Weirdly, tax cuts don’t solve poverty, finds UN in New Zealand

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Building off the theme in my most recent post, about anti-poverty programs in Bolivia and Brazil, let’s look at two industrialized economies. A UNICEF report compared the anti-child-poverty programs of the (center-right) New Zealand government with the anti-child-poverty programs of neighboring Australia (led by a center-left government until 13 months ago). Here’s what they found, according to TV NZ:

A United Nation’s report says New Zealand’s child poverty and inequality rates aren’t improving, despite what it describes as the Government’s ‘ambitious’ programme of tax cuts.
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It says several Australian policies, which have increased Government spending on families with one-off payments, have had a greater effect.
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The National Advocacy Manager for UNICEF NZ, Deborah Morris-Travers, says the numbers suggest the Government needs to review how it is tackling child poverty.

“The report points to Australia where cash payments were made available to low-income families, protecting the poorest children and stimulating consumption to promote recovery. This is contrasted with New Zealand’s policy of tax cuts, which have done nothing to improve the situation for child poverty.”

 

What a surprise!

Granted, while Australia is similar in many ways, it is also many times larger by population and economic capacity; so how does New Zealand’s effort stack up against other peer economies?

There has been a 0.4% drop in child poverty rates here [in New Zealand]. But in similar-sized countries like Norway and Finland, child poverty rates have reduced by 4.3% and 3.2%, respectively.

 
In other words, further evidence (like in Brazil and Bolivia) that simpler, more direct transfer programs — instead of the indirect, “trickle-down” tax cut theories George H.W. Bush once dubbed “voodoo economics” — seems to work better to combat extreme poverty, even in developed economies.

After all, the very poor tend to earn so little money that they are not paying taxes that can be cut. Without a “negative income tax” system, tax refund money will never reach them directly. Hence, direct and hassle-free benefits have more impact. The money in such programs goes directly to the problem spots and helps establish a clear safety net and economic floor for children. That allows them to grow up healthier and with better prospects, while permitting up their parents to make ends meet and start to climb the economic ladder out of dire poverty and debt traps.

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Social inclusion, anti-poverty policy are great for the economy!

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Most US eyes on Latin America right now are turned to Brazil, where President Dilma Rousseff was just re-elected, ushering in a fourth consecutive term for the Silva/Rouseff anti-extreme-poverty agenda launched in 2002 under her predecessor.

Meanwhile, however, Bolivia — under more avowedly socialist leadership — is also continuing to (more or less) balance its budget, increase its social spending, and grow its macroeconomy substantially. Martin Hutchinson explains why in an article in The Globalist:

Part of it is the effect of commodity prices described above [in the article] and of Morales’ savvy and determined renegotiation of mining and energy contracts. Obviously, if commodity and energy prices are low during the next five years, Bolivia will have considerable difficulties.
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What truly sets Morales apart is this: As Bolivia’s first indigenous President, Morales has made great efforts to include the indigenous community – currently about 40% of Bolivia’s population – in the formal economy. He has provided them with both welfare payments and job preferences in order to increase their participation in the economy.
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in situations where a large proportion of the population is so poor that it does not participate properly in the economy it is possible to achieve a “growth dividend” by bringing them into full participation.

As they transition into full economic activity, their output allows the national economy to grow significantly, producing extra output and extra tax revenues, while enriching the economy as a whole – and not just the elites.

 
Hutchinson also points to the Bolivian and Brazilian models that — contrary to US and UK trends for a century and a half — don’t make the very poor jump through hurdles to qualify for government assistance, which seems to get better and less corruptible results on poverty:

In uplifting the very poorest, direct cash transfers with only simple conditionality are highly effective. A program […] costs only a couple of percent of GDP – far less than massive infrastructure schemes.

Yet, it reaches the poorest in society effectively – and, unlike infrastructure projects it cannot be gamed by economic elites – via shady corruption deals that are often part and parcel of large-sized public investment projects.

Denmark’s fast food wages

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Despite no minimum wage law but because of very strong unions and bargaining arrangements, Danish workers make more than twice as much money per hour working for US chains there as most of our workers make working for them here. And that’s on top of their generous government programs and universal healthcare. Curiously, the companies still make a profit (a smaller one, but it’s still there) and retain employees better, and those fast food employees don’t need to be on public assistance like half of ours are.

