FCPP - In the News
February 22, 2012 —
In recent years, it has become increasingly popular politically to tout one's own policies as being the greenest of the green. Rhetoric involving "green" jobs and sustainability has come to the forefront and symbolic shows of strength against climate change are on the rise as various countries' politicians each want to demonstrate their own personal commitment. However, this piecemeal exercise
in which a random smattering of countries takes action is unlikely to change anything at all, says Bjørn Lomborg, an adjunct professor at Copenhagen Business School.
For example, the Danish government intends to expand wind power dramatically by 2020. That is a significant gesture, but, since the country is part of the European Union's emissions-trading scheme, it will mean absolutely nothing for global carbon dioxide (CO2) emissions. It will simply make coal power cheaper in other EU countries.
o Indeed, costly emission cuts in Denmark and elsewhere are likely to lead to a partial relocation of CO2 emissions to more lenient countries, such as China (where production is less climate-efficient), and thus to an overall increase in global CO2 emissions.
o The EU has reduced its emissions since 1990, but, at the same time, it has increased imports from China, which alone has produced enough emissions to offset those reductions.
Politicians claim that a green economy will cost nothing, or may even be a source of new growth. Unfortunately, this is not true.
o Globally, there is a clear correlation between higher growth rates and higher CO2 emissions.
o Furthermore, nearly every green energy source is still more expensive than fossil fuels, even when calculating pollution costs.
o Moreover, while green-energy subsidies generate more jobs in green-energy sectors, they also displace similar numbers of jobs elsewhere.
Many politicians are drawn to photo opportunities and lofty rhetoric about "building a green economy." Unfortunately, the green energy policies currently being pursued are not helping the environment or the economy. More likely, they will lead to greater emissions in China, more outsourcing to India, and lower growth rates for the well-intentioned "green" countries.
Source: Bjørn Lomborg, "Seeming Green,"
Project Syndicate, November 14, 2011.
February 19, 2012 —
Lessons for United States from Canada's 'Basket Case' Moment
In 1994, the federal government of Canada in Ottawa faced drastic funding issues. After the big-government era of the 1970s, lawmakers were having trouble financing Canada's burgeoning national debt, largely because its deficits each year were substantial. Economists repeatedly called for austerity, recognizing that the more
deficits that continued unchecked, the larger the debt would become and the more trouble Canada would have making interests payments in the future. However, it wasn't until the drastic spending cuts and moderate tax increases of 1994 and 1995 that the Canadian central government took the steps to get its budget back in the black, says Reuters.
o Though Canadian debt remained around 29 percent of gross domestic product (GDP) in 1980, this figure shot up to 68 percent in 1995-1996 -- it eventually fell to a much more manageable 29 percent today.
o Though several more moderate budgets were proposed earlier in 1994, the final deficit cuts that came into law set a seven-to-one ratio between spending cuts and revenue increases.
o Cuts were characterized by periodic freezes and departmental slashes, such that almost every department was cut by between 5 and 65 percent.
Then-Prime Minister Jean Chretien recognized immediately that austerity would likely prove unpopular, and warned many of his government ministers that they would not survive the next election. However, the economic measures that he put in place, including his dedication to spending freezes, returned the government to budget surpluses in only a few years and resolved what had been widely touted as the next big fiscal crisis.
The similarities between Canada's situation and America's fiscal house today ought to make this experience instructional.
o Now, as then, a major rating agency's downgrade of sovereign debt turned public attention to deficit spending and the need to control outlays.
o Now as then, the debt-to-GDP ratio was nearing levels that were unsustainable and would result in painfully large interest payments (the United States currently has debt equivalent to 74 percent of its GDP and ran a 9 percent deficit for 2011).
o Now, as then, politicians will need to overcome electoral concerns and recognize the importance of immediate austerity in order to dig the United States out of its crushing debt.
The United States will be forced to reconcile with its enormous deficits in the near future. In this regard, it must be acknowledged that the more time that passes, the more painful austerity will be.
Source: Randall Palmer, "Insight: Lessons for U.S. from Canada's 'Basket Case' Moment,"
Reuters, November 21, 2011.
