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Archive for January, 2018

Considering that America’s Founders created a very small central government that operated for more than 100 years without any income tax (or any other broad-based tax), it’s very disappointing that Washington is now consuming more that 20 percent of our nation’s output.

That’s bad for growth since resources are diverted from the productive sector of the economy.

But let’s also keep in mind that politicians also impose policies that may not have much impact on GDP statistics, but definitely reduce our quality of life.

I’ve written about some of these annoying bits of red tape.

Jeffrey Tucker, in a column for the Foundation for Economic Education, shares my disdain for the nanny state.

Soap doesn’t work. Toilets don’t flush. Clothes washers don’t clean. Light bulbs don’t illuminate. Refrigerators break too soon. Paint discolors. Lawnmowers have to be hacked. It’s all caused by idiotic government regulations that are wrecking our lives one consumer product at a time, all in ways we hardly notice.

And he points out another item to add to our list.

We now have gas cans that don’t work nearly as well as they used to because of mindless bureaucracy.

Who would make a can without a vent unless it was done under duress? After all, everyone knows to vent anything that pours. Otherwise, it doesn’t pour right and is likely to spill. …The whole trend began in (wait for it) California. …The notion spread and was picked up by the EPA, which is always looking for new and innovative ways to spread as much human misery as possible. …So…you have not been able to buy gas cans that work properly. They are not permitted to have a separate vent. The top has to close automatically.

Environmental zealots tell us we need these poorly functioning gas cans to save the environment from vapor.

But as Tucker explains, the policy is backfiring.

…don’t tell me about spillage. It is far more likely to spill when the gas is gurgling out in various uneven ways, when one spout has to both pour and suck in air. …There is no possible rationale for these kinds of regulations. It can’t be about emissions really, since the new cans are more likely to result in spills.

Amen.

This is a never-ending nightmare when I mow my lawn. When it’s time to refill the gas tank, I know gas is going to spill regardless of how careful I am.

I can’t imagine that’s good for the environment (I’m sure it releases far more vapor than would seep into the atmosphere with a vent), but I confess that my main concern is that gas dribbles onto a hot lawnmower engine. So I’m always poised to run away from my mower if the thing bursts into flame.

Oh, the joy of red tape!

Writing for Forbes, Clyde Wayne Crews also has commented on this inane and counter-productive regulation.

…when I first tried to use these new gas cans a few months after purchase I was shocked at their new spring-loaded, Mousetrap game style…spouts. …You need three hands to operate today’s gas can spouts. You’ll start each project spilling more gas than you get into the mower, motorcycle, car or whichever. In other words, you will create more vapor emissions than you ever would have otherwise. …No gas cans available for sale anymore have vents on the opposite top-side either, so when trying to pour you get a sloshing, heaving mess, burping gasoline eruptions leaking from the complex yet flimsy spout that easily breaks.

But Wayne very helpfully proposes a solution…assuming one is willing to incur a small risk.

…in order to harm the Earth less with a normal, non-polluting spout, I was wondering about workarounds for the inhumane, vapor-spewing trick spouts the environmentally unfriendly EPA forces you to buy to increase pollution. With a bit of searching, I found so-called EZ Pour “water” jugs. Note: You and I cannot use these alternatives to pour gasoline into vehicles or equipment, since that is an illegal non-EPA bureaucrat-approved hack, but they can be used to pour “liquid,” however.

The EPA can have our EZ Pour jugs when they pry them from our cold, dead, non-polluting fingers!

I had some fun in 2013 by pointing out that when they outlaw tanks, only outlaws will have tanks. Who could have predicted we’d be saying the same thing about well-functioning gas cans?

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So long as people keep emailing me libertarian humor (pro and con), I’ll continue to periodically share the items that meet my test.

Today, we have another edition of anti-libertarian humor. Nothing funny enough to supplant the “Libertarian Paradise of Somalia,” which still is at the top of my list, but I got a laugh from several items.

We’ll start with what happens when the same company that produces “Libertarios” also runs a bar.

I shouldhn’t have to say this, but I’ll point out that businesses don’t make profits by killing their customers, so this may be funny satire, but it’s also inaccurate satire.

But I like the dig about tyranny, just like “socialist snowplows.”

Our next item, from Babylon Bee, exploits the stereotype that libertarians are part of some sort of Randian cult.

While browsing memes on a popular libertarian meme Facebook page, local man Kyle Coats reportedly felt himself “cut to the heart” Wednesday, grabbing a Gadsden flag he had recently purchased and darting outside into the afternoon sun where he dropped to his knees and asked Ron Paul to come into his heart, once and for all, fully committing his life to the ideals of liberty he stands for. …“Ron, would you come into my life and make me new?” he whispered privately to himself, a single tear streaming down his cheek as he clutched the “DON’T TREAD ON ME” flag, according to sources. “Please, Ron, forgive me of all my violations of the non-aggression principle and all the times I unwittingly supported a statist agenda.” “I swear here and now, taxation is theft!” he added.

Sort of the like the dorky libertarians who care more about dogma than the opposite sex.

Next we have a libertarian super hero.

Reminds me of the libertarian at Thanksgiving dinner.

And if you’ve ever been trapped by a libertarian in a discussion on the nuances of limited government, such as private roads, you may appreciate how there are different types of headaches.

For what it’s worth, I only do this to people when pontificating about the Laffer Curve.

This last bit of satire doesn’t target libertarians, per se, but I’m including it since libertarians (like Ron Swanson) are the only people nowadays who will defend child labor.

Don’t forget that libertarians also defend sweatshops, so I’m sure that will be the topic of some future anti-libertarian satire.

Anyhow, enjoy today’s collection and feel free to share with others to show that libertarians have the self-confidence to laugh at themselves. But if you feel a need to also laugh at big government to confirm your philosophical bona fides, this collection of cartoons is a good place to start.

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Judged by the amount of attention various provisions produced, last year’s fight over tax reform was about reducing the corporate tax rate and limiting the deduction for state and local taxes.

But there were many other important changes, including a a big increase in the standard deduction (i.e., the amount households can protect from the IRS), a shift that will reduce the number of people who utilize itemized deductions.

A report in the Washington Post suggests that this reform could hurt charities.

Many U.S. charities are worried the tax overhaul bill signed by President Trump…could spur a landmark shift in philanthropy, speeding along the decline of middle-class donors… The source of concern is how the tax bill is expected to sharply reduce the number of taxpayers who qualify for the charitable tax deduction — a big driver of gifts to nonprofits. …the number of people who qualify for the charitable deduction is projected to plummet next year from about 30 percent of tax filers to as low as 5 percent. That’s because the new tax bill nearly doubles the standard deduction and limits the value of other deductions, such as for state and local taxes.

Many charities opposed this change.

One study predicts that donations will fall by at least $13 billion, about 4.5 percent, next year. …“The tax code is now poised to de-incentivize the heart of civic action in America,” said Dan Cardinali, president of Independent Sector, a public-policy group for charities, foundations and corporate giving programs. “It’s deeply disturbing.”  The tax bill’s treatment of charities led the Salvation Army to express serious concerns, and it’s why United Way opposed the legislation, as did the U.S. Conference of Catholic Bishops. Cardinali’s group turned its home page — normally a place for a feel-good story — into a call to protest, with the banner headline: “KILL THE TAX REFORM BILL.” …Rep. Kevin Brady (R-Tex.), the main tax bill writer in the House…argued that people would soon have more money to donate because of the economic growth driven by the bill’s tax cuts

As an aside, here’s the part of the story that most irked me.

“The government has always seen fit to reward the goodness of Americans with a tax incentive,” said Lt. Col. Ron Busroe, development secretary at the Salvation Army.

Huh, how is it goodness if people are only doing it because they’re being bribed by the tax code?

But let’s stick with our main topic of whether the tax bill will hurt the non-profit sector.

A Bloomberg column also hypothesized that the GOP tax reform will be bad news for charities.

Will Americans give as generously now that the incentives have completely shifted? Recent research provides little hope for them. …last year’s tax reform…doubled the standard deduction, effectively eliminating most taxpayers’ ability to itemize deductions via contributions to charity…. Tax cost refers to the actual, post-tax price that someone pays when they make a donation. Imagine someone with a marginal tax rate of 25 percent. Every dollar donated only “costs” the taxpayer 75 cents after he or she takes the charitable deduction. …What happens when you change these “tax costs”? …Almost everyone who studied taxpayer behavior found that the charitable deduction encouraged people to donate more than they would if it didn’t exist. But studies yielded very different price elasticity figures ranging from -0.5 (a dollar in lost tax revenue generates an additional 50 cents in donations) to -4.0 (every dollar in forgone tax revenue generates a whopping four dollars of donations). A recent meta-analysis of approximately 70 of these studies yielded a price elasticity a median of -1.2. A recent study by Nicholas Duquette of the University of Southern California…examined how taxpayer contributions changed after the Tax Reform Act of 1986, which increased the tax cost of giving by dramatically lowering marginal tax rates. The result was eye-popping: A 1 percent rise in the tax cost of giving caused charitable donations to drop 4 percent.

I agree that lower tax rates increase the “tax cost” of giving money to charity.

And Reagan’s tax policy (the 1981 tax bill as well as the 1986 tax reform) had a huge impact. In 1980, it only cost 30 cents for a rich person to give a dollar to charity. By 1988, because of much lower tax rates, it cost 72 cents to give a dollar to charity.

Yet I’m a skeptic of Duquette’s research for the simple reason that real-world data shows that charitable contributions rose after Reagan slashed tax rates.

What Duquette overlooks is that charitable giving also is impact by changes in disposable income and net wealth. So the “tax cost” of donations increased, but that was more than offset by a stronger economy.

So our question today is whether we’re going to see a repeat of the 1980s. Will a reduction in the tax incentive for charitable giving be offset by better economic performance?

Some research from the Mercatus Center suggests that the non-profit sector should not fear reform.

…one study by William C. Randolph casts doubt on the claim that the deduction increases giving in the long run. Randolph’s paper analyzes both major tax reforms in the 1980s and follows individuals for 10 years, finding that taxpayers alter the timing of their giving in response to changes in tax policy, but not necessarily the total amount of giving. …lower-income households also donate to charities in large numbers. …However, very few of them benefit in terms of their tax burden, because many lower-income households have no positive tax liability. …For the 80 percent of middle-income filers who do not currently claim the charitable deduction, any cut in marginal tax rates is a pure benefit. Most taxpayers would be better served by eliminating the charitable contributions deduction and using the additional revenue to lower tax rates.

I would put this more bluntly. Only about 30 percent of taxpayers itemize, so 70 percent of taxpayers are completely unaffected by the charitable deduction. Yet many of these people still give to charity.

And they’ll presumably give higher donations if the economy grows faster.

This is one of the reasons the Wall Street Journal opined that tax reform will be beneficial.

…nonprofits…sell Americans short by assuming that most donate mainly because of the tax break, rather than because they believe in a cause or want to share their blessings with others. How little they respect their donors. …Americans don’t need a tax break to give to charities, which should be able to sell themselves on their merits. …The truth is that Americans will donate more if they have more money. And they will have more money if tax reform, including lower rates and simplification, helps the economy and produces broader prosperity. The 1980s were a boom time for charitable giving precisely because so much wealth was created. Like so many on the political left, the charity lobby doesn’t understand that before Americans can give away private wealth they first have to create it.

A column in the Wall Street Journal also augments the key points about generosity and giving patterns.

…a drop in the amount of deductible gifts does not necessarily mean an equivalent drop in actual giving. …recessions aside, Americans have steadily increased their giving despite numerous tax law changes. Individual donations increased by 4% in 2015 and another 4% in 2016. If donations continue to increase at such rates, it won’t take long to make up for changes brought about by tax reform. …Americans have continued to give to charities no matter what benefits the tax code conveys on them for doing so.

Last but not least, Hayden Ludwig, writing for the Washington Examiner, explains that charitable contributions increase as growth increases.

Liberal groups such as the National Council of Nonprofits claim that the plan will be “disastrous” for charities… The thrust of the Left’s argument is that allowing Americans to keep more of their money makes them stingier, and high taxes are needed to force Americans to take advantage of charitable tax write-offs. It’s ironic that anyone in the nonprofit sector, which is built entirely on the generosity of individuals and corporations, can argue that higher taxes encourage charity – or that charity needs to be legislated. …if the Left’s argument about tax incentives is true, we should see sharp declines in charitable donations after every tax cut in U.S. history. We don’t. According to a 2015 report in the Chronicle of Philanthropy, individuals’ charitable giving rose four percent in 1965 and more than two percent in 1966, following the Kennedy and Johnson tax cuts of 1964 and 1965, respectively. Between the Reagan tax cuts in 1981 and 1986, individual giving rose a whopping 21 percent from $119.7 billion to $144.9 billion. By 1989, individual giving grew another 4.7 percent. …The reason is simple: Prosperity and generosity are inextricably linked.

Amen. Make America more prosperous and two things will happen.

Fewer people will need charity and more people will be in a position to help them.

I’ll conclude by noting that the charitable deduction is the itemized deduction I would abolish last. Not because it is necessary, but because it doesn’t cause macroeconomic harm. The state and local tax deduction, by contrast, is odious and misguided because it subsidizes bad policy and the home mortgage interest deduction is harmful since it is part of a tax code that tilts the playing field and artificially lures capital from business investment to residential real estate.

Things to keep in mind for the next round of tax reform.

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The good news is that President Trump wants to boost economic growth, which is a laudable goal after the economy’s sub-par performance during the Obama years.

The bad news is that he may sabotage his good reforms of tax policy and regulation with protectionism.

In a column earlier this month for the Wall Street Journal, Robert Zoellick warns about the likely consequences.

The Trump administration has stacked up a pile of trade cases that will come tumbling down early in 2018. More important than any specific case is the signal of a strategy of economic defeatism. …Mr. Trump’s tactic will likely trigger retaliation from other countries. …“safeguards” to block imports of solar panels and washing machines…doesn’t even require a claim of unfairness. …these amount to an overture to the big show: likely withdrawal from the North American Free Trade Agreement, the U.S.-Korea Free Trade Agreement or both. …The president…relies on the support of economic isolationists who find it easier to blame others than to make America more competitive. Killing Nafta would fit the bill.

Charles Hughes addresses the same topic for Economics 21 and specifically explains that the net effect of trade barriers on solar panels will be to destroy jobs.

President Trump approved new tariffs on solar imports… Manufacturing of solar panels is only one component of the solar industry, which employs between 260,000 and 374,000 workers.  Out of this group, only 38,000 work in manufacturing. Even this oversells the number of people whose work would be insulated from competition from imports, as Solar Energy Industries Association estimates that only 2,000 of these solar manufacturing workers make the products covered by the tariffs.  Significantly more people work in installation. Their jobs would be at risk from higher solar panel prices that would reduce demand for installations, with one estimate that the tariffs would cost 23,000 U.S. jobs in the first year.

These numbers are not a surprise. There have been many studies looking at the impact of protectionism and lost jobs are the usual result, both because trade barriers create inefficiencies, reduce consumer buying power, and increase input prices.

As is so often the case, it’s a question of the seen versus the unseen.

But don’t take my word for it. Here’s President Reagan talking about trade shortly before he left office (h/t: Cafe Hayek).

By the way, some people try to justify Trump’s protectionism by citing some protectionist policies during the Reagan years.

As explained by Colin Grabow and Scott Lincicome in National Review, that is historical revisionism.

Trumpist efforts to save U.S. jobs through higher tariffs, bilateral trade deals, and lower trade deficits can find no “conservative” justification in Reagan-era trade actions. In fact, it’s just the opposite. The Reagan administration did indeed pursue unilateral import restrictions and foreign-trade “enforcement” actions, but history shows that — unlike protectionist policies proposed by Trump — such moves were intended to liberalize trade… Reagan also often sought to educate his fellow Americans on the U.S. trade balance, even extemporaneously (and correctly) explaining at a 1985 press conference that trade deficits often correlate with job growth and economic vitality. …Reagan negotiated and concluded the 1988 Canada–United States Free Trade Agreement — the basis for the North American Free Trade Agreement (NAFTA). …Reagan administration negotiators also helped launch the Uruguay Round under the General Agreement on Tariffs and Trade (GATT), which would in 1994 strike the single biggest blow for free trade in the last 70 years by establishing the World Trade Organization (WTO).

Amen. I may have to revise my assessment of Reaganomics and give the Gipper an even better grade.

So what would it mean if Trump’s protectionist push led to similar statist policies by other nations?

