AIFG Blogs

Despite uncertainty about the economy, the efforts of some policymakers, and the future of health care reform, the unemployment rate in a number of states has seen a slight uptick. Of course, this doesn't take into account the number of people who are no longer eligible to file for unemployment because they've exhausted their benefits, but it could still be signs of life in a largely comatose economy.

From CNNMoney:

NEW YORK (CNNMoney) -- Unemployment fell in 29 states in February and rose in only eight, the government reported Friday, in another sign of broad improvement in the U.S. labor market.

The improvement means there are only three states with unemployment above the 10% mark -- Nevada with a 12.3% unemployment rate, Rhode Island, which has 11% unemployment, and California, where unemployment stood at 10.9%.

North Carolina and Mississippi dropped out of the states with double-digit unemployment.

As many as 19 states suffered 10% or more unemployment as a result of the recent recession.

Despite suffering from the nation's highest unemployment rate, Nevada did enjoy one of the biggest improvements in the month, as the 0.4 percentage point decline trailed only the 0.5 point improvement in Mississippi.

The overall national unemployment rate was 8.3% in February, as government figures show employers adding almost 250,000 jobs on average over each of the last three months. Friday's report showed that the number of jobs increased in 42 different states in February.

There are now more states with unemployment rates under 5%, widely considered to be full-employment, than states above 10%. But the four states with low unemployment -- North Dakota at 3.1%, Nebraska at 4%, South Dakota at 4.3%, and Vermont at 4.1%, are among the smallest in population.

To read more, click here. 

Isn't reforming the higher education industry or even doing “something” about obscene CEO salaries more desirable if aimed at maximizing opportunities rather than equalizing incomes? That's a good question.

Shikha Dalmia at Reason.com says yes.

Reading David Grusky’s essay is a strange experience: with the wrong diagnosis, he gets half of the right cure.

Grusky maintains that the central problem confronting America is income inequality. He argues that the root cause of this malady lies in how rich people acquire their pre-tax income—by rigging the rules of the market to extract illicit “rents.” In other words, the economic system, not the tax system, is unfair. Therefore, he argues, redistributive taxation—the remedy of choice for progressives—targets the symptom not the cause.

Grusky’s claims about rising income inequality are seriously overblown. But even if they weren’t, it wouldn’t automatically follow that we should care given that the material well being of Americans has not only been improving, but even equalizing across classes. Still, Grusky’s therapies—reforming the higher education industry and doing “something” about obscene CEO salaries—might be desirable if aimed at maximizing opportunities rather than equalizing incomes, which is, at best, a distraction.

Grusky points out, “The share of pre-tax income flowing to the top 1 percent of households increased from less than 10 percent in 1975 to more than 20 percent now.” The implication is that greedy CEOs are gobbling up a greater share of the national wealth, leaving less for everybody else.

But if Grusky wants to measure market-generated income inequality, household income is not the proper metric; individual income is. That’s because market rewards—paychecks, capital gains, and dividends—go to individuals, not households. Gini coefficients, which measure inequality, decreased slightly for individuals between 1994 and 2010, while showing a modest uptick for households, meaning that individuals became more equal and households less so. The uptick in household inequality might be unrelated to the economy. For example, if rich individuals marry other rich individuals and the poor marry poor—as is increasingly the case—household income disparities will increase even though individual incomes remain unchanged. Similarly, a higher divorce rate among the poor would diminish their relative household income even if all individual earnings remain the same. Equalizing incomes across households then would require addressing segregation and family breakdown, not reinventing the economy.

To read more, click here.

Politicians say they “create jobs.” In fact, only the private sector generates the information needed to create real, productive jobs.

Since this current post-recession job recovery is the slowest in 80 years, you’d think that even know-it-all politicians would want to sweep away the labyrinth of government regulations that hinders job creation. Successful job creators like Dallas Mavericks owner Mark Cuban and Staples founder Tom Stemberg tell me there are so many new rules and taxes today that it would be difficult, if not impossible, for them to create the thousands of jobs they once made.

The feds now have 160,000 pages of rules. Does anyone read all that? I doubt it. (Members of Congress don’t read the bills they vote on.) Do the rules make life safer? No. A few new rules are useful, but most are not. Their sheer volume makes us less safe and less free.

To read more, click here.

Politicians say they “create jobs.” In fact, only the private sector generates the information needed to create real, productive jobs.

Since this current post-recession job recovery is the slowest in 80 years, you’d think that even know-it-all politicians would want to sweep away the labyrinth of government regulations that hinders job creation. Successful job creators like Dallas Mavericks owner Mark Cuban and Staples founder Tom Stemberg tell me there are so many new rules and taxes today that it would be difficult, if not impossible, for them to create the thousands of jobs they once made.

The feds now have 160,000 pages of rules. Does anyone read all that? I doubt it. (Members of Congress don’t read the bills they vote on.) Do the rules make life safer? No. A few new rules are useful, but most are not. Their sheer volume makes us less safe and less free.

To read more, click here.

With the highest rate of corporate taxation in the developed world, is it any wonder jobs are being outsourced?

On Sunday, the United States gets a distinction no nation wants -- the world's highest corporate tax rate.  Japan, which currently has the highest rate in the world -- a 39.8 percent rate on business income between national and local taxes -- cuts its rate to 36.8 percent as of April 1.  The U.S. rate stands at 39.2 percent when both federal and state rates are included, says CNN Money.

• Both Democrats and Republicans argue that the corporate tax rate should be lowered as a way of promoting greater economic growth, so that multinational companies have incentive to invest more in their U.S. operations than overseas.
• President Obama has proposed cutting the corporate rate to 28 percent, Republican challenger Mitt Romney proposes a 25 percent rate.
• Both sides are also in agreement for the need to reduce the loopholes and other exemptions that shield companies from paying taxes on all their income.
• That kind of reform could increase corporate tax collections, or at least leave them unchanged, even with a lower rate.

But reaching agreement on that kind of tax reform has proved to be virtually impossible, especially during an election year.

For example, President Obama wants to impose a minimal tax on the overseas profits of U.S. companies to discourage them from moving operations offshore to tax havens.  Romney and the Republicans oppose that proposal.

So the United States is virtually certain to have the title of the world's highest corporate rate, at least until after the presidential election.

To read more, click here.

This is Kevin Outterson, writing at The Incidental Economist:

If a healthy person doesn’t buy insurance, the average cost of the risk pool goes up. This is unique to insurance markets. If a healthy person doesn’t buy broccoli, the average price goes down.