February 16, 2012 —
Consider Modest Increases in Speed Limits
Prior to the 1973 political oil crisis the speed limits in many states exceeded current levels. As a result of the 1973 events the federal government instituted a 55 miles per hour (mph) speed limit. This limit, in effect until 1988, required states to set
55 mph as their top speed limit or lose federal transportation funding. With no national speed limit currently in effect states are free to raise their speed limits back to pre-1973 levels. The benefits of doing so ought to be appealing to many state lawmakers, says Baruch Feigenbaum, a transportation policy analyst with the Reason Foundation.
o Americans currently obey speed limits that are far more stringent than international counterparts: parts of the Autobahn in Germany have no speed limits and rural speed limits in Poland and the United Arab Emirates are 87 mph, while Americans top out at 75.
o Countering the claim by environmentalists that increasing the speed limit will decrease aggregate fuel efficiency, it is crucial to point out that the Department of Transportation found that the national 55 mph speed limit only decreased gasoline usage by 1 percent at most.
o Furthermore, with proposed increases of 5 mph, the total impact if all states raise their speed limits would be a 0.3 percent increase in gasoline use.
An argument submitted by critics of raising limits is that it will hinder transportation safety efforts. However, studies have shown that increasing speed limits will actually increase safety and decrease the likelihood of accidents. These studies recognize that the true cause of many accidents is not high speeds but large differentials between low-speed and high-speed drivers. For this reason, many
engineering guidebooks recommend setting the speed limit at the rate at the 85th percentile of drivers.
Another argument is that increases in population density should extinguish desires to increase speed limits. However, given that most recent population gains have been confined to urban and suburban areas, this argument does not address the policy benefits of increasing limits in rural areas.
Source: Baruch Feigenbaum, "States Should Consider Modest Increases in Speed Limits,"
Reason Foundation, November 21, 2011.
February 13, 2012 —
Economic Performance and Government Size
Researchers António Afonso and João Tovar Jalles of the European Central Bank construct a growth model with an explicit government role, where more government resources reduce the optimal level of private consumption and of output per worker. In the empirical analysis, for a panel of 108 countries from 1970-2008, they use different proxies for government size and institutional quality.
o Their results, consistent with the presented growth model, show a negative effect of the size of government on growth.
o Similarly, institutional quality has a positive impact on real growth, and government consumption is consistently detrimental to growth.
o Moreover, the negative effect of government size on growth is stronger the lower institutional quality, and the positive effect of institutional quality on growth increases with smaller governments.
o The negative effect on growth of the government size variables is more mitigated for Scandinavian legal origins, and stronger at lower levels of civil liberties and political rights.
o Finally, for the European Union, better overall fiscal and expenditure rules improve growth.
Source: António Afonso and João Tovar Jalles, "Economic Performance and Government Size,"
European Central Bank, November 2011.
February 9, 2012 —
Overpopulation Isn't the Problem
With the world's population recently surpassing the 7 billion mark, classic concerns over the unsustainability of the world's population are again coming to the forefront. However, these concerns often miss the true crux of the issue: the problem is not that there are too many people in the world, but too few babies to support them.
While this might seem contradictory, a consistent and stable growth in the number of babies helps to keep population demographics stable and avoid drastic and volatile breaks from the norm. Yet this relationship brings just as much cause for alarm as the previous issue, as the number of children around the world has also been declining for years, says Joel Kotkin, the distinguished Presidential Fellow in Urban Futures at Chapman University.
o Fifty-nine countries currently maintain fertility rates (births per average woman) below 2.1 -- a rate that will no longer replace the current population.
o In some of the worst-off countries such as Japan, Spain, Portugal, Germany, and those in Eastern Europe, the proportion of the population over the age of 65 has skyrocketed past global averages, rising above 20 percent for each of these countries.
o By 2030, many of these same countries will have only two workers for every retiree; economic superpowers such as the United States and China will fair only slightly better with three workers per retiree.
It is true that a lower birth rate can increase economic output in the short run by allowing workers to be more productive, thereby spurring growth. However, the consequences of such a demographic trend are most powerfully felt in terms of the relative sizes of the worker and retiree populations. As a growing number of the members of the workforce retire with few or no children to replace them, many
countries will face the consequences of an aged population such as high dependency ratios and health care costs.
Source: Joel Kotkin, "Overpopulation Isn't the Problem: It's Too Few Babies,"
New Geography, October 27, 2011.
