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Too much government can be bad for the economy´s health

April 23, 2013 in Economics

By John P. Cochran

In a comment on Reynolds and Cochran on the Slow Recovery, Marcus Nunes argued, “If there was a lesson in the R&R fracas is that you should take care with numbers, especially if you define “tipping points”. I think 15% is below what would account for the ‘core functions’ of government.” Nunes then referred the reader to ‘Keep it simple’. Nunes’s commentary is an interesting take on recent controversy over the coding error found in one of the Reinhart-Rogoff papers focusing on debt and growth.

‘Keep it simple’ is useful. It provides a summary of other evidence on the impact of the size of government on growth evidence. (John Taylor also focuses on size of government at Coding Errors, Austerity, and Exploding Debt.)

I agree whole heartedly with Nunes’s reflection on the R & R debate [For a summary of the details of this ‘debate’ see Mistakes by Greg Mankiw]. The focus should be on the source the size of government relative to the size of the economy not on the size of the debt or deficit, as Nunes succinctly point out:

I may be missing something vital, but what bothered me about the R&R ‘fall-out’ was that the original study was concerned with public debt/GDP levels. The major finding of the critics was that, contrary to the original study, no ‘tipping-point’ (after which growth is negatively affected) was found.

My take: Debt results from deficits. Deficits follow government spending (given revenues). So why not go to the ‘source’, i.e., government spending, and check if it has a measurable impact on growth.

While there may be a quibble on a ‘tipping point’, Nunes’s conclusion from the data provided is essentially consistent with my argument. His conclusion:

“So yes, “too much government can be bad for the economy´s health”!”

Dick’s comment reflects well my perspective on turning points:

It appears that Professor Cochran is closer with 10% than to consider 15%. Your averages tend to be on the high side because you are using more modern government spending levels. In a functioning economy there is little need for government because market driven production and processes are much more efficient with much higher quality.

Serious analysis would probably show that much less government is necessary to a properly function economy, even less than 10%.

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Source: MISES INSTITUTE

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Sen. Paul Appears on Fox's Happening Now with Jon Scott & Jenna Lee- 4/23/2013

April 23, 2013 in Politics & Elections

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Source: RAND PAUL

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Competing Currencies: The Euro and Gold

April 23, 2013 in Economics

By John P. Cochran

For those interested in the Euro, Andreas Hoffmann (University of Leipzig), has some interesting commentary at ThinkMarkets, A blog of the NYU Colloquium on Market Institutions and Economic Processes, “The Euro: a Step Toward the Gold Standard?”

The he sipports and critiques argument about the Euro where, in a recent piece [“An Austrian Defense of the Euro” ?],

Jesus Huerta de Soto (2012) argues that the euro is a proxy for the gold standard. He draws several analogies between the euro and the classical gold standard (1880-1912). Like when “going on gold” European governments gave up monetary sovereignty by introducing the euro. Like the classical gold standard the common currency forces reforms upon countries that are in crisis because governments cannot manipulate the exchange rate and inflate away debt. Therefore, to limit state power and to encourage e.g. labor market reforms he views the euro as second best to the gold standard from a free market perspective. Therefore, we should defend it. He finds that it is a step toward the re-establishment of the classical gold standard.

Worth a read. The exchange between Andreas and O’Driscoll in the comments is interesting as well.

Philipp Bagus author of The Tragedy of the Euro has also commented extensively on the Euro. See especially “Is There No Escape from the Euro?” and “The Eurozone: A Moral-Hazard Morass”.

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Source: MISES INSTITUTE

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Keeping the Tsarnaevs in Perspective

April 23, 2013 in Economics

Between Sept. 12, 2001, and last Monday, some 52 cases came to light in which the United States itself has been, or apparently has been, targeted for terrorism by Islamist extremists, whether based here or abroad. While the Boston terrorists were able to fabricate and detonate bombs, in all other respects they do not seem to have been any more competent than most of their predecessors. “While the scope of the tragedy in Boston should not be minimized,” argue John Mueller and Mark G. Stewart, “it should also be noted that, if the terrorists’ aim was to kill a large number of people, their bombs failed miserably.”

