Venezuela's Central Bank Admits the Country's Economy Is a Mess

Venezuela's Central Bank Admits the Country's Economy Is a Mess

05/30/2019Ryan McMaken

The Venezuelan central bank has released new data showing just how far the nation's economy has disintegrated in recent years.

MercoPress reports this week (in text that is rather loosely translated from Spanish):

After several years, the Central Bank of Venezuela (BCV) published results of gross domestic product (GDP) until the third quarter of 2018, with which officially confirms the recession that is experienced in the oil country. With the data it is known then that between the third quarter of 2013 to September of last year the economy lost 52.3%. President Nicolás Maduro is on power since 2014.

The BCV report draws a demolished economy. According to the institution, the construction sector fell by 95% between the third quarter of 2013 and the third quarter of 2018, the manufacturing sector by 76%, trade by 79% and financial institutions by 79%. According to the data released on Tuesday, towards the end of 2018 the collapse accelerated.

The official figures of the BCV also confirm the magnitude of the Venezuelan economic recession that has been recorded since the arrival of Nicolás Maduro to the presidency of the country. According to the data, after a slight growth of 1.3% in 2013, as of 2014, the deterioration of the economy begins with a decrease of 3.9%; as well as a fall of 6.2% in 2015.

Among the most striking of the statistics offered by the central bank was 2018's inflation rate of 130,060.2%.

The data release was mandated by the International Monetary Fund which threatened to sanction Venezuela with limitations on its Special Drawing Rights if it did not report updated macroeconomic data.

Given the acceleration of economic decline, it looks like the IMF may need to revise its most recent estimates of Venezuela's economic growth which can be seen in per capita GDP numbers. Here are the IMF's country-by-country estimates of GDP per capita, published using extrapolations from older Venezuelan data:

ven1.png

Source: International Monetary Fund.

Note the downward trend in Venezuelan GDP (the bottom dark blue line.) It now appears likely Venezuela's growth will need to be adjusted downward.

While the magnitude of the economic decline is remarkable, Venezuela's decline in relation to other South American nations is, by now, a well established trend.

ven2.png

While much of the continent has been undergoing significant growth over the past twenty years — especially in Peru, Uruguay, and Colombia — Venezuela has been moving in the opposite direction. Indeed, according to the estimates published before the release of the Venezuelan central bank's new data, the nation's per capita GDP declined 25 percent from 2008 to 2018.

The relative change has been less dramatic in more recent time frames. Brazil's growth dropped to zero between 2013 and 2018, and Argentina's growth turned negative. Both nations are notable for embracing highs-pending, high-inflation policies over the past decade. It remains to be seen if Brazil's and Argentina's more recent turns toward allegedly pro-market regimes can repair the damage.

ven3.png

Meanwhile, Venezuela has been notable for adopting an especially virulent type of socialism, even when compared to other leftist regimes, such as Bolivia and Ecuador. While Morales in Bolivia and Correa in Ecuador tended to be more pragmatic in their professed "socialism," The Chavista regime in Venezuela has doubled down on enforced "equality" through widespread expropriations and persecution of the productive middle classes.

The results have been disastrous indeed.

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Economics 101: More Wealth Means Less Poverty

06/10/2019Per Bylund

Tweeting about poverty and wealth1 is quite instructive. It's obvious that many feel very strongly about it yet know so little.

Consider what wealth is: it is to have the means to satisfy wants. Those means can be anything, including berries or fruits growing in the wild. But the vast majority of means are created. There are no hamburgers, iPhones, or houses growing on trees.

In other words, most means to satisfy wants were created. So wealth, generally speaking, is created.

Many appear confused by this rather obvious fact, or take offense by it being stated.

That is not only ignorant, but counter-productive: whoever does not believe that the means to satisfy wants (wealth) are created surely is not acting to create them. So we are missing out on a lot of wealth because of this ignorant view; our standard of living could be higher.

It should also be obvious that the creation of one means does not makes anyone poorer or, as some claim, that the creation of any means to satisfy a want "creates poverty."

Imagine two people living without any created means to satisfy wants: they are naked and without any wealth other than the occasional berry or fruit provided by nature. If Person One spends her day creating a shelter, this provides a means to satisfy a want. She is thus richer. Does that make Person Two poorer? No. That person's situation has not changed. If anything, there is now a shelter that could potentially be shared, and the knowledge of how to create one is now available. So if anything, Person Two is (slightly) richer too.

Sure, there is now inequality because person one has a shelter and person two does not. You may have the opinion that Person One must share this wealth or think it is okay for Person Two to use force to take that shelter away from Person One. But neither changes the fact that this wealth – the shelter – was created and that, as a result, there is now more wealth in the world.

More wealth means less poverty.

The distribution of wealth is an important issue that needs to be properly discussed, but it is separate from the fact that wealth is created. And it must be created before it can be "distributed." Anything else is nonsense.

