Freedom Makes All the Difference

Palestinian leaders were understandably insulted when Mitt Romney, noting the huge gap in wealth between Israel and the West Bank during a speech in Jerusalem on Monday, declared, "Culture makes all the difference." Although culture plays an important role in economic development, the presumptive Republican presidential nominee overlooked another key variable: government.

Good government establishes conditions that are conducive to production, innovation and trade. I am not talking about the roads, bridges and public schools cited by President Obama in his notorious "you didn't build that" speech. I am talking about a more basic kind of infrastructure: the rule of law, protection of property rights, enforcement of contracts, honest and open government, tolerable taxes and a minimum of interference with transactions between consenting adults.

When the state flagrantly flouts these principles, people do not prosper, no matter how much they value education, how hard they are prepared to work, how much risk they are willing to take or how inclined they are to save and invest. In fact, oppressive, arbitrary government changes culture, making these traits less valuable and therefore less common.

When Romney said "culture makes all the difference," he was quoting "The Wealth and Poverty of Nations," a 1998 book by the historian David Landes. Elsewhere in the book, Landes is less categorical, saying, "Culture can make all the difference," and cautioning that "culture does not stand alone."

What else makes a difference? Landes is quite clear that limits on government are essential. When he says "the driving force" of economic progress during the last millennium "has been Western civilization and its dissemination," he is referring not just to cultural values such as thrift, competition, gender equality and the Protestant work ethic, but also to the political values that keep the state from smothering creative effort.

Saeb Erekat, a senior adviser to Palestinian President Mahmoud Abbas, highlighted the importance of political institutions when he complained that Romney "doesn't realize that the Palestinian economy cannot reach its potential because there is an Israeli occupation." Israeli checkpoints, control of imports and exports, and interference with land use, even if justified by legitimate security concerns, surely have impaired economic development in the territory administered by the Palestinian Authority, but so has the authority's history of corruption and incompetence.

Those factors, along with intermittent violence, go a long way toward explaining the enormous difference in per capita gross domestic product between Israel and the West Bank (which Romney actually understated by a factor of five): $28,600 vs. $2,900, according to the CIA's 2009 numbers. There are also stark, though less dramatic, disparities between Israel and bordering Arab countries. According to the CIA's 2011 estimates, per capita GDP was $31,400 for Israel, $15,700 for Lebanon, $6,600 for Egypt and $5,100 for Syria.

One interpretation of these data -- the one Erekat clearly had in mind when he called Romney's remarks "racist" -- is that Arabs are lazy, while Jews are good with money. Yet Arabs excel economically in countries with stable governments that respect individual rights and the rule of law. In the United States, for instance, Arab-American households are more affluent than the average.

A similar pattern can be seen among the Chinese, who, Landes observes, "have long been so unproductive at home and yet so enterprising away." The laissez-faire Hong Kong Special Administrative Region -- which has a per capita GDP of nearly $50,000, compared to $8,500 in the rest of China -- shows it's not distance but rules that matter. Likewise, East Germany's per capita GDP was about half West Germany's in the decades before unification, while South Korea's is about 18 times North Korea's.

Culture matters, but these examples demonstrate that institutions are crucial. If you compare per-capita GDP to ratings in Freedom House's annual Freedom in the World report or the Heritage Foundation's Index of Economic Freedom, you will see a clear association between poverty and tyranny. Maybe Romney should have said, "Freedom makes all the difference."

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10 Concepts Liberals Talk About Incessantly But Don't Understand

1) Being Open Minded: To a liberal, this has nothing at all to do with seriously considering other people's ideas. To the contrary, liberals define being "open-minded" as agreeing with them. What could be more close-minded than assuming that not only are you right, but that you don't even need to consider another viewpoint because anyone who disagrees must be evil?

2) Racism: Liberals start with the presumption that only white people who don't belong to the Democratic Party can be racist. So, for example, even if Jeremiah Wright can make it clear that he hates white people because of their skin color or if liberals take an explicitly racist political position, like suggesting that black people are too stupid and incompetent to get identification to vote, they can't be racist. White Republicans, on the other hand, are generally assumed to be racist by default, no matter how much evidence there is to the contrary.

3) Fairness: In all fairness, I must admit that fairness is an arbitrary concept. So, you could make the argument that no one could get "fairness" wrong. Still, liberals do because they don't make any effort to actually "be fair." As a practical matter, liberals define "fairness" as taking as much as possible from people who they don't think are going to vote for them and giving it to people who may vote for them in return for their ill gotten largesse. Certainly conservatives, libertarians, and moderates might disagree about how much money to take from the wealthy to redistribute to the poor or how to help the disadvantaged, but the only liberal answer to the question, "How much is enough?" is "more."

4) Greed: To a liberal, believing that you pay too much in taxes or even opposing paying more in taxes is greedy. In actuality, wanting to loot as much money as possible that someone else has earned to use for your own purposes, which is what liberals do, is a much better example of greed.

