The Heritage Insider: Why did liberal democracy win the Cold War? capitalism keeps reducing poverty, how the green program takes from the poor to give to the rich, and more

November 8, 2014

Latest Studies
40 new items including a Reason Foundation study debunking the transition cost myth of defined-benefit transitions, and a report card on American Education from the American Legislative Exchange Council

Notes on the Week
Why did liberal democracy win the cold war? capitalism keeps reducing poverty, how the green program takes from the poor to give to the rich, and more

To Do
Tear down some more Berlin Walls

Latest Studies

Budget & Taxation
• Tennessee’s Income Tax Asterisk – Beacon Center of Tennessee
• Capital Gains Tax Reform in Canada: Lessons from Abroad – Fraser Institute
• Defusing the Debt Time Bomb: Challenges and Solutions – Institute of Economic Affairs
• The “Transition Costs” Myth – Reason Foundation
• 2015 State Business Tax Climate Index – Tax Foundation
• Policy Guide for Washington State – Washington Policy Center

Education
• Getting Civics Right: What It Would Take to Learn What Works and What Doesn’t in Citizenship Education – American Enterprise Institute
• Report Card on American Education – American Legislative Exchange Council
• Universities Challenged: Funding Higher Education through a Free-Market ‘Graduate Tax’ – Institute of Economic Affairs
• Student-Focused Funding Solutions for Public Education – Kansas Policy Institute
• Donald R. McAdams’ Expert Report for School Finance Litigation – Texas Public Policy Foundation
• Eric Hanushek’s Expert Report for School Finance Trial – Texas Public Policy Foundation

Elections, Transparency, & Accountability
• Should We Restore Bicameralism? – Public Interest Institute

Foreign Policy/International Affairs
• Challenges to the US Rebalance to Asia – American Enterprise Institute

Health Care
• Health Care Providers are Opting-Out of Obamacare Exchange Plans – American Action Forum
• Understanding the CBO’s Change in Medicare Spending Projections – The Heritage Foundation
• Health Check: The NHS and Market Reforms – Institute of Economic Affairs
• Medicare Drug Plans Need the Tools to Fight Prescription Drug Fraud – National Center for Policy Analysis

Immigration
• Ten-Step Checklist for Revitalizing America’s Immigration System: How the Administration Can Fulfill Its Responsibilities – The Heritage Foundation

Information Technology
• G7 Broadband Dynamics – American Enterprise Institute
• Movie Leaks, Box Office Success and Child’s Play: An On-Line Game Is No Way to Measure Piracy – Phoenix Center for Advanced Legal and Economic Public Policy Studies
• Section 10 Forbearance: Asking the Right Questions to Get the Right Answers – Phoenix Center for Advanced Legal and Economic Public Policy Studies

International Trade/Finance
• 2015 Index of Economic Freedom: Why Trade Matters and How to Unleash It – The Heritage Foundation

Monetary Policy/Financial Regulation
• Can the ‘Single Point of Entry’ Strategy Be Used to Recapitalize a Failing Bank? – American Enterprise Institute
• European Headwind: ECB Policy and Fed Normalization – e21 – Economic Policies for the 21st Century
• Repealing Dodd-Frank and Ending “Too Big to Fail” – The Heritage Foundation
• Historical Rates of Return for Effective Financial Policy – Pioneer Institute for Public Policy Research

National Security
• Five Questions the Secret Service Review Panel Must Answer – The Heritage Foundation
• Terror Plot 62: Lone-Wolf Terrorist Attacks in the U.S. and Canada Call for Renewed Vigilance – The Heritage Foundation
• The Future of Overseas Contingency Operations: Due Diligence Required – The Heritage Foundation

Natural Resources, Energy, Environment, & Science
• The Natural Resource Reserve – American Legislative Exchange Council
• What Goes Up … Ontario’s Soaring Electricity Prices and How to Get Them Down – Fraser Institute
• Free Markets Supply Affordable Energy and a Clean Environment – The Heritage Foundation
• A Better Way to Restore the Chesapeake Bay – Maryland Public Policy Institute
• Environmental Entrepreneurship: Markets Meet the Environment in Unexpected Places – PERC – The Property and Environment Research Center

Philanthropy
• Steve and Amber Mostyn: Two Trial Lawyers Take from the Little Guy to Give to the Left, Deep in the Heart of Texas – Capital Research Center

Regulation & Deregulation
• Regulation: Killing Opportunity – The Heritage Foundation