Sure, critics may claim shelters are different from the things people want today. That, for example, iPhones etc. do not satisfy "real" wants. But that's also an issue that is separate from the creation of wealth, and it is not really for them to make such judgments. The only thing that matters is that people who use – and choose to use – those means do so because their use satisfy some want that they have. It thus creates value in their lives.  Your opinion does change this fact; it does not decide the wealth or standard of living of someone else.

It's actually beautiful that we do want different things and have different skills, which means we can cooperate through specializing and exchanging and help everyone satisfy more wants than we would be able to on our own. So we're richer as a result (perhaps despite your opinion of people's choices).

Formatted from Twitter: @PerBylund.
  • 1. Link added by the editor.
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Tucker Carlson's Broadside Against Austrian Economics

06/06/2019Jeff Deist

Listen to the Audio Mises Wire version of this article.

Fox News host Tucker Carlson took to the airwaves of this popular show last night to lambaste Austrian economics and libertarianism, which he views as twin pillars of a failed ideology that doesn't protect American workers and their interests.

The GOP, he argues, is in thrall to free-market corporate interests and esoteric economic theories from dusty textbooks. Republicans remain wedded to unbridled libertarian political philosophy, tax cuts, deregulation, and unilateral free trade, all of which enrich elites but hurt average people. Meanwhile, presidential aspirants like Elizabeth Warren and Bernie Sanders offer the American electorate real-world solutions to economic insecurity, jobs, and healthcare.

It's a compelling story, but untrue. Does Carlson honestly think Republican members of Congress are overly theoretical and ideological? And here we thought they were a bunch of unprincipled and poorly-read hacks!1

Does he honestly think the budget-busting GOP of recent political memory, from Bush II (Iraq War, Medicare Part D, Department of Homeland Security, Patriot Act), John McCain, Mitt Romney are ideological libertarians? Why did Ron Paul and Rand Paul fare poorly among Republican primary voters, if in fact free-market ideology and its donor class dominate the party? And hasn't the party been overtaken by Trumpist protectionists?

Of course we're pleased when Right populists recognize the influence of the Austrian school, just as we're pleased when Left-liberals at the New Republic convince themselves that Misesean "neoliberalism" has taken over the world. We note that Mises and Rothbard continue to receive criticism decades after their respective deaths, a testament to their deep (and apparently nefarious!) influence and an honor given to few economists.

Carlson, a onetime Cato Institute staffer and Weekly Standard writer, understands both Republican politics and the DC world of think tanks and punditry. When he references the Austrian school or libertarianism, it's shorthand for "Koch money and influence" rather than any real ideology. It's his shorthand for the "self-interests of rich guys," interests given an intellectual veneer by academics and writers who are happy to accept billionaire crumbs in exchange for cozy non-profit sinecures. "Conservatism, Inc." (or "Libertarianism, Inc.") has become an self-serving industry unto itself, sclerotic and ripe for criticism.  

There is truth to this. But it's not an ideological truth. Tucker Carlson knows better. He knows full well how tariffs make society overall worse off, how markets make poor Americans far better off than the poor in many countries, why government medicine doesn't work, and how minimum wage laws hurt the least-skilled workers. His argument is about priorities and strategy (and TV ratings), not ideology. And it accepts a fundamental tenet of the Left: self-interest for me is noble and warranted, self-interest for others (especially the rich) is suspicious if not sinister.

In other words, Carlson presents a fundamentally zero-sum perspective, which is to say a fundamentally political perspective. 

That said, his populism—particularly his antiwar stance—should not be dismissed. Populism per se is not an ideology, but rather a strategy. It can be imbued with any political philosophy, and thus can be equally dangerous or beneficial. At its core populism questions not only the competence of elites, but also their worthiness. It asks whether elite interests comport with those of average people, and in most cases correctly concludes that political elites have interests at odds with those people. 

When elites are state-connected or state-protected, i.e., when they maintain or even derive their wealth and influence through their relationship with the state, libertarians have every obligation to object. Elites in the West—from politicians and bureaucrats to central bankers and media figures to defense contractors and patent-coddled pharmaceutical execs—richly deserve our ire. They screwed things up, and ought to be held accountable.  

Tucker Carlson is right about that.

Read more: Rothbard on Libertarian Populism

  • 1. As I write this, I'm privileged to sit in a conference room at the epicenter of Austrian economics. A group of graduate students from around the world is in residence at the Mises Institute this summer, and this week they're discussing (chapter by chapter) Rothbard's Man, Economy, and State.Apparently the GOP forgot to send its congressional delegation to attend.
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Trump's Cuba Travel Ban Is A Wall Against Americans

06/06/2019Alice Salles

Governments have too much power over people. But most of us can’t truly grasp how deep this power goes until our lives are completely changed by a new policy.

Three years after President Obama lessened travel restraints to Cuba, the Trump administration imposed new restrictions for American tourists. This new policy impacts private and corporate planes and boats, cruise ship tours, and other group trips to the island nation.

