Last year, I explained the theoretical argument against antitrust laws, pointing out that monopoly power generally exists only when government intervenes.

Now it’s time to consider a real-world example from the private sector and ask whether we should be concerned about monopoly power. ATT and Time Warner have announced a merger, a step that has triggered lots of hand-wringing by politicians.

But as I explain in this interview for a British news outlet, the expanded company won’t have any power or ability to coerce me, particularly so long as politicians don’t create any “barriers to entry” to hinder the entry of new competitors to the market.

The Skype connection became garbled for a few seconds at the end of the interview, but I think my point about the misuse of antitrust laws was reasonably clear.

Suffice to say that allowing politicians and bureaucrats to have any authority over mergers is a recipe for abuse and corruption as companies try to use antitrust laws to sabotage their competitors.

Let’s see what some experts have written on this topic. And we’ll start by looking at the big picture. Writing for Bloomberg, Professor Tyler Cowen points out that antitrust laws often don’t make sense.

Reading through old cases does not induce great faith in the contemporary usefulness of 19th- and 20th-century antitrust laws. …For instance, the famous suits against Standard Oil, Kodak and Alcoa wouldn’t make sense in today’s globalized economy. …In 1998, the U.S. Justice Department initiated an antitrust suit against Microsoft, partly on the grounds that the company sought to extend its market power to browsers. Few people today think the company’s Internet Explorer browser failed because the government restored competitiveness; Firefox and Google built better software. Yet prosecutors spent years distracting the talent of one of America’s most successful companies, as they had with IBM earlier in a 13-year case dropped in 1982.

And he points out how monopoly power often is created by government intervention and regulation.

…there is a strong case that growing concentration in the hospital market has raised health-care costs. Some major metropolitan areas have only a small number of hospital chains. Part of the problem is that highly regulated environments encourage consolidation and larger firms to deal with compliance costs… Cable television is another area where anti-monopoly remedies might be appropriate, but keep in mind that cable is typically a government-created local monopoly.

Now let’s look at he specific case of the ATT/Time Warner merger.

Holman Jenkins of the Wall Street Journal is not impressed by those who want government interference. And he shares my disdain for the way influence peddlers in Washington are the big beneficiaries of antitrust laws.

…this week’s proposed merger of AT&T and Time Warner is eliciting opposition that is ferocious, idiotic and almost contentless. …tens of thousands of people in Washington make their living by extracting rents from companies going about their business and trying to adapt to besetting waves of technological and market change. …Unwisely, Silicon Valley mostly sat out 2014’s epic battle over the Obama administration’s desire to impose antique utility regulation on broadband. Its argument: Who cares? Technology will swamp the regulators with broadband ubiquity anyway, so why pick a fight…the Valley’s naïfs may discover they have underestimated the power of bureaucratic perversity and political indifference to things that would actually serve the public good. One way to look at the inevitable torture AT&T is about to undergo at the hands of Washington’s regulators: It will be the first test of the libertarian-optimist theory that technology is more powerful than a bloody-minded bureaucrat.

Last but not least, Paula Dwyer’s Bloomberg column takes a dim view of those who want the heavy foot of government to second guess the invisible hand of the market.

Donald Trump and Bernie Sanders, wearing their populist stripes, want regulators to block it outright. …the politicians’ concerns are overblown. …Antitrust, of course, is meant to protect consumers from the higher prices and reduced choices that result when a company has market power. But a merged AT&T and Time Warner are in different industries, and their merger wouldn’t affect ownership concentration. Nor would it result in the loss of a competitor from the market.

And she points out the dismal history of antitrust enforcement.

…think back to 1974 to the original AT&T antitrust case, which also began from a fear of vertical integration. …For sure, AT&T had a monopoly, but it was created and sanctioned by the federal government. All that was needed was a government deregulation order and a green light that it wouldn’t block competitors. Instead, the U.S. sued to break up Ma Bell. …If the U.S. had simply deregulated plain old telephone service, any one of these technologies could have forced AT&T to adjust or disappear. The U.S.’s 1998 antitrust case against Microsoft had much the same fighting-the-last-war problem. …while the Justice Department was fixating on browsers and operating systems, the personal computer was losing market share to laptops, which lost out to tablets and which are now being overtaken by smartphones. While Microsoft was bogged down with the Windows case, which it eventually settled in 2001 on favorable terms to the company, a new generation of tech giants — Google, Facebook, Amazon — took flight. The lesson is that a technology or media conglomerate’s dominance these days is almost certainly transitory.