You’ve got to have one or the other (if not both) — a good minimum wage law or a labor union capable of negotiating against an array of vast corporate entities — to stand a chance of achieving a situation like this. Yes it means the corporate profits are slightly reduced and the prices are slightly raised, but the workers aren’t forced to live in poverty with food stamps and little to no healthcare, and instead they can pay for housing and consumer goods and move themselves and the wider economy up in the world.

Either way, we end up paying the bill somehow, whether at the point of sale or in taxation. Shouldn’t the goal, even for conservatives, be for the market to provide workers with a living wage and the dignity that comes with that, so taxes and government spending aren’t even involved?

Links to our past coverage of comparisons between US and European labor market systems are below. Read more

New Jersey still no clearer on Charlie Baker’s role in scandal

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Weird that the Boston Globe Editorial Board endorsed Charlie Baker for Governor of Massachusetts after the paper’s own coverage back in June about the connections between Baker and the pay-to-play scandals of the Chris Christie Administration in New Jersey:

Baker’s new-found notoriety in the Garden State came to a head when the New Jersey State Investment Council agreed to seek a legal review of the $10,000 donation he made to the New Jersey GOP in May 2011 — just seven months before General Catalyst, the investment firm where he is listed as an “executive in residence” principal, received $15 million from the state’s pension fund.

The council’s decision sparked a series of headlines across the state that has put Baker in the middle of the ongoing media feeding frenzy that is swirling around Christie and his administration.

Just last week, a Washington-based campaign finance watchdog group, Citizens for Responsibility and Ethics in Washington, called on the Securities and Exchange Commission, the New Jersey attorney general, and the state’s Election Law Enforcement Commission to investigate a possible connection between the donation and the investment.

Here’s a sampling of some of the headlines over the past month: “N.J. pension fund’s investment draws pay-to-play inquiry” is the way the Philadelphia Inquirer’s website, philly.com, headlined its story. “Christie administration to investigate pension investment tied to Massachusetts Republican” topped the story in the Newark Star Ledger. The Asbury Park Press and the Bergen Record covered the meeting with stories detailing the controversy.

The Inquirer website salted the wounds with a huge photo of Christie on a stage with Baker, then the 2010 GOP gubernatorial nominee, when the New Jersey governor came to Massachusetts to campaign for him. It also carried a head-shot of Baker farther on in the story, with the phrase “pay-to-play” in the caption. The controversy is also drawing national media. Businessweek ran a piece about the council’s decision, Fortune magazine has weighed in, and CNN’s website has also followed the story.

 
According to David Sirota, writing in the International Business Times last week, Chris Christie is now actively suppressing information related to the inquiry into Baker’s involvement in the situation in New Jersey.

As chairman of the Republican Governors Association, New Jersey Gov. Chris Christie has helped Charlie Baker with millions of dollars worth of ads supporting his Massachusetts gubernatorial campaign. But that’s not the only way he may be boosting the GOP candidate in the final weeks of a close election: Christie officials are blocking the release of the findings of New Jersey’s pay-to-play investigation into Baker.

The documents being withheld pertain to an investigation of Baker’s $10,000 contribution to the New Jersey Republican State Committee. The contributions came just months before Christie officials gave Baker’s company, General Catalyst, a contract to manage New Jersey pension money. New Jersey’s pay-to-play rules prohibit contributions to state parties from “any investment management professional associated” with a firm managing state pension money.

When the campaign donations and subsequent pension contract came to light in May, Democrats criticized Baker, who was then launching his 2014 campaign for governor of Massachusetts. In response, New Jersey launched a formal investigation into Baker’s contributions. The Newark Star-Ledger reported at the time that Christie officials “said the review would take several weeks.”

In a reply to International Business Times’ request for the findings of the audit under New Jersey’s Open Public Records Act, Christie’s Treasury Department said the request is being denied on the grounds that the documents in question are “consultative and deliberative material.” Despite officials’ assurances in May that the probe would take only weeks, the New Jersey Treasury said in September that the investigation is still “ongoing” — a designation the department says lets it stop the records from being released.

 
As a reminder: If the governor of Massachusetts has to resign for some reason — which, between scandals and promotions to Federal offices, is pretty common for U.S. governors in general these days — the lieutenant governor becomes Acting Governor of Massachusetts. From New York to Arizona, in the last six years, we’ve seen some pretty terrible lieutenant governors fail to rise to the challenge when suddenly promoted. If Charlie Baker becomes governor, and his term ends unexpectedly early for any reason, his current running mate, anti-gay Karyn Polito, would be the acting governor of Massachusetts.

