Tag Archives: Robert Higgs

What is the greatest threat to freedom and prosperity?

FLORENCE— Bernardo Caprotti was a 45-year-old entrepreneur when he agreed to buy a suburban plot of land for a new supermarket.

Building permits recently came through. He’s now 88.

So begins an enlightening story in today’s Wall Street Journal on Italy’s sclerotic economy. The story continues:

Italy has emerged as a Technicolor example of the [EU’s] problems. Its growth has been stuttering for 20 years. Since 2008, its economy has shrunk by 9%, and this year it is struggling to expand by even 1%.

It is tempting to think that a simple solution is new leadership, that Italy just needs to elect more market-oriented politicians to sweep away the layers of red-tape and barriers to entrepreneurship that have ensnared the country’s entrepreneurs.

But the problem is much more intractable because established businesses benefit from the status quo:

The roots of the problem, say many Italians, lie in how vested interests in the private and public sectors gum up the economy, preventing change that replaces old practices with new, more efficient ones, and repeatedly frustrating political attempts to shake up the country.

It adds up to “deep-seated cultural obstacles to growth,” says Tito Boeri, a professor at Milan’s Bocconi University who is one of Italy’s top economists.

Years ago, Milton Friedman put his finger on the problem:

A few months ago, I attended a conference on the intersection between politics and capitalism (what we’ve called government-granted privilege). The eminent economic historian Robert Higgs was there and he said something that has stuck with me (I’m paraphrasing, but he just approved the quote):

I believe crony capitalism—the alliance between business and government—is the biggest problem of our age. And the reason is that it is robust. As alternatives to free-market capitalism, communism and old-fashioned fascism are thankfully dead. And genuine socialism has no real constituency in America. But crony capitalism, unfortunately, has a very active, organized, well-funded, and vocal constituency. It is the greatest threat to our prosperity and our freedom.

 

9 Farm Bill Figures

In my last post, I made the case that the farm bill (which has now emerged from conference committee and just passed the House) makes an excellent teaching tool.

Many students, of course, are visual learners. So I thought I might suggest a few farm bill figures.

Let’s begin with farm subsidy outlays. These are the most conspicuous privileges afforded farmers. As Veronique de Rugy’s figure below shows, these were around $13 billion per year in the late ‘90s, then surged up to $28 billion in 2000, then settled into annual levels that were about twice their pre-surge levels after that (readers of Robert Higgs will recognize this as a “ratchet” pattern in government growth).

farm-subsidies-chart-original (Click on any image in this post to enlarge it)

The last bar in Vero’s chart shows projected subsidies of about $29 billion in 2014. Another of Vero’s charts, however, suggests that this figure may be optimistic. The chart below shows projected and actual farm bill spending for the last couple farm bills (note: these figures include the entire bill not just subsidies, which is why the numbers are so much larger than those in the previous chart). 

farm-bills-cbo-score-chart-1000

Though subsidies are the most conspicuous privilege afforded to farmers they are by no means the only or even the most important. In addition to cash outlays, farmers also benefit from an assortment of trade barriers (some of which have gotten us into trouble with the WTO), various marketing programs, and artificial price supports. My chart from last week shows how active farm assistance programs have grown over the years (along with farmer incomes):

The chart below by Vero shows how one of these price support programs drives up the price of sugar:

sugar-subsidies-original

As I write in my Mercatus on Policy piece: 

This might seem trivial, but sugar isn’t the only item that is more expensive because of agricultural price supports. The House version of the farm bill imposes artificial price floors on wheat, corn, grain sorghum, barley, oats, long and medium grain rice, soybeans, oilseeds, peanuts, dry peas, lentils, chickpeas, sugar, and dairy products.

Farm privileges are often justified on the common assumption that farming is unprofitable. But this isn’t so. The figure below, taken from Vincent Smith’s paper on the 2013 bill, shows that both median and mean farm household income has exceeded median and mean US household income for more than a decade. Today, the average farm household makes 53 percent more than the average US household:

Farm income

Farm supports are also often justified on the basis that farming is uniquely risky. As Smith explains, though, the business failure rate of the typical American business is 14 times greater than the failure rate of the typical farm. Moreover, as the figure below from his report demonstrates, the agriculture sector’s debt-to-asset ratio is lower than that of other sectors and has been falling for two decades:

Though the average farm has done quite well, it is not the average farm that receives privileges. As demonstrated by Smith’s chart below, since 1995, 83 percent of subsidy payments have flowed to the largest 15 percent of farms:

As I put it in my piece, “Given that these subsidies and price supports distort free market signals and transfer wealth from the relatively poor to the relatively wealthy, one would think they would face bipartisan opposition.” Why, then, do they persist?

