Richard Rahn

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Incompetence or Sabotage?

Richard Rahn
April 30, 2004
An old Washington political rule goes like this: “You get blamed for things you didn’t do, so you might as well take credit for things you didn’t do.” The Bush administration has put this rule backward when it comes to economic policy. It is accepting blame for things it didn’t do and not taking adequate credit for good things it has done, while at the same time doing things that are both politically and economically harmful. The last recession began in the quarter President Bush was inaugurated, and has been labeled by the media “the Bush recession,” even though there was nothing Mr. Bush could have done to prevent it by the time he took office. If Americans really knew the recession was due to mistakes made in the Clinton-Gore years, …

Beguiling Curves of the Swedish Model

Richard Rahn
April 26, 2004
When considering the Swedish model, one can be forgiven for thinking of a comely statuesque blond with blue eyes. However, to economists and policy junkies, the Swedish model refers to the “third way” between socialism and capitalism many on the American left laud as the ideal. Does the Swedish model work as advertised? According to a new paper by the highly regarded Swedish economist, Nils Karlson, the “model has become quite different from what was intended and to what many people still believe to be the case.” The extent of the failure of the Swedish model are both shocking and little known. For example, no new net jobs have been produced in the Swedish private sector since 1950. (By contrast, the U.S. created more than 60 million new private-sector jobs …

Congress Has Bad Record Tethering Its Pet Monsters

Richard Rahn
April 15, 2004
Letter to the Editor: In her April 1 editorial-page commentary “The ‘Privacy’ Jihad1,” Heather Mac Donald fails to understand why many think tanks and privacy advocacy groups across the political spectrum are concerned about a number of government proposals that would further diminish privacy rights. We have had a long history of law-enforcement agencies going well beyond original mandates and abusing citizens, all under the rubric of protecting us. Has Ms. Mac Donald forgotten the many transgressions of the FBI, particularly under J. Edgar Hoover and Presidents Johnson and Nixon, the periodic abuses by the IRS, and prosecutors using RICO statutes for starters? Enthusiasm for further extension of the state’s police power might be diminished by …

Putin and the Reformers

Richard Rahn
April 14, 2004
MOSCOW — There was a remarkable event last Friday evening in Moscow. Several of the world’s most prominent free-market reformers spent more than four hours in a spirited dialogue about economic reform with Russian President Putin. The participants included Ed Crane, president of the Washington-based libertarian Cato Institute; Jose Pinera who, as a Chilean government minister, began the world’s first privatized social security system a quarter-century ago; and Ruth Richardson, who, as finance minister, was instrumental in New Zealand’s highly successful free market reforms. They were in Moscow to participate in an important Cato Institute conference on economic reform co-sponsored by the Russian Institute for Economic Analysis and the Russian Union of …

Canada vs. the US

Richard Rahn
April 8, 2004
Have the Canadians found a better balance between the public and private sectors? If you listen to many in the news media and many liberal Democrats, Canada is portrayed as a more ideal society than the U.S. It is viewed as peaceful, prosperous, honest and humane, and a country the U.S. should try to emulate. These critics in the U.S. say they do not want a European-type socialist economy but would like a relatively bigger government that provides more services than the U.S. government (and lower drug prices and free medical care) — in short, Canada. Is it true Canada works better than the U.S.? Let’s look at the facts. Historically, Canada had been a bit poorer than the U.S. But in the 1950s, ’60s and ’70s Canada grew faster than the U.S. By 1976, the Canadian …

Regulatory Malpractice

Richard Rahn
March 18, 2004
In today’s parlance, George Washington was a victim of medical malpractice. When he became ill, he was bled by his doctors, which almost certainly hastened his death. Like Washington, the financial industry and its customers are now slowly being bled, which will be fatal for some. The “doctors” in this case are a group of politicians, tax and law enforcement officials, who are operating without the constraint of national boundaries or economic sense. People around the globe are justifiably concerned about terrorism and ordinary criminality. A certain international political class has used this anxiety to argue that since criminals and terrorists use money, all monetary movements and holdings must be monitored. Yes, it is useful to be able to trace the money trail …

How to Create More Jobs

Richard Rahn
March 9, 2004
Why aren’t more jobs being created? Ask President Bush’s political opponents and even some of his friends. It is a legitimate question and it deserves a serious answer. Mr. Bush’s Democratic opponents blame him but fail to admit the recession began on the Clinton/Gore watch. Neither do they tell us precisely what they would have done or will do now about the problem. To understand the real problem and its solutions, it is important to start with the basics. For a job to be created, there has to be a demand for a good or a service. When business people see the demand for their products increasing, they hire more workers to produce and sell the products. They will hire workers as long as the cost of hiring the additional worker is less than the net revenue cost of …