In other words, let the merger proceed. It may be a wise business decision. Or it may be a foolish business decision.

But that outcome should be determined by the preferences of consumers in a competitive marketplace.

The heavy foot of government shouldn’t play a role. Especially since, as noted by this cartoon, antitrust laws are so broad and vague that companies can get in legal trouble for charging more than their competitors, less than their competitors, and the same as their competitors.

P.S. If this information hasn’t been sufficient to make you skeptical about antitrust laws, then also keep in mind that the European Commission’s tax shakedown of Apple is based on antitrust policy rather than tax policy.

Based on what she’s been saying during the campaign, Hillary Clinton is a big fan of class warfare. She has put forth a series of “soak-the-rich” tax hikes designed to finance bigger government.

Her official plan includes provisions such as an increase (“surcharge”) in the top tax rate, the imposition of the so-called Buffett Rule, an increase in the tax burden on capital gains (including carried interest), and a more onerous death tax.

The Tax Foundation explains that this plan won’t be good for the economy or the budget.

Hillary Clinton’s tax plan would reduce the economy’s size by 1 percent in the long run. The plan would lead to 0.8 percent lower wages, a 2.8 percent smaller capital stock, and 311,000 fewer full-time equivalent jobs. …If we account for the economic impact of the plan, it would end up raising $191 billion over the next decade.

Here’s a table showing the static revenue impact for the various provisions, followed by the estimated economic impact, which then allows the Tax Foundation to calculate the real-world, dynamic revenue impact.

So what does all this mean?

Well, the Congressional Budget Office estimates that tax revenue over the next 10 years will be $41,658 billion based on current law. Hillary’s plan will add $191 billion to that total, an increase of 0.46 percent.

Which means that she’s willing to lower our incomes by 0.80 percent to increase the government’s take by 0.46 percent. A good deal for her and her cronies, but bad for America.

But it gets worse. Hillary’s official tax plan doesn’t include her biggest proposed tax hike. As I’ve warned before, and as Andrew Biggs of the American Enterprise explains in a new article, she has explicitly stated her support for huge tax hikes to bail out Social Security.

…she has endorsed both of the main tax increases included in Sanders’ Social Security plan: imposing the Social Security tax on earnings above the current $118,500 cap and applying Social Security taxes to investment income in addition to wages.

Andrew warns that busting the wage-base cap may boost payroll tax receipts, but such a policy will lead to lower revenues from other sources.

Eliminating the payroll tax ceiling would require workers and employers to each pay an additional 6.2% tax on all earnings above the ceiling, currently $118,500. Both the SSA actuaries and the Congressional Budget Office assume that when employers are hit with an additional payroll tax they will over time reduce employees’ wages to cover the increased cost, consistent with economists’ view that employees ultimately “pay” for employer-provided benefits through lower wages. Those lost wages would then no longer be subject to federal income taxes, Medicare payroll taxes or state government income taxes. If the average marginal tax rate on earnings above the current payroll tax ceiling is 48% – say, the top earned income tax rate of 39.6%, plus the 3.8% top Medicare payroll tax rate, plus a roughly 5% state income tax – then federal and state tax revenues would fall by 26 cents for each additional dollar of Social Security taxes collected.

And this estimate is based solely on the reduction in taxable income that occurs as businesses give their employees less take-home buy because of the higher payroll tax.

To be accurate, you also have to consider how workers will react (and rest assured that upper-income taxpayers have plenty of ability to alter the timing, level, and composition of their income). Andrew looks at the potential impact.

…revenue losses occur even if individual earners themselves make no adjustments to their earnings in response to higher tax rates. They’re purely a function of employers adjusting wages to compensate for their payroll tax bills. But if affected earners react to higher tax rates by reducing their earnings, either though less work or by tax avoidance strategies, then net revenue losses would be even higher. A 2010 literature survey by economists Emmanuel Saez, Joel Slemrod, and Seth Giertz found that high earners reduce their earnings by between 0.12% and 0.40% for each 1% increase in their taxes. These estimates imply that total revenues gained by eliminating the Social Security tax max would fall one-third to one-half below the static assumptions that Social Security reforms rely upon. Other credible academic studies find even higher sensitivities of taxable income to tax rates.

For more information, here’s a video I narrated on the issue for the Center for Freedom and Prosperity.

Let’s close on a grim note. If Hillary Clinton goes forward with her plan to bust the wage base cap and change Social Security from an actuarially bankrupt social insurance program into a conventional tax-and-spend redistribution program, she won’t collect very much tax revenue because of the way workers and employers will react.

