You are browsing the archive for 2013 March 11.

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A Development in Berlin Threatens the Wall That Once Divided a Continent

March 11, 2013 in Economics

By Doug Bandow

Doug Bandow

As befits the capital of Europe’s most prosperous nation, Berlin continues to grow. A new luxury condominium complex is planned along the Spree River. Alas, construction requires knocking down part of the original Berlin Wall.

The development would remove only a small section of the 1400 yards remaining, but emotions run high. Protestors have gathered and one demonstrator complained: “This is history, and it belongs to us Germans. The whole world knows this.”

At least it should.

It is difficult to measure the human cost of communism. Nazism, with its genocidal attempt to eliminate an entire people, holds a special horror. But communism afflicted more nations and killed even more promiscuously.  The Black Book of Communism numbers the murdered at more than 100 million. Communism continues to inflict varying levels of hardship, oppression, and death in the few remaining, though wavering, acolytes: China, Cuba, Laos, and Vietnam. Only North Korea remains pure, and completely murderous.

The Berlin Wall symbolized the horror of totalitarianism. What kind of a system imprisons its people? On June 12, 1987 Ronald Reagan stood in front of the Brandenburg Gate and said: “General Secretary Gorbachev, if you seek peace, if you seek prosperity for the Soviet Union and Eastern Europe, if you seek liberalization: Come here to this gate! Mr. Gorbachev, open this gate! Mr. Gorbachev, tear down this wall!”

The Berlin Wall represents the worst of humanity. East Germans’ battle against the Wall represents the best.”

But Berlin’s moment had not yet arrived. Even though Mikhail Gorbachev pushed glasnost and perestroika in the Soviet Union, what President Reagan had called the Evil Empire still loomed over Europe. When 1989 dawned communism obviously was exhausted, but few realized that the system was on its deathbed.

Then the dominoes began to fall, starting with Hungary. Budapest’s reform government tore down the border wall with Austria, freeing people throughout the Soviet bloc. Suddenly a vacation in Hungary meant asylum in the West.

East Germans who had suffered under Erich Honecker’s decrepit Stalinist regime began fleeing through Hungary. When the Honecker government sought to close that window, East Germans filled the West German embassy in Prague, Czechoslovakia, demanding freedom.

Others began protesting at home against the misnamed German Democratic Republic. Honecker advocated shooting demonstrators if necessary, but his colleagues retired him instead and the protests exploded. On November 4 a million people gathered in East Berlin to demand freedom.

Five days later the desperate government opened the Wall. …read more
Source: OP-EDS

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How the IRS Violates Legal Tender Laws

March 11, 2013 in Economics

By Joseph Salerno

In response to my Mises Daily last week on The International War on Cash, a reader recounted the following incident in an email:

Last month I paid the last of an old tax bill to the IRS in person. A sign on the desk said that they do not accept cash payments only check or credit cards.

Indeed on the IRS website the options for payment are listed in the following order: electronic payment options, check, money order, cashier’s check, or cash. The taxpayer is also warned, “Due to staffing limitations, not all local IRS offices accept cash.” Huh? One would think that it is more costly to deal with non-cash methods of payment. In any case, the last time I checked, the Federal Reserve Notes in my wallet all still bore the notice, “This note is legal tender for all debts public and private” This means that they cannot be refused by the creditor for repayment of a debt previously incurred–especially not for payment of taxes, which are the pre-eminent “public debt.” While the IRS may not be strictly in violation of legal tender laws, because one can still use cash to pay at some IRS offices, its anti-cash policy is just another tactic in the Federal government’s relentless war to stamp out cash payments.

…read more

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Why the EU's Microsoft Fine Is Self-Defeating

March 11, 2013 in Economics

By Dalibor Rohac

Dalibor Rohac

After a long hiatus, the European Commission is once again fining Microsoft. This time, a €561 million penalty was imposed on the software giant for an alleged violation of a prior agreement with the regulators, which required that Windows users be offered an explicit choice between Microsoft Internet Explorer and alternative Web browsers.