February 6, 2012 —
The Swedish Model Reassessed
Amongst those who advocate for a larger government presence in the free market, the example presented by Sweden has long provided a reliable talking point. Its economic success, combined with positive social indicators such as low crime rates, high life expectancy and a high degree of social cohesion, suggest to many foreign onlookers that the big government route might not be as negative and inefficient as detractors have suggested. However, in analyzing the Swedish success story, it becomes apparent that the welfare state does not deserve the credit that it receives for advancing Sweden beyond others, says Nima Sanandaji, president of the Swedish think tank Captus.
The lack of a correlation between a welfare state structure and positive socioeconomic outcomes is apparent for two crucial reasons.
First, the timelines within Sweden provide little evidence that one causes the other.
o The era of Social Democrat rule began in 1936, yet Sweden's growth as a country was relatively substantial well before that time.
o Furthermore, since the 1990s, the modern, center-right administrations in the country have gradually scaled back the welfare state, and these policies have been accompanied by growth that the country had not seen in decades.
o In fact, the period in which welfare economics were most strongly implemented (the 1970s and 1980s) saw low rates of growth.
The second reason that compels the conclusion that the welfare state cannot be credited with the growth of Sweden's economy is provided by the performance of Swedish immigrants to the United States.
o Despite having left Sweden and moving to a new country, this population has historically outperformed expectations and obtained socioeconomic standards far above par, characterized by a low poverty rate and high employment.
o This fact substantiates the original claim because it suggests that there is something idiosyncratic about the Swedish people as a whole that brings about their success, such that they are able to thrive despite the absence of a welfare state structure.
o While some suggest that a traditional Lutheran work ethic is the confounding variable in this case, the point stands that any number of cultural and ethnic factors could be collaborating to bring about Sweden's exceptional standards of living.
Source: Nima Sanandaji, "The Swedish Model Reassessed: Affluence Despite the Welfare State,"
Libera Foundation, October 2011.
February 3, 2012 —
Weathering Global Warming in Agriculture
Provided it is not a consequence of governmental interference with market forces, cheap food creates far-reaching benefits. Indeed, declining food scarcity has helped drive overall economic progress for decades, even as the demand for edible goods has been increasing at a fast clip, say Douglas Southgate, a professor at Ohio State University, and Julian Morris, vice president of research at the Reason Foundation.
o Since the middle of the 20th century, when the population was slightly less than 2.5 billion, human numbers have shot up, surpassing 6 billion shortly before 2000 and currently approaching 7 billion.
o Yet food supplies have more than kept pace -- mainly thanks to technological advances during and since the Green Revolution that have caused global yields of cereals to rise by 150 percent since the early 1960s.
o The general tendency of food supplies to overwhelm food demand has registered in the marketplace.
Food prices can remain at current levels or even decline further in the years to come. But there are caveats. If governments continue to subsidize and mandate biofuel production, midcentury prices of crops could be 30 percent above current levels. Also, food could grow scarcer if global warming impairs agricultural
productivity. The question is: will global warming impair agricultural productivity?
Southgate and Morris investigate the potential consequences of climate change for global agricultural output and identify policies that would reduce any negative impacts. Some researchers have estimated that climate change resulting from manmade global warming could reduce agricultural output significantly (compared to baseline assumptions), especially in tropical countries. As a result, food prices would rise and malnutrition worsen. However, these estimates assume minimal or no adaptation to changes in the climate. In particular, they assume that farmers will fail to switch crops, modify their use of water and other inputs, and adopt new technology. This view is unrealistic: faced with changing conditions, farmers will adapt -- unless prohibited.
Source: Douglas Southgate and Julian Morris, "Weathering Global Warming in Agriculture,"
Reason Foundation, November 3, 2011.
January 31, 2012 —
Five Myths about the World's Population
Nicholas Eberstadt, the Henry Wendt scholar in political economy at the American Enterprise Institute, debunks five myths about the world's population.
Myth one: The world is overpopulated. But most serious demographers, economists and population specialists rarely use the term "overpopulation" because there is no clear demographic definition.
Myth two: Rapid population growth keeps poor countries poor.
o In 1960, South Korea and Taiwan were poor countries with fast-growing populations.
o Over the two decades that followed, South Korea's population surged by about 50 percent and Taiwan's by about 65 percent.
o Yet, income increased in both places, too: Between 1960 and 1980, per capita economic growth averaged 6.2 percent in South Korea and 7 percent in Taiwan.