But from Hillary’s perspective, she won’t care. Under the budget rules governing Washington, she’ll still be able to increase spending (i.e., buy votes) based on how much revenue the Joint Committee on Taxation inaccurately predicts will materialize based on primitive “static scoring” estimates.

In other words, the Laffer Curve will prevail, but – other than the ability to say “I told you so” – proponents of good policy won’t have any reason to be happy.

And when, in the real world, the long-run fiscal and economic outlook weakens because of her misguided policies, Mrs. Clinton will just propose additional tax hikes to deal with the “unexpected” shortfalls. Lather, rinse, repeat, until we become Greece.

Sweden punches way above its weight in debates about economic policy. Leftists all over the world (most recently, Bernie Sanders) say the Nordic nation is an example that proves a big welfare state can exist in a rich nation. And since various data sources (such as the IMF’s huge database) show that Sweden is relatively prosperous and also that there’s an onerous fiscal burden of government, this argument is somewhat plausible.

A few folks on the left sometimes even imply that Sweden is a relatively prosperous nation because it has a large public sector. Though the people who make this assertion never bother to provide any data or evidence.

I have five responses when confronted with the why-can’t-we-be-more-like-Sweden argument.

  1. Sweden became rich when government was small. Indeed, until about 1960, the burden of the public sector in Sweden was smaller than it was in the United States. And as late as 1970, Sweden still had less redistribution spending than America had in 1980.
  2. Sweden compensates for bad fiscal policy by having a very pro-market approach to other areas, such as trade policy, regulatory policy, monetary policy, and rule of law and property rights. Indeed, it has more economic freedom than the United States when looking an non-fiscal policies. The same is true for Denmark.
  3. Sweden has suffered from slower growth ever since the welfare state led to large increases in the burden of government spending. This has resulted in Sweden losing ground relative to other nations and dropping in the rankings of per-capita GDP.
  4. Sweden is trying to undo the damage of big government with pro-market reforms. Starting in the 1990s, there have been tax-rate reductions, periods of spending restraint, adoption of personal retirement accounts, and implementation of nationwide school choice.
  5. Sweden doesn’t look quite so good when you learn that Americans of Swedish descent produce 39 percent more economic output, on a per-capita basis, than the Swedes that stayed in Sweden. There’s even a lower poverty rate for Americans of Swedish ancestry compared to the rate for native Swedes.

I think the above information is very powerful. But I’ll also admit that these five points sometimes aren’t very effective in changing minds and educating people because there’s simply too much information to digest.

As such, I’ve always thought it would be helpful to have one compelling visual that clearly shows why Sweden’s experience is actually an argument against big government.

And, thanks to the Professor Deepak Lal of UCLA, who wrote a chapter for a superb book on fiscal policy published by a British think tank, my wish may have been granted. In his chapter, he noted that Sweden’s economic performance stuttered once big government was imposed on the economy.

Though the Swedish model is offered to prove that high levels of social security can be paid for from the cradle to the grave without damaging economic performance, the claim is false (see Figure 1). The Swedish economy, between 1870 and 1950, grew faster on average than any other industrialised economy, and the country became technologically one of the most advanced and richest in the world. From the 1950s Swedish economic growth slowed relative to other industrialised countries. This was due to the expansion of the welfare state and the growth of public – at the expense of private – employment.57 After the Second World War the working population increased by about 1 million: public employment accounted for c. 770,000, private accounted for only 155,000. The crowding out by an inefficient public sector of the efficient private sector has characterised Sweden for nearly half a century.58 From being the fourth richest county in the OECD in 1970 it has fallen to 14th place. Only in France and New Zealand has there been a larger fall in relative wealth

And here is Figure 1, which should make clear that what’s good in Sweden (rising relative prosperity) was made possible by the era of free markets and small government, and that what’s bad in Sweden (falling relative prosperity) is associated with the adoption and expansion of the welfare state.

But just to make things obvious for any government officials who may be reading this column, I augment the graph by pointing out (in red) the “free-market era” and the “welfare-state era.”

As you can see, credit for the chart actually belongs to Professor Olle Krantz. The version I found in Professor Lal’s chapter is a reproduction, so unfortunately the two axes are not very clear. But all you need to know is that Sweden’s relative economic position fell significantly between the time the welfare state was adopted and the mid 1990s (which presumably reflects the comparative cross-country data that was available when Krantz did his calculations).

You can also see, for what it’s worth, that Sweden’s economy spiked during World War II. There’s no policy lesson in this observation, other than to perhaps note that it’s never a good idea to have your factories bombed.

