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Next Webcast Lecture: Peter Klein at 5:45 EST

March 21, 2014 in Economics

By Mises Updates

Peter Klein will speak at 5:45 EST on “The Present State of  Entrepreneurship Research.”

For live streaming video,  visit our MisesMedia page. 

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Source: MISES INSTITUTE

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Progressive Trickle-Down in Maryland

March 21, 2014 in Economics

By Steve H. Hanke, Stephen J.K. Walters

Steve H. Hanke and Stephen J.K. Walters

Progressives endlessly caricature free-market policies as “trickle-down” economics—giveaways to the undeserving rich with few benefits reaching the poor. In truth, trickle-down best characterizes the economic development policies pursued in deep-blue states like Maryland, where taxpayer dollars flow to the politically connected amid grandiose claims of “stimulative” effects.

A small but telling example is in Towson, a thriving suburb of Baltimore, where the proprietors of a sports-themed chain restaurant called the Greene Turtle recently built a rooftop bar so patrons could imbibe at altitude. Just good old American enterprise at work, except for the fact that, according to the Baltimore Sun, $505,000 of the $890,000 cost came out of taxpayers’ hides as low-interest government loans, much of which will be forgiven if the enterprise meets modest “employees added” targets and stays open five years.

When it comes to Keynesian-style stimulus at the state or local level, the juice is rarely worth the squeeze.”

While local officials said the handouts were necessary to stimulate the Towson economy, the district’s state senator, James Brochin, correctly called it “corporate welfare,” and Maryland Comptroller Peter Franchot (alone among the members of the state’s Board of Public Works) voted against the appropriation.

But the checks were cut, and at the grand opening on Jan. 2. Maryland’s First Lady, Katie O’Malley, presented a governor’s citation to the bar’s proprietors, who happened to be childhood friends. It’s remarkable how often development dollars trickle first to cronies or political donors.

When it comes to Keynesian-style stimulus at the state or local level, however, the juice is rarely worth the squeeze. The alleged magic of the multiplier—by which extra dollars of government spending supposedly ripple through the economy and raise incomes by several times that amount—depends on spending that is financed by deficits. But Maryland and most other state and local governments must balance their budgets, and the higher taxes required to finance these development programs crowd out private spending and offset some or all of the hoped-for stimulus.

These schemes also damage growth by misallocating capital. In markets, only projects that promise a return in excess of the cost of borrowing get built. Government allocation of capital, by contrast, exalts the judgments of politicians and bureaucrats over those of consumers and investors, and substitutes political pull for economic merit in the competition for capital. In combination, this is a prescription for inefficiency, inequity …read more

Source: OP-EDS

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Why the Nostalgia for an Old Communist Economy?

March 21, 2014 in Economics

By Mises Updates

Germanys War Ensign 1938-1945 Grunge

Predrag Rajsic writes in today’s Mises Daily: 

If we look at and analyze economic indicators, we have to admit that the idea of the robustness of the Yugoslav economy was an illusion and that the “well-being” that many former Yugoslavs are recalling with nostalgia was borrowed at the expense of future generations. These generations are now paying the bill for the collapse of the unsustainable economic system of socialist Yugoslavia, along with paying the bill for the destructive wars of the 1990s, and the interventionist economic policies of former Yugoslavia’s successor states.

The first sign that the robustness of the Yugoslav economy was an illusion appeared immediately after Tito’s death. The 1980s were marked by constant delays of the beginning of the repayment period for Yugoslavia’s maturing external debt due to the financial weakness of the economy. In 1991, Yugoslavia had about $20 billion of external debt. Previous to that, the International Monetary Fund reduced Yugoslavia’s total debt by $1.8 billion because the country simply did not have the means to repay the interest, let alone the principal. What preceded this outcome? This outcome was preceded by several decades of building an economy whose structure was such that its survival depended on a constant increase in foreign debt — an addict economy.

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Source: MISES INSTITUTE

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Pre-K: Not So 'Empirically Validated'

March 21, 2014 in Economics

By Neal McCluskey

Neal McCluskey

Today the unenviable task of opposing publicly funded schooling for the littlest Americans falls to me. Worse, I have to disagree with Peter Salins, whose past work I’ve greatly enjoyed. Yet oppose and disagree I shall, especially with Salins’s basic contention that positive effects of publicly funded, “high-quality preschool” are “empirically validated.”