A World Bank study gives us an idea of the potential implications.

This paper quantifies the wide-ranging costs of potential increases in worldwide barriers to trade…a coordinated global withdrawal…from all existing bilateral/regional trade agreements, as well as from unilateral preferential schemes coupled with an increase in the cost of traded services, is estimated to result in annual worldwide real income losses of 0.3 percent or US$211 billion relative to the baseline after three years. …Highlighting the importance of preferences, the impact on global trade is estimated to be more pronounced, with an annual decline of 2.1 percent or more than US$606 billion relative to the baseline if these barriers stay in place for three years. Second, a worldwide increase in tariffs up to legally allowed bound rates coupled with an increase in the cost of traded services would translate into annual global real income losses of 0.8 percent or more than US$634 billion relative to the baseline after three years. The distortion to the global trading system would be significant and result in an annual decline of global trade of 9 percent or more than US$2.6 trillion relative to the baseline in 2020.

I wonder if those numbers underestimate the threat given how tit-for-tax protectionism caused much greater levels of damage during the 1930s.

Anyhow, let’s conclude with a very effective (and concise) video from Matt Ridley on the principle of comparative advantage. It’s about trade between two people, but the same principle applies to trade between nations. Simply stated, trade allows for specialization, which enables higher productivity (and therefore higher wages and living standards).

P.S. I also invite readers to watch excellent videos on trade and protectionism from Professors Tyler Cowen and Don Boudreaux.

P.P.S. I also encourage people to read Walter Williams on this topic.

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Last September, Economic Freedom of the World was released, which was sort of like Christmas for wonks who follow international economic policy.

I eagerly combed through that report, which (predictably) had Hong Kong and Singapore as the top two jurisdictions. I was glad to see that the United States climbed to #11.

The good news is that America had dropped as low as #18, so we’ve been improving the past few years.

The bad news is that the U.S. used to be a top-5 country in the 1980s and 1990s.

But let’s set aside America’s economic ranking and deal with a different question. I’m frequently asked why European nations with big welfare states still seem like nice places.

My answer is that they are nice places. Yes, they get terrible scores on fiscal policy, but they tend to be very pro-market in areas like trade, monetary policy, regulation, and rule of law. So they almost always rank in the top-third for economic freedom.

To be sure, many European nations face demographic challenges and that may mean Greek-style crisis at some point. But that’s true of many developing nations as well.

Moreover, there’s more to life than economics. Most European nations also are nice places because they are civilized and tolerant. For instance, check out the newly released Human Freedom Index, which measures both economic liberty and personal liberty. As you can see, Switzerland is ranked #1 and Europe is home to 12 of the top 16 nations.

And when you check out nations at the bottom, you won’t find a single European country.

Instead, you find nations like Venezuela and Zimbabwe. Indeed, the lowest-ranked Western European country is Greece, which is ranked #60 and just missed being in the top-third of countries.

Having now engaged in the unusual experience of defending Europe, let’s take a quick look at the score for the United States.

As you can see, America’s #17 ranking is a function of our position for economic freedom (#11) and our position for personal freedom (#24).

For what it’s worth, America’s worst score is for “civil justice,” which basically measures rule of law. It’s embarrassing that we’re weak in that category, but not overly surprising.

Anyhow, here’s how the U.S. score has changed over time.

Let’s close with a few random observations.

Other nations also improved, not just the United States. Among advanced nations, Singapore jumped 16 spots and is now tied for #18. There were also double-digit increases for Suriname (up 14 spots, to #56), Cambodia (up 16 spots, to #58), and Botswana (up 22 spots, to #63). The biggest increase was Swaziland, which jumped 25 spots to #91, though it’s worth pointing out that it’s easier to make big jumps for nations with lower initial rankings.

Now let’s look at nations moving in the wrong direction. Among developed nations, Canada dropped 7 spots to #11. Still a very good score, but a very bad trend. It’s also unfortunate to see Poland drop 10 spots, to #32. Looking at developing nations, Brunei Darussalam plummeted an astounding 52 spots, down to #115, followed by Tajikistan, which fell 46 spots to #118. Brazil is also worth highlighting, since it plunged 23 spots to #120.

P.S. I don’t know if Moldova, Ukraine, and Russia count as European countries or Asian nations, but they all rank in the bottom half. In any event, they’re not Western European nations.

P.P.S. I mentioned last year that Switzerland was the only nation to be in the top 10 for both economic freedom and personal freedom. In the latest rankings, New Zealand also achieves that high honor.

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I don’t like it when voters support tax increases.

Needless to say, voters rarely if ever vote to raise their own taxes. Instead, they get seduced into robbing their neighbors in exchange for the promise of new goodies from politicians.

Regardless, it’s still very unfortunate when it happens because it shows an erosion in the American spirit (we should be more like Switzerland!).

I raise this issue because the people of Oregon just gave fairly strong support to a tax-hike referendum. Here are some of the details.

…voters approved hundreds of millions of dollars in health care taxes in a special election. Measure 101, which led 62 percent to 38 percent with returns partially tallied, was the only issue on the ballot. It will raise $210 million to $320 million in taxes on Oregon’s largest hospitals and many health insurance policies by 2019.

At first glance, this is just another example of Oregon voters voting for bigger government and more class warfare.

But as you read further in the story, you’ll find something remarkable.

…the tax deal was a victory for…the health care industry, which bankrolled the “yes” campaign. …The largest contributor to the campaign to pass the taxes was the association that represents Oregon hospitals. Other health care companies also spent heavily to pass the measure.

Huh? Why would an industry support and bankroll an initiative to give more of their money to government?!?

It turns out that the industry isn’t filled with masochists (like the neurotic trust fund leftists who posture in favor of higher taxes). Instead, the special interests such as the hospital lobby viewed a couple of hundred million of taxes as an “investment” that will generate about $1 billion of taxpayer-financed loot.

…the health care industry…will benefit from the resulting $1 billion-plus that will be spent on Oregonians’ health care.

And taxpayers in other states will pick up a majority of the tab!

That tax revenue will enable Oregon to qualify for $630 million to $960 million in federal Medicaid matching funds that benefit the state’s health care industry. …state taxes would allow the state to keep federal matching funds.

This scam was exposed last year in a Wall Street Journal column.

…42 states tax hospitals. Why? One answer is the perverse incentives built into the Medicaid law. When a state returns tax money to hospitals through Medicaid “supplemental payments,” it qualifies for matching funds from Washington. …Medicaid supplemental payments, as the term implies, are separate and distinct from the reimbursements that cover the actual cost of services rendered to beneficiaries. But the federal government turns a blind eye to the circular nature of the arrangement: Hospitals and other providers are both the source and the recipient of most of the funds.

Here are more details on this oleaginous ripoff.

…supplemental-payment schemes…“have the effect of shifting costs to the federal government,” according to a 2014 study by the Governmental Accountability Office. The more a state taxes its hospitals and then gives them money back, the more federal funds it can obtain. …The hospital tax is the biggest revenue-raiser, but 44 states also tax nursing homes, and 34 tax at least one other type of health-care provider. The GAO study found that these taxes had almost doubled nationally, from about $9.5 billion in 2008 to $18.5 billion in 2012.

By the way, I have written on this topic before, and even included a handy infographic that explains a version of the scam.

Let’s now return to the column. The author cites an example from Connecticut.

Connecticut hospitals will pay $900 million in taxes, but the state will offset that with $600 million in supplemental Medicaid payments—matched with $450 million of federal funds. The state keeps those matching funds, plus the $300 million from the hospital tax, meaning Hartford comes out ahead in the whole scheme by $750 million. Nice work if you can get it.

I’m not a fan of my home state, but the Nutmeg State is hardly alone is playing this game.

What’s remarkable is that there are 8 states what don’t participate in the ripoff.

Anyhow, I can’t resist making one final point. Here’s a sordid tidbit from the earlier story about what happened in Oregon.

Democrats in the Oregon House helped achieve the deal by agreeing to fund three projects in a Medford Republican’s district, in exchange for that lawmaker providing the lone Republican “yes” vote in the state House.

One more piece of evidence that Republicans often are the most despicable people.

P.S. While today’s column focused on an odious quirk in the Medicaid program, let’s not lose sight of the forest by fixating on this particular tree. The reason we should care is that Medicaid is an initiative-sapping, money-draining program that greatly contributes to the mess in our overall healthcare system.

P.P.S. Which is why I encourage folks to watch the short video I narrated on the program. Pay close attention to the discussion that starts at 1:48. I explain that programs with both federal and state spending create perverse incentives for even more spending (e.g., what I wrote today). This is mostly because politicians in either Washington or state capitals can expand eligibility and take full credit for new handouts while only being responsible for a portion of the costs.

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I’ve just finished up a week of lectures and meetings in India. It was an interesting trip, but not an encouraging trip.

My first observation is that Indians are enormously successful when they emigrate to the United States. And they also do very well when they migrate to Singapore, South Africa, and other place around the world.

Yet Indians in India remain comparatively poor. Per-capita income is only $5,350 based on purchasing power parity (and far lower on a exchange-rate basis).

Why the difference? Let’s start with Economic Freedom of the World, which measures the degree to which misguided government policy suppresses the private sector.

The bad news is that India is ranked only #95, which puts it in the bottom half of the world.

Its worst score is on trade, where India is a miserable #142. And since there are only 159 nations that are included in the Fraser Institute’s ranking, that’s close to the bottom.

The regulation score also is quite bad. Not quite in the bottom third of nations, but close. Monetary policy and legal system/property rights (i.e., rule of law) are a bit better, but still in the bottom half of the EFW rankings.

The country’s only good score is for fiscal policy. But I would argue that the #22 ranking is an overstatement. India does well mostly because the government is too disorganized and incompetent to collect a lot of revenue. That’s the only reason why the burden of government spending is modest.

Below is a chart from EFW that maps India’s score starting in 1970. The good news is that India’s score – though still depressingly low – did improve considerably in the 1990s.

But here’s a very important caveat. India’s score increased, but its relative ranking has declined. Simply stated, other nations have improved their scores at a much faster rate.

Here’s some data on fiscal policy from a report by the Organization for Economic Cooperation and Development.

We’ll start with data on tax revenue as a share of economic output. By that measure, India is a low-tax country.

But now check out corporate tax rates. As you can see, the system is relatively onerous.

So a possible conclusion, as I noted above, is that revenues are low because of an unfriendly tax system. Hello Laffer Curve.

I’ll close by shifting from macro data to personal observations based on my trip.

Here are four reasons why I’m leaving India with a pessimistic feeling.

  1. I had lots of meetings with people in the business community and there is not only skepticism of free trade, but also considerable support for protectionism.
  2. Similarly, the business community has a semi-favorable view of big government because the state is a source of subsidies and handouts.
  3. India has a federalist system, but state governments are basically administrators of programs designed by the central government (unlike Switzerland).
  4. The big “pro-market reform” in India has been the “single window” for regulatory clearances, when the right policy would be to abolish red tape altogether.

But I’ll close with a bit of optimism (above and beyond what I wrote the other day about the burgeoning role of the private sector in education). There’s a saying in the country that “India grows at night, while government sleeps.” And there’s even a book with that title. In other words, policy is generally not friendly, but the private sector manages to find “breathing room” to operate in spite of government.

So poverty is falling, slowly but surely. And hopefully globalization will gradually lead the government to be more open to trade liberalization and open markets.

P.S. Another reason to be pessimistic about India is that the government recently imposed “demonetization.” Any nation that joins the war against cash generally has the wrong mindset.

P.P.S. I can’t resist linking again to a truly bizarre case in India of government handouts encouraging very bizarre behavior.

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Last November, I wrote about the lessons we should learn from tax policy in the 1950s and concluded that very high tax rates impose a very high price.

About six months before that, I shared lessons about tax policy in the 1980s and pointed out that Reaganomics was a recipe for prosperity.

Now let’s take a look at another decade.

Amity Shlaes, writing for the City Journal, discusses the battle between advocates of growth and the equality-über-alles crowd.

…progressives have their metrics wrong and their story backward. The geeky Gini metric fails to capture the American economic dynamic: in our country, innovative bursts lead to great wealth, which then moves to the rest of the population. Equality campaigns don’t lead automatically to prosperity; instead, prosperity leads to a higher standard of living and, eventually, in democracies, to greater equality. The late Simon Kuznets, who posited that societies that grow economically eventually become more equal, was right: growth cannot be assumed. Prioritizing equality over markets and growth hurts markets and growth and, most important, the low earners for whom social-justice advocates claim to fight.

Amity analyzes four important decades in the 20th century, including the 1930s, 1960s, and 1970s.

Her entire article is worth reading, but I want to focus on what she wrote about the 1920s. Especially the part about tax policy.

She starts with a description of the grim situation that President Harding and Vice President Coolidge inherited.

…the early 1920s experienced a significant recession. At the end of World War I, the top income-tax rate stood at 77 percent. …in autumn 1920, two years after the armistice, the top rate was still high, at 73 percent. …The high tax rates, designed to corral the resources of the rich, failed to achieve their purpose. In 1916, 206 families or individuals filed returns reporting income of $1 million or more; the next year, 1917, when Wilson’s higher rates applied, only 141 families reported income of $1 million. By 1921, just 21 families reported to the Treasury that they had earned more than a million.

Wow. Sort of the opposite of what happened in the 1980s, when lower rates resulted in more rich people and lots more taxable income.

But I’m digressing. Let’s look at what happened starting in 1921.

Against this tide, Harding and Coolidge made their choice: markets first. Harding tapped the toughest free marketeer on the public landscape, Mellon himself, to head the Treasury. …The Treasury secretary suggested…a lower rate, perhaps 25 percent, might foster more business activity, and so generate more revenue for federal coffers. …Harding and Mellon got the top rate down to 58 percent. When Harding died suddenly in 1923, Coolidge promised to “bend all my energies” to pushing taxes down further. …After winning election in his own right in 1924, Coolidge joined Mellon, and Congress, in yet another tax fight, eventually prevailing and cutting the top rate to the target 25 percent.

And how did this work?

…the tax cuts worked—the government did draw more revenue than predicted, as business, relieved, revived. The rich earned more than the rest—the Gini coefficient rose—but when it came to tax payments, something interesting happened. The Statistics of Income, the Treasury’s database, showed that the rich now paid a greater share of all taxes. Tax cuts for the rich made the rich pay taxes.

To elaborate, let’s cite one of my favorite people. Here are a couple of charts from a study I wrote for the Heritage Foundation back in 1996.

The first one shows that the rich sent more money to Washington when tax rates were reduced and also paid a larger share of the tax burden.

And here’s a look at the second chart, which illustrates how overall revenues increased (red line) as the top tax rate fell (blue).

So why did revenues climb after tax rates were reduced?

Because the private economy prospered. Here are some excerpts about economic performance in the 1920s from a very thorough 1982 report from the Joint Economic Committee.

Economic conditions rapidly improved after the act became law, lifting the United States out of the severe 1920-21 recession. Between 1921 and 1922, real GNP (measured in 1958 dollars) jumped 15.8 percent, from $127.8 billion to $148 billion, while personal savings rose from $1.59 billion to $5.40 -billion (from 2.6 percent to 8.9 percent of disposable personal income). Unemployment declined significantly, commerce and the construction industry boomed, and railroad traffic recovered. Stock prices and new issues increased, with prices up over 20 percent by year-end 1922.8 The Federal Reserve Board’s index of manufacturing production (series P-13-17) expanded 25 percent. …This trend was sustained through much of 1923, with a 12.1 percent boost in GNP to $165.9 billion. Personal savings increased to $7.7 billion (11 percent of disposable income)… Between 1924 ‘and 1925 real GNP grew 8.4 percent, from $165.5 billion to $179.4 billion. In this same period the amount of personal savings rose from an already impressive $6.77 billion to about $8.11 billion (from 9.5 percent to 11 percent of personal disposable income). The unemployment rated dropped 27.3 percents interest rates fell, and railroad traffic moved at near record levels. From June 1924 when the act became law to the end of that year the stock price index jumped almost 19 percent. This index increased another 23 percent between year-end 1924 and year-end 1925, while the amount of non-financial stock issues leapt 100 percent in the same period. …From 1925 to 1926 real GNP grew from $179.4 billion to $190 billion. The index of output per man-hour increased and the unemployment rate fell over 50 percent, from 4.0 percent to 1.9 percent. The Federal Reserve Board’s index of manufacturing production again rose, and stock prices of nonfinancial issues increased about 5 percent.

Now for some caveats.

