Libertarian Think Tank Wants Government to Fuel Booms and Make Busts Worse

January 14th, 2010 by The Parallax Brief

Dr Eamon Butler of the Adam Smith Institute needs to think harder about this:

“I was interested to see this remark by the hugely intelligent John Stepek of Money Week, in one of his morning bulletins:

Every government, authoritarian or democratic, is terrified of growth slowing. Why? Because they’ll lose their jobs. Whether that’s at the end of a rope or more benignly at the ballot box doesn’t make any practical difference in economic terms. The fact is that the people in power will always do their damndest to keep a boom going for as long as possible. And that’s what ultimately does the economic damage.

Absolutely spot on… I have wondered (rather worrying) if democracy is our problem – that politicians simply have to keep promising higher spending and lower taxes to win elections…

I would like to see the UK and US in particular fess up to the fact that big over-expansions are what produces big crashes. Once they do fess up, then we can do something about it. Like have some kind of constitutional limits to government spending, borrowing, debt, and tax levels. This is exactly what the President of Georgia – one of the fastest-growing countries in the world, following its economic liberalisations – wants to do. His Liberty Act would amend the constitution to cap government expenditure at 30% of GDP… budget deficits at 3%… and public debt at 60%.”

Quite apart from the incongruous sight of a professed libertarian wondering about the benefits of democracy and idolising a petty despot who cares little for freedom or democracy (something which the Parallax Brief has highlighted about the Adam Smith Institute before), none of this actually makes sense.

If government expenditure and budget deficits were limited to a certain percentage of GDP, government spending would rise during good times and fall during bad times. One doesn’t need PhD to see the consequences of this: booms would be fueled as government spending increased with GDP, and busts would be made worse as the government stopped spending, putting more people on the dole and sending more businesses into bankruptcy.

Surely Dr. Butler has actually described the opposite of the government ideal? Surely government should try to smooth the economic cycle, not accentuate its bumps?

And if politicians are inevitably drawn into a taxation and spending bidding race, that’s an argument for better economic education, creating an environment in which more responsible politicians can flourish, or perhaps changing the way fiscal policy is made and enacted, not for introducing a fixed, arbitrary, economically nonsensical,  pro-cyclical new law.

The Echo Chamber on the Right

December 10th, 2009 by The Parallax Brief

It seems the Right’s echo chamber is alive and, well, not working very well. Both Guido Fawkes and Dan Hannan, the Muckraker in Chief and eminence grise of the Right, respectively, have make the same, and, in the Parallax Brief’s view, utterly ludicrous, point about the government’s pre-budget report.

Guido:

The Budget Britain Needs Was Delivered in Ireland

By coincidence here in Ireland it was also budget day, the Finance Minister Brian Lenihan delivered a 7% cut in public expenditure to match the 7.5% fall in GDP in 2009. To equal that Alastair Darling would need to have announced £40 billion in public expenditure cuts today.

Dan:

Ireland is trying to spend less, with cuts across the board. Everyone will share the pain, from cabinet ministers to benefits claimants. The Taoiseach, who is expected to take a 20 per cent salary reduction, reckons that the new budget will reduce Ireland’s deficit by 4 billion euros.

The United Kingdom, by contrast, wants to spend more. Alistair Darling will continue to expand the budget, and will raise taxes accordingly.

But, hang on a second: is the Parallax Brief the only one around here who has read some pretty disturbing things about the pernicious impact of all these cuts in Ireland and just what they’re doing to the economy?

LeftFootForward has the goods:

- Irish unemployment is 12.5 per cent

- the country is experiencing deflation at -6.6 per cent deflation

- GDP has fallen 7.4 per cent over the past year (and GNP by 11.6 per cent).

- And despite the cuts they have still had their credit rating downgraded.

Or, as Ambrose Evans-Pritchard said about Ireland’s economic policy with his customary elan and effortless erudition in the Telegraph earlier this year:

Depression buffs will note the parallel with Britain’s infamous budget in September 1931, when Phillip Snowden cut the dole and child allowance to uphold the deflation orthodoxies of the Gold Standard – though in that case the flinty Pennine rather liked hair-shirts for their own sake.

Though few had any inkling at the time, Snowden’s austerity drive would soon push British society over the edge. It set off a mutiny – a Royal Navy mutiny at Invergordon over pay cuts, in turn triggering a run on sterling…

This is torture for a debtors’ economy. You can survive deflation; you can survive debt; but Irving Fisher taught us in his 1933 treatise “Debt Deflation causes of Great Depressions” that the two together will eat you alive.