As the Brookings Institution’s Grover “Russ” Whitehurst has been working feverishly to communicate, we simply do not have a good base of top-flight research — studies in which children are randomly assigned to large preschool programs — on which to conclude that public pre-K works. Most assertions about its effectiveness, such as President Obama’s 2013 State of the Union claim that “every dollar we invest in high-quality early education can save more than seven dollars later on,” are based primarily on two programs: Perry Preschool of the 1960s, and Abecedarian of the 1970s. Both treated fewer than 60 children, were very expensive, and were staffed by people highly motivated to prove their program’s worth.

Today the unenviable task of opposing publicly funded schooling for the littlest Americans falls to me.”

Those programs did undergo random-assignment evaluations — though with some important randomization problems — and have shown lasting benefits. But taking such tiny efforts to a much greater scale would be highly treacherous. As California discovered when it tried, and failed, to replicate class-size reduction results from the relatively small Tennessee STAR program, scaling presents big challenges such as getting enough good teachers to staff all the new positions.

Or consider Head Start and Early Head Start, federal early childhood programs that have undergone random-assignment scrutiny. They have demonstrated very few lasting benefits, and some negative effects.

To be fair, Salins argues that Head Start “was never designed to be a true preschool program,” but is instead “a well-meaning daycare program.”

Preschool supporters argue that, unlike Head Start, undertakings such as the Abbott program in New Jersey, or Oklahoma’s pre-K program, have demonstrated success. But in terms of methodology, research on these programs has often employed “regression discontinuity design” instead of random assignment. RDD tries to control for differences among children by comparing test scores of similarly aged kids who just missed, and just made, the age cutoff for pre-K. There are several problems with this approach, including that a child who won’t enter pre-K for another year will naturally be treated differently by his …read more

Source: OP-EDS

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Are Recreational Pot's Low Tax Numbers Worrisome? No

March 21, 2014 in Economics

By Jeffrey Miron

Jeffrey Miron

The Colorado Department of Revenue earlier this month released its first data on the tax, fee and license revenue from legalized marijuana sales in the state. For January, the figure is $3.5 million when you combine revenue from medical ($1.5 million) and recreational marijuana ($2 million). This implies annual revenue of $42 million for Colorado.

If the lower revenue numbers in Colorado are accurate, does that weaken the case for legalization? Not in the least.”

The amount collected so far is below other projections. In a 2010 white paper published by the Cato Institute, I predicted that if the federal government and all states legalized, Colorado would collect roughly $55 million to $60 million per year. And as recently as mid-February, Gov. John Hickenlooper predicted that the taxes, licenses and fees on medical-plus-recreational marijuana would generate $134 million for the fiscal year starting in July.

This gap between projections and the initial data may overstate the shortfall, since the legal marijuana industry could still grow over time as more retail shops open. But just as plausibly, the gap may grow as other states adopt Colorado’s model, diminishing revenue from marijuana tourism.

If the lower revenue numbers in Colorado are accurate, does that weaken the case for legalization?

Not in the least.

The possibility of increased tax revenue was never the main reason for legalizing marijuana. Any added revenue is desirable, since that means taxes on all other activities can be lower. And legalization shifts profits from illegal traffickers to the population generally, a kind of redistribution that most people would endorse.

But the most important benefit is that legalization enhances the welfare of those who use marijuana, or would like to do so. When pot criminalization is in place, users often fear arrest and fines, even when enforcement is modest. Also, users in a black market face difficulty determining the quality and safety of the marijuana they purchase, as well as paying elevated prices.

Legalization, moreover, helps society generally by eliminating the unintended consequences of prohibition.

The worst impact of prohibition is the increased violence and corruption generated by black markets. In legal markets, consumers and firms resolve their disputes with law enforcement, lawyers, arbitration, and the like. In black markets, participants cannot use these mechanisms, so they resort to violence. History has shown that prohibitions of many goods (prostitution, gambling and alcohol) have consistently been associated with elevated rates of …read more

Source: OP-EDS