Center on Wealth & Poverty

Regulatory Oppression

Do you think there is too little or too much regulation? Though the appropriate amount of regulation may be in the eye of the beholder, we do have objective evidence of the growth of federal regulation.

The Annual Regulators’ Budget Report by Susan Dudley of George Mason University’s Mercatus Center and Melinda Warren of Washington University’s eidenbaum Center has just been released.

Their study shows both the cost and number of regulators continues growing far faster than inflation and population, which means in real terms we are becoming an increasingly regulated people. In inflation-adjusted dollars, the most of federal regulation has gone from $2.3 billion in 1960 to $38.9 billion expected in this next fiscal year. This is a greater than fourteenfold increase. The number of regulators has grown from 57,000 in 1960 to more than 240,000.

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Destructive Government

The basic function of government is to protect person and property, but all too often government does just the opposite. In their zeal to protect us from financial fraud, government officials recently engaged in a series of actions that have cost tens of thousands of innocent people their jobs, reduced U.S. international competitiveness, and destroyed more than $1 trillion in value for American shareholders.

Every American now suffers from the excesses of certain prosecutors and judges, and from Congress’ tendency to pass legislation aimed at correcting what they perceive as problems without thinking through the consequences of their actions. In the wake of the Enron scandal, the government went after Enron’s auditor, Arthur Andersen, and destroyed the company. The Supreme Court has just overturned the conviction of Arthur Andersen. The government’s irresponsible attack on the company cost 28,000 innocent people their jobs and made the auditing business less competitive, which has substantially increased auditing costs for every U.S. company. That, in turn, hurts their employees, suppliers and customers.

New York Attorney General Elliott Spitzer has just suffered a defeat at the hands of a jury for trying to convict a stockbroker for noncriminal actions. Mr. Spitzer has used intimidation against a number of companies, charging them with actions that may not even be crimes. In essence, he “blackmails” them into paying large settlements under the threat of destroying their business (like Andersen), though they may be innocent of any wrongdoing. These unfairly induced, forced settlements are costly to innocent stockholders and current and potential employees.

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Saving Europe

Fortunately, there are few problems that have not been at least partially solved by others some time in the past — and this is true for the mess in which Europe now finds itself.

In 1786, the United States was in a somewhat similar situation. Near the end of the Revolutionary War, in 1781, the Articles of Confederation were adopted that formed the United States. It quickly became apparent the Articles of Confederation were fatally flawed, in that tensions were rising among the states and the economy had stagnated.

Several Founding Fathers, notably Alexander Hamilton and James Madison, called for a convention to revise the Articles. The convention met in Philadelphia in 1787, where it was decided to replace the Articles with a new Constitution. The Constitution was adopted by the requisite number of states and went into effect in 1789 — and has served the United States right well ever since.

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A Run on the World Bank

If you were a stockholder of a bank and its managers kept telling stockholders they would have to “write off” the loans they had made because the borrowers were in no position to repay them would you fire the management for incompetence? If you are a taxpayer, particularly an American taxpayer, you are a stockholder in such a bank — the World Bank.

The World Bank was set up in 1944 (along with the International Monetary Fund) to assist with post-World War II reconstruction. Its mandate is to reduce world poverty and promote economic growth but, in fact, many of its activities have had precisely the opposite effect. It now has 184 member countries, but most of the $400 billion it has dispensed in loans, grants and credits have been underwritten or guaranteed by the taxpayers in a few rich nations.

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Drift to World Government?

What level of government (local, state, federal, multinational institution or none) should regulate the following: What trees you may cut on your home property; whether you may burn logs in your home fireplace; what identification you need to open a bank account in your local bank? Traditionally, it was not considered anyone else’s business, including the government’s, as to what Read More ›

Smoot Hawley, Chinese Style

In his insightful new book, The World Is Flat, Tom Friedman of The New York Times, though generally disdainful of anything conservative, somehow brings himself to cite an exemplary Heritage Foundation study of U.S. companies with facilities in China. These firms are not an unhealthy set of “Benedict Arnolds,” as they were quaintly dubbed by Sen. John Kerry during the Read More ›

Demagoguery Dangers in Deutschland

It is common for politicians in trouble to seek scapegoats for their own incompetence and wrong-headedness, but when this begins getting widespread popular support, both the people’s liberties and pocketbooks are in danger.