Retirement/Social Security
• Triple-Dipping: Thousands of Veterans Receive More than $100,000 in Benefits Every Year – The Heritage Foundation

The Constitution/Civil Liberties
• The President’s Duty to Faithfully Execute the Law – The Heritage Foundation

Transportation/Infrastructure
• Comments on the State Freight Plan – Show-Me Institute

Notes on the Week

Why did liberal democracy win the Cold War? The fall of the Berlin Wall, on November 9, 1989, signaled that the Cold War was over and the Soviet Union had lost it. Within six months the East German Communist party gave up its monopoly on political power. Within a year, the German Democratic Republic was dissolved and East Germany was reunited with West Germany. By the end of 1990, all of the East European communist states had held their first free elections since before World War II. Early in 1991, the Warsaw Pact was declared disbanded, and by the end of that year the Supreme Soviet voted the Soviet Union out of existence.

What was the human cost of Communist rule? How did the United States and the West achieve the victory? What lessons should we learn from the Cold War? Ed Meese III, George Weigel, Alan Charles Kors, and Lee Edwards examine the history of the struggle that brought the Berlin Wall down:

How the Berlin Wall fell 25 years ago. Sunday is the 25th anniversary of the fall of the Berlin Wall. It came down on November 9, 1989, not because the leaders of Communist East Germany chose to remove the barrier that, for 28 years, had kept their citizens from fleeing to West Berlin, but rather because they bungled an announcement—the perfect coda to the collapse of an ideology premised on the total control of society by government.

The history goes like this: The East German people, feeling the winds of liberalization from Mikhail Gorbachev’s perestroika, were demanding reforms. Many were escaping to the West via the relatively more liberalized Hungary and Czechoslovakia. The government attempted to ease the pressure by lifting travel restrictions. But the official who was to announce that easing at a routine press conference had missed the meeting where the decision had been made. Then at the press conference he misstated what the policy was, effectively announcing that anybody could leave at any time, including immediately, and that they could go anywhere—including West Berlin.

The press duly reported that the gates of the Berlin Wall were open and thousands of East Germans began massing at the checkpoints demanding to be let through. The border guards had little guidance from above on how to handle the crowds. Finally, at 10:45 p.m., the commander at the Bornholmer Strasse crossing decided on his own to lift the gates and allow the people through. When the guards at other crossing points learned the gates were up elsewhere, they too lifted their barriers. In previous decades, the border guards had shot citizens who had tried to escape over the wall. Now, the wall fell because the guards were more afraid of the people than they were of their leaders.

This week, Marcus Wolf of the Wall Street Journal adds an intriguing footnote to this story by highlighting the role of four different journalists who asked a series of questions at the press conference that induced the East German official—Gunter Schabowski—into making his gaffe. As Wolf puts it, they “rattled Mr. Schabowski so badly that he pulled the rug from under his own regime[.]” The four journalists were:

Riccardo Ehrman of Italian news agency ANSA, who first raised the question of freedom to travel, prompting Mr. Schabowski to say that the regime had decided to make it easier for East Germans to travel abroad.

Peter Brinkmann of German tabloid Bild, whose repeated shouted questions kept Mr. Schabowski under pressure.

Krzysztof Janowski of Voice of America, who wanted to know whether looser border restrictions also applied to Berlin.

The Fourth Man: a mystery reporter whose question from the edge of the room – “When does that take effect?” – led Mr. Schabowski to make the crucial gaffe. “Immediately. Without delay,” Mr. Schabowski blundered.

Now Wolf reports the fourth man has revealed himself to the Journal as Ralph T. Niemeyer, who in 1989 “was a 20-year-old reporter with a small, now-defunct news agency in Bonn called dapa.” And here is where the story gets really fantastic:

Mr. Niemeyer said he didn’t come forward earlier because he was married until 2013 to Sahra Wagenknecht, a leading figure in Germany’s radical-left party Die Linke, who has often rejected the demonization of East German Communism.

Ms. Wagenknecht wasn’t happy about Mr. Niemeyer’s role in bringing down the German Democratic Republic, he said in the email. “Since Sahra and I are divorced now I am not worried anymore,” he said. [Wall Street Journal Europe, November 5]

Wolf reports that he is unable to either confirm or disconfirm Niemeyer’s account. But it seems unlikely anyone would tell this particular lie.

