United States government assumed too big a role in the Puerto Rican economy, and its largesse enabled the commonwealth's government to do the same. Through hubris, clumsiness and sheer size, these governments knocked Puerto Rico off the promising path that it was following, and the island's economy is now lost in a thicket of bad incentives. Two federal intrusions stand out: an oversized welfare state, and misguided rules on business investment.

So why do welfare payments not work. Because of abuse of the system and the way it discourages hard work and promotes dependence on the government.

Puerto Ricans are eligible for federal disability payments, for example, through Social Security. Ms Enchautegui and Mr Freeman point out that, in the territory, federal disability allowances are much higher than the United States average as a share of wages and pension income. Unsurprisingly, therefore, one in six working-age men in Puerto Rico are claiming disability benefits.

Because Puerto Ricans are paid to do nothing, crime grows and unemployment persists. This makes Puerto Rico poor and dangerous.

PR's government also discourages the private sector by favoring certain investment over others. They also crowd out the private sector.

Puerto Rico's bloated government also bears much of the blame. Around 30% of the territory's jobs are in the public sector.

Speaking of PR's population, the mayor of Aguadilla states, “All they want to do is find security only. They have no ambition...Everybody wants to work for the government.”

Contradictory Protectionist

Barry Lynn has a ridiculous article in the May 30th FT. He points to the state as the only entity able to control the economy. He views America's faith in the market as "utopian." However, to look towards the market and not the government is actually realist. Free-market economics is the better of the two options (Socialism vs. Capitalism). By taxing less, protecting national economies less, etc. you decrease the probability of deadweight loss in the global economy. In fact, the only utopian ideal is Marxism where one would have to believe the government to be run by saints.

Next, Lynn points to the "power vacuum" created by globalization...

Similarly, there is no better time than now to grasp that the real question is not, as Americans like to frame it, free trade versus protectionism. It is whether the world trading system will be regulated by private companies that are answerable only to the rich and powerful, and are profoundly un­equipped for the task of processing complex information for the sake of society, or by states built to assess risk and to be answerable to all citizens.

However, Lynn misses the point that consumers have most of the power in a market economy. If a product fails, so does the company. Monopolies are, for the most part, unsustainable when there is constant threat of competition. Only with regulation do consumers lose out and monopolies are created (see Mexico).

Lynn continues with...

Utopian universalism is dead. The sooner nations gather to bury its corpse – and harness, hobble or break up the immense companies that have grown so powerful in the shadow of that myth – the more likely we will be to save globalisation. This, of course, can happen only if we define globalisation, once again, as a political process that must be managed by nation states. The result may not be perfect, and it certainly will be no utopia. But it is the best we can expect on this earth. And that may be enough.

States are destrutive when it comes to economics. Lynn must have failed to learn economics before he began teaching at LSE. Look at what happened to SE Asia. They grew because of market economics but in an unsustainable way (see 1998 crisis) due to the inefficiencies created by protectionism and infant industry industrialization (does not prepare companies for future competition).

However, the best part of Lynn's piece is that he admits the destruction caused by a collapse of a free (for Lynn: free means no state intervention) trading system.

It would be Pollyannaish to deny that grave dangers abound. The last time a free-trade system unwound, when Britain’s “invisible empire” vanished almost overnight in the 1880s, one result was a scramble for territory. Europe’s powers carved up Africa, then began to hack away at China, in a process that helped set the stage for the first world war.

Farm Aid and a Great Depression

Sallie James of Cato writes about more legislation proposed by Congress that will keep America's farm subsidies going. This is a slap in the face to the multilateral Doha Round. If we are going to use unilateral measures, we should at least do so by increasing free trade (ie. FTAs) and not by increasing government hand-outs in the name of "leveling the playing field."

Her last paragraph sums up the absurdity of this legislation...