Minority Party Syndrome

Richard Rahn
March 6, 2004
“There are two political parties in America, the stupid party and the evil party,” goes the old adage. This is about the stupid party — the Republican Party. The majority of Americans consistently tell pollsters they prefer lower taxes and less government spending. More Republicans than Democrats consistently say they believe in smaller government and lower taxes. Given these statements of belief, the Republican Party should be the permanent majority party, but it is not. Republicans pride themselves on being better stewards of the public purse and providing more honest government than their Democrat competitors. In general, this is true, but Republicans have a tendency to commit political suicide, like lemmings jumping off a cliff, by taxing and spending like …

Kerry’s Economic Beliefs

Richard Rahn
February 24, 2004
Would John Kerry’s economic policies be better than those of President Bush? To answer this question, we need to know what these candidates propose regarding taxing, spending and regulation. President Bush has just provided us a detailed budget. In addition to his spending plans, he has made it clear he wants Congress to make his tax cuts permanent. Given his track record and his explicit plans, we have a basis for judgments about how the economy will likely perform if he is re-elected. The situation with Mr. Kerry is very different. We do not yet have a coherent tax and spending program from Massachusetts’ junior Democratic senator, and many of his economic policy statements have been contradictory. The press and his political opponents should demand answers to some …

Offshore Finance

Richard Rahn
February 10, 2004
Grand Cayman — Some of you reading this maybe thinking, “Ah Cayman, isn’t that the place with all the illegal financial activity?” It is true Cayman is the world’s largest offshore financial center, and the world’s fifth-biggest financial center, even though it is in the middle of the Caribbean on a small, pleasant island with only 40,000 people. But contrary to the mythology from movies and novels, Cayman did not become rich by catering to criminals. The truth is just the opposite. Think about it for a moment. If you were looking for a place to put your money, would you choose a bank run by incompetents or criminals in a jurisdiction run by the mob, or would you put your money in a bank run by honest and competent bankers in a country with the rule …

The Deficit Bugaboo

Richard Rahn
February 5, 2004
Are we better off having lower taxes on interest, dividends and capital gains (and other taxes on capital) or having a lower deficit? Obscure as it may seem, this is the central economic debate being fought in the political arena. To fund any given level of government spending, our political leaders have to choose how much of the spending should be funded by taxing and how much by borrowing. Historically, Republicans tended to argue more than Democrats for a balanced budget or lower debt financing. Now, the parties have reversed themselves. Republicans have slowly accepted the supply-side argument that high marginal tax rates and the double tax on capital income is more damaging to the economy than modest increases in the deficit. Democrats have bought into the argument of former …

How to Control the Habit

Richard Rahn
February 1, 2004
Did you know that between fiscal years 2001 and 2004 federal spending will rise by about 24 percent, and nondefense, discretionary outlays will increase about 31 percent? In 2000, federal government outlays were 18.4 percent of GDP, but in 2004 they will be approximately 20.5 percent of GDP. By any measure, both defense and nondefense federal government spending is rising far faster than the real economy, and spending discipline is eroding. Republicans claim to be fiscal conservatives who believe in smaller government. But the latest spending binge has occurred under a Republican President and a Republican Congress. Only under Lyndon Johnson did the budget grow faster than under President Bush. The Republicans clearly have been irresponsible. But before you decide to throw the …

Fox in the Henhouse

Richard Rahn
January 22, 2004
“I am from the government and I am here to help you,” is a well-known oxymoron again proving to be true. A decade ago, we had a mean Internal Revenue Service that did all sorts of terrible and unjustified things to innocent taxpayers. The people got mad, and the people’s representatives — the House and the Senate — held hearings where they beat up on the IRS, and the IRS folks pledged to reform. They promised a new, kinder and gentler IRS that would be helpful to taxpayers. We, the taxpayers, actually did get a nicer and more helpful IRS for several years, but it was not to last. To help protect us, Congress passed the Taxpayer Bill of Rights. As part of this legislation, Congress established an independent office within the IRS, called “The Taxpayer …