Even if Schabowski had not made his gaffe, the Communist government was unlikely to survive much longer given the economic and political pressure it faced. But because four journalists did their jobs and pressed a misinformed Schabowski for details, the Berlin Wall fell that night. And one of those journalists didn’t even want to admit his role in the historic event because he was afraid of his Communist wife. Truly, to borrow T.S. Eliot’s lines, the German Democratic Republic ended “not with a bang but a whimper.”

Which states have the best tax climates for businesses? Which states have the worst? The Tax Foundation’s State Business Tax Climate Index ranks states not just on the level of taxes they levy but also the structure and complexity of their tax codes. The more provisions that state lawmakers put into the tax codes that favor certain economic activities over others, the worse their tax competitiveness will be overall.

This year, according to the Tax Foundation, the top ten states in business tax climate are Wyoming (1), South Dakota, Nevada, Alaska, Florida, Montana, New Hampshire, Indiana, Utah, and Texas (10). The bottom ten states are New Jersey (50), New York, California, Minnesota, Vermont, Rhode Island, Ohio, Wisconsin, Connecticut, and Iowa (41).

The Tax Foundation also notes North Carolina’s achievement in making “the single largest rank jump in the history of the Index” by improving from “44th place last year to 16th place this year”:

The state improved its score in the corporate, individual, and sales tax components of the Index, and as the reform package continues to phase in, the state is projected to continue climbing the rankings.

North Carolina’s largest improvement was in the individual income tax component section, where legislation restructured the previously multi-bracketed system with a top rate of 7.75 percent to a single-bracket system with a rate of 5.8 percent and a generous standard deduction of $7,500. [“2015 State Tax Business Climate Index,” by Scott Drenkard and Joseph Henchman, Tax Foundation, October 2014]

But don’t rest on your laurels yet, North Carolina. There is more to do. As the John Locke Institute’s Roy Cordato points out, North Carolina still has a capital gains tax, which is essentially a second layer of tax on saving, investment, and entrepreneurship. The ideal reform would be for North Carolina to be more like Belgium, New Zealand, and Hong Kong and eliminate it all together. That would make North Carolina the only state that doesn’t have a capital gains tax. [John Locke Foundation, September 15]

The green program will redistribute health and wealth from today’s poor to tomorrow’s rich. The Intergovernmental Panel on Climate Change has just released a new synthesis report on global warming. Looking at the report’s two middling (most likely) scenarios, Matt Ridley finds where the moral high ground really is:

Most of that warming will be at night, in winter and in northern latitudes, so tropical daytime warming will be less. Again, on the best evidence available, it is unlikely that this amount of warming, especially if it is slow, will have done more harm than good. The chances are, therefore, that climate change will not cause significant harm in the lives of our children and grandchildren.

The OECD’s economic models behind the two scenarios project that the average person alive in 2100 will be earning an astonishing four to seven times as much money – corrected for inflation – as she does today. That’s a 300-600% increase in real pay. This should enable posterity to buy quite a bit of protection for itself and the planet against any climate change that does show up. So we are being asked to make sacrifices today to prevent the possibility of what may turn out to be pretty small harms to very wealthy people in the future.

By contrast, the cost of climate policies is already falling most heavily on today’s poor. Subsidies for renewable energy have raised costs of heating and transport disproportionately for the poor. Subsidies for biofuels have raised food prices by diverting food into fuel, tipping millions into malnutrition and killing about 190,000 people a year. The refusal of many rich countries to fund aid for coal-fired electricity in Africa and Asia rather than renewable projects (and in passing I declare a financial interest in coal mining) leaves more than a billion people without access to electricity and contributes to 3.5 million deaths a year from indoor air pollution caused by cooking over open fires of wood and dung.

Greens think these harms are a price worth paying to stop the warming. They want (other) people to bear such sacrifices today so that the people of 2100, who will be up to seven times as rich, do not have to face the prospect of living in a world that is perhaps 0.8 - 1.2 degrees warmer. And this is the moral high ground? [Rational Optimist, November 5]

More capitalism, please. “The past 25 years have witnessed the greatest reduction in global poverty in the history of the world,” writes Douglas Irwin:

The World Bank reported on Oct. 9 that the share of the world population living in extreme poverty had fallen to 15% in 2011 from 36% in 1990. Earlier this year, the International Labor Office reported that the number of workers in the world earning less than $1.25 a day has fallen to 375 million 2013 from 811 million in 1991.