In a statement to the press, Treasury Secretary Steven Mnuchin said that the travel ban was reinstated because of the “destabilizing role in the Western Hemisphere, providing a communist foothold in the region and propping up U.S. adversaries in places like Venezuela and Nicaragua by fomenting instability, undermining the rule of law, and suppressing democratic processes.”

With the new restrictions, Mnuchin said, the administration hopes “to keep U.S. dollars out of the hands of Cuban military, intelligence, and security services.”

On Twitter, Cuba’s Minister of Foreign Affairs Bruno Eduardo Rodríguez Parrilla said the U.S. wants to “[suffocate] the economy & [harm] the living standards of Cubans in order to forcefully obtain political concessions.”

Bruno Eduardo Rodríguez Parrilla, Cuba’s Minister of Foreign Affairs, strongly criticized the new travel sanctions.

“I strongly reject new sanctions announced by #US vs. #Cuba which further restrict #US citizens’ travels to Cuba, aimed at suffocating the economy & harming the living standards of Cubans in order to forcefully obtain political concessions,” Parrilla wrote on Twitter. “Once again they will fail.”

Regardless of how he feels, the conflict between the U.S. government and the Cuban regime shouldn’t impact people who have nothing to do with it. Whether officials of both countries recognize this or not, they have no legitimate authority over people’s lives.

Government Shouldn’t Dictate Travel Policy

This new attack on Cuba, Mnuchin himself admitted in his statement, is due to Cuba’s close association with Venezuela. But because these restrictions impact Cuban citizens directly, as many are only able to make a living thanks to U.S. tourists , Trump’s move might as well be seen as an act of war.

Whether you support the oppressive regimes in both Venezuela and Cuba or not, the nature of the current administration’s policy can’t be ignored, as it puts America, once again, in the role of the world’s police. And as we’ve seen in the past, to play this role means to put innocent people’s lives in jeopardy.

While to some, it might seem OK to punish the entire country for its corrupt government, the reality is that Cubans aren’t in love with communism . Quite the contrary, many agree that their government doesn’t represent them. But when the United States imposes sanctions or travel bans, it ends up fueling Cuban state propaganda while restricting the individual’s right to do what he or she pleases with their own money. In the end, those who hurt the most are the Cuban people, many whose livelihood depend on exchange with foreigners.

Originally published by Advocates for Self Government.

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Bylund: How to Prioritize When Making Decisions as an Entrepreneur

06/05/2019Per Bylund

Life in a startup is fast paced, varied and fun. But it is also a constant and chaotic struggle, a juggling of disparate issues that need attention and decisions to be made at a moment’s notice. There are employees who need directions, tensions that threaten to erupt into personal conflicts, the bank that keeps calling about refinancing the loan, the supplier who suddenly needs the blueprints earlier to be able to deliver on time, and, at the same time, an endless stream of prioritizations that need to be right.

How are entrepreneurs to make order of this chaos? They face a seemingly endless stream of decisions that need to be made.

There is, of course, no simple solution. But there is a way of thinking about all decisions in a startup that can help entrepreneurs quickly figure out what matters more and what matters less: focus on the forest, not the trees.

What I mean by that is not simply to take a holistic approach to decision-making, but to consider the startup’s position in the economy overall. In other words, what a business actually does in the market economy and what function entrepreneurs serve. Sound cryptic? It really isn’t.

Read the full article at Entrepreneur.

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Repeal the Espionage Act

World War I is the gift that just keeps on giving. Although the U.S. government’s intervention into this senseless, immoral, and destructive war occurred 100 years ago, the adverse effects of the war continue to besiege our nation. Among the most notable examples is the Espionage Act, a tyrannical law that was enacted two months after the U.S. entered the war and which, unfortunately, remained on the books after the war came to an end. In fact, it is that World War I relic that U.S. officials are now relying on to secure the criminal indictment of Julian Assange, the WikiLeaks head who released a mountain of evidence disclosing the inner workings and grave wrongdoing on the part of the U.S. national-security establishment, especially with respect to the manner in which it has waged it undeclared forever wars in the Middle East and Afghanistan.

Some news media commentators are finally coming to the realization that if the Espionage Act can be enforced against Assange for what he did, it can be enforced against anyone in the press for revealing damaging inside information about the national-security establishment — i.e., the Pentagon, the CIA, and the NSA. Therefore, they are calling on the Justice Department to cease and desist from its prosecution of Assange.

Of course, they are right, but the problem is that they don’t go far enough. Their mindsets reflect the customary acceptance of the status quo. The mindset is that we Americans simply have to accept the way things are and plead with the government to go easy on us.

That’s just plain nonsense. It is incumbent on the American people to start thinking at a high level, one that doesn’t just accept the existence of tyrannical laws and instead calls for their repeal. After all, isn’t that what our Declaration of Independence says — that when government becomes destructive of the legitimate ends for which it was formed, it is the right of the people to alter or even abolish it and form new government?

What does that mean with respect to the Espionage Act? It means that the law should simply be repealed and that Americans need to start demanding repeal rather than simply pleading with the Justice Department to enforce it in a more judicious manner.