Trading Up With Neighborhoods

Richard Rahn
December 16, 2003
Most people prefer to live in rich neighborhoods rather than poor ones — why is that? Perhaps they notice rich neighbors tend to keep the environment cleaner, respect property rights of others and do not engage in criminal activities threatening lives of their neighbors. The same is true of countries. We don’t fear rich countries — such as Japan, Germany, the U.K. and Switzerland — because they do not threaten us. In fact, because they are rich, they are able to buy a lot of goods and services we produce. The old adage that the man to fear is the man who has nothing to lose is also true of failed states. Do you think that if North Korea and Iran had the same per capita income as the Dutch, they would behave in the aggressive manner they do? Most unlikely. America has …

Beware of Economic Hubris

Richard Rahn
December 3, 2003
President Bush’s economic team can rightfully be proud of their policies that produced the sizzling 8.2 percent real economic growth in the last quarter. But before they get too high on their own accomplishments, they need to look at the history of those who began to feel infallible in their economic policymaking. The Nixon economic team produced strong growth numbers going into the 1972 election, but failed to appreciate the disaster of the surge in inflation stemming from the foolish, excessive expansion of the money supply. Subsequent attempts to control the inflation through wage and price controls only made matters worse. The first President Bush unwisely accepted the advice of his OMB director to increase taxes in 1990, which turned out to be both an economic and political …

Is the Deficit Too Small?

Richard Rahn
November 21, 2003
The conventional wisdom is our federal government deficit is too large. However, the empirical evidence suggests the deficit might be too small. When people worry about the size of the deficit, they are not worried about the deficit in a particular year; what they are worried about is the accumulation of debt that needs to be serviced. Some years, most American families run a deficit (i.e., expenditures exceed income). For instance, most people obtain a mortgage when they buy a home. And the year in which they buy the home, their new debt obligation (the deficit) greatly exceeds their income. This is not a problem so long as the cost of servicing the additional debt acquired each year can be offset by rising incomes. The problem comes when the debt service rises faster than income …

Betting on Bulgaria

Richard Rahn
November 16, 2003
Fifteen years ago, how many Americans or Bulgarians would have imagined that in 2003 Bulgaria would be one of America’s closest allies in Europe, that Bulgarian and American troops would be serving together in Iraq and that Bulgaria would have a smartly growing market economy? How did this change from Cold War enemies to new NATO allies come about, and will the good economic news from Bulgaria continue Bulgaria overthrew its last communist dictator in November 1989. Early in 1990, I was invited by the Bulgarian government to become the co-chairman of the Bulgarian economic transition project. We assembled a group of U.S. economic, legal and industry experts and, working with our Bulgarian counterparts, developed a plan to move Bulgaria from a communist country to a …

When Uncle Sam Owns the Land

Richard Rahn
November 6, 2003
What would you do if a neighbor’s tree falls on your house and causes a thousand dollars of damage? You would ask your neighbor to pay for the damage, and the law would require that he or his insurance pay the cost of the damage. Likewise, if your neighbor keeps hazardous materials on the edge of his property, such as dead trees and brush, and if they catch fire and burn down your house, you would have legal recourse. But what happens if your negligent neighbor happens to be the government? You may be out of luck because the government may choose not to compensate you or allow you to sue it. As the California fires have just illustrated, the questions raised above are now all too real for the thousands of families whose homes burned down needlessly, because of the negligence …

Self-Inflicted Wounds

Richard Rahn
October 3, 2003
The tax cuts were the appropriate medicine for the economy and are already having the desired effect, yet the president’s approval rating for economic management continues to fall. In part, this is due to a series of politically motivated economic mistakes that have slowed the recovery. Not everyone in the administration has learned that good economics is good politics and vice versa. Fortunately, if the administration takes immediate corrective action, the mistakes will not be fatal. The administration imposed steel tariffs, believing it would make steelworkers happy by creating more steel-making jobs. The facts are now in, and, as most of the president’s own economic advisers warned, the higher prices that steel users are paying have killed more jobs in those …

Saving Iraq… from the U.N.

Richard Rahn
September 17, 2003
Last Saturday, French Foreign Minister Dominique de Villepin “proposed a radically new approach” that would take control of Iraq from the U.S. (surprise) and give it to the U.N. He demanded that an Iraqi provisional government be established within a month, a constitution written by the end of the year, and elections held by the spring of 2004. Iraq does need a constitution, but not one written by the French or the U.N. The simple fact is that the French and most members of the U.N. do not even understand what a constitution should be. As evidence, a former French president and current president of the European Convention, Valery Giscard d’Estaing, has just submitted a proposed 242-page constitution for the European Union, as contrasted with the U.S. Constitution of …