Given its history, one would think Germany’s people would be particularly resistant to demagogy. Unfortunately, that is not the case. Recently, Franz Muntefering, head of Germany’s left-wing Social Democratic Party (the SPD), which also is the lead party in the governing coalition, accused business leaders of being “anti-social” and like “swarms of locusts.” Rather than denounce him for attacking businesspeople and “international capital,” other SPD leaders joined in the denunciations.

Attacks on a despised minority or class in all societies tend to gain support during times of economic stress. Germany has gone from being the economic miracle of Europe to a poster child of what not to do. In the 1950s, ‘60s and ‘70s, Germany grew much faster rate than the U.S., and by 1980 had almost caught the U.S. in terms of real per capita income. But with the Reagan revolution in the early 1980s, U.S. economic growth soared, while Germany’s slid to less that half the U.S. rate.

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Business Week Online looks “Into the Gildercosm”

This article, published by Business Week Online, contains an interview with Discovery Institute Senior Fellow George Gilder:

George Gilder recently stopped by for a visit, and he’s worked up about the semiconductor industry. His language is as messianic as ever. Forget the telecosm. Get ready for the “planetary sensorium.”

By that, Gilder means a world dotted with billions of interconnected imaging sensors and radio frequency identification (RFID) tags. A camera chip in every dark alley. An RFID tag on every piece of merchandise. Data whizzing around the globe to be correlated with other data. No crime unseen. No movement of goods undetected.

Right off the bat, let’s deal with the obvious: privacy.

Gilder: “Most of human history occurred in small villages where there were periodically wildfire rumors that ended in someone being burned as a witch. All this stuff makes it possible to document that you didn’t commit the crime.”

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The Wrong Medicine

What would you think of someone who withheld curative medicine from a sick person?

Many governments are, in effect, doing just this. There are billions of people throughout the world suffering from various ailments who could be made well if only more money were invested in new drug research and development (R&D;). The reason this money is not invested is because all too many countries outside the United States have price controls on drugs, leading to under-investment in new and improved medicines. These same price controls also have the side effect of making drugs more expensive for U.S. consumers.

Many in Congress and the media demand more re-importation of U.S. made pharmaceutical products from countries with price controls, like Canada, or direct price controls in the U.S. These so-called solutions to the “high price of drugs’ problem” will, in fact, only worsen the situation. To solve the problem, it is important to first diagnose it correctly.

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Where is the Balance Sheet?

If you spent more each month than you made and got deeper and deeper into debt, but had an asset equal to your debts, like a big expensive boat you never used, what would you do? If you were rational, you would sell the boat.

The U.S. government has spent more than it receives in tax revenue for most of the last 75 years, and, as a result, the national debt and the associated interest payments have gotten bigger and bigger. But what is not well known is that the U.S. government also has many trillions of dollars of assets, which may exceed the value of the debt. I say “may” because, in fact, no one knows because the government has no accurate balance sheet of what it owns and what it owes.

For instance, the federal government owns somewhere between 600 and 700 million acres of land, or about 30 percent of all U.S. land. But again, no one knows for certain if the federal government owns 630 million acres or 670 million acres or some other amount.

Private companies are required to produce accurate balance sheets for their stockholders, and, if they do not, their executives might be sent to jail.

We American citizens and taxpayers are the “stockholders” of our government, and hence we should expect and have the right to receive accurate accounting statements. It is a bit tiring to hear sanctimonious and hypocritical public officials say corporate managers should be punished for deliberate or even accidental accounting mistakes, when the most important legal entity for most Americans — the government — produces financial information so incomplete and inaccurate it would embarrass even an Enron accountant.

This issue of proper government accounting is important for many reasons.

As one example, the current debate about Social Security involves whether the government will raise taxes or cut benefits. The current system is a Ponzi scheme in which the taxes from the workers have been spent on both the current retirees and other government programs, and hence there is no money in the “trust fund.” If a nongovernment official set up such a scheme, he would (rightly) go to jail for fraud. Like all Ponzi schemes, the time on this one has run out as Americans live longer and have fewer children. To prevent this type of fraud in the future, Americans must move to individual trust accounts that cannot be raided by the politicians, whether managed by the government, or privately or some combination.

In the meantime, there is the multitrillion-dollar problem of the “transition” (or more correctly replacing funds taken from the trust accounts by the politicians) from the current fiscally unsound to a fiscally sound system. To take care of this “transition,”, there may be an alternative to either reducing benefits or increasing taxes, and that is for the government to begin selling assets, like land. However, before you can begin to sell your assets in a responsible manner, you must know what they are, which requires a correct government balance sheet.

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