Myth three: For all its ethical problems, China's one-child policy boosts its economy.
o Just before the one-child policy was enacted, China's total fertility rate (births per woman per lifetime) was about 2.7; today it is believed to be around 1.6, or roughly 40 percent lower.
o But between the late 1960s and the late 1970s, China's total fertility rate fell from about 5.9 to 2.9 births per woman per lifetime. Yet China's per capita economic growth was much slower in this time period.
Myth four: If your population declines, your economy does, too.
o Between the 1840s and 1960s, Ireland's population collapsed, spiraling downward from 8.3 million to 2.9 million.
o Over roughly that same period, however, Ireland's per capita gross domestic product tripled.
o More recently, Bulgaria and Estonia have both suffered sharp population contractions of close to 20 percent since the end of the Cold War, yet both have enjoyed sustained surges in wealth.
Myth five: The world will have 10 billion people by 2100. No one can know how many people will be alive in 2100 because demographers have no techniques for accurately projecting our long-term population.
Source: Nicholas Eberstadt, "Five Myths about the World's Population,"
Washington Post, November 6, 2011.
January 28, 2012 —
The Price of Public Health Care Insurance in Canada
Canadians often misunderstand the true cost of their public health care system. This is partly because physician and hospital services covered by public health care insurance are free at the point of use, which leads many to grossly underestimate the actual cost of the care delivered. Furthermore, health care is financed through general government revenues rather than through a dedicated tax, which blurs
further the true dollar cost of the service. So often, the bill for this type of program is presented aggregately, with the final number being so large that it no longer means anything to anyone in terms of his or her personal costs, say Milagros Palacios and Nadeem Esmail of the Fraser Institute.
In order to more precisely estimate the cost of public health care insurance for the average Canadian family in 2011, Palacios and Esmail determine how much tax an average family pays to all levels of government. The percentage of the family's total tax bill that pays for public health insurance is then assumed to match the share of
total government tax revenues (income) spent on health care -- estimated to be 24.9 percent in 2010-2011.
o In 2011, the average unattached (single) individual, earning a little less than $37,000, will pay approximately $3,607 for public health care insurance.
o An average Canadian family consisting of two adults and two children (earning a little more than $105,700) will pay about $10,486 for public health care insurance.
With a more precise estimate of what they really pay, Canadians will be in a better position to decide whether they are getting a good return on the money they spend on health care.
Source: Milagros Palacios and Nadeem Esmail, "How Much Do We Really Pay: The Price of Public Health Care Insurance,"
Fraser Institute, November/December, 2011.
January 25, 2012 —
Plastic Bag Bans Are Bad for the Environment
The past several years have seen a groundswell of regulations on plastics, particularly plastic bags and cups and food containers made from polystyrene or Styrofoam. Supporters of these bans mostly claim that such policies promote environmental protection, when in reality they carry considerable environmental tradeoffs and impose needless burdens on consumers and economic growth, says Angela Logomasini, a senior fellow at the Competitive Enterprise Institute.
o Plastic bags generate 39 percent less greenhouse gas emissions than regular paper bags and require only 6 percent of the water necessary to make paper bags.
o Simultaneously, they consume 71 percent less energy during production than paper bags and produce one-fifth the amount of solid waste.
o Similarly, reusable bags are only more environmentally friendly than plastic bags if they are used 103 times, yet on average they are used only 51 times before they are thrown away.
o A comparison of the environmental impacts of plastic cups with paper alternatives yielded similar results, with plastic causing 50 percent less solid waste by volume.
Much of the craze that has inspired frivolous and counterproductive environmental bans stems from news stories that emphasize the negative impacts of excessive pollution and littering. Specifically, numerous references are made by environmental blogs and activists to the infamous garbage "island" in the Pacific -- a giant trash
heap that is "twice the size of Texas." However, researchers have debunked much of the hype regarding this "island" by showing that no such island exists. Regardless, concerns about littering should not provoke environmental bans -- they should provoke greater public support of antilittering movements, says Logomasini.
Source: Angela Logomasini, "Plastic Bag Bans Are Bad for the Environment," Competitive Enterprise Institute, November 8, 2011.