Answer below the fold.

If the market is allowed to price risk in an unfettered way, a healthy person’s decision to buy to not to buy insurance in no way affects the premium charged to other members of an insurance pool. Each entrant into the pool will be charged a premium that reflects the expected extra cost and risk that person brings to the pool.

A healthy person only helps others in an insurance pool if he is overcharged. If he is charged a premium greater than the actuarial value of his insurance, the extra payment he makes can be used to subsidize everyone else’s insurance and make their premiums lower than the actuarial value of their insurance.

But if all we are doing here is looking for people to plunder so that we can subsidize the premiums of above-average-cost enrollees, why pick on young healthy people? Why not tax old sick people?  Or people who are left handed? Or people with blond hair?

Or here is a novel idea: why not fund the subsidies from the government’s general revenue.

As I have said many times before, I think the IQ drops about 15 points when people start talking about health policy.

The Supreme Court last week ruled against the Environmental Protection Agency (EPA) in a unanimous decision. The EPA had charged a couple with violating the Clean Water Act. It claimed their property was a “wetland” and said it would fine them up to $75,000 per day - but there was no water on the property and there had been no judicial review of the charge. Where are the members of Congress whose funding enables the EPA to engage in this tyranny?

We are used to various government agencies overreaching and then seeing members of Congress go on TV and complain about what the government agencies are doing. The fact is, Congress (both parties are guilty) has failed in its oversight responsibilities and continues to fund agencies that ignore both the Constitution and the law.

Republicans whine that they cannot control spending because they only control one half of Congress. But the plain fact is that the Constitution is very specific. Any spending bill must be passed by both houses of Congress and signed into law by the president. Setting aside for the moment the budget agreements that House Republicans, Senate Democrats and the president made about the overall level of spending and funding of the entitlements, there is still much House Republicans can do through the appropriations process to prevent many of the excesses of government.

For instance, there is nothing to prevent the House Republicans from refusing to fund the EPA’s desired budget until the agency puts procedures in place to guarantee the basic constitutional rights of all Americans, including independent judicial review, before any fines or criminal charges are levied. These same rules also should apply to the Securities and Exchange Commission (well-known for its incompetence and overreaching), the Internal Revenue Service (IRS) and other agencies that have a record of abusing citizens.

Most federal agencies are required to do a cost-benefit analysis before issuing any major rule or regulation, normally defined as having an impact of $100 million. Many agencies only pay lip service to the requirement, rarely having truly independent and competent staff to do the required analysis. Another stunt used by bureaucrats to avoid doing cost-benefit studies is always to assume that the cost of the proposed regulation is under the $100 million threshold by ignoring many of the indirect costs of the regulation.

Some agencies claim they are not required to comply with the cost-benefit requirements - the IRS being one example. The IRS is now writing rules for the Foreign Account Tax Compliance Act (FATCA). The rules could drive out much of the more than $10 trillion foreign portfolio investment in the United States, which would cost millions of jobs. Has the IRS done an independent cost-benefit analysis of the regulation? No. Has the IRS looked at the impact of the regulation on Americans living abroad? No. Has the IRS done an assessment of the impact of the regulation on our relations with friendly foreign countries? No. Has the Republican House banned the IRS from spending funds on enforcing what is likely to be a very destructive regulation until a thorough and independent cost-benefit study on the regulation is done? No.

Wake up, congressional Republicans. When the foreign investments stop flowing freely next year and millions of Americans are losing jobs as a result, you are going to be blamed - and properly so - because you did nothing to stop it. You have the power to stop it and many other outrages. You don’t need Senate Majority Leader Harry Reid and Senate Democrats or the president to give you permission to stop this.

House Republicans, when are you going to find the guts to stop funding National Public Radio (NPR)? Much of its taxpayer-funded but liberally biased programming attacks only you and your base, but you sit there just waiting to be hit. The folks at NPR know that you are all talk and no action so they continue to misuse public funds to promote a Democrat-only agenda.

Many Republicans continue to vote for appropriations for international outfits such as the Organization for Economic Co-operation and Development, which has an anti-tax competition agenda and global minimum-tax agenda, and the International Monetary Fund, which indirectly helped fund the Greek bailout. Both organizations damage American interests. Members of Congress, please explain why U.S. taxpayers should have some of their hard-earned money spent to help the Greeks. The administration and members of Congress argue that no U.S. taxpayer money was directly used, but money is fungible. Just because it goes through several pockets does not mean that U.S. taxpayers did not contribute.

Tea Partyers and others who are concerned about the growth of abusive government need to pay attention and make it clear they will oppose those, including Republicans who call themselves fiscal conservatives, who vote to fund these abusive agencies and activities.

Richard W. Rahn is a senior fellow at the Cato Institute and chairman of the Institute for Global Economic Growth. Reprinted with permission from the Washington Times, where this first appeared.

When I tried to open a lemonade stand outside my Fox office, I learned about the piles of regulations that make it so tough for new businesses to get off the ground. But it's not just burdensome paperwork. Some entrepreneurs are charged with crimes, simply for trying to be entrepreneurs.

Tonight, we'll be joined by small business owners who get squeezed.

Shelly Goodman wanted to start a bed and breakfast at her big home on ten acres in Arizona. Greg Garrett tried to farm oysters on his property in Virginia. Both were stopped by the bureaucrats' endless rules.

Medical Marijuana is legal in 17 states. Lynnette Shaw sold it in California for 15 years. She had support from the town's mayor and planning commission. But the feds demanded that she shut down.

The smell of cigars disgusts me, and I'd support some rules against cigar smoke in public places, but Rocky Patel, owner of one of the largest cigar businesses, will explain how the government goes way beyond that.

Climatologist Roy Spencer will tell us how the EPA's constant push for new laws chokes-off commerce without improving the environment.

The bill for regulation has increased sharply under the Obama administration, says a new Heritage Foundation study that Alison Fraser will explain.

Michael Holthouse got rich by creating the computer company Paranet and selling it to Sprint. He sees the need for small business, so he now runs Lemonade Day, an event that shows thousands of kids how to run their own business.

Calls for redistribution by government are heard on the streets, in the press and from some politicians. But by some measures economic inequality is no greater now than it was in the 1980s, according to one depth study of the issue.

From the article at realclearmarkets.com:

Government data on individual spending patterns show that the ratio of spending between the top and bottom 20 percent of the income distribution, measured on a per person basis, was essentially unchanged between 1985 and 2010. In 1985 people in the top quintile had spending that was 2.5 times that of people in the bottom quintile. By 2010, this ratio was 2.4.