I’ve pointed out many times that taxes are just one of many policies that impact economic performance.

It’s quite likely that some of the good news in the 1920s was the result of other factors, such as spending discipline under both Harding and Coolidge.

And it’s also possible that some of the growth was illusory since there was a bubble in the latter part of the decade. And everything went to hell in a hand basket, of course, once Hoover took over and radically expanded the size and scope of government.

But all the caveats in the world don’t change the fact that Americans – both rich and poor – immensely benefited when punitive tax rates were slashed.

P.S. Since Ms. Shlaes is Chairman of the Calvin Coolidge Presidential Foundation, I suggest you click here and here to learn more about the 20th century’s best or second-best President.

P.P.S. I assume I don’t need to identify Coolidge’s rival for the top spot.

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I explained back in 2013 that there is a big difference between being pro-market and being pro-business.

Pro-market is a belief in genuine free enterprise, which means companies succeed of fail solely on the basis of whether they produce goods and services that consumers like.

Pro-business, by contrast, is a concept that opens the door to inefficient and corrupt cronyism, such as bailouts and subsidies.

It basically means big business and big government get in bed together. And that’s going to mean bad news for taxpayers and consumers.

Washington specializes in this kind of cronyism. The Export-Import Bank, ethanol handouts, TARP, and Obamacare bailouts for big insurance firms are a few of my least-favorite examples.

But state politicians also like giving money to rich insiders.

A report in the Washington Post reveals how states are engaged in a bidding war to attract Amazon’s big new facility, dubbed HQ2.

Maryland Gov. Larry Hogan (R) will offer more than $3 billion in tax breaks and grants and about $2 billion in transportation upgrades to persuade Amazon.com to bring its second headquarters and up to 50,000 jobs to Montgomery County. …It appears to be the second-most generous set of inducements among the 20 locations on Amazon’s shortlist. Of the offerings whose details have become public, either through government or local media accounts, only New Jersey’s is larger, at $7 billion.

Richard Florida, a professor at the University of Toronto, explains to CNN why this approach is troubling.

…there’s one part of Amazon’s HQ2 competition that is deeply disturbing — pitting city against city in a wasteful and economically unproductive bidding war for tax and other incentives. As one of the world’s most valuable companies, Amazon does not need — and should not be going after — taxpayer dollars… While Amazon may have the deck stacked in picking its HQ2 location, the mayors and elected leaders of these cities owe it to their tax payers and citizens to ensure they are not on the hook for hundreds of millions and in some cases as much as $7 billion in incentives to one of the world’s most valuable companies and richest men. …The truly progressive thing to do is to forge a pact to not give Amazon a penny in tax incentives or other handouts, thereby forcing the company to make its decision based on merit.

It’s not just a problem with Amazon.

Here’s are excerpts from a column in the L.A. Times on crony capitalism for Apple and other large firms.

State and local officials in Iowa have been working hard to rationalize their handout of more than $208 million in tax benefits to Apple, one of the world’s richest companies, for a data facility that will host 50 permanent jobs. …the Apple deal shows the shortcomings of all such corporate handouts, nationwide. State and local governments seldom perform cost-benefit studies to determine their value — except in retrospect, when the money already has been paid out. They seldom explain why some industries should be favored over others — think about the film production incentives offered by Michigan, Louisiana, Georgia and, yes, Iowa, which never panned out as profit-makers for the states. …the handouts allow big companies to pit state against state and city against city in a competition that benefits corporate shareholders almost exclusively. Bizarrely, this process has been explicitly endorsed by Donald Trump. …politicians continue to shovel out the benefits, hoping to steer their economies in new directions and perhaps acquire a reputation for vision. Nevada was so eager to land a big battery factory from Tesla Motors’ Elon Musk that it offered him twice what Musk was seeking from the five states competing for the project. (In Las Vegas, this is known as “leaving money on the table.”) Wisconsin Gov. Scott Walker gave a big incentive deal to a furniture factory even though it was laying off half its workforce. He followed up last month with an astronomical $3-billion handout to electronics manufacturer Foxconn for a factory likely to employ a fraction of the workforce it forecasts.

And here’s an editorial from Wisconsin about a bit of cronyism from the land of cheese.

The Foxconn deal…should be opposed by Democrats and Republicans, liberals and conservatives. There are no partisan nor ideological “sides” in this debate. The division is between those who want to create jobs in a smart and responsible way that yields long-term benefits and those who propose to throw money at corporations that play states and nations against one another. The Foxconn deal represents the worst form of crony capitalism — an agreement to transfer billions of dollars in taxpayer funds to a foreign corporation. …Walker offered the company a massive giveaway — discussions included a commitment to hand the Taiwanese corporation nearly $3 billion in taxpayer funds (if it meets hazy investment and employment goals), at least $150 million in sales tax exemptions…the Legislative Fiscal Bureau, which analyzes bills with budget implications…pointed out that Foxconn would receive at least $1.35 billion and possibly as much as $2.9 billion in tax incentive payments even if it didn’t owe any Wisconsin tax… This is a horrible deal.

Let’s now circle back to Amazon and consider how it gets preferential treatment from the Post Office.

I don’t feel guilty ordering most of my family’s household goods on Amazon. …But when a mail truck pulls up filled to the top with Amazon boxes for my neighbors and me, I do feel some guilt. Like many close observers of the shipping business, I know a secret about the federal government’s relationship with Amazon: The U.S. Postal Service delivers the company’s boxes well below its own costs. Like an accelerant added to a fire, this subsidy is speeding up the collapse of traditional retailers in the U.S. and providing an unfair advantage for Amazon. …First-class mail effectively subsidizes the national network, and the packages get a free ride. An April analysis from Citigroup estimates that if costs were fairly allocated, on average parcels would cost $1.46 more to deliver. It is as if every Amazon box comes with a dollar or two stapled to the packing slip—a gift card from Uncle Sam. Amazon is big enough to take full advantage of “postal injection,” and that has tipped the scales in the internet giant’s favor. …around two-thirds of Amazon’s domestic deliveries are made by the Postal Service. It’s as if Amazon gets a subsidized space on every mail truck.

In this last example, the real problem is that we’ve fallen behind other nations and still have a government-run postal system.

The way to avoid perverse subsidies is privatization. That way Amazon deliveries will be based on market prices and we won’t have to worry about a tilted playing field.

And that last point is critical.

Yes, cronyism and corporate welfare is an economic issue. It is bad for long-run growth when political favors distort the allocation of capital.

But an unlevel playing field is also a moral issue. It’s simply not fair or not right for politicians to give their buddies special advantages.

And it’s both economically harmful and morally harmful to create a system where the business community views Washington as a handy source of unearned wealth.

For what it’s worth, I also think it should be a legal issue. For those of us who believe in the rule of law, a key principle is that everyone should be treated equally. Heck, that principle is enshrined in the Constitution.

So I’ve always wondered why courts haven’t rejected special deals for specific companies because of the equal-protection clause?

Then again, maybe I shouldn’t wonder. After all, the Supreme Court twisted itself into a pretzel to miraculously rationalize Obamacare.

But none of this changes the fact that it’s time to wean big business off corporate welfare.

P.S. Just in case you harbor unwarranted sympathy for big companies, remember that these are the folks who are often keen to undermine support for the entire capitalist system.

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I wrote yesterday about the global evidence showing that more money does not improve the lackluster performance of government schools.

Those results are not surprising because we see the same thing in the United States. More money is good for the education bureaucracy, but it doesn’t lead to better student outcomes.

Now let’s focus on the solution to this problem. Simply stated, we need to break up the government education monopoly and unleash market forces.

Previous columns have looked at the success of school choice in SwedenChile, and the Netherlands.

Now let’s look at India, another country where private education has experienced amazing growth. I’m actually in that country for some speeches on regulatory reform (specifically, how India can improve its Doing Business score) and I’ve taken advantage of this situation to learn about the amazing developments in education.

We’ll start with some excerpts from a remarkable story in the Hindustan Times.

Between 2010-11 and 2015-16, student enrollment in government schools across 20 Indian states fell by 13 million, while private schools acquired 17.5 million new students, according to a new study that offers insights into India’s public-school education crisis. Average enrollment in government schools–where teachers are paid, on average, salaries that are four times those in China–declined from 122 to 108 students per school over five years, while it rose from 202 to 208 in private schools… Why are students opting out of India’s government schools, which educate the poorest and most vulnerable students until the age of 14 for free, and migrating to fee-charging private institutions in such large numbers? …private schools offer better value for money and better teaching than government schools.

Yet you won’t be surprised to learn that teachers in the government schools are lavishly compensated.

India’s government teachers earn more than…their counterparts in private schools… Teacher salaries in of teachers in Uttar Pradesh are four to five times India’s per capita gross domestic product (GDP) and more than 15 times the state’s, according to a 2013 analysis by Amartya Sen and Jean Dreze. This is much higher than the salaries paid to teachers in OECD countries and India’s neighbours.

Much of the data in that story was taken from a 2017 study published by a German think tank.

Here are some of the other findings from that report.

Official data show a steep growth of private schooling and a corresponding rapid shrinkage in the size of the government school sector in India, suggesting parental abandonment of government schools. …affordability is an important factor behind the migration towards and growth of private schools. The main reason for the very low fee levels in private schools is their lower teacher salaries, which the data show to be a small fraction of the salaries paid in government schools; this is possible because private schools pay the market-clearing wage…whereas government schools pay bureaucratically determined minimum-wages. Private schools’ substantially lower per-student-cost combined with their students’ modestly higher learning achievement levels, means that they are significantly more cost-effective than government schools.

The study is filled with extensive data.

But rather than quote long passages, here are two charts that caught my eye. First, we see better performance in private schools.

Given these impressive results, the logical response would be for India to scrap government schools and adopt a nationwide system of school choice.

But there’s a very powerful interest group standing in the way. As you can see from this second chart, government teachers are grossly overpaid and they will fight to the death to maintain the status quo.

Now let’s look at some of the findings from a report prepared by Ernst & Young on elementary and secondary education in India.

Once again, we see that parents are voting with their money to send their kids to private schools. Why? Because even though government schools are “free,” parents actually want their kids to get a good education.

…one of the most striking trends in Indian school education is the increase of private sector participation with an estimated 3 lakh private schools with 40% of the total student enrollment. Private enrollment in elementary schools is approximately 35% and over 50% at the secondary level. …private schools deliver higher quality education as gauged by educational outcomes such as performance on board exams and evidence from standardized assessments.

And here are some charts from the report, starting with a look at the share of kids in private schools.

And here’s some additional evidence that private schools generate better student outcomes.

What makes these results especially amazing is that the government has created all sorts of barriers to private schools.

I wrote about this in 2013, but the E&Y report quantifies how politicians and bureaucrats are trying to stifle competition.

Let’s take a look at some more research.

The Centre for Civil Society also has a must-read report on private education in India.

We’ll start with an excerpt that reinforces the fact that parents are voting with their scarce funds because they want a better future for their children.

Private fee charging schools are loved and loathed in equal measure in India: loved in the sense of being sought after by parents for their children’s education and often reviled by the press/ public/ authorities… The emptying of government schools…is largely the result of an exodus of students from government schools and migration toward private schools… The evidence suggests that most private schools in India can be considered ‘low fee’ in the precise sense that their fee is below the government’s… This evidence discredits the oft-repeated belief that much of private schooling in India is elite and exclusive.

Here’s data showing that the private schools cost less.

And here’s data showing that private schools deliver better results.

Finally, let’s look at a study by the World Bank that measures inputs and outputs to determine “value for money” (VFM).

PPE in MP government school system is Rs 9384 per annum and in private schools Rs 3700 per annum. Thus, government schools’ PPE is 2.5 times private schools’ PPE. However, the learning units are higher in private schools: 58% of private school students and 28% of government students of class 5 could read a class 2 level text in 2014-15. Thus government schools’ learning output is just about half that in private schools. Putting the output and expenditure items together, we find that the cost per unit of achievement is Rs 338 in government schools and Rs 63 in private schools, implying that private schools are 5.3 times as cost effective as public schools, or that government schools are one fifth as efficient in producing output as private schools. …When home background is strictly controlled for, the raw public-private learning gap greatly falls but is usually not eliminated. … if only 25% of the raw public-private achievement gap of MP is attributed to superior private school quality (e.g., lower teacher absence rates), then private schools are 3.25 more efficient than government schools, rather than 5.3 times. …In summary, there is very low VFM from government expenditure on education, in terms of producing the valued outcome of ‘learning’ among students. The private schooling sector gets significantly higher VFM.

And here are a couple of visuals from the report.

We’ll start with a look at enrollment patterns (a “lakh” = 100,000), further confirming that an ever-growing number of parents would rather pay for a private school than send their kids to a “free” government school.

And here’s some data starkly showing how government teachers are vastly overpaid.

All of which reinforces the “value for money” argument that the private schools get far more bang for the buck.

Let’s conclude with a video. One of the world’s experts on private education in the developing world is James Tooley and his interest was triggered by what he saw in India.

Here he discusses developments in India and other developing nations.

P.S. For those interested in more information about India, I wrote last year about how excessive government is stifling the nation’s economy. Indeed, the country is ranked a lowly #95 in the latest iteration of Economic Freedom of the World. This is very unfortunate because India should be a rich country. Indian-Americans, for instance, are the most successful immigrant group in America.

P.P.S. But it will be hard for Indians in India to achieve similar success since the government keeps imposing bad policies such as “demonetization.”

P.P.P.S. India is also home to the most perverse example of how handouts encourage bad behavior.

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I’ve written several times about how dumping more money into government schools is not a recipe for improved education.

Indeed, I would argue that this chart is the most powerful image I’ve ever seen. More and more money gets plowed into the system (even after adjusting for inflation!), but the only effect is that school systems hired more bureaucrats.

There hasn’t been any positive impact on student test scores.

It’s especially depressing when you compare the United States with other developed nations. We spend more than other countries, on a per-student basis, yet our test scores are below average.

Politicians periodically admit there is a problem, but their solutions – such as Bush’s no-bureaucrat-left-behind scheme and Obama’s common-core boondoggle – simply squander money and rearrange the deck chairs on the Titanic.

Let’s examine whether this pattern is true in other nations. I already shared some research showing that big spending increases in Indonesia didn’t have a positive impact.

Now let’s look at multi-country analysis. We’ll start by looking at a study by a scholar from the World Bank and Harvard’s Kennedy School.

Cross national data show no association between the increases in human capital attributable to rising educational attainment of the labor force and the rate of growth of output per worker. This implies the association of educational capital growth with conventional measures of TFP is large, strongly statistically significant, and negative. …Three causes could explain why the impact of education varied widely across countries and fell short of what was hoped. First, the institutional/governance environment could have been sufficiently perverse that the educational capital accumulation lowered economic growth. Second, perhaps the marginal returns to education fell rapidly as the supply expanded while demand for educated labor was stagnant. Third, educational quality could have been so low that “years of schooling” have created no human capital.

Here’s some statistical analysis from Professor Garett Jones of George Mason University.

Between the 60’s and the 90’s every country in this sample boosted its average years of education–it was a golden age of alleged human capital investment.  Some nations boosted schooling more, some less. How did that turn out? …The trendline points down slightly, but for the time being let’s just call it a draw.  It’s a well-known fact that countries that started the 1960’s with high education levels grew faster…, but this graph is about something different.  This graph shows that countries that increased their education levels did not grow faster.

And here’s his graph.

This data clearly shows that dumping more money into education doesn’t work.

So perhaps the problem is the way the money is getting spent, not the amount.

That’s why the moral of the story is that we need to break up government school monopolies and harness the power of the market by giving parents and students genuine school choice. For what it’s worth, there’s strong evidence that choice produces good outcomes in the limited instances where it is allowed in the United States.

P.S. There’s also strong evidence for school choice from nations such as SwedenChile, and the Netherlands.

P.P.S. Needless to say, eliminating the Department of Education is part of the solution.

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I gave Trump 50-day grades and 100-day grades, but those were largely speculative assessments.

Now we have a full year of data and that real-world evidence can be used to grade Trump’s first year in office.

But before I get into the details, allow me to start with a broad observation. William F. Buckley famously said that he would rather be governed by 2000 random people from the Boston phone book than by the faculty of Harvard University. Well, one can argue that he posthumously got his wish. The 2016 election was a choice between:

  • Hillary Clinton, a very well-credentialed leftist who would have staffed her administration with other well-credentialed leftists (the Harvard faculty in spirit), who nonetheless was defeated by;
  • Donald Trump, a novice politician who has random-guy-from-the-phone-book opinions (as I described him to a TV audience in New Zealand, he’s “your Uncle who spouts off at Christmas dinner”).