South Africa making headway in Lesotho crisis talks

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South Africa’s government is continuing efforts to mediate between the competing political factions in the Lesotho crisis, and is now trying to resolve the military instability and leadership dispute by directly talking to the still dangerous and disaffected supporters of the unsuccessful power grab. Here’s the AFP report:

South Africa’s deputy president has held secret talks with a renegade Lesotho military commander, a defence official told AFP on Thursday [October 23], as an offer of partial amnesty is floated in the hope of ending a destabilising post-coup stand-off.

 
General Kamoli remained at a secret hideout with a small but heavily armed band of supporters after fleeing there following his attempted coup d’état at the end of August.

Any amnesty deal would relate to the crimes of the attempted coup itself, but might also include various incidentals:

Lesotho police are investigating him for two crimes linked to the 30 August assault: high treason and murder.
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Mohasoa said authorities would be willing to provide the suspected coup leader his full retirement package “though we aren’t obliged to for a dismissed official.”

But more sensitive is the amnesty – perhaps for high treason, but not for murder.

“We can discuss possible amnesty for politically motivated reasons,” he said. “But not for what’s considered purely criminal actions.”

Whether Kamoli will accept the offer – which may include prosecution and perhaps jail-time – “That’s the million-dollar question,” said Mohasoa.

 
The other big thing, besides amnesty and clearing up where the military’s rank and file has placed its loyalties, will be trying to persuade the country’s police force to go along with it. They supported the prime minister and his ruling party against the failed coup and are understandably angry about the consequences of that, which continued to play out a month afterward:

Kamoli aside, Ramaphosa will also have to try to re-build trust between the country’s two most important security services – the Lesotho Defence Force and Lesotho Mounted Police Service.

In just the latest in a series of clashes on 30 September, a night-time shoot-out between soldiers and police on the outskirts of the capital Maseru left two more officers shot and wounded.

A top Lesotho police official told AFP he saw no major obstacle to rebuilding ties with the military if the coup leader and his allies, who have stymied criminal probes into transgressions by troops, are removed.

 
The South African mediation has also been making progress on the political front to resolve the critical, underlying factors that spurred the coup attempt:

Ramaphosa, mediating on behalf of the Southern African Development Community, has already reached a deal that allowed the re-opening of parliament – which had been shuttered for four months. As part of the agreement elections have been moved up two years to February 2015.

 
The ongoing closure of parliament was the main complaint held up by General Kamoli as justification for his purported goal of “disarming” the police and “escorting” the prime minister to the King of Lesotho to force parliament to be called back into session. The real reason, of course, was the prime minister’s decision to fire him as head of the armed forces the night before.

Update for Clarity, 10/28/14: According to the AFP’s Michael J. Jordan, who wrote the story I quoted above, the partial deal described above was signed late last week with the various co-conspirators and targets all in a room together (which must have been quite uncomfortable!). Kamoli will leave the country for a while and leave the military, while his police counterpart will also step down. But the unresolved details outlined in the post above remain a problem. Jordan believes the crisis is not finished yet.

Map of Lesotho's location in southern Africa. (CIA World Factbook)

Map of Lesotho’s location in southern Africa. (CIA World Factbook)

Baghdad’s stalling of oil revenue talks is pushing Kurds out

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The New York Times published an article on the latest efforts by the Kurdish Regional Government to go their own way from central Iraqi control on oil production and sales, in light of continued failure to negotiate new terms for revenue sharing.

The current arrangement is an 83/17 revenue split, with the national government in Baghdad on the high side, which hardly seems reasonable. I think it’s somehow derived from 17% of the reserves being in Kurdistan, but even that doesn’t make much sense (especially when so much of the past couple years’ rise in Iraqi production and new development contracts have been on Kurdish land and via the regional government). And the article suggests that the resistance by Baghdad to changing the arrangement is fueling a rapidly accelerating cycle of mutual non-cooperation that will probably end in an independence attempt:

The more Kurdish officials developed their oil industry, the more Baghdad balked. The more the central government restricted the Kurds, the more they felt like they had no choice but to press forward.