This metric suggests that economic inequality has diminished slightly, rather than increased. (One must acknowledge that this analysis omits the capacity to save for people with additional discretionary income. Savings do indeed rise with income.)

Why look at spending? Spending is vital because it is the principal determinant of standard of living. It influences confidence in the future. It shows more comprehensively than cash income how much purchasing power individuals and families have. In sum, spending inequality provides a more meaningful measure of well-being than cash inequality.

In a bit of heartening news, SCOTUS handed down a big win for both property rights and due process rights in Sackett v. EPA. How far reaching it will be applied remains to be seen, but the very fact it was a unanimous decision should have a chilling effect on regulators.

From Reason Magazine's blog:

At issue was the EPA’s use of so-called administrative compliance orders, which are government commands that allowed the agency to regulate the use of private property without also subjecting its actions to judicial review. In a 9-0 ruling, with the majority opinion written by Justice Antonin Scalia and separate concurring opinions filed by Justice Ruth Bader Ginsburg and Justice Samuel Alito, the Supreme Court declared that these EPA actions must be subject to judicial review. Here’s a key portion of Scalia’s majority opinion:

the Government notes that Congress passed the clean Water Act in large part to respond to the inefficiency of then-existing remedies for water pollution.  Compliance orders, as noted above, can obtain quick remediation through voluntary compliance.  The Government warns that the EPA is less likely to use the orders if they are subject to judicial review. That may be true—but it will be true for all agency actions subjected to judicial review.... And there is no reason to think that the Clean Water Act was uniquely designed to enable the strong-arming of regulated parties into “voluntary compliance” without the opportunity for judicial review—even judicial review of the question whether the regulated party is within the EPA’s  jurisdiction.

Read the full opinion here. For more information on the case, see my December 2011 column “The EPA vs. the Constitution” and check out Reason.tv’s “Sackett v. EPA: How One Couple’s Battle Against the Feds Might Protect Your Land.”

The Office of Information and Regulatory Affairs within the White House Office of Management and Budget released guidance to agencies on “Cumulative Effects of Regulations” with an emphasis on enhancing net benefits.

The two-page guidance notes, “Public participation can and should be used to evaluate the cumulative effects of regulations, for example through active engagement with affected stakeholders well before the issuance of notices of proposed rulemaking.”

However, the emphasis on potentially self-serving agency-assessed net benefits underscores yet again the reality that improving regulatory outcomes fundamentally requires Congress to answer for rule impacts—such as via expedited votes on “economically significant” ($100-million-plus) regulations (The REINS Act is an example).

Since pursuit of known benefits presumably drove any initial decision to legislate and regulate, agencies should focus on minimizing costs within some defensible “regulatory budget” constraint bounded by those potential benefits, as determined by Congress. Costs rarely get measured, making net-benefit assessments somewhat illusory anyway; of 4,128 rules in the recent Unified Agenda pipeline, 212 were “economically significant” and theoretically subject to some analysis, and 418 were subject to small-business Regulatory Impact Analyses of varying quality.

Rules also need segregating into economic, and health and safety categories. And “budget rules” that impact government programs need separate treatment. Otherwise, assessments are incoherent.

Cost estimates of regulation also must take into account the manner in which regulation undermines superior non-governmental institutions and disciplines (insurance, liability, cooperatives) that can serve the public better than top-down rules.

Even now, agencies engage in benefit-free, non-measurable distortions of entire industry structures via limiting access to energy, antitrust regulatory abuse, “net neutrality” rules in telecommunications and government stimulus with regulatory strings attached.

There’s a clash of visions that undermines OIRA’s premise. What would actual net-beneficial cybersecurity regulation entail? A sweeping liberalization of infrastructure industries that’s not even on the table; What would net-beneficial Internet access “regulation” have been? It would have banned net neutrality rather than mandate it; What might a Transportation Safety Administration have done to secure air travel? Perhaps use biometric identification on pilots rather than grope the public at large; What would expanded health access have entailed? Increasing market supply of services, relaxed licensing, and a spanking for the FDA’s drug delays; What will net-beneficial privacy regulation entail? Ensuring that privacy and anonymity remain competitive, not dictated, features; What does sound environmental “regulation” require? Bringing environmental amenities into the wealth-enhancing voluntary sector rather than government mis-management of contrived scarcity.

The irreconcilable worldviews of the pro-central-regulation camp and those favoring harnessing competitive discipline make the OIRA project somewhat futile. To the latter, benefits require liberalization and competitive discipline, and regulators who don’t confuse data with knowledge.

Needed more urgently, then, is more rapid harnessing of regulation at large, such as via a bipartisan Regulatory Reduction Commission that lessens the scope of future cumulative OIRA analyses. Something big has to happen to make this guidance more tractable.

Also vital is an annual regulatory transparency scorecard (with historical tables), somewhat like that depicted here:

• Tallies of “economically significant” rules and minor rules by department, agency, and commission.

• Numbers and percentages of rules impacting small business.

• Depictions of how regulations accumulate as a small business grows.

• Numbers and percentages of regulations that contain numerical cost estimates.

• Tallies of existing cost estimates, including subtotals by agency and grand total.

• Numbers and percentages lacking cost estimates.

• Federal Register analysis, including number of pages and proposed and final rule breakdowns by agency.

• Number of major rules reported on by the GAO in its database of reports on regulations.

• Ranking of most active rule-making agencies in economic, heath and safety, and budget rule categories.

• Separate categorization of rules that are deregulatory rather than regulatory.

• Numbers and percentages of rules facing statutory or judicial deadlines that limit executive branch ability to restrain them.

• Rules for which weighing costs and benefits is statutorily prohibited.

• Analysis of numbers and percentages of rules reviewed by OMB and action taken. 

Housing starts declined by 1.1% m/m to 698,000 in February from an upwardly revised 706,000 in January (previously 699,000), broadly in line with the consensus (700,000). The details were somewhat weaker than the headline number as the entire decline was reflected in the core single-family component, which fell 9.9% to 457,000, the lowest level since October 2011 and the first m/m decline since September.

The drop was concentrated in the South (-17.4%) and West (-16.7%), with solid gains registered in the Northeast (11.4%) and Midwest (13.9%). The decline in single-family starts was largely offset by a strong increase in the multi-family component (up 21.1% to 241,000).