5) Hate: Liberals often define simple disagreement with them on issues like gay marriage, tax rates, or abortion as hatred. No matter how well a position is explained, or the logical underpinnings behind it, it's chalked up to hate. Meanwhile, the angriest, most vicious, most hateful people in all of politics are liberals railing against what they say is "hatred." This irony is completely lost on the Left.

6) Investment: Actual investments involve putting money or resources into a project in hopes that they will appreciate in value. Liberals skip the second half of that equation. To them, an "investment" is taking someone else's tax dollars and putting it into a project that liberals approve of and whether a profit is made or lost is so irrelevant that they typically don't even bother to measure the results.

7) Charity: Contributing your own money or time to a good cause is charity. Liberals view themselves as charitable if they take someone else's tax dollars and give it away to people they hope will vote for them in return. At a minimum, they should at least credit the taxpayers who paid for the money they gave away for the charity, although it's not really charity if it's involuntary. Of course, there's nothing charitable about asking someone else to sacrifice for your gain, which could actually be better described as selfish.

8) Patriotism: Liberals love America the way a wife beater loves his spouse. That's why they're always beating up the country "for its own good." Doesn't the country understand that liberals have to hit it in the mouth because they LOVE IT SO MUCH?!?!? Of course, the conventional definition of patriotism, which is loving your country and wishing it well, isn't one that liberals can wrap their heads around.

9) Tolerance: In a free, open, and pluralistic society, there are all sorts of behaviors that we may have to tolerate, even though we don't approve of those activities. Liberals don't get this distinction. For one thing, they don't understand the difference between tolerance and acceptance. They also don't extend any of the tolerance they're agitating for to people who disagree with them. Liberals silence people who disagree with them at every opportunity which is, dare we say it, an extremely intolerant way to behave.

10) Diversity: What liberals mean by "diversity" is that they want a broad range of people from different races, colors, and creeds who have identical political views. A black or Hispanic conservative doesn't contribute to "diversity" in liberal eyes because he actually has diverse views. Incredible role models for women like Sarah Palin can't be feminists to liberals because she doesn't share the same liberal beliefs as sexist pigs like Anthony Weiner and Bill Maher. How can you have any meaningful "diversity" when everyone has to think the same way?

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America's disastrous experiment with Fascist economics is still leading its privileged life

Big government programs often have results that are very different than what was intended. We can gain particular perspective by reflecting on the experience of President Franklin D. Roosevelt's most ambitious infrastructure program, the Tennessee Valley Authority (TVA).

It was heralded as a program to build dams that would control floods, facilitate navigation, lift people out of poverty, and help America recover from the Great Depression. Yet the reality is that the TVA probably flooded more land than it protected; much of the navigation it has facilitated involves barges of coal for coal-fired power plants; people receiving TVA-subsidized electricity have increasingly lagged behind neighbors who did not; and the TVA's impact on the Great Depression was negligible. The TVA morphed into America's biggest monopoly, dominating an 80,000 square mile region with 8.8 million people—for all practical purposes, it is a bureaucratic kingdom subject to neither public nor private controls.

Back in 1933, David Lilienthal, one of the founding directors of the TVA, vowed, "The Tennessee Valley Authority power program is not a taxpayers' subsidy. It is a business undertaking." In fact, for more than 60 years, Congress appropriated funds to cover the TVA's losses.

Although the TVA no longer receives congressional appropriations, it continues to receive large subsidies. The TVA pays none of the federal, state, and local taxes that private businesses pay. A 1993 study by Putnam, Hayes & Bartlett, a consulting firm retained by investor-owned utilities, estimated that annual cost-of-capital subsidies exceeded $1.2 billion, including the taxes that the TVA avoided. As a government-backed entity similar to Fannie Mae and Freddie Mac, the TVA can borrow money cheaper than private businesses. Currently, the TVA has about $26 billion of debt.

Moreover, the TVA doesn't have to incur the costs of complying with myriad federal, state, and local laws. Energy consultant Dick Munson reported that the TVA is exempt from 137 federal laws, such as workplace safety and hydroelectric licensing. The TVA can set electricity rates without oversight by the Federal Energy Regulatory Commission, which has jurisdiction over private utilities. The Securities & Exchange Commission has only limited jurisdiction to oversee the TVA. On top of that, the TVA is exempt from federal antitrust laws and many federal environmental regulations. It's also exempt from some 165 laws and regulations in Alabama and hundreds more laws and regulations in other states in which it operates. When the TVA wants to acquire more assets, it doesn't have to haggle, because unlike private businesses, it has the power of eminent domain. More than 15,000 people were expelled from their property to make way for the TVA.

Established by President Roosevelt in May 1933 as part of his first 100 Days, the TVA's roots actually go back to 1918 when President Woodrow Wilson decided that the federal government should get into the gunpowder business after German submarines sank several ships bringing nitrates from Chile. At the same time, E.I. du Pont de Nemours, the world's most experienced gunpowder manufacturer, wanted to build a gunpowder manufacturing facility at Muscle Shoals, Alabama, on the banks of the Tennessee River, and his company proposed building a hydroelectric plant to provide the power that was needed.