Since 2009 when the agreement was made, Explorer’s market share has fallen below 30 percent. “Had no idea they were still making a browser,” an anonymous Twitter denizen joked after this week’s decision had been taken. Some observers thus see the Commission’s decision as a strategic move in its ongoing negotiations with Google, demonstrating that EU competition regulators still have teeth.

Whatever the regulators’ motives, the decision to penalize Microsoft with a hefty fine for what the company claims is a technical glitch is disturbing on several levels. Most fundamentally, the fact that market share of Explorer has been on decline for years is illustrative of the fact that traditional approaches to competition policy do not work well in the 21st century—particularly not in the area of software and information and communication technologies. Explorer is no longer seen as a leading product by consumers, who are switching away from it—regardless of whether they are offered an explicit “choice screen” as required by the European Commission.

Penalizing Microsoft with a hefty fine is disturbing on several levels.”

Markets for information and communication technologies, including software and online platforms, have become incredibly dynamic—more so than any other industry in human history. The innovation cycle in this area is so rapid that companies are able to sustain their technological lead for ever-shorter periods of time—making lock-in with a particular technology standard an increasingly irrelevant problem.

Furthermore, the entry into the software and online business is practically costless—certainly in comparison with industries like energy or transport, which require enormous fixed costs and which have therefore been the traditional focus of competition policy.

Software and Internet giants have come and gone. These days, very few young people have vivid recollections of Word Perfect or Netscape Navigator—once the dominant word processor and web browser, respectively—or sites like Geocities or Altavista. It follows that static measures of market power, used by European regulators, are misleading and will underrate the actual degree of competition existing in the market. Worse yet, policy interventions in this dynamic economic environment are likely to backfire.

In a paper published in 2008, during the heyday …read more
Source: OP-EDS

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American Banksterism Through the Ages

March 11, 2013 in Economics

By Thomas DiLorenzo

“Robert Morris’s nationalist vision was not confined to a strong central government, the power of the federal government to tax, and a massive pubic debt fastened permanently upon the taxpayers.  Shortly after he assumed total economic power in Congress in the spring of 1781, Morris introduced a bill to create . . . the first central bank . . . the Bank of North America . .. modeled after the Bank of England.”

–Murray Rothbard, A History of Money and Banking in the United States

“The Bank of the United States promptly fulfilled its inflationary potential . . . .  The result of the outpouring of credit and paper money by the new Bank of the United States was . . . an increase [in prices] of 72 percent [from 1791 to 1796)."

--Murray Rothbard, A History of Money and Banking in the United States

The Bank of the United States "ran into grave difficulties through mismanagement, speculation, and fraud."

--James J. Kilpatrick, The Sovereign States

"[Henry Clay's] income from this business [general counsel to the Bank of the United States] apparently amounted to what he needed: three thousand dollars a year from the bank as chief counsel; more for appearing in specific cases; and a sizable amount of real estate in Ohio and Kentucky in addition to the cash . . . . When he resigned to become Secretary of State in 1825, he was pleased with his compensation.”

–Maurice Baxter, Henry Clay and the American System

“I believe my retainer has not been renewed or refreshed as usual.  If it be wished that my relation to the Bank [of the United States] should be continued, it may be well to send me the usual retainer.”

–Letter from Daniel Webster to Nicholas Biddle, president of the Bank of the United States

The Bank of the United States “is a monster, a hydra-headed monster equipped with horns, hoofs, and tail so dangerous that it impaired the morals of our people, corrupted our statesmen, and threatened our liberty.  It bought up members of Congress by the Dozen . . . subverted the electoral process, and sought to destroy our republican institutitons.”

–President Andrew Jackson

“Congress gave [Treasury Secretary] Hank Paulson. . . $700 billion, and the first thing he did was to take $125 billion out of the bag and give it to his pals at the nine biggest banks and investment banks in the country.  Never one to display ingratitude, he gave …read more

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Medicaid Expansion Too Good to Be True

March 11, 2013 in Economics

By Michael D. Tanner

Michael D. Tanner

If a deal sounds too good to be true, it usually is. That’s a maxim Gov. Rick Snyder seems to have forgotten with his decision to expand Michigan’s Medicaid program in conjunction with the Patient Protection and Affordable Care Act, or Obamacare.

