You are browsing the archive for 2018 February 07.

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The Dangers of Cartel Government

February 7, 2018 in Economics

By Doug Bandow

Doug Bandow

Europe is fracturing, and establishment leaders across the
continent believe the answer is to suppress dissent and strengthen
the European Union. EU critics point to a “democratic
deficit,” but the so-called Eurocrats who dominate the
organization believe that consent only matters within Brussels, not

This tin-eared thinking is shrinking the center throughout
European politics. British voters backed exit from the EU; in
Austria the far-right Freedom Party has joined the governing
coalition. The extremist National Front surpassed France’s
traditional socialist party during the last French election. In the
Netherlands only a disparate coalition has kept Geert
Wilders’ anti-immigrant, anti-Muslim Freedom Party out of
government. Italy appears likely to take a rightward, Euroskeptic
turn in its upcoming election. Stable government has become
impossible in Spain with the collapse of support for the
once-ruling socialists.

Something similar is happening in Germany, the continent’s
largest economy and de facto banker. Berlin has been forced to play
a leading European role, despite the lingering unease created by
Germany’s unforgettable history. However, next to economic
prosperity, Germans most desire political stability, which their
country has always seemed to have—until last
September’s election.

As Germany’s main parties
mull another suffocating grand coalition, the populist right is
steadily gaining ground.

The Christian Democratic Union/Christian Social Union (which run
as one party) received barely over a third of the vote, their
lowest total since 1949. The Social Democratic Party came in at
barely a fifth of the total, the least since 1933, before the Nazi
Party extinguished German democracy. Four years earlier, the two
traditional governing parties had collected about two thirds of the
vote. This time they barely won a majority together.

The liberal (in a European sense) Free Democratic Party
reentered the Bundestag after falling below the 5 percent threshold
in 2013. Even more significant, though, was the Alternative for
Germany, the right-wing populist party, which scored nearly 13
percent. Created to oppose the Euro, the continental currency that
replaced the German Mark, the party had fallen short of entering
the Bundestag four short years before. But the AfD switched its
focus to immigration and capitalized on Germany’s acceptance
of a million economic migrants in 2015, to great electoral

Although this political fracturing would have been unexceptional
elsewhere in Europe, it was a new experience for Germany, which is
accustomed to political stability. Seven parties now sit in the
Bundestag. The CDU/CSU no longer marks the rightward limit of
German politics. The AfD rejects traditional views on decorum and
policy held by German elites.

Blame for the collapsing center falls on both major parties, but
especially Chancellor Angela Merkel. She is her nation’s most
successful politician since Konrad Adenauer, the country’s
first …read more

Source: OP-EDS

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Study: School Choice for All Would Jump Start Mississippi Economy

February 7, 2018 in Economics

By Will Flanders, Corey A. DeAngelis

Will Flanders and Corey A. DeAngelis

This is an exciting time for the children of Mississippi.
Legislation that would expand the Education Scholarship Account
(ESA) program to include all Mississippi kids in public schools is
currently under serious consideration by the Senate. In a state
that has struggled for generations to provide a quality education
for its young people, the ESA represents a new path forward, giving
hope to thousands of kids previously stuck in schools that are not
meeting their needs.

While much of the discussion around the ESA will naturally focus
on the immediate dollars and cents, an important aspect of such
dramatic education reform is often ignored: the potential long-term
economic and societal benefits of such a bill for everyone in the

School choice for all
could catapult Mississippi from the back-of-the-pack in education
to a position as a national leader in education reform.

