John Mackey, co-founder and co-CEO of a substantial wealth-creating business enterprise, explains the moral significance of business. A longer interview with Mackey, along with other thinkers, can be found in The Morality of Capitalism, available here. (The book is being distributed by the Atlas Network and Students for Liberty.)
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Is Obama Really Going to Propose Another Keynesian Stimulus?
Just last week, I made fun of Paul Krugman after he publicly said that a fake threat from invading aliens would be good for the economy since the earth would waste a bunch of money on pointless defense outlays.
Yesterday, there were rumors that Krugman stated that it would have been stimulative if the earthquake had been stronger and done more damage, but he exposed this as a prank (though it is understandable that many people — including me, I’m embarrassed to admit — initially assumed it was true since he did write that the 9–11 terrorist attacks boosted growth).
![Media Name: paulkrugmanobama.jpg](/sites/cato.org/files/styles/pubs_2x/public/download-remote-images/danieljmitchell.files.wordpress.com/242824454758/paulkrugmanobama.jpg?itok=K5WeuOgg)
But while Krugman is owed an apology by whoever pulled that stunt, the real problem is that President Obama and his advisers actually take Keynesian alchemy seriously.
And since President Obama is promising to unveil another “jobs plan” after his vacation, that almost certainly means more faux stimulus.
We don’t know what will be in this new package, but there are rumors of an infrastructure bank, which doubtlessly would be a subsidy for state and local governments. The only thing “shovel ready” about this proposal is that tax dollars will be shoveled to interest groups.
The other idea that seems to have traction is extending the current payroll tax holiday, which lowers the “employee share” of the payroll tax from 6.2 percent to 4.2 percent. The good news is that the tax holiday doesn’t increase the burden of government spending. The bad news is that temporary tax rate reductions probably have very little positive effect on economic output.
Lower tax rates are the right approach, to be sure (particularly compared to useless rebates, such as those pushed by the Bush White House in 2001 and 2008), but workers, investors, and entrepreneurs are unlikely to be strongly incentivized by something that might be seen as a one-year gimmick. Though I suppose if the holiday keeps getting extended, people may begin to think it is a semi-durable feature of the tax code, so maybe there will be some pro-growth impact.
In any event, we will see what the President unveils next month. I’ll be particularly interested in how his supposed short-run jobs proposal fits in with his long-run plan for dealing with red ink. He has been advocating for a “balanced approach” and “shared sacrifice” — but that’s Obama-speak for higher taxes, and we know that’s a damper on job creation and new investment.
As you can tell, I’m not optimistic. The best thing for growth would be to get the government out of the way. The Obama White House, though, thinks bigger government is good for the economy.
This stimulus video was produced last year and was designed for another jobs plan concocted by the Administration, but the message is still very appropriate.
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A Congressional Tutorial on the Benefits of Free Trade
A survey released this week found that almost 80 percent of members of Congress have no academic training in business or economics. Yet they debate and pass all kinds of legislation seeking to steer the economy, business and trade in one direction or another.
For those four out of five members, my column in the Washington Times this morning, “Free Trade 101 for members of Congress,” offers a crash course in the benefits of free trade and globalization for Americans. Here’s an excerpt from the lecture, er, column:
Protectionism is really a tax on the poor. Our highest remaining trade barriers unfairly tax products made and grown by poor people abroad and consumed disproportionately by poor families at home. We still impose unconscionably high tariffs on imported food, clothing, and shoes — the basics of a poor family’s budget. The $26 billion we collect each year from duties on imports represent the federal government’s most regressive tax. Free trade is a tax cut for the poor.
Trade is not about more jobs or fewer jobs; it’s about better jobs. Trade only accounts for 3 percent of job displacement. Technology and internal competition displace far more workers. Just ask folks laid off from Borders, Blockbuster or Kodak. (Bought any film lately?) Our high unemployment today has nothing to do with trade but with our “Made in the USA” housing bubble and failed stimulus.
Members of Congress who have any questions are welcome to visit with me during my normal office hours.
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School Reform’s Shaky Foundations?
Philanthropy Daily has just published the most interesting review to date of my recent charter school philanthropy study (“The Other Lottery”). Scott Walter, an expert in charitable giving in the field of education, looks not only at the central finding (that there is no link between charter networks’ performance and the amount of grant funding they’ve received) but also extrapolates to what the findings imply about the nation’s top education foundations.
I’m curious to know if anyone else shares his interest in seeing the numbers crunched to allow education foundations to be ranked in terms of the performance of the charter school networks they have backed. Ping me on Facebook if you’d like to see that.
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Top 3 Common Myths of Capitalism
Senior fellow Jeffrey Miron discusses some common myths about capitalism in this video by the Institute for Humane Studies’ Learn Liberty project. Learn more at LearnLiberty.org.
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In the Grip of Regime Uncertainty, Again
The first chapter in Robert Higgs’ anthology Depression, War, and Cold War: Studies in Political Economy (Oxford University Press, 2006) is titled “Regime Uncertainty: Why the Great Depression Lasted So Long and Why Prosperity Resumed after the War.” This is a fitting title for a piece penned by the scholar who first nailed down the regime uncertainty idea and who rigorously dealt with it. According to Higgs:
“…regime uncertainty pertains above all to a pervasive uncertainty about the property-rights regime—about what private owners can reliably expect the government to do in its actions that affect private owners’ ability to control the use of their property, to reap the income it yields, and to transfer it to others on voluntarily acceptable terms. Will the government simply take over private property? Will it leave titles in private hands, but strip the owners of real control and profitable use of their properties? These questions fall under the rubric of regime uncertainty.”
Higgs explains why the New Deal policies embraced by President Roosevelt generated regime uncertainty and why the Great Depression lasted so long and was transformed into the Great Duration.
Treasury Secretary Henry Morgenthau knew that FDR was turning off businessmen, private investment and the economy. The Treasury Secretary repeatedly attempted to persuade FDR to back off. Indeed, in a cabinet meeting in 1937, Morgenthau was forced to put the matter to the President and put it to him in clear terms: “What business wants to know is: are we headed toward Socialism or are we going to continue on a capitalist basis?”
The Treasury Secretary was no match for the President, however. FDR didn’t back off and the country staggered into WWII.
We are staggering again under the weight of regime uncertainty. The Wall Street Journal’s editorial “How Not to Grow the Economy” contains data that amply support that conclusion.
It’s time for a powerful insider to present President Obama with the “Morgenthau Question.”
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