Give the credit to capitalism:

China and India are leading examples. In 1978 China began allowing private agricultural plots, permitted private businesses, and ended the state monopoly on foreign trade. The result has been phenomenal economic growth, higher wages for workers—and a big decline in poverty. For the most part all the government had to do was get out of the way. State-owned enterprises are still a large part of China’s economy, but the much more dynamic and productive private sector has been the driving force for change.

In 1991 India started dismantling the “license raj”—the need for government approval to start a business, expand capacity or even purchase foreign goods like computers and spare parts. Such policies strangled the Indian economy for decades and kept millions in poverty. When the government stopped suffocating business, the Indian economy began to flourish, with faster growth, higher wages and reduced poverty.

The economic progress of China and India, which are home to more than 35% of the world’s population, explains much of the global poverty decline. But many other countries, from Colombia to Vietnam, have enacted their own reforms. [Wall Street Journal, November 2]

Why can’t a government that made an atomic bomb make a website that works? The 1970s are a pivotal decade in the history of the United States, but perhaps not for the reasons you think. Peter Thiel explains in his speech at the Intercollegiate Studies Institute’s 2014 Dinner for Western Civilization:

Policies that have bad results are bad policies, and other wisdom from Walter Williams: On Tuesday, voters in Alaska, Arkansas, Nebraska and South Dakota voted to raise their states’ minimum wage laws. Walter Williams recently explained how minimum wage laws hurt the very people they are supposed to help. That and a few other things:

Gordon Tullock, R.I.P. Gordon Tullock, one of the pioneers in applying economic concepts to the study of politics, died this week at the age of 92. He was co-author, along with Nobel Prize winner James Buchanan, of The Calculus of Consent and author of other seminal works in public choice economics. Tullock and Buchanan built a whole a school of thought around the idea that bureaucrats and politicians behave just like everybody else. Lawson Bader describes Tullock’s ideas this way:

Gordon fully understood the most important lesson of economics: Incentives matter. He refused to accept that “public servants” can behave differently because they remain somehow detached from the hustle and bustle and profit motives of private industry. He was fiercely critical of government attempts to solve problems compared with the actions of private actors and institutions. He well knew it is wishful thinking for government bureaucrats to implement policies that benefit the common good, as if they could always remain aloof from trivial parochial concerns.

He’d agree with that Depeche Mode lyric—people are people. Public choice rests on a simple truth: People are guided chiefly by their own self-interests. Government workers are therefore motivated no differently than are those in private markets. As such, they seek greater power and bigger budgets, and thus government becomes dysfunctional. It’s one of those “well, duh” moments—but remember that it takes academia decades to prove through complicated reasoning and peer-reviewed publications what we may already know intuitively. [Competitive Enterprise Institute, November 5]

Tullock taught political science and economics for over 40 years, holding positions at a number of universities, including the University of Arizona, the Virginia Polytechnic Institute, and George Mason University. Here is Brian Doherty on Tullock’s contribution to our understanding of politics:

Buchanan and Tullock helped build a professional consensus and a rigorous scholarly apparatus around the notion that—despite what many economic professionals used to assume—the behavior of government agents can fruitfully be modeled the same way we model individual behavior in markets; that is, as largely motivated by maximizing the personal utility of the government worker or politician, not some empyrean concept of the “public good” or an overall “social welfare function” that a technical economist could calculate.

As Tullock explains it, “the different attitude toward government that arises from public choice does have major effects on our views on what policies government should undertake or can carry out. In particular, it makes us much less ambitious about relying on government to provide certain services. No student of public choice would feel that the establishment of a national health service in the United States would mean that the doctors would work devotedly to improve the health of the citizens.” [Reason, November 4]

What do voters “know” and why do they “know” it? A lot of professional political commentators are very concerned about bias in politics. Not only do they think it’s a big problem, they seem to agree that it’s mainly the other side’s voters who are misinformed about issues.

However, judging from a new poll by the Just Facts Foundation, they’re wrong: All groups are misinformed. And contrary to the idea that political affiliation motivates beliefs about issues (ahem, Vox), the Just Facts poll finds Democrats and Republicans agreeing on a lot of things on which they are both wrong. The tendency seems to be that people think things are worse than they actually are.

The poll, conducted October 27-28, asked 500 likely voters 20 questions—one about voting tendencies and 19 that tested knowledge of facts about public policy issues. A majority identified the correct answer on only five of those 19 questions about facts on policy.