It’s not my role to say whether the American people made the right choice, but I am willing to analyze the economic consequences.

So let’s look at the five major policy areas that determine a nation’s level of economic liberty and see whether Trump is moving America in the right direction or wrong direction.

  • Fiscal Policy – It’s not easy to give Trump a grade because he’s like Dr. Jekyll and Mr. Hyde on the budget. On the tax side of the ledger, he pushed for and ultimately signed a better-than-expected tax bill featuring an impressive reduction in the corporate tax rate and some much-needed limits on the deductibility of state and local taxes. On the spending side of the ledger, however, the first year of Trump has been a disappointment. According to the Committee for a Responsible Federal Budget, he actually approved more than $250 billion (over eight years) of additional outlays. And we haven’t gotten any entitlement reform (though Trump supported the Obamacare repeal legislation on Capitol Hill, which included some reasonably good spending provisions). Trump Grade: B
  • Trade – Trump has moved policy in the wrong direction, though the first year was not as bad as feared. In other words, he’s been doing a lot of saber-rattling, but fortunately not drawing too much blood. That being said, he is threatening to pull the United States out of NAFTA, which would be a very big mistakeTrump Grade: D
  • Regulation – This is Trump’s best issue area. He’s rolled back some Obama-era regulations, and he’s made some very sensible appointments, which means there’s hope of ameliorating the statist orientation of bureaucracies such as the FDA and the FCCTrump Grade: A-
  • Monetary Policy – Trump hasn’t said much about monetary policy, so we can only grade him on the basis of the people he has appointed to the Federal Reserve. But even that doesn’t allow us much room for analysis since his picks have been very conventional. One hopes a Trump-influenced Fed will support a gradual end to artificially low interest rates, but that’s unclear at this stage. Trump Grade: C
  • Rule of Law – Trump has been aggressive with executive orders, which worries me even if I happen to agree with the underlying policy. The White House hasn’t tried to flout court decisions, however, so that’s a good sign. The appointment and confirmation of Justice Gorsuch also bodes well (assuming he doesn’t “grow in office” like Justice Roberts). Trump Grade: B-

Overall, I think economic policy has moved slightly in the right direction, and I’ll be curious to see whether my back-of-the-envelope grading is confirmed by Economic Freedom of the World.

Here’s some of what I wrote for the latest issues of Cayman Financial Review.

…his first year in office has been a net plus for the U.S. economy. The regulatory state has been curtailed and a semi-significant tax reform has been enacted. …Equally important, Trump has not destabilized global trade. His protectionist rhetoric has not (yet) translated into major anti-trade initiatives. Nor has he implemented any populist policies on immigration or the budget. In other words, we have dodged a bullet. …That is the good news. The bad news (or, to be fair, unsettling news) is that Trump still has at least three more years in office. …The fact that Trump’s first year has been characterized by a “normal” set of Republican policies is besides the point. Almost everyone assumes he is capable of doing something out of the ordinary.

I’ll close by making a second broad observation. The fact that economic liberty increased during Trump’s first year in office does not mean that his presidency will be a net plus. It’s possible that his personal unpopularity will trigger a backlash that makes it easier over time to impose statist policies (just as I suggested that a Hillary victory might have produced desirable long-run consequences).

Check with me in 2021 for a final assessment on whether picking a president from the Boston phone book (metaphorically speaking) was a good idea.

P.S. For what it’s worth, here’s a speech I gave back in Trump’s first month in office. I think my predictions were on target (mostly because I paid attention to what Trump was saying, not because of any special insight).

P.P.S. Whether you’re a left-leaning opponent of Trump or a right-leaning opponent of Trump, remember there’s always the silver lining of mockery.

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When I shared some anti-communism humor on January 14, I figured that it would be quite some time before I had another opportunity to mock that evil ideology.

But that column triggered a bunch of messages, with friends and acquaintances sending me new material.

I figured that was a sign of interest in the topic, so let’s once again have a few laughs.

We’ll start with a couple of Wendy’s commercials. I actually remember the first one from my younger days and it is definitely my favorite because of the (very accurate) way it portrays that totalitarian ideology.

I hope you enjoy the Soviet fashion show as much as I did.

Here’s another commercial from Wendy’s. I don’t remember seeing it on TV.

I don’t think it’s quite as clever as the fashion show, but it still makes fun of how the system tried to control people and deny freedom.

Now let’s check out a couple of images that showed up in my inbox.

This first one is the sarcastic version of a 2013 column that included a poster mocking people who claim that communism has never been tried.

This final image is my favorite.

It’s a more clever version of an image I shared back in 2014 comparing night-time views of North Korea and South Korea.

Let’s close on a serious note. North Korea is a horrifically backwards and evil place.

So while the image is amusing, let’s not forget (as captured by these two short videos) that it actually represents utter misery and unimaginable agony for millions of innocent people.

Something to keep in mind the next time you see some morally bankrupt jerk with a Che t-shirt.

P.S. You can click here for the inaugural collection of anti-communist humor.

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Here are three things I’ve written about tax policy. See if you can detect a pattern:

  • I’ve written that I don’t want a value-added tax because the money would be used to finance bigger government.
  • I’ve also explained I don’t want a carbon tax because the revenue from such a levy would finance bigger government.
  • I’ve given thumbs down to financial transactions taxes as well because I don’t want to finance bigger government.

Just in case it’s not obvious, the common theme is that I don’t want to give politicians new sources of revenue that would be used to expand the burden of government spending.

Some of my technocrat friends get upset by these writings. They argue, often correctly, that some of these taxes are not as destructive as the current tax code.

My response is that they’re making an irrelevant argument. Politicians who advocate the above taxes are not proposing to eliminate the income tax and repeal the 16th Amendment. Instead, they simply want to levy a new tax without fully repealing the awful system that already exists.

And now there’s a new tax idea gaining steam.

The Task Force on Fiscal Policy for Health…will examine the evidence on excise tax policy for health, including barriers to implementation, and make recommendations on how countries can best leverage fiscal policies to yield improved health outcomes for their citizens with the added benefit of bringing in additional revenue.

For readers who aren’t familiar with DC bureaucrat-speak, “leverage fiscal policies” means higher taxes. More specifically, advocates want higher “sin taxes” on unhealthy food and drink.

This Task Force is being spearheaded by Larry Summers (yes, that Larry Summers) and Mike Bloomberg (yes, that Mike Bloomberg), so it’s no surprise that this pair of leftists view “additional revenue” as an “added benefit.”

While my focus is on the negative fiscal and economic consequences of higher taxes and more spending, it’s worth pointing out the moral and practical argument against sin taxes.

Bill Wirtz, in a column for CapX, warns that nanny-state policies treat people as infants.

2017 has seen yet another increase in lifestyle regulations and sin taxes… Historically, it was social conservatives pushing for this kind of meddling. …How different is today’s excruciatingly irritating public health lobby…? Food and non-alcoholic drinks are…under fire, and blamed for a range of health issues. France and Ireland are now cracking down on that scourge on society: fizzy drinks. Ireland introduced a new tax on sugary drinks, while France increased the tax created in 2012 under French president Nicolas Sarkozy. Such policies are highly regressive… When Denmark introduced its controversial tax on fatty foods, consumers simply switched to cheaper – but equally unhealthy – alternatives. The country’s diet did not improve. …We are adults and we sometimes make decisions for ourselves which are unhealthy. The answer is for us to moderate our consumption, not quasi-prohibition. It’s time to stop infantilising the…consumer.

Charles Hughes of the Manhattan Institute reviews what happened with a new sin tax on sweetened beverages in Seattle.

Seattle recently became the latest major city to enact a sweetened beverage tax. …customers are reeling from sticker shock. One local reporter found that the tax added $10.34 to a case of Gatorade, bringing the final price to more than $26.00. …One of the justifications for beverage taxes is that customers will respond to price changes by reducing consumption of taxed beverages. The mechanism here is straightforward: tax something to get less of it. If people were to substitute diet sodas or other, less-harmful beverages for sugared sodas, they would be healthier.

But will such a policy work?

Many people are likely to avoid the tax by traveling to other untaxed locations to purchase groceries. Costco tells its customers about locations outside the city that are not subject to the beverage tax. …so the tax will have limited success in its health-related goals while also harming local businesses and failing to generate revenue.

Yet the fact the tax will be a failure at generating revenue isn’t stopping the city was squandering the money.

…revenue has already been allocated to a smorgasbord of causes, ranging from $500,000 for displaced worker retraining, to more than $1 million in tax administration costs, to vouchers to purchase fruits and vegetables.

While I’m glad consumers are escaping the tax by buying beverages from outside the city’s borders, in an ideal world, they would react in a bolder fashion.

If nothing else, the pro-tax crowd has a very elastic definition of sin.

They even want to tax meat.

Move over, taxes on carbon and sugar: the global levy that may be next is meat. Some investors are betting governments around the world will find a way to start taxing meat production… Meat could encounter the same fate as tobacco, carbon and sugar, which are currently taxed in 180, 60, and 25 jurisdictions around the world, respectively, according to a report Monday from investor group the FAIRR (Farm Animal Investment Risk & Return) Initiative. Lawmakers in Denmark, Germany, China and Sweden have discussed creating livestock-related taxes in the past two years.

By the way, the supposed Conservative Party in the United Kingdom is pushing sin taxes to finance bigger government.

The sugar tax was announced by Chancellor Philip Hammond in his budget statement in 2017. He said the money raised as part of the levy would go to the Department for Education. The former Chancellor said the new levy would be put on drinks companies and they would be taxed according to how much sugar was in their beverages. Two categories of taxation are set to come into force. One on the total sugar content on drinks with more than 5g per 100ml and a higher levy for drinks with 8g per 100ml or more. …The new tax could whack up the cost of a 2 litre bottle of Coca-Cola (10.6g per 100ml) by as much as 48p.

The nanny-state crowd complains that this isn’t enough.

Health campaigners have said the fizzy drinks tax should be extended to cover all chocolate, sweets and other confectionery containing the highest levels of sugar. …Action on Sugar is urging a mandatory levy set at a minimum of 20 per cent on all confectionery products that contain high levels of sugar.

Politicians in other nations also are using this excuse to extract more money from the citizenry.

Other countries have introduced similar measures and have seen some success in reducing the drinking of fizzy drinks. Mexico introduced a 10 per cent tax on sugary drinks in 2014 and saw a 12 per cent reduction over the first year. Hungary brought in a tax on the drinks companies and saw a 40 per cent decrease in the amount of sugar in the products. Brits will be joining some of our European neighbours with the move with similar measures in place on drinks in France and Finland and the Norwegians chocolate tax.

Let’s sum this up. The case against sin taxes is based on two simple principles.

  1. Politicians want to seize more of our money in order to have greater ability to buy votes. Saying no to tax increases is a necessary (though sadly not sufficient) condition for good fiscal policy.
  2. Politicians want to tell us how to live our lives. But that’s not their job, even in cases where I agree with the underlying advice. Coerced good behavior is not a sign of virtue.

The bottom line is that some proponents of sin taxes presumably have their hearts in the right place. But they need their brains in a good place as well. If they want to be taken seriously, at the very least they should match their proposed sin taxes with permanent repeal of an existing tax of similar magnitude.

For example, offer to trade a sugar tax for repeal of the death tax. Or suggest a fat tax accompanied by elimination of the capital gains tax.

Until we see such offers, advocates of sin taxes should be met with unyielding opposition.

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With apologies to Elizabeth Barrett Browning, here’s the opening of the big-business version of Sonnet 43.

How do I hate thee, capitalism? Let me count the ways.
I hate thee to the depth and breadth and height
My soul can reach, for I am big and competition is a threat
Better to have bailouts, subsidies, mandates, protectionism, and cronyism.

I wish this was just empty satire. Sadly, however, there are many examples of big businesses fighting against free enterprise.

And now we have a new example.

The head of a huge investment fund has implied that businesses should become social justice warriors, a missive that (predictably) led to some fawning coverage in the New York Times.

Laurence D. Fink, founder and chief executive of the investment firm BlackRock, is going to inform business leaders that their companies need to do more than make profits — they need to contribute to society as well if they want to receive the support of BlackRock. …“Society is demanding that companies, both public and private, serve a social purpose,” he wrote in a draft of the letter that was shared with me.

Actually, as Walter Williams has eloquently explained, businesses perform a very valuable social purpose when they earn profits.

Indeed, the free enterprise system is why we enjoy unimaginable prosperity and why poor people in the United States have higher living standards than the average person in a socialist economy.

But that’s not the point Mr. Fink is making. Instead, he’s giving aid and comfort to the interventionists and redistributionists who want politicians and bureaucrats to have more power.

Which is, of course, the angle the New York Times chose to highlight.

It may be a watershed moment on Wall Street, one that raises all sorts of questions about the very nature of capitalism. …for the world’s largest investor to say it aloud — and declare that he plans to hold companies accountable — is a bracing example of the evolution of corporate America. …Mr. Fink’s declaration…pits him, to some degree, against many of the companies that he’s invested in, which hold the view that their only duty is to produce profits for their shareholders, an argument long espoused by economists like Milton Friedman.

Friedman was right, of course.

And not just about the value of profits. He also pointed out that people like Mr. Fink play a very destructive role.

Friedman wrote…in this very newspaper. “Businessmen who talk this way are unwitting puppets of the intellectual forces that have been undermining the basis of a free society these past decades.”

Amen.

So why would a fabulously rich man like Mr. Fink engage in this kind of stunt.

There are three possible explanations.

  1. He’s stupid. But I think we can eliminate that possibility by virtue of what he has achieved.
  2. He sincerely believes that businesses should sacrifice profits to pursue social justice. If that’s the case, I would suggest he lead by example by voluntarily giving the government 90 percent of his income over $200,000 per year (sort of a do-it-yourself version of 1950s tax policy). Needless to say, I’m not holding my breath. Rich people who decide to become left-wing always seem to want to appease their feelings of guilt by coercing other people into giving more money to politicians.
  3. He realizes his letter is a bunch of nonsense, but he wants to appease the left in order to shield his industry from bad policies such as an increase in capital gains taxes on “carried interest.” If this is the right answer, I sympathize with Mr. Fink’s policy objective (especially since higher taxes on carried interest would be the precursor for higher taxes on other forms of capital gains), but I very much disagree with his tactics.

Indeed, I have a suggestion for Republicans on Capitol Hill, one that I’ve made in the past when big businesses have urged tax hikes.

They should invite Mr. Fink to testify and ask him whether he supports higher taxes to achieve warm and fuzzy goals. Assuming he then says yes, they should then ask how much of his income he is voluntarily giving to Washington.

He’ll presumably say none (like all the other rich leftists), at which point they should rake him over the coals for hypocrisy,

And then they should ask him for a yes-or-no answer on whether he will support legislation specifically increasing the tax rate on CEOs of investment funds.  And follow that with a question of whether he endorses higher capital gains taxes on carried interest (a class-warfare levy that would be very painful for firms that specialize in private equity investments.

Last but not least, they should ask him for examples of BlackRock choosing unprofitable (or even less-profitable) investments in order to “serve a social purpose.” It would be somewhat amusing to see the reaction of investors if Fink actually named examples (and amusing to expose an additional layer of hypocrisy if he didn’t).

Here’s my bottom line on this issue. If Mr. Fink wants to be an effective advocate of social justice, properly defined, then he should concentrate on making very wise (i.e., profitable) investments. Because getting a healthy return on his investments would be the best possible evidence that he was helping the poor.

P.S. The first dictator of the Soviet Union, Vladimir Lenin, is rumored to have said that “capitalists will sell us the rope we will hang them with.” There’s no proof he actually said that, but the “Order of Lenin” was the highest civilian award granted by the Soviet Union.

So maybe we should mix the two concepts and create “The Lenin Award for Rich People Who Want to Destroy Free Enterprise.” Or something like that.

It definitely would be more meaningful than the Bob Dole Award or the Charlie Brown Award, and I know a good candidate for the inaugural prize.

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To put it mildly, Italy’s economy is moribund. There’s been almost no growth for the entire 21st century.

Bad government policy deserves much of the blame.

According to Economic Freedom of the World, Italy is ranked only 54th, the worst score in Western Europe other than Greece. The score for fiscal policy is abysmal and regulatory policy and rule of law are also problem areas.

