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I first wrote about allowing markets for body parts back in 2009 and 2010.

Let’s revisit that issue today, starting with John Stossel’s case for legal organ sales in a video for Reason.

This should be a slam-dunk issue.

  • I want drugs to be legal, even though I personally disapprove of drug use.
  • I want prostitution to be legal, even though I’ve never swapped sex for money (no matter what women offer me).
  • I want gambling to be legal, even though I find that activity to be very boring.
  • I want alcohol to be legal, even though I generally find booze to be distasteful.

So it should go without saying that I want organ sales to be legal. Indeed, the case for legalizing organ sales is far stronger because I can’t think of a legitimate argument against a policy that creates no downsides for third parties and unambiguously benefits both sides (sick people and organ donors) of the transaction.

Professor Ilya Somin of George Mason University’s law school has been a long-time advocate of saving lives with organ sales.

Here’s some of what he wrote in 2019 for Reason.

Many Americans die every year because they need kidney transplants, but cannot find one in time, in large part due to federal laws banning organ sales. A recently published article finds that the number of such deaths is likely to be much greater than previous estimates indicate. It finds that over the 30 years between 1988 and 2017, an average of over 30,000 Americans have died each year, because the ban on organ sales prevented them from getting transplants in time. …even if the true figure is only, say, half as high, it still represents a vast amount of unnecessary suffering that could largely be prevented simply by allowing financial compensation for organ donors, thereby increasing the supply of available kidneys to the point where it can meet the demand.

Writing for the American Enterprise Institute, Sally Satel has a very personal interest in encouraging organ sales.

…there have never been enough kidneys, livers, hearts, and other organs. Kidneys, the organ most in need and most easily donated by the living, can be given by living friends and relatives and even the occasional “good Samaritan donor.” But, by law, they must be given for free, in the spirit of “altruism.”  Altruism is a beautiful sentiment, and I have personally benefited: two magnificent friends have donated kidneys to me; one in 2006 and then again in 2016.  Thousands others in the U.S., where I live, and elsewhere around the world, are not so lucky – they die waiting. …Compensating donors as a way to recruit people who would like to be rewarded for saving the life of another is long overdue. …Objections…ring hollow. The most common is that compensation “commodifies the body.” We already commodify the body, speaking strictly, every time there is a transplant: The doctors get paid to manipulate the body. So does the hospital. Why, then, object to enriching the donor — the sole individual in this entire scenario who gives the precious item in question and assumes all the risk?

In an article for CapX, Sam Dumitriu and Samuel Hammond make the case for pro-market reforms in the United Kingdom.

…increasing the number of living donors is becoming a major imperative for healthcare systems worldwide. For better or worse, altruism alone won’t fill the gap. Britain needs to change the law to give organ donors, particularly kidney donors, a financial incentive to donate. Rewards for donors are currently illegal… While the average time patients spend on the kidney waiting list has declined, it still routinely takes over three years before a match is found. In contrast, it’s clear from markets where financial rewards for donors are permitted that they are effective at increasing supply. …Kidney donors not only save lives and allow patients to come off dialysis, they also save the NHS money. According to the National Kidney Federation, each kidney transplant saves the NHS over £200,000 by reducing the need for expensive dialysis treatment. That’s significantly more than $40,000 price the Nobel Laureate Gary Becker and his co-author Julio Elias estimated would be necessary to eliminate the kidney shortage altogether.

In a column for the Federalist, Liz Wolfe makes the case that she should be allowed to help others by selling a kidney.

Four thousand dollars is my price, I think. … But I can’t do any of this because the government says it’s wrong. You know what else is wrong? Having 43,000 people die annually due to the current kidney shortage in our country. I’d love to help, but I don’t currently have a huge incentive to do so. …kidney-selling should be a person’s choice to make. …the naysayer might argue, isn’t autonomy undermined by desperation? Can consent truly take place if someone is debating between a set of imperfect options—selling an organ and profiting handsomely versus starving to death? …That would be more compelling if we didn’t already allow poor people to work in horribly dangerous industries for money. …Commercial fishing has a very high mortality rate and relatively low median wages. Roofers, garbage collectors (and recyclables collectors), construction workers, iron and steel workers, electricians, and truck drivers all have high mortality rates as well. Government does not intervene to protect these people from working in these industries… Either desperation undermines autonomy and invalidates consent or it doesn’t, but we should be more consistent. …Since we’re failing at pure altruism, maybe it’s time we turn to cold, hard cash as a better way to save lives.

In a column for the Foundation for Economic Education, Hans Bader looks specifically at kidney transplants.

Kidney failure shouldn’t be a death sentence. But for thousands of people, it is, thanks to federal laws banning organ sales. Those laws radically shrink the supply of kidneys and other organs that people desperately need to stay alive. …a recent study in the Journal of the American Society of Nephrology, titled “The Terrible Toll of the Kidney Shortage”…notes that the “106,000” people “who do not receive a transplant” due to the current kidney shortage “are fated to live an average of 5 years on dialysis therapy before dying prematurely.” …kidney donor Alexander Berger…predicted that allowing kidney donors to be compensated would save countless lives by giving people an incentive to donate their kidneys, resulting in a vast increase in kidney donations. …the taxpayers would save money, too. The government would be able to simply pay for kidney transplants for poor and elderly people…rather than paying for years and years of costly dialysis treatment through Medicare and Medicaid.

The bottom line is that paying donors would be good for sick people and good for taxpayers (Medicaid and Medicare are two of the most burdensome programs in the budget).

Sadly, politicians are standing in the way. But one potential seller has launched a court case.

John Bellocchio is suing the federal government to gain the freedom to sell his organs, as reported in the New York Post by Priscilla DeGregory.

A New Jersey man is suing the federal government for the right to sell his own organs — challenging a US law that bans the practice, new court papers show. John Bellocchio, 37, of Oakland filed the suit against United States Attorney General Merrick Garland in Manhattan federal court Thursday. He says in the suit that he struggled financially and looked into offloading some of his organs — perhaps a kidney — only to find out it’s illegal to make a buck on your body parts. Bellocchio, a career academic who now owns a business that helps connect people with service dogs, argues that the law contravenes his constitutional right to freedom of contract in determining what can be done with his own personal property — or, more specifically, his own body.

Christian Britschgi wrote about this legal challenge for Reason, but also made lots of strong arguments for why organ sales should be legal.

…the 1984 National Organ Transplant Act (NOTA)…makes it a crime for anyone to “acquire, receive, or otherwise transfer any human organ for valuable consideration for use in human transplantation if the transfer affects interstate commerce.” Violators of this ban face a maximum fine of $50,000 and up to five years in prison. That prohibition has left the 90,000 patients in need of a kidney on the national transplant list…it’s estimated that between 5,000 and 10,000 people die for want of a kidney transplant each year. Many more are left to undergo expensive, draining dialysis treatment. Medicare, which covers kidney patients of all ages, spent $81 billion on patients with chronic kidney disease in 2018. Medicare-related spending on patients with end-stage renal disease totaled $49.2 billion that same year.

As you probably figured out, most of the opposition to organ sales is from people who inexplicably feel squeamish or uncomfortable with the notion of using money to save lives.

But you know what’s even more important for life than a kidney? Food.

Yet that doesn’t stop us from utilizing private farms, private food processors, and private grocery stores in order to get lots of food at very cheap prices.

And even the limited intervention in this sector (farm subsidies and food stamps, for instance) have nothing to do with qualms about private provision of food.

So let’s be rational and humane by allowing markets for organ sales.

As an economist, I strongly oppose the wealth tax (as well as other forms of double taxation) because it’s foolish to impose additional layers of tax that penalize saving and investment.

Especially since there’s such a strong relationship between investment and worker compensation.

The politicians may tell us they’re going to “soak the rich,” but the rest of us wind up getting wet.

That being said, there are also administrative reasons why wealth taxation is a fool’s game. One of them, which I mentioned as part of a recent tax debate, is the immense headache of trying to measure wealth every single year.

Yes, that’s not difficult if someone has assets such as stock in General Motors or Amazon. Bureaucrats from the IRS can simply go to a financial website and check the value for any given day.

But the value of many assets is very subjective (patents, royalties, art, heirlooms, etc), and that will create a never-ending source of conflict between taxpayers and the IRS if that awful levy is ever imposed.

Let’s look at a recent dispute involving another form of destructive double taxation. The New York Times has an interesting story about a costly dispute involving the death tax to be imposed on Michael Jackson’s family.

Michael Jackson died in 2009… But there was another matter that has taken more than seven years to litigate: Jackson’s tax bill with the Internal Revenue Service, in which the government and the estate held vastly different views about what Jackson’s name and likeness were worth when he died. The I.R.S. thought they were worth $161 million. …Judge Mark V. Holmes of United States Tax Court ruled that Jackson’s name and likeness were worth $4.2 million, rejecting many of the I.R.S.’s arguments. The decision will significantly lower the estate’s tax burden… In a statement, John Branca and John McClain, co-executors of the Jackson estate, called the decision “a huge, unambiguous victory for Michael Jackson’s children.”

I’m glad the kids won this battle.

Michael Jackson paid tax when he first earned his money. Those earnings shouldn’t be taxed again simply because he died.

But the point I want to focus on today is that a wealth tax would require these kinds of fights every single year.

Given all the lawyers and accountants this will require, that goes well beyond adding insult to injury. Lots of time and money will need to be spent in order to (hopefully) protect households from a confiscatory tax that should never exist.

P.S. The potential administrative nightmare of wealth taxation, along with Biden’s proposal to tax unrealized capital gains at death, help to explain why the White House is proposing to turbo-charge the IRS’s budget with an additional $80 billion.

Like President Reagan, I believe in free trade rather than protectionism.

So you won’t be surprised that I agree with the message in this video

To elaborate, one of the big lessons of the Trump era is that he undermined his good policies – such as tax reform – by imposing higher taxes on global trade.

Sadly, he didn’t realize that a “trade deficit” is largely an irrelevant statistic. Indeed, it’s merely the flip side of having a capital surplus.

To state the obvious, it’s not a bad thing when foreigners decide they want to invest in the United States economy. Heck, it’s a good thing, a sign of economic strength.

Professor Douglas Irwin of Dartmouth made the same point, and many additional points, in a column for the Wall Street Journal late last year.

After four years, what have we learned? Many things, but especially that old economic truths still have value: Tariffs don’t reduce the trade deficit. …Economists have long pointed out that the trade deficit is driven by macroeconomic factors, particularly international capital flows. …The merchandise trade deficit was $864 billion in 2019, more than $100 billion higher than in 2016. …Tariffs are paid by consumers, destroy jobs and hurt the economy. Mr. Trump insisted that China would pay for the 15% to 25% duties that he imposed on $300 billion of its exports. In fact, the tariffs were passed on to American consumers, who paid more… Take steel. Higher prices might have saved some jobs in the steel industry, but..steel protection is a job-destroying policy. Economists at the Federal Reserve found that the steel and aluminum tariffs reduced overall employment in manufacturing by 75,000 workers.

But destroying jobs was just one negative effect of protectionism.

We also got more corruption, as the Wall Street Journal opined.