January 20, 2012 —
Taxi Medallions Sell for $1 Million
Two New York taxi medallions -- aluminum plates that grant the right to operate a yellow cab -- changed hands recently for $1 million apiece, the highest recorded sale since the city's modern livery system began. Since the city of New York issued its first batch of medallions in 1937, their value has continued to grow rapidly, while
the number of medallions available for purchase has been tightly controlled. The increasing population of the city and heightened use of taxis have also contributed to the high price, says the New York Times.
o The first medallions sold in 1937 for $157.50 (in current dollars).
o The secondary market in medallions and its private transfers began after World War II, at the starting price of $2,500.
o With a rate of growth of 1,900 percent in the last 30 years, medallions have outpaced the Dow Jones Industrial Average (1,100 percent), as well as gold, oil and the American house.
The sizable investment in the medallions can be seen as a vote of confidence in the future of the city, though fears of an artificial medallion bubble are difficult to shake. What is clear, however, is that with 13,237 medallions in the city, the business of buying and selling them is significant. Interestingly, it is significant enough in and of itself to warrant the creation of Medallion Financial -- a specialized lender in the field.
Investors and consumers alike would do well not to underestimate the complexities of the taxi cab system.
o Among the little-known distinctions is the difference between corporate and individual medallions.
o The prior can be lent and used freely, whereas the latter must be driven by the medallion's owner on occasion.
o This requirement limits its usefulness and its value, holding it to a still-not-insignificant $700,000.
Source: Michael M. Grynbaum, "Two Taxi Medallions Sell for $1 Million Each,"
New York Times, October 20, 2011.
January 17, 2012 —
Government's Good Intentions Can Have Negative Consequences
The federal government consumes about a quarter of the United States' gross domestic product and owns more real estate, uses more energy and has more cars than any other entity. The government's size allows it to invest in projects on a scale that private entities cannot. That means decisions the federal government undertakes have enormous impacts -- which means enormous damage when the government makes spending choices that are bad for the environment. While
government projects that marginally benefit environmental protection efforts are touted as victories for the green movement, substantial government spending on wasteful and environmentally destructive policies undoes much of this progress, say Eli Lehrer, vice president of the Heartland Institute, and Ben Schreiber, a climate and energy tax analyst at Friends of the Earth.
o The $50 billion-plus five-year tab for ethanol subsidies has brought millions of acres of previously wild land under cultivation, increased the use of chemical fertilizers and wasted billions of gallons of water.
o More than $8 billion in Department of Energy loan guarantees for coal provide enormous taxpayer support for the dirtiest of all widely used fuels.
o Oil interests, subsidized mainly via huge tax benefits like an "intangible drilling cost" tax advantage, reduce Treasury revenue by almost $20 billion a decade.
While these are some of the larger, government-funded projects that are accelerating the destruction of the environment, there are still dozens of others: tax credits for consumers to buy inefficient vehicles, wasted fuel for unnecessary plane flights, direct crop subsidies that encourage deforestation, etc. And with $380 billion in spending of this kind scheduled for the next five years, changing this trend does not appear to be a goal for the near future.
Without doubt, at least a few of these policies were intended to be eco-friendly. However, planning macroeconomic policy often limits the ability to foresee all the potential side effects, such as adverse consumer reactions or exploitative business decisions. For this reason, government ought to take a step back from its environmentally-motivated market intervention and stick to policies that are broader and less pervasive: funding for basic public research, maintenance of refuges and parks, etc.
Source: Eli Lehrer and Ben Schreiber, "Go Green...,"
Weekly Standard, September 12, 2011.
January 13, 2012 —
Does Disease Cause Autocracy?
In attempting to explain those factors which lead to the rise or fall of liberalism, democracy and wealth, several scientists believe they have identified a new culprit: disease. The eradication of proliferating diseases correlates strongly with the rise of democratic institutions and liberal social norms such as individualism, gender
egalitarianism and property rights. Such a relationship may seem distant, but new research offer several explanations, says Ronald Bailey, Reason Magazine's science correspondent.
Firstly, disease keeps the poor, poor.
o Heavy disease burdens create persistent poverty traps from which poor people cannot extricate themselves.
o High disease rates lower their economic productivity so they can't afford to improve sanitation and medical care, which in turn leaves them vulnerable to more disease and further reduces their ability to prosper economically.
Secondly, a high prevalence of disease encourages intolerance and localism.
o In the same way that the human immune system adapts to fight pathogens, groups of people evolve customs that reduce the transmission of diseases.
o This usually includes a degree of xenophobia, whereby members of isolated groups avoid contacts with "out-group" members who may have parasites to which the group is neither accustomed nor resistant.
o This limits the flow of people and ideas, diminishing social tolerance and eating away at the foundation of liberal thinking.
