Wednesday, August 14, 2019

My pictorial home page

Each year, late in the year, I put up a collection of odd and interesting pictures -- mostly political -- from the previous 12 months.  I combine that with some basic homepage links.  I have just put up the 2019 edition.  It is here.  That is a new address for it.  The previous address was here.  All the past pages have been transferred to the new address and can be accessed from there.  Each page has a link to the previous page and you can also access particular years via the links at the bottom right hand corner of each page.  Happy viewing!


Marxism in international organizations

Marxism has always had international pretensions

Martin Hutchinson

Kristalina Georgieva’s nomination as Managing Director of the International Monetary Fund is entirely appropriate. She is a Bulgarian communist by background, for 14 years until 1993 a Professor at the Karl Marx Higher Institute of Economics under that country’s communist government. The IMF itself and its sister institution the World Bank have since their foundation been anti-market forces of central planning. It is high time the Trump Administration and other believers in the free market acted to close down these clogs to the global economy.

The influence of Communist thinking on the IMF and World Bank has always been strong. The Soviet Union were active participants in the 1944 Bretton Woods conference that established them. More important, the two Western leaders at the conference were John Maynard Keynes, not technically a Communist but sympathetic to Communist teachings since the 1930s and Harry Dexter White, undoubtedly a Communist since he was an active Soviet spy. Their influence is celebrated by the World Bank in naming its main conference room the Keynes-White Room – presumably the alternative location for big meetings is the Rosenberg-Philby Suite.

“Russia is the first instance of a socialist country in action – and it works!” enthused White. Accordingly, he sought to bring the benefits of Soviet efficiency and innovation to the whole world, by sponsoring global institutions that would plan for the world economy just as Gosplan planned for the Soviet one. Both he and Keynes supported an all-powerful institution that would regulate global balances of payments and direct the global economy accordingly. It was only Britain’s economic weakness and American strength that led to the creation of the IMF, regulating only payments deficits, rather than Keynes’ vision of a Clearing Union that would regulate both deficit and surplus countries, operating a global currency “bancor.”

Both participants rejected the pre-war Gold Standard, which had through market forces regulated payment disparities automatically (curiously enough, the third participant in Bretton Woods, the Soviet Union, was not entirely averse to the Gold Standard since it was itself a major gold producer, second only to South Africa.)

By a stroke of luck for the world, White did not become the first chairman of the IMF. By the time the appointment was made Harry Truman was President and suspicion was rising about White’s Soviet espionage. Truman had a healthy distaste for Soviet spies but realized that withdrawing White’s name suddenly might cause awkward questions to be asked. Thus, in a master stroke of diplomacy he instituted the system from which Georgieva appears about to benefit, of a European chairman for the-IMF while the United States runs the World Bank.

As a consequence of Truman’s self-denial, the IMF became a much less powerful institution than White and Keynes had intended. In its first three decades, it contented itself with providing loans to industrial countries having difficulties under the Bretton Woods quasi-fixed exchange rate system. With those loans, it provided stern advice to recipient countries about how they must cut public spending and increase taxes to get the balance of payments back in line, but that advice was inevitable under the Bretton Woods system in any case.

Britain suffered three decades of very slow growth and constant balance of payments crises, while most other countries were enjoying economic miracles, because its feeble governments could not keep public spending under control. It would have fared better under a free-floating system (as was proposed in 1952) which would have allowed the pound to sink soggily to its equilibrium level. It would also have fared better under a Gold Standard, which would have imposed the required discipline automatically on the British budget so that follies like Macmillan’s 1958 sacking of Peter Thorneycroft would have immediately been punished by the markets, forcing the inept Macmillan to resign in well-deserved disgrace.

In any case, Britain’s perpetual balance of payments crises in 1945-79 were not the IMF’s fault, but that of the Bretton Woods system itself. The IMF indeed played a useful role for Prime Minister James Callaghan in 1976 (shortly after Bretton Woods had collapsed, but before the IMF had figured out a new role) in forcing his government to abandon its wild over-spending.

After 1979, the IMF took on a new role, that of bullying Third World governments. Whenever a government got into balance of payment difficulties, the IMF would lend it money, and impose conditions that in practice amounted to a massive tax increase, usually accompanied by wasteful spending on social and environmental projects the IMF favored. After a couple of decades of this, demand for the IMF’s services declined to the vanishing point — also money was readily available in the over-liquid international capital markets. Thus in 2000-07 the IMF’s balance sheet shrank markedly and it seemed likely that it would eventually atrophy, although it also became clear that there was no effective way of closing the institution, however useless it was.

After 2008, a wave of left-wing governments in major centers and a rather manufactured panic about the effects of the global recession, caused the IMF to be successful in its search for re-capitalization, with a massive increase in 2010-15. The demand side of the equation was solved by the EU using the IMF to fund partially the bailouts of various of its members and near members, so huge amounts were committed to Greece, Cyprus and Ukraine. In Greece, for example, IMF money was used to perpetuate Greece’s grossly uneconomic membership of the euro, which grossly overprices the lackadaisical Greek labor force, while massive haircuts were imposed on the private sector banks who had been foolish enough to lend to the country.

