Dubai Ports World

Last month it was announced that six U.S. ports would be turned over to a company based out of the United Arab Emirates. This has caused a firestorm in Washington, D.C., and President Bush has threatened to use his veto power for the first time if Congress attempts to block the transaction.

Opponents claim that the Bush administration did not give this deal its due diligence and that the administration is “outsourcing our security”. They warn against allowing an Arab country to run commercial operations of six of our ports. These critics come from both sides of the aisle. Finally, Congress has come to a bipartisan decision on something….and it is dead wrong. The Committee on Foreign Commerce (members of the State Dept., Homeland Security Dept., Congress, etc.) meticulously studied the implications of this deal and gave it the seal of approval. This is not something that just popped up on the president's desk and got a rubber stamp. The administration gave this deal as much or more attention than any similar deal.

The most frequent argument, that the administration is outsourcing security, shows a decisive lack of understanding of the situation. First of all, the security protocols will NOT change at all after the power shift. The U.S. Coast Guard and the Port Authority will still have the same command and control over the security situation that they have always had. However, this might not be a good thing, since less than 6% of all containers entering U.S. ports are searched anyway. In any event, both the port employees and the security situation will remain exactly the same. Dubai will control only the commercial operations of the ports.

Not many citizens realize that an astonishing 80% of our ports are under foreign control. A British company currently owns the six in question. Recall that this past summer’s London bombings were perpetrated by homegrown British terrorists. While no one complains about the “outsourcing” as it stands now, the idea of an Arab country joining in the market is making Washington crazy. The fact is that the Dubai is one of the best allies in the War on Terror that we have in that volatile region. Additionally, the U.A.E. is one of the few countries in the world to sign on to our Container Security Initiative (2005), meaning that their government requires all ports under their operation to comply with strict security measures from their end to foil international terrorist plots.

This brings me to an important point.

Anti-military leftists claim that the War on Terror should not be fought to capture capitol cities, but rather the hearts and minds of their residents. Fair enough. Now, explain to me how you are going to win the hearts and minds of Arabs when you all of a sudden raise hell because a Middle Eastern company is taking over a few ports in the U.S. that are already being run by a foreign country.

Are all Arabs terrorists? No, but by arguing against this deal so virulently, they will get the impression that Americans think they are, and that does not win ANY hearts or minds. Islamic radicals could have a field day with American resistance to this takeover. As the London bombings demonstrated, terrorists can come from anywhere, and if they want to exploit our ports, they can do it no matter who is in control of commercial operations.

If Congress wants to truly convince the American people that they are concerned about port security, then they need to take substantive actions to reinforce Coast Guard and Ports Authority standards and procedures. All the people are seeing now is an exercise in expedient sound byte politics.

The success of this deal could be a huge vote of confidence for a Middle Eastern ally in the War on Terror and likewise the Arab people as a whole. Unfortunately, American political ignorance is getting in the way.

Funny how those out to win the "hearts and minds" of the Arab people are the ones creating so much bias against them

Here are a couple of links:

http://www.uae.gov.ae/Government/ports.htm#Dubai%20Ports%20Authority

http://www.customs.ustreas.gov/xp/cgov/newsroom/press_releases/archives/2005_press_releases/0032005/03282005.xml

Dynamic Analysis at Last

"As a result of static analysis, revenue loss from tax cuts tends to be overstated, which makes it harder to enact tax cuts." -Steve Forbes before the President's Advisory Panel on Federal Tax Reform, 5/11/05

The U.S. Treasury announced last week that it would begin to dynamically analyze potential tax reforms instead of their typical static analysis that has proven wrong so often in the past.

What does all of this mean? It means that when the government assesses possible reforms, it will now use a more complex way of gauging the possible economic impact. It will take into account the change in behaviors of both individuals and businesses in a friendlier tax environment. Static analysis fails to account for this change of behavior, and the results of these studies are almost always devastatingly low government revenue projections.

Dynamic analysis factors in the economic growth that results from tax cuts - which typically expand the revenue base. Static analysis essentially says, "If we cut the taxes 20%, then we can expect to bring in 20% less revenue." This provides ammunition for big government politicians who claim that to cut tax rates would be "fiscally irresponsible" (how many times have you heard that one from the (D)'s in regards to the Bush tax plan?).

In actuality, a lower tax burden: 1. dashes the incentive to engage in tax fraud or utilize tax shelters or deductions; and, 2. spurs economic growth and personal spending, which leads to the creation of more jobs. What does this mean? Less people will cheat the tax system, and more people will be working (i.e. paying taxes). iMas dinero!

Take for example the 1997 rate cut on capital gains (28 to 20%). The Congressional Budget Office, using its typical static analysis, predicted that net capital gains realizations in 1997 would be $205 billion if the cut were enacted. Well, it was enacted, and actual capital gains realizations were $365 billion that same year...the government had underestimated the realizations by a whopping 78%. The same study predicted that by 1999, the government could expect to realize $228 billion in net capital gains.....the actual realization? $553 billion dollars. NOT BAD for government workers.