Moreover, thanks to decades of excessive government spending, the nation also has very high levels of public debt. Over the last few years, it has received official and unofficial bailouts from the International Monetary Fund and the European Central Bank, and Italy is considered at high risk for a budgetary meltdown when another recession occurs.

And let’s not forget that the country faces a demographic death spiral.

You don’t have to believe me (though you should).

Others have reached similar conclusions. Here are excerpts from some VoxEU research.

Italy will increasingly need to rely on growth fundamentals to sustain its public debt. Unfortunately, the fundamentals do not look good. Not only was Italy severely battered by Europe’s double dip recession (its GDP is lower today than it was in 2005) but when we look at the growth of labour productivity…, we can see that Italy has been stagnating since the mid-90s. …At the end of 2016, Italy’s central government debt was the third-largest in the world…, at $2.3 trillion. …a debt crisis in Italy could trigger a global financial catastrophe, and could very possibly lead to the disintegration of the Eurozone. To avoid such a scenario, Italy must revive growth…a tentative policy prescription is for Italy, to remove those institutional barriers (such as corruption, judicial inefficiency and government interference in the financial sector) that stifle merit and contribute to cronyism.

Desmond Lachman of the American Enterprise Institute paints a grim picture.

Italy’s economic performance since the Euro’s 1999 launch has been appalling. …an over-indebted Italian economy needs a coherent and reform-minded government to get the country quickly onto a higher economic growth path. …since 2000, German per capita income has increased by around 20 percent, that in Italy has actually declined by 5 percent. Talk about two lost economic decades for the country. …if Italy is to get itself onto a higher economic growth path, it has to find ways improve the country’s labor market productivity… It has to do so through major economic reforms, especially to its very rigid labor market…being the Eurozone’s third largest economy, Italy is simply too big to fail for the Euro to survive in its present form. However, it is also said that being roughly ten times the size of the Greek economy, a troubled Italian economy would be too big for Germany to save.

Even the IMF thinks pro-market reforms are needed.

Average Italians still earn less than two decades ago. Their take-home pay took a dip during the crisis and has still not yet caught up with the growth in key euro area countries. …a key question for policymakers is how to enhance incomes and productivity… In the decade before the global financial crisis, Italy’s spending grew faster than its income, in important part because of increases in pensions. …The tax burden is heavy…a package of high-quality measures on the spending and revenue side the country could balance the need to support growth on the one hand with the imperative of reducing debt on the other. Such a package includes…lower pension spending that is the second highest in the euro area; and lower tax rates on labor, and bringing more enterprises and persons into the tax net. …together with reforms of wage bargaining and others outlined above, can raise Italian incomes by over 10 percent, create jobs, improve competitiveness, and substantially lower public debt.

There’s a chance, however, that all this bad news may pave the way for good news. There are elections in early March and Silvio Berlusconi, considered a potential frontrunner to be the next Prime Minister, has proposed a flat tax.

Bloomberg has some of the details.

A flat tax for all and 2 million new jobs are among the top priorities in the draft program of former premier Silvio Berlusconi’s Forza Italia party… The program aims to relaunch the euro region’s third-biggest economy…and recoup the ground lost in the double-dip, record-long recession of the 2008-2013 period. …Forza Italia’s plan doesn’t cite a level for the planned flat income tax for individuals, Berlusconi has said in recent television interviews it should be 23 percent or even below that. The written draft plan says a flat tax would also apply to companies. The program pursues the balanced budget of the Italian state and calls public debt below 100 percent of GDP a “feasible” goal. It is currently above 130 percent.

Wow. As a matter of principle, I think a 23-percent rate is too high.

But compared to Italy’s current tax regime, 23 percent will be like a Mediterranean version of Hong Kong.

So can this happen? I’m not holding my breath.

The budget numbers will be the biggest obstacle to tax reform. The official number crunchers, both inside the Italian government and at pro-tax bureaucracies such as the International Monetary Fund, will fret about the potential for revenue losses.

In part, those concerns are overblown. The high tax rates of the current system have hindered economic vitality and helped to produce very high levels of evasion. If a simple, low-rate flat tax is adopted, two things will happen.

  • There will be more revenue than expected because of better economic performance.
  • There will be more revenue than expected because of a smaller underground economy.

These things are especially likely in Italy, where dodging tax authorities is a national tradition.

That being said, “more revenue than expected” is not the same as “more revenue.” The Laffer Curve simply says that good policy produced revenue feedback, not that tax cuts always pay for themselves (that only happens in rare circumstances).

So if Italy wants tax reform, it will also need spending reform. As I noted when commenting on tax reform in Belgium, you can’t have a bloated public sector and a decent tax system.

Fortunately, that shouldn’t be too difficult. I pointed out way back in 2011 that some modest fiscal restraint could quickly pay big dividends for the nation.

But can a populist-minded Berlusconi (assuming he even wins) deliver? Based on his past record, I’m not optimistic.

Though I’ll close on a hopeful note. Berlusconi and Trump are often linked because of their wealth, their celebrity, and their controversial lives. Well, I wasn’t overly optimistic that Trump was going to deliver on his proposal for a big reduction in the corporate tax rate.

Yet it happened. Not quite the 15 percent rate he wanted, but 21 percent was a huge improvement.

Could Berlusconi – notwithstanding previous failures to reform bad policies – also usher in a pro-growth tax code?

To be honest, I have no idea. We don’t know if he is serious. And, even if his intentions are good, Italy’s parliamentary system is different for America’s separation-of-powers systems and his hands might be tied by partners in a coalition government. Though I’m encouraged by the fact that occasional bits of good policy are possible in that nation.

And let’s keep in mind that there’s another populist party that could win the election And its agenda, as reported by Bloomberg, includes reckless ideas like a “basic income.”

…economic malaise is increasingly common across Italy, where unemployment tops 11 percent and the number of people living at or below the poverty line has nearly tripled since 2006, to 4.7 million last year, or almost 8 percent of the population… “Poverty will be center stage in the campaign,” says Giorgio Freddi, professor emeritus of political science at the University of Bologna. …Five Star is a fast-growing group fueled by anger at the old political class. …a €500 ($590) monthly subsidy to the disadvantaged…is a key plank in Five Star’s national platform, and the group’s leaders have promised to quickly implement such a program if they take power. Beppe Grillo, the former television comedian who co-founded the party, says fighting poverty should be a top priority. A basic income can “give people back their dignity,”… The Five Star program echoes universal basic income schemes being considered around the world. …Five Star says the plan would cost €17 billion a year, funded in part by…tax hikes on banks, insurance companies, and gambling.

Ugh. Basic income is a very troubling idea.

I’ve already speculated about whether Italy has “passed the point of no return.” If the Five Star Movement wins the election and makes government even bigger, I think I’ll have an answer to that question.

Which helps to explain why I wrote that Sardinians should secede and become part of Switzerland (where a basic income scheme was overwhelmingly rejected).

In conclusion, I suppose I should point out that a flat tax would be very beneficial for Italy’s economy, but other market-friendly reforms are just as important.

P.S. Some people, such as Eduardo Porter in the New York Times, actually argue that the United States should be more like Italy. I’m not kidding.

P.P.S. When asked about my favorite anecdote about Italian government, I’m torn. Was it when a supposedly technocratic government appointed the wrong man to a position that shouldn’t even exist? Or was it when a small town almost shut down because so many bureaucrats were arrested for fraud?

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We joked about communism yesterday, so let’s stick with the humor theme and make Trump today’s target.

Months before the 2016 election, I shared a world-according-to-Trump map that had some very clever parts (I especially liked the portrayal of Eastern Europe and Canada, though I confess I’m not sure why China was labeled as the New England Patriots).

Now let’s look at three new Trump maps.

Lots of terrorists in this first version, as you can see. And maybe Trump will have China build the wall rather than Mexico.

And, compared to the 2016 map, Obama loses North Africa.

I’m not sure why all of Europe is considered Germany in this second map, but you won’t be surprised to see Russia portrayed positively.

The most amusing part is the “PROBABLY OK” for the Antipodes, which actually matches what I told a New Zealand TV audience last November.

Now let’s look at our final map, which is the best of today’s collection. It was sent to me by a Che-loving former significant other and it’s obviously a new map since it references “s***hole countries” and Norway also gets listed.

We also see an appearance by “Rocket Man” in North Korea and the “Election Non-Meddlers” from Russia. But I’m baffled that China is considered “Climate-Change Hoaxers.”

P.S. If you like humorous maps, you can click here to see how the Greeks, Brits, and Americans view Europe.

P.P.S. If you like Trump humor, previous examples can be found here, here, here, here, here, here, and here.

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Since communism killed 100 million people over 100 years and still causes unimaginable misery in a few blighted nations today, part of me thinks we should always treat the topic in a somber fashion.

But humor plays an important role in the world of politics. Reagan’s jokes (see 4th video) about the Soviet Union, for instance, helped undermine the legitimacy of that wretched system.

So let’s augment my collection of anti-communist humor from with a couple of new items.

We’ll start with a look at the class dunce.

I’m not sure what that made me laugh, but it did.

Next, here’s something I saw on Twitter. I assume Soviet Barbie was done as satire. In any event, it captures the utter dreariness of Soviet life.

Let’s close with an actual beer commercial from the 1980s, featuring the humor of a Russian émigré, Yakov Smirnoff.

On a related note, there is plenty of socialism humor, as well as redistribution humor and Venezuela humor.

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Centralization of government power is generally a very bad idea.

But this does not mean that state governments and local governments do a good job.

I’ve previously shared many examples of “great moments in state government” and today I’m going to augment my similarly sarcastic collection of “great moments in local government.”

We’ll start with one of America’s most poorly governed cities. Yes, we’re talking about Chicago.

The city can’t be bothered to stop real crime (indeed, it encourages and enables criminals by disarming law-abiding citizens), but it will nail small business owners with heavy fines for things that shouldn’t even be illegal.

A number of neighborhood small business owners are complaining that the city is overzealously policing sign permits, saying they’ve had to pay thousands of dollars in fines for words painted on their shop windows. “It just seems unfair to make you get a permit for every window panel,” said Scott Toth, owner of Craft Pizza at 1252 N. Damen Ave. …Toth had paid a contractor to paint “boiled bagels,” the hours of a pizza by the slice daily promotion, “pastries” and Sparrow Coffee in a window. Toth got a ticket for that window panel as well as three others that featured the restaurant’s logo. …hand-painted lettering at Dove’s Luncheonette advertising “breakfast, lunch, dinner,” and window script advertising “wedding dress cleaning” and “leather repair” at Wicker Park Cleaners also earned tickets, according to owners of those spots.

If you want to know what the city has achieved, here’s a “before” photo. Obviously a clear and present danger to public safety.

And here’s the “after” picture. Feel safer? Has government protected you?

I don’t know about you, but I’ll sleep more soundly knowing that there’s a crackdown on the scourge of illegal window signs.

Here are some details on Chicago’s inane law.

…city law enforced by the Department of Buildings states that permits are required for non-illuminated painted or vinyl advertising signs or lettering that take up more than 25 percent of any single window. The cost for each on-premise window sign is $200 per sign, plus a Department of Buildings zoning review fee that can vary from $50 to $1000 depending on the size of the sign. …The city requires that a professional contractor apply the lettering or images. Violators face fines of $350 to $15,000 per day until the signs are removed

Now let’s look at how Los Angeles is fleecing citizens.

…it is currently illegal for a pedestrian to step into a crosswalk after the red hand starts, even if there is sufficient time to safely cross. A Los Angeles Times investigation found that 17,000 people in the city were ticketed over a four-year period for stepping off the curb after the countdown had started. …”I don’t believe pedestrians should be preyed upon just to fill local coffers,” Santiago said in May.

Of course, Mr. Santiago is a politician, and I’m guessing he’s a big spender, so he presumably wants to prey on a different group of people.

Here’s a story from Arizona, as reported by Reason. It starts innocently enough, with one person wanting to buy some land but the owner rejecting the price.

For thirty years, Stapleton raised horses and plied his trade as a blacksmith while the city slowly grew up around him. During that time, says Stapleton, no one seemed to care much about his property or what he did with it. Until the former mayor of Phoenix set eyes on it. In 2006, Larry Herring, a representative for former mayor Phil Johnson offered Stapleton $225,000 for his property. Johnson intended to build condominiums next door. Stapleton told Herring his offer was much too low.

But then went awry. The property owner was threatened.

Herring, Stapleton says, told him if he didn’t sell, “bad things are going to happen to you” and that “a stone wall is going to fall on you.”

Unfortunately, city bureaucrats turned the threat into reality.

Shortly after rebuffing Herring’s offer, city officials cited Stapleton with six violations of the zoning code, everything from a fence that was too high, to vehicles improperly parked. The fines were $2,500 and came with the threat of six months in jail for each violation. Stapleton argued each of the violations were for long-standing features of his property, necessary for raising horses. “These things are farm things, and it’s a farm,” Stapleton says. “You didn’t bother me for thirty years. Now somebody wants the property, you want to bother me. And they were going to send me to jail to do it.” Stapleton chose to fight. The city rejected his request for a jury trial and in May 2007, a city judge fined Stapleton $15,000 and sentenced him to three years probation on the condition that he address his code violations or go to jail. At the same time the city was punishing Stapleton it was granting multiple variances to the ex-mayor’s development next door, one of them to allowed him to build a fence a foot higher than the one for which it fined Stapleton.

In a column for the New York Post, Walter Olson describes an insane proposal to help criminals in Philadelphia.

…in Philadelphia, …the city council will consider a bill to force owners of hundreds of small corner stores to take down glass partitions that protect their managers and clerks from being robbed and assaulted. It’s all being rationalized in the name of social justice. …Councilwoman Cindy Bass, who’s sponsoring the measure, …says…“Have you ever been served food at a sit-down restaurant establishment through a solid barrier? That is not acceptable. …What message does it send our children?”

Walter responds to the Councilwoman’s rhetorical question.

…it sends several messages. One is a moral that echoes down through the ages: Human beings threatened with violence have the right to protect themselves. …Philadelphia Health Commissioner Tom Farley, …is often quoted in the press demanding stronger government action to reduce gun violence. But that’s what the barriers deter. Philadelphia has a shooting every six hours, to say nothing of knifings and strong-arm robberies. The barriers reduce theft, too.

Now let’s close with an unbelievable story from Southern California about citizens getting abused. Let’s start by excerpting a horrifying anecdote.

Garcia got in trouble with Coachella City Hall in 2015 after a city code inspector discovered he had expanded his living room, making space to run a small day care center, without first getting building permits. Silver & Wright, a law firm contracted as Coachella’s city prosecutor, took the building permit case to criminal court, filing 29 misdemeanor charges. Garcia signed a plea agreement, brought his house up to code, paid a $900 fine to the court and moved on with his life.

Sounds annoying, right?

It gets worse. Far worse.

When Cesar Garcia pulled the letter out of his mailbox, he immediately recognized the name of the law firm on the envelope – Silver & Wright. …What did they want now? Garcia opened the letter, prepared for the worst, but was still shocked by what he found inside. The law firm had sent him a bill for $26,000. When he protested, the price climbed to $31,000.

And this sleazy firm, which acts on behalf of local governments, apparently makes a practice of targeting powerless people.

 Empowered by the city councils in Coachella and Indio, the law firm Silver & Wright has repeatedly filed criminal charges against residents and businesses for public nuisance crimes – like overgrown weeds, a junk-filled yard or selling popsicles without a business license – then billed them thousands of dollars to recoup expenses. …an extensive review of public records…identified 18 cases in which Indio and Coachella charged defendants more than $122,000 in “prosecution fees” since the cities hired Silver & Wright… With the addition of code enforcement fees, administration fees, abatement fees, litigation fees and appeal fees, the total price tag rises to more than $200,000.

Other examples are equally egregious.

…a Coachella family with a busted garage door and an overgrown yard filled with trash and junk was billed $18,500. An Indio man who sold parking on his land without a business license was billed $3,200. And an Indio woman who strung a Halloween decoration across the street in front of her home – then pleaded guilty to a crime no more serious than a speeding ticket at her first court appearance – was billed $2,700. …Juan Alvarado, a disabled Coachella homeowner…was prosecuted for converting his garage into a studio apartment without getting a building permit, then was billed $7,800 for the total cost of the case against him. …Indio prosecuted Fiesta Latina, a family-owned furniture store in the city’s struggling downtown district, because it didn’t have a permit for a sign on the roof. Then the store was billed $3,327 by Silver & Wright.

Utterly disgusting. Not only this story, but the other ones as well.