While the details in February were significantly softer than we expected, the recent upward trend remains in place - for example, the level of starts is well above the Q4 average of 670,000, consistent with my view that residential investment will add to GDP growth in Q1. The outlook for housing activity has brightened in recent months - homebuilder sentiment has improved, inventory levels are low, and building permits have risen. In February they were up 5.1, with gains in both single- and multi-family components, the former up 4.9%, the fifth consecutive increase and the largest rise since December 2010.

Social Security, Medicare, Medicaid and other social insurance programs are bankrupting America. They will produce ever-escalating deficits for as far as the eye can see.

So what can we do about it? All we hear out of Washington are “eat-your-spinach” solutions — both from Democrats and Republicans. These involve cutting benefits, forcing doctors to ration health care, etc. Naturally, the beneficiaries resist such change.

My colleagues and I at the National Center for Policy Analysis have been thinking about a different approach. Reform of entitlement programs should be a win-win proposition. That is, it should be good for the individual who agrees to accept fewer government benefits as well as for the taxpayers.

Does that sound too good to be true? Read on.

I think we can make it, if we try.

I think we can make it, if we try. 

Here is part of the idea.

Opportunities to Opt Out. People of any age should have the choice to opt out of social insurance in favor of alternatives that better meet their individual and family needs. In particular, they should be able to substitute assets and arrangements they have voluntarily chosen, and that they own and control, for the government systems they are now forced to be part of. In particular:

• People should be able to substitute private savings, private pensions and annuities, and private insurance for participation in Social Security.
• They should be able to substitute private insurance and private health savings for participation in Medicare and for participation in the federalized health care system sometimes called ObamaCare.
• They should be able to substitute private disability insurance for participation in the federal disability program.
• They should be able to substitute private savings, private pensions and annuities, and private insurance for participation in Medicaid’s long-term care insurance.
• At their place of work, employees and their employers should be free to choose private unemployment insurance arrangements, private disability insurance and private alternatives to workers’ compensation.

Lowering barriers to trade almost inevitably and invariably works to the benefit of all nations involved, increasing trade and growing jobs. The new trade agreement with Korea will lower tariffs by 80 percent.

From the news story:

The free-trade agreement between the U.S. and South Korea took effect today as an opposition party in Seoul vowed to repeal the deal should it win control of the parliament in elections next month.

The biggest U.S. trade accord in almost two decades will cut about 80 percent of tariffs between the nations. The deal may increase U.S. exports as much as $10.9 billion in the first year it’s in full effect, according to the U.S. International Trade Commission. It may also help South Korea’s economy expand by 5.7 percent within a decade and create 350,000 jobs, Trade Minister Bark Tae Ho said yesterday.

For the full story, click here. 

Because of its extensive regulatory impact and pervasiveness in burdening American businesses, the Patient Protection and Affordable Care Act (PPACA) threatens to undermine the still-fragile American jobs recovery. Companies will face disincentives to hiring and will be encouraged to move more workers from full-time to part-time in order to bypass some of the law's most harmful measures, says Diana Furchtgott-Roth, a senior fellow with the Manhattan Institute.

• According to an announcement by the Labor Department, the unemployment rate held steady at 8.3 percent in March 2012.
• However, this fails to capture a number of potential American workers that, discouraged by the poor employment prospects, left the labor force over the course of the recession -- labor force participation rate has declined from 66 percent in January 2009 to 64.9 percent today.
• Including these workers, the unemployment rate climbs to an astounding 14.9 percent.
• Enter the PPACA.  The new tax, which will be phased in in 2014, will impose a $2,000-per-employee tax on businesses employing 50 workers or more if they fail to make available generous, government-approved health care plans.

• Under this system, and allowing for financial provisions that attempt to ease the transition from 49 to 50 workers, businesses that do hire that 50th worker will face an additional $40,000.
• The $2,000 tax will amount to 15 percent of average annual earnings in the food and beverage industry and 9 percent in retail trade.
• Businesses can avoid the tax by moving full-time employees to part-time work -- this will exacerbate the problem that in January 2012 over 8 million people were already working part-time because they could not find full-time jobs.

Furthermore, the hardest-hit populations will be those with the fewest skills.  This is because the penalty is a higher proportion of their compensation than for high-skill workers, and employers cannot take the penalty out of employee compensation packages.  This primarily hits younger workers.

• Of the 2 million adults who found jobs over the past year, 1.7 million are over 55 years old, and 300,000 are between age 25 and age 55.
• The unemployment rate for adult workers with less than a high school diploma is 12.9 percent.
• Teens face an unemployment rate of 23.8 percent.
• The imposition of the ACA will further weaken the market for these workers.

Source: Diana Furchtgott-Roth, "How ObamaCare Increases Unemployment," Manhattan Institute, March 2012.

For text:

http://www.manhattan-institute.org/html/ir_6.htm 

The new health 'reform' will cost $1.7 trillion, and will cost employers both the ability to hire and what they can offer employees.

According to this report from the American Enterprise Institute, citing the Willis Report of Employers, the new health care act will have a major impact on employment, on compensation, and on the kinds of coverage employees will be able to access.

From the AEI:

The Willis Report of Employers is out and it has some major implications for Obamacare: 

– Employers report that their healthcare costs have increased by about 2-5%—mainly due to new mandates in the new health law such as requirements that young adults can continue coverage under their parents’ policies, first dollar coverage of routine services, and the removal of annual lifetime limits for “essential health benefits.” 

– More than half of the employer respondents expect to pass on these ACA-endowed rising costs to employees. 

– Moreover, fewer than 30% of employers say they were able to maintain grandfathered status of their healthcare plans. This rapid loss of grandfathered status far outpaces Obamacare’s original estimates of what would happen. The preamble to the June 2010 regulations noted that by the end of 2011, the Obama administration expected 78% of employers would retain grandfathered status. By the end of 2012, they forecast that 62% would still be grandfathered, and by the end of 2013, 49% would retain their grandfathered status. 

The new report states: “The accelerated loss of grandfathered status suggests that employers have had to make many plan changes to offset cost increases, and perhaps employers have been more willing to give up grandfathered status in order to take other steps to control costs.” 

The upshot: If you like your health plan, you won’t be able to keep it. 

A new IRS regulation could drive thousands of independent tax preparers out of business. The big tax companies think that's fine.

Now a number of independent preparers are teaming up with the Institute for Justice to sue the IRS.

The burden of compliance will fall most heavily on independent tax return preparers and small businesses. Unsurprisingly, big firms such as H&R Block and Jackson Hewitt support the licensing scheme. As The Wall Street Journal explained: “Cheering the new regulations are big tax preparers like H&R Block, who are only too happy to see the feds swoop in to put their mom-and-pop seasonal competitors out of business.” 