In Europe, the IMF has cooperated with an equally anti-market institution, the Brussels bureaucracy, to prevent market reforms in EU members and near members. More recently, it has single-handedly engaged in a bailout of the Mauricio Macri government in Argentina, to the tune of close to $50 billion. Contrary to the IMF’s past bailout patterns, this bailout enabled the Macri government to postpone essential budget-cutting from the waste of leftist administrations of Nestor Kirchner and his wife and successor Cristina Fernandez. Consequently, the country is now over-indebted and in poor shape going into the November election that will almost certainly bring Cristina Fernandez back to power, pushing Argentina into the kind of impoverished chaos that we now see in Venezuela.

The World Bank also has a thoroughly anti-market approach. It lends primarily to governments, for projects many of which are sponsored and pushed by the World Bank’s own staff. Private sector participation is very limited, and public-sector solutions preferred. This leads to huge corruption and aggrandization of governments, most of which lack the capability to manage the large percentage of the economy for which they are theoretically responsible.

In addition, the World Bank pushes projects that reflect the fashionable theories among the Western intelligentsia; thus dozens of hopelessly uneconomic steel mills were set up in country after country in the 1960s. Later, the World Bank’s emphasis switched to environmental projects, some of which (though by no means all) were indeed beneficial for the environment but produced no hard-currency income with which the World Bank debt could be serviced. Today, the emphasis is on projects that combat global warming, the fashionable nostrum of the moment. Naturally, many of these projects produce energy at hopelessly uneconomic costs, or in other ways subtract from the economic viability of the poor country in which they are situated, and which must pay back the debt it has incurred.

The World Bank and IMF did not fill an economic gap, except in the highly disturbed years after World War II. Once the private international capital markets got going again, after 1960, there was ample finance available for any economically robust project, wherever it was situated. Advice for Third World governments was also available, from the London merchant banks who had provided such advice very effectively before 1914. Once the euro-market got going, they were perfectly capable of replicating their pre-1914 function in this area. Alas, the World Bank and IMF undercut the private markets, providing advice for free (if generally of extremely poor quality) and thereby preventing the London merchant banks from re-filling their traditional market niche.

Since 1994, money has been only too available, as central banks worldwide have flooded the international financial system with spurious liquidity. As with all liquidity excesses, this has produced a gigantic wave of misguided lending and investment in Third World countries, most of which will have to be written off, damaging both the countries and their lenders.

The World Bank and IMF have contributed to this excess lending, mostly by financing countries and projects that did not deserve funding in any kind of free-market system. The countries to which they have lent have wasted the money even more grossly than their neighbors, while the projects for which they have lent have had even less economic reality than those financed by the private sector (which were at least desired by somebody, other than international bureaucrats).

In an ideal world, the next economic downturn would see the World Bank and IMF rendered insolvent as their loans went sour, while disgraceful provisions by which they cut ahead of the private sector in creditors’ restructurings would be ignored. Demands from both institutions for new capital would be firmly rejected, and they would be forced to shut up shop, forcing a mass of otherwise unemployable overstuffed officials onto the job market. Sadly, in our naughty world, this Nirvana is very unlikely indeed.



Here’s Why Elizabeth Warren’s Wealth Tax Is Completely Unconstitutional

If any trait characterizes the far left in 21st-century America, it is plans. They have plans for the country, plans for you, plans for your kids, plans for your house, and plans for your workplace. And your property? You know they’ve got plans for that.

In the 19th-century quasi-socialist movement once made up of farmers and laborers who wanted to build, harvest, and create, planning was a piece — but only a piece — of the agenda. Democratic socialism (or whatever guise the hard left puts on these days) is the realm of people who build nothing, but they have plans upon plans for things others have built.

The leading presidential candidate of the planners is the senior senator from Massachusetts, Elizabeth Warren. She has made a slogan about having a plan for this and that, and her plan likely to do the most damage to America and the rule of law is her ill-considered, demagogic plan for a wealth tax.

The plan appeals to a certain envious segment of the mob, but a few minutes’ thought reveals its manifold flaws. As her opponent and former Rep. John Delaney said in the last Democratic presidential debate, the wealth tax is both a violation of the Constitution and a crime against good sense.

A Huge Constitutional Problem

The main problem with Warren’s plan is that it violates the Constitution. Understanding why requires understanding the difference between direct taxes and indirect taxes. Warren, a Harvard law professor, surely gets this, but she’s counting on voters to not to pay attention.

Warren calls her plan the “ultra-millionaire tax,” and that certainly has a pleasant ring to it for many people. (Look! There’s even a graph! She makes a lot of graphs.) Can the super rich afford to pay a little more in taxes? Sure, they won’t starve. Do people think the top income tax rates should be higher? Polls from earlier this year show a majority of voters would be happy to raise that rate quite a bit. But that is not what Warren is calling for here.