…it’s time to point out one unsightly effect of the Trump tariffs: expanding the D.C. swamp. …As Mr. Trump’s tariffs began to bite, Congress sent hundreds of letters to the USTR, supporting specific tariff exclusions. …Rep. Steny Hoyer signed a letter, “on behalf of the Congressional Fire Services Caucus,” asking for an exclusion on smoke alarms. North Carolina Senator Thom Tillis sought one for Honda’s lawn mower flywheels. For Sen. Sheldon Whitehouse, it was BedJet’s “ultra-thin adjustable bed ‘device.’” For Congressman Doug Collins, Home Depot’s light fixtures. For Sen. Patty Murray, empty coffee K-cup pods. Some of these exclusions were granted, and many weren’t. It’s difficult to know if lobbying by Congress made a difference… One substantial downside is more political interference in the economy. Pretty swampy.

We saw something very similar when President Obama was granting waivers for Obamacare. That was just one of the ways insiders got rich lobbying politicians for special treatment under government-run healthcare.

Let’s wrap this up.

Writing for the Wall Street Journal in March, Senator Pat Toomey and former Senator Phil Gramm conclude Trump’s protectionism was a failure.

In his first two years as president, Mr. Trump lifted regulatory burdens and pushed through a major tax cut, which triggered a broad-based rise in income and employment. He then turned to his protectionist agenda, which reduced economic growth and failed to deliver Michigan, Pennsylvania or Wisconsin in the 2020 election. Protectionism failed both as economic policy and political strategy. …As Mr. Trump found when he imposed tariffs on steel and aluminum, the resulting increase in jobs in those industries was small. …Jobs gained in the steel and aluminum industries after the tariffs were dwarfed by jobs lost in industries that use steel and aluminum in their manufacturing process, not to mention the jobs lost due to foreign trade retaliation. …Innovation, technological development and the capacity of a market economy to adapt to change provide our only sure path to job creation and prosperity. This is a lesson all politicians, but especially Republicans, need to learn from the economic and political failure of protectionism in the Trump era.

Amen.

Protectionism didn’t work. It didn’t create jobs, and it didn’t even buy votes.

Which is why I hope this meme is the lesson that people remember from the Trump years (also the message we should have learned from the Hoover years).

The bottom line is that “Tariff Man” hurt himself and hurt the economy.

P.S. Sadly, Biden has not reversed many of Trump’s protectionist policies. But that’s not a surprise given his support for statism.

P.P.S. Though I hold out some hope that Biden will utilize the World Trade Organization as a tool to expand trade, thus reversing one of Trump’s mistakes.

My approach during the Trump years was very simple.

Other people, however, muted their views on policy because of their partisan or personal feelings about Trump.

I was very disappointed, for instance, that some Republicans abandoned (or at least downplayed) their support for free trade to accommodate Trump’s illiteracy on that issue.

But those people look like pillars of stability and principle compared to the folks who decided to completely switch their views.

Max Boot, for instance, is a former adviser on foreign policy to Republicans such as John McCain and Marco Rubio, who has decided that being anti-Trump means he should now act like a cheerleader for high taxes and big government.

Here’s some of what he wrote in a column for today’s Washington Post.

Republicans accuse President Biden of pursuing a radical agenda that will turn the United States into a failed socialist state. …It’s true that Biden is proposing a considerable amount of new spending… But those investments won’t turn us into North Korea, Cuba, Venezuela or the Soviet Union — all countries with government ownership of industry. …with proposals such as federally subsidized child care, elder care, family leave and pre-K education — financed with modest tax increases on corporations and wealthy individuals — Biden is merely moving us a bit closer to the kinds of government services that other wealthy, industrialized democracies already take for granted. …That’s far from radical. It’s simply sensible.

Part of the above excerpt makes sense. Biden is not proposing socialism, at least if we use the technical definition.

And he’s also correct that Biden isn’t trying to turn us into North Korea, Cuba, Venezuela, or the Soviet Union.

But he does think it’s good that Biden wants to copy Europe’s high-tax welfare states.

…by most indexes we are an embarrassing international laggard. …the United States spends nearly twice as much on health care as a percentage of gross domestic product than do other wealthy countries… The United States is also alone among OECD nations in not having universal paid family leave. …Our level of income inequality is now closer to that of developing countries in Africa and Latin American than to our European allies. …it’s possible to combine a vibrant free market with generous social welfare spending. In fact, that’s the right formula for a more satisfied and stable society. In the OECD quality-of-life rankings — which include everything from housing to work-life balance — the United States ranks an unimpressive 10th.

Mr. Boot seem to think that it’s bad news that the United States ranks 10th out of 37 nations in the OECD’s so-called Better Life Index.

I wonder if he understands, however, that this index has serious methodological flaws – such as countries getting better scores if they have bigger subsidies that encourage unemployment? Or countries getting better scores if they have high tax rates that discourage labor supply?

But the real problem is that Boot seems oblivious to most important data, which shows that Americans enjoy far more prosperity than Europeans.

And he could have learned that with a few more clicks on the OECD’s website. He could have found the data on average individual consumption and discovered the huge gap between U.S. prosperity and European mediocrity.

The obvious takeaway is that big government causes deadweight loss and hinders growth (as honest folks on the left have always acknowledged).

P.S. I can’t resist nit-picking four other points in Boot’s column.

  1. As show by this Chuck Asay cartoon, you don’t magically make government spending productive simply be calling it an “investment.”
  2. Like beauty, the interpretation of “modest” may be in the eye of the beholder, but it certainly seems like “massive” is a better description of Biden’s proposed tax hikes.
  3. It’s worth noting that Europe became a relatively prosperous part of the world before governments adopted punitive income taxes and created big welfare states.
  4. America’s excessive spending on health is caused by third-party payer, which is caused by excessive government intervention.

P.P.S. I’ve wondered whether the OECD (subsidized by American taxpayers!) deliberately used dodgy measures when compiling the Better Life Index in part because of a desire to make the U.S. look bad compared to the European welfare states that dominate the organization’s membership? That certainly seems to have been the case when the OECD put together a staggeringly dishonest measure of poverty that made the U.S. seem like it had more destitution than poor countries such as Greece, Portugal, and Turkey.

There are all sorts of long-running battles in the economics profession, perhaps most notably the never-ending dispute about Keynesian economics.

Another contentious issues is the degree to which society should accept less growth in order to achieve more equality, with Arthur Okun – author of Equality and Efficiency: The Big Tradeoff – being the most famous advocate for prioritizing equity.

I don’t agree with Okun, but I applaud him for honesty. Unlike many modern politicians, as well as most international bureaucracies (and even the occasional journalist), he didn’t pretend that big government was a free lunch.

Let’s take a closer look at this issue in today’s column.

We’ll start by perusing a working paper, published by Spain’s central bank, that explores the optimal tax rate for that nation. The author, Dario Serrano-Puente, concludes that society will be better off if tax rates are increased.

Many modern governments implement a redistributive fiscal policy, where personal income is taxed at an increasingly higher rate, while transfers tend to target the poorest households.In Spain there is an intense debate about…so-called “fiscal justice”, which is putting on the table a tax rate increase for the high-income earners… once the theoretical framework is defined, a bunch of potential progressivity reforms are assessed… Then a Benthamite social planner, who takes into account all households in the economy by putting the same weight on each of them, discerns the optimal progressivity reform. The findings suggest that aggregate social welfare is maximized when the level of progressivity of the Spanish personal income tax is increased to some extent. More precisely,in the optimally reformed scenario (setting the optimal level of progressivity), welfare gains are equivalent to an average increase of 3.08% of consumption.

I have a fundamental problem with the notion of government acting as a “Benthamite social planner,” but I don’t want to address that issue today.

Instead, I want to applaud Senor Serrano-Puente because he openly acknowledges that higher tax rates and more redistribution will lead to less growth.

Here’s some of what he wrote about that tradeoff.

For each reformed economy evaluated in the progressivity gridτ={0.00, …,0.50}, the main macroeconomic aggregates are calculated. …the evolution of these magnitudes on progressivity is depicted in Figure 4. Broadly speaking, it is clear that aggregate capital and output are decreasing in progressivity in a (almost) linear pathway, with the drop in capital being more pronounced than in output. …aggregate consumption and aggregate labor are also decreasing in progressivity.

Here’s a look at the aforementioned Figure 4, and it is easy to see that the economy suffers as progressivity increases.

Kudos, again, to the author for acknowledging the tradeoff between equity and efficiency. But applauding the author for honesty is not the same as applauding the author’s judgement.

Simply stated, he is trying to justify a policy that will hurt poor people in the long run. That’s because even small differences in growth can have a big effect over time.

Let’s illustrate how this works with a chart showing the life-time earnings of a hypothetical low-income Spaniard.

  • The orange line shows how much money the workers gets if he starts with an extra 3.08 percent of income thanks to higher taxes and additional redistribution, but the economy grows 2.0 percent per year.
  • The blue line shows income for the same worker, which starts at a lower level because tax rates have not been increased to fund additional redistribution, but the economy grows 2.2 percent per year..

As you can see, that low-income worker is a net beneficiary of bigger government for about 10 years. But as time goes on, the worker would be far better off with smaller government and faster growth.

Different assumptions will lead to different results, of course. My goal is simply to help readers understand two things.

P.S. To illustrate the high cost of big government, let’s shift from hypothetical examples to real-world data. Most relevant, OECD data shows that the average low-income person in the United States is better off than the average middle-class person in Spain.

P.P.S. The study cited above considers what happens if Spanish politicians raise taxes on the rich. That would be a mistake, as illustrated by the chart, but let’s not forget that Spanish politicians also over-tax low-income people.

President Biden has proposed a massive $2 trillion-plus infrastructure plan. Here are the two things everyone should understand.

  1. It will hurt growth because it will be financed with very harmful tax increases, most notably a big increase in the corporate tax rate that will undermine competitiveness.
  2. It will hurt growth because the new spending will divert resources from the productive sector of the economy, leading to inefficient allocation of labor and capital.

Actually, there’s another thing everyone should understand. As illustrated by this summary from the Washington Post, it’s not really an infrastructure plan. It’s a spend-money-on-anything-and-everything plan, presumably to reward various interest groups.

Though I guess we have to give the Biden Administration points for consistency. The President’s COVID relief plan from earlier this year had very little to do with the pandemic, so we shouldn’t be surprised to see that the infrastructure plan has very little to do with infrastructure.

The Wall Street Journal editorialized about this bait-and-switch scam.

Most Americans think of infrastructure as roads, highways, bridges and other traditional public works. That’s why it polls well… Yet this accounts for a mere $115 billion of Mr. Biden’s proposal. There’s another $25 billion for airports and $17 billion for ports and waterways that also fill a public purpose. The rest of the $620 billion earmarked for “transportation” are subsidies for green energy and payouts to unions for the jobs his climate regulation will kill. …The magnitude of spending is something to behold. There’s $85 billion for mass transit plus $80 billion for Amtrak, which is on top of the $70 billion that Congress appropriated for mass transit in three Covid spending bills. The money is essentially a bailout for unions… Then there’s $174 billion for electric vehicles, including money to build 500,000 charging stations and for consumer “incentives” on top of the current $7,500 federal tax credit to buy an EV. …Mr. Biden is also redefining infrastructure as social-justice policy and income redistribution. …His plan also includes $213 billion for affordable housing, $100 billion for retrofitting public schools, $25 billion for child-care facilities and $400 billion for increasing home-health care.

Michael Boskin, a professor at Stanford, is not optimistic that Biden’s plan will generate good results.