The results from our just-released study suggest that a
universal ESA could have dramatic positive effects on the state’s
economy. Every Mississippi citizen should be excited about

Our study, released by the Mississippi State University
Institute for Market Studies, uses what we know from the strongest
existing evidence on school choice to estimate statewide economic
impacts of an ESA. First, the existing research shows that private
school choice programs increase the likelihood of high school
graduation. Research in Milwaukee, for instance, has found that
students in the Milwaukee Parental Choice Program are about 4
percent more likely to graduate from high school. In addition, an
experimental evaluation found that the voucher program in D.C.
increased the likelihood of graduation by 30 percent. And because
private schools have strong incentives to shape character skills,
the existing research shows that private school choice programs
reduce the likelihood of adult criminal activity by over 50

Graduation from high school is one of the largest predictors of
success later in life. Students who graduate from high school and
have the opportunity to attend college are more likely to find
gainful employment and are more likely to have a steady income.
Using existing estimates of the impact of school choice on
graduation, our models estimate that the implementation of an ESA
expansion would lead to an increase of around 5,000 to 8,000
additional high school graduates over the next 20 years. The
economic benefit of this increase ranges from $900 million to $1.5

Avoiding criminal activity is also crucially important to
lifelong success. The harsh reality is that a criminal record
decreases the likelihood that a person will be hired for a job,
creating a vicious crime cycle that represents a severe drain on
state resources. We estimate that …read more

Source: OP-EDS

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Washington, D.C. Desperately Needs a Dose of Fiscal Restraint

February 7, 2018 in Economics

By Michael D. Tanner

Michael D. Tanner

Regardless of how one feels about the ups and downs of the
Russia saga currently engulfing Washington, one of its worst
aspects is the way in which it sucks all the oxygen out of the
room, relegating other vital issues to near invisibility. Thus,
while Congress and the media were obsessed with Devin Nunes’s
much-ballyhooed memo late last week, virtually no one noticed a new
Congressional Budget Office report that the federal government is
on track to borrow $955 billion this year, an 84 percent increase
in the deficit over last year.

That’s the highest budget deficit since 2012. And while the
trillion-dollar deficit of six years ago was driven in part by
one-time events — TARP, the stimulus bills tied to the Great
Recession — the current flood of red ink, driven as it is by
much more intractable structural problems, seems unlikely to recede
any time soon. Next year’s deficit could top $1.1 trillion, and by
2027 we could see deficits as high as $2 trillion per year.

The reaction from Congress and the Trump administration has been
a bipartisan shrug. Trump didn’t mention the deficit or the debt
even once in his State of the Union address. He did, however, call
for $1.5 trillion in infrastructure spending over the next ten
years (three times as much as Hillary Clinton proposed during the
campaign), paid family leave, and a laundry list of other, more
minor expenditures. And all of that is before we get to
the $25 billion he wants for a border wall. On spending, Trump is
not much more fiscally conservative than Bernie Sanders.

As we head toward our
first trillion-dollar deficit in six years, why do no leaders in
either party seem to care?

Meanwhile, Politico reports that any congressional deal
to finally pass last October’s budget is likely to be the costliest
spending accord ever. Republicans are said to be circulating a
proposal that would raise caps on domestic and defense spending by
some $300 billion over the next two years, a bigger hike than in
the three previous budget deals combined. Republicans are also
reportedly considering an increase in Overseas Contingency
Operations spending, which exists outside the budget caps. There
will also likely be emergency spending for disaster relief.
Entitlement reform is completely off the table.

All of this may not even be enough for Congressional Democrats,
who are still threatening to derail a long-term spending deal
— and force yet another short-term Continuing Resolution
— because they want to spend even more. If Democrats have an
answer to rising deficits, it is tax hikes, substituting “tax and
spend” for …read more

Source: OP-EDS

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Will the SEC Take on the Shareholder Proposal Process?

February 7, 2018 in Economics

By Charles Sauer, Ike Brannon

Charles Sauer and Ike Brannon

The swearing-in of Hester Peirce and Robert Jackson on Jan. 11
gave the Securities and Exchange Commission a full slate of
commissioners for the first time in nearly two years. Now that it
is at full strength, it is worth asking what ought to be the SEC’s
priorities for the immediate future. Allow us to make a suggestion:
It ought consider how to fix a badly broken shareholder proposal

Congress created the SEC following the market crash of 1929 with
three main objectives in mind: to protect retail investors;
maintain fair, orderly, and efficient markets; and facilitate
capital formation through the creation and listing of new
securities. For the first 60 years of its existence, the SEC was
largely successful in this regard, helping U.S. financial markets
become the envy of the world.

