Laffer Rides Again

Remember the Laffer Curve, the curve that economist
Arthur Laffer drew on a napkin
in a restaurant meal in 1994 with Ford Administration biggies Rumsfeld and Cheney and the late, great
Bob Bartley?
Stephen Moore reminds us what
happens when a government implements the Laffer Curve by lowering tax rates. Tax revenues take a jump.

Individual and corporate income tax receipts have exploded like a cap let off a geyser, up 30% in the two years since the tax cut.

Tax collections from non-withheld income (i.e., dividends and capital gains) are up over 30 percent
in the last year.

The Science of Free Trade

Democrats had a grand time in 2004 congratulating themselves as being the party of science (i.e.,
pro embryonic stem cell research) while the Republicans were the party of superstition that would
shut of hope for Alzheimers sufferers.

Of course when it comes to economics, the shoe is on the other foot, as
Thomas Sowell
reminds us. Ever since the early economists came up with the law of comparative advantage, the
advocates of economic privilege and clientage (which today means Democrats) have struggled against it.
The law of comparative advantage says that it is always mutually beneficial for two or more
people to engage in economic interchange untrammeled by monopoly and trade barriers, in short, that
free trade works. But those that have extracted monopoly privileges out of the government stand to lose from
a removal of trade barriers and government economic regulation. They agitate against the removal of their
privileges.

When Democrats rail against “outsourcing” they are railing against the law of comparative advantage.
They are also railing against economic growth, lifting the poor out of poverty, and they are shilling
for special interests like the sugar lobby.
So whose science are you on, Democrats?

Productivity Rules the World

Why is the US the most advanced industrial nation in the world? Because of productivity.
OK. But aren’t the Japanese more productive than US corporations? That is
true, in the manufacturing sector. But Japanese retailers are 50 percent less productive
than the US. And productivity

in food processing [is] about a third of the US. And
food processing, although it’s a manufacturing industry and it’s not
heavily traded, it has more employment than steel, automotive,
computers, and machine
tools added together. So it’s much more important.

So, in the end it is the overall productivity that counts, not the headline
manufacturing corporations.

What about education, you ask? Good question. Despite everything you have heard, education is not very
important. Corporations the world over can train their employees to roughly the same productivity whatever their educational level. In

Houston, the US industry was using Mexican agriculture
workers who were illiterate and didn’t speak English. So they were not
any different than the agricultural workers who were building similar
high rises say in Sao Paolo. And yet
they were working at four times the productivity.

So what is holding back the Third World? It is two things. The informal sector
can undercut efficient formal sector enterprises by not paying taxes and by counterfeiting
brand merchandise. And domestic producers have the power to erect
trade barriers that prevent efficient producers from making money.

It’s a breathtaking story. Read the whole thing as
Nick Schultz
interviews William Lewis, author of The Power of Productivity.

Our Favorite French Babe

Any time you want, link to
Liberté Chérie, the web site of enlightened French youth, symbolized by activist
Sabine Herold. Here’s an article by
Veronique de Rugy
that mentions her visit to the American Enterprise Institute. A couple of years ago Herold created a sensation
by staging a demonstration against public employee strikes. About 80,000 people turned up.

The educated youth of Europe have an interesting challenge. Do they accommodate to the schlerotic
economic and political culture of Europe or do they try to break the mold? Herold and her group
are break out of the death grip of the superstate and are trying to learn the lessons that the US learned a generation ago from Ronald Reagan.

Benefit Fraud in Old Europe

For over a century conservatives have struggled against the welfare state’s claim to be “helping people.”
But the problem about helping people is: what if they are lying? Here’s an article about benefit
fraud in Sweden written by an Iranian immigrant,
Nima Sanandaji.

Nima relates how the Swedish welfare state shovels money at beneficiaries, and how it really doesn’t
pay to be responsible and work. There is a presumption of helplessness:

Social security secretaries assumed that the people that they supported had no sense
of responsibility. Also, they were responsible to see that each person had enough money to live a
decent life at all times. If you told them that you had spent all your money at the beginning of the
month and didn’t have any left, they gave you some more. If you told them that your children cried
every day in want of new toys, they helped you.
If you told them that a neighbor had stolen all you clothes, they helped you.

The system might have worked half a century ago when people still possessed a strong work
ethic. But now people are responding to the economic incentives in the system. If you can only earn
five percent more after earning a college degree, why bother?

In Britain, according to
James Bartholomew in The Welfare State We’re In, the government estimates
that the incidence of fraud among people claiming “benefit” ranges from 10 percent for the
disabled to 23 percent for the unemployed and 27 percent for single parents.

There’s got to be a way to make this into the great political issue of the age.

HSAs Equal First Party Payment

Experts agree that the “third party” payment system in health care is one of the big
factors driving up health costs. People just don’t pay much attention to costs when a third party
is paying for their health care. But it looks as if the tax-advantaged Health Savings Accounts (HSAs)
are beginning to change all that.

HSAs are accounts that consumers use to pay routine health costs. They
are usually combined with a high-deductible health insurance policy.
Michael Barone reports that there are already over a million Americans with HSAs and
employers are planning to move more of their employees into them. And health cost inflation is beginning
to slow down. Could it be a coincidence, or is there cause and effect in operation here?

Democrats Still Don't Get The Eighties

What are the lessons to be learned from the Eighties? In an interview
with John Ehrman, author of the eponymous book,
Orrin C. Judd
reviews the tumultuous decade in which Ronald Reagan changed American
politics and the old smokestack economy morphed into the entrepreneurial
startup nation that we live in today. “Many Democrats understood
these changes and knew that their party needed to change its ideas
and programs if it was going to rebuild its majority,” says Ehrman.
“But none of them was strong enough to challenge Reagan’s success
or the Democratic party’s entrenched interests.”

What’s amazing is that this still is the case.
It has been sixteen years since Reagan left office, and the
Democrats still have not been able to modernize their ideas or
break the holds of their various traditional factions.
Even as talented a politician as Bill Clinton was unable to do this,
although he tried during his first term. The Democrats’ situation has
only gotten worse since 2000, as their anger at George W. Bush has
made it hard for them to think clearly about how to formulate
politically strong alternatives to Republican policies.

That is the real danger of the Dean Offensive and all the
Democratic talk about “attack machines.” It puts off the day when
Democrats really start to think about what a progressive majority
party would look like and formulate the strategery to get there.