"Progressive" politicians were wary that du Pont might make money on the deal, so the decision was to have two gunpowder manufacturing facilities: one built by du Pont and the other by the federal government. The du Pont facility was finished for $129.5 million and produced 35 million pounds of canon powder before the Armistice (November 1918), while the government's facility produced nothing at all. Wilson's Muscle Shoals project became the starting point for the TVA.

It's run by three directors, each appointed by the president to staggered nine-year terms. Although the directors are sure to be political supporters, the unusual length of their terms gives them considerable independence, and they're not subject to constraints by investors, customers, or voters.

As a remedy for the Great Depression, the TVA didn't work. It created no new wealth and, through taxation, transferred resources from the 98 percent of Americans who didn't live in the Tennessee Valley to the two percent who did. Any spending that happened in the Tennessee Valley therefore was offset by the spending that didn't happen elsewhere. Those taxes reduced net incomes.

Much like any other complex public works project, it took an inordinate amount of time to build the TVA. Only three TVA dams were completed during the 1930s. The dams themselves were small—with less than one-twentieth the power-generating capacity of big western dams like Grand Coulee. Although the building process provided work for engineers and skilled construction workers—who earned above-average incomes—the dams simply came too late to have much impact on most people in the Tennessee Valley during the Great Depression.

To the degree that the TVA had any impact, it appears to be negative. The most important study of the effects of the TVA, conducted by energy economist William Chandler, estimated that in the half-century after the TVA was launched, economic growth in the Tennessee Valley increasingly lagged behind non-TVA southern markets. Chandler concluded, "Among the nine states of the southeastern U.S., there has been an inverse relationship between income per capita and the extent to which the state was served by the TVA...Watershed counties in the seven TVA states, moreover, are poorer than the non-TVA counties in these states."

In the non-TVA southern markets, there was a greater exodus of people out of subsistence farming into manufacturing and services, which offered higher incomes. Ironically, electricity consumption has grown faster in the non-TVA southern markets, because it tends to correlate with income. Subsistence farmers might be able to afford light bulbs, but they could not afford the electrical appliances that people in non-TVA southern markets were buying. Furthermore, despite the vast sums spent building TVA dams, water usage grew faster in the non-TVA southern markets.

In any case, it was a delusion to believe that there was one "key" (such as TVA-subsidized electricity) to eradicating poverty. Subsistence farmers needed equipment such as tractors, trucks, and hay bailers (which are powered by diesel fuel, not electricity). They needed to develop more skills, more sophisticated farming practices, and so on.

Backed by the power of the federal government, the TVA promoted electricity for home heating--even when oil and natural gas were cheaper. To the extent the TVA's home heating campaign was successful, it still squandered resources.

As for flood control, the TVA has flooded an estimated 730,000 acres—more land than the entire state of Rhode Island. Most directly affected by TVA flooding were the thousands of people forced out of their homes. And while farm owners received cash settlements for their condemned property, black tenant farmers received nothing.

As one might expect with a government monopoly that can ignore so many laws, there have been frequent reports of waste and possible corruption. According to TVA's own inspector general, these include lucrative executive perks, cozy consulting contracts, costly building leases, and much more. The TVA spent $15 billion building nine nuclear power plants—and none of them worked. The TVA hired a former Navy admiral to fix them, but he was charged with cronyism and bad judgment. Congressional investigations followed.

Although the TVA was established to build dams, it has expanded relentlessly (as bureaucracies do) to include 11 coal-fired power plants and three nuclear power plants as well as 49 dams—apparently with ambitions to expand the TVA's power-generating monopoly beyond the Tennessee Valley. Among other things, this has raised environmental concerns. Ralph Nader charged that the TVA "has the poorest safety record with [nuclear] reactors." On December 22, 2008, at the TVA's Kingston, Tennessee coal-fired plant, the dike of a 40-acre holding pond broke, spilling as much as a billion gallons of coal sludge with elevated levels of arsenic. The sludge covered some 300 acres up to six feet deep, damaging homes and wrecking a train. This spill reportedly was much bigger than the oil spill from the Exxon Valdez tanker that went aground in Alaska.

As the TVA's long record illustrates, voters rarely receive what they signed-off on when it comes to massive government programs. Despite all of the harm it has done, the TVA has grown into a powerful and politically unstoppable special interest that has done a grave disservice to the Tennessee Valley. Too bad today's advocates of a new New Deal seem determined not to learn from their predecessors' mistakes.

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The Big Lie of the late 20th century was that Nazism was Rightist. It was in fact typical of the Leftism of its day. It was only to the Right of Stalin's Communism. The very word "Nazi" is a German abbreviation for "National Socialist" (Nationalsozialist) and the full name of Hitler's political party (translated) was "The National Socialist German Workers' Party" (In German: Nationalsozialistische Deutsche Arbeiterpartei)

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