After five months and seven rounds of contentious negotiations, the Bush administration and the American textile lobby got what they wanted: a cap on China’s booming export business in the sensitive trade. The agreement sets quotas ( or “safeguards ” in security speak) for nearly half of the Chinese textile exports to America, such as bras, baby socks, bath towels, wool suits, window shades, etc.. Thus are American consumers protected from the presumed disaster of paying too little for these essentials of life. But the US textile industry will still decline. FULL ARTICLE

The EU has taken aim at China’s textile industry. This is harmful to all parties, and, what’s more, it won’t actually save the EU’s textile producers. There are suppliers in dozens of other countries with the cost structure capable of filling Chinas void. The global marketplace in textiles will continue to evolve according to the voluntary interactions of buyers and sellers. FULL ARTICLE

Leaders of European Union member states have been reeling from the double rejection of the proposed European Constitution by two of the six founding members. Given a chance to express their opinion on “ever closer union,” for the first time in over a decade and ever, French and Dutch voters spurned the controversial text against the wishes of their countries’ political, media and commercial elite. What does this portend for the European currency? FULL ARTICLE

Two years after the Iraq War was declared largely over, hostilities continue, spending mounts, and the very rationale for the war has been utterly and completely demolished. And yet all the major players have enjoyed promotions and pay increases, and have been lionized by the Bush adminstration for their supposed public service. The architects of the failure, and their apologists, are still the toast of the town. What a contrast with the private sector, where even errors in judgement are punished with severity. [Full Article]

During the first week of March Fed Chairman Alan Greenspan aired his views on tax reform in front of Bush’s appointed panel on the topic. Greenspan advocated the introduction of consumption taxes, to which I replied with this letter to the Financial Times of London.Sir-Federal Reserve Chairman Alan Greenspan’s comments advocating the introduction of a consumption tax represents not reform but a repackaging of the status quo (“Greenspan calls for consumption tax”, March 4). Indeed, the tax reform movement’s quest for simplicity defies economic sense.

Mainstream economists and politicians fail to grasp that every tax impairs economic activity. Concerning consumption taxes, the seller is incapable of passing the excise on to patrons, whose decision to purchase a product is predicated on the full price, including the tax. Because the law of demand dictates that individuals buy less of a product as its price rises, a consumption tax falls squarely on sellers, crimping the profitability of firms all the way up the chain of production.

Tax reformers also contend slashing marginal rates and introducing a flat tax-as some Central and Eastern European countries have done- is a prescription for robust economic growth.

However, tax reformers are not clamouring for a reduction in the level of taxation, but a mere reshuffling of burdens. There is no simple, innocuous or fair ways to extract by force roundabout $2 trillion a year from American taxpayers. It is indisputable that taxation in whatever guise is distortionary, for it deprives individuals a portion of the money they would otherwise employ to consume or save, placing the loot in the hands of individuals only nominally accountable at the ballot box.

Hence, $2 trillion is absent from America’s private economy -the engine of growth- with only ballot papers and inefficiently provided government services as recompense.

As for the aforementioned European countries, stellar growth rates are less a function of the tax system than competitive wages. Taxes, chiefly consumption, income and payroll, annually confiscate 30% or more of their subjects’ property.

No tax reform reduces distortions or augments growth unless some taxes are abolished and corresponding spending cuts are enacted. Absent these conditions taxpayers are wise to clench their pocketbooks when government luminaries, whom live by tax dollars themselves, broach the topic.

-Grant M. Nülle
Research Fellow
Ludwig von Mises Institute

Regrettably, the letter was not published -as my submissions to the FT usually are. It is nonetheless here on display for the Mises.org audience.

For a more thorough and extended treatment of Bush’s tax reform racket, consult Lew Rockwell’s article on the subject http://mises.org/daily/1727

As for the taxonomy, no pun intended, of the methods utilised by the state to confiscate private property and how each tax uniquely distorts the free market, Rothbard’s timeless classic, Power and Market http://mises.org/rothbard/mes/chap16a.asp, is the ticket.

