In 2011, members of Congress began criticizing a proposed IRS rule implementing ObamaCare’s health insurance tax credits. They claimed that the proposed rule violated the clear language of the Patient Protection and Affordable Care Act, as well as congressional intent, by issuing those tax credits in states that declined to establish a health insurance “exchange.” In effect, they claimed the proposed rule would result in the federal government taxing, borrowing, and spending hundreds of billions of dollars without congressional authorization. 

At the time, then–IRS commissioner Douglas Shulman leapt to his agency’s defense. He wrote that various provisions of the statute “support” the rule. He wrote that the “relevant” legislative history doesn’t show that Congress didn’t want the IRS to tax, borrow, and spend those hundreds of billions of dollars. He wrote that the proposed rule is “consistent with the language, purpose, and structure” of the law. The only thing he didn’t do was cite a provision of the law authorizing the rule, or even creating any ambiguity about the rule’s illegality.

The IRS finalized that illegal rule in May 2012. You can read all about it in my article with Jonathan Adler, “Taxation Without Representation: The Illegal IRS Rule to Expand Tax Credits Under the PPACA.”

It is worth noting that Shulman also leapt to the IRS’s defense against another charge that the agency was abusing its power. In 2012, conservative groups complained that the IRS was targeting them for audits. Shulman issued a forceful and categorical denial:

IRS Commissioner Douglas Shulman told Congress in March 2012 that the IRS was not targeting groups based on their political views.

“There’s absolutely no targeting. This is the kind of back and forth that happens to people” who apply for tax-exempt status, Shulman told a House Ways and Means subcommittee.

Shulman was wrong. Today, the IRS admitted it has been targeting conservative groups for audits. 

Perhaps some Friday afternoon hence we will be treated to an IRS admission that their tax-credit rule violates the Administrative Procedures Act and the PPACA, as two lawsuits now allege. I won’t hold my breath.

The tragic building collapse in Bangladesh two weeks ago, killing over 900 people, has focused public attention on working conditions for garment workers around the world. The attention has intensified calls for Western clothing brands to insist on better working conditions in the factories around the developing world where their products are made. According to the New York Times, some companies are responding to consumer concerns by marketing their “fair labor” practices on product labels.

The development of a fair trade movement for clothing is in many ways encouraging. It demonstrates the power of consumers in a free market to impose their preferences on the supply chain. Businesses succeed or fail based on how well they meet consumer demand, and if consumers demand certain labor practices enough to cover the added costs, businesses will respond.

This voluntary mechanism does a much better job than government mandates. Even a requirement that companies merely put labels on their clothes does a poor job of informing consumers. Any mandated label is insulated from accuracy-enhancing, consumer-driven competition and vulnerable to capture by special interests.

On the other hand, refusing to buy clothes made in “sweatshops” is a terrible way to help the people of Bangladesh. The fact remains that despite the terrible working conditions, workers chose their sweatshop jobs over worse alternatives. Outlawing sweatshops or refusing to buy things made in Bangladesh removes those workers’ best option and forces them to settle for less. (Learn​Lib​er​ty​.org has an excellent video explaining the “Top 3 Ways Sweatshops Help the Poor Escape Poverty.”)

More foreign investment in industrial production would help the people of Bangladesh even more. It’s true that Bangladeshis’ poverty enables you to buy cheap t‑shirts because they will work for next to nothing in dangerous factories. But the systemic effect of Western investment means more opportunity, and opportunity is the opposite of poverty.

That said, consumer demand for “fair trade clothing” may actually help factory workers, whereas a flat-out refusal to trade would not. This particular disaster seems to be largely the result of rampant cronyism, inept bureaucracy, and official corruption—problems that could be alleviated by reducing the discretion of local middlemen. If concerned consumers have more specific information about labor practices, they won’t have to rely on purely origin-based information. It would be a shame if someone decided not to buy a shirt just because it was “Made in Bangladesh.” Positive and voluntary inducements to improve working conditions are much, much better than refusing to do business with poor people.

Not by a longshot. 

As Jonathan Adler and I explain in this law journal article, and as I explain somewhat more accessibly in this Cato paper, the IRS is trying to tax, borrow, and spend $800 billion in clear violation of federal law and congressional intent.

Yes, you read that right: $800 billion.