Those with a libertarian bent on the right really would sacrifice the Lion and the Unicorn on the altar of erroneous orthodoxy.

The Shining Lights of Libertarianism

October 26th, 2009 by The Parallax Brief

Libertarians sure know how to pick ‘em. First there was the 2006 Ludwig Von Misus institute report on Somalia, “Stateless in Somalia and Loving it”, which detailed just how Adam Smith’s invisible hand is working it’s magic in prosperous and pleasant East African nation. Of course, the US State Department had a different view of what happens when the influence of government is removed (via Mike Tomasky’s Guardian Blog):

The country’s poor human rights situation deteriorated further during the year, exacerbated by the absence of effective governance institutions and rule of law, the widespread availability of small arms and light weapons, and ongoing conflicts… Human rights abuses included unlawful and politically motivated killings; kidnapping, torture, rape, and beatings; official impunity; harsh and life-threatening prison conditions; and arbitrary arrest and detention.

In part due to the absence of functioning institutions, the perpetrators of human rights abuses were rarely punished. Denial of fair trial and limited privacy rights were problems, and there were restrictions on freedoms of speech, press, assembly, association, religion, and movement.

The Parallax Brief knows all three of his readers would jump at the chance to escape the dead hand of government in socialist hell-hole Britain for the sunnier climes of Somalia, where they would be free to be beaten, kidnapped, raped, tortured or killed without the nefarious agents of state bureaucracy interfering.

Or is it that Libertarians believe that Somalians clearly don’t value liberty and justice, because they haven’t set a price for the private sector to provide those goods?

Whatever the reasons, the bat-shit crazy libertarian examples of the ’successes’ of libertarian policy continued today with the Adam Smith Institute blog offering a glowing recommendation of Georgia as just the place that “libertarians could move to” if “Britain is indeed going to the dogs”.

“Their flat-rate income tax – initially set at 25% – was cut to 20% in response to the economic downturn, and is set to be further reduced to 15% by 2013. The tax on interest and dividends will be phased out by 2012. VAT is 18%. Corporation tax is 15%,” gushes blog editor Tom Clougherty. “What’s more, it looks as though the government will soon pass into law one of the best pieces of legislation I’ve ever seen: The Liberty Act. This act, which is going to be incorporated into the Georgian Constitution, caps government expenditure at 30% of GDP, budget deficits at 3% of GDP, and public debt at 60% of GDP.”

Ah, yes, the Georgian government. At first the Parallax Brief thought that the Somalian example was an aberration.  But it seems that many high profile libertarians and libertarian organizations place far greater import on economic liberty than personal. Somalia was great because of its free telecom markets — and damn the fact it severely curtailed what should be core values for any self-respecting libertarian: freedom of speech speech, press, assembly, association, religion, and movement.

Yet here is the phenomenon again. To be sure, Georgia has low-ish, flat taxes, a sparse social safetly net and has passed all kinds of laws to restrict regulation of the markets — all of which which probably makes the economic side of the country sound great to a libertarian. But the idea that Mikheil Saakashvili’s government is remotely democratic or in favour of genuine liberty is preposterous. (Although the Parallax Brief does understand that this is a myth perpetrated in the western media.)

In September 2007, Georgians, for some bizarre reason the Parallax Brief can’t quite put his finger on, began protesting at the libertarian policies of Saakashvilli’s government, which had caused mass unemployment, severe privations among even those who were employed, and, among other policies, removed utility subsidies for all. Instead of permitting the protests as the inalienable right of his citizens, the president ruthlessly crushed them with riot police using rubbler bullets while shutting down pro-opposition television stations. The subsequent elections were savaged by the OECD, whose monitors reported ballot box stuffing, vote counting and tabulation which did not match procedures, turnout in certain areas considerably higher than the national average, as well as courts which responded to complaints by stretching “the law beyond reasonable interpretation and without regard to its spirit in favour of the ruling party candidate”. Further, courts “did not fully and adequately consider and investigate a considerable number of complaints regarding irregularities, some of which were of a serious nature. A large number of complaints were also ruled inadmissible or dismissed on technical grounds.”

Yes, Georgia: home of the free.

To be fair to Mr Clougherty, he did mention that a small problem might be the looming presence of Russia. But he needent worry! He’ll be happy to know that things will only get better when Putin sends the T90s into Tbilisi:  Russia has flat taxes, too — and set at an even more libertarian 13%.

Happy days!