Joe Biden’s $2.3 trillion infrastructure plan would be many times larger than previous such bills, only about one-third of it would meet even a broad definition of “infrastructure.” …What could possibly go wrong? A lot. …federal spending would crowd out private and local government spending, with a substantial risk of boondoggles piling up along the way. …The Biden plan is rife with opportunities for earmarked pork-barrel projects (bridges to nowhere) and crony capitalist corporate welfare (next-generation Solyndras). Consider California High-Speed Rail, an infrastructure train wreck that will soon be begging for a bailout from the Biden administration. It originally used a grant from President Barack Obama’s 2009 “stimulus” package to pay, six years later, for a tiny initial rail line. Yet, because the project’s projected total San Francisco to Los Angeles cost has tripled to $100 billion.

And even if the plan was nothing but real infrastructure, that wouldn’t be a cause for optimism.

Kenneth Rogoff, a professor at Harvard, wrote late last year that governments have a terrible track record with cost overruns.

…perhaps the biggest obstacle to improving infrastructure in advanced economies is that any new project typically requires navigating difficult right-of-way issues, environmental concerns, and objections from apprehensive citizens… The “Big Dig” highway project in my hometown of Boston, Massachusetts was famously one of the most expensive infrastructure projects in US history. The scheme was originally projected to cost $2.6 billion, but the final tab swelled to more than $15 billion… The construction of New York City’s Second Avenue Subway was a similar experience, albeit on a slightly smaller scale. In Germany, the new Berlin Brandenburg Airport recently opened nine years behind schedule and at three times the initial estimated cost.

Amen. I wrote a column about the infamous Second Avenue Subway, and I’ve also repeatedly opined about how government projects always wind up costing much more than initial projections.

Let’s wrap up by looking at an economic analysis of Biden’s plan by the University of Pennsylvania’s Penn Wharton Budget Model.

The overall macroeconomic effects of enacting the AJP, including both its spending and tax provisions, are shown in Table 4. …After the AJP’s new spending ends in 2029, however, its tax increases persist—as a result, federal debt ends up 6.4 percent lower by 2050, relative to the current law baseline. Despite the decline in government debt, the investment-disincentivizing effects of the AJP’s business tax provisions decrease the capital stock by 3 percent in 2031 and 2050. The decline in capital makes workers less productive despite the increase in productivity due to more infrastructure, dragging hourly wages down by 0.7 percent in 2031 and 0.8 percent in 2050. Overall, GDP is 0.9 percent lower in 2031 and 0.8 percent lower in 2050.

Here’s Table 4, which I’ve augmented by circling the two most important statistics.

The immediate lesson from all of this is that Biden’s plan is a boondoggle waiting to happen (just as would have been the case with Trump).

The longer-term lesson is that we should get the federal government out of the business of infrastructure.

I have three types of humor I periodically share.

  1. Libertarian Humor
  2. Gun Control Humor
  3. Socialism/Communism Humor

Today, we’re going to venture into “consolation humor.” At least that’s the best term I can think of for the following two memes, both of which show what happens when leftists suddenly grasp reality.

In our first example, a woman learns that envy actually is a negative personality trait.

Maybe she’ll also learn at some point that spending other people’s money isn’t compassion (another person needs to learn that lesson as well).

In our second example, a young woman is bereft after learning that there isn’t a magic money tree to finance never-ending goodies from government.

Maybe she should watch this video as part of her therapy?

P.S. This great cartoon from Chuck Asay shows what happens when people don’t learn about scarcity.

Good fiscal policy means low tax rates and spending restraint.

And that’s a big reason why I’m a fan of Reaganomics.

Unlike other modern presidents (including other Republicans), Reagan successfully reduced the tax burden while also limiting the burden of government spending.

President Biden wants to take the opposite approach.

A few days ago, Dan Balz of the Washington Post provided some “news analysis” about Biden’s fiscal agenda. Some of what he wrote was accurate, noting that the president wants to increase spending by an additional $6 trillion over the next 10 years.

…the scope and implications of his domestic agenda have come sharply into focus. Together they represent the most dramatic shift in federal economic and social welfare policy since Ronald Reagan was elected 40 years ago. …The politics of redistribution, which are at the heart of what Biden is proposing, could test decades of assumptions that Democrats should be afraid of being tagged as the party of big government. …Together, the already approved coronavirus relief plan, the infrastructure proposal that was unveiled a few weeks ago and the newly proposed plan to invest in social welfare programs would total roughly $6 trillion.

But Mr. Balz then decided to be either sloppy or dishonest, writing that we’ve had decades of Reagan-style policies that have squeezed domestic spending and disproportionately lowered tax burden for rich people.

Reagan’s small-government philosophy resulted in a decades-long squeeze on the federal government, especially domestic spending, and on tax policies that mainly benefited the wealthiest Americans. …Government spending on social safety-net programs has been reduced compared with previous years.

Balz is wrong, wildly wrong.

You don’t have to take my word for it. Here’s a chart, taken from an October 2020 report by the Congressional Budget Office. As you can see, people in the lowest income quintile have been the biggest winners,, with their average tax rate dropping from about 10 percent to about 2 percent..

Here’s a chart showing marginal tax rates from a January 2019 CBO report. As you can see, Reagan lowered marginal tax rates for everyone, but Balz’s assertion that the rich got the lion’s share of the benefits is hard to justify considering that people in the bottom quintile now have negative marginal tax rates.

Balz’s mistakes on tax policy are significant.

But his biggest error (or worst dishonesty) occurred when he wrote about a “decades-long squeeze” on domestic spending and asserted that “spending on social safety-net programs has been reduced.”

A quick visit to the Office of Management and Budget’s Historical Tables is all that’s needed to debunk this nonsense. Here’s a chart, based on Table 8.2, showing the inflation-adjusted growth of entitlements and domestic discretionary programs.

Call me crazy, but I’m seeing a rapid increase in domestic spending after Reagan left office.

P.S. There’s a pattern of lazy/dishonest fiscal reporting at the Washington Post.

P.P.S. I also can’t resist noting that Balz wrote how Biden wants to “invest” in social welfare programs, as if there’s some sort of positive return from creating more dependency. Reminds me of this Chuck Asay cartoon from the Obama years.

If nothing else, Biden’s big-government agenda is triggering a debate about fundamental issues, such as whether it’s a good idea to make America’s economy more like Singapore or more like Italy.

In making the case for the Italian approach of higher taxes and bigger government during his speech to Congress, President Biden exclaimed that “trickle-down economics has never worked.”

But we need to realize that Biden is using a straw-man definition. In his mind, “trickle-down economics” is giving a tax cut to rich people under the assumption that some of that cash eventually will wind up in other people’s pockets.

However, if you actually ask proponents of pro-growth tax policy what they support, they will explain that they want lower tax rates for everyone in order to reduce penalties on productive behaviors such as work, saving, investment, and entrepreneurship.

And they will be especially interested in getting rid of the tax code’s bias against saving and investment.

Why? Because every economic theory – even socialism, even Marxism – agrees that saving and investment are a key to long-run growth and rising living standards.

Which is why there’s such a strong relationship in the data between the amount of capital and workers’ wages.

Indeed, it’s almost a tautology to say that this form of “trickle-down taxation” leads to higher productivity, which leads to higher wages for workers.

As Stanford Professor John Shoven observed several decades ago:

The mechanism of raising real wages by stimulating investment is sometimes derisively referred to as “trickle-down” economics. But regardless of the label used, no one doubts that the primary mechanism for raising the return to work is providing each worker with better and more numerous tools. One can wonder about the length of time it takes for such a policy of increasing saving and investments to have a pronounced effect on wages, but I know of no one who doubts the correctness of the underlying mechanism. In fact, most economists would state the only way to increase real wages in the long run is through extra investments per worker.

In other words, everyone agrees with the “trickle-down economics” as a concept, but people disagree on other things.

So I guess it depends on how the term is defined. If it simply means tax cuts while ignoring other policies (or making those other policies worse, like we saw during the Bush years or Trump years), then you can make an argument that trickle-down economics has a mediocre track record.

But if the term is simply shorthand for a broader agenda of encouraging more saving and investment with an agenda of small government and free markets, then trickle-down economics has a great track record.

For instance, here’s a chart from the most-recent edition of Economic Freedom of the World. Nations with market-oriented economies are far more prosperous than countries with state-controlled economies.

By the way, Biden is not an honest redistributionist.

Instead of admitting that higher taxes and bigger government will lead to less economic output (and justifying that outcome by saying incomes will be more equal), Biden actually wants people to believe that bigger government somehow will lead to more prosperity.

To be fair, he’s not the only one to make this argument. Bureaucracies such as the International Monetary Fund, the United Nations, and the Organization for Economic Cooperation and Development also have claimed that there will be more prosperity if governments get more control over the economy.

I call this the “magic beans” theory of economic development.

Which is why I always ask people making this argument to cite a single example – anywhere in the world, at any point in history – of a nation that has prospered by expanding the burden of government.

In other words, I want a response to my never-answered question.

The response is always deafening silence.

To be sure, I don’t expect Joe Biden to answer the question. Or to understand economics. Heck, I don’t even expect him to care. He’s just trying to buy votes, using other people’s money.

But there are plenty of smart folks on the left, and none of them have a response to the never-answered question, either. Heck, none of them have ever given me a good reason why we should copy Europe when incomes are so much lower on that side of the Atlantic Ocean.

After three columns on the topic in the past five weeks (see here, here, and here), I wasn’t expecting to write again about school choice anytime soon, but this speech by State Senator Justin Wayne of Nebraska must be watched.

What a great idea! All politicians who vote against school choice have to send their kids to the crummy government schools in their states and districts.

That wouldn’t be good news for hypocrites like Barack Obama (and his Secretary of Education), Elizabeth Warren, Democratic congressional candidates, and the head of a teacher union.

Heck, we could create a giant list of all the rich leftists who exercise choice for their own children while voting to deny similar opportunities for kids from families that don’t have lots of money.

And this is why I’m overjoyed that we have seen a lot of progress on the issue this year.

And it’s continuing. Here are excerpts from an editorial in the Wall Street Journal about recent steps to expand choice in Florida.

Florida already has among the most expansive school-choice offerings in the nation, and this week the Legislature expanded private-school vouchers to more families. …The bill increases the eligible household income cap from 300% to 375% of the poverty level—about $100,000 for a family of four—though it prioritizes households under 185%. The enrollment cap will continue to escalate by 1% of public-school enrollment annually, allowing roughly 28,000 new students each year. …One of the bill’s biggest boons is extending scholarships to students already in private school. …Florida is a haven for overtaxed northerners, but it’s also an education refuge for low- and middle-income families.

Also in the Wall Street Journal, Paul Peterson of Harvard has a column on how government lockdowns have created an opening for expanded educational freedom.

President Biden wants credit for opening up the nation’s schools within 100 days of taking office. …The big news at the 100-day mark isn’t school opening but the revival of the school-choice movement. …school-choice advocates have scored big victories around the country. Indiana enlarged its voucher program. Montana lifted caps on charter schools. Arkansas now offers tax-credit scholarships to low-income students. West Virginia and Kentucky have funded savings accounts that help parents pay tuition at private schools. Florida, a movement leader, has enlarged its tax-credit scholarship programs. Even Rhode Island Gov. Dan McKee promises to veto a moratorium on new charter schools. …The pandemic is the driving force. The failure of the public schools to educate children in the past year has angered parents and policy makers. …the loss of learning and social connectivity produced by school closures has been devastating, especially for low-income minority children. …Survey data show a rise in the level of support over the past two years for vouchers, charters and tax-credit scholarships. Political leaders sense a change in the public mood. After aggressive unions and bewildered school boards shut down schools for a year, the choice bandwagon has begun to roll.

Let’s hope that choice bandwagon rolls further. It will be great for kids.