These local governments are basically extortion rackets. And the targets are usually the less fortunate.

These examples basically make my point that jury nullification is a very valuable tool (at least in cases where the local governments actually allow a trial rather than rely on bureaucratic edicts). I want fellow citizens to be a potential line of defense for the oppressed and mistreated.

But my final point is counter-intuitive. As much as I despise the actions of thuggish bureaucrats and politicians at the city and county level, I prefer local government over state government (or national government, or global government) for the simple reason that it’s much easier to escape their predatory behavior.

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I wrote two days ago about a jury correctly voting to acquit a Swiss banker who was being prosecuted (and persecuted) by the government. The jury presumably recognized that it’s not the responsibility of foreign national living in outside the U.S. to enforce our bad tax law.

My support for that jury has nothing to do with my admiration for Switzerland, my support for financial privacy, or my opposition to excessive taxation.

Instead, I was motivated by the principle that borders should limit the power and reach of government. And this principle is a two-way street. I also don’t want foreign governments to have carte blanche to impose their laws inside the United States.

I’m impressed that ordinary jurors apparently understood that principle better than policy makers in Washington.

But that’s not the only evidence for the wisdom of jurors.

Here’s another report on jury nullification in action.

A jury delivered an extraordinary blow to the government in a long-running battle over the use of public lands when it acquitted all seven defendants involved in the armed occupation of a national wildlife refuge in rural southeastern Oregon. …The Portland jury acquitted Bundy, his brother Ryan Bundy and five others of conspiring to impede federal workers from their jobs at the Malheur National Wildlife Refuge, 300 miles southeast of Portland. …Even attorneys for the defendants were surprised by the acquittals. …Federal prosecutors took two weeks to present their case, finishing with a display of more than 30 guns seized after the standoff.

But that was just the start because another trial was scheduled for Nevada.

U.S. District Judge Anna Brown said she could not release Bundy because he still faces charges in Nevada stemming from an armed standoff at his father Cliven Bundy’s ranch two years ago. …Daniel Hill, attorney for Ammon Bundy in the Nevada case, said he believed the acquittal in Oregon bodes well for his client and the other defendants facing felony weapon, conspiracy and other charges.

And what happened at that second trial?

Hold off on that question for a moment, bucause some of Bundy’s allies were given their day in court. The Las Vegas Sun reported on another outbreak of jury nullification.

A federal jury in Las Vegas refused Tuesday to convict four defendants who were retried on accusations that they threatened and assaulted federal agents by wielding assault weapons in a 2014 confrontation to stop a cattle roundup near the Nevada ranch of states’ rights figure Cliven Bundy. In a stunning setback to federal prosecutors planning to try the Bundy family patriarch and two adult sons later this year, the jury acquitted Ricky Lovelien and Steven Stewart of all 10 charges, and delivered not-guilty findings on most charges against Scott Drexler and Eric Parker. …”Random people off the streets, these jurors, they told the government again that we’re not going to put up with tyranny,” said a John Lamb, a Montana resident who attended almost all the five weeks of trial, which began with jury selection July 10. …The current jury deliberated four full days after more than 20 days of testimony.

So how did the government respond?

The second Bundy trial won’t even take place. As David French explained in a column for National Review, an Obama appointee threw out the case, thus saving a jury from another chance for nullification.

…a federal judge, Obama appointee Gloria Navarro, dismissed the federal government’s criminal case against Bundy and two of his sons on the basis that the government was guilty of “flagrant misconduct” in the trial. Its conduct was so “outrageous” that “no lesser remedy” than dismissal with prejudice “is sufficient.”

And why did the Judge make that decision?

In this case, evidence shows that a federal agency motivated by ego, anger, and prejudice launched the most militaristic and aggressive campaign possible against a rancher whom federal officials had deemed to be likely peaceful. There is evidence they abused that rancher’s son, ringed his property with snipers, and intended to “kick [him] in the mouth and take his cattle.” Then, when it came time to prosecute that same rancher, they withheld the truth and portrayed his accurate claims about federal misconduct as criminal deceptions designed to inflame public outrage. …The judge, however, understood her legal obligations. Who is the greater threat to public peace and the rule of law? A rancher and his sons angry that the government is destroying his livelihood in part through political favoritism and vindictiveness? Or a government that acts as if might makes right, abuses its citizens, and uses maximum force when far less intrusion and risk would accomplish its lawful purposes? Bundy’s case teaches a number of valuable lessons. We cannot presume the government’s virtue. Sometimes even wild tales are true. And every American — from the angriest antifa activist to the leader of “Y’all Qaeda” — is entitled to the full protection of the United States Constitution.

Jim Bovard, in a column for USA Today, opines on the broader implications.

…federal judge Gloria Navarro declared a mistrial in the case against Nevada rancher Cliven Bundy and others after prosecutors were caught withholding massive amounts of evidence undermining federal charges. This is the latest in a long series of federal law enforcement debacles that have spurred vast distrust of Washington. …The Bundys have long claimed the feds were on a vendetta against them, and 3,300 pages of documents the Justice Department wrongfully concealed from their lawyers provides smoking guns that buttress their case. …In the Bundy case, Judge Navarro slammed the FBI for withholding key evidence. …Until the feds cease wrongfully abusing their targets, there will be no rebound in trust in Washington. If the Trump administration cannot rein in renegade federal prosecutors, the president should cease-and-desist any and all claptrap about “draining the swamp.”

In other words, so long as there are some bad apples in the world of law enforcement (and, more broadly, in positions of power in government), jury nullification is a bulwark against abuse by the state.

Incidentally, I’m not implying Bundy and his pals are heroes. Yes, they’ve been mistreated, but they also seem to think they have a right to treat government land as their land. Which is why I think the real solution is privatization of the excessive government holdings of land.

Let’s now zoom out and look at three good pieces about jury nullification in Reason, starting with a column by J.D. Tuccille.

…jury nullification—acquittals of defendants who jurors believe did violate the law but don’t deserve punishment, either because of specifics of the case or because jurors oppose the law in question—isn’t always obvious. …But, as with much of what jurors do, nullification is important and potentially powerful. …Given the fury that judges and other officials display toward independent jurors, including occasional contempt of court and jury tampering charges, …Jurors who go about their business without revealing their motivations are immune to punishment, so keeping your mouth shut is just smart, even if it leaves the rest of us in the dark.

He provides an example of a jury slapping down an absurd prosecution.

…it’s more common to see cases like the rapid acquittal of an Ohio machinist who was arrested for making what Bureau of Alcohol, Tobacco, Firearms, and Explosives agents claimed were firearms noise suppressors (so-called “silencers”) without a license. …He claimed his products were actually unregulated muzzle brakes and that the government’s “expert” had no idea what he was talking about. Whether the jury believed the machinist, or whether they thought it was ridiculous to threaten a man with producing items that can easily be made on a home workbench and that lawmakers at the state and federal level are considering deregulating, is something we’ll probably never know. …Either way, they likely concluded that they were carrying out their responsibility to do justice and protect defendants from government overreach. Because, ultimately, jury nullification is just an extension of the jury’s role as a check on the state—whether prosecutors are applying law badly, or just applying bad law.

It’s not surprising to learn that the government does not like jury nullification.

But what is shocking is that the state is willing to imprison people for exercising their rights to free speech by informing potential jurors about nullification.

Here’s some of what Jacob Sullum wrote.

…a Michigan judge sentenced a local activist to eight weekends in jail, plus $545 in fines, 120 hours of community service, and six months of probation, for passing out jury nullification pamphlets in front of the Mecosta County courthouse. Keith Wood, a former pastor and father of eight, was arrested in November 2015 and convicted last month of jury tampering, a misdemeanor punishable by up to a year in jail. …Wood’s lawyer, David Kallman, who plans to appeal the conviction, argued that distributing the pamphlets, which contained general information about jurors’ rights, was protected by the First Amendment. He emphasized that Wood never discussed Yoder’s case with passers-by at the courthouse. …After Wood’s arrest, Mecosta County Prosecutor Brian Thiede said the FIJA pamphlet is dangerous because “we would have a lawless nation if people were to vote their conscience.”

The last sentence is the key. Notwithstanding the fevered statement of Mr. Thiede, we would not have a “lawless nation.” Jurors have no problem convicting those who assault, harm, kill, steal, and rape.

Nullification is a check on bad laws and/or bad actions by government. And that’s a good thing.

Let’s close with another piece by Tuccille, which has two very encouraging examples. We’ll start in Texas.

…El Paso, Texas, Police Chief Greg Allen turned out to be a surprise defender of bypassing the usual criminal justice rigmarole of booking, mug shots, and jails. While careful to emphasize that he’s no fan of drug legalization, Allen says it’s a waste of his officers’ time to put hours into an “an arrest that has no end result of a conviction because of jury nullification.” This is only the latest evidence that rebellious jurors are putting limits on how badly government officials can treat the rest of us. …”Jury nullification, though still rare, appears to be on the rise in drug cases that reach the trial stage,” wrote Rice University’s Prof. William Martin… But jurors are…doing just that often enough that the El Paso Police Chief sees no point to making arrests that have “no end result of a conviction because of jury nullification.”

And finish with Georgia.

In Laurens County, Antonio Willis faced up to five years in prison for selling the equivalent of a few joints to an undercover cop. The cop, “who switched into an exaggerated Hispanic accent straight out of Cheech and Chong when dealing with suspects,” according to Bill Torpy of the Atlanta Journal-Constitution, kept pestering Willis for drugs while promising to hook the unemployed man up with a construction job. …the jury acquitted after just 18 minutes of deliberations. “A jury in Middle Georgia returned a Not Guilty verdict in a marijuana sale case despite the evidence,” retired sheriff’s deputy Tom McCain, now executive director of Peachtree NORML, approvingly commented after the trial. “The verdict can be nothing other than Jury Nullification.”

The moral of the story is not that jury nullification is a great thing. It’s only a second-best solution to the real problem of bad laws (exacerbated occasionally by bad prosecutors or bad cops).

But so long as bad laws (or incomprehensible laws) exist and government officials sometimes act dishonorably, we should support juries being the last line of defense for persecuted citizens. Remember, a tough-on-crime policy is only good if laws are just.

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This is depressing.

Republicans botched the repeal of Obamacare. They’ve already sold out (twice!) on the spending caps in the Budget Control Act, and they’re about to do it again.

And now they want to bring back earmarks.

In this interview with Neil Cavuto, I explain why this is a very troubling development.

One thing I didn’t mention in the interview is that earmarks are inherently corrupt. Indeed, there’s a near-universal four-step process that – in a just world – would result in politicians getting arrested (see 18 U.S. Code § 203) for bribery, graft, and conflicts of interest.

  1. An interest group decides it wants other people’s money and decides to use government as a middleman.
  2. The interest group hires lobbyists, most of whom are former members of Congress or former staff members.
  3. The interest group and the lobbyists direct campaign contributions to one or more politicians.
  4. In exchange for those contributions, one or more earmarks are inserted in a spending bill.

That’s a great deal for Washington insiders, but not so good for taxpayers or honest government.

And if you don’t believe me, read about the oleaginous behavior of Senator Tom Harkin and Representative Jim Moran.

Now let’s consider an argument in favor of earmarks. Writing for Bloomberg, Professor Tyler Cowen of George Mason University argues that the system needs a bit of grease to work better.

…think of earmarks as local benefits inserted into bills to buy more votes in Congress. …Recalcitrant representatives can be swayed by the promise of a perk for their district. That eases gridlock…whether we like it or not, there is something inherently transactional about being governed.

As I stated in the interview, I don’t think this assertion is persuasive. Most legislation is bad for liberty, so I agree with America’s Founders that gridlock is good.

That being said, Tyler makes a couple of compelling arguments. First, he points out that we may need some pork to get good legislation through the process.

Advocates of smaller government should keep in mind that reforming spending and regulation requires some activism from Congress. Gridlock today is not the friend of fiscal responsibility, coherent policy, or a free, well-functioning capitalist economy.

I agree with the first sentence and said the same thing in my talk with Neil. We will need congressional action to reform entitlements and save the country. And if that means bribing a few members to get votes, so be it.

However, I think his second sentence is too optimistic. Good reform is not very likely with Trump in the White House. It’s a judgement call, to be sure, but I believe gridlock will be a good thing for the next few years.

Second, Tyler acknowledges that politicians try to buy votes, but he suggests that earmarks are cheap compared to potential alternatives (such as new entitlements, presumably).

…virtually every member of Congress looks to support government spending that will boost his or her re-election prospects. It is often the case that directly targeted local spending — which may take the form of earmarks — buys support for a relatively low dollar price per vote. If earmarks are removed, representatives are still going to pursue votes, but the total amount of electorally motivated, wasteful government spending may be higher.

This is a potentially persuasive point, but I’ll be skeptical until I see some supporting evidence.

In a gridlock environment, I suspect enacting non-earmark spending is not that easy (though I admit an Obamacare-level budget buster every 10 years would completely wipe out in just one year the money that might be saved over several decades with an earmark ban).

In addition to what Tyler wrote, another pro-earmark argument is that there will always be a person who decides how money is spent. And I’ve had members of Congress tell me that they’d rather make those decisions that have a bunch of left-wing bureaucrats allocate money.

That’s a perfectly reasonable argument, but it doesn’t address my fundamental concern that the existence of earmarks will seduce members into supporting higher overall levels of spending.

Which brings me to my final point. I’m willing to cut a deal.

I’m willing to let politicians allocate 100 percent of spending with earmarks if they’ll agree to a comprehensive spending cap that complies with the Golden Rule and slowly but surely shrinks the overall burden of federal spending.

If the crowd in Washington is serious about the argument that earmarks are needed to grease the skids for desirable legislation, it’s time for them to put their votes where their mouths are.

Given the track records of most of the politicians who support earmarks, I’m not holding my breath.

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I haven’t written in any detail about “jury nullification” since late 2010 and it’s time to rectify that sin of omission.

Nullification occurs when a jury votes not guilty because a law is either unjust or wrongly applied, not because a defendant is actually innocent. And I know that’s what I would do if I was on a jury and the government was persecuting someone for engaging is self-defense or getting nabbed by a revenue camera.

The bottom line is that Walter Williams is right when he says that it is immoral to obey bad laws.

Let’s review some expert opinions.

Writing on the editorial page of the New York Times, a former prosecutor urges jury nullification.

Earlier this year, prosecutors charged Julian P. Heicklen, a retired chemistry professor, with jury tampering because he stood outside the federal courthouse in Manhattan providing information about jury nullification to passers-by. …The prosecutors who charged Mr. Heicklen said that “advocacy of jury nullification, directed as it is to jurors, would be both criminal and without constitutional protections no matter where it occurred.” The prosecutors in this case are wrong. The First Amendment exists to protect speech like this — honest information that the government prefers citizens not know. …Jury nullification is not new; its proponents have included John Hancock and John Adams. The doctrine is premised on the idea that ordinary citizens, not government officials, should have the final say as to whether a person should be punished. As Adams put it, it is each juror’s “duty” to vote based on his or her “own best understanding, judgment and conscience, though in direct opposition to the direction of the court.” …Nullification has been credited with helping to end alcohol prohibition and laws that criminalized gay sex. Last year, Montana prosecutors were forced to offer a defendant in a marijuana case a favorable plea bargain after so many potential jurors said they would nullify that the judge didn’t think he could find enough jurors to hear the case.

A column in the Washington Post by Professor Glenn Reynolds at the University of Tennessee argues that juries have an obligation to rein in bad prosecutors.

Despite the evidence, those responsible for convicting you may choose to let you go, if they think that sending you to jail would result in an injustice. That can happen through what’s called “prosecutorial discretion,” where a prosecutor decides not to bring or pursue charges against you because doing so would be unfair, even though the evidence is strong. Or it can happen through “jury nullification,” where a jury thinks that the evidence supports conviction but then decides to issue a “not guilty” verdict because it feels that a conviction would be unjust. …Prosecutorial discretion is regularly applied and generally regarded as a standard part of criminal justice. …So-called jury nullification, on the other hand, gets far less respect. Though it is clearly within the power of juries to refuse to convict whenever they choose, judges and prosecutors tend to view this practice with hostility. …there has been a massive shift of power toward prosecutors, the result of politics, over-criminalization, institutional leverage and judges’ failure to provide supervision. It’s time to redress the balance.

By the way, Glenn has proposed ways (see postscript of this column) of addressing this imbalance, which is tied to over-criminalization.

And here’s another column in the Washington Post arguing in favor of jury empowerment.

