Fausta's Blog

Johns Hopkins University economist Steve Hanke on why New York Times columnist Paul Krugman is wrong about Estonia‘s tax and spending reforms.

How Sunday’s NFL Cities Became Champs
Favorable property taxes were game changers for New York, San Francisco and Boston. Baltimore needs a Hail Mary.

All these cities had long pursued progressive political agendas with pride. But the problem with redistributive policies at the local level is that the donor classes might move out as fast as beneficiary classes move in—or, as the population figures cited earlier show, even faster. Robin Hood may seem a heroic figure, but once his rich victims flee Nottingham, even that city’s poor might question his effectiveness.

San Francisco and Boston were rescued from their folly by statewide tax revolts. California’s Prop 13, passed in 1978, capped property taxes in that state at 1%—which slashed San Francisco’s rate by almost two-thirds. Massachusetts followed suit in 1980 with Prop 2½, which mandated that municipalities could not increase their total property tax receipts by more than 2.5% annually. New York City taxpayers did not revolt, but state legislators rationalized the Big Apple’s chaotic property tax system in 1981; it now enjoys property tax rates that average about one-third of those in its surrounding suburbs (though its other taxes are certainly punishing).

While no single factor explains any city’s destiny, it is not a mere coincidence that Boston, New York and San Francisco reversed their declines at the exact moment they became favorable environments for private investment in residential and business capital.

It has to do with the fact that

Every time a city raises the tax rate on residential and business property, its owners suffer a capital loss (which economists refer to as “tax capitalization”). In effect, tax hikes are incremental expropriations; owners flee not just because of short-term wealth losses but in fear of future damage to their property rights. Tax caps not only improve the immediate cash flow on investments in real property but—perhaps more important—secure it against further expropriations.

Go read the rest.
Here’s the video,

Economists Steve Hanke and Richard Conn Henry propose a new calendar for our Changing Times; not only a new calendar but a universal time,

We propose a new calendar that preserves the Sabbath, with no exceptions. That calendar is simple, religiously unobjectionable, business-friendly and identical year-to-year. There are, just as in Eastman’s calendar, 364 days in each year. But, every five or six years (specifically, in the years 2015, 2020, 2026, 2032, 2037, 2043, 2048, 2054, 2060, 2065, 2071, 2076, 2082, 2088, 2093, 2099, 2105, …, which have been chosen mathematically to minimize the new calendar’s drift with respect to the seasons), one extra full week (seven days, so that the Sabbath is unaffected) is inserted, at the end of the year. These extra seven days bring the calendar back into full synchrony with the seasons. In place of Eastman’s 13 months of 28 days, we prefer 4 identical quarters, each having two months of 30 days and a third month of 31 days (see the accompanying permanent calendar**).

That modern calendar would simplify financial calculations and eliminate the “rip-off factor.” To determine how much interest accrues for a wide variety of instruments – bonds, mortgages, swaps, forward rate agreements, etc. – day counts are required. The current calendar contains complexities and anomalies that create day count problems. In consequence, a wide range of conventions have evolved in an attempt to simplify interest calculations. For U.S. government bonds, the interest earned between two dates is based on the ratio of the actual number of days elapsed to the actual number of days between the interest payments (actual/actual). For convenience, U.S. corporates, municipals and many agency bonds employ the 30/360 day count convention. These different conventions create their own complications, inefficiencies and arbitrage opportunities. Specifically, discrepancies between the actual/actual and 30/360 day count conventions occur with all months that do not have exactly 30 days. The best example comes from calculating accrued interest between February 28th and March 1st in a non-leap year. A corporate bond accrues three days of interest, while a government bond accrues interest for only one day. The proposed permanent calendar—with a predictable 91-day quarterly pattern of two months of 30 days and a third month of 31 days—eliminates the need for artificial day count conventions.

What will it take to produce regular dates and times throughout Russia and the rest of the world? Nothing but the will to do so. With regard to the regularization of times and dates, Russia has the most to gain, particularly when it comes to time.

Moving on from the calendar to time, we recommend the abolition of all time zones, as well as of daylight savings time, and the adoption of atomic time—in particular, Greenwich Mean Time, or Universal Time, as it is called today. Like the adoption of a modern calendar, the embrace of Universal Time would be beneficial.

The calendar would have every month with 30 days, except for March, June, September and December with 31 (a quarterly extra day); an extra week at the end of December on the following years:
2015, 2020, 2026, 2032, 2037, 2043, 2048, 2054, 2060, 2065, 2071, 2076, 2082, 2088, 2093, 2099, 2105, 2111, 2116, 2122, 2128, 2133, 2139, 2144, 2150, 2156, 2161, 2167, etc.

When I mentioned to Steve that I wasn’t sure if I was ready for 2 more days in February, he quipped, “The extra week is key: a sort of “adult spring break” — with pay.”

The savings from the new calendar will more than make up for that week.

UPDATE,
Linked by Dustbury. Thanks!

Steve Hanke writes on the Keynesian fiscal factoid

According to the Oxford English Dictionary, a factoid is “an item of unreliable information that is reported and repeated so often that it becomes accepted as fact.” The standard Keynesian fiscal policy prescription for the maintenance of non-inflationary full employment is a fiscal factoid. The chattering classes can repeat this factoid on cue: to stimulate the economy, expand the government’s deficit (or shrink its surplus); and to rein in an overheated economy, shrink the government’s deficit (or expand its surplus).

Hanke explains in detail why the facts are different from the factoid, and concludes,

If monetary, not fiscal, policy dominates — as Prof. Friedman concluded — just what is monetary policy telling us? First, the dramatic collapse in the broad measure of money in the U.S. (see the accompanying chart) explains why President Obama’s massive fiscal stimulus packages haven’t worked as advertised. Second, the broad measures of money also indicate that a growth recession — below trend growth rates — will continue.

Go read the whole thing.

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Meanwhile, here in New Jersey the governor points out “you are not the money tree”,

You and I, taxpayers all, are the ones stuck with the bill for all the government spending.