Posts tagged with: economics

Blog author: kspence
posted by on Wednesday, October 12, 2011

Acton director of research Samuel Gregg offers his thoughts on last night’s GOP Roundtable in this NRO Symposium. Gregg thinks the debate offered an important alternative to the government-driven economy talk that fills the news every other night of the week.

In a week in which two American economists from the non-Keynesian side of the ledger received the Nobel Prize for Economics, last night’s GOP debate gave us some insight into the depth and character of the various candidates’ free-market commitments and the different policy priorities which flow from the various forms of those commitments.

But if the ideas were strong, they were a reminder of separation between our free market ideals and our considerably less free economy:

For the most part, the candidates focused upon the institutional background that either impedes or facilitates economic growth: the regulatory environment, tax levels, trade policy, monetary policy, etc. Listening to the responses was a salutary reminder of the gap betweenAmerica’s free-market aspirations and rhetoric, and the rather different Eurosclerotic economic reality that has slowly envelopedAmerica– and not just over the past three years, but over several decades.

The only way we’re really going to get our economy going, is by addressing entitlements.

The surprising omission was substantial discussion of the issue of welfare reform and the related question of America’s public debt. While Obamacare was continually criticized because of its costs, that’s only part of the picture. Substantive entitlement reform is indispensable if we want to significantly reduce the spending and deficits that threaten to suck the life out of America’s economy. Addressing this subject is of course very politically risky because far too many Americans are more attached to the welfare state than they care to admit. But if fiscal conservatives aren’t willing to tackle this issue, then who will?

Blog author: mmiller
posted by on Thursday, October 6, 2011

Acton has been heavily involved in developing a new initiative called PovertyCure, an international network that promotes entrepreneurial solutions to poverty rooted in the dignity of the human person.

We are excited to announce the launch of PovertyCure this week. Acton has joined together with over 100 organizations to encourage people to rethink charity and development.

In the last three years I’ve had the privilege of interviewing over a hundred people from all over the world—religious and political leaders, small business owners, development experts, people working with orphans and the sick, and entrepreneurs creating jobs and prosperity in their communities. It’s been inspiring and eye-opening. You can watch clips from some of those interviews at the Voices page of the PovertyCure website.

Watch the 3 Minute Promo (below) and a clip from Fr. Sirico on Charity and Enterprise. You can “Like” PovertyCure on Facebook and follow us on Twitter.

And please encourage your church, business or non-profit to join the PovertyCure network.

Blog author: rnothstine
posted by on Wednesday, October 5, 2011

My commentary this week addresses the demonstrations in New York and in other cities against free enterprise and business. One of the main points I make in this piece is that “lost in the debate is the fundamental purpose of American government and the importance of virtue and a benevolent society.” Here is the list of demands by the “Occupy Wall Street” movement. It is in essence a laundry list of devastating economic schemes and handouts. Additionally, the demands are counter to America’s founding principles. The commentary is printed below:

Class Warriors for Big Government

By Ray Nothstine

Acting as unofficial scorekeeper, Sojourners Founder and CEO Jim Wallis recently declared, “There really is a class war going on, and the upper class is winning.” However, many of the class warfare protesters who are taking to the streets to “occupy” Wall Street and American cities are the disgruntled children of well-to-do parents. A quick sampling of video clips from the protests shows students from elite universities like Harvard, George Washington, and Columbia. Such protestors are driven less by genuine economic hardship than by misguided animus toward the market system that has enabled the wealth from which they have benefited.

One such protestor, Robert Stephens, launched into a tantrum about a bank seizing his well-educated parents’ $500,000 home. The claim turned out to be bogus, but he managed to convince sympathetic media outlets that he was the victim of abuse and scorn at the hand of free enterprise. Stephens, a student at the prestigious George Washington School of Law in Washington, is just one of many out-of-touch protestors pointing simplistically to the market as the culprit in the current economic downturn while ignoring other sources of financial dysfunction, such as the crony capitalism of government subsidies to business or government fiscal irresponsibility.

