Our Globally Centered Economy

Believe it or not, there is a lot to celebrate about the economy as of late, both here and elsewhere.

The U.S. stock market is going strong, with the S&P 500 at an all-time record. But the German and Japanese markets are up by more, and markets in the U.K., Canada, South Korea, Taiwan, and elsewhere are also seeing record growth.

While the U.S. unemployment rate is the lowest in almost two decades, Japan’s is also the lowest since then, with the U.K. and Germany seeing the lowest rate since the 1970s.

Although America’s GDP growth is above expectations this year, so is Japan‘s and the eurozone’s (the 19 European Union countries that use the euro). In fact, the eurozone grew faster than the U.S. economy, contrary to popular belief about its imminent collapse.

The point of this isn’t to make light of our well needed economic gains, but to point out that our success is part of a broader global trend, and that we depend on numerous other countries and trading blocs to stay afloat.

Without having global partners to serve as our suppliers, consumers, and labor force, we would not be doing so well, and our economy would not be as large and diversified in the first place.

Nowadays, all our biggest and most innovative companies are multinational in character, relying on talented people from across the world to design or create their products (if not run the companies entirely). In such a globalized era, diplomacy is paramount.

Source: Vox.com

Advertisements

How Other Countries Handle Taxes

As I join my fellow Americans in dreading tax day, it is worth reflecting on whether it needs to be this way. Fortunately, the rest of the world provides us with plenty of alternatives and counterexamples.

In an interview with PBS NewsHourT.D. Reid, a former Washington Post columnist, shared insights from his travels across the world in search of a better tax system. (About which he has published a book, A Fine Mess: A Global Quest for a Simpler, Fairer, and More Efficient Tax System.

He starts with New Zealand’s “BBLR” policy: broaden the base, lower the rates. Basically, the government makes everything taxable — from the free parking covered by your employer, to the mortgage you take out for a house, it all counts as income to you and thus you get no tax breaks.

As it turns out, making just about everything potentially taxable end up being a win-win for everyone: because it isn’t losing revenue through various tax breaks and loopholes, the New Zealand government can afford a lower than rate (half that of the U.S.) while bringing more money per capita. Hence it can fund education, universal healthcare, and other public goods without burdening businesses and individuals.

Reid also observed that most New Zealanders subsequently had an easier and quicker time doing taxes: it wasn’t something they had to dread every year.

The blase attitude towards taxes was seen elsewhere as well:

I was in the Netherlands on March 31, the day before their taxes are due.

I was with an executive who makes $200,000 a year, two mortgages, a lot of investments. He’d have to fill out 12 forms in America. I said, Michael, how do you pay your taxes? He pops a beer. He goes online. The government’s filled in every line. If the numbers look right, he clicks OK. It takes five minutes.

And, in Japan, you get a postcard from the IRS that says, we think you made this much. We withheld this much. We owe you a refund of that much. We will put it in your bank on April 1. It takes one minute, if you think the numbers are right.

And I said to my friend Togo, you know, in America, people spend hours, days filling out these forms. And he said to me, why would anybody want to do that?

Reid also points out that the U.S. government could easily do our taxes for us, a proposition that seems unthinkable even though it makes sense upon further reflection. After all, IRS does have the same financial information we do. Dylan Matthews over at Vox.com expands on this argument further:

Here’s the thing about [tax] forms: The IRS gets them too. When Vox Media sent me a W-2 telling me how much it paid me in 2017, it also sent an identical one to the IRS. When my bank sent me a 1099 telling me how much interest I earned on my savings account in 2017, it also sent one to the IRS. If I’m not itemizing deductions (like 70 percent of taxpayers), the IRS has all the information it needs to calculate my taxes, send me a filled-out return, and let me either send it in or do my taxes by hand if I prefer.

This isn’t a purely hypothetical proposal. Countries like Denmark, Sweden, Estonia, Chile, and Spain already offer “pre-populated returns” to their citizens. The United Kingdom, Germany, and Japan have exact enough tax withholding procedures that most people don’t have to file income tax returns at all, whether pre-populated or not. California has a voluntary return-free filing program called ReadyReturn for its income taxes.

It is interesting how countries most Americans regard as socialist and bloatedly statist actually impose fewer tax burdens on businesses and individuals. It goes to show that you can have it both ways: promote prosocial state policies without sacrificing entrepreneurial freedom — provided you do not have powerful special interests who benefit from the status quo:

So why hasn’t return-free filing happened yet? The short answer is lobbying, and in particular lobbying by companies like Intuit. In 2013, ProPublica’s Liz Day wrote an incredible exposé on just how hard Intuit has lobbied to stop return-free filing from becoming a reality:

[In 2007] a bill to limit return-free filing was introduced by a pair of unlikely allies: Reps. Eric Cantor, R-Va., the conservative House majority leader, and Zoe Lofgren, D-Calif., a liberal stalwart whose district includes Silicon Valley.