Total federal spending rose by almost 30% during Bush’s first term, tripling the rate of growth of Bill Clinton’s first and second term. A close look at the new federal budget and finds only cosmetic changes from the past. It’s guns, butter, and debt all over again. Despite the president’s rhetorical support for rolling back bureaucratic meddling in citizens’ lives, more people now work for the federal government than at any time in history. And then there is the problem of the contractors… [Full Article]

Spreading democracy is one of the mantra’s of U.S. foreign policy. Austrians, of course, know otherwise. The military is often used not for alturistic aims, but to secure the financial interests of unscrupulous firms that have an influence over government policy.

I found a most frank example in a recent article in The Economist, “The view from abroad,” dated 19 Feb. 2005

“Latin Americans may think they have better reasons to harbour a grudge. Mexico, for instance, lost about half its territory to the United States in the war of 1846-48. In the BBC survey last month, only 11% of the Mexicans polled had a mainly favourable view of the influence of their northern neighbour, less even than the proportion of Argentines, who are in other respects even more hostile. Cubans have resented the United States ever since 1898, when their hard- and long-fought war of independence against Spain was in effect stolen from them by the yanquis prosecuting the Spanish-American war. The United States then made some 30 military interventions in and around the Caribbean in the next 30 years, many of them under Smedley Butler, a marine corps general, who summed up his career thus:

I helped make Honduras “right” for American fruit companies in 1903. I helped make Mexico…safe for American oil interests in 1914. I helped make Haiti and Cuba a decent place for the National City Bank boys to collect revenues in. I helped in the raping of half a dozen Central American republics for the benefit of Wall Street…I helped purify Nicaragua for the international banking house of Brown Brothers in 1909-12. I brought light to the Dominican Republic for American sugar interests in 1916. In China, I helped to see to it that Standard Oil went its way unmolested.”

Point, set, match I suppose.

For an extended treatment of the malevolent bent of U.S. foreign policy, take a look at Rothbard’s Wall Street, Banks and American Foreign Policy, available on Mises.org.

It is one of the most influential books on the subject I have ever read.

Castro’s restriction of private enterprise spells the destruction of ordinary Cubans’ limited ability to work, trade and in effect, control their own lives, write Christina McIntosh and Grant Nulle. Castro is using the tightening of the decades old trade embargo as a pretext to extinguish anything that smacks of the very capitalism, driven by individual freedom that impedes his revolution. The best policy for fighting back against the dollar ban and for promoting the liberty of Cubans: immediately establish free trade between Cuba and the US. [Full Article]

EU’s fiscal stability pact is coming unravelled. Considering the depths of financial chicanery practised by the Commission and EU member states, the pact is worthless. Burdened by the welfare state, colossal debt and wedded to creative accounting, EU countries are unlikely to aggressively police each other for fear of recompense. Let this be a lesson: states do not discipline themselves. [Full Article]

My letter appearing in today’s Financial Times:

Sir, Although I endorse Sir Samuel Brittan’s call to distinguish between Santa Claus and government “handouts”, his analysis is seriously flawed (“There is no such thing as the state”, December 17 [$link]). Sir Samuel’s description of the state, specifically “a mechanism for transferring claims to income or property from one citizen to another” is as salient as it is mischaracterised.

Uniquely empowered to exact property from individuals by virtue of its monopoly over defence, justice and coercion within a geographical area, government is a vehicle by which individuals in the state’s remit can seize resources from one another. This coerced appropriation, however subtly packaged in democratic phraseology, is nonetheless theft.

As for a systematic definition and defence of private property, Sir Samuel is advised to consult not neo-liberal doctrine but the Austrian School of economic thought. Murray Rothbard and others have established a straightforward and comprehensive case for property rights that refutes every statist and socialist critique.

The distinction between free markets and government redistribution is stark. In the former both parties to an exchange of goods and services are better off, as opposed to government intervention where property is seized from one and handed to another through a Byzantine administrative process that is unconnected to voluntary agreement. Verily, the law of the jungle exists not in competitive markets, where buyer and seller profit, but in the confiscatory public sector.