And, given the importance of quality education for competitiveness, it will be great for the nation as well.

P.S. I’m disgusted by the hypocritical politicians who send their kids to private schools while voting against school choice for the rest of us. But I’m even more disgusted – and baffled – that the NAACP opposes school choice when minority children have the most to gain.

We can learn a lot by looking at economic history.

It’s instructive to note, for instance, that the United States evolved from agricultural poverty to middle-class prosperity in the 1800s – during a time when the burden of government spending was trivially small.

Federal spending that century, on average, consumed less than 5 percent of the country’s economic output, meaning we had a public sector far smaller that what is found today in supposedly small-government jurisdictions such as Hong Kong and Singapore.

There’s a lesson to be gleaned from America’s rise to prosperity, in my humble opinion, as well as from similar experiences in Western Europe.

But not everybody sees history the same way. Earlier this month, David Brooks opined in the New York Times in favor of Biden’s spending binge.

Given his long-standing opposition to libertarianism/small-government conservatism, that’s not a big surprise. But what is noteworthy is that he argued Biden’s statism is part of the American tradition.

What is the quintessential American act? It is the leap of faith. …The early days of the Biden administration are nothing if not a daring leap. …What is this thing, Bidenomics? …democracy needs to remind the world that it, too, can solve big problems. Democracy needs to stand up and show that we are still the future. …Cecilia Rouse, the chair of Biden’s Council of Economic Advisers, …said…“the private sector…is not best suited to deliver certain public goods like work force training and infrastructure investment,” she told me. “These are places where there is market failure, which creates a role for government.” …Some people say this is like the New Deal. I’d say this is an updated, monster-size version of “the American System,” the 19th-century education and infrastructure investments inspired by Alexander Hamilton, championed by Henry Clay and then advanced by the early Republicans, like Abraham Lincoln. That was an unabashedly nationalist project, made by a youthful country, using an energetic government to secure two great goals: economic dynamism and national unity.

The column concludes that we have to make this leap to deal with a threat from China.

Sometimes you take a risk to shoot forward. The Chinese are convinced they own the future. It’s worth taking this shot to prove them wrong.

But Mr. Brooks is wrong. We’re not taking a daring leap into the unknown with Biden’s agenda.

We’re copying Western Europe.

And that means we have lots of data showing what that means for our future. Unfortunately, it means Americans will enjoy less income and suffer from lower living standards.

At the risk of understatement, that doesn’t seem like a good idea.

P.S. I also can’t resist pointing out that there are several small points in Brooks’ column that cry out for correction, such as the anti-empirical assertions that government job training is a good idea or that government intervention in the 1800s produced good results.

P.P.S. I’m also baffled that so many people view China as a successful economic model when living standards in that nation are only about one-fifth of American levels.

When I ask my left-leaning friends what they think about the flight of investors, entrepreneurs, and business owners from high-tax states, I tend to get three responses.

  1. It isn’t actually happening (these are my friends who apparently don’t know how to read).
  2. It’s happening, but it doesn’t matter (data from the IRS suggests it actually is significant).
  3. It’s happening, but high-tax states will be better off without these selfish and greedy people.

The folks making the third point actually have a decent argument, at least in terms of short-run political outcomes. Democrats rarely have to worry about retaining control of states like California, New York, Illinois, and New Jersey now that many Republican-leaning voters have moved away.

But sometimes short-run benefits are exceeded by long-run costs, and the recent data on congressional redistricting from the Census Bureau is a good example.

As you can see, there’s a continuing shift of political power – as measured by seats in Congress – from blue states to red states.

Patrick Gleason of Americans for Tax Reform explains what this means in a column for Forbes.

Over the past decade Americans have been voting with their feet in favor of states with lower overall tax burdens… As a result, high tax states…are set to lose congressional clout for the next decade, to the benefit of low tax states… the seven states that will lose congressional seats due to stagnant population growth have higher top income tax rates and greater overall tax burdens, on average, than do the six states gaining seats. In fact, the average top personal income tax rate for states losing seats in congress is 6.5%, which is 46% greater than the 4.45% average top income tax rate for states gaining seats.

Some people may want to dismiss Mr. Gleason’s column since he works for a group that supports smaller government.

But you can find the same analysis in this column in the Washington Post by Aaron Blake.

…what does the new breakdown mean from a partisan perspective? All told, five seats will migrate from blue states to red ones — owing to population shifts from the Rust Belt, the Northeast and California to the South and other portions of the West. Five of the seven seats being added also go to states under complete GOP control of redistricting, with three of seven being taken away coming from states in which Democrats have some measure of control over the maps. …That should help Republicans… The Cook Political Report estimates the shifts are worth about 3.5 seats… As for the electoral college in future presidential elections, …Michigan and Pennsylvania…are states Democrats probably need to win in the near future, meaning it’s probably a bigger loss for them. …If we reran the 2020 electoral college with the new electoral votes by state, Biden’s margin would shrink from 306-232 to 303-235. That seems negligible. But if you overlay the 2000 presidential results — three reapportionments ago — on the current electoral vote totals, George W. Bush’s narrow win with 271 electoral votes becomes a much more decisive win with 290. That gives you a sense where things have trended.

Let’s now return to the hypothesis that tax-motivated migration is playing a role.

Here’s an instructive tweet from Andrew Wilford of the National Taxpayers Union.

I’ll wrap up today’s column by augmenting the data in Mr. Wilford’s tweet.

Because not only are there, on average, lower tax burdens in the states gaining congressional seats, but every one of them has some very desirable feature of its tax code.

To be sure, not all of the state-to-state migration is due to tax policy. There are all sorts of other policies that determine whether a state is an attractive place for people looking to relocate.

And there are other factors (family, climate, etc) that have nothing to do with public policy.

All things considered, however, being a low-tax state means more jobs, growth, and people, at least when compared with being a high-tax state.

P.S. If you’re interested in seeing how states rank in various indices, click here, here, and here.

Communism Humor

Communism has a horrible track record of murder and brutality. It also leads to economic disaster wherever it is implemented.

And its founder, Karl Marx, was a despicable excuse for a human being.

But the tiny silver lining to that awful dark cloud is that at least we have endless opportunities to mock this evil ideology.

So let’s augment our collection of anti-communism humor.

We’ll start with this story about how dinosaurs went extinct, along with what might cause the world’s next mass extinction.

Our second item speculates that vapid young people will cast off their silly views once they get a job.

Of course, this may not be true if they get the wrong kind of job.

Next is a look at how China has created a modern version of Mary Shelley’s literary classic.

Reminds me of this gem from 2010.

Next we have a satirical tweet.

Per tradition, I’ve saved the best for last.

All communists are bad, though for different reasons. Some are guilty of stupidity. Some are motivated by hate and resentment against success. And some are psychological misfits that are attracted to brutality.

This next item mocks the Marxists, like the Chavez family in Venezuela who use it as a scam to line their own pockets.

Any resemblance to Bernie Sanders, of course, is purely coincidental.

I’m pessimistic about the direction of public policy, especially on fiscal issues such as taxes and spending.

But there is a silver lining to this dark cloud of statism. We’re seeing continuing progress on school choice, most notably a big expansion of educational freedom in West Virginia.

It appears more and more state and local policy makers are reaching the inevitable conclusion that government schools operate for the benefit of teacher unions rather than students.

And this is motivating many legislators to push for school choice, especially since there’s more and more evidence that school choice improves educational outcomes.

For instance, the Wall Street Journal opined last week about a new victory in Indiana.

Ten years ago in these columns, we hailed Indiana for its leadership in establishing one of America’s most ambitious school voucher programs. On Thursday the Indiana Legislature built on that achievement by approving a budget that will take the program to 48,000 students a year from about 37,000. …The teachers unions are unhappy. Their beef is that money to expand choice is taken from traditional public schools. And this year they lobbied local school boards to pass resolutions opposed to school choice. But that common union line about choice robbing public schools isn’t true. …92% of Indiana students will be in traditional public schools, and 93% of all education funding will go to these schools. …Since 2011, when Indiana pushed through its first voucher plan, more than a quarter-million Hoosier students have benefited. In an interview with Today’s Catholic, former Gov. Mitch Daniels explains the moral logic of choice this way: “Providing poor and minority families the same choice of schools that their wealthier neighbors enjoy is the purest example of ‘social justice’ in our society today.”

Meanwhile, Arkansas may be on the verge of adding to the good news.

Here are some excerpts from an article by Jason Bedrick in National Review.

In response to families demanding more educational options, six states have already passed new choice policies or expanded existing ones this year, and similar bills are still making their way through more than a dozen other state legislatures. …the Arkansas state senate…passed Senate Bill 680, which has the support of Governor Asa Hutchinson and the Arkansas Department of Education, by an overwhelming margin. Although only half the size of the previous proposal and limited only to low-income children, the bill still represents a major step toward providing broad access to educational choice. The Arkansas House now has another opportunity to do right by Arkansas families desperate for more educational options. …the Arkansas House Revenue and Taxation Committee voted to recommend that the full House pass the bill.

The superintendents of government schools are fighting to preserve the status quo. Their main argument is that choice will hurt outcomes for students stuck in their schools.

But competition encourages everyone to do better, and Jason shares some of the evidence about government schools doing better when there is school choice .

The research about the effects of educational-choice policies on public schools…overwhelmingly finds that such policies benefit not only participating students, but also the students who remain in their assigned district schools. Out of 27 studies, 25 find that students attending district schools improve their performance on standardized tests after the introduction of a choice program, while only one study found a negative effect, and one found no visible effect. …a recent study by the University of Arkansas found that states with robust educational-choice policies saw significant improvements on the National Assessment of Educational Progress (known as the “Nation’s Report Card”) over the last two decades. …The sky isn’t falling in any of the 29 states that have some form of private-school-choice program. Indeed, the sun is still shining on their public-school systems, which have not only not collapsed but are actually performing better than before.

Fingers crossed that Arkansas lawmakers do what’s right for kids rather than siding with the education bureaucracy.

Let’s conclude with this video from the Institute of Justice, which makes the point that school choice is especially critical for those with low incomes and other challenging backgrounds.

I shared a similar video back in 2016 as part of a column about why school choice is critical for black children.

P.S. If you want to learn more about school choice, I recommend this video.

P.P.S. It’s uplifting to see very successful school choice systems operate in nations such as CanadaSwedenChile, and the Netherlands.

Today we’re going to mix two things that seem disconnected.

Our first topic is federalism, which is the sensible principle that deciding things at the local level, or even state level, is better than being ruled by faraway politicians and a big, centralized bureaucracy.

You can still get awful policies from local politicians and state politicians, of course, but at least it is easier to monitor their actions, remove them from power, or move away if necessary.

A big reason I’m a fan of federalism because it creates competition among governments. For instance, I cheer when businesses, investors, and entrepreneurs escape from high-tax states like California and New York and move to zero-income tax states such as Florida and Texas.

When programs are centralized in Washington, by contrast, you simply add another layer of bureaucracy and expense.

But it’s not just a money issue. When Washington is in charge, you get a one-size-fits-all approach. That means there’s no room for innovation and diversity, which makes it much less likely that policy makers can learn what works and what doesn’t work.

Our second topic involves a story about record-setting levels of waste in California.

In a column published by Reason, Steven Greenhut describes how the unemployment insurance program in the Golden State has experienced jaw-dropping levels of fraud.