The proposed legislation will keep the current farm bill in place for "at
least" one crop year after the congressional approval of any Doha outcome. Given
that the "emergency" aid given to farmers as part of the New Deal in the 1930s
is still with us, largely intact, more than 70 years later, there is little
reason to hope that the opportunity to reform U.S. agricultural policy will be
seized any more forcefully a year after negotiations are over than now, when
there is so much to be gained from stepping up to the plate.

John Kenneth Galbraith

"Partly, the Russian system succeeds because, in contrast to the Western industrial economies, it makes full use of its manpower." - John Kenneth Galbraith writing in The New Yorker in 1984.

The GI has two great entries on this man who recently passed away. It is interesting to note that two of the most famous economists to the American public are Milton Freidman and John Kenneth Galbraith. Two polar opposites. Galbraith was a man in love with the state and its control. And Friedman is a man in love with the power of freedom and the ingenuity of the populous.

It should be noted that economic debate is no more in fashion in this country. Now we have Lou Dobbs, Nancy Pelosi, and others from the left and the right who rail against basic economics. We need a debate between the real two sides of economics, Keynesian vs. Classic Liberal. Any takers?

Why leftists think the way they do?

It has been only a year since my conversion to enlightenment. During my college days I thought socialism was good and America was bad. But why did I feel this way. I always said that the only reason I have the stuff I did was due to the fact that I was LUCKY to be born in America. I felt bad that not everybody could be so lucky. However, you could be born anywhere and succeed as long as you are given the freedoms that we enjoy in America. I also felt bad for the sins of the Western World's past. I felt the only way to rid myself of this guilt and to be righteous was to be Anti-American. Shelby Steele recently wrote in the Journal about this white guilt.

Anti-Americanism, whether in Europe or on the American left, works by the mechanism of white guilt. It stigmatizes America with all the imperialistic and racist ugliness of the white Western past so that America becomes a kind of straw man, a construct of Western sin. (The Abu Ghraib and Guantanamo prisons were the focus of such stigmatization campaigns.) Once the stigma is in place, one need only be anti-American in order to be "good," in order to have an automatic moral legitimacy and power in relation to America. (People as seemingly disparate as President Jacques Chirac and the Rev. Al Sharpton are devoted pursuers of the moral high ground to be had in anti-Americanism.) This formula is the most dependable source of power for today's international left. Virtue and power by mere anti-Americanism. And it is all the more appealing since, unlike real virtues, it requires no sacrifice or effort -- only outrage at every slight echo of the imperialist past.

George Shultz on Economic and Political Systems

Karl Marx viewed that the world would inevitably move towards communism (as the working class united and took over the bourgeois). However, Francis Fukuyama recently articulated in "The End of History" that the move towards global capitalism and democracy is inevitable. He stated that this was documented by recent history (the US winning the Cold War, Capitalism growing popular in the world and Marxism/Maoism/Communism's popularity declines). In today's WSJ, George Shultz, Reagan's Secretary of State, articulates this move in describing "neoconservatism."

"I don't know how you define 'neoconservatism,'" he replied, "but I think it's associated with trying to spread open political systems and democracy. I recall President Reagan's Westminster speech in 1982 -- that communism would be consigned to 'the ash heap of history' and that freedom was the path ahead. And what happened? Between 1980 and 1990, the number of countries that were classified as 'free' or 'mostly free' increased by about 50%. Open political and economic systems have been gaining ground and there's a good reason for it. They work better. I don't know whether that's neoconservative or what it is, but I think it's what has been happening. I'm for it."

Outrage misplaced

If a rise in nationalism (in all respects) wasn't enough. The United States is turning into 1938 Mexico. First, we have outrage over the high gas prices (nobody was complaining was big oil was giving us gas at 99 cents per gallon). Then, we have outrage over corporate executives getting rewarded for good performance.

I must stop here before I produce the third point that makes us 1938 Mexico. I love how there is no outrage over how much A-Rod makes in ten years ($252 million). It is called hypocricy.
Next, we have a great article in the Economist pointing out WHY Lee Raymond is making $400 million as a retired man...

Mr Raymond has enjoyed a remarkable record of using its capital to earn high profits—one reason why it has easily outperformed most other large oil companies in terms of total shareholder returns.

