Tuesday, September 21, 2021

Who Bears The Burden Of Taxes on Business?

On August 13, 1996, during the Republican National Convention, a panel was held in honor of candidate Steve Forbes.  I was invited to serve on the panel discussing Forbes’s tax plan, which was a slight modification of the original Hall-Rabushka flat tax.

Art Laffer, of Laffer Curve fame, was also on the panel.  He told a story about the impact of taxes on business.  I don’t know if it originated with Laffer or if he got it somewhere else.


Given the plethora of taxes that Biden and the Democrats want to impose on business, this is a good time to tell the story.


We all know about Robin Hood.  Few of us know that Robin had a twin brother, Robert who lived in a medium sized medieval town surrounded by prosperous farmers.


Robert was politically ambitious.  He wanted to be mayor.  He concocted a scheme that he thought might succeed.


Every year, about the same time, an itinerant merchant would come to town to buy goods for cash (silver coins) to sell to people in other towns.  Robert waited around the last bend on the road to town.  When the merchant came into view. Robert set upon him and seized his saddlebags of silver coins.


Robert returned home and called a meeting of the townsfolk and farmers.  He said he would give each of them a packet of silver coins equal to a year’s income if they elected him mayor.  And so, he was.


A year rolled around and Robert needed money to buy votes to be reelected.  Again, he hid behind the last bend in the road and robbed the unwary merchant.  He doled out the silver and was unanimously reelected.


Another year came to pass.  Robert waited for the merchant and seized the saddlebags.  To his dismay, they were empty.  Robert asked the merchant how he planned to buy goods without money.  He replied, “on credit.  I will write an IOU to each person and promise to repay them after I have sold the goods.”


Robert returned home and told the townsfolk he had no money.  They were extremely angry, grabbed him, tied him up, tarred and feathered him, mounted him backward on a donkey, and exiled him from town.


The problem?  After two years of free money, the craftsmen in town stopped working and the farmers stopped planting.  That winter many died from starvation and all the craftsmen lost their businesses.  No one had any money to buy what they needed to survive.  The merchant had changed his behavior and the craftsmen and farmers paid the price.


It took many years for the town and neighboring farmers to recover and all was well again.


But memories are short, especially after the older generation passed away.  Fifty years later, another ambitious politician arose with similar ideas.  You already know the end of the story.  “When will they ever learn?”


It seems never.  So here we are again, with politicians promising free money by only taxing rich merchants.

Tuesday, September 7, 2021

Both Left And Right Agree That Democracy Nation Building Is Failing

On September 1, 2021, Michael McFaul tweeted “That the US benefits more from democracy in the world does not mean that American leaders today have the ideas or means to promote democracy abroad.  After fourteen years of democratic recession worldwide we should be humble in our proclamations & ambitions.”  McFaul served as adviser to President Obama, US Ambassador to Russia, is Director of the Freeman Spogli Institute at Stanford (which houses the Center for Democracy, Development, and the Rule of Law), Professor of Political Science at Stanford, and Hoover Institution Senior Fellow.

On September 5, 2021, Peter Berkowitz wrote in a Real Clear Politics column that “promoting democracy and freedom are beyond America’s capabilities…”  Berkowitz served as Director of Policy Planning at the U.S. State Department under Trump and is a Hoover Senior Fellow.


Democracy specialist Larry Diamond has chronicled the growing democracy recession to which McFaul refers.  Diamond spent time in Iraq after Hussein was overthrown, headed the CDDRL for nearly a decade, and is a Senior Fellow at both Freeman Spogli and the Hoover Institution.


McFaul recommends that NGOs be given priority in helping autocracies with health care, education and other social services.  Berkowitz suggests that U.S. foreign policy should not threaten autocracies with regime change, but rather encourage them to allow more economic freedom and civil liberties.


Diamond blames the democracy recession since 2015 primarily on President Trump.  He recommends some changes, such as weighted voting, but places top priority on stopping Trump from regaining the White House.  He argues that the U.S. must focus on restoring its own democracy before it can advocate it abroad.


Condoleezza Rice’s 2017 book, Democracy:  Stories From The Long Road To Freedom, examined six cases of democracy nation building.  Between the time she started her research and  the date of publication, three of the six were disintegrating.  Rice served as National Security Advisor to President George W. Bush, Secretary of State in the Bush Administration, and is currently Director of the Hoover Institution.


McFaul recommended that President Biden establish a Cabinet-level Department of Democracy.  President Biden recently announced that the White House will host two International conferences this December and next to study democracies and then implement a carefully-developed program to promote democracy nation building.


The effort to build democratic nations took off with decolonization in the 1960s.  It has since grown into an industry of academic and think tank centers, NGOs, and international organizations supported by Western governments.  Thousands of people have participated and millions of dollars have been spent in this effort, with diminishing results.


Nearly fifty years ago, Harvard Professor Kenneth Shepsle and I coauthored Politics In Plural Societies:  A Theory of Democratic Instability (1972), reissued with a Postscript in 2008.  The book is available for free download here.  If the above-mentioned individuals have not read the book, perhaps they might read it as they refashion their ideas on the hazards and pitfalls of democracy promotion.