This news has been largely ignored by the general public, but be there no mistake about it: this could be a first step to massive tax reform. Expect liberals to claim that the administration is doctoring the numbers to justify their "tax breaks for the rich." Do yourself a favor and tune them out. There is a mountain of evidence that suggests that static analysis is ridiculously off-base...just like their attempts at class warfare.

Kenny Chesney in the 'Boro?

"Country" music superstar Kenny Chesney shocked the Statesboro community by announcing on Monday morning that he would be playing at Legends, a small local venue, on Thursday night. The show was to be part of his "Keg in the Closet" tour, which gives college towns less than 72 hours notice before the show to allow for an almost all-student crowd. Needless to say, this was the biggest news in Statesboro for a long time (other than the hostage situation, I suppose).

Today, Chesney announced that he would not be playing in Statesboro after all due to the recent alcohol laws which revoked the liquor license of Legends. In the words of the George-Anne editorial staff, "The tour is called 'Keg in the Closet', not 'Diet Coke in the Closet'."

This week Statesboro has experienced tremendously high highs, and horribly low lows. The Chesney concert would have given Statesboro recognition as a growing player in the Southeast and could have been an indicator of economic fortunes to come. Instead, thanks to overregulation, the community missed out on a huge opportunity. This could be an indicator of economic woes to come, as it is certainly a sign of an anti-growth environment (see the post below, where I predicted this exact behavior merely days ago.).

Minimum Wage? Minimum Regulation!

(I will post a flat tax blog this week, but I had to write this for the paper, so I figured I would go ahead and post it. This is a reply to a call for a minimum wage increase.)

One of the most heart-warming and politically expedient issues to bring to the legislative agenda is an increase in the minimum wage. Many well-intentioned people call for a raise in wages, but politicians should (and more than likely do) know better than to fool with it more often than once or twice a decade.

First, it is important to understand that the minimum wage is truly NOT a living wage. Fortunately for the U.S. economy, only 0.8 percent of workers who get paid by the hour make $5.15, according to the U.S. Bureau of Labor Statistics. Another 2.2 percent make less than the minimum, but many of these jobs (such as waiting tables) end up making much more than the minimum wage after tips and perks. The same agency reported in 2003 that more than half of those minimum wage earners were under the age of 25.

It is therefore safe to assume that most minimum wage jobs are occupied by high school and college-aged students, not people trying to support a family. For the few older minimum wage workers, and those younger workers who do have families to support, Uncle Sam doles out a bevy of entitlement programs to improve their quality of life.

If raising the minimum wage would make life better for everyone, then our solution would be simple. However, a survey conducted by the Journal of Economic Perspectives in 2005 shows that 71 percent of economics professors at America’s top universities agreed with the statement, “A minimum wage increases unemployment among the young and unskilled.”

Simple economics indicate that government regulation has an adverse effect on markets, which must be allowed to reach their equilibrium. Firms cannot survive if they offer potential employees $2 per hour, even for a low demand job, because no one would take the job. Therefore, the markets adjust to the labor supply and demand.

It boils down to this: the markets will decide the demand for a good (in this case a specific job). Doctors are in high demand, so they can expect to have more job security and make significantly more than a low demand worker, such as a stocker at your local grocery store (i.e. yours truly). If the government tells private firms that they must pay a low demand worker more than they are willing to pay, the low demand worker loses his job without a blink from the employer. In this sense, minimum wage laws, while politically expedient for elected officials, truly do hurt those they are intended to help.

This Ain't Your Daddy's Tax Reform

Americans are slowly opening their eyes to the fact that our tax system needs sweeping reforms in order to both improve our quality of life and to maintain a competitive edge on the surging economies of China and India.

Most of the grassroots campaigning for reform are coming from two separate camps: the FairTax crowd, led by Neal Boortz and Congressman John Linder, and the Flat Tax crowd, led by Steve Forbes. While both camps recognize that the complexity of our current tax system wastes valuable resources and contributes to the outsourcing of capital, they differ significantly in their views on how to simplify the code.

The trendy solution offered up by “Boortz Libertarians”* is an across-the-board 23% sales tax. Proponents of the FairTax argue that by removing all corporate taxes, market forces would drive the price of goods down by approximately 22%, perhaps even more. The 23% sales tax would then be applied to new goods and consumers would be more than willing to pay for it because they would have more take-home pay.

As a hedge against opponents who would claim that this tax will hurt the poor, a monthly allowance of several hundred dollars (the amount varies upon eligibility) would be paid to EVERY citizen to allow for the purchase of necessities. FairTaxers claim that government revenues would soar due to the decreased likelihood of fraud. Illegal immigrants, tourists, and undocumented workers would all be forced to pay a tax, which means a greatly expanded revenue base. No IRS, no complex tax code, and no more lobbyists.