This is one of the most infuriating scandals ever to plague our state. The department, which is responsible for paying out unemployment insurance claims, has been incapable of paying legitimate claims even as it has paid as much as $31 billion in fraudulent ones, often to inmates. …Here’s a desk-pounder from CBS Los Angeles: “A Fresno girl who just celebrated her first birthday is collecting $167 per week in unemployment benefits after a claim was filed on her behalf stating that she was an unemployed actor.” The Southern California News Group reported last month that one man “is suspected of using the identities of 23 inmates and others to obtain more than $3 million in state unemployment benefits.” Approximately 10 percent of the paid claims have been fraudulent, with another 17 percent under suspicion. This will be “the largest fraud investigation in the history of America,” according to one expert.

I suspect that we’ll discover that most of the suspicious payments also were fraudulent, which means one-fourth of the money went to crooks.

Meanwhile, the same bureaucrats who blindly sent out checks to the wrong people also managed to ignore inquiries from the right people.

The department’s call center only answered 1 percent of calls that Californians had made to check on their claim status.

Amazingly, the Biden Administration has decided that the person in charge of all this waste and fraud should be rewarded.

Julie Su, the state labor secretary who was responsible for the department, may receive a big promotion…to serve as President Joe Biden’s pick for deputy secretary of the federal department of labor.

I fully agree with Mr. Greenhut’s concluding observation.

Welcome to…government, where no good deed goes unpunished and no level of incompetence goes unrewarded.

At this point, you may be wondering about the connection between our two topics.

To show how they are related, I’ll ask this rhetorical question: Why aren’t people in California upset about losing at least $31 billion to fraud, especially since the entire state budget is about $134 billion?

The answer is that they’re not wasting their own money!

The vast majority of the pandemic-related unemployment funds were provided by Washington, most notably (1) extended benefits under existing UI, (2) pandemic expansion of UI to cover people not normally eligible for UI, and (3) bonus payments.

So we shouldn’t be surprised that California bureaucrats didn’t care how much of the money was lost to fraud. As Milton Friedman wisely pointed out, there’s no incentive to be responsible when spending other people’s money on other people.

Now I’ll ask another rhetorical question: What would have happened if California was in charge of not only spending the money, but also was in charge of raising the money?

I’m sure there would have been plenty of waste and fraud, but even profligate California officials would have figured out it wasn’t a good idea to squander $31 billion of their own money.

After all, consider the case of Vermont, which quickly retreated from a proposal for single-payer health care once they realized the implications if they paid for it themselves.

The bottom line is you get better outcomes when there’s genuine decentralization. Simply stated, politicians have to be at least semi-responsible when they have to raise the money that they spend. It’s called accountability.

Which is why even the left-leaning OECD and left-leaning IMF have produced research confirming superior results with real federalism.

P.S. Switzerland is a great example of genuine federalism, whereas our system in the United States has been substantially eroded.

P.P.S. Big chunks of the federal budget should be wiped out and transferred back to state and local governments, including redistribution, health care, transportation, and education.

P.P.P.S. To see what Hayek and Mises wrote about federalism, click here.

Because of the negative impact on competitiveness, productivity, and worker compensation, it’s a very bad idea to impose double taxation of saving and investment.

Which is why there should be no tax on capital gains, and a few nations sensibly take this approach.

But they’re outnumbered by countries that do impose this pernicious form of double taxation. For instance, the Tax Foundation has a new report about the level of capital gains taxation in Europe, which includes this very instructive map.

As you can see, some countries, such as Denmark (gee, what a surprise), have very punitive rates.

However, other nations (such as Switzerland, Belgium, Czech Republic, Slovakia, Luxembourg, and Slovenia) wisely don’t impose this form of double taxation.

If the United States was included, we would be in the middle of the pack. Actually, we would be a bit worse than average, especially when you include the Obamacare tax on capital gains.

But if Joe Biden succeeds, the United States soon will have the dubious honor of being the worst of the worst.

The Wall Street Journal opined this morning about the grim news.

Biden officials leaked that they will soon propose raising the federal tax on capital gains to 43.4% from a top rate of 23.8% today. …Mr. Biden will tax capital gains for taxpayers who earn more than $1 million at the personal income tax rate, which he also wants to raise to 39.6% from 37%. Add the 3.8% ObamaCare tax on investment, and you get to 43.4%. And that’s merely the federal rate. Add 13.3% in California and 11.85% in New York (plus 3.88% in New York City), which also tax capital gains as regular income, and you are heading toward the 60% rate range. Keep in mind this is on the sale of gains that are often inflated as assets are held for years without adjustment for inflation. Oh, and Mr. Biden also wants to eliminate the step-up in basis on capital gains that accrues at death.

Beating out Denmark for the highest capital gains tax rate is bad.

But it’s even worse when you realize that capital gains often occur because investors expect an asset to generate more future income. But that future income gets hit by the corporate income tax (as well as the tax on dividends) when it actually materializes.

So the most accurate way to assess the burden on new investment is to look at the combined rate of corporate taxation and capital gains (as as well as the combined rate of corporate taxation and dividend taxation).

By that measure, the United States already has one of the world’s most-punitive tax regimes, And Biden wants to increase all of those tax rates.

Sort of a class-warfare trifecta, and definitely not a recipe for good economic results.

For those interested in more details, here’s a video I narrated on the topic back in 2010.

And I also recommend these columns (here, here, and here) for additional information on why we should be eliminating the capital gains tax rather than increasing it.

P.S. Don’t forget that there’s no indexing to protect taxpayers from having to pay tax on gains that are due only to inflation.

P.P.S. And also keep in mind that some folks on the left want to impose tax on capital gains that only exist on paper.

Way back in 2010, I shared this video explaining how “gross domestic product” and “gross domestic income” are basically the same number, but warning that the former leads to sloppy thinking (including the Keynesian myth that consumer spending drives the economy).

Since President Biden is seeking to resuscitate Keynesian Economics, let’s revisit this topic.

The first thing I want to do is to reassure skeptical readers that there’s nothing remotely controversial about my assertion that GDP and GDI are equivalent measures. It’s simply the common-sense recognition that total spending in a country is going to closely match total income.

If you really want to get into the technical weeds, the Bureau of Economic Analysis has a very detailed document showing how all the measurements fit with each other. Feel free to read that material by clicking here.

But if you don’t have the time or inclination to wade through all that material, here are two charts from the document that capture what’s important, at least for purposes of our discussion about macroeconomic policy.

First, here’s a chart showing that GDP and GDI are two ways of arriving at the same number (though never exactly identical because of statistical discrepancies).

And if you really want to be a wonk, here’s the BEA’s depiction of GDP and GDI, along with a bunch of other measures of economic output.

And if all that boring background doesn’t convince you that it’s okay to equate GDP and GDI, let’s go back to 2018 and look at a column in the Wall Street Journal by Jason Furman, who was Chairman of the Council of Economic Advisers for President Obama

…the data aren’t perfect. …GDP is not measured directly. Instead, the BEA sums up economy-wide expenditures from dozens of data sources, covering consumption, investment, government spending, net exports and more. …the underlying data are noisy and incomplete, meaning that revisions to GDP growth estimates can be large and often confusing. …Drawing on more data can cancel out some of this noise and produce a more accurate figure that requires smaller revisions. Specifically, the BEA separately gauges the size of the economy by adding up all the different sources of income, such as wages and profits. This figure is called gross domestic income, or GDI… Ultimately, GDI should be identical to GDP, since all money spent is money earned.

With all that out of the way, now let’s move to some analysis that actually is controversial (not in my mind, of course, but my left-leaning friends probably won’t agree with me).

As explained in the video, and as I wrote back in 2013, people without much knowledge about economics draw inaccurate conclusions when using data on GDP .

But don’t take my word for it. Professor Alexander William Salter of Texas Tech University described, in an article for National Review, how GDP accounting equations are mistakenly interpreted to justify more government spending.

The most egregious abuses of economics that we see today start with an accounting identity — a true statement or equation — but end with an absurd economic claim. …Here’s an example: If you’ve taken an introductory economics course, this equation is probably familiar to you: Y=C+I+G+(X-IM). In plain English: Gross Domestic Product (GDP, in this equation ‘Y’) is the sum of consumption (C), investment (I), government spending (G), and net exports (X-IM). This is the foundation of national-income accounting, and it’s true by construction. GDP is defined as the sum of these things. Nothing in this equation tells us how the economy actually works. …often it’s misused. Here’s a case from the Left: Because government expenditures enter positively into GDP, increased government spending raises GDP. Simple, right? Not so fast. …Uncle Sam spending more doesn’t increase the size of the economic pie. It just redistributes existing slices to Uncle Sam, or to whomever Uncle Sam finances. More public-sector consumption means less private-sector consumption.

That’s a look at theory.

He also applies theory to reality, most recently in a column for the Wall Street Journal about Biden’s supposed infrastructure plan.

Whether public or private, spending doesn’t cause growth. Mr. Stiglitz and his allies have it backward: Consumption is downstream from production. Growth is about increasing the supply of goods over time; you can’t spend if the goods haven’t been produced. Production grows as technology and production processes improve. Such improvement requires saving and investing rather than consuming. …all the financing in the world won’t boost productivity if it isn’t channeled correctly. More-efficient producers, not partisan spending, create economic flourishing. Though the president’s plans will consume plenty, they’ll produce only disappointment.

That last sentence is an apt summary. A bigger government means a smaller economy.

The empirical evidence shows that nations with smaller fiscal burdens economically out-perform countries with large welfare states. Simply stated, there’s an incentive for efficiency in the private sector, whereas people in Washington are governed by the perverse incentives described by “public choice” theory.

I’ll close with a relevant caveat that was mentioned in the above video. It is possible for a nation to consume more than it produces. But only if it borrows from overseas, and only at the cost of having to sacrifice future income to service the additional debt.

P.S. If you want more information, here’s my video on Keynesian Economics, and here’s my 4-part series on the economics of government spending.

P.P.S. I also wrote about GDP vs. GDI in 2017, in part to debunk some grotesquely dishonest reporting by Time.

Whenever I’m asked about the “tax gap,” I point to the academic evidence, from multiple sources, and explain that lower tax rates and tax reform are the best way to get higher levels of tax compliance.

Indeed, even the pro-tax International Monetary Fund has published research clearly identifying punitive tax policy as the leading cause of tax evasion and tax avoidance.

It’s time to take another look at this issue because the Biden Administration is trying to create a competing narrative.

The head of the IRS says that we need huge increases in the IRS’s budget in order to deal with a supposedly crisis of tax cheating.

Here are some excerpts from a story in the New York Times.

The United States is losing approximately $1 trillion in unpaid taxes every year, Charles Rettig, the Internal Revenue Service commissioner, estimated on Tuesday, arguing that the agency lacks the resources to catch tax cheats. …Most of the unpaid taxes are the result of evasion by the wealthy and large corporations, Mr. Rettig said. “We do get outgunned,” Mr. Rettig said during a Senate Finance Committee hearing… Senator Ron Wyden of Oregon, the Democratic chairman of the committee, called the $1 trillion tax gap a “jaw-dropping figure.” …The size of I.R.S.’s enforcement division has declined sharply in recent years, Mr. Rettig said, with its ranks falling by 17,000 over the last decade. The spending proposal that the Biden administration released last week asked for a 10.4 percent increase above current funding levels for the tax collection agency, to $13.2 billion.

There are a couple of points that cry out for correction.

First, the IRS is cherry picking data to make it seem like it is starved of resources. The bureaucrats got a record pile of money in 2010, so they use that year when making comparisons.

But if you look at long-run data, you can see that the IRS budget has almost doubled over the past four decades.

And that’s after adjusting for inflation.