But the main lesson, which hopefully is abundantly clear, is that big government is a recipe for comparative decline.

Which perhaps explains why Swedish policymakers have spent the past 25 years or so trying to undo some of those mistakes.

While the overall issue of immigration is highly controversial and emotional, I’ve explained before that everyone should be able to agree that it’s a very good idea to bring in people who can be expected to increase per-capita economic output.

The good news is that we have some policies designed to make this happen, including the H-1B visa for skilled workers and the EB-5 visa for job-creating investors. And if the data on median income for certain immigrant groups is any indication, we’re getting some good results.

Today, motivated in part by the fact that I’ll be participating next month in a conference in London on the topic of “economic citizenship” and therefore having to prepare for that discussion,  let’s take a closer look at the EB-5 policy and why it’s a smart approach (by the way, I’m allowed to share a few discounted registrations since I’m a speaker, so contact me if you’re interested in the London event).

To put things in context, we’ll begin by reviewing a four-author study published by the National Bureau of Economic Research that looks at the growing effort by many nations to attract highly productive and capable immigrants.

Highly skilled workers play a central and starring role in today’s knowledge economy. Talented individuals make exceptional direct contributions—including breakthrough innovations and scientific discoveries—and coordinate and guide the actions of many others, propelling the knowledge frontier and spurring economic growth. In this process, the mobility of skilled workers becomes critical to enhancing productivity. …In the 2013 World Population Policies report, 40 percent of countries reported policies to raise immigration of high-skilled workers, a large increase from 22 percent in 2005. …For recipient countries, high-skilled immigration is often linked to clusters of technology and knowledge production that are certainly important for local economies and are plausibly important at the national level. …When it comes to talented foreigners, a number of countries…implement recruiting programs. …Canada has been very active in targeting skilled migrants who are denied or frustrated by the H-1B visa system in the United States, even taking out ads on billboards in the United States to attract such migrants.

By the way, I can’t resist observing that the authors recognize that highly talented (and therefore highly compensated) people are very important for economic growth. Based on the tax policies they advocate, that’s something politicians such as Hillary Clinton have a hard time understanding. Heck, upper-income taxpayers are the ones who finance the lion’s share of big government, so you’d think leftist politicians would be slapping them on their backs rather than across their faces.

But I digress. Let’s look at what the study says about migration by those most capable of producing growth.

Observed migration flows are the result of a complex tangle of multinational firms and other employers pursuing scarce talent, governments and other gatekeepers trying to manage these flows with policies, and individuals seeking their best options given the constraints imposed upon them. …The number of migrants with a tertiary degree rose nearly 130 percent from 1990 to 2010, while low skilled (primary educated) migrants increased by only 40 percent during that time. A pattern is emerging in which these high-skilled migrants are departing from a broader range of countries and heading to a narrower range of countries—in particular, the United States, the United Kingdom, Canada, and Australia. …More than half of the high-skilled technology workers and entrepreneurs in Silicon Valley are foreign-born. …host countries may end up with high concentrations of high-skilled immigrants in particular occupations. For example, immigrants account for some 57 percent of scientists residing in Switzerland, 45 percent in Australia, and 38 percent in the United States (Franzoni et al. 2012). In the United States, 27 percent of all physicians and surgeons and over 35 percent of current medical residents were foreign born in 2010. Immigrants also accounted for over 35 percent of recent enrollments in STEM fields, with very high proportions in specific areas like Electrical Engineering (70 percent), Computer Science (63 percent) and Economics (55 percent)… The global migration of inventors and the resulting concentration in a handful of countries have been particularly well documented. …the global migration rate of inventors in 2000 stood at 8.6 percent, at least 50 percent greater in share terms than the average for high-skilled workers as a whole. Figure 4 builds on WIPO global patent filings from 2001-2010. The United States has received an enormous net surplus of inventors from abroad.

The authors then consider the policies that different nations adopt in their search for GDP-enhancing immigrants.

…we then review the “gatekeepers” for global talent flows. At the government level, we compare the points-based skilled migration regimes as historically implemented by Canada and Australia with the employment-based policies used in the United States through mechanisms like the H-1B visa program. …The exceptional rise in the number of high-skilled migrants to OECD countries is the result of several forces, including increased efforts to attract them by policymakers as they recognize the central role of human capital in economic growth, positive spillovers generated by skill agglomeration, declines in transportation and communication costs, and rising pursuit of foreign education by young people. Among the resulting effects are the doubling of the share of the tertiary-educated in the labor force and fierce competition among countries hoping to attract talent. …One can explain certain aspects of current high-skilled migration patterns using this model. For example, the United States has a very wide earnings distribution and low tax levels and progressivity, especially compared to most source countries, including many high-income European countries. As a result, we can see why the United States would attract more high-skilled migrants…relative to other high-income countries.

