Category: Public Policy

Last week, Istituto Acton’s close Italian ally in defense of liberty, Istituto Bruno Leoni (IBL), presented the 2008 Index of Economic Freedom in Rome. The IBL invited speakers to discuss the decline of economic freedom in Italy over the last 12 months. Il bel paese ranks as the 64th freest economy in the world, with Hong Kong at number one and the U.S. at five.

Italy’s economic problems were blamed on corruption and weak law enforcement. While corruption to some extent reflects individual moral failings and certainly does affect economic growth, the reverse is also true: corruption tends to flourish in environments already hostile to markets and free competition.

Bad and excessive regulation tends to create opportunities for the arbitrary use of power when dealing with citizens and companies. This, in turn, distorts market incentives and deters investment but it also creates mistrust among people and alienates them from the governing institutions. Better and less regulation, on the other hand, not only boosts economic growth but could tackle a more deeply-rooted crisis of political and social ethics.

Not surprisingly, a labor union representative at the IBL event argued for stronger government to fight corruption at the expense of additional economic reforms. He unfortunately missed the point: The lack of economic freedom simply leads to more opportunities for the moral evils that already plague Italy.

Blog author: jballor
Monday, February 11, 2008

It’s the beginning of tax season. Since I’m still in school, I typically have to get my returns done early so that I can include them as part of financial aid applications. This year I used H&R Block’s TaxCut software so that I could get the returns done quickly and smoothly.

One of the options that the software gives you when you are done is the option to compare your return with the national average for your income bracket. Here are some interesting results of that comparison, drawn from the 2005 tax data (the latest for which they had numbers):

Average salary/wages for my bracket: $65,453
Charitable contributions: $2,835

That means that in that income bracket the average deduction for charitable donations was 4.35%.

For 2005, individual private giving to charitable causes reached almost $200 billion (PDF), and made up the vast majority of the total $260 billion in giving reported to the IRS. “Religion” has historically been the single highest sector for allocation, topping $93 billion in 2005.

Also in 2005, Barna reported some findings on charitable giving trends, noting that the average for American household giving was 3% and that 9% “born again” Christian adults tithed in 2004.

It’s turning out to be a bad week. I’ve already been informed that I should be placed in the tender care of the Federal Prison System for the grave crime of supporting free markets, and now a prominent Canadian scientist wants to have politicians who remain skeptical of the Global Warming Consensustm join me in confinement:

David Suzuki has called for political leaders to be thrown in jail for ignoring the science behind climate change.

At a Montreal conference last Thursday, the prominent scientist, broadcaster and Order of Canada recipient exhorted a packed house of 600 to hold politicians legally accountable for what he called an intergenerational crime. Though a spokesman said yesterday the call for imprisonment was not meant to be taken literally, Dr. Suzuki reportedly made similar remarks in an address at the University of Toronto last month…

…The statement elicited rounds of applause.

“He sounded serious,” said McGill Tribune news editor Vincci Tsui, who covered the event. “I think he wanted to send home the message that this is very crucial issue.”

He might as well be serious. It’s not as if the Canadians are overly concerned about intellectual freedom these days. Sadly though, it appears he wasn’t:

When asked for further comment, Dan Maceluch, a spokesman for Dr. Suzuki, said that he did not mean the statement to be taken literally.

“He’s not advocating locking people up, but he is pulling his hair out.”

What a shame that those dastardly criminals will still be able to menace society with their unwillingness to submit to the consensus!

Via Hot Air, where we’re reminded that:

Suzuki is a former director of … the Canadian Civil Liberties Association.

Of course.

David Suzuki: Join us! Or FACE THE CONSEQUENCES!

What the heck, let’s just go all the way: Face it, the whole “democracy” thing just isn’t working:

In a new book, David Shearman and Joseph Wayne Smith take the appeal to experts somewhat further and argue that in order to deal with climate change we need to replace liberal democracy with an authoritarianism of scientific expertise.

Because, you know, authoritarian regimes have always been so good for the environment…

William Easterly, author of The White Man’s Burden has an interesting piece in the Wall Street Journal today where he responds to Bill Gates’ call for “creative capitalism” Gates argues that the way capitalism is practiced it doesn’t help the poor and argues for increased philanthropy on the part of businesses.

Easterly points out that :

Profit-motivated capitalism, on the other hand, has done wonders for poor workers. Self-interested capitalist factory owners buy machines that increase production, and thus profits. Capitalists search for technological breakthroughs that make it possible to get more output for the same amount of input. Working with more machinery and better technology, workers produce more output per hour. In a competitive labor market, the demand for these more productive workers increases, driving up their wages. The steady increase in wages for unskilled labor lifts the workers out of poverty.

The number of poor people who can’t afford food for their children is a lot smaller than it used to be — thanks to capitalism. Capitalism didn’t create malnutrition, it reduced it. The globalization of capitalism from 1950 to the present has increased annual average income in the world to $7,000 from $2,000. Contrary to popular legend, poor countries grew at about the same rate as the rich ones. This growth gave us the greatest mass exit from poverty in world history.