These regulations are typical government protectionism. They benefit powerful industry insiders and at the expense of entrepreneurs and consumers, who will likely have fewer options and face higher prices. But tax preparers have a right to earn an honest living without getting permission from the IRS. And taxpayers—not the IRS—should be the ones who decide who prepares their taxes. 

If the Federal Reserve is right, things are on the uptick despite energy prices and a depressed housing sector.

According to their release:  

Labor market conditions have improved further; the unemployment rate has declined notably in recent months but remains elevated. Household spending and business fixed investment have continued to advance. The housing sector remains depressed. Inflation has been subdued in recent months, although prices of crude oil and gasoline have increased lately. Longer-term inflation expectations have remained stable.

To read their release, click here.

At this pace, we'll close the jobs gap by, oh, 2020. That's how long it will take to return employment to pre-recession levels.

The country faces a 11 million-person jobs gap. This "jobs gap" represents the number of jobs that the U.S. economy needs to return to pre-recession employment rates while also absorbing everybody joining the labor force.

From the report:

If the economy adds about 208,000 jobs per month, which was the average monthly rate for the best year of job creation in the 2000s, then it will take until February 2020—8 years—to close the jobs gap. Given a more optimistic rate of 321,000 jobs per month, which was the average monthly rate for the best year of job creation in the 1990s, the economy will reach pre-recession employment levels by April 2016—not for another four years. 

When The Hamilton Project first began its analysis of the jobs gap in May 2010, we noted that even at a robust rate of job creation it would take many years for the jobs gap to close. Since then, however, an unusually gradual recovery has meant that the jobs gap continued to grow. 

Calculating our nation’s jobs gap is complicated and based on a variety of assumptions. However, it is important for measuring progress in restoring the labor market to its pre-recession health, and it is also important for informing policy. Under even the most optimistic projections for employment growth, it will take many years to return to “normal,” which has implications for the policies that we choose to undertake today. Put another way, the jobs gap calculations suggest that even policies whose benefits take years to be realized may not come too late to help workers impacted by the Great Recession. 

To read the full report, click here. 

The Affordable Care Act (ACA) requires health insurance exchanges. The Illinois Policy Institute reports why lawmaker shouldn't be in any hurry to implement them.

The Affordable Care Act (ACA) permits states to establish health insurance exchanges.  These exchanges will operate as new bureaucracies to oversee the purchase of government-approved health insur­ance.  States electing to create these exchanges must comply with federal rules that will dictate virtually all aspects of the exchanges' opera­tions, says Jonathan Ingram, a health care policy analyst with the Illinois Policy Institute.

If a state chooses to establish an exchange, it will bear the full cost of running it.  While a number of people are urging states to immediately create an exchange, the reasons are based on myths, not facts.

To read the full report, click here.

A new Heritage study shows that despite claims to the contrary, the current administration is dumping regulations on businesses as fast as they can write them, and it's costing us jobs and growth. From the study:

During the first three years of the Obama Administration, 106 new major federal regulations added more than $46 billion per year in new costs for Americans. This is almost four times the number—and more than five times the cost—of the major regulations issued by George W. Bush during his first three years. Hundreds more regulations are winding through the rulemaking pipeline as a consequence of the Dodd–Frank financial-regulation law, the Patient Protection and Affordable Care Act, and the Environmental Protection Agency’s global warming crusade, threatening to further weaken an anemic economy and job creation. Congress must increase scrutiny of regulations—existing and new. Reforms should include requiring congressional approval of major rules and mandatory sunset clauses for major regulations.

Read the full study here.

Despite the encouraging U.S. jobs-report data last week, the fiscal situation in the United States and most of the rest of the world continues to deteriorate. The European Central Bank said the eurozone’s economy is likely to contract this year. Greece finally formally defaulted last week. The situation continues to get worse, and many observers think Greece will need another bailout within a year. The next time, the world’s taxpayers, rather than private banks, will be holding the bag. The situation in Portugal also is getting worse at an accelerating rate.

It’s not just Europe that is having problems. Last week, the Chinese reduced their expected growth rate from 8.2 percent to 7.5 percent for 2012. There has been growing political deadlock in India, stopping many reforms, which will negatively impact economic growth. There are indications that Brazil also may be facing an economic slowdown.

The 10 largest economies account for a little more than two-thirds of the world gross domestic product (GDP). The United States alone accounts for about 23 percent of global GDP. Of the 10 largest economies, only China and India have economic growth rates higher than their deficits as a percentage of GDP, which means all of the others have a rising debt-GDP ratio, as can be seen in the accompanying chart. Studies have shown that once net debt-GDP ratios rise above 90 percent, it is very hard for countries to avoid debt default and/or high inflation and very painful austerity. The United States, France and the United Kingdom are uncomfortably close to the 90 percent mark. Any further turndown in economic growth that would sharply reduce tax revenues or any unexpected spending because of war or natural disaster would push these countries over the tipping point.

Italy may muddle through, thanks to partial economic reform and a large underground (untaxed) economy. Japan is well past the standard tipping point for most countries and has had two decades of very slow growth but has been saved from a Greek-style meltdown because of its very high domestic savings rate, which finances most of its debt. Even so, any adverse circumstance could push Italy or Japan into a downward fiscal spiral.

Of the 10 largest economies, only Brazil and Canada are in sufficiently strong fiscal positions to weather another global recession without hitting the tipping point. Germany has had strong economic growth and has managed its economy much better than most of the other Europeans, but it depends heavily on exports of machinery and high-tech goods, and as its customers weaken, it will follow them down.

 

Most of the rest of the world - the other one-third of world GDP - looks little better than the big 10. On every continent, there are many smaller countries with uncomfortably high debt-GDP ratios, and it would not take much to push them into a crisis situation.

The United States is in the best position to make the reforms necessary to take care of its own economic problems and thereby become an engine of economic growth for the world, but the Obama administration continues to head in the wrong direction. It presented a budget that was both economically and politically unrealistic and did nothing to stop the rise in the debt-GDP ratio. The administration has proposed massive tax increases on job creators and continues headlong in its rush to implement job- and economy-killing regulations.

Last week, President Obama said that “reducing the demand for oil would cause its price to drop” and also, “increasing the supply of oil would not cause its price to drop.” Huh? Which is it? What the president has done with his endlessly contradictory statements and actions on the economy is prove that he is the most economically illiterate president at least since Jimmy Carter.