Let’s keep in mind that the law is the fruit of a rotten foreign intervention. Hardly anyone defends the U.S. intervention into World War I. That war was, quite simply, none of the U.S. government’s business. President Wilson, however, was hell-bent on embroiling the U.S. in the conflict. Wilson believed that if the force of the U.S. government could be used to totally defeat Germany, this would be the war to finally end all wars and to make the world safe for democracy.

Wilson’s mindset, of course, was lunacy. Sure enough, the U.S. intervention resulted in Germany’s total defeat, which was then followed by the vengeful Treaty of Versailles, which Adolf Hitler would use to justify his rise to power. Nazism and World War II soon followed. So much for the war to end all wars and to make the world safe for democracy. Tens of thousands of American men were sacrificed for nothing.

Moreover, Wilson had to force American men to fight in World War I. He conscripted them. Enslaved would be a better word. When a government has to force its citizens to fight a particular war, that’s a good sign that it’s a bad war, one that shouldn’t be waged.

In fact that was one of the reasons for the Espionage Act—not to punish people for spying but rather for criticizing the draft and the war. The law converted anyone who publicly criticized the draft or attempted to persuade American men to resist the draft into felons. And make no mistake about it: U.S. officials went after such people with a vengeance, doing their best to punish Americans for doing nothing more than speaking.

One example was Charles Schenck, who was prosecuted and convicted of violating the law after circulating a flier that opposed the draft. When the case reached the U.S. Supreme Court, the Court upheld the conviction, one of the earliest examples of judicial deferment to the military, a deference that would become virtually complete after the U.S. government was officially converted to a national-security state after World War II.

Another example was Eugen Debs, who got convicted for criticizing the war and for encouraging men to resist the draft. President Wilson called Debs “a traitor to his country.”

How in the world can such prosecutions and convictions possibly be reconciled with the principles of a free society? Freedom necessarily entails the right to criticize government for anything, including its wars, its enslavement of people, its tyranny, and anything else. Perhaps it is worth nothing that both Schenk and Debs were socialists, something that today’s crop of Democrat presidential candidates might want to take note of.

Longtime supporters of FFF know that one of my favorite stories in history is the one about the White Rose, a group of college students in Germany who, in the midst of World War II, began distributing pamphlets calling on Germans to resist their own government and to oppose the troops1.When they were caught and brought to trial, the members of the White Rose were berated by the presiding judge, who accused them of being bad German citizens and traitors, just as Wilson, the Justice Department, and the U.S. Supreme Court had said of Americans who were violating the Espionage Act.

Today, any U.S. official would praise the actions of the White Rose, but that’s just because it was foreign citizens opposing an official enemy of the U.S. government. The fact is that if the White Rose members had done the same thing they did in Germany here in the United States, U.S. officials would have gone after them with the same anger and vengeance as German officials did. And they would have used the Espionage Act to do it.

It’s time to acknowledge that the horror of U.S. intervention into World War I and the horrible consequences of that intervention. It’s also time to rid our nation of the horrific relic of that intervention, the Espionage Act. We need to continue demanding the dismissal of all charges against Assange. But let’s not stop there. Let’s repeal the tyrannical World War I-era Espionage Act under which he is being charged to ensure that this cannot happen to others.

Originally published at the Future of Freedom Foundation
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The Problem with "Assault" Weapons

06/04/2019José Niño

Like no other international mass shooting in recent memory, the Christchurch Mosque massacre in New Zealand is having a resounding impact on gun control discussions in the United States.

In short order, politicians from Bernie Sanders to Alexandria Ocasio-Cortez praised New Zealand for its immediate decision to implement gun control. At the same time, they reiterated that the U.S. follow in New Zealand’s footsteps by passing so-called “assault weapons” bans.

In the American case, there were already several assault weapons ban bills filed in both the U.S. House and Senate before the Christchurch massacre. Although Republican control of the Senate will likely prevent the passage of these bills, these recent filings and the new outrage from the New Zealand tragedy have re-ignited discussions about gun control.

The Origins of the Assault Weapons Ban

AWBs have been a fetish of sorts for gun control proponents during the past three decades. California was one of the first states to pass this policy in 1989 with the Roberti-Roos Act, which banned the ownership and transfer of various brands of assault weapons. The weapons that fell under this ban consisted of rifles and even some pistols and shotguns. This became the inspiration for other assault weapons bans across the nation and eventually led to Bill Clinton’s signing of Federal Assault Weapons Bans of 1994 .

In 2004, the 1994 AWB expired under President George W. Bush’s administration. Many advocates for the AWB warned that expiration would lead to a sudden surge in crime. Not only did murder rates drop from 2003 to 2004, but they have continued falling into the present. Per capita, gun ownership increased by 56 percent from 1993 to 2013, while gun violence plummeted by 49 percent during the same period.