This natural defensiveness toward out-groups, developed by survival instincts, also explains the lack of power sharing in these nations. Elites, who because of their wealth have not been so heavily exposed to disease and parasites, limit interaction with the poor for this very reason, decreasing the potential for top-down reform. Simultaneously, bottom-up reform is undercut by the inability of the poor to organize because of the aforementioned xenophobia. Thus, the lack of unity amongst the lower class opens these societies to autocratic rule.
Should these hypotheses prove true, the implications for foreign aid to poor nations are that efforts should prioritize disease eradication over the myriad of other issues. It remains to be seen, however, if the very ethnocentrism and xenophobia predicted by these studies will also hinder efforts by outsiders to break the vicious cycle.
Source: Ronald Bailey, "Does Disease Cause Autocracy?"
Reason Magazine, October 2011.
January 9, 2012 —
Financial Literacy, Retirement Planning and Household Wealth
There is ample empirical evidence documenting widespread financial illiteracy and limited pension knowledge. At the same time, the distribution of wealth is widely dispersed and many workers arrive on the verge of retirement with few or no personal assets. In a new paper, researchers Maarten van Rooij, Annamaria Lusardi and Rob J. Alessie investigate the relationship between financial literacy and
household net worth, relying on comprehensive measures of financial knowledge designed for a special module of the Dutch Central Bank Household Survey (DHS).
o Their findings provide evidence of a strong positive association between financial literacy and net worth, even after controlling for many determinants of wealth.
o Moreover, they discuss two channels through which financial literacy might facilitate wealth accumulation.
o First, financial knowledge increases the likelihood of investing in the stock market, allowing individuals to benefit from the equity premium.
o Second, financial literacy is positively related to retirement planning, and the development of a savings plan has been shown to boost wealth.
Overall, financial literacy, both directly and indirectly, is found to have a strong link to household wealth.
Source: Maarten van Rooij, Annamaria Lusardi and Rob J. Alessie, "Financial Literacy, Retirement Planning and Household Wealth,"
National Bureau of Economic Research, August 2011.
January 5, 2012 —
Toward a Solvent Postal System
When the government decided to replace the Post Office Department with the U.S. Postal Service (USPS) in 1971, it exchanged a taxpayer-dependent bureaucracy with a government-owned business that was supposed to rely on the sale of postage, mail products and services for revenue. In order to subsist without taxpayer support and still meet its obligation to provide the American public with "universal service," Congress grants the USPS a statutory monopoly on the delivery of first-class and standard ("junk") mail. However, policymakers should end the monopoly and put the USPS on the path toward privatization, says Tad DeHaven, a budget analyst at the Cato Institute.
Privatization is the next step. While some consider "privatization" to be a dirty word, countries around the globe have been successfully subjecting their former state-run postal monopolies to market forces for years.
o For example, 69 percent of Germany's formerly government-owned post office Deutsche Post is now privately owned.
o The Netherlands' TNT Post is completely privately owned.
o And the European Union intends to eliminate the national monopolies of all EU member states.
What would a privatized postal market look like? That's the beauty of a free market -- freed from the government's one-size-fits all model, a new system would unfold through the interaction of postal customers and providers. Freeing America's postal market offers the potential for significant consumer benefits because entrepreneurs have the strongest incentives to innovate, improve quality and reduce costs.
The next great postal innovation is more likely to come from an entrepreneur than a government employee. Before that can happen, however, Congress needs to at least commission studies on what it would take to prepare the USPS for privatization, as nobody in the private sector would touch it in its current state. But the choice is becoming clear: Congress can unleash the American entrepreneurial
spirit on mail service or it can force taxpayers to bail out its lack of foresight and imagination.
Source: Tad DeHaven, "Toward a Solvent U.S. Postal System,"
Forbes, October 10, 2011.
January 2, 2012 —
Fiscal Illusion and Fiscal Obfuscation: Tax Perception in Sweden
Fiscal illusion is a term that is applied when the public largely misunderstands key tax and spending parameters, which distort their financial and governmental beliefs. Looking specifically to Sweden, Bjorn Wallace and Tino Sanandaji, Ph.D. students at the Stockholm School of Economics and the University of Chicago, respectively, examine fiscal illusion in that country.