Struggling to make ends meet, most Americans lack the time to tune into protestors who are just as distant from their problems as Washington bureaucratic elites. Ronald Reagan offered these poignant words as he called on his own political party in the 1970s to shed its big-business country club image and to embrace the factory worker, the farmer, and the cop on the beat:

Extreme taxation, excessive controls, oppressive government competition with business, frustrated minorities and forgotten Americans are not the products of free enterprise. They are the residue of centralized bureaucracy, of government by the self-anointed elite.

Excessive taxation, regulation, and centralization of power always save their most vicious bite for the middle class. They are the hardest hit, not the super wealthy, some of whom call for higher taxes and are fawned over by a bloated government with an insatiable appetite for revenue. If there is any class conflict, it will come from the taxpaying class as it tries to tame the avarice of the political class. Most Americans are not very sympathetic to radical protestors because they still believe in an American Dream of limitless potential and opportunity.

While some protestors call for more government—or even the use of force—to restore their version of social justice and utopian economic schemes, lost in the debate is the fundamental purpose of American government and the importance of virtue and a benevolent society.

This nation’s founders adopted a system of government emphasizing a separation of powers and federalism to protect private property and the harmony of the Republic. Protestors calling for a dismantling of these ideas, whether it is through the confiscation of another’s property or through massive, centralized power seem alien to most Americans. During his inauguration another American President, Bill Clinton, aptly declared, “There is nothing wrong with America that cannot be cured by what is right with America.”

The virtues and values that have shaped our Republic offer the best for America. One of the wealthiest men of America’s founding era was John Hancock. Yet the man who once quipped, “They [the Crown] have no right to put their hands in my pocket,” was no miser. Often a political foe of the founder known for his oversized signature on the Declaration of Independence, American President John Adams nonetheless wrote, “If benevolence, charity, generosity were ever personified in North America, they were in John Hancock.” Hancock supported churches, city improvements, the arts, assisted widows, and paid for the education of orphans. However, a much greater compliment was bestowed upon him. He was widely known for treating those of modest means with the same respect as those with wealth and power.

History too shows the consequences of regimes that wished to redistribute the wealth of others and make denunciations about greed, especially wrapped within a materialistic, secular worldview. That was class warfare, too, and it ended in blood and wretched poverty.

Blog author: kspence
posted by on Tuesday, October 4, 2011

Congress insults our intelligence when it tells us that Chinese currency games are to blame for our trade deficit with that country and unemployment in our own. Legislators might as well propose a fleet of men-o’-war to navigate the globe and collect all its gold: economics is not a zero-sum game.

An exchange on yesterday’s Laura Ingraham Show frames the debate nicely. The host asked Ted Cruz, the conservative Texan running for U.S. Senate, what he thought about the Chinese trade question. Said Cruz, “I think we need to be vigorous in dealing with China, but I think it’s a mistake to try to start a trade war with them.”

“The trade war is on, and we’re losing it,” Ingraham responded. “[China is] subverting the principles of free trade.”

We blockaded the ports of the Barbary pirates when they subverted the principles of free trade — is Ingraham looking for a similar response now? No, she wants weenier measures: just some punitive sanctions here and there to whip China back into shape (because those always work).

Conservatives who are looking through the Mercantilist spyglass have got to put it down, because it distorts economics in the same way Marxism does. Economic growth and expansion of the labor market don’t come by the redistribution of wealth; they come by allowing man to exercise his creative talents, to innovate, to produce.

Protectionists also tend to ignore the inverse relationship between the trade deficit and the inflow of capital to a country. We are a nation of entrepreneurs, and entrepreneurs require investment. All business requires investment. If it’s Chinese investment, then Chinese investors see long term value in the U.S. economy. Sorry I’m not sorry about that.

Our leaders do the country a disservice by proclaiming that unemployment is caused by a trade deficit, and that a build-up of retaliatory tariffs is the way to fix the trade deficit. And they do other countries a disservice also, because U.S. protectionism hurts our trade partners (or potential trade partners). Holding back U.S. economic progress by artificially retaining manufacturing jobs, for example, means that workers in China or Vietnam are denied employment opportunities. It’s mindless selfishness.