When we say “tax the rich,” we typically mean “increase the top marginal rate of the federal income tax.” Maybe we even mean “impose a sales tax on the kind of luxury items rich people buy,” or “eliminate the favorable tax treatment for capital gains and deferred income.” These are all permissible, if not necessarily smart. Yet Warren’s tax is a wealth tax, a direct federal impost on people’s property, and that presents a huge constitutional problem.

Warren’s wealth tax would impose a 2 percent annual tax on household net worth between $50 million and $1 billion and a 3 percent annual tax on household net worth above $1 billion. According to her website, “All household assets held anywhere in the world will be included in the net worth measurement, including residences, closely held businesses, assets held in trust, retirement assets, assets held by minor children, and personal property with a value of $50,000 or more.”

Wealth Taxes Aren’t Income Taxes

The question of which taxes the federal government may impose has been debated since the American Revolution. Under the Articles of Confederation, Congress could not impose taxes but could only ask the states to give it the funding it needed to pay its expenses, including the salaries of the Continental Army.

The states were often tardy in doing so. Some did not pay at all. It was an untenable system for any government, and the delegates to the Constitutional Convention of 1787 looked to fix that.

At the same time, the delegates did not want to surrender all of the states’ powers to the new government, nor to create a taxing power so vigorous that it would make Congress too powerful. In Article I, Section 9, they split the difference, providing that “No Capitation, or other direct, Tax shall be laid, unless in Proportion to the Census or Enumeration herein before directed to be taken.”

Indirect taxes were allowed, but direct taxes had to be imposed proportionally across the states according to population, a formulation so bizarre that it renders the direct taxes politically unacceptable and logically outlandish.

What Is Direct Taxation?

That’s all fine, but it leads us to ask: What is a direct tax? The framers had an idea but declined to articulate it with much precision, as James Madison recorded in his notes.

Essentially, if a tax on property is a direct tax, as the court in Hylton stated, a tax on the income derived from property must also be a direct tax. This was, as Fuller explained, no more than an obvious reading of the Constitution’s words:

We know of no reason for holding otherwise than that the words ‘direct taxes,’ on the one hand, and ‘duties, imposts and excises,’ on the other, were used in the Constitution in their natural and obvious sense. Nor, in arriving at what those terms embrace, do we perceive any ground for enlarging them beyond, or narrowing them within, their natural and obvious import at the time the Constitution was framed and ratified.

Pollock reflected a court more comfortable in its constitutional role and a Congress increasingly willing to ignore the plain text of that document. In dividing all taxes between indirect taxes such as excises and duties (levied on the sale or importation of a thing) and direct taxes such as property taxes (levied on the possession of a thing), the court set income taxes in the latter category.

That remained the law, with some refinement, until 1916. By then, Progressive demands for an income tax led Congress and the states to approve the Sixteenth Amendment.

In passing the amendment, Congress acknowledged that income taxes were direct taxes and changed the Constitution to create an exception to the rule that they must be apportioned. The amendment did not so much overturn Pollock but changed the law so the logic of that case no longer invalidated the tax. It left the world of federal taxes divided into three parts:

Direct taxes on people or property: unconstitutional unless apportioned by state population

Direct taxes on income: now constitutional even without apportionment

Indirect taxes on sales and imports: constitutional, as they always had been

The most recent case to touch on the question was 2012’s National Federation of Independent Business v. Sebelius, better known as the “Obamacare case.” In the 5-4 decision, Justice John Roberts famously ruled that while the commerce clause does not give Congress the power to make people buy insurance, Congress does have the power to tax anyone who declines to do so.

Obamacare’s individual mandate survived as a tax, but what manner of tax? As a tax on a person, was it not a direct tax? And since it was a flat amount, not a percentage of a person’s income, was it not a direct capitation, requiring apportionment by population? Using a very strained reading of Hylton, Roberts said it was not:

Roberts confused the issue considerably in NFIB v. Sebelius, but the core holding of direct tax jurisprudence from Hylton to Pollock to NFIB to today remains intact: A tax on property is a direct tax, and Congress may not levy it without apportioning it according to state populations. Because she proposes not to do this, Warren’s wealth tax must be considered unconstitutional.

The Constitution explicitly bans this tax, and every interpretation of the direct tax clause the Supreme Court has ever issued puts the wealth tax on the wrong side of the law. No reasonable interpretation of the text or the case law can save it.

More HERE 


For more blog postings from me, see  TONGUE-TIED, EDUCATION WATCH INTERNATIONAL, GREENIE WATCHPOLITICAL CORRECTNESS WATCH, AUSTRALIAN POLITICS, and Paralipomena (Occasionally updated), A Coral reef compendium and an IQ compendium. (Both updated as news items come in).  GUN WATCH is now mainly put together by Dean Weingarten. I also put up occasional updates on my Personal blog and each day I gather together my most substantial current writings on THE PSYCHOLOGIST.

Email me  here (Hotmail address). My Home Pages are here (Academic) or  here (Pictorial) or  here  (Personal)


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