As I tried cases, I gained enormous respect for the seriousness with which jurors approached their work. …These jurors had no problem convicting anyone of a violent offense, if the government proved its case. For drug crimes, however, it was a different story. …they frequently voted “not guilty” in nonviolent drug cases, no matter how compelling the evidence. …When I started teaching law, I published an article in the Yale Law Journal situating these D.C. jurors in a long line of jurors…who refused to convict American patriots of sedition against the British crown; jurors who acquitted people guilty of violating the Fugitive Slave Act; and jurors who would not punish gay people for “sodomy” for having consensual sex.

Amen. Juries should pursue justice, not act as rubber stamps when prosecutors act as cogs for an unjust regime.

Now let’s look at a real-world example, as reported by the New York Times.

As much as chocolate and watches, Switzerland is known for bank secrecy. …it also made Swiss banks targets for an assault by the United States government… Bank Frey was among the very few to defy the legal onslaught. And Mr. Buck…was the bank’s public face, responsible for landing and then managing American accounts. That put Mr. Buck in the government’s cross hairs. In 2013, a federal grand jury indicted him for conspiring to help Americans avoid taxes. …But things didn’t go as prosecutors had planned… The crux of the defense was that the responsibility to pay taxes and declare income did not rest with Mr. Buck. It was his clients who had decided not to pay taxes. He was under no obligation to tattle… Prosecutors branded him as a crucial cog in an international tax-evasion scheme. …Then it was Mr. Agnifilo’s turn. …“Stefan Buck has nothing whatsoever, nothing whatsoever, to do with the choice that an American taxpayer makes” to not declare offshore assets. …The jury deliberated for a little more than a day. …the verdict: not guilty.

The story doesn’t mention jury nullification, but I’m assuming – from a technical legal perspective – the prosecutors had an open-and-shut case against Mr. Buck. After all, he did “conspire” to help Americans protect their income from the IRS.

But the jury decided that conviction would be absurd because a Swiss person on Swiss soil has no obligation to help enforce bad U.S. tax policy. So they voted not guilty because that was the only moral choice.

And the good news is that this is becoming a pattern.

In October 2014, one of UBS’s top executives, Raoul Weil, went on trial in Florida. Federal prosecutors accused him of helping clients hide billions. Mr. Weil’s lawyers argued he had no knowledge of or responsibility for what had happened. The jury deliberated for barely an hour before acquitting him. The same week, a Los Angeles jury acquitted an Israeli banker who faced similar accusations. The Americans’ pursuit of foreign bankers no longer looked invincible.

The even-better news is that these nullification decisions by juries may now lead to some “prosecutorial discretion.”

The Justice Department had now lost the three cases it had tried against foreign bankers who helped Americans avoid taxes. Dozens more cases are pending. Those who represent accused Swiss bankers say they expect Mr. Buck’s verdict to embolden defendants and to cause prosecutors to think twice before bringing new charges.

In other words, the bad law will still exist but hopefully will have little or no impact because prosecutors are less likely to file charges and juries won’t convict when they do.

That’s a victory for liberty, though it surely would be best – as we discussed just a few days ago – if politicians repealed the bad laws that make unjust prosecutions possible.

P.S. I’ve confessed mixed feelings about potential nullification in cases of vigilante justice.

P.P.S. In my younger days, I assumed that cops and prosecutors were the good guys, helping to maintain an orderly society. I still think that most of them want to do what’s right, but I also now realize that our Founding Fathers were very wise to include strong protections for defendants in our Constitution. Simply stated, some cops and some prosecutors are bad and those bad apples are why I favor strengthening the Fourth Amendment and have become more skeptical of the death penalty.

P.P.P.S. Even if you’re a law-abiding person, you should support civil liberties.

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I’m sometimes accused of being too radical, though I take that as a compliment (including the time a British journalist wrote that I was “a high priest of light tax, small state libertarianism”).

In reality, I’m actually a moderate. I don’t want to eliminate all government, just the 90 percent that is ineffective or counterproductive. As a result, some of my friends accuse me of being a squish, which is probably a fair characterization since I only scored a 94 out of 160 on Professor Bryan Caplan’s Libertarian Purity Quiz.

In my defense, I say let’s get rid of all the programs and departments that clearly shouldn’t exist (such as TransportationHousing and Urban DevelopmentEducationEnergy, and Agriculture), and then we can have a fun discussion of whether the private sector can take over things like roads, policing, and the military.

And it does seem that many so-called public goods actually can be handled by the market. I’ve written about private roads and private money, for instance, but the example that really caught my attention was the private, church-run city in Nigeria.

And the New York Times has a fascinating story about similar developments in Mexico.

Fifteen-foot stone turrets are staffed by men whose green uniforms belong to no official force. Beyond them, a statue of an avocado bears the inscription “avocado capital of the world.” And beyond the statue is Tancítaro, an island of safety and stability amid the most violent period in Mexico’s history. Local orchard owners, who export over $1 million in avocados per day, mostly to the United States, underwrite what has effectively become an independent city-state. Self-policing and self-governing, it is a sanctuary from drug cartels as well as from the Mexican state. …Tancítaro represents a quiet but telling trend in Mexico, where a handful of towns and cities are effectively seceding, partly or in whole. These are acts of desperation, revealing the degree to which Mexico’s police and politicians are seen as part of the threat.

I can’t resist commenting that the reporters should have written that police and politicians “are the threat” rather than “are seen as part of the threat.”

The Mexican government is a grim example of the “stationary bandit” in action.

Anyhow, back to our story about de facto secession and privatization.

…such enclaves…you will find a pattern. Each is a haven of relative safety amid violence, suggesting that their diagnosis of the problem was correct. …The central government has declined to reimpose control, the researchers believe, for fear of drawing attention to the town’s lesson that secession brings safety.

Tancítaro is not the only example of a quasi-private town.

Rather than ejecting institutions, Monterrey’s business elite quietly took them over… C.E.O.s would now oversee one of the most central functions of government. …they circumvented the bureaucracy and corruption that had bogged down other police reform efforts. Crime dropped citywide. Community leaders in poorer areas reported safer streets and renewed public trust… Monterrey’s experience offered still more evidence that in Mexico, violence is only a symptom; the real disease is in government. The corporate takeover worked as a sort of quarantine.

Wow, who would have imagined the New York Times would ever have a story stating that “the real disease is in government.”

Sadly, the story goes on to say traditional politicians are now regaining control in Monterrey, so the period of good governance is coming to an end.

In an ideal world, the central government would allow towns to formally secede, and those towns could then contract to have private management. But that’ll never happen since politicians wouldn’t want real-world examples showing the superiority of markets over government.

For now, we’ll have to settle for ad hoc and unofficial secession and privatization.

P.S. We can also hope that Liberland succeeds.

P.P.S. While today’s topic is de facto secession of local governments, my support for decentralization makes me sympathetic to regional secession. See, for example, Scotland, Liechtenstein, California, Italy, Belgium, and Ukraine.

P.P.P.S. I did once write about the “libertarian paradise of Argentina,” but that was mostly in jest.

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The left’s fixation on reducing inequality is misguided. If they really care about the poor, they instead should focus on reducing poverty.

And that means pushing for more growth. We know from U.S. evidence and global evidence that better economic performance is the effective way to boost living standards for the less fortunate (I also recommend a look at the data from China).

Unfortunately, many folks on the left pursue policies that undermine prosperity and actually exacerbate inequality. I put together some examples back in 2015, and now it’s time to expand that list.

A report from the left-leaning Brookings Institution looks at how regulations protect – and enrich – the top 1 percent.

The real cause of elite inequality is the lack of open access and market competition in elite investment and labor markets. To bring the elite down to size, we need to make them compete. …people working in the securities industry (which includes investment banks and hedge funds) earn 26 percent more, regardless of skill. Those working in legal services get a 23 percent pay raise. These are among the two industries with the highest levels of “gratuitous pay”—pay in excess of skill… Using microdata from the Census Bureau, I find that the “gratuitous pay” premium in certain industries has increased dramatically since 1980. …The accredited investor…rules contribute to inequality by giving the richest investors privileged access to the best investment strategies. …If the law was changed to allow mutual funds to offer hedge fund portfolios, hundreds of billions of dollars would be transferred annually from super-rich hedge fund managers and investment bankers to ordinary investors, and even low-income workers with retirement plans. …politicians and intellectuals often champion market competition—but what they mean by that is competition among low-paid service workers, production workers, or computer programmers who face competition from trade and immigration, while elite professionals sit behind a protectionist wall. …For lawyers, doctors, and dentists— three of the most over-represented occupations in the top 1 percent—state-level lobbying from professional associations has blocked efforts to expand the supply of qualified workers who could do many of the “professional” job tasks for less pay.

Matt Ridley, a columnist fo the U.K.-based Times, writes about the pernicious impact of cronyism, licensing, and industrial policy.

The history of industrial strategies is littered with attempts to pick winners that ended up picking losers. Worse, it is government intervention, not laissez faire, that has done most to increase inequality and to entrench wealth and privilege. For example, the planning system restricts the supply of land for housebuilding, raising property prices to the enormous benefit of the haves (yes, that includes me) at the expense of the have-nots. …Why are salaries so high in financial services? Because there are huge barriers to entry erected by government, which hands incumbent firms enormous quasi-monopoly advantages and thereby shelters them from upstart competition. …Why are lawyers so rich? Because there is a government-licensed cartel restricting the supply of them. …Our current “industrial strategy” for energy — to subsidise offshore wind, solar, biomass and nuclear — is responsible for the fact that domestic electricity prices are the seventh highest… Domestic electricity bills are a higher proportion of household budgets for the poor than for the rich, so this policy is regressive; doubly so, because the wind and solar subsidies mostly go to the rich. 

Let’s consider health policy. Folks on the left favor the healthcare exclusion in the tax code because government supposedly should play a role in encouraging health insurance. What’s the impact of this policy? Well, let’s peruse a Robert Samuelson column on health policy and inequality, which is based on a study from the Mercatus Center.

…add health care to the causes of growing wage inequality in America. There’s a largely unknown paradox at work. Companies that try to provide roughly equal health insurance plans for their workers — as many do — end up making wage and salary inequality worse. …It’s simple arithmetic… Paying for expensive health insurance squeezes what’s left for wage and salary raises. Economic inequality increases, because health insurance typically represents a larger share of total compensation for lower-paid than higher-paid workers. Their wages are squeezed the most. …Even though the company raised its compensation package by 5 percent for all workers, the wage and salary gap between the best- and worst- paid workers widened. Pursuing one type of equality (health coverage) inadvertently worsened another type of inequality (wages and incomes). …From 1992 to 2010, about half the increase in wage and salary inequality is explained by rising health costs.

We’ll close with a new study by an economist at the University of Michigan for the National Bureau of Economic Research.

The three major reforms that I will analyze are: (1) the state income tax introduction, (2) the introduction of withholding, bundled with the introduction of third-party reporting, and (3) the intergovernmental agreement between the federal and the state governments for coordinating auditing practices. …the introduction of the income tax raised the Atkinson inequality index by 0.015, which is about 7 percent of the sample mean, statistically significant at the 1 percent level. …The income tax introduction raised the Gini coefficient by 0.014, which is about 3 percent, significant at the 5 percent level. …All of the three reforms raised the Theil index in a statistically significant way, at least at the 5 percent level. The introduction of the income tax and of the withholding raised it by about 0.06… In other words, the fact that the only effect that these reforms had in common was raising the revenues from income tax and making the government bigger and the private sector smaller, suggest that a bigger government, at least in the recent history, had the effect of higher inequality.

Here’s a chart from Professor Troiano’s research. Note how the rich got richer at the point (“0”) the income tax was implemented.

And here’s a look at what happened to various measures of inequality. Again, pay attention to the point (“0”) where the income tax was imposed.

Writing for PJ Media, Simon Constable discusses some implications of the NBER report.

Income taxes don’t reduce income inequality. Instead they do quite the opposite, according to December-dated analysis published by the National Bureau of Economic Research. The paper looked at three major 20th century U.S. tax reforms and found that they did nothing to decrease income inequality and everything to increase it. …Why did income inequality increase when that wasn’t the goal of the reforms? …bigger government ends up retarding the private sector and reducing the size of the wealth pie. Naturally, the poorer come out worst in such a situation, while the well-heeled can get top tier advice to dodge the tax bullet. Hence, the rich get richer and the poor stay skint. …Nobody who believes in liberty, or public choice theory, will be surprised to learn that higher taxes lead to more inequality,” says Robert E. Wright, professor of political economy at Augustana University in South Dakota. The problem is that the elites in any society, including the U.S., control the government and they quite naturally take care of themselves first, he says.

The bottom line is that our statist friends claim that they’re shooting at the rich, but the poor tend to suffer the most damage.

If you want more evidence, look at what happened to income for various groups during the pro-free market era of the 1980s and 1990s compared to what’s happened so far this century.

P.S. The most twisted look at inequality was produced by the IMF, which implied that radically lower living standards would be acceptable if everyone was more equally poor.

P.P.S. The most satirical look at inequality comes from David Azerrad.

P.P.P.S. The most insightful comment on inequality comes from Johan Norberg, who reminds us that we should be upset by unfairness, not inequality.

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Libertarian Jesus made his first appearance back in 2013, when he cautioned that charity was a personal obligation rather than a government responsibility.

He had an encore performance last year, when it was revealed that charity and confiscation are not the same thing.

Now we have Part III, featuring Jesus trying to impart wisdom.

P.S. President Trump disagrees with Jesus.

P.P.S. This is why I’ve been critical of Pope Francis. His heart may be in the right place, but he’s misguided about the policies that actually help the less fortunate. For what it’s worth, it would be helpful if he was guided by the moral wisdom of Walter Williams rather than the destructive statism of Juan Peron.

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In recent months, I’ve written two very lengthy columns about the deterioration of Venezuela’s evil government.

And I’ve also looked at long-run economic data to show how statism produces awful results for ordinary people.

But I sometimes think anecdotes are the most persuasive for the simple reason that ordinary people can relate. That’s why I shared last month the story about how the government has even made sex less pleasurable.

The Miami Herald has a story that underscores the horrible consequences of statism.

…on the streets, walking around with a bag of groceries can attract more thieves than a full wallet. The critical food shortages pummeling Venezuela have started to change the nature of crime in the country, at times increasing what some experts have started to call “hunger crimes” and at other times turning food into a valuable item to be taken by force. …The crisis has forced millions of Venezuelans to eat just once a day, and thousands of others to regularly search garbage cans in hopes of finding something to eat, according to recent surveys.

This is very grim, but it gets worse.

Not only are people committing crimes because of hunger, children are being recruited into gangs because that is the way to eat.

Venezuelan gangs are no longer recruiting youths in some poor areas by offering them easy money to buy clothes or the latest cell phones. Instead, they are offering food baskets. …Criminal gangs are also using food to recruit children and teenagers in Venezuela, a country with one of the world’s highest crime rates. …“The recruitment techniques, the bait that in the past used to be fashion or luxury goods, have been replaced by the offer of basic food items,” said the report, published this week. That’s how “crime gangs are gaining ground in conquering thousands of youths who are joining in the violence and whose destiny is death, prison and the frustration of so many dreams and hopes forged by their families and communities,” the report added.

As a parent, this is a horrifying story. Imagine not being able to feed your children and then watching getting lured into a life that almost certainly will not end well.

Utterly depressing. A very bad situation keeps getting worse.

The only good news is that leftists used to make excuses for Venezuela and now some of them are trying to disown that brutal regime.

P.S. In spite of the wretched state of the Venezuelan economy, some nutty leftists who put together a “Happy Planet Index” that ranked Venezuela above the United States. I still haven’t figured out whether that was crazier than the Jeffrey Sachs’ index that put Cuba above America.

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Here are two statements that seem in conflict.

But there’s actually no conflict because we can decide that some things are distasteful without wanting to infringe on the freedom of others to partake. And you can make that decision for moral reasons or utilitarian reasons.

Now let’s consider two more statements.

  • The rule of law is a bulwark of a civilized society and government officials should not engage in arbitrary enforcement.
  • Attorney General Jeff Sessions is wrong to enforce federal drug laws in states that have decriminalized marijuana.

I’m tempted to agree with both sentences. The rule of law is vital, after all, and I definitely don’t like (and not for the first time) when Sessions uses the Justice Department to hassle people for victimless crimes.