Blog author: kspence
posted by on Monday, October 3, 2011

The green tech firm Solyndra secured at $535 million federal loan guarantee in 2009 and was touted as an example of a promising green future. A month ago, the company went bankrupt. Here are the top five lessons we should learn from Solyndra’s collapse.

5. Both sides of the aisle are involved. Republican support of federal “investment” is routine — in fact, the DOE program that made Solyndra’s loan was approved by President Bush. It is true that Solyndra’s original application to the Bush era loan program was denied by the Office of Management and Budget (OMB), but then stimulus bill was passed, with Republican support in the Senate.

4. Stimulus tends to be wasted, and gigantic stimulus is wasted gigantically. The DOE guaranteed loan program’s budget was almost doubled by the stimulus bill, and it became more a money-shoveling operation than a subsidized bank. As Steven F. Hayward wrote in The Weekly Standard, “More than one DOE staffer told me at the time that they didn’t know how they were going to be able to spend all the stimulus money being thrown at the department.”

(Personally, I thought the stimulus bill was great — stimulus money disbursed by the NIH funded my part time job in a lab through college and a lot of the fancy equipment I got to use, but it’s unclear how that use of public money accomplished the Congress’s goal.)

3. Government money turns businesses into consumers, not producers. The Washington Post reported that Solyndra began spending money wildly once it received the DOE loan. “After we got the loan guarantee, they were just spending money left and right,” said a former engineer at the company. And as the Energy Department found itself disbursing money rather than “investing” it, businesses that wanted that money adjusted their efforts accordingly. Investing decisions are made based on a company’s product: can it sell enough to profit its investors? Free money is passed out with considerably less forethought.

Businesses that are serious about getting their share of government cheese (especially businesses like Solyndra for whom the government loan is four or five times the amount of a private investment) turn their focus away from producing something in a financially sustainable way, and become as dependent on government as the clients of the Roman Senate.

2. This story is applicable to the rest of green jobs. Solar trade groups have been defending federal support of the industry, saying for example “You can’t judge an industry by the bankruptcy of one company.” But though Solyndra had its personal demons — its chief competitive advantage evaporated, for instance, when the price of polysilicone fell 85 percent — there’s nothing to distinguish the main faults of this loan deal from any other the DOE might make. These types of disbursals, whichever bureau they come from and whomever they go to, encourage consumption instead of production.

1. Entrepreneurs drive economic growth. Government subsidies pervert the natural incentives of a free market, which is why they’re a bad way to create jobs. They also pervert the nature of work, and in that way violate the Christian vocation. As I explained in an Acton Commentary, the government commodifies workers when it buys jobs, because it strips them of the dignity of productive work and treats them like so many votes to be bought.

Acton’s director of research Samuel Gregg has a piece over at The American Spectator that may surprise big government liberals. (We know you read this blog.) In “Free Market Sweden, Social Democratic America,” he lays out the history of Sweden’s social democracy — its nature and its effects on the country’s economy — and then draws lessons for the United States. The Scandinavian country isn’t quite the pinko nanny state Americans like to look down upon, and we’ve missed their reforms of the last two decades.

Gregg explains that Sweden’s dramatic mid-century expansions of government were portrayed as rooted in the traditional values of the homeland, so Social Democrat governments escaped the soft-Marxism tag, and were able to do pretty much as they pleased. Social programs were also characterized as coverage of universal rights, to be imposed by general taxation. Then came

the decision of governments in the 1970s to hasten Sweden’s long march towards the Social Democratic nirvana. This included expanding welfare programs, nationalizing many industries, expanding and deepening regulation, and — of course — increasing taxation to punitive levels to pay for it all.

Over the next twenty years, the Swedish dream turned decidedly nightmarish. The Swedish parliamentarian Johnny Munkhammar points out that “In 1970, Sweden had the world’s fourth-highest GDP per capita. By 1990, it had fallen 13 positions. In those 20 years, real wages inSweden increased by only one percentage point.” So much for helping “the workers.”

Economic reality was painful, but Sweden responded, and began to unravel some of its “progress,” reducing the public sector and even allowing private retirement savings. Unemployment was still high though — about 20 percent — in large part because the country’s tax structure encouraged joblessness.