Obamacare originally required every state to expand eligibility for Medicaid to 138 percent of the poverty line, or roughly $32,500 per year for a family of four. Not surprisingly, many states balked, and last summer the Supreme Court ruled 7-2 that the federal government could not force states to expand their programs.

So to incentivize states to go along, the federal government is dangling “free” money in front of them. For the first three years, the federal government promises to pay 100 percent of cost of the expansion. This will gradually decline to 95 percent in 2017, 94 percent in 2018, 93 percent in 2019, and 90 percent in 2020. Given that the federal government only provides two-thirds of the funding for Michigan’s current Medicaid program, this sounded like too good a deal for Snyder to resist.

Over the next 10 years, it is estimated the Medicaid expansion will cost Michigan taxpayers $2.25 billion.”

But even with the federal government picking up 90 percent of the cost, Michigan taxpayers are not completely off the hook for state taxes. Ten percent of a very big number is still a very big number. In fact, over the next 10 years, it is estimated the Medicaid expansion will cost Michigan taxpayers $2.25 billion.

Even those estimates significantly underestimate the cost because they ignore a second category of recipients likely to be added to the Medicaid rolls if this expansion moves forward, what the Robert Wood Johnson Foundation has dubbed “the woodwork effect.”

As the Medicaid expansion moves forward, thousands of Michigan residents will discover that they are eligible for Medicaid. Some of these people will be uninsured, but others will either be paying for insurance themselves or receiving it from their employer. Now some will sign up for Medicaid. In fact, it has been estimated that 202,000 people, roughly 37 percent of the 547,000 new Medicaid recipients enrolled under the expansion, would be “coming out of the woodwork.” This group is not eligible for the 90/10 match, but is covered under the old formula, for which Michigan is responsible for nearly 34 percent of the cost.

While there have been …read more
Source: OP-EDS

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Europe's Bogus Bonus Caps

March 11, 2013 in Economics

By Dalibor Rohac

Dalibor Rohac

Last week, the finance ministers of the euro-zone countries voted to limit bankers’ bonuses. It’s not difficult to understand the motives here. Investment bankers have had it easy in this crisis: Thanks to massive bailout programs, not a single European bank has gone bankrupt since late 2008.

But on the other hand, it seems a bit odd for European governments to worry about excessive banker pay while spending wildly to keep banks afloat.

Specifically, the euro-zone group of finance ministers agreed that shareholders should have to approve a banker’s bonus once it exceeds the banker’s salary, and that bonuses of more than twice a banker’s salary should be forbidden altogether. The move has stirred relatively little controversy — only Britain’s chancellor of the exchequer, George Osborne, has pledged to fight the measure.

Incidentally, last weekend, the Swiss voted in a referendum on a detailed proposal guiding the remuneration of corporate executive and board members, known as the Minder initiative. The measure, approved by a sizable 68 percent majority, bans certain forms of compensation, including so-called golden parachutes and bonuses tied to mergers and acquisitions, and ties other remuneration to stringent approval requirements by shareholders.

Such caps only distract from the true public scandal of finance: too-big-to-fail guarantees.”

While it is easy to understand the sentiments behind them, the current initiatives are misguided. The European Commission claims that “excessive bonuses [at banks] led to excessive risk and taxpayers having to step in,” but the reality is quite different. Rather, overpaid CEOs and their bonuses have been a symptom of the implicit guarantees extended to the financial industry by policymakers, which also happen to encourage excessive risk.

And further, the Minder initiative can hardly be a well-targeted response to risky bank behavior and the cost of bailouts: It imposes a one-size-fits-all model of corporate governance on all companies, whether or not they operate in financial services, and whether or not they have received public money.

Notwithstanding the widely publicized cases of seeming excess — such as the $76 million worth of shares given to the CEO of Credit Suisse in 2010, just months before the company cut 2,000 jobs in response to a weak global recovery — shareholders already have effective mechanisms to discipline companies’ executives. True, there are situations when shareholders fall prey to fraudulent or predatory behavior. But can a uniform regulation of executive pay prevent those?

Consider Enron. The massive …read more
Source: OP-EDS