Sweden is an ideal country in which to conduct such a study because its government collects a greater share of national income in taxes than in any other country. Therefore, it seems logical that the Swedish government would be highly incentivized to encourage illusion, as this would help to muddle the actual amount of personal income that is paid to the government.
o When questioned about the portion of the average Swede's personal income that is paid in taxes, the average response was 40 percent and the median 35 percent -- far off from the correct rate of 63 percent.
o Though most respondents correctly identified the amount of the employer portion of the payroll tax, most misunderstood the burden of the tax, with only 24 percent stating correctly that it was on employees while 56 percent stated it was on employers.
o In 2003, taxes comprised 55 percent of Sweden's national income.
The strong concentration (roughly half the respondents) of responses pointing to a tax burden of around 30 to 39 percent suggests that many respondents were thinking only of the direct income taxes. This suggests that respondents failed to understand the true level of taxes because of the number of revenue sources and the fact that some are partially hidden.
One of the hidden sources of revenue is the employer portion of the payroll tax. While most respondents knew the level of the tax, they failed to realize that empirically, the tax is paid by employees; though the company technically pays the bill, the employee receives less compensation and fewer people are able to work.
Source: Bjorn Wallace and Tino Sanandaji, "Fiscal Illusion and Fiscal Obfuscation: Tax Perception in Sweden,"
Independent Review, Fall 2011.
December 28, 2011 —
Extreme Weather Events Are Killing Fewer People than Ever Before
Despite concerns about global warming and a large increase in the number of reported storms and droughts, the world's death rate from extreme weather events was lower from 2000 to 2010 than it has been in any decade since 1900, according to a new Reason Foundation study. Chronicling extreme weather categories of droughts, floods, wildfires, storms (hurricanes, cyclones, tornadoes, typhoons, etc.) and extreme temperatures, both hot and cold, the study found:
o Droughts were the most deadly extreme weather category between 1900 and 2010, responsible for over 60 percent of extreme weather deaths during that time and peaking in the 1920s.
o Floods, peaking in the 1930s, were to blame for 30 percent of the deaths during the timeframe studied, making them the second most deadly extreme weather category.
o The average number of extreme weather events recorded increased from 2.5 per year in the 1920s to 8.5 in the 1940s to 350 per year for the period 2000-2010.
Over the studied timeframe, the fatalities caused by these extreme weather scenarios have been drastically cut. Deaths from droughts, which were responsible for more than half of all extreme weather deaths, have been reduced by more than 99.9 percent. This drop is largely attributable to global food production advancements and society's increased ability to transport food and medical supplies. Similarly, deaths from floods have fallen by over 98 percent since their peak in the 1930s, with an average of approximately one flood death per year per million people from 2000 to 2010.
The study also notes the drastic increase of extreme weather reporting during the studied timeframe. The researchers suggest that advancements in international telecommunications, in addition to an increasing tendency to declare natural disaster emergencies, account for this increase.
Source: Indur M. Goklany, "Extreme Weather Events Are Killing Fewer People than Ever Before,"
Reason Foundation, September 22, 2011.
December 24, 2011 —
Economic Freedom of the World
The foundations of economic freedom are personal choice, voluntary exchange and open markets. The Economic Freedom of the World report seeks to measure the consistency of the institutions and policies of various countries with voluntary exchange and the other dimensions of economic freedom. The report is copublished by the Cato Institute, the Fraser Institute in Canada and more than 70 think tanks around the world.
This year's report notes that economic freedom fell for the second consecutive year.
o The average economic freedom score rose from 5.53 (out of 10) in 1980 to 6.74 in 2007, but fell back to 6.64 in 2009, the most recent year for which data are available.
o In this year's index, Hong Kong retains the highest rating for economic freedom, 9.01 out of 10, followed by Singapore, New Zealand, Switzerland, Australia, Canada, Chile, the United Kingdom and Mauritius.
o The world's largest economy, the United States, has suffered one of the largest declines in economic freedom over the last 10 years, pushing it into 10th place.
o Much of this decline is a result of higher government spending and borrowing and lower scores for the legal structure and property rights components.
This year's report also contains new research comparing policies that promote "freedom" compared to "entitlement" in relation to economic development. The findings suggest that fundamental freedoms are paramount in explaining long-term economic growth. Countries that favor free choice -- economic freedom and
civil and political liberties -- over entitlement rights are likely to achieve higher sustainable economic growth and to achieve many of the distinctive proximate characteristics of success identified by the Commission on Growth and Development (World Bank, 2008). In contrast, pursuing entitlement rights through greater coercion by the state is likely to be self-defeating in the long run. The report
also includes findings on the positive relationship between increases in economic freedom and improvements in women's wellbeing.