Intuit’s political committee and employees have contributed to both. Cantor and his leadership PAC have received $26,100 in the past five years from the company’s PAC and employees. In the last two years, the Intuit PAC and employees donated $26,000to Lofgren.

…In 2005, California launched a pilot program called ReadyReturn. As it fought against the program over the next five years, Intuit spent more than $3 million on overall lobbying and political campaigns in the state, according to Dennis J. Ventry Jr., a professor at UC Davis School of Law who specializes in tax policy and legal ethics.

They haven’t stopped; in 2014, Day reported that Intuit was involved with an astroturfing effort meant to manufacture the appearance of grassroots opposition to automatic filing. Intuit spent $13 million lobbying Congress from 2011 to 2015, with 41 lobbying reports relating to taxes in 2015 alone. Most of the reports reference lobbying to “enhance voluntary compliance” — a euphemism for opposing automatic filing.

In this, Intuit and other tax prep companies had a powerful ally: Grover Norquist. The anti-tax crusader vehemently opposes automatic filing on the grounds that it makes tax season insufficiently nightmarish, which might reduce people’s aversion to taxes and make it easier for politicians to pass tax increases. So even though Ronald Reagan himself supported automatic filing, Norquist has helped make the idea dirt in the eyes of conservative legislators.

All this despite both conservatives and liberals alike supporting return-free tax filing. We can only hope that Americans will soon reach a breaking point after a few more stressful tax days. Then again, maybe our famously anti-tax political culture is, ironically, too used to hating taxes to actually consider streamlining them.

The Best Countries for Talented People

According to the 2018 Global Talent Competitiveness Index published by INSEAD, a leading French business school, Switzerland ranks as the best place in the world for attracting and cultivating talent.

Singapore ranked second — the highest in Asia for the fifth straight year — followed by the United States, Norway, and Sweden. Eight of the top ten were European.

The index assesses a country’s ability to not only draw the world’s skilled and educated workers, but to develop and retain them at home. Hence the highest ranking countries tended to have good education systems, healthy and open business environments (in terms of regulations, rule of law, etc.) and reliable infrastructure and telecommunications, to name but a few factors. They were also cosmopolitan, with greater openness to immigration and multiculturalism (which makes sense if you want to attract as many talented people as possible regardless of background).

For a more detailed and interactive breakdown of the data, click here.

H/T: Bloomberg

 

When Helping People Isn’t “Sustainable”

Count on America’s venal financial class to engage unironic self parody.  According to a recent CNBC report, Goldman Sachs, one of the largest financial institutions in the world, asked whether the use of cutting-edge genetic therapy to cure patients is a “sustainable business model”: Continue reading

Africa’s Ambitious New Free Trade Agreement

To most outsiders, Africa is a perpetually chaotic and conflict-ridden place, despite the fact that wars on the continent (both civil and inter-state) are at a historic low (albeit from a high base and with some nasty conflicts still brewing).

To take advantage of these improving political circumstances, and its nascent economic potential, most of Africa is coming together to forge the sort of pact typically seen as the pursuit of wealthier states: a united commercial market known as the African Continental Free Trade Area

From The Washington Post (bolding mine):

On Mar. 21, 44 African heads of state and government officials met in Kigali, Rwanda, to sign the framework to establish this initiative of the African Union.

The AfCFTA will come into effect 30 days after ratification by the parliaments of at least 22 countries. Each country has 120 days after signing the framework to ratify.

This will be one of the world’s largest free-trade areas in terms of the number of countries, covering more than 1.2 billion people and over $4 trillion in combined consumer and business spending if all 55 countries join. 

[…]

It creates a single continental market for goods and services as well as a customs union with free movement of capital and business travelers. The African Union agreed in January 2012 to develop the AfCFTA. It took eight rounds of negotiations, beginning in 2015 and lasting until December 2017, to reach agreement.

The A.U. and its member countries hope the AfCFTA will accelerate continental integration and address the overlapping membership of the continent’s regional economic communities (RECs). Many African countries belong to multiple RECs, which tends to limit the efficiency and effectiveness of these organizations.

One of its central goals is to boost African economies by harmonizing trade liberalization across subregions and at the continental level. As a part of the AfCFTA, countries have committed to remove tariffs on 90 percent of goods. According to the U.N. Economic Commission on Africa, intra-African trade is likely to increase by 52.3 percent under the AfCFTA and will double upon the further removal of non-tariff barriers.

In addition to facilitating existing economic activity, it is hoped that ACFTA will help promote Africa’s underdeveloped but fast growing manufacturing sector, diversifying its economies beyond agriculture and resource extraction.