During the past 20 years, lax gun policies like Constitutional Carry, the ability to carry a firearm without a permit, have also become politically relevant. In 2019 alone, states like Kentucky , Oklahoma , and South Dakota embraced Constitutional Carry, which now brings the number of states with this policy to 16. Gun liberalization considered, crimes rates have continued to drop. In 2014, for example, homicide rates reached a 51-year low .

The Obsession over Assault Weapons: Much Ado About Nothing?

Indeed, “assault weapon” is a politically loaded term with no standard definition. They are often confused with assault rifles, weapons with single-shot, burst fire, and fully automatic fire settings, which are employed by militaries around the world. These weapons are not readily available to the civilian populace in America due to stringent regulations from the 1934 National Firearms Act (NFA)and the Hughes Amendment of the 1986 Firearm Owners Protection Act (FOPA). Firearms like the AR-15, a whipping boy for the gun control crowd, only has semi-automatic settings.

Despite these facts, the media have run with the assault weapon canard. Interestingly, research shows that weapons that fall under the arbitrary assault weapon label account for a small percentage of crime. According to Gary Kleck in Targeting Guns, assault weapons were only used in 1.4 percent of gun crimes before any national or state assault weapons bans were implemented in the 1990s. In 2001, the Bureau of Justice found that 8 percent of criminals used assault weapons in firearms-related crimes.

In 2017 alone, only 403 people were killed by all types of rifles. To put this in perspective, this was a year when there were nearly 15,000 total murders, which includes both firearms and non-firearms related deaths. From 2007 to 2017, the much-maligned AR-15 accounted for only 173 deaths in mass shootings.

Assault Weapons Bans Enhance the On-Going Trend of State Control

Crime statistics aside, there is another key reason to be worried about AWBs. These new laws involve conceding more government control over human behavior.

As Ryan McMaken notes , the past century has been one of federal consolidation of power, in which numerous Anglo-Saxon traditions have been subverted by the managerial state. This is most apparent when dealing with the issue of militias. The tradition of a decentralized militia goes back to the libertarian Levellers of 17th century England. This decentralized militia practice did not stay confined to the British Isles as it soon became a part of American colonial culture.

In the early days of the American Republic, Founders like Patrick Henry and George Mason continued that tradition by stressing the importance of the militia instead of centralized standing armies. With the codification of the Second Amendment, both the militia and private firearms ownership aspects became bedrocks of American civic culture up until the early 20th century.

A key component of militia units is their access to military-grade weaponry. However, the militia’s autonomy from the federal government and civilian access to military weapons has been significantly undermined during the past century. David Yassky explains how the Dick Act (the Militia Act) of 1903 and subsequent acts have put the National Guard increasingly under the federal government’s thumb. Yassky points out that “anyone enlisting in a National Guard unit is automatically also enlisted into a "reserve" unit of the U.S. Army (or Air Force), the federal government may use National Guard units for a variety of purposes, and the federal government appoints the commanding officers for these units.”

It also doesn’t help that the passage of the aforementioned 1934 NFA and Hughes Amendment of the 1986 FOPA make it prohibitively expensive for everyday gun owners to acquire military weapons such as machine guns. In the case of the 1986 FOPA, civilians were banned from purchasing machine guns manufactured after the date that this law was enacted.

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Could an Austrian Win the Battle to Replace Theresa May?

05/31/2019Tho Bishop

Following the incredible success of Brexit in 2016, British politics has become a tragedy. Theresa May has been rightfully ridiculed for her remarkable incompetence in striking a Brexit deal, but her greatest sin was her ideological commitment to preserving and growing the very sort of government interventionism that has long hindered the UK.

As George Pickering noted earlier this year:

It would…be tempting for Brexiteers to place the blame entirely on policies inflicted by the EU bureaucracy, but the truth is that harmful post-Brexit policies are equally likely to be imposed by the UK’s own government. This is particularly true for the issue of ‘regulatory harmonization’. Although UK policymakers had initially been considering significant deregulation as a possibility in the case of a no-deal Brexit, this option was taken off the table due to Theresa May’s commitment to transpose the bulk of EU regulations into British law. This would mean that, even in the event of a no-deal Brexit, UK consumers would miss out on the economic boost and quality of life improvements that could otherwise have resulted from abandoning burdensome and unnecessary EU regulations. Again however, the key point is that the true culprit is the policy of regulation itself, not Brexit, and Brexiteers should be no less quick to point this out simply because the source of the harmful policy is the UK government, rather than the EU.

While a Prime Minister with the will to follow through on Brexit would itself be an important blow against political centralism, the UK needs a bold change in ideology to truly take full advantage of the opportunity breaking away from the EU offers its people. Luckily it seems that the Conservative Party will have the option to do just that.

Former Brexit Under-Secretary Steve Baker, a favorite of our friends at Mises UK, has publicly announced he’s considering jumping in to the race to replace May. Baker’s appointment at the time was particularly noteworthy as he was perhaps the strongest EU-skeptic in parliament. His support of Leave, for example, was not simply grounded in the name of British national sovereignty, but correctly identified the EU itself as a dangerous project that should be destroyed entirely.