The parts of the world that are still poor are suffering from too little capitalism…

Easterly points out that governments and philanthropists just don’t have enough information and knowledge to make the right decisions. This is why they have failed and why markets have worked. It is the age-old problem that Friedrich Hayek called The Fatal Conceit.

Easterly notes:

Moreover, how do philanthropists choose just which product is going to be the growth engine of a country? Much research suggests that “picking winners” through government industrial policy hasn’t worked. Winners are too unpredictable to be discovered by government bureaucrats, much less by outside philanthropists.

There are many people with good intentions who want to help the poor live according to their dignity, but good intentions often don’t mean good policy.

We know what has helped the West create prosperity. It was not foreign aid or philanthropy–it was the key institutions of private property, rule of law and free exchange that created a framework for markets and for entrepreneurs to use their energy and insights to meet the needs and wants of millions. What the developing world needs is less aid and more of the institutions of freedom.

Blog author: jballor
Thursday, February 7, 2008

In any period of economic transition there are upheavals at various levels, and winners and losers (at least in the short term). We live in just such an age today in North America, as we move from an industrial to a post-industrial information and service economy, from isolationism to increased globalization. There’s no doubt that there have been some industries and regions that have been more directly affected than others (both positively and negatively).

Michigan, for example, has been one of the most manufacturing-rich states in the nation for the last century, and has been running record unemployment numbers for the last decade or so, as manufacturers move to more friendly economic environments, both within the US and without. Not least of these factors contributing to Michigan’s competitive disadvantage is the high labor costs associated with a labor union-laden state.

The perception that manufacturing workers are simply being left behind in the new economy is pervasive, such that popular opinion is shifting away from free trade. As Fortune magazine reports, “A large majority – 68% – of those surveyed in a new Fortune poll says America’s trading partners are benefiting the most from free trade, not the U.S. That sense of victimhood is changing America’s attitude about doing business with the world.”

As an aside, this is a perception that doesn’t quite match up with the typical caricature of globalization. After all, how can both America (as the “imperial” dominator) and the developing world (as the exploited poor) both be made worse off by international trade?

If it were truly the case that global trade weren’t mutually beneficial, that would be one thing. What’s visible on news reports everyday are the layoffs, buyouts, and unemployment levels in the US. What isn’t always so visible is the extent to which Americans depend on the low prices associated with many imported goods. One group you might think should know better than the average American about such complexities are professional economists. (more…)

It’s been a while since we’ve had a GWCW update, so here are links to a couple of articles I just ran across at Watts Up With That:

That second post is especially interesting considering the breathless media reports about endangered polar bears in danger of drowning as the ice melts from under their feet last year. Once again, reality is just a teensy bit different from what’s reported on this issue.

Two weeks ago, French bank Société Générale announced that off-balance sheet speculation by a single “rogue trader” had cost the company 4.9 billion Euros ($7.2 billion). The scandal had enormous repercussions in international markets leading some commentators to decry the rotten nature of global “casino” capitalism and to call for the reversal of financial liberalization. However, the actual circumstances of the case do not justify more government intervention in financial markets but illustrate individual moral failings and poor internal governance on behalf of the bank.

A new report also suggests that a lack of internal controls and weak enforcement of existing rules may be the real source of the problem at one of the oldest banks in France.

On January 24th, Société Générale said that it had discovered a “massive fraud” through “a scheme of elaborate fictitious transactions.” The event caused a great stir not only for the magnitude of the bank’s losses but also because it is partly blamed for the worst European stock market collapse since September 11, 2001.

Jerome Kerviel, who worked as a junior trader in the arbitrage department at Société Générale, was responsible for betting on markets’ future performances. The bank claims that he had made unauthorized and concealed bets of around 50 billion Euros on European markets. According to the New York Times, Mr. Kerviel told prosecutors that his bets would have resulted in a profit of 1.4 billion Euros for the bank if they had been cashed out by the end of December. However, at the start of this year, stock markets experienced a sharp downturn turning the projected profits into losses.

The French bank discovered the bets in mid-January when auditors in the risk management office noticed a series of fictitious trades on its books. Société Générale then conducted a dramatic market sell-off operation in order to neutralize Kerviel’s deals. Traders estimate that the bank unwound contracts in the range of 20 billion to 70 billion Euros from January 21st to 22nd.

Many suspect that selling all these positions into an already volatile European market contributed to the shocking stock market performance in Europe around that time. This in turn, provoked an unexpected and controversial interest rate cut by the Federal Reserve of 0.75 per cent in order to protect the New York Stock Exchange which had been closed on the day when European markets dived. The curious series of events was summed up by a hedge fund manager who told Reuters that: “The real story here is basically, this guy, paid 100,000 Euros a year, sitting in some office at SocGen, forces the Fed to cut interest rates by 75 basis points, which is basically what happened”.

The huge and wide-ranging market repercussions have given ammunition to the critics of financial liberalization. An editorial of the French newspaper Libération sarcastically entitled “Casino” laments that no one controls the huge sums of money moving around in financial markets and demands tighter regulation of financial markets. It also claims that the scandal embarrasses President Sarkozy’s alleged embrace of laissez-faire capitalism. (more…)