By the way, I can’t resist making one minor correction. While we generally have lower taxes than other developed nations, we actually have a very “progressive” tax system. But US-style progressivity is the result of very low taxes on lower- and middle-income workers (no value-added tax, for instance), not unusually steep taxes on higher-income workers.

Returning to our main topic , the authors explain that developed nations either use a points-based system or an employment-based system when seeking to facilitate more high-skilled immigration.

Here’s how the the points-based system works.

Canada and Australia are prominent examples of countries that implement points-based systems for skilled migration. These programs select individuals based upon their observable education, language skills, work experience, and existing employment arrangements. …In the Canadian example, migrants need to collect 67 points across six categories. In terms of education, for example, 15 points are awarded for one-year post-secondary diploma, trade certificate or apprenticeship, compared to 25 for a doctorate degree. With regards work experience, six or more years of applicable experience receive 15 points, compared to 9 points for just one year of experience.

And here’s information on the employment-based approach, with the US being an obvious example.

The United States is the most cited example of a country that uses an employer-driven program for highskilled immigration, with the H-1B and L1 visas as primary categories (Kerr et al. 2015a). The H-1B visa allows US companies to temporarily employ skilled foreigners in “specialty occupations,” defined to be those demanding application of specialized knowledge like engineering or accounting. …Virtually all H-1B holders have a bachelor’s degree or higher and about 70% of the visas in recent years went to STEM-related occupations. India is by far the largest source country, accounting for about two-thirds of H-1B recipients in recent years. …most real-world regimes combine different features of points-based and employment-driven systems.

But the study notes that America also has a special system for bringing in ostensible superstars. Sort of a points system for the super talented.

Superstar talent rarely competes for H-1B visas, for example, but instead gains direct access to the United States through O1 temporary visas for extraordinary ability and direct green card applications of the EB-1 level for those with even more exceptional talent. …In effect, the US operates a points system for individuals with truly exceptional talents such as Nobel Prize winners, superstar athletes and musicians.

Now let’s turn the EB-5 program, which is another way that the United States seeks to attract those capable of making big economic contributions.

In part because the natural inefficiency of government creates opportunities for corruption in implementation, the EB-5 program has become very controversial. Some lawmakers even want the entire program to lapse when its authorization expires in December.

At the risk of understatement, I hope they don’t throw the baby out with the bathwater.

The Brookings Institution notes that Senators Chuck Grassley (R-IA) and Patrick Leahy (D-VT) want to impose stricter rules and micro-manage how the investment occurs.

It also raises the minimum investment amount to $800,000 within a [targeted employment area] and $1.2 million otherwise. Most important for reaching the program’s economic development goals, however, are the bill’s new rules on defining TEAs. …The bill would revise the TEA definition to include rural areas, closed military bases, or single census tracts within metro areas with an unemployment rate at 150 percent of the national average. To further increase the effect of EB-5 financing, at least 50 percent of the job creation would have to be within the metro area, or within the county in which a rural TEA is located.

The business community doesn’t object to some stricter standards, as reported by The Hill, but wants the program to remain and wants it made permanent.

A coalition of business groups is pushing Congress to permanently renew a controversial investor visa program before it expires in September. …In a letter shared with The Hill on Thursday, those groups called on lawmakers to renew the EB-5 investor visa program with bolstered security and anti-fraud checks, adjustments to highly criticized investment incentives and streamlined visa processing. “Congress must not let this important job-creating program lapse, in large measure because of the immediate negative consequences to U.S. businesses and projects counting on EB-5 investment to create jobs for Americans,” wrote the groups to the Senate and House Judiciary committees. …The EB-5 program is responsible for more than $15 billion in investment and 100,000 jobs between 2005 and 2010, the coalition says.

Ike Brannon, writing for the Weekly Standard, worries that politicians will undermine the positive impact of the program with some back-door central planning.