Concerning a minimum standard of living, the free market furnishes a solution. Insurance guards against unforeseen catastrophe; charity possesses the same compassionate qualities as state welfare, albeit without government confiscation and redistribution of wealth and the cultivation of a corrupting sense of entitlement in the recipient.

No man is a priori entitled to live at the expense of another; but through voluntary grace can a man assist another.

Grant M. Nülle, Research Fellow, Ludwig von Mises Institute, Auburn, AL 36832, US

A businessmen who just returned from a trip to Vietnam tells the story of a 7-year-old street urchin who asked for money. The child refused the man’s offer of a dollar, instead specifying euros. It’s a microcosm of the entire region. As 50 years of the fiat dollar standard “boom” ends, the U.S. and the world will reap what they have sown. [Full Article]

How is the Philippine government going to avert a looming fiscal crisis, which has been mounting for years? Of course taxpayers will have to atone for the enormous debts run up by bureaucrats, legislators and managers of GOCCs. Others have pointed out that the best performing (and lightly taxed) sectors of the economy—exports and agriculture—deserve to assume a greater share of the burden. Shame on these people who do not appreciate the connection between little tax and high growth. [Full article]

My latest in the Financial Times.

Why the EU 3% limit for budget deficits was chosen (as opposed to 1% or 2%) as the yardstick for profligacy is not altogether clear. However its apparent sanctity in relation to the euro stemmed from political debates over European Monetary Union, chiefly that the German and French governments, the avant-garde of the currency, chose 3% as the absolute limit. With central banks, there are no limits. [Full Article]

After so much fighting for so long, at last France and Germany find a common cause: resist economic reform and shore up the state apparatus as long as possible. Now we have an the unholy alliance of two political establishments bent on preserving regulations, high taxes, welfare states, and inflationary monetary policies. Their mode is defensive, reactionary, and doomed. [Full Article]

In Greek mythology, the adhesive adjoining feathers to the wooden frame of Icarus’s wings melted away when the young man flew too close to the sun, causing him to plummet from the sky. It seems Argentina is poised to suffer the same fate, differing from Daedalus’s headstrong son in that the government’s penchant for economic interventionism will undermine a high-flying recovery and scorch other South American countries along with it. [FULL ARTICLE]

Many of my fellow Austrians have shown the outsourcing of the production of goods and services in the marketplace to be beneficial to society at large.The same cannot be said, however, for subcontracting foreign policy. Indeed, the American government’s propensity to outsource certain aspects of its military activities to regional governments or local non-state organizations has rendered Washington’s already reckless and aggressive brand of adventurism all the more dangerous to the world and America itself. [MORE]

Well-intentioned or not, it is simply fallacious to deem government construction projects or social programmes as productive “investments”. As the only entities in society – besides criminals – that exist through the involuntary exaction of private property, governments rely on compulsion to achieve their ends. Unlike private enterprises, politicians are immune from profits and losses; it is immaterial whether they are servicing the public as revenues can always be coerced from the populace. [Entire letter]

Argentina’s descent from economic prominence throughout most of the 1990s to purgatory by the end of the decade is a miserable tale instilling heartache and frustration in all parties involved. More importantly, this tragedy underscores the inherent hazards of state participation in capital markets. [MORE]

Amid much acrimony, Britain’s Prime Minister, Tony Blair, secured an affirmative verdict last month in the House of Commons on his plans to reform the provision of undergraduate university education in England (Scotland and Wales are exempt). The higher education bill, which still faces committee scrutiny and further votes in both the House of Lords and Commons, passed by a mere 5 votes (316 to 311), a remarkable outcome considering Mr. Blair’s Labour Party boasts a majority of 161 seats in the Commons.

What is even more astounding is how implacably opposed figures from all across the country’s political spectrum are to infusing market principles into the funding of England’s cramped, ageing and cash-strapped universities—especially at a time when most of officialdom champions augmenting enrollment numbers—a task the higher education bill only begins to address.[MORE]