Saturday, June 8, 2013

Weekend Newsbites: Sat. & Sun., June 8 & 9, 2013


HELL YEAH...!!!

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5 comments:

William R. Barker said...

* THREE-PARTER... (Part 1 of 3)

http://online.wsj.com/article/SB10001424127887324798904578527552326836118.html?mod=trending_now_1

Not everyone is an entrepreneur. Still, everyone should try — if only once—to start a business.

* START ONE FROM SCRATCH; BUYING OUT AN ALREADY EXISTING BUSINESS ISN'T REALLY THE SAME THING... THOUGH OF COURSE IT'S BETTER THAN

After all, it is small and medium enterprises that are the key to job creation. There is also something uniquely educational about sitting at the desk where the buck stops, in a dreary office you've just rented, working day and night with a handful of employees just to break even.

As an academic, I'm just an amateur capitalist. Still, over the past 15 years I've started small ventures in both the U.S. and the U.K. In the process I've learned something surprising: It's much easier to do in the U.K.

* REPEAT:

It's much easier to do in the U.K.

There seemed to be much more regulation in the U.S., not least the headache of sorting out health insurance for my few employees. And there were certainly more billable hours from lawyers.

* SOME STATS:

433: Total number of days it takes in the U.S. to start a business, register a property, pay taxes, get an import and export license and enforce a contract

368: Total number of days it took to do the same in 2006

#1: U.S. ranking on the 2008-2009 Global Competitiveness Index

#7: U.S. ranking, out of 144 countries, on the World Economic Forum's 2012-2013 Global Competitiveness Index

#9: U.S. ranking for its legal system and property rights in 2000

#33: U.S. ranking for its legal system and property rights in 2010 on the Fraser Institute's Economic Freedom index, out of 144 countries

* NOT GOOD, FOLKS; NOT GOOD!

This set me thinking. We are assured by vociferous economists that economic growth would be higher in the U.S. and unemployment lower if only the government would run even bigger deficits and/or the Fed would print even more money. But what if the difficulty lies elsewhere, in problems that no amount of fiscal or monetary stimulus can overcome?

* TO BE CONTINUED...

June 8, 2013 at 2:36 PM
William R. Barker said...

* CONTINUING... (Part 2 of 3)

Nearly all development economists agree that good institutions — legislatures, courts, administrative agencies — are crucial. When poor countries improve their institutions, economic growth soon accelerates. But what about rich countries? If poor countries can get rich by improving their institutions, is it not possible that rich countries can get poor by allowing their institutions to degenerate?

(*NOD*)

Consider the evidence from the annual "Doing Business" reports from the World Bank and International Finance Corporation. Since 2006 the report has published data for most of the world's countries on the total number of days it takes to start a business, get a construction permit, register a property, pay taxes, get an export or import license and enforce a contract. If one simply adds together the total number of days it would take to carry out all seven of these procedures sequentially, it is possible to construct a simple measure of how slowly — or fast — a country's bureaucracy moves.

Seven years of data suggest that most of the world's countries are successfully making it easier to do business: The total number of days it takes to carry out the seven procedures has come down, in some cases very substantially. In only around 20 countries has the total duration of dealing with "red tape" gone up.

* GUESS INTO WHICH CATEGORY THE U.S. FALLS INTO...

The sixth-worst case is none other than the U.S., where the total number of days has increased by 18% to 433. Other members of the bottom 10, using this metric, are Zimbabwe, Burundi and Yemen (though their absolute numbers are of course much higher).

Why is it getting harder to do business in America?

Part of the answer is excessively complex legislation.

* EXCESSIVELY COMPLEX LEGISLATION IS A CANCER UPON THE RULE OF LAW ITSELF BECAUSE THE MORE COMPLEX THE LAW, THE MORE AMBIVALENT, THE LESS ROCK SOLID...

* IN SHORT, COMPLEX LEGISLATION IS A RECIPE FOR UNEQUAL TREATMENT UNDER THE LAW BECAUSE THE LAW IS FOREVER IN FLUX AND THUS LEGAL OUTCOMES ARE INFLUENCED MOST BY THOSE WITH THE DEEPEST POCKETS AND THE MOST POLITICAL INFLUENCE!