What is unambiguously clear is that without a major course correction in the United States and the other major economies, a new global recession will occur sometime in the next few months or the next year or two at the latest. The economic growth and deficit numbers in the accompanying table are the best that are likely to happen. An incident in the Persian Gulf or elsewhere could send oil prices skyrocketing, which would ricochet quickly throughout the global economy, leading to a new global turndown. The U.S. recovery has been so tepid and incomplete that there is no margin for error. Any major policy error by the Federal Reserve, which is skating on very thin ice, or further economic lunacies by the administration - like blocking the Keystone pipeline - could be the trigger to push the economy beyond the tipping point.

A good economic forecaster looks at the probabilities of all of those things that could go wrong and those that could go right. Yes, it is possible to describe a scenario in which the United States and the world could get out of their current economic fix without too much pain. Unfortunately, even though I am basically an optimist, the probabilities are much more likely that some event will push much of the world over the tipping point within the next 24 months. It didn’t have to be this way.

Richard W. Rahn is a senior fellow at the Cato Institute and chairman of the Institute for Global Economic Growth. 

This article originally appeared in The Washington Times
 

There's a new and disturbing evidence in this report from the Manhattan Institute that says ObamaCare will cost jobs, and discourage job creation. From the report:

The mandated $2,000 tax per worker in the new health care law, effective 2014 and levied on employers who do not provide the right kind of health insurance, is discouraging hiring. The Patient Protection and Affordable Care Act of 2010 will raise the cost of employment when fully implemented in 2014. Companies with 50 or more workers will be required to offer a generous health insurance package, with no lifetime caps and no copayments for routine visits, or pay an annual penalty of $2,000 for each full-time worker. Moving from 49 to 50 workers will cost a firm $40,000 a year.

To read the full report, click here.

While anytime jobs are being created, it is good news, yet we are still a long way from recovering the 8.7 million jobs lost following the recession. Nearly 13 million Americans are looking for work and millions more have simply given up.

Americans understand that while the private sector is doing its part to mount a recovery, government policies continue to hold the economy back. A recent AIFG poll found that nearly two-thirds of adults said that excessive tax and regulatory burden are discouraging job creation.

Over the last three years, the number of economically significant regulations have skyrocketed and threats of tax increases make small businesses reluctant to hire. The entrepreneurs who make up American Institute for Growth believe that a truly sustainable recovery that brings us back to robust economic growth and low unemployment requires pro-growth policies that encourage innovation and create incentives for investment.

When you look more closely at the job numbers, the gild comes off the lily. Over at zerohedge.com, they dig a little deeper and point out some disturbing facts, such as "about 160k of private jobs added in Feb are 'low-paying work' which left average hourly earnings up only 0.1%."

This is not the foundation for sustainable economic growth or income growth. From the article:

Finally, and most, importantly, we hope that this analysis has proven that while the BLS may play around with various numerators, denominators, seasonal adjustments, and other irrelevant gimmicks which are only fit for popular consumption particularly by those who have never used excel in their lives, a deeper analysis confirms our concerns, that not only is America slipping ever further into a state of permanent "temp job" status, but that a "quality analysis" of the jobs created shows that the US job formation machinery is badly hurt, and just like the marginal utility of debt now hitting a critical inflection point, so the "marginal utility" of incremental jobs is now negative, which means that Obama, or whichever administration, can easily represent to be growing jobs, and declining the unemployment rate by whatever gimmick necessary. Yet these very jobs are now generating far less in so very critical tax revenue for the US treasury, and continue to declining steadily in quality. 

To read the full analysis, click here.

While this slight upward tick in jobs is welcome, it doesn’t really make a dent in the cumulative job losses we’ve experienced over the past four years. Additionally, too many people are still under-employed, and what growth there has been has centered on lower-paying jobs. Improving nonfarm payrolls is great, but we need to be looking at quality of life and at the long term.

If the average hourly rate does not increase and Americans cannot pay for their children’s education or save for retirement, we are not benefiting. Workers continue to accumulate debt just to keep up. Almost half of Americans report that they live paycheck to paycheck, spending all or even more of their household income just to make ends meet every month. We are missing the forest because of the trees. We need policies that free businesses to grow so that all Americans can share in the prosperity.”

Tom Stemberg was on CNBC's "Squawk Box" talking jobs and obstacles to job creation. He says heavy regulations hurt all businesses, but especially small businesses.

Here's a highlight:

"If you are a small, emerging business, it's difficult. Frankly it gives a competitive advantage to the bigger businesses who can hire the compliance guys and lawyers to deal with all this nonsense."

They are according to this piece in the Wall Street Journal, and would be even more if we had needed corporate tax reform. From the article:

Small businesses that heavily use technology, from back-end software to social-media websites, are highly successful job creators, according to a research report released Wednesday from the Technology CEO Council.

The findings, culled from a variety of third-party studies on entrepreneurship, point to robust job growth at small tech-savvy enterprises.

"There is a lot of interest in job creation and where jobs come from," says Michael Dell , founder of Dell Inc. and chairman of TCC, an advocacy organization in Washington, D.C., that promotes policies focused on innovation and technology advancement.

Amid the political debate on how to spur hiring, the TCC report was released to legislators and the general public from the nation's capital. The report suggests that a series of policy changes, including removing immigration barriers for skilled workers and reforming the U.S. corporate tax system, could help U.S. entrepreneurs build their businesses and expand them more rapidly.

To read more, click here.

That's been my message, and now others are picking it up. This Fortune article makes a great case.

From the article:

FORTUNE -- Words tumble from Scott Gerber's mouth so passionately that he gasps every few sentences for air. The topic: American entrepreneurship. Launched less than two years ago, the Young Entrepreneur Council (YEC) is the brainchild of the baby-faced 28 year-old and is now the driving force behind the #FixYoungAmerica campaign, which launched Monday on fundraising website IndieGoGo.

"We live in a very partisan society, where unfortunately not much gets above the fray if it's not headline news," says Gerber. "The real issues oftentimes fall by the wayside."

Gerber and his crew think that the importance of entrepreneurship often slips through the cracks. In response, the YEC has launched a campaign with over 40 partner organizations to promote entrepreneurial education, increase access to capital for startups, and encourage entrepreneurship within the Fortune 500 -- all in hopes of addressing youth unemployment. (The campaign tagline: "A solutions-based book and movement that aims to end youth unemployment and put young Americans back to work -- for good.")

To read more, click here.

Over at Forbes.com, there appears to be good news on the jobs front. Despite the it being an uphill battle, companies have been adding more jobs over the last month.