I think Ukip and the Better Off Out campaign lack ambition. I think the European Union needs to be wholly torn down….It was meant to defeat economic nationalism, it is therefore a failure in its own terms. If we wish to devolve power to the lowest possible level, make it accountable and move on into a free society, then it’s clearly incompatible. What I want is free trade and peace among all the nations of Europe as well as the world and in my view the European Union is an obstacle to that.

While he lacks the same degree of name recognition that is enjoyed by others like former-London Mayor Boris Johnson, Baker has created a strong following of his own among Brexiteers due to his principled stand on Brexit. He has also argued that his distance from May’s past failed deals – which were backed by not just Johnson, but other potential rivals such as Domick Raab – gives him greater credibility.

While Baker’s principled stance on Brexit is itself deserving of praise, what truly makes Baker fascinating is his familiarity with Austrian economics. As I noted when he was originally named Under-Secretary, as a Member of Parliament Baker often referenced economists such as Ludwig von Mises, Jesús Huerta de Soto and F.A. Hayek in the House of Commons. A co-founder of the Cobden Centre (named after the great Richard Cobden), he has long been a vocal opponent of the “monetary socialism” of central banks and the IMF.

As is always the case with any decent politician, Baker remains a longshot in the race to replace May. Still, the fact that his name has emerged in the conversation is a strong sign for his political future. We shall see what emerges in the coming weeks, but if there is one thing we should learn from recent Tory history – one should never rule out an underdog.

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Where in the Developed World Are Average Workers Most Over-Taxed?

periodically explain that a European-sized welfare state can only be financed by huge taxes on lower-income and middle-class taxpayers.

Simply stated, there aren’t enough rich people to prop up big government. Moreover, at the risk of mixing my animal metaphors, those golden geese also have a tendency to fly away if they’re being treated like fatted calves.

I have some additional evidence to share on this issue, thanks to a new reportfrom the Tax Foundation. The research specifically looks at the tax burden on the average worker in developed nations.

The tax burden on labor is referred to as a “tax wedge,” which simply refers to the difference between an employer’s cost of an employee and the employee’s net disposable income.…The OECD calculates the tax burden by adding together the income tax payment, employee-side payroll tax payment, and employer-side payroll tax payment of a worker earning the average wage in a country. …Although payroll taxes are typically split between workers and their employers, economists generally agree that both sides of the payroll tax ultimately fall on workers.

The bad news for workers (and the good news for politicians) is that average workers in the advanced world loses more than one-third of their income to government.

May-28-19-Fig-1.jpg

In some cases, such as the unfortunate Spanish household I wrote about back in February, the government steals two-thirds of a worker’s income.

So which country is best for workers and which is worst?

Here’s a look at a map showing the tax burden for selected European nations.

Suffice to say, it’s not good to be dark red.

May-28-19-Figure-8.jpg

But that map doesn’t provide a complete answer.

To really determine the best and worst countries, the Tax Foundation made an important correction to the OECD data by including the burden of the value-added tax. Here’s why it matters.

The tax burden on labor is broader than personal income taxes and payroll taxes. In many countries individuals also pay a value-added tax (VAT) on their consumption. Because a VAT diminishes the purchasing power of individual earnings, a more complete picture of the tax burden should include the VAT. Although the United States does not have a VAT, state sales taxes also work to diminish the purchasing power of earnings. Accounting for VAT rates and bases in OECD countries increased the tax burden on labor by 5 percentage-points on average in 2018.

And with that important fix, we can confidently state that the worst country for ordinary workers is Belgium, followed by Germany, Austria, France, and Italy.

May-28-19-Fig-71.jpg

The best country, assuming we’re limiting the conversation to rich countries, is Switzerland, followed by New Zealand, South Korea, Israel, and the United States.

By the way, this report just looks at the tax burden on average workers. We would also need estimates of the tax burden on things such as investmentbusiness, and entrepreneurship to judge the overall merit (or lack thereof) of various tax regimes.

Let’s close by looking at the nations that have moved the most in the right direction and wrong direction this century.

May-29-19-Fig-5.jpg

Congratulations to Hungary, Israel, and Sweden.

I’m not surprised to see Mexico galloping in the wrong direction, though I’m disappointed that South Korea and Iceland are also deteriorating.

P.S. The bottom line is that global evidence confirms that ordinary people will be the ones paying the tab if Crazy Bernie and AOC succeed in expanding the burden of government spending in America. Though they’re not honest enough to admit it.

Originally published at International Liberty
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Trust As The Mechanism For A Better Entrepreneurial Business And A Better World: 5 Tips For Startups

05/30/2019Jeremy Vesta

Every day, we as consumers, citizens, family members, and friends experience hundreds of examples of how our trust undergirds the world we live in, and how fragile the world can be when trust is violated or broken. We’ve all experienced relationships that have faltered and beliefs that have been challenged as the result of a moment that altered our trust in a person, institution, or even corporation. It’s something so basic that the average person likely spends little to no conscious thought about trust, and how it effects the efficiency of the world around them.

