cronyism pony express subsidy ranking

US Drops Behind in Competitive Rankings Because of ...
public debt debt clock rent seeking us dollar lvt

The Pony Express and other Rent-Seekers in America

As its debt mounts in order to favor rent-seeking insiders, the US grows sluggish, but the UK debates a solution. We trim, blend, and append five 2012 articles from: (1) Der Spiegel, Spt 6, on rankings; (2) The Economist on debt; (3) Washington Examiner, Spt 4, on the Pony Express by M. Ryan; (4) Casey Research, Spt 9, on the Fed by D. Hornig; and (5) Institute of Economic Affairs, Spt 4, on LVT by D. Stoddard.

by Der Spiegel, by The Economist, by Matt Ryan, by Doug Hornig, and by Duncan Stoddard

Blasting Europe has become a reflex in US politics. Yet ahead of the superpower are five northern European countries. Ranked seventh, the US dropped two places from last year, continuing the country's four-year downward trend.

Among such factors as innovation, productivity, labor market flexibility, and higher education, the Global Competitiveness Index released annually by the World Economic Forum also rates a country's budget deficit, its sovereign debt, and the amount of money it costs to service that debt. Of the 144 countries on the list, the US is ranked 111th, behind notorious euro-zone problem children such as Spain and Italy and only a few spots ahead of bailout recipients Portugal and Cyprus. (Greece, not surprisingly, ranked dead last.)

Other areas where the US struggled in comparison to its European competitors were the quality of its public institutions and in the category of "health and primary education."

Singapore came in second.

Competitiveness is not an exact science. The World Competitive Center at the IMD business school in Lausanne Switzerland ranked the US second, behind only Hong Kong.

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JJS: Rarely noted by these rankers are that Singapore and Hong Kong -- which are both always at or near the top of all lists -- are the two places that recover the most land value in the world. Singapore uses a land tax and Hong Kong exists on public land leased to building owners. Why that matters is because it makes it possible for a state to lower or avoid the counterproductive taxes. Indeed, both East Asian cities do so well they can afford to pay their citizens dividends. Most other governments can’t treat the citizenry so well; instead they pile on debt.

When debt rises faster than economic output (as it has been doing in recent years), that indicates the state is interfering in the economy unsuccessfully. To try to keep up with the debt, government will try to raise taxes in the future. When governments can’t pay their creditors, crisis ensues.

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JJS: While the clock and map look great, they leave a lot unsaid. For instance, debt must be compared to assets, the things that make it possible to repay debt. What are a nation’s assets? The components of its tax base, such as natural resources or busy urban locations. Also, there is debt then there is debt; that is, it’s not just the quantity of debt but also the quality of debt. There is debt that’s borrowed to repay existing debt, such as a chronic gambler tries to do, and there is debt that is used to fund something useful like improve infrastructure. Even small amounts of the former are not good while even large amounts of the latter are not bad. Unfortunately, most government debt falls into the former category, and is created by dishing out political favors.

The real scourge of our economy is crony capitalism. A firm's competitive advantage should stem from the value it produces -- not the political favor it curries. However, private businesses leverage the political process to gain advantage.

Government constantly seizes capital from profitable endeavors and redistributes it to politically connected, less competitive firms. Consequently, the state is anything but minimal. In raw dollars, the public sector is now twice the size it was when President Clinton told us "the era of big government is over."

The problem does not stem from a particular set of lawmakers but from the political system as a whole. History holds no shortage of cronyism. One prime example is the Pony Express.

In 1860, the equine mail service failed to bring in enough revenue to offset its costs. Congress awarded the company a $1 million subsidy to sustain operations. This only delayed the inevitable. The Pony Express went bankrupt a mere 18 months after it launched -- leaving taxpayers out the equivalent of more than $20 million in today's dollars.

Not only does cronyism's manipulation of the political process squander our resources and restrict our economic freedom, it dampens the overall climate of entrepreneurship. A state with less representation on Congressional oversight committees has as many as 1,000 more small-business start-ups compared with a represented state. Business creation is a crucial cog in the engine of economic growth.

Those truly committed to prescribing successful remedies to our current economic malaise must first provide the correct diagnosis.

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JJS: The correct diagnosis digs much deeper. It reveals that most winners of privilege and public revenue stem from older winners of classical land rent. And it’s not just the value of surface land that enriches a few owners and manipulators but also the value of subsurface minerals. For example, the petrol-rich “oiligarchy” families played a key role in founding the Federal Reserve, a fact routinely overlooked by modern commentators whose gaze can not penetrate through the business dealings deeply enough to see the value of nature as the basis of undue fortunes. But at least conservatives are critiquing modern “rents”.

Beyond the obvious fraud in rent-seeking, as even well-intentioned companies need to participate to compete, Crony Capitalism produces the same misallocations of capital as any command economy that prevents markets from functioning.

As someone who likes to know the facts, even if they may not be pleasant, I much prefer the revelations at the Sprott Summit (which are always coupled with actionable advice) to the make-believe buzz of the party conventions.

One speaker, Dr. Lacy Hunt of Hoisington Investment Management, called the Federal Reserve a failure because the dollar has lost 97% of its value since the Fed was wished into being by a group of bankers in 1913. (Overall, the previous century had seen an actual appreciation of the dollar's value.)

The Federal Reserve is not a full-fledged government agency but a hybrid of government affiliate and private banking cartel controlling and manipulating the price of money. That primarily benefits those who get first access to each fresh dollar conjured from thin air.

G. Edward Griffin, author of the wildly popular The Creature from Jekyll Island, stated the Fed engages in the legalized plunder of the American population. Through excessive money printing and the ensuing inflation, the Fed is basically imposing a massive tax, a stealth tax. Since the gold standard was abandoned in 1971, the dollar has lost 80% of its value.

How can members of Congress arrive in Washington as middle-class citizens and leave a few years later with millions in the bank? In his new best selling book, Throw Them All Out, the Hoover Institute's Peter Schweizer documents, with names, those politicians that have benefited from Crony Capitalism, and how the game is played. Their rules permit our nation's finest to act and trade on insider information they hear in closed-door meetings. Accordingly, the crash of 2008 that nearly bankrupted many ordinary investors made a lot of legislators from both sides of the aisle a fortune.

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JJS: Yes, do throw the bums out, but to avoid “out with the old boss, in with the new boss”, a much deeper remedy is required -- and that would be the public recovery of socially-generated locations values.

I posit that a reform to land-use planning, partnered with a land-value tax (LVT) substituted for business rates and council tax, offers a potential solution to no growth, a high deficit, and a constricting straightjacket of regulations.

As described by Henry George in 1879, and more recently by the Institute for Fiscal Studies in the Mirrlees Review, location value is borne out of community effort, rather than individual effort, and therefore its returns should properly be redistributed back to that community.

When a landowner builds a swimming pool on his plot, the value of his improvements increases but his LVT payment remains unchanged; when a public swimming pool is built a short walk away, the value of his location increases and so does his tax liability.

Relaxing planning restrictions would now lead to windfall gains to land owners unless LVT were in place. Substituted for other distortionary and inequitable taxes such as council tax and business rates, LVT could also increase efficiency. That would boost growth and ease budgetary woes.

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JJS: “Ease budgetary woes” is the tie-in to all the above.


Editor Jeffery J. Smith runs the Forum on Geonomics and helped prepare a course for the UN on geonomics. To take the “Land Rights” course, click here .

Also see:

Lessons from Old New York and New

Those Debating Economic Policies, Attention

A New Heresy -- Abolish Corporate Income Taxes

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