With Flat Tax, Estonia Has 11% Growth


“Prime Minister Andrus Ansip of Estonia in the cabinet room, which is equipped with a computer for each minister.” Source of caption and photo: online version of NYT article quoted and cited below.

(p. A4) TALLINN, Estonia – Estonia, one realizes after a few days in the abiding twilight of a Baltic winter, is not like other European countries.
The first tip-off is the government’s cabinet room, outfitted less like a ceremonial chamber than a control center. Each minister has a flat-screen computer to transmit votes during debates. Then there is Estonia’s idea of an intellectual hero: Steve Forbes, the American publishing scion, two-time candidate for the Republican presidential nomination and tireless evangelist for the flat tax.
Fired with a free-market fervor and hurtling into the high-tech future, Estonia feels more like a Baltic outpost of Silicon Valley than of Europe. Nineteen months after it achieved its cherished goal of joining the European Union, one might even characterize Estonia as the un-Europe.
“I must say Steve Forbes was a genius,” Prime Minister Andrus Ansip declared during an interview in his hilltop office. “I’m sure he still is,” he added hastily.
The subject was the flat tax, which Mr. Forbes never succeeded in selling in the United States. Here in the polar reaches of Europe it is an article of faith. Estonia became the first country to adopt it in 1994, as part of a broader strategy to transform itself from an obscure Soviet republic into a plugged-in member of the global information economy.
By all accounts, the plan is working. Estonia’s economic growth was nearly 11 percent in the last quarter – the second fastest in Europe, after Latvia, and an increase more reminiscent of China or India than Germany or France.
People call this place E-stonia, and the cyber-intoxication is palpable in Tallinn’s cafes and bars, which are universally equipped with wireless connections, and in local success stories like Skype, designed by Estonian developers and now offering free calls over the Internet to millions.
. . .
Germans showed how allergic they were to the idea when Angela Merkel chose a flat tax advocate as her economic adviser. Antipathy toward him was so intense that political analysts say it probably cost Chancellor Merkel’s party a clear majority in the German Parliament.
Yet the concept has caught on in this part of Europe. Latvia, Lithuania and Slovakia all have a flat tax, while the Czech Republic and Slovenia have considered one. Tax policy, not support for the American-led war in Iraq, is the bright line that separates the so-called old Europe from the new.

For the full article, see:
MARK LANDLER. “Letter From Estonia: A Land of Northern Lights, Cybercafes and the Flat Tax.” The New York Times (Weds., December 21, 2005): A4.
(Note: ellipsis added.)

Broad Increases in Income and Wealth

UpwardMobility.gif Graph source: online version of WSJ article cited below. http://online.wsj.com/article/SB113513427028228173.html?mod=opinion_main_commentaries

New reports by the Census Bureau and the Federal Reserve Board on the economic well-being of the typical American family reveal that over the past three decades, the vast majority of families have experienced a rapid growth in their income and wealth. Now that nearly six out of 10 households own stock and two out of three own their own homes, the average family — for the first time ever — has net worth (assets minus liabilities) of more than $100,000. Median family income has climbed to more than $54,000 a year.
Almost no one in the national media has taken notice of this good news, which has been camouflaged by a barrage of misleading and gloomy stories on “stagnant wages,” “the growing income gap between rich and poor,” “the disappearing middle class” and “rising poverty in America.” The reality is that if the economic growth, employment and family-finances numbers get any better, the media will soon have to start calling this the “Clinton economy.”
What the reports tell us is that the vast majority of Americans have not bumped into income glass-ceilings, but rather are experiencing an astonishing pace of upward income mobility. The Census data from 1967 to 2004 provides the percentage of families that fall within various income ranges, starting at $0 to $5,000, $5,000 to $10,000, and so on, up to over $100,000 (all numbers here are adjusted for inflation). These data show, for example, that in 1967 only one in 25 families earned an income of $100,000 or more in real income, whereas now, one in six do. The percentage of families that have an income of more than $75,000 a year has tripled from 9% to 27%.
But it’s not just the rich that are getting richer. Virtually every income group has been lifted by the tide of growth in recent decades. The percentage of families with real incomes between $5,000 and $50,000 has been falling as more families move into higher income categories — the figure has dropped by 19 percentage points since 1967. This huge move out of lower incomes and into middle- and higher-income categories shows that upward mobility is the rule, not the exception, in America today.

For the full story, see:
STEPHEN MOORE and LINCOLN ANDERSON. “Great American Dream Machine.” The Wall Street Journal (Weds., December 21, 2005): A18.