Unfortunately, that leadership position has begun to erode over
the past two decades, as companies are increasingly hesitant to
subject themselves to the vicissitudes of the stock market for a
variety of reasons. Instead, they remain in the hands of wealthy
investors in one form or another.

To the extent that the
current shareholder proposal process acts as a deterrent to IPO
activity — and few dispute that it certainly does — it
needs to be fixed as soon as possible.

The SEC needs to act soon because the consequences of this
decline continuing are serious, both to the U.S. economy and to
those of us trying to save to pay for retirement and college.

Today, more and more potential public companies are raising
capital privately, mostly from high net worth individuals and
sovereign funds. This deprives retail investors of the opportunity
to participate in and potentially benefit from often significant
growth that good companies, selling great products and ideas,
experience in their initial post-IPO run.

average total return
for initial public offerings stood at 23.1
percent in 2016, and the average total return of IPOs has surpassed
20 percent in four of the last five years, reaching as high as 40.8
percent in 2013.

Given that retail investors tend to put most of their retirement
savings in equity markets, their inability to capitalize on this
growth is problematic. As the number of IPOs dwindles, returns from
equity investments effectively shift from Main Street investors to
private equity, sovereign funds, and wealthy individuals.

To the extent that the current shareholder proposal process acts
as a deterrent to IPO activity — and few dispute that it
certainly does — it needs to be fixed as soon as

One thing that specifically needs to be addressed is the stock
proxy proposal process. …read more

Source: OP-EDS

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Let Us Eradicate Poverty, Not Demolish Wealth

February 7, 2018 in Economics

By Daniel Lacalle


By: Daniel Lacalle

By the time you finish reading this article, some 600 people from all over the world will have escaped poverty.

In 1990, 35% of the world population lived in extreme poverty. Today, that figure has fallen to 10.7%, according to the World Bank.

In 1987, there were 660 million poor people in China. After its economy opened, that figure has fallen to only 25 million. In the same period, in India, the number of poor citizens has been reduced by more than 100 million people.

Additionally, 140 million people join the middle class every year.

Despite these achievements, we are living in a time when this excellent news is ignored to focus on interventionist messages about wealth. You will read that “1% of the world controls 87% of wealth” and things like “if the ten richest people in the world gave up their wealth there would be no poverty.”

The 635 million Chinese who have escaped poverty in the last 30 years disagree. They are delighted that China is the country where the most millionaires are created every year and where the middle class grows the most, and thanks to prosperity there is a “growing inequality” that is not negative at all, but positive. Inequality was 0.30 when China was starving. It is 0.50 today and the vast majority of Chinese citizens are richer and better-off. Over the last 30 years, urban disposable income per capita in China grew at an impressive 13.2% annually while the share of the population that lives in urban areas increased from 22 to 53%.

Thanks to liberalization, opening the economy, and capitalism, millions of poor people escape poverty, millions become part of the middle class and a few who, thanks to progress, become millionaires. Nothing bad there.

But interventionists do not focus on the successful models that have led to the unprecedented fall in poverty, they focus on “inequality.” If the world eradicates poverty, the bureaucrat’s job is gone.

Capitalism and free markets are not only proven to be the best and most efficient way to reduce poverty. Capitalist societies thrive reducing poverty and increasing the middle class. It means more and better consumers, better and more sustainable products and more development … and with it, more profits and better public services. Those who suffer from reducing poverty are the interventionists, the “redistributors of nothing.”

Contrary to what the defenders of fiscal repression say, capitalism does not benefit from poverty, it is …read more