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Source: CATO HEADLINES

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Sen. Paul Appears on Fox Business with Neil Cavuto- 4/22/2013

April 23, 2013 in Politics & Elections

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Source: RAND PAUL

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Brothers Tsarnaev Are "Losers," Not "Enemy Combatants"

April 23, 2013 in Economics

By Gene Healy

Gene Healy

From the Twittersphere to CNN, last week’s frenzied theorizing about the Boston Marathon bombing was an object lesson in the dangers of premature speculation.

But there’s one assessment of Tamerlan and Dzhokhar Tsarnaev for which we already have enough information. That’s the one given by their uncle, Ruslan Tsarni, who, when asked what motivated his nephews to commit the atrocity, replied “being losers, [full of] hatred to those who were able to settle themselves.”

Contrast Uncle Reslan’s pithy dismissal with the current Republican craze for declaring America a “battlefield” and demanding that Dzhokhar Tsarnaev, a naturalized American citizen, be held as an “enemy combatant.”

That proposal, issued by Sens. Lindsey Graham, R-S.C., John McCain, R-Ariz., and Rep. Peter King, R-N.Y., among others, is illegal, unnecessary and unwise.

There’s good reason terrorism is so often called the “weapon of the weak.””

As Justice Antonin Scalia noted in an earlier enemy combatant case, “where the government accuses a citizen of waging war against it, our constitutional tradition has been to prosecute him in federal court.”

And as Brookings’ Benjamin Wittes explains, “the public safety exception to Miranda means the FBI has a considerable degree of flexibility” in questioning Tsarnaev to explore any connection to foreign terrorism.

Republican lawmakers’ zeal for an “enemy combatant” designation puts them to the right of Justice Scalia and even President Nixon, who, upon signing the Non-Detention Act of 1971 (providing that “no citizen shall be imprisoned or otherwise detained by the United States except pursuant to an Act of Congress”), emphasized that “our democracy is built upon the constitutional guarantee that every citizen will be afforded due process of law.”

We shouldn’t allow terrorist tactics to scare us into undermining that guarantee. There’s good reason terrorism is so often called the “weapon of the weak.” In the 20th century, across the entire world “fewer than 20 terrorist attacks killed more than a hundred people,” Dan Gardner observes in The Science of Fear.

Americans’ odds of dying in a terrorist attack stand at roughly 1 in 20 million, which, as Micah Zenko noted recently, means we’re as likely to “crushed to death by our televisions or furniture” in any given year.

When we inflate terrorism’s risk, we do terrorists’ work for them. “To bring down America we need not strike big,” al Qaeda’s online magazine Inspire noted in 2010, “It is such a good bargain for us to spread fear amongst …read more

Source: OP-EDS

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Should Federal Funding Come with Political Stipulation?

April 23, 2013 in Economics

By Ilya Shapiro

Ilya Shapiro

On Monday, the Supreme Court heard arguments in Agency for International Development v. Alliance for Open Society International, a case that will determine just how much the federal government can demand of organizations that receive federal funding. Can it require them to advocate a political position unrelated to the funds they receive?

Here’s the issue: Under the United States Leadership Against HIV/AIDS, Tuberculosis, and Malaria Act, the government requires groups receiving federal funds for overseas HIV/AIDS programs adopt policies explicitly opposing prostitution. It even goes so far as to require grantees to espouse an anti-prostitution policy when they spend privatefunds.

Several nonprofit groups that receive such funds claim that this “policy requirement” violates their First Amendment rights, and the Cato Institute agrees. We filed an amicus brief supporting the nonprofit groups and arguing that the policy requirement significantly burdens political speech, the constitutional protection of which lies at the very heart of the First Amendment.

These groups don’t seek to advocate prostitution, its legalization, or anything else: they’d rather not speak of it at all. The fact is that efforts to fight AIDS often involve working with marginalized groups, so adopting a statement that explicitly renounces prostitution could frustrate efforts to disseminate public health information.

Can the federal government require organizations that receive federal funding to advocate a political position unrelated to the funds they receive?”