Real Heroes in King Kong

My favorite lines from the new King Kong movie are spoken by the preening B-movie action actor Baxtor.

The fictional screenwriter says:  "I just never figured you for a coward."

To which Baxtor replies:  "Hey pal; hey, wake up!  Heroes don’t look like me; not in the real world. 

In the real world they got bad teeth; a bald spot; and a beer gut."

"I’m just an actor with a gun; who’s lost his motivation."

(Entry revised/corrected on July 5, 2006)

Disruptive Innovation Threatens Boeing and Lockheed?

SpaceXHeavyLifters.gif Source of table: online version of WSJ article cited below.

EL SEGUNDO, Calif. — Maverick entrepreneur Elon Musk, who says he is prepared to spend nearly $200 million of his personal fortune creating a family of low-cost, reusable rockets, recently landed an unexpected customer: the U.S. intelligence community.
Mr. Musk and his fledgling company, closely held Space Exploration Technologies Corp., for years worked on advanced technologies and less-expensive manufacturing concepts to build small rockets capable of launching commercial or government satellites weighing around 1,000 pounds.
But the new contract for a single, classified launch — shrouded in such secrecy that neither the spy agency nor specific type of satellite was identified — envisions construction of a massive rocket by Mr. Musk’s company, known as SpaceX. The launch vehicle is slated to be comparable to the largest, most powerful models built by Boeing Co. and Lockheed Martin Corp., but costing a fraction of the prices charged by the rocket-industry leaders
. . .
Mr. Musk doesn’t minimize the challenge of trying to win more government business while criticizing government procurement practices. “I think it’s extremely risky,” he says of his overall strategy, “but we’ve got to fight for our right to win customers.” If development of simpler, less-costly rocket alternatives is left to major defense contractors, he argues, “I can assure you it will never, never happen.”
. . .
In spite of skepticism and criticism of SpaceX, industry leaders are keeping a wary eye on Mr. Musk, with some vowing stepped-up competition against the industry newcomer.
Tom Marsh, a senior Lockheed Martin space official, told a space conference last month that his company “absolutely intends to pursue, and to pursue vigorously” the market for smaller rockets initially targeted by SpaceX.

ANDY PASZTOR. “For Rocket Start-Up, Sky’s the Limit; Surprise Contract Boosts SpaceX as It Competes With Boeing, Lockheed.” THE WALL STREET JOURNAL (Thurs., September 15, 2005): B6.

Eugene McCarthy: A Person’s Importance Is Not Measured by a Gallup Poll

Eugene McCarthy passed away on December 10, 2005. I often disagreed with Eugene McCarthy’s substance, but I enjoyed his style. Eugene McCarthy, RIP.

. . . a Gallup poll reported that 58 percent of those sampled had never so much as heard of McCarthy. The senator refused to be discouraged. “Had they asked,” he said, “they would have found that fewer still have heard of St. Benedict of Nursia, but that detracts not one whit from his importance.”

ROGER KAHN. “The Quiet Man.” The New York Times (Mon., December 19, 2005): A33.

Using Supply-and-Demand Parking Pricing to Reduce Urban Congestion

In big cities, drivers often waste time searching for parking places. While they are searching, they are adding congestion, to already congested streets. Technology now permits reall-time pricing at parking meters, where the price depends on the availability of open parking spaces.

Should parking meters cost $17 an hour? Donald Shoup thinks that’s fine — if the rate drops when demand falls. The University of California at Los Angeles urban planning prof wants to end wasteful trolling for empty meters by charging market prices on smart meters. “It’s like Goldilocks,” he says. “The price is too low if there are no spaces open, and too high if there are a lot of spaces open.” Drivers should pay up at peak times and get a break when demand ebbs, he argues. Chicago, where an hour in a downtown lot can cost $17, is studying the idea. And in February, Redwood City, Calif., will adjust meter rates — every three months — to assure 15% vacancies.

Joseph Weber. ” STREET PRICES: Adjustable-Rate Meters.” BusinessWeek (NOVEMBER 21, 2005) 14.

Wal-Mart Benefits Rural Poor

 

Our research shows that Wal-Mart operates two-and-a-half times as much selling space per inhabitant in the poorest third of states as in the richest third. And within that poorest third of states, 80 percent of Wal-Mart’s square footage is in the 25 percent of ZIP codes with the greatest number of poor households. Without the much-maligned Wal-Mart, the rural poor, in particular, would pay several percentage points more for the food and other merchandise that after housing is their largest household expense.

 

Source:

PANKAJ GHEMAWAT AND KEN A. MARK. "The Price Is Right." The New York Times (Weds., August 3, 2005): A23.