From the report:

Private companies added 216,000 workers to payrolls last month, further evidence of a strengthening recovery, according to a monthly report from ADP.

“Conditions continue to improve at a moderate pace and are consistent with other indicators suggesting some firming of the labor market,” says ADP CEO Carlos Rodriguez.

All sectors saw job expansion. Service providers added 170,000 workers. Goods producers added 46,000 with manufacturing increasing payrolls by 21,000.

Small and mid-size businesses hired the majority of those new workers, contributing some 75% of the new hires.

The Wall Street Journal has a good take on how the Fed's policy of cheap money is creating an unsustainable cycle, weakening the dollar, punishing savers, and reducing purchasing power.

During the past three years, the Federal Reserve has tripled the size of its balance sheet -- in effect printing $2 trillion -- something it had never done in its nearly 100-year history.  The Fed has lowered short-term interest rates to zero and signaled that it will keep them at that level for years.  Inflation-adjusted short-term rates, or real rates, have been in the minus 2 percent range during the past couple of years for the first time since the 1970s.  Unfortunately, there is no free lunch.  After the Fed's loose monetary policy helped spur the boom-bust in housing, it is remarkable how little attention has been devoted to exploring the costs of Fed policy, says Andy Laperriere, a senior managing director in the Washington office of ISI Group.

A few critics of quantitative easing (QE) and the zero interest rate (ZIRP) have correctly pointed out that these policies weaken the dollar and thereby reduce the purchasing power of American paychecks.

• They increase the risk of future inflation, obscure the true cost of the unsustainable fiscal policy the federal government is running, and transfer wealth from savers to debtors.
• But QE and ZIRP also reduce long-term economic growth by punishing savers, reducing saving and investment over the long run.
• They encourage the misallocation of resources that at a minimum is preventing the natural rebalancing of our economy and could sow the seeds of another painful boom-bust.

Defenders of QE and ZIRP would say that rather than borrowing economic growth from the future, these policies merely smooth the economic cycle and reduce the economic dislocation associated with deep recessions or weak recoveries.  Of course, that was the rationale for the exceptionally low rates during the 2002-2004 period, which, like today, were specifically aimed at depressing saving and encouraging consumption.  Rather than smooth the economic cycle, that strategy helped create a historic boom-bust.

There is no doubt the Fed is doing what it believes is best.  But in addition to the risk of inflation inherent in QE and ZIRP, which Chairman Ben Bernanke has said he is 100 percent confident he can prevent, Fed officials are dismissive of the notion that there are significant costs or trade-offs associated with the policy they are pursuing.

Source: Andy Laperriere, "The High Cost of the Fed's Cheap Money," Wall Street Journal, March 5, 2012.

To read more, click here.

The NCPA's daily policy digest looks at the facts behind the latest slew of unemployment numbers, and it appears the jobs outlook isn't as rosy as reported.

The recent sudden drops in both initial unemployment insurance claims and unemployment rates have generated a slew of positive news stories and lifted White House spirits.  But other numbers show a much weaker job market and economy, say John Lott, an economist, and Grover Norquist, founder and president of Americans for Tax Reform.

The average unemployment duration remains near its all-time high, hiring is stuck near record lows and there are almost 3 million workers in part-time rather than full-time jobs.

Further, gross domestic product grew just 1.7 percent last year and few new companies are being started.

The very weak recovery means the official unemployment rate is an unreliable barometer of the labor market.  People are only counted as unemployed if they have been actively looking for work in the past four weeks.  It is good news when the number of unemployed falls due to more hires.  It is not so good if the number falls due to people giving up looking for work.

Historically people give up looking for work during recessions and resume looking for work in recoveries.

Not this time.

While 1.66 million net jobs have been added during the Obama "recovery," over that same time the number of working age Americans not in the labor force rose by 7.14 million.
There is no comparable post-World War II "recovery" where this type of exodus has occurred.

Some have attempted to explain this anomaly by an aging workforce, but labor force participation rates have fallen for all age groups except workers age 65 and over.

Rules of thumb work pretty well most of the time.  But you have to know how the numbers are put together to tell when those rules break down.

Record-setting drops in new hires and people leaving the work force are just such cases.  The "high-fiving in the White House" is far too premature.

Has the Chinese government indulged in protectionist, provocative or otherwise illiberal policies that have, on occasion, violated its commitment to the rules of international trade? Yes.

Do the Chinese maintain other policies that very likely would be found to violate China’s WTO obligations? Yes.

Is the U.S. government within its rights to bring formal complaints about benefit-impairing Chinese trade practices to the World Trade Organization for adjudication and resolution? Yes.

But before getting all righteous and patriotic and demanding that China be deemed an economic pariah worthy of exceptionally harsh treatment, keep in mind that the U.S. government has been found out of compliance with its WTO obligations more than any other WTO member, and it remains out of compliance on a few issues to this very day.

To read more, click here.

Hispanic fast food CEO Rick Silva took a turn on "Undercover Boss" and was shocked at what he found, prompting him to take immediate action to put things right.

As Rick Silva's turn on "Undercover Boss" began this past Friday, he spent time singing the praises of his company's high standards. The CEO of the Checkers and Rally's fast-food burger chain demands "perfection," he said, and makes regular use of focus groups to test the chain's burgers.

But on his in-disguise visits to three restaurants, he heard an entirely different story: His company's infrastructure is lacking, and you can't hear orders on the speaker system at the drive-through. Buttons are mislabeled at preparation stations. And some of his floor managers have barely received any training.

But the real eye-opener came from working alongside three rank-and-file employees. The trio of crew members who found themselves training a man named "Alex Garcia" taught him what perfection is really about.

Take Todd, a member of the grill-and-fry station at a branch in Homestead, Fla. He needs his job not just for his livelihood but also for his mom's. And so he endures the abuse of the store manager, who threatens his employees with physical beatings to get them into line. But when questioned outside by a man whom he presumed to be a random contestant on a reality show -- Silva in disguise -- about the situation, Todd overcame any fear about standing out and stood up. The treatment makes him feel "worthless," he told Alex.

To read the full story, click here. 

Call it “Mr. Stemberg Goes to Washington.”

Staples Inc. co-founder Thomas Stemberg and other members of a group called the “American Institute for Growth” traveled to Washington yesterday to lobby for lower taxes and less business regulation.

“This is about creating the right environment so that somebody else can become the next Tom Stemberg and live the American dream,” said Stemberg, now a Hub venture capitalist.

The American Institute for Growth, which includes Stemberg and the founders of The Home Depot and other big firms, believes Uncle Sam is stifling business.