That EB-5 program has succeeded at its intended purpose is not in dispute: A Brookings Institution study estimated that the program has created nearly 100,000 jobs along with over $5 billion of new investment since its inception. The current EB-5 program technically consists of two different pieces: The first is the original EB-5 visa program, which Congress enacted in 1990. Its intent was to help American business compete for foreign investment with countries like Canada and Australia, which had similar investor programs in place. …The overriding intent of the program has always been about job creation, anywhere and everywhere. Senator Paul Simon, a sponsor of the original EB-5 program, took care to emphasize that its purpose was first and foremost to attract entrepreneurs and spur job creation, noting that “neither the Senate nor the House bill established any sort of criteria about the type of business investment…As long as the employment goal is met, it is unnecessary to needlessly regulate the type of business or the character of the investment.”

But politicians love the “needlessly regulate,” so the EB-5 system has lots of red tape and Ike fears it may get even more.

Congress nonetheless attempted to spur some sort of geographic balance-cum-urban development with the creation of Target Employment Areas [TEAs], which consist of areas with high unemployment rates or rural areas outside the boundary of any city or town with a population over 20,000. In a TEA, the necessary investment need only be $500,000, so long as it creates the requisite number of jobs. …The problem with a federal top-down approach of this sort is that such a constraint could limit the efficacy of the program. …imposing a new rule that restricts how states designate Targeted Employment Areas will only make EB-5 more of a political football than it already is. Creating a welter of restrictions about where such investment can and cannot go would likely dampen the economic impact of the program.

A columnist for Forbes explains why the program should continue.

The EB-5 immigration visa may be the best immigration program the U.S. has to offer. Foreign investors…are putting up a minimum of $500,000 to renew and rebuild rundown urban areas and create jobs. It’s a legal way in for the kind of immigrant, a fortunate one, that tends to contribute to the neighborhood by bringing in money and jobs. …“EB-5 has economic benefits that doesn’t stop at the five hundred thousand dollars they need to invest to participate,” says Julian Montero, a partner in the Miami law office of Arnstein & Lehr. “It’s just the beginning of a more significant investment that will be made by these families when the come here. They’re going to private schools. They’re making good income. They’re paying taxes. And most of them start other businesses once here.” …The EB-5 has become a way for developers to attract foreign capital at low, project finance-style structured interest rates because the people giving the money are getting a prize: the right to live, work and study in the United States.

Perhaps most notably, even the International Monetary Fund recognizes the advantages of this type of program.

…economic residency programs were recently launched across a wide range of (generally much larger) European countries, including Bulgaria, France, Hungary, Ireland, the Netherlands, Portugal, and Spain. Almost half of EU member states now have a dedicated immigrant investor route. Also known as golden visa programs, these arrangements give investors residency rights…some advanced economies, such as Canada, the United Kingdom, and the United States, have had immigrant investor programs since the late 1980s or early 1990s, offering a route to citizenship in exchange for specific investment conditions… The inflows of funds to countries from these programs can be substantial, with far-reaching macroeconomic implications for nearly every sector.

The IMF article includes a helpful summary of nations that have programs to attract investors.

The bottom line is that there are many high-income and high-wealth people in the world (including the “super-entrepreneurs“) who would like to move to places that offer more stability, security, and opportunity. This creates a potential win-win situation for both the people migrating and the recipient nations.

The United States is already a big beneficiary of economic-based migration, but we could reap even greater benefits with a more sensible, streamlined, and expanded EB-5 system.

P.S. Zooming out to the broader issue of immigration and whether people want to come to the United States for the wrong reason, Professor Tyler Cowen of George Mason University has a very intriguing proposal to have open immigration with nations such as Denmark that have bigger welfare states than America.

P.P.S. Today’s column is about economic-based immigration. There’s also the issue of economic-based emigration. Sadly, the United States policy on allowing people to leave is even worse than France’s system.

P.P.P.S. If you want to enjoy some migration-related humor, we have a video about Americans emigrating to Peru and a story about American leftists escaping to Canada.

P.P.P.P.S. Remember to contact me if you’re interested in the London conference.

Since I’ve referred to the International Monetary Fund as both “the Dumpster Fire of the Global Economy” and “the Dr. Kevorkian of Global Economic Policy,” readers can safely conclude that I’m not a fan of the international bureaucracy. My main gripe is that senior bureaucrats routinely make the mistake of bailing out profligate governments (often as a back-door way of bailing out banks that foolishly lent to those governments), and they compound that mistake by then insisting on big tax hikes.

But as I’ve noted when writing about international bureaucracies, the professional economists who work for these organizations often produce very good work.

And that’s true even for the IMF. The bureaucracy published a study a few years ago entitled “The Size of Government and U.S.–European Differences in Economic Performance” and it has some useful and interesting conclusions. Here are some excerpts, along with my observations. We’ll start with the question the authors want to answer.