A loss of focus on the importance of trust has led generations and entire nations to be seduced by the promise of regulation as a mechanism for protection against the violation of trust. The reality is that regulations and regulators replace the trust economy altogether and redirect the responsibility to act ethically and honestly away from the economic actors themselves and place it on the regulations and regulators. This ultimately leads to the outcry for further regulations and more complex legislation to take hold of the “evil corporations” and “greedy investors”. A clear understanding of the way in which the trust economy works to self-regulate shows how unnecessary and frequently harmful the regulatory system can be.

In my episode of Economics for Entrepreneurs with Hunter Hastings we spend a good deal of time discussing the beef industry. Clearly, if a food manufacturer produced adulterated product and customers became sick, we can imagine, with the trust economy as the master, how long that business would be able to continue selling product. The consumer’s trust that the product will be clean and safe would be destroyed. Conversely, as we look at these industries under regulation, we find that the consumer is confused about who to blame for any safety issues and often continues to buy from the offending party while continuing to look to government for the solution. As a result, we end up with a complex web of rules and institutions that, in the end, fail to close the loopholes and allow businesses to increase their concentration of power, leading to less innovation and less competition.

Consider the current case and controversy surrounding Facebook and its curating of news and information. Facebook seems to have violated the trust of a certain segment of their base by failing to convince them that their curation of news and treatment of private data is safe and unbiased. The natural reaction in the modern era is to look towards regulation as the answer rather than simply understanding the limited power that a private company holds over consumers in a non-regulated sector. The reality is that this violation of trust opens the door for a bevy of entrepreneurs to try their hand at supplanting Facebook by providing a product that focuses on transparency and innovates in regard to privacy and safety. Regulating Facebook, conversely, would only create a bureaucratic monster that likely would increase the barriers to entry for entrepreneurs and place an ever-increasing compliance cost on the backs of taxpayers, all while securing monopoly type powers for Facebook itself. For further evidence, Ryan McMacken makes a great case for why regulating Facebook would be a disaster in his recent article 3 Reasons Why Facebook's Zuckerberg Wants More Government Regulation .

The lesson to learn for entrepreneurs is that trust decreases the complexity of a transaction, increases efficiency, and has the potential to decrease cost. A contract between individuals who have successfully completed hundreds of transactions without significant disputes or quality claims is likely a shorter document (perhaps even a boilerplate agreement) with less time spent on legal fees and more left unsaid and uncontrolled by the contract. Conversely, a counterpart who has a history of issues, default, or simply creating headaches may find that the document they receive has been pored over by legal teams and leaves absolutely nothing to chance. Additionally, the less desirable customers are likely to find that their counterpart has priced, to a certain degree, the risk associated with accepting this company as a customer and may decline to extend credit or, at a minimum, may limit terms. Additionally, an entrepreneur will find that the development of trust can yield easier access to new markets, lower barriers to entry, and eventually lead to higher profit margin as a trusted product is valued higher on average than a product which may yield higher rates of defect.

So how can we, as entrepreneurs, earn trust in a startup environment where there have not been a multitude of completed transactions?

1) Leverage past relationships and previously developed reputations.

For those of us who have forged longstanding reputations in previous endeavors, continuing to operate in a circle where this reputation is known, and past relationships have already been developed means a leg up against the “from scratch” start-up taking a leap into the unknown. A properly placed endorsement from another trustworthy individual or entity can ensure that others unfamiliar with your past will be assured of your integrity and continued strength.

2) Be authentic.

Everything has a cost. We can try to show potential customers that we value their needs, but if the sales pitch at any point fails to meet with reality then trust is broken, and the short-term gain becomes moot. Under-promising and over-delivering may mean a longer road to those first sales, but can generate a great amount of trust currency to be leveraged later.

3) Execute!

Ultimately trust rests in action. Vigilantly ensuring that the product is delivered as promised and avoiding any complications ensures that your customer has a positive experience and learns that you are as good as your word. Solid customer service for a start up business can be as important as the product itself (which can be difficult given limited resources and lean organizations).

4) Small concessions can build great trust.

One of the advantages of being a start-up is that your organization is not large and institutionalized. You are not forced, due to the problems of organizational size, to implement hard and fast rules. Rather you can be more human in your interactions. Use discretion to affirm the authenticity of your willingness to work through even the minor problems and your customer will certainly gain trust in your organization.

5) Trust works both ways.

Nascent businesses must be more careful than well established companies in trusting their counterparts. The start up nature means that problems normally routine for a better-established firm may bring about the end of a startup. Therefore, a startup may wish to forgo its first sale in favor of finding a customer that will deal more honestly and ensure that a solid relationship can be established.

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Will New Jersey Be Next To Legalize Recreational Marijuana?