With Bulgaria’s May 12^th election fast approaching, it is useful to reflect on past elections and the resulting economic performance of each elected government. To do this, I have developed a Misery Index inspired by the late Prof. Arthur Okun, a distinguished economist who served as an adviser to U.S. President Lyndon Johnson.

The Misery Index measures the level of “misery” in the economy. My modified Misery Index is equal to the inflation rate, plus the bank lending rate, plus the unemployment rate, minus the annual percent change in GDP.

An increase in the Misery Index indicates that things are getting worse: misery is increasing. A decrease in the Misery Index indicates that things are improving: misery is decreasing. The accompanying chart shows the evolution of Bulgaria’s Misery Index over time. 

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The Socialist Party government of Prime Minister Zhan Videnov created hyperinflation and a lot of misery. The Misery Index under the Videnov government’s watch peaked at 2138 in the first quarter of 1997. That number isn’t shown on the accompanying chart—if it was, the chart would take up an entire page of Trud.

So, the chart starts in the second quarter of 1997, with the Kostov government. Shortly after Kostov took power, Bulgaria installed a Currency Board System, based on a draft Currency Board Law, which I authored at the request of President Petar Stoyanov. The Currency Board brought an end to Bulgaria’s hyperinflation, which peaked with a monthly inflation rate of 242%, in February 1997.

Armed with the Currency Board, the Kostov government made a huge improvement over the Videnov government in Bulgaria’s Misery Index. From the second quarter of 1997 to the second quarter of 2001, the Misery Index dropped like a stone, falling by 1908.9 percentage points.

The National Movement Simeon II replaced the Kostov government and made further progress in bringing down Bulgaria’s Misery Index score.

Then, Sergei Stanishev’s European Socialist Party government took power and turned back the clock, ­­­­adding 8 percentage points to the Misery Index.

As for the most recent government of Boyko Borisov, the Misery Index showed a very slight improvement. That said, it is worth noting that, at the same time Borisov’s government hardly moved Bulgaria’s Misery Index, the Misery Indexes for the rest of Europe were registering significant increases in misery.

So, while the Borisov government did not do much to reduce Bulgaria’s Misery Index score (improve economic conditions), it still succeeded in shielding Bulgaria from the economic misery being experienced by the rest of Europe.

What can we learn from this look at the economic records of past post-communist Bulgarian governments? First, the key to the massive improvement in the Misery Index under the Kostov Government was the implementation of Bulgaria’s Currency Board. Second, every time a socialist government has assumed power in Bulgaria, economic misery has increased. Third, while the Borisov government didn’t do much to improve Bulgaria’s Misery Index score, things could have been worse, when compared to the rest of Europe.

In short, while the rest of Europe was sinking, the Borisov government just managed to hold its head above water.

This article was originally published in the Bulgarian newspaper Trud.

From the Associated Press:

WASHINGTON (AP) — The Internal Revenue Service is apologizing for inappropriately flagging conservative political groups for additional reviews during the 2012 election to see if they were violating their tax-exempt status.

Lois Lerner, who heads the IRS unit that oversees tax-exempt groups, said organizations that included the words “tea party” or “patriot” in their applications for tax-exempt status were singled out for additional reviews.

Lerner said the practice, initiated by low-level workers in Cincinnati, was wrong and she apologized while speaking at a conference in Washington.

Many conservative groups complained during the election that they were being harassed by the IRS. They said the agency asked them an inordinate number of questions to justify their tax-exempt status.

Certain tax-exempt charitable groups can conduct political activities but it cannot be their primary activity.

Let’s all recall what President Obama told Ohio State University graduates just days ago:

Unfortunately, you’ve grown up hearing voices that incessantly warn of government as nothing more than some separate, sinister entity that’s at the root of all our problems. Some of these same voices also do their best to gum up the works. They’ll warn that tyranny [is] always lurking just around the corner. You should reject these voices. Because what they suggest is that our brave, and creative, and unique experiment in self-rule is somehow just a sham with which we can’t be trusted.

We have never been a people who place all our faith in government to solve our problems. We shouldn’t want to. But we don’t think the government is the source of all our problems, either. Because we understand that this democracy is ours. And as citizens, we understand that it’s not about what America can do for us, it’s about what can be done by us, together, through the hard and frustrating but absolutely necessary work of self-government.