This all sounds excellent, and the FairTax crowd is on the right path, but there are a few problems with this proposal. First and foremost, the issue of what constitutes a “new good” will come under scrutiny. Consider the barely regulated internet with sites like E-Bay, which serves as a base of operations for various small businesses. I personally bought 4 or 5 new t-shirts last year on the internet without paying state or federal sales tax. Expect two things to happen if the FairTax were to pass: 1. a large black market (or shadow economy), and 2. more complex codes in response to the fraud. Now, just who would enforce these codes if not the IRS? There would still have to be some bureaucracy in place whose sole purpose would be tax enforcement.

Second, the angle that the FairTax would all but eliminate lobbying as a force in Washington, D.C. is off-base. This is largely due to the monthly necessities allowance clause attached to the tax. What constitutes a necessity? Lobbyists would jump at the chance to answer that question for congress on behalf of their clients. Can’t you just see Starbucks lobbyists arguing that their coffee jumpstarts our economy’s productivity every morning? It could easily be said that the necessities list will be capped at bread, milk, toiletries, etc., but human nature being what it is, and politicians being who they are, do you honestly believe that it would stay that way for long?

The third and final problem with the FairTax is the implementation itself. In a perfect world, we could enact this tax quickly and efficiently and no one would attempt to exploit it. In the real world, this tax would represent a massive shift in the way our country operates, and that uncertainty will ultimately be the reason for this idea’s demise. The FairTax is better than the current system, but not as good as the other option--The Forbes Flat Tax. It is time to focus our energies on the more feasible option.

I'll tell you exactly why in my next post.

*Read: Conservative Republicans

Whose Civil Liberties Union?

"I am for socialism, disarmament, and ultimately for abolishing the state itself as an instrument of violence and compulsion. I seek social ownership of property, the abolition of a propertied class, and sole control by those who produce wealth. Communism is the goal."
-ACLU Founder Roger Baldwin

"The American Civil Liberties Union is Roger Baldwin."
-ACLU Counsel Arthur Garfield Hays

Enough said.

Regulation Deflation

The Statesboro City Council has overstepped its bounds with the passing of amendments to the city alcohol ordnances. In its efforts to curb the dangerous practice of alcohol abuse among younger college students, the city’s politicos have effectively overregulated local businesses and trampled individual rights in one fell swoop.
The new laws set forth pricing and quantity guidelines in relation to alcohol that have already claimed at least one casualty in the Courtyard Café, a small restaurant downtown. The establishment faced excessive fines after one of its employees unwittingly sold an undercover police officer two alcoholic beverages at one time. The owner, Becky Logan, said that she had to close the upstart business because she did not want to “wake up paranoid and go to bed paranoid” over the possibility of future fines.
The case of Ms. Logan and the Courtyard Café is a textbook example of the anti-growth atmosphere created by intrusive government regulation in the private sector. Our free market system can thrive only in an atmosphere of laissez faire capitalism. When the government begins to tell local proprietors that they can only sell so much of their product at certain times and at specific prices, then businesses must either use valuable capital in order to comply with the demands or forfeit even more capital to the government in fines. The result: a local economy full of paranoid Ms. Logans.
In order to gain a broader perspective on the problem of government overregulation, we must look at the U.S. economy as a whole. A recent Rochester Institute of Technology study revealed that compliance with government regulation costs the U.S. economy an astonishing $700 billion each year. Imagine how much more productive our economy could be, and how many more jobs could be created, if corporations did not have to spend capital on what essentially amounts to a “compliance tax”.
To make matters worse for Statesboro, the U.S. Small Business Administration’s Office of Advocacy concluded that businesses with fewer than twenty employees spend on average 56 percent more capital in compliance costs for each employee than do companies with more than 500 employees. Compliance costs hurt the small business owner the most.
Ronald Reagan once rightly said that “entrepreneurs and their small enterprises are responsible for almost all economic growth in the U.S.” His statement is supported by the S.B.A.’s recent findings that 99.7 percent of employer firms are considered small businesses. Half of America’s work force is employed in this sector, as are the vast majority of Statesboro residents.
In a city with a staggering 9.9 percent unemployment rate and one in which one fifth of its citizens live below the poverty line, the overregulation of business is bad policy.
As though the negative effects on the economy are not enough reason to resist this new legislation, individual rights must also be taken into consideration. The city fathers have yet to meaningfully correlate the regulation of alcohol prices to any kind of decrease in binge drinking. This is simply not the solution to the problem. Telling adults of the age of consent that they have to pay more for a beverage does not stop underage adults from the practice of binge drinking. Only a government could come up with such a lazy, yet seemingly expedient solution.
Greater police presence and sting operations have a much better chance of having some kind of an effect on the problem at hand.
These new laws might mean little more than a few extra dollars to most people in the Statesboro area, but to our economy full of Ms. Logans out there, the cost is much higher.


Sources:

"Local Business to Close Doors" -Luke Martin, Statesboro Herald, 12/07/05

"America Dragged Down - Harmful Economic Effects of Government Regulation" -Warren T. Brookes, National Review, 10/15/90

"Cost of Complying with Government Regulation Falls Heavily on Small Business" -Chris Sandlund, Entrepreneur, 3/15/05

American Factfinder - U.S. Census Bureau, www.census.gov

United States Small Business Administration online, www.sba.gov