Second, the $1 trillion figure is a make-believe number, more than twice as high as the IRS’s last official estimate.

Commissioner Rettig may as well have said $2 trillion. Or $5 trillion. After all, he’s simply pulling a number out of the air in an effort to convince Congress to give the IRS an even bigger budget.

By the way, since I mentioned the IRS’s official estimate, here’s a look at those numbers, which were published in September 2019. What deserves special attention is that there’s very little underpaying by corporations.

Indeed, it’s only 9 percent of the total (circled in red).

So where are the big sources of evasion?

It’s mostly small businesses. The IRS assumes modest-sized companies (especially family-owned firms) play lots of games so they can underreport income and overstate deductions.

So if the bureaucrats get a big budget increase, it basically means more IRS agents harassing lots of mom-and-pop businesses.

Can that approach shake loose some more money for the government? I’m sure the answer is yes, but I want to close by returning to my original point about why it would be better to instead focus on good tax policy.

Let’s take a look at a recent study from Mai Hassan and Friedrich Schneider (the world’s leading scholar on the underground economy). Here are some of their findings.

The shadow economy includes all of the economic activities that are deliberately hidden from official authorities for various reasons. …Monetary reasons include avoiding paying taxes and/or social security contributions… Given the purpose of our study, the shadow economy reflects mostly the legal economic and productive activities that, if recorded, should contribute to the national GDP. Therefore, the definition of the shadow economy in our study tries to avoid illegal or criminal activities …It is widely accepted in the literature that the most important cause leading to the proliferation of the shadow economy is the tax burden. The higher the overall tax burden, the stronger are the incentives to operate informally in order to avoid paying the taxes.

The study looks at all sorts of variables to see what else has an impact on tax evasion.

Considering the result of our MIMIC estimations…we clearly see that the tax burden has a positive (theoretically expected) sign and is statistically significant at the 5% confidence level. The regulatory burden variable (size of government) has also the theoretically expected sign and is highly statistically significant at the 1% confidence level. The estimated coefficient of the unemployment rate is also highly statistically significant and has the expected positive sign. The economic freedom index has the expected negative sign and is at the 10% confidence level statistically significant.

In other words, it’s not just tax policy, though that plays the biggest role.

But the part of the study that is relevant for today is that the United States has the world’s 2nd-highest level of tax compliance, trailing only Switzerland.

Here are the top-10 nations.

The obvious takeaway is that there’s no crisis. Not even close.

By all means, we can try to jump Switzerland and move into first place. But let’s increase tax compliance the smart way – by lowering tax rates and reforming the tax code.

P.S. The Biden Administration and the IRS are feeding us garbage data for self-interested reasons (a classic case of “public choice” in action).

As part of my recent interview about European economic policy with Gunther Fehlinger, I pontificated on issues such as Convergence and Wagner’s Law.

I also explained why a Swiss-style spending cap could have saved Greece and Italy from fiscal crisis. Here’s that part of the discussion.

For those not familiar with spending caps, this six-minute video tells you everything you need to know.

Simply stated, this policy requires politicians to abide by fiscal policy’s Golden Rule, meaning that – on average – government spending grows slower than the private economy.

And that’s a very effective recipe for a lower burden of spending and falling levels of red ink.

One of the points I made in the video is that spending caps would prevented the fiscal mess in Greece and Italy.

To show what I mean, I went to the International Monetary Funds World Economic Outlook database and downloaded the historical budget data for those two nations. I then created charts showing actual spending starting in 1988 compared to how much spending would have grown if there was a requirement that the budget could only increase by 2 percent each year.

Here are the shocking numbers for Greece.

The obvious takeaway is that there never would have been a fiscal crisis if Greece had a spending cap.

That also would be true even if the spending cap allowed 3-percent budget increases starting in 1998.

And it would be true if the 2-percent spending cap didn’t start until 2000.

There are all sorts of ways of adjusting the numbers. The bottom line is that any reasonable level of spending restraint could have prevented the horrible misery Greece has suffered.

Here are the numbers for Italy.

As you can see, the government budget has not increased nearly as fast in Italy as it did in Greece, but the burden of spending nonetheless has become more onerous – particularly when compared to what would have happened if there was a 2-percent spending cap.

I’ve written many times (here, here, here, and here) about Italy’s looming fiscal crisis. As I said in the interview, I don’t know when the house of cards will collapse, but it won’t be pretty.

And tax reform, while very desirable, is not going to avert that crisis. At least not unless it is combined with very serious spending restraint.

P.S. For those who want information about real-world success stories, I shared three short video presentations back in 2015 about the spending caps in Switzerland, Hong Kong, and Colorado.

P.P.S. It’s also worth noting that the United States would be in a much stronger position today if we had enacted a spending cap a couple of decades ago.

In my lifetime, the only good president has been Ronald Reagan, whose policies restored America’s economy and led to the end of the Soviet Union’s evil empire.

But if we look at the past 100 years, Calvin Coolidge might rank even higher.

Amity Shlaes was the right person to narrate that video. She’s written the definitive biography of Coolidge.

Indeed, I’ve previously cited her expertise on Coolidge’s fiscal restraint, as well as Silent Cal’s wisdom on tax policy.

Given the tendency of politicians to buy votes with other people’s money, I’m especially impressed by his frugality. He followed my Golden Rule about 90 years before I ever proposed the concept.

Let’s further investigate his performance.

Larry Reed of the Foundation for Economic Education has two must-read articles about Coolidge’s track record.

First, to illustrate Coolidge’s admirable philosophy of fiscal restraint, he shares these key passages from his 1925 inauguration.

I favor the policy of economy, not because I wish to save money, but because I wish to save people. The men and women of this country who toil are the ones who bear the cost of the Government. Every dollar that we carelessly waste means that their life will be so much the more meager. Every dollar that we prudently save means that their life will be so much the more abundant. Economy is idealism in its most practical form. The wisest and soundest method of solving our tax problem is through economy…The collection of any taxes which are not absolutely required, which do not beyond reasonable doubt contribute to the public welfare, is only a species of legalized larceny. They do not support any privileged class; they do not need to maintain great military forces; they ought not to be burdened with a great array of public employees…. I am opposed to extremely high rates, because they produce little or no revenue, because they are bad for the country, and, finally, because they are wrong. …The wise and correct course to follow in taxation and all other economic legislation is not to destroy those who have already secured success but to create conditions under which everyone will have a better chance to be successful.

Magnificent.

And you should also see what he said in 1926, when celebrating the 150th anniversary of America’s independence.

Larry Reed also debunked the silly notion that Coolidge was responsible for the Great Depression of the 1930s.

So-called “progressives” tell us that Calvin Coolidge was a bad president because the Great Depression started just months after he left office. …Should Coolidge get any of the blame for the Great Depression? The Federal Reserve’s expansion of money and credit in the 1920s certainly set the country up for at least a mild fall, but that wasn’t Coolidge’s fault. He saw the Fed as the “independent” entity it was supposed to be and didn’t meddle with it. At least once he expressed concern that the Fed might be fostering a bubble but he otherwise didn’t make a stink about it. “Not my bailiwick,” he believed. We can legitimately say that Coolidge should have criticized the Fed’s easy money policy more loudly. …In any event, far worse than the Fed’s inflation was its deflation, which didn’t begin in earnest until the final weeks of the Coolidge administration. …Every good economist concedes that erratic monetary policy at the Fed was at least a minor cause of the 1920s boom and surely a major cause of the 1930s bust. You can’t blame that on Coolidge.

If you want more information about the Fed’s role in causing economic turmoil, I recommend this video presentation from George Selgin.

Larry’s column points out that both Herbert Hoover and Franklin Roosevelt then imposed policies that lengthened and deepened the downturn.

Markets were, in fact, making a comeback in the spring of 1930 and unemployment had not yet hit double digits. Not until June 1930, when Congress and President Hoover raised tariffs and triggered an international trade war, did recession cascade into depression. Two years later, they flattened just about everybody who was still standing by doubling the income tax. …Franklin Roosevelt…then delivered…absurd interventions kept the economy in depression for another seven years.

What especially tragic about the Great Depression is that Warren Harding showed, just a decade earlier, how to quickly put an end to a deep downturn.

I’ll close with by emphasizing this quote from Coolidge’s inaugural address. Every supporter of limited government should withhold support from any politician who is unable to echo this sentiment today.

P.S. There is another president that I admire, though the number of good presidents is greatly outnumbered by the motley – and bipartisancollection of bad presidents.

Even though I think economic growth is very important for human flourishing and strongly support the laissez-faire policies that will generate more prosperity, I’m mostly a libertarian because of moral reasons.

Simply stated, I hate when government bullies people like Jerry Johnson.

As explained in the video, Jerry is a victim of asset forfeiture, a policy that literally allows bureaucrats to steal from citizens.

I wish I was joking or exaggerating.

Moreover, this isn’t something that only happens in very rare instances. It’s so pervasive that in some years, bureaucrats actually steal more from people than burglars!

Indeed, the law actually gives cops an incentive to steal. That’s why it’s known as “policing for profit.”

The silver lining to this dark cloud is that America’s best Supreme Court Justice wants to end this awful scam.

P.S. I’m tempted to create a Victims of Thuggery Hall of Fame. If so, Jerry Johnson will be a member along with these other people who have been abused by government.

P.P.S. It’s worth noting the first two people in charge of the federal government’s asset forfeiture program have since announced their opposition to this despicable practice.

P.P.P.S. Just like intrusive and ineffective money-laundering laws, wretched asset forfeiture laws are largely the result of the foolish War on Drugs. One bad policy generates another bad policy. Lather, rinse, repeat.

Libertarian Humor

It hasn’t even been a month since I shared the most-recent collection of libertarian humor, but I’ve received so many clever items that it’s time augment our collection.

Our first item is this cartoon strip about children getting drawn into the movement.

Speaking of children, the second item for today’s collection is this story from the Babylon Bee.

…local mom Shirley Wood had a surprise when she picked up her three-year-old to tell him it was time for bed. “Am I being detained?” shouted the toddler at the top of his lungs, greatly befuddling Mrs. Wood. …Confused, Mrs. Wood did put him down and tried to figure out what was going on. “Oh, I’ve been teaching him libertarian principles,” explained Mrs. Wood’s husband, Fred Wood. …“Then you get him to bed.” Mr. Wood approached Zach to try to non-violently persuade him to go to bed. “Hey, buddy. Seems like it’s time to sleep now.” “Can’t sleep,” replied Zach. “Fed still out there. Need to audit the Fed.” …Eventually, Mr. Wood was able to persuade Zach to go to bed with the promise of reading him a bedtime story about cryptocurrency.

Having raised three kids, I can vouch for the fact that they are natural libertarians at bedtime.

For our next item, someone made the mistake of asking a libertarian about disdain for government. Nearly two hours later…

If you wonder why it takes so much time for a libertarian to explain the flaws of government, this primer from the Babylon Bee may give you a good idea.

Libertarianism is the only logically consistent political philosophy, and it’s held primarily by crazy people. …The Bee is here to set the record straight once and for all about our weird, drug and Bitcoin-obsessed friends with this handy explainer. …Beliefs: It’s mostly about wanting to smoke weed and run around naked while shooting guns in the air, we think. …Prominent proponents: Ron Paul, that weird guy who’s always smoking weed in your drama class… Prominent critics: Republicans, Democrats, anyone who loves war and hates freedom. …Key texts: Atlas Shrugged (we think, no one’s actually ever read it)… How do you spot a Libertarian? …look for guys carting around books from the 1700s and shouting, “AM I BEING DETAINED?!” at everyone from police officers to Arby’s cashier

I’ve saved the best for last.