But with a non-Social Democrat coalition government’s election in 2006, Sweden’s reform agenda resumed. On the revenue side, property taxes were scaled back. Income-tax credits allowing larger numbers of middle and lower-income people to keep more of their incomes were introduced.

To be fair, the path to tax reform was paved here by the Social Democrats. In 2005, they simply abolished — yes, that’s right, abolished — inheritance taxes.

But liberalization wasn’t limited to taxation. Sweden’s new government accelerated privatizations of once-state owned businesses. It also permitted private providers to enter the healthcare market, thereby introducing competition into what had been one of the world’s most socialized medical systems. Industries such as taxis and trains were deregulated. State education and electricity monopolies were ended by the introduction of private competition. Even Swedish agricultural prices are now determined by the market. Finally, unemployment benefits were reformed so that the longer most people stayed on benefits, the less they received.

By 2010, Sweden’s public debt had fallen dramatically and its rate of economic growth was 5.5 percent. Compare that with America’s 2.7 percent growth in 2010, and just try to restrain your jealous impulses.

Gregg cautions that Sweden’s economy is still hampered the Social Democrats’ legacy. High minimum wages keep a full quarter of the country’s youth unemployed, and a carbon tithe to the religion of environmentalism retards growth, but

It’s surely paradoxical — and tragic — that a small Nordic country which remains a byword for its (at times obsessive) commitment to egalitarianism has proved far more willing than America to give economic liberty a chance.

Full article here.

Blog author: kspence
posted by on Tuesday, September 27, 2011

Roger Scruton has written an excellent piece on the moral basis of free markets; it’s up at MercatorNet. He begins with the Islamic proscriptions of interest charged, insurance, and other trade in unreal things:

Of course, an economy without interest, insurance, limited liability or the trade in debts would be a very different thing from the world economy today. It would be slow-moving, restricted, and comparatively impoverished. But that’s not the point: the economy proposed by the Prophet was not justified on economic grounds, but on moral grounds, as an economy of righteous conduct.

Our long-term economic malaise may mystify world leaders, but Scruton sees its causes clearly: ways intended to speed economic development have become ways to acquire luxuries without payment; we have confused trade in debts with others’ assumption of our debts. This moral confusion is as much to be found in governments as it is in private markets, because the incentives are exactly the same — anyone who denies it is lying.

If you borrow money you are obliged to repay it. And you should repay it by earning the sum required, and not by borrowing again, and then again, and then again. For some reason, when it comes to the state and its clients, those elementary moral truths are forgotten.

Scruton concludes that morality is inescapable — though we may delay it, judgment will come.

The moral sense emerged in human beings precisely because it has proved to be, in the long run, for their advantage. It is the thing that puts a brake on reckless behaviour, which returns the cost of mistakes to the one who makes them, and which expels cheating from the fold. It hurts to be punished, and states that act wrongly naturally try to avoid the punishment. And since they can pass on their hurt so easily to the rest of us, we turn a blind eye to their behaviour. But I cannot help thinking that the result is at best only a short term economic advantage, and that the long term costs will be all the greater. For what we are seeing, in both Europe andAmerica, is a demoralisation of the economic life. Debts are no longer regarded as obligations to be met, but as assets to be traded. And the cost of them is being passed to future generations, in other words to our children, to whom we owe protection and who will rightly despise us for stealing what is theirs.

Read the full text here.

Blog author: rnothstine
posted by on Tuesday, September 27, 2011

For some, in our still largely affluent society, there is a deep seated need to be a member of the victim class. The background of your socioeconomic privilege is no obstacle, as they must create a narrative that points to being a victim. While some might aspire to sainthood, others aspire to victimhood. This video and report courtesy of The Blaze sums it up well. It would be unfortunate if charades like this drown out the real instances of injustice and those that are truly marginalized.

The Manhattan Institute’s Proxy Monitor project is aimed at “shedding light on the influence of shareholder proposals on corporations.” It provides a thorough analysis of proposals made from 2008 – 2011 by activist investors — and believe it or not, only 35 percent of those proposals were related to corporate governance. Most of the shareholder proposals that these companies deal with are attempts to direct the company in a more green or pacific or fair direction, and they come from small shareholders who do this to dozens of companies.