While it remains to be seen how this ambitious effort will play out, it is definitely a step in the right direction, especially for a region that is the youngest and most potentially dynamic in the world.

Finland’s Simple But Radical Solution to Homelesssness

While most of the developed world struggles with growing or stubbornly unchanged rates of homelessness, one nation is bucking the trend: Finland has seen the number of homeless people decline from its peak of 18,000 just thirty years ago, to 7,000 today (of whom 5,000 are at least in temporary housing with loved ones). It has accomplishd this in a deceptively simple way: by giving homeless people homes.

According to the Christian Science Monitorit all began with the Finnish government making homelessness a national priority:

The elimination of homelessness first appeared in the Helsinki government’s program in 1987. Since then virtually every government has devoted significant resources toward this end.

Around 10 years ago, however, observers noticed that although homelessness in general was declining, long-term homelessness was not. A new approach to the problem was called for, along with a new philosophy.

The optimal solution, a group of four experts appointed by the Ministry of the Environment found, was Housing First. “Solving social and health problems is not a prerequisite for arranging housing,” they observed. “Instead, housing is a prerequisite that will also enable solving a homeless person’s other problems.”

The concept behind the new approach was not original; it was already in selective use in the US as part of the Pathways Model pioneered by Dr. Sam Tsemberis in the 1990s to help former psychiatric patients. What was different, and historic, about the Finnish Housing First model was a willingness to enact the model on a nationwide basis.

So while the Finns aren’t the first to tackle homelessness, they are the first to do so on a national level, thus bringing many more resources and ideas to bear.

“We understood, firstly, that if we wanted to eradicate homelessness we had to work in a completely different way,” says Mr. Kaakinen, who acted as secretary for the Finnish experts. “At the same time right from the beginning there was a national consensus that the problem had reached a crisis point. … We decided as a nation to do something about this.”

[…]

As a result, in 2008 the Finnish National Program to reduce long-term homelessness was drafted and put into place. Helsinki and nine other Finnish cities committed to the program, with the Ministry of the Environment coordinating its implementation, and local governments and nongovernmental organizations, including the Y-Foundation, joining the team.

One of those goals was to cut the number of long-term homeless in half by producing 1,250 new homes, including supported housing units for tenants with their own leases, and around-the-clock presence of trained caring staff for residents who needed help.

 At the same time, the extant network of homeless shelters was phased out. This also involved phasing out the “old way” of thinking about homelessness. “There was some work to be done on attitudes,” concedes Kaakinen. “Some of the people in the NGOs found the idea of unconditional housing hard to accept.” Also some staff had difficulty with not forcing tenants with alcohol or drug problems to go cold turkey before they were given housing.

The model’s success speaks for itself: across the nation, chronic homelessness fell by 35 percent between 2008 and 2015; in some communities, it was halved.

Of course, building new housing and employing specially trained, round-the-clock caregivers is not cheap, costing the government nearly $382 million in that same span of time. Yet supporters of the program point out that this all pays for itself: according to one 2011 study, the country saved $18,500 annually for every homeless person given housing and professional support. That’s because they no longer needed to rely on emergency medical or police services to help them.

But as Juha Kaakinen, CEO of the Y-Foundation, which helps provide 16,500 low-cost apartments for the homeless, points out:

“Of course the fact that the program pays for itself is important, but beyond that, from a moral point of view, as a society which cares for all of its citizens, we didn’t think we see an alternative. This, we felt, was the way to go forward. And we did.”

Executive Bonuses as Motivation

As much of the country laments the demise of Toys R Us — a source of much nostalgia for generations of Americans since the late 1950s — it is worth taking a look at one way the company tried to climb out of bankruptcy just a few months prior: giving its top executives millions of dollars. Quoting a December 2017 article of USA Today: Continue reading

The World’s Most Ambitious Megaproject

China is marking its entrance onto the world stage as a great power in an unprecedented way: the $4-6 trillion One Belt, One Road (OBOR) initiative, an extensive network of infrastructure — railways, roads, pipelines, and energy grids — that will link China with 65 countries across Asia, Africa, and Europe. By the time it is completed in 2049, OBOR will span 62% of the world’s population and 40% of its economic output.

china-one-belt-one-road Continue reading

Finland Rated World’s Happiest Country

What better way to kick off the International Day of Happiness than with the latest results of World Happiness Report, conducted annually by the United Nations. This year’s top spot went to Finland, which climbed five places to unseat longtime placeholder Norway (which is still an enviable second). Continue reading

The World’s 2,000 Billionaires Could End Extreme Poverty Seven Times Over

According to the latest report from Oxford International, a U.K.-based confederation of twenty independent charities, the world’s 2,000 or so billionaires saw their collective wealth surge by $762 billion — enough to end abject poverty seven times over.  As Time.com reported: Continue reading