Over a year after reform advocates first began predicting swift legislative victory, the recreational use of cannabis remains illegal in New Jersey. When Governor Murphy and Senate President Sweeney agreed on a $42 per ounce flat tax in February, legalization supporters once again hoped for quick adoption of New Jersey Assembly Bill 4497 (“A4497”). Once again, the much-publicized March 25th vote was called off due to lack of support. Now legislators have a limited window to act before the state budget deadline on July 1st.

Hopes for reform have ebbed and flowed since Governor Murphy was elected on a platform including legalization within his first 100 days. Despite his party controlling both the Senate and Assembly, the Governor has only been able to expand the medical program since taking office. That executive action doubled medical marijuana enrollment in just six months.

While the media has spilled considerable ink analyzing the political drama, actual details of the bill itself have received considerably less attention. A4497 attempts to incorporate lessons learned from other legalization regimes in Colorado, Washington, and California. Some critics argue certain provisions in the bill are too ambitious. Others wish the bill would go even farther. These disputes will need to be resolved before the ongoing 18-month saga finally comes to a vote in Trenton.

What’s in the Bill?

A4497 generally employs a vice-regulation model common to most legalization regimes. Individuals would be permitted to lawfully possess up to one ounce of marijuana. The bill would establish a Cannabis Regulatory Commission. This powerful, five-person regulatory body would have overall authority to regulate and control the cannabis industry. Three members would be appointed by the Governor, one by the Senate President, and one by the Assembly Speaker. The commission would make bi-annual reports to the Governor and legislature.

One of the controversial elements of the bill are the much-debated expungement provisions. As currently written, nearly all cannabis-related offenses would be expunged. The only offenses not subject to expungement would involve possession of over five pounds or within close proximity to a school. Disorderly persons convictions may also be expunged. Drafters considered this provision significant because many cannabis offenses are pled down to this lesser offense. The bill would also prohibit law enforcement from using the smell of cannabis as probable cause or reasonable suspicion of a crime.

The language of the plan would allow for an “expedited” but not an automatic expungement system. A robust expungement program would be an immense logistical process and opponents suggest the legislation lacks adequate planning for its implementation. Other critics worry expungements could potentially extend to more serious offenses including weapons.

The bill proposes a Cannabis Control Commission to issue four tiers of licenses. Of no small controversy is the promotion of participation by disabled veterans, women, and minority licensees. Some supporters are insisting on stronger “social justice” provisions to require numerical set-asides for these groups. As written, the bill seems to consider participation by these groups as a non-binding goal. 15% of licenses would go to minorities, 15% to disabled-veterans, and 25% to “micro-businesses.” The bill does not include a cap on the total number of available licenses. “Impact Zones” are defined based on crime, poverty, and cannabis arrests and receive preferential access to licenses.

Four tiers of licenses cover every step of cannabis production including growers, processors, wholesalers, and retail establishments. Licensees will be required to pass a mandatory background check and obtain a Labor Peace Agreement from the union in order to operate. As a practical matter, this will likely result in a requirement to exclusively hire union employees.

Over 60 New Jersey municipalities have already passed ordinances prohibiting cannabis sales within their city limits. These municipalities would need to take further action within 180 days of legalization. Beyond this 180-day window local governments cannot prohibit retail establishments within a five year opt-out period.

Also noteworthy in the bill is the proposal of Cannabis Consumption Areas. These may be authorized by local governments and would attach only to Class 4 licenses (retail establishments). Cannabis Consumption Areas could be indoor or outdoor, but the consumed cannabis must be purchased on the premises. Beyond these areas public use would be prohibited, although delivery would be allowed. The bill is silent on dram shop liability.

The bill attempts to limit most employment discrimination based on cannabis use, including hiring and firing. In particular, employers would not be allowed to consider previous cannabis arrests. However, the bill would still allow employers to consider cannabis use if deemed reasonably related to the requirements of the job. Nothing in the bill would require an employer to amend their drug free workplace programs. The bill would also prohibit discrimination in the issuance or denial of mortgages arising from cannabis use. Cannabis-use could not be the sole basis for child custody decisions, although it could still be considered among other relevant factors.

The bill includes provisions regarding labeling, packaging, and advertising. Labels would need to include warnings, as well as information about THC levels, weight, serving size, growth method including pesticide information, and strain.

Finally, A4497 contains a safe harbor provision designed to comply with federal laws and the Supremacy Clause. The bill explicitly states it does not compel violation of any federal laws.

Where Does the Bill Go from Here?

“Marijuana prohibition has failed,” said Sen. Nicholas Scutari, one of the chief architects of the bill. “It is time to end the detrimental effect these archaic drug laws are having on our residents and make adult use marijuana legal.”

There is no proposed date for a vote, but supporters are hoping to bring it to the floor before the end of May. New Jersey currently spends about $127 million a year enforcing marijuana possession. Reform advocates often point to an ACLU study which indicates minorities are roughly three times more likely to be arrested for marijuana offenses in New Jersey.

Legal cannabis is expected to become a billion-dollar industry in the Garden State.

Reprinted from Liberty2.0.

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