This chart by Vero, showing annual lobbying expenditures by the sugar industry is one explanation:

Finally, this chart from my piece shows that political donations tend to be concentrated on those who actually write the bill:

The non-protesting kind come to Washington, D.C. Tea Party 9/12

D.C. Tea Party Sign 9/12/09 Penn Ave

D.C. Tea Party Sign 9/12/09 Penn Ave

It will be a loss for future historians if today’s chroniclers brush aside The Tea Party that came to Washington D.C. on 9/12 with brute characterizations.

I have watched, in the streets, several protest marches in D.C. over the years. The swell of people who stood outside the Supreme Court during Bush v. Gore in December 2000 debating chads was drawn by partisan fidelity (and some by the historic nature of the case).

During the protest following George Bush’s second inauguration there was a personal target and myriad complaints, hot rage, edge, but no uniting philosophical theme.

The remarkable features of 9/12 from my view:

  • These are everyday people who showed up as the result of a viral, decentralized spontaneity sustained since April 15.
  • The size. While estimates are debated on crowd size (and there must have been in the upper hundreds of thousands). I was struck by its calmness – the steady flow of the crowd. Deliberately paced. The tone among marchers – neighborly and of good cheer, yet entirely serious. They made a tradeoff to be here.
  • The signage. I think Matt Welch at Reason has it exactly right. A handful of Ayn Rand, several pro-life, a scant few tasteless. I saw only one of the “Must-have-at-all-protests-no-matter-what-you-are-protesting” – the  Reductio ad Nazium. I saw far more tri-cornered hats, colonial attire, two Statues of Liberty, and several grim reapers.
  • The overwhelming sea of signage was hand-drawn. Topics: health care, the debt, taxation, Congress, the Administration (no love for either). Signs of the Constitution and Gadsden flags were abundant. If one sign summed up the mood it was, ”Don’t Make Me Come Up There”,  stamped  over the Constitution, held by a middle-aged woman standing by the reflecting pool in front of the Capitol.

These were ordinary people. The non-protesting kind from your neighborhood, organized via technology, the internet, blogs, message boards, Facebook, and Twitter. As the Wall Street Journal noted on April 15th, in the old days coordinating people required a union or a church. As the last decade and half of protesting has demonstrated, today people can coordinate themselves.

To know if the Tea Party movement is an ideological marker with the power to re-shape politics (not unlike the anti-war or environmental movements) it must be followed in seriousness – a difficult charge, since ideological behavior provokes ideological reactions in those observing.

Robert Higgs in his book, Crisis and Leviathan, writes on the nature and role of ideology in altering society.

“To understand ideology, one must study symbols, paying special attention to rhetoric. How the ideologue expresses himself may be as important as what he says. Imagery holds the key to the identification of ideological motivation and program. Language is an important political resource…By taking linguistic symbols seriously one opens a window for viewing ideologies in action.”

It is a foggy window, Higgs notes, but nonetheless it is still a picture to be studied.

For another first-hand account, read the notes of my colleague, Veronique de Rugy, at The Corner.

UPDATE: Added photo.

Fiscal Hazard in Virignia

Some business groups in Virginia are worried. If the Assembly accepts $125 million in federal aid for jobless benefits, it may lead to a permanent increase in unemployment benefits. And the costs will be passed on to business via increased taxes.

One of the fiscal hazards of stimulus package is that once federal funding is awarded, it may result in a permanently higher level of spending for the state – to borrow from Robert Higgs – a sort of intergovernmental aid ratchet effect.

Unless states are circumspect in how they use stimulus dollars and that includes thinking about how they will budget when the funds disappear, in addition to subsidizing bad fiscal practices in states with weak finances and economies, the stimulus may give healthy states a serious case of revenue addiction.

Addendum: Links fixed.