Source: "Economic Freedom of the World: 2011 Annual Report,"
Cato Institute/Fraser Institute, September 20, 2011.
December 20, 2011 —
Got Cheap Milk?
First-World food fetishes such as locavorism and organics are positively terrible for the world's poorest people. If you want to do the right thing, become a globally conscious grocery buyer, says Charles Kenny, a senior fellow at the Center for Global Development.
Perhaps it is psychologically better to have close contact with the people who grow your food, but that doesn't make it good for the environment.
o For example, it is twice as energy efficient for people in Britain to eat dairy products from New Zealand than from domestic producers.
o It is four times more energy efficient for them to eat lamb shipped from the other side of the world than it is to eat British lamb.
o That's because transporting the final product accounts for only a small part of the energy consumed in the production and delivery of food, and it's far better to eat foods from places where production itself is more efficient.
o For example, New Zealand cattle eat clover from the fields while British livestock tend to rely on feed -- which itself is often imported.
And the environmental benefits of organic in terms of lower energy costs and less pollution?
o Norman Borlaug, father of the Green Revolution, estimated that we would need 5 billion to 6 billion additional cows to produce enough natural fertilizer to sustain our current crop production -- which, of course, would increase the demand for forage crops and thus the need for agricultural land.
o Meanwhile, weed-killing herbicides allow for no-till farming.
o When you don't plough, you don't erode topsoil nearly as much -- so it doesn't end up being washed into rivers, leaving behind a dust bowl.
o Whether organic is as efficient as conventional farming -- in terms of land yield, energy or labor productivity -- depends on the place and the crop.
o But even organic sympathizers report that the average land yield in the industrial world is about 8 percent lower on organic farms than on conventional ones.
There are still as many as 1 billion people worldwide who are malnourished; and many are living on around a dollar a day. The best way to help poor people eat well is to make healthy food cost less. But the more agricultural land we divert into
lower-efficiency organic production, the higher the price of all food will climb.
Source: Charles Kenny, "Got Cheap Milk?"
Foreign Policy, September 12, 2011.
December 13, 2011 —
No Evidence Global Warming Is Making Hurricanes Worse
Hurricane Irene has prompted the usual rhetoric from the usual suspects about global warming making these storms worse. Too bad there is no evidence for this whatsoever on a global scale, says Patrick J. Michaels, a senior fellow in environmental studies at the Cato Institute.
Ryan Maue, at Florida State University, tracks global tropical cyclone energy back to 1970, which is the time at which adequate data on hurricane winds became available.
o His "Accumulated Cyclone Energy" index peaked in the mid-1990s and in recent years has been at or near the lowest point ever recorded.
o Indeed, his most recent refereed paper, in press at Geophysical Research Letters, is called "Recent Historically Low Global Tropical Cyclone Activity."
However, there is an interesting trend in Atlantic hurricane activity.
o The Department of Commerce's National Hurricane Center (NHC) is naming tropical storms that they clearly would have ignored in previous years.
o At the time of this writing, we have had 10; Michaels doubts that seven of these would have made the grade years ago.
o In fact NHC's Chris Landsea agrees that NHC is naming systems that they would have previously ignored or missed.
o A recent paper in Journal of Geophysical Research, by Princeton's Gabriele Villarini, noted the contamination of the Atlantic hurricane data by what he called "shorties."
Why NHC is doing this, and why they kept Hurricane Irene's "category" (one through five) high despite acknowledging that hurricane hunter aircraft were having trouble finding enough wind, has more to do with risk aversion than any putative conspiracy to toe the politically correct line on global warming. The result is that ships at sea are "warned" of brisk winds and high seas that might have previously surprised them, and that politicians and emergency management officials can justify massive evacuation orders. This used to be known as covering one's posterior. Now NHC sometimes calls it "the course of least regret."
It is also a dangerous practice. People who endure the endless torture of a hurricane evacuation from barrier islands like the North Carolina Outer Banks from storms that cause little damage may be reluctant to leave when the next -- big and real -- one shows up, says Michaels.
Source: Patrick J. Michaels, "Irene Wasn't All That,"
Cato-at-Liberty.org, August 29, 2011.