A new report from Manhattan summarizes the trends — the growing social proposals, and how Dodd-Frank has playing into activists’ activities — and the proxy monitor website allows you to look at any shareholder proposal from the last few years. The proposals are enlightening. The Sisters of Mercy of the Americas have submitted proposals to the stockholders of Lockheed Martin and General Dynamics stating,

WHEREAS: Space has served as a sanctuary where, over the years, nations cooperate rather than confront one another. Satellites save lives…

RESOLVED: Shareholders request that, within six months of the annual meeting, the Board of Directors provide a comprehensive report on Lockheed Martin’s involvement in the space-based weapons program, at reasonable cost and omitting proprietary and classified information.

The well-meaning Sisters of St. Francis of Philadelphia, in a proposal to McDonald’s shareholders that made the news earlier this year, requested that,

WHEREAS,

The Affordable Care Act, signed into law on March 23, 2010, included federal menu-labeling legislation requiring the posting of calories on fast food menu boards….

RESOLVED: Shareholders ask the Board of Directors to issue a report, at reasonable expense and excluding proprietary information, within six months of the 2011 annual meeting, assessing the company’s policy responses to public concerns regarding linkages of fast food to childhood obesity, diet-related diseases and other impacts on children’s health.

Many other equally well-intentioned proposals have been filed, including repeated requests by the Sisters of Charity of St. Elizabeth that various pharmaceutical companies restrain their prices to “reasonable levels.” The Unitarian Universalists have requested that Pepsi Co. “create a comprehensive policy articulating our company’s respect for and commitment to the Human Right to Water.”

This is not to mention the numerous environmental proposals made by religious groups, requesting that the Rights of Humanity and of Mother Earth not be violated by carbon emissions and by the use of genetically engineered plants. Take, for instance, this statement from a proposal to Du Pont’s shareholders, concerning genetically engineered crops:

The right to food requires that we place the needs of the most marginalized groups, including in particular smallholders in developing countries, at the centre of our efforts

One might think the Sisters of Charity of St. Elizabeth were unaware that it has been the genetic improvement of crops that has saved millions of the world’s poor from starvation.

We’ll keep you posted on further developments, and the effects these proposals may have on companies’ performance.

Blog author: kspence
posted by on Wednesday, September 14, 2011

Acton’s tireless director of research Samuel Gregg has a post up at NRO’s The Corner in reaction to yesterday’s bad poverty numbers (46.2 million Americans live below the poverty line now—2.6 million more than last year). Gregg is ultimately not surprised about the increase, because not only does the American welfare state produce long term dependence on governmental support, but the huge debt incurred by poverty programs tends to slow economic growth.

It is now surely clear that the trillions of dollars expended on welfare programs since the not-so-glorious days of the 1960s have not apparently made much of a dent in significantly changing the ratio of Americans in poverty.

In some instances, America’s welfare apparatus may have prevented some people (especially the elderly) from falling into abject poverty. There is, however, very little evidence that it has helped millions of people out of relative poverty. There is also plenty of data to indicate that many welfare programs have produced intergenerational dependency on the state—a point that even Bill Clinton seemed to have grasped by the mid-1990s.

Gregg then warns against the temptation to double down on government-as-the-answer, arguing that we don’t have the fiscal leeway to experiment as we did in the 1960s.

We need to keep these serious failures of America’s welfare state in mind because these new poverty numbers will almost certainly be used as an argument by some people of good will (as well as those whose motives are far less noble) to resist any reductions in welfare spending, despite America’s far-from-healthy debt and deficit situation. Yet the sheer size of government spending on entitlement programs (by far the biggest item in the federal government’s budget) makes cuts in these areas inescapable if—I repeat, if—our political masters are serious about wanting to balance the government’s books.

Indeed, such cuts are assuming an ever-increasing urgency in light of the studies which continue to appear indicating that crushing levels of public and government debt run the risk of significantly impeding growth. That’s worrying, not least because a slowdown in growth will hurt those in poverty far more than the wealthy. Strong growth rates are one of the most powerful antidotes to poverty – just ask anyone living in mainland China or India. More welfare spending is simply not the answer.

Full post here.