But here’s my quandary: Should we applaud if government officials ignore laws, even laws we don’t like? That approach has some distasteful implications. If you’re on the right, would you want a left-leaning government to have the leeway to ignore criminal behavior by, say, union bosses? If you’re a leftist, would you want a libertarian-leaning government to have the ability to decide that tax laws can be ignored?

Charles C. W. Cooke of National Review hits the nail on the head.

There’s no question that the right approach is for the federal government to eliminate drug laws. Heck, even people who support the War on Drugs should favor this approach since criminal justice (other than a few select areas such as treason) should be a matter for state and local governments.

And a broader point is that we simply have too many laws. Harvey Silverglate estimates that the average person unknowingly commits three felonies per day.

This means that government officials could probably indict, convict, and imprison almost all of us. Needless to say, that’s not how a free and just society should work.

Our Byzantine tax code is an example. Many of us probably unintentionally violate the law because of needless complexity. Or even if we haven’t violated the law, I’m guessing a prosecutor could convince a grand jury that we should be indicted. And who knows what would happen after that.

So while I mostly argue for tax reform because I want more growth, I also think there’s a moral argument for a simple and fair system.

And there are other laws that shouldn’t exist at all. I obviously put drug laws on that list, but I’d also add anti-money laundering laws and civil asset forfeiture laws.

All that being said, I obviously don’t want the Justice Department in Washington to waste law enforcement resources in a campaign to undermine states that have decriminalized pot. But there’s a right way and a wrong way to solve this problem.

P.S. You can click here for other libertarian quandaries.

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I was not optimistic about a Trump presidency. Before the 2016 election, I characterized him as a “statist” and a “typical big-government Republican.”

I’ve also criticized his policies on entitlements, trade, child care, capital gains taxation, government spending, and infrastructure.

But one good thing about being libertarian is that I feel no pressure to spin. I will criticize politicians who I normally like and praise politicians I normally dislike.

So I’ve also applauded some of Trump’s policies, whether they are big reforms like a cut in the corporate income tax or small changes like killing Obama’s Operation Chokepoint.

Today, I’m going to give Trump some credit for what’s happening with regulation and red tape.

Wayne Crews of the Competitive Enterprise Institute measures the change.

The calendar year concluded with 61,950 pages in the Federal Register… This is the lowest count since 1993’s 61,166 pages. …A year ago, Obama set the all-time Federal Register page record with 95,894 pages. Trump’s Federal Register is a 35 percent drop from Obama’s record… After the National Archives processes all the blank pages and skips in the 2017 Federal Register, Trump’s final count will ultimately be even lower.

Here’s a visual that captures what has happened.

Wayne explains that the numbers of rules have dropped in addition to the number of pages.

…the Federal Register may be a poor guide for regulation… The “problem” of assessing magnitude is even worse this year, because many of Trump’s “rules” are rules written to get rid of rules. …There has also been a major reduction in the number of rules and regulations under Trump. Today the Federal Register closed out with 3,281 final rules within its pages. This is the lowest count since records began being kept in the mid-1970s.

Susan Dudley of George Washington University looked at what’s happening to regulation for Forbes.

…what has the administration achieved on the regulatory front in 2017? …President Trump issued Executive Order 13771 directing federal agencies to remove two regulations for every new one they issued, and to cap the total cost of new regulations at zero. …An Office of Management and Budget report…finds that during the first eight months of the administration (through September 30th), executive agencies issued 67 deregulatory actions and only 3 significant regulatory actions. …More meaningful is the report’s estimate that these actions will save Americans more than $570 million per year on net. …This was the year of the Congressional Review Act. Working with the Republican Congress, President Trump has disapproved 15 regulations, most issued at the end of the Obama administration.

She looks specifically at regulations that involve a lot of money.

The pace of new regulation has visibly slowed in the Trump administration. A search of OMB’s database reveals that, between January 21 and December 20, 2017, the Office of Information and Regulatory Affairs concluded review of 21 “economically significant” regulations—those with impacts (costs or benefits) expected to be $100 million or more in a year. As the chart below shows, that is dramatically fewer rules than previous presidents have issued in their first years.

Here’s an impressive chart from her column.

And here’s most impressive part. Some of these “significant” rules are actually designed to reduce red tape.

…a further breakdown of those 21 economically significant actions this year: …Three are classified as “regulatory,” including two from HHS and one from the IRS. …Four are “deregulatory,” including three HHS rules as well as the congressionally-disapproved FAR rule mentioned earlier.

So what does this shift in regulation mean?

Well, as the New York Times has just reported, less red tape is good for the economy.

A wave of optimism has swept over American business leaders, and it is beginning to translate into the sort of investment in new plants, equipment and factory upgrades that bolsters economic growth, spurs job creation — and may finally raise wages significantly. …the newfound confidence was initially inspired by the Trump administration’s regulatory pullback, not so much because deregulation is saving companies money but because the administration has instilled a faith in business executives that new regulations are not coming.

I fully agree with this point.

What seems to be helping growth is that companies are getting some “breathing room” simply because the regulatory onslaught of the Bush and Obama years has finally abated.

…in the administration and across the business community, there is a perception that years of increased environmental, financial and other regulatory oversight by the Obama administration dampened investment and job creation — and that Mr. Trump’s more hands-off approach has unleashed the “animal spirits” of companies that had hoarded cash after the recession of 2008. …with tax cuts coming and a generally improving economic outlook, both domestically and internationally, economists are revising growth forecasts upward for last year and this year. Even before it became clear that Republicans would pass a major tax cut, capital spending had risen significantly, climbing at an annualized rate of 6.2 percent during the first three quarters of last year. Surveys of planned spending also show increases. …business executives are largely convinced that the cost of complying with rules diverts money that could be invested elsewhere. And economists see a plausible connection between Mr. Trump’s determination to prune the federal rule book and the willingness of businesses to crank open their vaults. Measures of business confidence have climbed to record heights during Mr. Trump’s first year. …The Business Roundtable, a corporate lobbying group in Washington, reported last month that “regulatory costs” were no longer the top concern of American executives, for the first time in six years. …The National Association of Manufacturers’ fourth-quarter member survey found that fewer than half of manufacturers cited an “unfavorable business climate” — including regulations and taxes — as a challenge to their business, down from nearly three-quarters a year ago.

The bottom line is that Trump has out-performed my expectations on this issue.

But I don’t care about that. I’m more interested in a freer and more prosperous America.

So when you’re contemplating the shift in regulatory policy, here are a few factoids.

  • Americans spend 8.8 billion hours every year filling out government forms.
  • The economy-wide cost of regulation is now $1.75 trillion.
  • For every bureaucrat at a regulatory agency, 100 jobs are destroyed in the economy’s productive sector.
  • A World Bank study determined that moving from heavy regulation to light regulation “can increase a country’s average annual GDP per capita growth by 2.3 percentage points.”
  • The European Central Bank estimated that product market and employment regulation has led to costly “misallocation of labour and capital in eight macro-sectors.”

Red tape accounts for 20 percent of a nation’s grade according to Economic Freedom of the World. If the current deregulatory momentum is sustained, the United States will rise in the rankings and Americans will be richer.

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When I write an everything-you-need-to-know column, it’s not because I’m under any illusions that I’ve actually amassed all the information one could need on a topic. Instead, it’s just a meme.

Today’s column belongs in the latter category. Could there possibly be something that more perfectly captures the essence of California than a story about the over-taxation of legal marijuana?

Marijuana dispensaries across California experienced long lines on the first day of legal recreational pot sales. But advocates warned the legal industry won’t survive without big changes…said Steve DeAngelo, co-founder and CEO of Harborside in Oakland. “At the same time, I’m terrified about what’s going to happen with these taxes.” Harborside has been a medical marijuana dispensary for more than a decade, and is now selling recreational marijuana… “In our shop here, the tax rate has gone from 15 percent all the way up to almost 35 percent for adult consumers,” DeAngelo said. …There is the regular state sales tax of 6 percent, and the regular Alameda County sales tax of 3.25 percent. Then there is a 15 percent state tax on marijuana, and a 10 percent Oakland tax on recreational marijuana. Total taxes: 34.25 percent. …In addition to taxes, marijuana regulations drive up the cost.

Excessive government and lifestyle liberalism. A perfect summation of California.

By the way, even though I’m a social conservative-style teetotaler, I agree with the pot legalization. But I have mixed feelings because I don’t want politicians to get more money to waste.

Though I am happy that people have the option to still use the underground economy.

…”a significant number of people, less affluent consumers, are going to turn to the lower prices of the underground market,” DeAngelo said. …People who are disabled or on fixed incomes may turn to the black market. “They can barely afford cannabis now, much less with a 35 or 40 percent tax increase,” DeAngelo said. When people aren’t buying from a regulated business, the state is getting zero taxes.

Yet another example of the Laffer Curve, which is simply the common-sense notion that marginal tax rates impact incentives.

When taxes are too high, there’s either less taxable activity, or the activity moves where the government can’t tax it. In other words, higher tax rates don’t necessarily mean higher tax revenue.

And it definitely means revenues will never be as high as the pro-tax crowd would like.

Such a simple concept that even some leftists are catching on.

This may lead California to lower tax rates, as has happened in other states.

Colorado, Washington state and Oregon each legalized marijuana at one tax rate and then had to lower the rate to keep people in the legitimate market. DeAngelo believes California will have to do the same. “I don’t think that the current tax rate for cannabis in California is sustainable,” he said.

That last sentence puts me in a good mood. I very much like when greedy politicians are forced to lower tax rates.

For those that want a more detailed and serious look at the economics of taxation and drug prohibition, this column from last November is a good place to start.

And for those who want a closer look at the moral/practical issues of drug prohibition, I recommend this piece from last May.

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During the Obamacare bill-signing ceremony, Vice President Biden had a “hot mic” incident when he was overheard telling Obama that “this is a big f***ing deal.”

And he was telling the truth. It was a big deal (albeit a wrong deal) from a fiscal perspective and a health perspective. And it also was a very costly deal for Democrats, costing them the House in 2010 and the Senate in 2014. But it definitely was consequential.

Well, there’s another “big f***ing deal” in Washington, and it’s what just happened to the state and local tax deduction. It wasn’t totally repealed, as I would have preferred, but there’s now going to be a $10,000 limit on the amount of state and local taxes that can be deducted.

I’ve already explained why this is going to reverberate around the nation, putting pressure on governors and state legislators for better tax policy, and I augment that argument in this clip from a recent interview with Trish Regan.

The bottom line is that high-tax states no longer will be able to jack up taxes, using federal deductibility to spread some of the burden to low-tax states.

Let’s look at what this means, starting with a superb column in today’s Wall Street Journal by Alfredo Ortiz.

The great American migration out of high-tax states like New York and Illinois may be about to accelerate. The tax reform enacted last month caps the deduction for state and local taxes, known as SALT, at $10,000. …between July 1, 2016, and July 1, 2017, …high-tax states like New York, New Jersey, Connecticut, Illinois and Rhode Island either lost residents or stagnated. …When people move, they take their money with them. The five high-tax states listed above have lost more than $200 billion of combined adjusted gross income since 1992… In contrast, Nevada, Washington, Florida and Texas gained roughly the same amount. If politicians in high-tax states want to prevent this migration from becoming a stampede, they will have to deliver fiscal discipline.

Mr. Ortiz shows how some state politicians already seem to realize higher taxes won’t be an easy option anymore.

New Jersey’s Gov.-elect Phil Murphy campaigned on a promise to impose a “millionaires’ tax.” But the Democratic president of the state Senate, Steve Sweeney, said in November that New Jersey needs to “hit the pause button” because “we can’t afford to lose thousands of people.” His next words could have come from a Republican: “You know, 1% of the people in the state of New Jersey pay about 42% of its tax base. And you know, they can leave.” New York City Mayor Bill de Blasio may need to rethink his proposed millionaires’ tax. George Sweeting, deputy director of the city’s Independent Budget Office, told Politico in November that eliminating the SALT deduction would “make it a tougher challenge if the city or the state wanted to raise their taxes.” New York state Comptroller Thomas DiNapoli added: “If you lose that deductibility, I worry about more middle-class families leaving.” …the limit on the SALT deduction is a gift that will keep on giving. In the years to come it will spur additional tax cuts and forestall tax increases at the state and local level.

Though the politicians from high-tax states are definitely whining about the new system.

The Governor of New Jersey is even fantasizing about a lawsuit to reverse reform.

Murphy, a Democrat, said he has spoken with leadership in New York and California and with legal scholars about doing “whatever it takes”… Asked if that included a joint lawsuit with other states, Murphy said “emphatically, yes.” …Murphy said. “This is a complete and utter outrage. And I don’t know how else to say it. We ain’t gonna stand for it.”

Here’s a story from New York Times that warmed my heart last month.

…while Mr. Cuomo and his counterparts from California and New Jersey seemed dead-certain about the tax bill’s intent — Mr. Brown called it “evil in the extreme” — there were still an array of questions about how states would respond. None of the three Democrats offered concrete plans on what action their states might take.

They haven’t offered any concrete plans because the only sensible policy – lower tax rates and streamlined government – is anathema to politicians who like buying votes with other people’s money.

California will be hard-hit, but a columnist for the L.A. Times correctly observes tax reform will serve as a much-need wake-up call for state lawmakers.

…let’s be intellectually honest. There’s no credible justification for the federal government subsidizing California’s highest-in-the-nation state income tax — or, for that matter, any local levy like the property tax. Why should federal tax money from people in other states be spent on partially rebating Californians for their state and local tax payments? Some of those states don’t even have their own income tax, including Nevada and Washington. Neither do Texas and Florida. …federal subsidies just encourage the high-tax states to rake in more money and spend it. And they numb the states’ taxpayers. …Republican state Sen. Jeff Stone of Temecula put it this way after Trump unveiled his proposal last week: “For years, the Democrats who raise our taxes in California have said, ‘Don’t worry. The increase won’t matter all that much because tax increases are deductible.’” Trump’s plan, Stone continued, “seems to finally force states to be transparent about how much they actually tax their own residents.”

He also makes a very wise point about the built-in instability of California’s class-warfare system – similar to a point I made years ago.

Our archaic system is way too volatile. The nonpartisan Legislative Analyst’s Office reported last week that income tax revenue is five times as volatile as personal income itself. The “unpredictable revenue swings complicate budgetary planning and contributed to the state’s boom-and-bust budgeting of the 2000s,” the analyst wrote. During the recession in 2008, for example, a 3.7% dip in the California economy resulted in a 23% nosedive in state revenue. The revenue stream has become unreliable because it depends too heavily on high-income earners, especially their capital gains. During an economic downturn, capital gains go bust and revenue slows to a trickle. In 2015, the top 1% of California earners paid about 48% of the total state income tax while drawing 24% of the taxable income.

Let’s close with some sage analysis from Deroy Murdock.

“Taxes should hurt,” Ronald Reagan once said. He referred to withholding taxes, which empower politicians to siphon workers’ money stealthily, before it reaches their paychecks. Writing the IRS a check each month, like covering the rent, would help taxpayers feel the public sector’s true cost. This would boost demand for tax relief and fuel scrutiny of big government. Like withholding taxes, SALT keeps high state-and-local taxes from hurting. In that sense, SALT is the opiate of the overtaxed masses. The heavy levies that liberal Democrats (and, inexcusably, some statist Republicans) impose from New York’s city hall to statehouses in Albany, Trenton, and Sacramento lack their full sting, since SALT soothes their pain. Just wait: Once social-justice warriors from Malibu to Manhattan feel the entire weight of their Democrat overlords’ yokes around their necks, they will squeal. Some will join the stampede to income-tax-free states, including Texas and Florida. …A conservative, the saying goes, is a liberal who has been mugged by reality. Dumping SALT into the Potomac should inspire a similar epiphany among the Democratic coastal elite.

He’s right. This reform could cause a political shake-up in blue states.

P.S. Since I started this column with some observations about the political consequences of Obamacare, this is a good time to mention some recent academic research about the impact of that law on the 2016 race.

We combine administrative records from the federal health care exchange with aggregate- and individual-level data on vote choice in the 2016 election. We show that personal experiences with the Affordable Care Act informed voting behavior and that these effects could have altered the election outcome in pivotal states… We also offer evidence that consumers purchasing coverage through the exchange were sensitive to premium price hikes publicized shortly before the election… Placebo tests using survey responses collected before the premium information became public suggest that these relationships are indeed causal.

Wow. Obamacare there’s a strong case that Obamacare delivered the House to the GOP, the Senate to the GOP, and also the White House to the GOP. Hopefully the Democrats will be less likely to do something really bad or really crazy the next time they hold power.

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