“Government is simply the name we give to the things we choose to do together,” says Barney Frank. Like persecute our political enemies.

Things must be going poorly for President Obama if he wants to change the subject to ObamaCare.

Today, most of Washington is questioning whether the U.S. government was derelict in its handling of the September 11, 2012 assault on the U.S. consulate in Benghazi, Libya, in which heavily armed assailants injured 10 Americans and murdered four, including the U.S. ambassador. However, over at the White House, President Obama is launching a PR defensive of ObamaCare, at which he will basically ask mothers to nag their kids to waste their money on ObamaCare’s over-priced health insurance. 

The contrast brought to mind this passage from University of Chicago law professor M. Todd Henderson’s article in the latest issue of Cato’s Regulation magazine:

When the president sought to make birth control a mandatory part of all insurance plans, this was a political decision regarding health care. This is not to disparage political decisions in general, but merely to point out this feature of them, that they bind those who disagree…

A relatively simple, low cost, and widely accepted practice like birth control became a firestorm when individual choice and local variation were overridden on the grounds of improving social welfare. The airwaves and print media were filled with analysis, name-calling, and hyperbole. Kitchen tables, like my own, were filled with debate about how we should vote about the financing of other peoples’ use of birth control… Just imagine what the debates will look like when the stakes become—as they inevitably will—whether expensive cancer therapies, surgeries, or other procedures will be paid for, or whether more controversial matters like abortion, gender reassignment, and the like will be paid for…

When … matters are decided by experts or politicians, mistakes can be made and made in ways that necessarily are coercive. This coercion does not admit easy exit, as one can exit an insurance policy, especially if done at the federal level. The central lesson is that centralized power over complex matters risks making larger mistakes than decentralized power, admits less innovation, provides for less tailored satisfaction of preferences, and generates greater political conflict. Ironically, those risks may undermine the important work that government must do to improve the world we live in.

Every minute the government spends trying (and failing) to improve people’s health is a minute it cannot spend making them safer.

Read the rest of Henderson’s article, “Voice and Exit in Health Care Policy.”

Earlier this week, Harvard economist Robert Barro and Veronique de Rugy of the Mercatus Center published a short paper assessing the economic effects of defense spending. Their findings are consistent with those of other studies, including one that Cato published last year by Benjamin Zycher. To wit, from Barro and de Rugy’s abstract:

While the impact of across-the-board federal defense spending cuts on national security may be up for debate, claims of these cuts’ dire impact on the economy and jobs are grossly overblown…

[A] dollar increase in federal defense spending results in a less-than-a-dollar increase in GDP when the spending increase is deficit-financed…

[O]ver five years each $1 in federal defense-spending cuts will increase private spending by roughly $1.30

The Barro-de Rugy paper should be of particular interest to Republican politicians and those who advise them. 2012 GOP presidential candidate Mitt Romney and his fellow Republicans attracted considerable scorn (including from yours truly) during a campaign in which they railed against government spending, but also wailed against military spending cuts. His critique was not primarily, or even chiefly, about the potential impact of sequestration on national security; rather, echoing the hardly objective estimates flogged by the Aerospace Industries Association and the National Association of Manufacturers, Romney asserted that cuts in military spending would result in the loss of hundreds of thousands of jobs. 

Romney, of all people, should have known better. Government spending extracts resources from the private sector, in the form of taxes and/​or debt, and the net effect of this spending is negative over the medium to long term. Barro and de Rugy show that the gains, to the extent that there are any, are particularly short-lived. The reverse is also true: Cuts in spending might result in brief declines in GDP, but Barry and de Rugy conclude that “the adverse effects … will be minor even in the short run.” “In the longer run,” they continue:

when reduced public debt and taxes … are factored in, real GDP should be higher than otherwise. This conclusion is consistent with findings that a smaller share of government consumption in GDP tends to enhance long-term economic growth.

They conclude:

There may be grounds for objecting to defense cuts based on reasoned arguments that these spending reductions would impair national security. But Keynesian arguments that a smaller defense budget will retard economic growth are not convincing.

I would like to believe that such findings would be sufficiently compelling to warn Republicans away from their embrace of military spending as a jobs program once and for all. But, as Tad DeHaven has observed here and here, such situational Keynesianism is a seemingly permanent feature of the nation’s political landscape.