“It’s incredibly frustrating to see how much time, effort and money (entrepreneurs) have to spend dealing with government regulations,” Stemberg said. “That should be time spent building their businesses and creating jobs.”

To read more, click here.

A trio of business leaders representing the American Institute for Growth held an event Friday to highlight a recent poll they commissioned showing that most Americans sympathize with companies who say they are over-regulated and believe it is stifling job growth.

"We are regulating the job creators to death," said Thomas Stemberg, a venture capitalist and founder of office supply retailer Staples. "The amount of economically meaningful regulations (more than $100 million) in the first three years of the Obama administration is up 30-fold over the first three years of the Bush administration."

Specifically, the business leaders criticized the president's health care law and financial regulation measures, both of which are unpopular with the public and have hurt Obama's approval rating.

But Stemberg, as well as the two men he was joined onstage by – John Allison, the CEO and chairman of BB&T Corporation, and Michael Whalen, founder of the Heart of America Group – admitted in their discussion that things are improving.

To read more, click here.

Recently, President Obama transmitted his budget proposal for fiscal 2013 to Congress. While political documents are to be expected in an election year, this budget was still widely panned from the left and the right as being devoid of any real solutions to our nation’s problems and simply a perpetuation of the status quo that has gotten us into quite a mess as a nation. Even worse, for a country that desperately needs job creation, it does nothing to empower entrepreneurs or encourage small-business owners, the real engine of a free-enterprise economy.

Businesses and working families also set budgets. Budgets should not only set priorities but reflect reality as well. Mr. Obama’s budget does neither.

It proposes to spend $3.8 trillion in fiscal 2013 alone, running a deficit of $1.3 trillion. This is set to be the fourth straight year of deficits of more than $1 trillion, the first time this has happened in the history of our nation. In the past few years, spending has exceeded 24 percent of the overall economy, the highest federal spending as a percentage of gross domestic product since 1946.

The unsustainable level of federal spending is nearly universally acknowledged as a real problem, not just for government priorities today, but more importantly, for future generations. For the job creator, watching Washington spend taxpayer dollars it doesn’t have raises concerns that taxes will have to be raised on society’s most productive in an attempt to slow the growth of our nation’s debt.

That is what this budget does. Instead of prioritizing spending, it proposes raising taxes by $1.9 trillion on working families, small businesses and job creators to enable - you guessed it - more spending. In my nearly three decades in business, I’ve never heard of a single job that was created by taking more money from the hiring class.

Just as important as what this budget does is what it doesn’t do: propose any solutions for entitlement programs that are well on their way to insolvency or do anything to mitigate the onslaught of regulations that are crushing our small businesses, startups and innovators.

Instead of unshackling the free-enterprise system that made America’s economy the most prosperous in history, it’s clear that this administration is intent on doubling down on a failed status quo of bigger government, higher taxes and no fiscal discipline. Job creators across this nation - many of whom I work with as a venture capitalist - are looking to Washington for less regulation; a simpler, flatter tax code and the kind of policy certainty that will provide incentives for investment and hiring. Unfortunately, with this budget, we still haven’t found what we’re looking for.

Read the original here.

In his State of the Union address last month, President Obama raised some eyebrows in saying "I've approved fewer regulations in the first three years of my presidency than my Republican predecessor did in his." While some of the President's critics immediately figured him to be playing around with the numbers, others took it as evidence that the Administration might be more pro-business than it is usually portrayed.

In reality, the statistic was solely a measure of the quantity of regulations, and not their impacts. As the Annenberg Public Policy Center's website FactCheck.org wrote: "It's true (barely) that Bush issued more new regulations than Obama at the same point in their presidencies -- but Obama didn't mention that his cost more."

Unfortunately, when it comes to our current government and regulation, the reality is that where there's smoke there's fire. When one counts "economically significant" regulations, as the Competitive Enterprise Institute has, he or she sees that President Obama has issued 953 in his first three years in office, compared to just 30 that were passed in the first three years of the Bush Administration. This is the more meaningful number, as it shows which regulations have impacted small businesses and made it more difficult for them to expand and hire.

The same numbers also show that economically significant rules affecting small business have also increased substantially. During the first three years of the Bush Administration, 16 new rules of economic significance were issued, compared to 257 in the first three years of the Obama Administration. It is highly concerning that the millions of small businesses in the country, which have historically fueled our economy, are being so uniquely affected by current policy.

I am not anti-regulation. I absolutely recognize its importance in preventing exploitive or dangerous activities, and I am truly proud of America's history of protecting workers and resources. Yet the pendulum has swung so far these days that I regularly hear small business owners asking why the government seems to have it out for them, going so far as to kill previously approved projects at the owner's expense. Everywhere I go, I hear from business owners who are genuinely confused by new governmental regulations, and frustrated with the obstacles that prevent them from hiring new workers. What's going on now is unacceptable, and it makes no sense during this current time of economic uncertainty.

What's perhaps most significant about the current pace of regulation is the circumstances. The past three years have been bleak, and small businesses have greatly struggled to get by. Perhaps it is sensible to consider tinkering with regulatory policy during an economic boom, but it is extremely harmful to recovery to be doing so during a time of economic distress.

America's businesses need all the freedom they can have to get back on their feet and start growing, and that is exactly what will lead to our economic recovery. We want businesses to feel confident enough to undertake new projects and hire new workers, not terrified of the bureaucratic traps that might lie around the corner.

Slowing the pace of regulation would be a big step on the road to economic stability. It would renew confidence that our government is working on our side, instead of against us. The longer we wait, the more small businesses will feel uncertain about the future, and unable to get America back to work.

Mark Calabria at the Cato Institute takes a hard look at what happens when government gets into the banking business.

Despite the substantial and continuing repayment of TARP bank assistance, the U.S. government maintains an equity interest in 371 banks.  A small number of those banks actually have the government as a majority owner.  For instance the former GM financing arm, now known as Ally Bank, has a government interest of 74 percent.  Sadly the United States is not alone in this regard.  The Royal Bank of Scotland (RBS) is still majority owned by the UK government.  And of course the U.S. government owns Fannie Mae and Freddie Mac, even if the Office of Management and Budget denies that reality.

Should we be concerned about all this government ownership of financial institutions?  The small body of empirical literature on the topic suggests a strong “yes.”  Probably the most comprehensive research was published in the Journal of Finance by La Porta, Lopez-de-Silanes, and Shleifer.  The authors find “that higher government ownership...

To read more, click here.