A prime example is the 848-page Wall Street Reform and Consumer Protection Act of July 2010 (otherwise known as the Dodd-Frank Act), which, among other things, required that regulators create 243 rules, conduct 67 studies and issue 22 periodic reports. Comparable in its complexity is the Patient Protection and Affordable Care Act (906 pages), which is also in the process of spawning thousands of pages of regulation. You don't have to be opposed to tighter financial regulation or universal health care to recognize that something is wrong with laws so elaborate that almost no one affected has the time or the will to read them.

Who benefits from the growth of complex and cumbersome regulation? The answer is: lawyers, not forgetting lobbyists and compliance departments. For complexity is not the friend of the little man. It is the friend of the deep pocket. It is the friend of cronyism.

* YEP... (*SIGH*)

We used to have the rule of law. Now it is tempting to say we have the rule of lawyers, which is something different.

* YEP... (*ANOTHER SIGH*)

* TO BE CONTINUED...

June 8, 2013 at 2:37 PM
William R. Barker said...

* OOPS... MAKE THAT FOUR PARTER! (Part 3 of 4)

It has long been recognized that the U.S. tort system is exceptionally expensive. Indeed, tort reform is something few people will openly argue against. Yet the plague of class-action lawsuits continues unabated. Regular customers of Southwest Airlines recently received this email: "Did you receive a Southwest Airlines drink coupon through the purchase of a Business Select ticket prior to August 1, 2010, and never redeem it? If yes, a legal Settlement provides a Replacement Drink Voucher, entitling you to a free drink aboard a Southwest flight, for every such drink coupon you did not redeem."

This is not the product of the imagination of some modern-day Charles Dickens. It is a document arising from the class-action case, In re Southwest Airlines Voucher Litigation, No. 11-cv-8176, which came before Judge Matthew F. Kennelly of the District Court for the Northern District of Illinois. As the circular explains: "This Action arose out of Southwest's decision, effective August 1, 2010, to only accept drink coupons received by Business Select customers with the purchase of a Business Select ticket on the date of the ticketed travel. The Plaintiffs in this case allege Southwest, in making that decision, breached its contract with Class Members who previously received drink coupons," etc.

As often happens in such cases, Southwest decided to settle out of court. Recipients of the email will have been nonplused to learn that the settlement "will provide Replacement Drink Vouchers to Class Members who submit timely and valid Claim Forms." One wonders how many have bothered. Cui bono? The answer is, of course, the lawyers representing the plaintiffs.

Having initially pitched for "up to $7 million in fees, costs and expenses," these ingenious jurists "settled" for fees of $3 million "plus costs not to exceed $30,000" from Southwest.

(*JUST SHAKING MY HEAD*)

[T]he rule of law in the U.S. is not what it was.

The World Justice Project uses a completely separate methodology to assess countries' legal systems. The latest WJP report ranks the U.S. 17th out of 97 countries for the extent to which the law limits the power of government, 18th for the absence of corruption, 19th for regulatory enforcement, 22nd for access to civil justice and the maintenance of order and security, 25th for fundamental rights, and 26th for the effectiveness of criminal justice.

(Of all the former British colonies in the report, the U.S. ranks behind New Zealand, Australia, Singapore, Canada, Hong Kong and the United Kingdom — though it does beat Botswana.)

The decline of American institutions is no secret. Yet it is one of those strange "unknown knowns" that is well documented but largely ignored.

* NOT BY ME, FOLKS...!

* TO BE CONTINUED...

June 8, 2013 at 2:39 PM
William R. Barker said...

* CONCLUDING... (Part 4 of 4)

Each year, the World Economic Forum publishes its Global Competitiveness Index. Since it introduced its current methodology in 2004, the U.S. score has declined by 6%. (In the same period China's score has improved by 12%.) An important component of the index is provided by 22 different measures of institutional quality, based on the WEF's Executive Opinion Survey. Typical questions are "How would you characterize corporate governance by investors and boards of directors in your country?" and "In your country, how common is diversion of public funds to companies, individuals, or groups due to corruption?" The startling thing about this exercise is how poorly the U.S. fares.

(*JUST SHAKING MY HEAD*)

In only one category out of 22 is the U.S. ranked in the global top 20 (the strength of investor protection).

* TELL THAT TO THE CHRYSLER BONDHOLDERS...

(*PURSED LIPS*)

In seven categories it does not even make the top 50. For example, the WEF ranks the U.S. 87th in terms of the costs imposed on business by "organized crime (mafia-oriented racketeering, extortion )." In every single category, Hong Kong does better.