The lower courts agreed with the nonprofit groups and ruled that the government may not condition the receipt of public funds on giving up First Amendment rights. Indeed, were the government’s position accepted, it would eviscerate the “unconstitutional conditions” doctrine, which courts have used to prevent the conditioning of generally available federal benefits on the waiver of fundamental rights.

Now before the Supreme Court, the government has invoked the Spending Clause, which gives Congress broad powers to “provide for the common Defence and general Welfare,” to expand the scope of permissible conditions it can impose. But the key case it relies on, South Dakota v. Dole (1987) — which okayed a conditioning of five percent of federal highway funds on states’ raising their drinking age — didn’t involve the First Amendment or any other individual right.

Dole wasn’t a case about the government’s power to force citizens to choose between constitutional rights. It instead considered the extent to which the strings attached to federal funds coerce the states to do the federal …read more

Source: OP-EDS

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When Is Too Much Security Too Much?

April 23, 2013 in Economics

By Richard W. Rahn

Richard W. Rahn

Should Americans be spending more on public security, or less? After a week of two horrific events, the Boston Marathon attack and the Texas fertilizer-plant explosion, most would probably answer the above question by saying, “We’re not spending enough.” Such an emotional response is not surprising particularly after seeing the highly competent and courageous response of the police, firefighters and medical first responders.

On Friday, I received an email from a friend asking the question, “Did it make sense to close down half of Massachusetts for a day to capture one 19-year-old suspected terrorist? No, unless he was part of a bigger cell which was the unknown for the police. Did the huge redeployment of law enforcement resources for the week to catch the perpetrators result in more nonrelated terrorist murders or auto fatalities (or perhaps even fewer)?”

One occasionally hears the comment that “we should spend whatever is necessary” to stop terrorism. It sounds good, but on reflection, it makes no sense. First, it is not at all clear that spending an unlimited amount can “stop terrorism.” As harsh as it may sound, we, like the Israelis and others, might have to learn to live with an occasional terrorist event. If we bankrupt the country or give away our liberties in a futile attempt to stop all terrorism, the terrorists win. As Benjamin Franklin warned: “Those who would give up essential liberty to purchase a little temporary safety, deserve neither liberty nor safety.”

Attempting to increase security through more spending and taxing may be counterproductive.”

A society would make better public-policy decisions as to how much to spend on protection i.e., policing, firefighting, first-response medical systems, and the military if we viewed these expenditures as we do other forms of insurance. A rational person does not spend far more for homeowners and business insurance than the home or business is worth. Most people do not have $100 million in life insurance, because they cannot afford it and because they also implicitly realize that their lives are probably not worth that much.

The same is true when making collective decisions about how much to spend for public safety. Thus, the first question that needs be asked is, how much is a human life worth? In the real world, most people implicitly understand that the life of the typical 95-year-old is not worth as much as the life …read more

Source: OP-EDS

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Here Comes an Internet Sales Tax

April 23, 2013 in Economics

The Senate this week is considering a bill, known as the Marketplace Fairness Act, that would require large Internet retailers to collect sales taxes on all purchases for the state and local governments of the buyers. Last week, prominent economist Art Laffer lent his support to the idea, an action that disappointed Cato scholar Daniel J. Mitchell. Argues Mitchell, “Lawmakers claim that they want to ‘streamline’ and ‘simplify’ retail sales taxes so that there will be a ‘level playing field’ between Main Street merchants and e-commerce, but the real goal is to grab more money.”

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Source: CATO HEADLINES

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The Case against the Constitutional Amendments Seeking to Overturn Citizens United

April 23, 2013 in Economics

Concerns about the putative political and electoral consequences of the Citizens United decision have fostered several proposals to amend the Constitution. Most simply propose giving Congress unchecked new power over spending on political speech, power that will be certainly abused. In a new paper, Cato scholar John Samples argues that the public purposes cited for restricting political spending and speech are not persuasive and do not justify the breadth of power granted under these amendments. “Americans should defend—not amend away—the freedom of speech recognized by the First Amendment,” says Samples.

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Source: CATO HEADLINES