We libertarians think of ourselves as freedom fighters. In our Walter Mitty-style fantasies, we’re waging big fights for big principles. That doesn’t match our real lives.

But, however dorky we are in real life, at least we have our own anthem.

My views on the value-added tax are very straightforward.

These points are worth contemplating because I am increasingly worried that we’ll get a VAT because of misguided conservatives rather than because of tax-and-spend leftists.

Consider, for instance, Alan Viard of the American Enterprise.

He wrote a column last November arguing that we should let politicians in Washington have this new source of tax revenue, and I explained why his arguments were wrong.

But I’m obviously not very persuasive since he just reiterated his support for a VAT in an interview with the Dallas Federal Reserve Bank. Here are some of the highlights (lowlights might be a better term).

…tax increases on corporations and high-income households as well as benefit cuts could be part of a debt-reduction package…such tax increases would have limited revenue potential. …a VAT should—and undoubtedly would—be accompanied by rebates to offset the tax burden on low-income households. The Tax Policy Center estimated that a 7.7 percent VAT with rebates, which would raise the same net revenue as a 5 percent VAT without rebates, would generally be progressive. …the VAT would be only one component of the federal tax system. Individual and corporate income taxes would continue to add progressivity.

There are two remarkable admissions in the above excerpts.

  1. He’s basically admitting a VAT would be accompanied by class-warfare tax hikes on companies and households – thus undermining the usual argument that the VAT is needed to avert these other types of tax increases.
  2. He’s basically admitting a VAT would be accompanied by a new entitlement program of “rebates” – thus undermining the argument that VAT revenues would be used to reduce deficits and debt.

But what I found particularly amazing is that Viard never tries to empirically justify his main argument that, a) debt is a problem, and b) the VAT is part of a solution.

I don’t particularly object to the first part (though I would argue the real problem is spending). But the assertion that a VAT will solve that problem is contrary to real-world evidence.

For instance, government debt has continued to grow ever since Japan adopted a VAT.

Moreover, the evidence from Europe, which shows not only that the burden of government spending increased after the VAT was adopted beginning (see chart at start of column), but also that government debt subsequently exploded (see nearby chart).

And that data doesn’t even include all the additional red ink accumulated in recent years!

P.S. The clinching argument is that one of America’s best presidents opposed a VAT and one of America’s worst presidents supported a VAT. That tells you everything you need to know.

P.P.S. The pro-tax International Monetary Fund inadvertently produced a study showing why the VAT is a money machine for big government.

P.P.P.S. You can enjoy some amusing – but also painfully accurate – cartoons about the VAT by clicking herehere, and here.

Just like last year, April 15 isn’t the official deadline this year for filing your annual tax return. But we’re still going to “celebrate” with some memes about the income tax and the IRS.

We’ll start with something that has always bothered me, which is the fact that many people look forward to filing their taxes because they get a refund.

Yet that simply means that they gave the government free use of their money because of excessive withholding!

It also galls me when IRS documents refer to customer service when none of us are voluntary participants.

That’s the point of this next meme.

And since we’re mocking our friends at the IRS, here’s another item worth sharing.

But we should have some sympathy for tax collectors.

They sometimes have a challenging job.

For our final IRS-focused bit of satire, let’s turn to the Babylon Bee‘s report on taxation in outer space.

President Trump’s new Space Force has been stealing the imagination of the public… Not to be outdone, the Democrats are now trying to show they can also look to the future with their new proposal: Space IRS. “We also are inspired by watching shows such as Star Wars,” Nancy Pelosi told the press, “and seeing someone like Han Solo, a smuggler who is obviously avoiding taxes. …there has to be a way to follow someone like that and see how much he’s spending at cantinas and sabacc tables and know that he’s hiding income. That’s the job of Space IRS.”

Now let’s shift to some satire about the economics of taxation.

Starting with this look at the Biden Administration’s philosophy.

Next we have a woman with a Bernie Sanders mindset. I suspect the guy is about to learn an important lesson about incentives and marginal tax rates.

Here’s a visual depiction of double taxation.

Here’s some tax satire from the left about companies using international tax rules to minimize their fiscal burdens.

I can’t resist pointing out two things in response.

  1. If the corporate tax rate is low, companies have less incentive to utilize existing preferences in the tax code or lobby for the creation of new ones.
  2. Our friends on the left don’t seem to realize that the foreign-source income of American-based companies is subject to tax by foreign governments.

As usual, I’ve saved the best (in my humble opinion) for last.

Biden recently attacked the 2nd Amendment, and some clever person applied his thinking to the 16th Amendment.

P.S. My archive of IRS humor features a new Obama 1040 form, a death tax cartoon, a list of tax day tips from David Letterman, a Reason video, a cartoon of how GPS would work if operated by the IRS, an IRS-designed pencil sharpener, two Obamacare/IRS cartoons (here and here), a collection of IRS jokes, a sale on 1040-form toilet paper (a real product), a song about the tax agency, the IRS’s version of the quadratic formula, and (my favorite) a joke about a Rabbi and an IRS agent.

I’ve written many times about the value of cost-benefit analysis for government policy.

My go-to example is that a nationwide 5-mph speed limit would reduce traffic fatalities, but the resulting economic damage would be so pervasive that there would a net reduction in life expectancy.

In other words, the indirect effects would outweigh the direct effects.

But that’s just a theoretical example.

We now have a real-world case study thanks to a remarkably short-sighted decision about the Johnson & Johnson vaccine by bureaucrats at the Food and Drug Administration (FDA).

Ronald Bailey of Reason is very blunt about the deadly consequences.

The U.S. Centers for Disease Control and Prevention (CDC) and the Food and Drug Administration (FDA) issued a statement today “recommending a pause in the use” of Johnson & Johnson’s COVID-19 vaccine…based on six cases of a rare blood clot disorder in people who had been inoculated with the one-dose vaccine. There have been six cases out of 6.8 million people who have already been inoculated with the vaccine. The blood clot incidents all occurred in women between the ages of 18 and 48. Those odds amount to one in 1.13 million, which is comparable to your annual chances of being struck by lightning (1 in 1.22 million). For comparison, a November 2020 meta-analysis in The Lancet found that more than one in five very ill hospitalized and post-mortem* COVID-19 patients experienced venous thromboembolism—that is, blood clots in their veins. A 2010 study in the Journal of American Preventive Medicine reported that the annual incidence of thromboembolism between the ages of 15 and 44 was about 1.5 cases per 1,000 people. In addition, the risk of blood clots from taking oral contraceptives is about 1 in 1,000 annually. …By focusing on the not-yet-proven, very low risk of blood clots versus the known risks of the increased misery, hospitalizations, and deaths that the Johnson & Johnson vaccine would have prevented, our overly cautious public health bureaucrats will likely cause more sickness and deaths among Americans than would otherwise have occurred.

Just in case you’re tempted to dismiss the above article because of Reason‘s libertarian perspective, Philip Bump’s article in the Washington Post makes the same point about tradeoffs.

It’s easy to imagine the internal debate at the Centers for Disease Control and Prevention upon learning that six cases of a rare, dangerous blood clot have been found in women who received the Johnson & Johnson vaccine. Allowing the vaccine to be distributed while experts reviewed the cases risks exposing more people to the possible problem. Pausing distribution, though, runs a different risk… Given that about 6.8 million doses of the Johnson & Johnson vaccine have been administered and that there have been only six such incidents, the rate at which those red dots occur is about 1 in 1.1 million vaccinations. …By way of comparison, every year about 12 in 100,000 Americans die in a car crash. …more than 561,000 people in the United States have died of covid-19, the disease caused by the virus. That’s about 1.8 percent of the 31.2 million people who have contracted it. Given the effectiveness of the Johnson & Johnson vaccine in preventing serious illness and death, vaccinating 6.8 million people could have…protected millions of people probably prevented thousands of deaths — with six problematic incidents.

Mr. Bump makes the broader point that each of us make cost-benefit decisions every day.

Nearly everything we do is a balance between risk and reward. Driving down the street, as mentioned above. Walking outside, where a meteorite could suddenly slam into your skull. Sitting on your couch, where your floor could give way or an electrical fire could break out or a bear could crash through your window. None of these things is likely, so we don’t worry about them, but they could. We draw a balance.

The people on Twitter who can do math (regardless of ideology) were united in their disdain for what the bureaucrats did.

Such as:

And:

And:

And:

And:

And:

And that’s just a very small sampling.

For my modest contribution to this discussion, I want people to have liberty to take the J&J vaccine, regardless of the shameful actions of the bureaucrats in Washington (or their counterparts at the state level).

Indeed, I also want them to have the freedom to take the AZ vaccine.

Let adults make their own choices about costs and benefits, about risks and rewards.

That means they can choose vaccines (or not), as well as whether to vape, to own a gun, to donate/sell organs, or to try experimental treatments.

Liberty is not only a good principle, it also generates the best health outcomes.

P.S. To learn more about the harmful policies of the FDA, click here and here.

Back in 2010, I narrated this video on money laundering for the Center for Freedom and Prosperity, mostly to help people understand that governments are imposing huge costs on both industry and consumers without any offsetting benefits (such as reductions in crime).

As you can tell from the video, I’m not a big fan of anti-money laundering (AML) laws and know-your-customer (KYC) regulations.

And in the 11-plus years since the video was released, I’ve shared lots of additional data about the costly futility of the government anti-money laundering laws and regulations.

That’s the bad news.

The good news (sort of) is that more people are noticing that the current approach is an expensive failure. Even some folks from the establishment media are waking up to the problem, as illustrated by an article in the latest edition of the Economist.

…banks remain the Achilles heel in the global war on money-laundering, despite the reams of regulations aimed at turning them into front­line soldiers in that conflict. However, closer examination suggests that the global anti-money-laundering (AML) system has serious structural flaws, largely because governments have outsourced to the private sector much of the policing they should have been doing themselves. …Money-laundering was not even a crime across much of the world until the 1980s. Since then countries from Afghanistan to Zambia have been arm-twisted, particularly by America, into passing laws. …This has turned AML compliance into a huge part of what banks do and created large new bureaucracies. It is not unusual for firms such as HSBC or JPMorgan Chase to have…more than 20,000 overall in risk and compliance.

Here’s some of the evidence cited in the article.

A study published last year…concluded that the global AML system could be “the world’s least effective policy experiment”, and that compliance costs for banks and other businesses could be more than 100 times higher than the amount of laundered loot seized. A report based on a survey of professionals, published last year by LexisNexis, an analytics firm, found that worldwide spending on AML and sanctions compliance by financial institutions (including fund managers, insurers and others, as well as banks) exceeds $180bn a year. …the numbers tell of a war being lost. …Statistics on how much is intercepted by authorities are patchy. A decade-old estimate by the United Nations Office on Drugs and Crime put it at just 0.2% of the total. In 2016 Europol estimated the confiscation rate in Europe to be a higher but still paltry 1.1%.

Sounds like a damning indictment right?

But I wrote that the article was only “sort of” good news. That’s because the writers at the Economist fail to reach the logical conclusion.

Instead of junking the current system, they want to double down on failure.

…governments need to work harder collectively to make the AML system fit for purpose.

This is akin to looking at welfare programs, realizing that they create dependency and weaken families, but then supporting even more redistribution.

Sadly, I suspect the new evidence cited in the article won’t lead to more sensible thinking in Washington, either.