How much of a drag is the modern welfare state on economic performance? … One standard approach has been to estimate the disincentive effects of taxes and deduce that lower taxes would imply higher welfare. However, in the context of modern democracies, this argument begs the question why voters prefer an inferior economic outcome (a higher tax burden) instead of voting for parties that would minimize taxes.

Actually, we don’t need to “beg the question.” We get bad policy because voters get seduced into voting for politicians who promise to pillage the “rich” and give goodies to everyone else. And since voters generally don’t understand that this approach leads to “an inferior economic outcome,” the process can continue indefinitely (or until the ratio between those pulling the wagon and those riding in the wagon gets too imbalanced).

But I’m digressing. Let’s get back to the main focus of the study. The authors note that Europe isn’t converging with the United States, which is what standard economic theory says should be happening.

The academic debate over the long-term failure of European countries to catch up with U.S. economic performance also points to the need for a better assessment of the economic effects of large governments. Over the last three decades, European countries have not made inroads in closing a gap in per capita income vis-à-vis the US. …This paper focuses on…the role of the size of the public sector… The literature studying the impact of government on economic performance is large. Theory has focused on welfare effects—stressing the distortionary impact of taxation and government spending… observed government sizes generally tend to be too large, thus depressing welfare in many countries, or actual policies depart from allocationally optimal ones, especially in the “Rhineland-model” European economies.

And here are some of the results.

… a higher tax wedge results in lower hours worked. Moreover, the equation can be used to predict hours worked as a function of the tax wedge. …based on these calibrations, and using the welfare measure described in Appendix II, the steady-state welfare effects of varying the size of government can be analyzed. Table 2 provides the results of two such thought experiments: (i) to cut the marginal tax rate by five percentage points and (ii) to adopt U.S. taxation levels (in both accompanied by offsetting changes in spending), with the welfare change measured in the incremental consumption equivalent of the tax cuts. For example, had Belgium between 1990–99 cut marginal income tax rates by five percentage points, it would have reaped a welfare gain equivalent to 7⅓ percent of aggregate consumption (or of 21 percent if it had adopted US tax levels). These are large potential welfare gains from cutting back government.

Here’s a table from the study showing the theoretical gains from lowering tax rates, either by 5-percentage points, or all the way down to American levels.

But the authors note that their model is incomplete, with some countries doing better than what’s implied by their fiscal systems.

The basic model has considerable difficulties in accounting for labor supply in very high-tax countries, which it frequently underpredicted (e.g., the Nordic countries, excluding Norway…). …One group comprising Sweden and Denmark… Both countries are often singled out as countries with large government, but, as seen in the previous, both also have higher than predicted labor supply in the baseline model.

The study tries to explain such differences by considering whether some governments spend money in an effective manner on “active labor market policies” that produce higher levels of labor supply.

Perhaps that’s a partial explanation, but I think there’s a much simpler way of making sense of the data. The Nordic nations, as I’ve repeatedly written, have strongly pro-market policies once fiscal policy is taken out of the equation.

So if you just look at fiscal policy, they should be way behind the United States. But since they are more market-oriented than America in other areas (trade, rule of law, regulation, and monetary policy), that shrinks the gap.

That being said, I’m not going to be too critical of the IMF study since it does reach a very sensible conclusion.

…the size of government does play a significant role in explaining lower European labor supply…the size of European governments appears to imply large welfare costs. …Moreover, government policies that do not directly increase the size of government, e.g., regulation, are observed to also impart significant costs.

By the way, don’t assume this IMF study is an outlier. When economists at international bureaucracies are free to do real research without interference by their political masters, it’s not uncommon for them to produce sensible results.

Last but not least, here’s the video I narrated on the “Rahn Curve” and the growth-maximizing size of government.

Now if we could just get Hillary Clinton and Donald Trump to understand this research, we’ll be in good shape (actually, since those two are poster children for the theory of Public Choice, who am I kidding?).

One interesting feature of this election is that many voters, grappling with the unpalatable choice of Hillary Clinton and Donald Trump, are dealing with the feelings of dismay and despair that libertarians experience almost every election.

All I can say is, “welcome to my world.”

Though I admit our experiences aren’t the same. Ordinary voters presumably are agitated by Hillary’s corruption and Donald’s buffoonery.

As a free-market policy wonk, by contrast, I’m more concerned that both Clinton and Trump are statists. Heck, I’d tolerate some unseemly behavior and sleaze if a politician actually reduced the burden of government (hence, my bizarre ex post facto fondness for Bill Clinton’s presidency).