* UNFRIGGIN'BELIEVABLE!

At the same time, the U.S. has seen a marked deterioration in its World Governance Indicators. In terms of "voice and accountability," "government effectiveness," "regulatory quality" and especially "control of corruption," the U.S. scores have all gone down since the WGI project began in the mid-1990s. It would be tempting to say that America is turning Latin, were it not for the fact that a number of Latin American countries have been improving their governance scores over the same period.

* NOT FUNNY...

Perhaps this is a victory from beyond the grave for classical Western political theory. Republics, after all, were regarded by most ancient political philosophers as condemned to decadence, or to imperial corruption. This was the lesson of Rome. Democracy was always likely to give way to oligarchy or tyranny. This was the lesson of the French Revolution.

(*SHRUG*)

Whatever the root causes of the deterioration of American institutions, smart people are starting to notice it.

* NOT ENOUGH OF THEM...

* WORSE... MANY "SMART PEOPLE" WOULD RATHER CASH IN AND BECOME PART OF THE OLIGARCHY THAN RISK FAILURE IN TRYING TO ROW AGAINST THE TIDE OF HISTORY.

June 8, 2013 at 2:40 PM
William R. Barker said...

http://online.wsj.com/article/SB10001424127887324299104578527193464764384.html?mod=WSJ_article_MoreIn_Opinion

During his brief campaign for President last year, Governor Rick Perry boasted that he would bring the "Texas model" of lean government, low taxes and pro-business policies to Washington.

* AND NOW...?

Now Austin is borrowing from Washington's playbook as the Lone Star State embarks on its biggest spending spree in memory.

* THE LEGISLATURE OR THE GOVERNOR...??? (OR BOTH...???)

Call it the downside of prosperity: The Texas growth spurt has produced a near $20 billion gusher of new tax revenue, and the Republican-dominated legislature, with the support of seemingly every lobby in Austin, wants to spread the bounty. The biennial general-fund budget that awaits the Governor's signature is $102 billion compared with $84 billion two years ago.

* PERRY SHOULD VETO IT.

Those numbers understate the blowout because $4 billion more was snatched from the state's rainy day fund.

* WHY...???

Add various accounting stunts and the Texas Public Policy Foundation calculates a 26% spending increase for the biennium.

(*PURSED LIPS*)

A broad coalition of taxpayer and tea-party groups is urging Mr. Perry to veto.

* AS AM I! (JUST ON THE FACE OF IT!)

Two years ago when the state faced a $15 deficit, Mr. Perry buried tax increase talk by signing a zero-growth budget.

(*THUMBS UP*)

Mr. Perry's spokesman Rich Parsons tells us that the 26% estimated increase may be inflated because it doesn't take into account the underfunding of Medicaid and education in that 2011 budget. Mr. Parsons says that required about $7 billion of supplemental spending bills earlier this year. But even accepting this explanation, which is in dispute, the budget is still 16% higher.

* SO... ALL AGREE... SOMEWHERE BEWEEN 16% AND 26%. OUTRAGEOUS!

Republicans defend the budget by noting that Texas has urgent public-works needs. Two years of droughts make new water projects a necessity, and with nearly half the new jobs in the U.S. over the last four years springing up in Texas, roads and school funding are priorities too. But the Houston Chronicle notes that nearly everything from mental health to family planning to Medicaid to Mr. Perry's pet corporate welfare program — the Emerging Technology Fund — won fat funding increases.

(*JUST SHAKING MY HEAD*)

This may be the first time in history that a state experienced a rush of new tax collections and lowered its reserve fund. The supplemental spending earlier this year also allowed an end run around the state's constitutional spending cap. (Expenditures can't rise faster than the rate of personal income growth.) By spending more in 2013 the state can now appropriate more in 2014-15, because the baseline for calculating future expenditure growth is ratcheted upward. This is the kind of stunt one would expect from Nancy Pelosi.

(The budget contains a roughly $1 billion tax cut, but for every $1 of tax relief, $19 in new revenue will be spent.)

Mr. Perry traveled on a business recruiting mission to California in February and poked fun at the tax-spend-and-borrow cycle in Sacramento. He can fix the reckless Texas budget by vetoing all or most of it and insisting on deeper business tax cuts. He should not want people to start comparing him unfavorably to Jerry Brown.

(*NOD*)

* STAY TUNED, FOLKS!

June 8, 2013 at 4:20 PM

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