And it is the shareholders, after all, who pay Mr Raymond—and who have done well out of Exxon themselves. The real executive compensation scandals are those cases when bosses do well, while their shareholders do not.

And lastly, we now have senators calling for Big Oil to be broken up, be robbed of their profits (through a windfall profits tax), and now a senators want to investigate whether gas price gauging is occuring. Two words for these hysterics....demand and supply!

We should embrace high gas prices. The market is working by telling drivers, "Find alternative forms of energy." This is the best way to get hybrids on the road. Government only makes this move worse. For instance, ethanol is a great alternative by creating flex fuels. However, we 'protect' our ethanol farmers with a54-cent per gallon duty. (Note: The liberal Renewable Fuels Association says that the tarriffs are not a "barrier to entry". Thus confirming that liberals know nothing about economics.)

It's still winnable!

Six CEOs from six major multinationals try to convince the investing public that Doha needs to succeed and there is still hope for its success. In an eloquent but brief paragraph, these leaders articulate why the movement towards freer trade (overseen by a rules-based WTO) will make life better for old and young, rich and poor, white and black, male and female...

We have strongly supported the Doha Round since its launch four years ago, with its emphasis on helping the developing world through multilateral trade liberalization and on real new market access opportunities in goods and services for all. Our collective experience has taught us that multilateral trade liberalization and a rules-based global trading system will foster economic growth, create jobs, give consumers more choices and improve lives in both the developing and the developed world. For us, a stable and open trading system is a most important prerequisite for our decisions to invest in the future.

They also highlight some of the amazing benefits that Doha has to offer...

These include outlawing all agricultural export subsidies by 2013, introducing duty- and quota-free market access for almost all exports from 32 least-developed countries by 2008, and eliminating developed-country export subsidies to cotton by as early as the end of this year.

Foreign Aid Is Not the Key to Growth

It is said that there is a "financing gap" in the developing world. This gap represent the difference between the access to capital they currently have and the the access to capital needed to reach sustainable growth. As noted in Easterly (2003), development economists believe that offial development aid (ODA) is needed to make up the difference in capital. These economists believe that the ODA will finance investement which will in turn finance sustainable growth in the long-run.

However, Foreign Aid is a type of welfare. As noted in Easterly (2003), "aid finances consumption, not investment." The old adage still applies, "give a man a fish, he eats for a day. Teach a man to fish, he will eat for a lifetime." The developing world needs investment to sustain growth which is done by "teaching them how to fish." We can do this by advocating the policies that will encourage investment such as trade openness, privatizations, deregulation, and sound monetary and fiscal policy.

Unlike Foreign aid advocates like Bono and Sachs who believe in beaurocrats, politicians, and aid agencies, advocates of "teaching them how to fish" believe in citizens in the developing world. Giving econonic freedom to the whole country is the only road to growth in the 3rd World. Giving economic power to a few elites will only perpetuate the lack of growth and create a road to serfdom (if they aren't already there).

New Finance Minster in Brazil (Incompetence)

Here is an excerpt from today's FT about the new "Finance" Minister in Brazil.

"Palocci’s resignation shakes Brazil’s markets"
By Jonathan Wheatley in São Paulo
Published: March 28 2006 21:34 (Financial Times)

But during the conference and in a television interview on Tuesday there were signs that the focus of policy might shift.

“The man in the street isn’t interested in monetary policy or the exchange rate,” he said. “He wants to know if Brazil will grow.”

This finance minister is the replacement to the former finance minister, Palocci. People are worried that this new guy will change the market friendly policies that Brazil currently enjoys. This guy seems to not understand his new job description or he might just not understand economics. Without sound monetary policy and a free floating exchange rate, there will be NO economic growth.

Our First Enemy of Global Economic Freedom (GEF) - Lou Dobbs

In celebration of our new blog, we award the first weekly award for ENEMY OF GLOBAL ECONOMIC FREEDOM to LOU DOBBS!