“Their policy is actually backfiring,” said Howri Mansurbeg, a professor of petroleum geosciences at Soran University in Kurdistan, said of Iraqi officials. “They want to prevent a Kurdish state, and now the exact opposite is happening.”

 
Maybe there would be a case for such an unbalanced ratio if Baghdad provided tons of services and defense to the Kurdistan Region, but they’ve done jack for them … and then have demanded everything from them, after the national security forces literally threw their weapons on the ground and ran away.

At the point Maliki handed Kirkuk to the Kurdish Regional Government to take care of, and their forces held it successfully, I think they earned the right to a lot more revenue. (And — as the Times points out, matching my analysis at the time in June — at the point he handed them Kirkuk, he also handed them enough oilfields to become independent.)

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Is Zambia’s President Michael Sata on his deathbed? (updated)

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Post updated following President Sata’s death on October 28; go to the bottom of the page.

zambia-president-michael-sata-UNDPPresident Michael Sata of Zambia, who has been very ill for quite some time (since June at the latest), has more or less disappeared from the country’s public eye, except occasionally resurfacing very briefly or issuing statements from doctors in Israel and the United States where he has been treated.

This is raising some questions as to whether he is on death’s door and why this is being suppressed to the extent it has been even in a democratic society. It’s almost as secretive as the 2009-2010 health crisis of Nigerian President Umaru Yar’adua, in which the leader of the most populous country in Africa disappeared to Saudi Arabia without explanation for four months and then returned for two months before passing away. In that situation, Vice President Goodluck Jonathan was eventually declared Acting President, because of the uncertain situation and clear abandonment of the duties of the office, until it became permanently vacant. Jonathan was subsequently elected to his own term and remains president of Nigeria now.

In the case of Zambia right now, President Sata’s hasn’t stepped aside or handed over power, and his last statement in public (back in September) literally included the line “I’m not dead.” So that’s … not very reassuring.

Zambia celebrated its 50th anniversary of independence from Britain on Friday without the President’s involvement, heightening speculation. But there are bigger questions about who exactly is running the country at the moment. The draft of a new constitution he has stalled since taking office in September 2011 was released the day before the independence festivities, which could be a distraction tactic or a more sinister sign that other, unelected people are making major moves behind the scenes.

zambia-vice-president-Guy-Scott-us-government-photoIf 77-year-old President Sata dies, he would be succeeded automatically by Vice President Guy Scott, the country’s first White Vice President. His father was active in supporting the Black nationalist independence movement, and the family has remained involved in the country’s self-governing politics since then.

If I’m not mistaken, Mr. Scott, who is himself 70 years old, would be the only White head of state in Africa right now and probably the first since the Apartheid regime in South Africa ended in 1994.
 
Update 2 @ 2:25 AM US Eastern Time: A government official has confirmed the news to Reuters.

Update 1 October 29, 2014 @ 1 AM US Eastern Time: Unconfirmed reports in Zambian news media say President Sata passed away in London last night. Thompson Reuters Foundation:

Zambian President Michael Sata has died in London, where he had been receiving treatment for an undisclosed illness, three private Zambian media outlets said on Wednesday.

The reports on the private Muzi television station and the Zambia Reports and Zambian Watchdog websites said the southern African nation’s cabinet was about to meet.

Government officials gave no immediate comment.

The reports said Sata had died on Tuesday evening at London’s King Edward VII hospital. The hospital declined to comment.

 
According to a report by ZambianWatchdog.org, power is set to be handed to Scott, although perhaps not quietly…

The remaining Zambian cabinet was due to meet at 05: 00 hours on Wednesday Zambian time to formalise power transfer to vice-president Guy Scott, government sources have revealed.

The main agenda of the meeting was for acting president [and Defense Minister] Edgar Lungu to handover power to Scott. Most likely, it is after this formality that the Zambia government will announce the passing on of president Michael Sata.

It is not yet clear if Lungu will agree to handover as he may argue that he is the one to lead the country to the by-election. Lungu and some ministers had a meeting around midnight when they heard the news.

 
Minister Lungu assumed the role of “acting presidency” while Sata was out of the country for health treatments, but in the event of the president’s death the vice president is automatically declared acting president for 90 days until a special election is held. The Zambian Watchdog website broke the story of Sata’s passing overnight and has been tracking President Sata’s illnesses for several years now.

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