  • Democrats don’t care if the current approach is failing since they see anti-money laundering laws as a way of destroying financial privacy, which they think is necessary to collect more tax revenue.
  • Republicans don’t care if the current approach is failing because they mindlessly support a tough-on-crime approach, regardless of whether it actually produces positive results.

Indeed, politicians in DC recently expanded AML laws.

I guess the moral of the story is that politicians can always take a bad situation and make it worse.

P.S. I’m batting .500 in my career as a global money launderer.

P.P.S. Here’s Barack Obama’s satirical encounter with AML laws and KYC rules.

P.P.P.S. Speaking of Obama and money laundering, I fear Biden will resuscitate his reprehensible “Operation Chokepoint.”

P.P.P.P.S. I also fear Biden will continue support for asset forfeiture, another disgusting policy that is a part of money-laundering policy.

While debunking OECD and IMF research on inequality, I explained that it’s important to distinguish between income that is earned honestly and loot that is obtained thanks to government cronyism.

That’s also the message of this video from the Hoover Institution.

In the video, David Henderson contrasts how our lives are improved when an entrepreneur develops a new product.

The entrepreneur almost surely gets richer faster than we get richer, but we all wind up better off. Indeed, there’s a clear relationship between the share of rich people in a society and overall prosperity.

And that’s a good description of what has actually happened in market-oriented nations such as the United States.

Heck, it even happened to some degree in China when there was partial reform.

By contrast, government favoritism is a recipe for inefficiency and stagnation (and since LBJ was an awful president, I like that David used him for the example of corrupt cronyism).

In a column for CapX, Andrew Lilico correctly differentiates between moral inequality and immoral inequality.

The only legitimate questions about the distribution of wealth concern whether it is truly the property of those that possess it, as opposed to having stolen or extorted it. …Wealth is property. If it has been innocently acquired, people should be able to enjoy their property without censure or the (quite incorrect) suggestion that their flourishing causes others harm.

Not only is it incorrect to suggest that one person’s flourishing causes harm to others, it is completely wrong.

As pointed out in the video, Nobel Prize-winning economist William Nordhaus calculated that entrepreneurs only capture a tiny fraction (2.2 percent) of the wealth they create for society. That means 97.8 percent for the rest of us.

And other academic scholars have produced similar results.

The bottom line is that the recipe for growth and prosperity is the same recipe for helping the less fortunate.

P.S. As you can see from his Wikipedia page, Professor Nordhaus is not a libertarian or conservative, so it should be clear he wasn’t trying to come up with a number to justify capitalism.

P.P.S. I also recommend my four-part series (see herehere, here, and here) on why we should care about poverty reduction rather than pushing for coerced equality, as well as my two-part series (here and here) on how statist policies produce the immoral type of inequality.

There’s a growing controversy about whether the various coronavirus-lockdown rules should be relaxed for people who have been vaccinated (as opposed to being relaxed for hypocritical politicians).

And if those restrictions are relaxed, vaccinated people presumably will need some sort of proof, like a “vaccine passport.”

Many people understandably are hesitant about this concept, particularly if government is involved. After all, we have many examples of seemingly innocuous ideas becoming nightmarish mistakes (such as adopting the income tax).

And the last thing any of us would want (I hope!) is something that could devolve into an authoritarian, Chinese-style system for monitoring and controlling private life.

But what if government isn’t involved? What if private businesses decide that customers are only allowed if they prove they’ve been vaccinated?

From a libertarian perspective, guided by core principles such as property rights and freedom of association, that should be totally acceptable.

And that’s true even if we think the owners of the businesses are making silly choices. After all, it’s their property.

Some conservatives, however, either don’t understand libertarian principles or they’re willing to abandon those principles for political convenience.

For instance, Will Wilkinson observes that many Republicans are forgetting the libertarian principle of freedom of association.

Conservatives have been freaking out about the mere possibility of vaccine passports… The idea is that the ability to credibly prove vaccination status will speed the restoration of normal social and economic life. This works by allowing businesses, schools, sports leagues, etc. to discriminate against those who haven’t been vaccinated. …one of the bright lines dividing American liberals and conservatives concerns the limits of freedom of association. Conservatives, and especially those with a libertarian streak, are far more likely to be absolutists about the right to exclude anyone from your property, business, or private club or association for any reason. …If the Civil Rights Act is problematic because it infringes on freedom of association, the permissibility of discriminating against customers who might carry a fatal infection is a total no-brainer. Right? Ha! …there is no actual principle at work here. Conservatives are consistent only in their opportunistic incoherence.

Moreover, in his column for the Atlantic, David Frum notes that the GOP is hypocritically abandoning its support for property rights.

Whether vaccine passports ever will exist remains highly uncertain. A lot of questions remain about the technology required—and about whether the concept makes any business sense. …For now, then, the discussion about vaccine passports remains theoretical—which makes the discussion all the more impassioned and embittered. DeSantis and others are loudly advertising that with COVID-19, …their version of freedom puts greater priority on right-wing cultural folkways than on rights of property and ownership. …To appease those cultural blocs, Republican politicians must be willing to sacrifice everything, including what used to be the party’s foundational principles. …to avoid contradicting the delusions of anti-vaccine paranoiacs, property rights must give way, freedom to operate a business must yield. …with COVID-19, …the new post-Trump message from the post-Trump GOP is: Private property is socialism; state expropriation is freedom. It’s a strange doctrine for a party supposedly committed to liberty and the Constitution, but here we are.

I think it’s fair to say that neither Wilkinson nor Frum are libertarians, or even conservatives, but I also think they are correct in pointing out that there is a lot of hypocrisy and incoherence.

That being said, I am glad that there’s lots of resistance to the idea of vaccine passports. Why? Because if businesses impose such rules and there’s no pushback, that probably increases the likelihood that politicians will try something similar.

And that’s where libertarians should be drawing the line, as Professor Don Boudreaux has noted.

After all, if a business does something we don’t like, we are free to patronize competitors. But if government does something we don’t like, there’s the horrible choice of obey or go to jail (or get a fake passport on the black market).

For what it’s worth, I hope this becomes a moot point. After all, once everybody who wants to get vaccinated has been vaccinated, there’s no plausible argument for maintaining any more restrictions on normal life.

P.S. But if it does become a real issue, it will probably generate new jokes, cartoons, and memes, all of which will require me to expand my collection of coronavirus-themed humor.

The International Monetary Fund’s dogmatic support for higher taxes and bigger government makes it “the dumpster fire of the global economy.”

Wherever IMF bureaucrats go, it seems they push for high-tax policies that will weaken growth.

Call me crazy, but I’m baffled that the IMF seems to think nations will grow faster and be more prosperous if politicians seize more money from the economy’s productive sector.

Unfortunately, the IMF has been especially active in recent months..

In a column for the U.K.-based Guardian, Larry Elliott writes about the IMF using the pandemic as an excuse to push for higher taxes.

…the IMF called for domestic and international tax changes that would boost the money available to expand public services, make welfare states more generous… “To help meet pandemic-related financing needs, policymakers could consider a temporary Covid-19 recovery contribution, levied on high incomes or wealth,” the fiscal monitor said. …Paolo Mauro, the deputy director of the IMF’s fiscal affairs department, said there had been an “erosion” of the taxes paid by those at the top of the income scale, with the pandemic offering a chance to claw some of the money back. “Governments could consider higher taxes on property, capital gains and inheritance,” he said. “One specific option would be a Covid-19 recovery contribution – a surcharge on personal tax or corporate income tax.”

Mr. Mauro, like most IMF bureaucrats, is at “the top of the income scale,” but he doesn’t have to worry that he’ll be adversely impact if politicians seek to “claw some of the money back.”

Why? Because IMF officials get tax-free salaries (just like their counterparts at other international bureaucracies).

Writing for the IMF’s blog, Mr. Mauro is joined by David Amaglobeli and Vitor Gaspar in supporting higher taxes on other people.

Breaking the cycle of inequality requires both predistributive and redistributive policies. …The COVID-19 crisis has demonstrated the vital importance of a good social safety net that can be quickly activated to provide lifelines to struggling families. …Enhancing access to basic public services will require additional resources, which can be mobilized, depending on country circumstances, by strengthening overall tax capacity. Many countries could rely more on property and inheritance taxes.  Countries could also raise tax progressivity as some governments have room to increase top marginal personal income tax rates… Moreover, governments could consider levying temporary COVID-19 recovery contributions as supplements to personal income taxes for high-income households.

Needless to say, the IMF is way off base in fixating on inequality instead of trying to reduce poverty.

Meanwhile, Brian Cheung reports for Yahoo Finance about the IMF’s cheerleading for a global tax cartel.

The International Monetary Fund (IMF) says it backs a U.S. proposal for a global minimum corporate tax. IMF Chief Economist Gita Gopinath said that the fund has been calling for international cooperation on tax policy “for a long time,” adding that different corporate tax rates around the world have fueled tax shifting and avoidance. “That reduces the revenues that governments collect to do the needed social and economic spending,” Gopinath told Yahoo Finance Tuesday. “We’re very much in support of having this kind of global minimum corporate tax.” …Gopinath also backed Yellen’s push forward on an aggressive infrastructure bill… As the IMF continues to encourage countries with fiscal room to continue spending through the recovery, its chief economist said investment into infrastructure is one way to boost economic activity.

Based on the above stories we can put together a list of the tax increases embraced by the IMF, all justified by what I call “fairy dust” economics.

  • Higher income tax rates.
  • Higher property taxes.
  • More double taxation of saving/investment.
  • Higher death taxes.
  • Wealth taxes.
  • Global tax cartel.
  • Higher consumption taxes.

And don’t forget the IMF is a long-time supporter of big energy taxes.

All supported by bureaucrats who are exempt from paying tax on their own very-comfortable salaries.

P.S. I feel sorry for two groups of people. First, I have great sympathy for taxpayers in nations that follow the IMF’s poisonous advice. Second, I feel sorry for the economists and other professionals at the IMF (who often produce highquality research). They must wince with embarrassment every time garbage recommendations are issued by the political types in charge of the bureaucracy.

P.P.S. But since they’re actually competent, they will easily find new work if we shut down the IMF to protect the world economy.

In this clip from a recent interview with Gunther Fehlinger, I explore the connection between two very important important economic concepts: Convergence and Wagner’s Law.

Before launching into further discussion, let’s nail down two very important definitions.

  • Convergence is the notion that poor countries should grow faster than rich countries and eventually attain a similar level of prosperity.
  • Wagner’s Law is the seemingly paradoxical observation that richer nations tend to have larger fiscal burdens than poorer nations.

These two concepts deserve elaboration because many people either fail to recognize the implications or they draw the wrong conclusions.

For instance, convergence is a sensible theory, but the rate of convergence (or divergence!) is very dependent on the degree to which nations have good policy (or bad policy).

Moreover, Wagner’s Law shows that politicians figure out how to extract more money and fund bigger government once nations become rich, but some people reverse the causality and assert that big government somehow caused nations to become rich.

The key takeaway from these observations, as I explained in the interview, is that poor nations that want convergence need to copy the policies that rich nations had when they became rich (in the interview at about 0:56, I mistakenly said “were rich” rather than “became rich”).

And I’ve written many times to show that the rich nations of the western world made the leap to industrial prosperity in the 1800s and early 1900s – at a time when they had no welfare states and very low fiscal burdens (indeed most of them didn’t have any income taxes during that period).

Which gives me another excuse to re-issue my never-answered challenge: Please show me an example, from any point in world history, of a country became rich after adopting big government.

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