Benn Steil does a great job of highlighting the stupidity of Lou Dobbs and how HE is hurting America and the global economy.

Dobbsism, unintelligently designed for our times

BY BENN STEIL (Finacial Times)
March 27, 2006 Monday

"Even if the result is more profits for multinational corporations, do we truly believe that exporting those jobs will lead to a better life in this country, for our workers? . . . Or should we rely on public policy, regulation, tariffs, and quotas to protect our standard of living? Or should we share the blind faith of many in corporate America and Washington, in the power of a free market to resolve these questions?"

Lou Dobbs, Exporting America, 2004

"Faith is required in all views regarding the beginning of life, whether scientific, so-called, or whether religious . . . The fact is that evolution, Darwinism, is not a fully explained or completely rigorous and defined science that has testable results within it."

Lou Dobbs, CNN, May 12, 2005

As an economist, I feel a communal and curmudgeonly kinship with evolutionary biologists. We are brothers and sisters in a seemingly endless - and at times, it seems, hopeless - struggle to persuade others that impersonal and unseen forces shape our world in predictable ways which, though far from obvious, are eminently demonstrable. The resistance we are up against I will call Dobbsism. Dobbsism is a form of primal consciousness, exemplified by crusading American television anchor Lou Dobbs, through which people impute what they observe to intention. It is the consciousness behind belief in intelligent design, according to which biological life must have been designed by a creator, given its complexity. It is likewise behind the belief that a complex social construct like a "national economy" must be deliberately de-signed by enlightened policymakers, lest joblessness, poverty and mass bankruptcy result from the neglect.

To be clear, no biologist would claim that conscious design cannot improve on unguided evolution. Thousands of years of deliberate human genetic modification of animals and plants attest otherwise. Likewise, no economist would claim that economic outcomes cannot be improved by policy interventions. Governments that create money, spend it, and allocate and enforce property rights wisely are essential to private wealth creation. However, it is exceptionally well established that enormous and highly adaptive biological complexity can emerge, and has emerged, over periods of time that are well beyond what humans can intuitively grasp, through processes that are entirely unguided by a deliberate, thinking force. Evolution is indeed "just a theory". Gravity is as well. But evolution is a theory strongly supported by the fossil record, comparative anatomy, the distribution of species, embryology and molecular biology. Likewise, the foundation of the doctrine of free trade, that there is an inherent gain in production specialisation along the lines of comparative competence, is far from obvious but logically impeccable and empirically sound. Of this theory of comparative advantage, Nobel Prize winner Paul Samuelson wrote: "That it is logically true need not be argued before a mathematician; that it is not trivial is attested by the thousands of important and intelligent men who have never been able to grasp the doctrine for themselves or to believe it after it was explained to them."

Why should we care? Well, Dobbsism is not only widespread, but can be dangerous. Take President George W. Bush's imposition of tariffs on imported steel in 2002, on which Mr Dobbs commented enthusiastically that: "It appeared that the president had decided he had a far more important constituency to serve than the members of the World Trade Organisation, the European Union, and the so-called free traders: namely, working men and women in this country". Powerful stuff. But is it true that Mr Bush faced down foreigners and free traders to the benefit of American workers?

It is a simple task to count the number of American steel workers at two different points in time, even if it is less straightforward to determine the portion of any decline that resulted from foreign competition (as opposed to, for example, new technology). Unfortunately for economists however, they must apply considerably more data and higher maths in order to estimate the effect of steel tariffs on American workers, the vast majority of whom do not work in the steel industry. Studies have found that the tariffs produced tens of thousands of job losses in steel-using industries.

Yet since statistical estimation techniques are not nearly as comforting as counting steel workers, Dobbsism would dismiss such an exercise as "just theory". And we non-Dobbsists are left with the hopeless task of arguing that tens of thousands of workers who lost their jobs to the invisible effects of protectionism have been neither intelligently designed nor accounted for.

The writer is director of international economics at the Council on Foreign Relations and co-author of Financial Statecraft: The Role of Financial Markets in American Foreign Policy