Democrats and Republicans agreed on the right answer only three times; they agreed on the wrong answer nine times and disagreed on the other seven questions. Are independents more likely to be informed than Republicans and Democrats? On three questions that both Republicans and Democrats got wrong, a majority of independents got the right answer. Overall, independents answered the 19 questions correctly more frequently than Democrats but slightly less frequently than Republicans. No group answered correctly more than 50 percent of the time.

On some of the questions, very few people answered correctly. Only 16 percent of voters (4 percent of Democrats and 25 percent of Republicans), correctly said that the top 1 percent of income earners pays a higher average tax rate than the middle class.

Even worse, only 7 percent of all voters (5 percent of Democrats and 11 percent of Republicans) answered correctly a question about how much landfill space would be needed if the United States stopped recycling trash. Ninety-three percent think landfills will take up much more space than they really will if recycling stopped.

And almost everybody thinks childhood hunger is much worse than it is. Voters were asked: “On an average day, what portion of U.S. households with children have at least one child who experiences hunger? Less than 1%, 1% to less than 10%, or more than 10%?” The correct answer of less than 1 percent (the figure is actually 0.24 percent) was given by only 12 percent of all voters (6 percent of Democrats and 16 percent of Republicans).

There were a few questions, however, on which ideology appeared to drive the answers. Republicans are much more likely (61 percent) than Democrats (17 percent) to understand correctly that the federal government spends more on social programs than on national defense. The ratio is approximately three dollars of social spending for every dollar of defense spending. On the other hand 89 percent of Democrats correctly understand that the earth is measurably warmer now than 30 years ago. Only 31 percent of Republicans think so. In fact the earth is between 0.6 F and 0.9 F warmer today than 30 years ago.

One bit of good news is that most voters in all groups (Republicans, Democrats, independents, and undecideds) understand the bad news on the federal government’s fiscal situation. Seventy percent of all voters, including a majority of each group, know that the per household share of federal debt ($145,950) exceeds the average household’s level of consumer debt ($107,000). Also, 83 percent of all voters know that the national debt has grown faster than the economy over the past five years. Democrats answered that question correctly at a lower rate than the other groups, but even they got it right 68 percent of the time. [Just Facts Daily, November 3, 2014]

So people have reasonably accurate perceptions of the bad news while thinking most other things are worse than they really are. The Cato Institute, by the way, has an event coming up that might account for some of this: “If Everything Is Getting Better, Why Do We Remain So Pessimistic?” November 19 at Cato.

To Do: Tear Down Some More Berlin Walls

• Learn about the Berlin Walls that still need to be torn down around the world. That’s the theme of the Atlas Network’s 2014 Liberty Forum and Freedom Dinner. As if that’s not reason enough to go, you’ll also hear from Gary Kasparov and John Fund, take in the Think Tank Shark Tank competition, and find out who wins the Templeton Freedom Award. The conference will be held November 12 – 13 at the Intercontinental Hotel in New York.

• Examine generational equity and the rule of law at the 2014 National Lawyers Convention. The three-day conference put on by the Federalist Society will begin November 13 at the Renaissance Mayflower Hotel in Washington, D.C.

• Analyze the election results. Weekly Standard editor Bill Kristol will help you break them down. The John Locke Institute will host Kristol at a luncheon at the Renaissance Raleigh North Hills Hotel in Raleigh, North Carolina. The talk will begin at noon on November 10.

• Explore the prospects for democracy in Hong Kong. The Heritage Foundation will host a panel discussion on Hong Kong’s protests and Beijing’s aims in the province. The discussion will begin at 10 a.m. on November 13.

• Learn how Adam Smith can change your life. The Show-Me-Institute will host Russell Roberts talking about his new book—How Adam Smith Can Change Your Life. The event will begin at 5:30 p.m. on November 12 at the Saint Louis University John Cook School of Business.

• Find out what would happen if policymakers turned the Internet into a common carrier. The Free State Foundation will host a policy seminar examining that question on November 14 at the National Press Club. The discussion will begin at 9 a.m.

• Help the Texas Public Policy Foundation celebrate its 25th anniversary. The think tank will hold its anniversary gala at the Hilton Palacio Del Rio in San Antonio, Texas, beginning at 5:30 p.m. on November 14.

• Find out how much you know about communism by taking the Victims of Communism Memorial Foundation’s quiz.

• Thank a veteran. Tuesday is Veterans Day, so thank a veteran on Tuesday. And, if you can fit it in, thank a veteran on Sunday, Monday, Wednesday, Thursday, Friday, and Saturday, too.

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