But since Hillary isn’t Bill and Trump isn’t Reagan, the dark cloud that we’re facing doesn’t have any silver lining.

Unless, of course, you’re a fan of political humor. In which case the 2016 election is Nirvana.

And since I’m a fan (even when libertarians are the intended target), I’m greatly enjoying each and every time that Clinton and Trump are mocked.

And the best of all worlds is when there’s some humor that nails both of them at the same time. So it’s easy to see why I like this bit of satire that combines the controversy over Trump’s undisclosed tax returns and the controversy over Clinton’s illegal (and vulnerable) email server.

Here’s another example of this genre.

Here’s an amusing image showing what might happen if Trump was capable of time travel.

And this anti-Hillary image obviously is satire, though I think it makes a very sensible point about the dangers of interventionism.

Indeed, to be momentarily serious, the moral of the story is that Hillary’s recklessness is likely to create more risk for America, whereas the libertarian approach (illustrated by George Will, Barack Obama (in theory but not practice), and Mark Steyn is based on prudence and a Bastiat-like appreciation for unintended consequences.

Let’s get back to the funny stuff.

Did your parents ever say “America is great because anyone can grow up to be President”? Well, as you can see, that’s not such a good idea.

Last but not least, this cartoon captures the outcome of the election, regardless of which major-party candidate prevails.

Though Libertarians say you can escape this dilemma by choosing with “The Johnson.”

P.S. Since Putin made an appearance in our first item, it reminded me that he featured in a couple of amusing bits of satire (here and here) mocking Obama.

The great contribution of western civilization is the notion that the power of government must be constrained by laws.

This doesn’t mean that all laws (or even most laws) are good. But, as explained in this video, if the choice is between the “rule of man” (the arbitrary and capricious exercise of power) and the “rule of law,” there’s no contest.

This is why issues related to the rule of law account for 20 percent of a nation’s grade in the rankings from Economic Freedom of the World.

And it’s why some people get very upset when, for instance, the Obama Administration chooses to unilaterally change – or simply chooses to not enforce – certain laws that are inconvenient to the President’s agenda.

But while the rule of law has been eroding in the United States, the good news is that we still rank in the top 20 in a new ranking from the World Justice Project.

Here’s how the WJP describes the importance of the rule of law.

Effective rule of law reduces corruption, combats poverty and disease, and protects people from injustices large and small. It is the foundation for communities of peace, opportunity, and equity – underpinning development, accountable government, and respect for fundamental rights. …The Index is the world’s most comprehensive data set of its kind and the only to rely solely on primary data, measuring a nation’s adherence to the rule of law from the perspective of how ordinary people experience it. These features make the Index a powerful tool that can help identify strengths and weaknesses in each country, and help to inform policy debates, both within and across countries, that advance the rule of law

And here’s a map showing the 113 nations that are included in the rankings.

All you need to know is that it’s good to be light-colored and bad to be dark-colored (though the map is a bit confusing since nations that aren’t ranked – much of Africa, for instance – also appear as light-colored).

One of the obvious conclusions is that the western world (Europe, North America, some nations in the Pacific Rim) does the best on protecting, observing, and maintaining the rule of law.

Simply stated, western civilization is superior.

But what can we learn by specifically examining the rule of law in developed nations?

What’s immediately apparent, if you look at the ranking of high-income nations, is that Nordic nations score very well. This is one of the reasons, I’ve explained, that they have a higher ability to tolerate and endure a large welfare state.

Germanic and Anglo-Saxon nations win the proverbial silver and bronze medals.

Looking at the rest of the world, I’m also not surprised to see strong scores for free-market success stories such as Singapore, Estonia, Hong Kong, and Chile.

Let’s close by taking a closer look at the data for the United States.

Among high-income nations, America gets a decent score, but it’s nothing to celebrate. Indeed, we actually do poorly when compared to other Anglo-Saxon jurisdictions.

In the above excerpt, I included the list of eight categories that are used to rank nations. Now let’s look at how America scores in those areas.

At the risk of oversimplifying, we do well in two areas. There are reasonably strong constraints on government powers and a reasonable degree of openness and transparency.

On the other hand, we don’t do very well (particularly when compared to other high-income nations)  for areas related to the judicial system.

Though I shudder to contemplate the scores America will receive after four or eight years of Hillary Clinton.

P.S. Is anybody surprised that Venezuela is in last place? Though I suppose I should repeat my caveat from earlier in the month that hellholes such as Cuba and North Korea would probably rank lower if they were included in the rankings.

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