When I first created the Bureaucrat Hall of Fame, I confess that my standards were a bit slack. I awarded membership to government workers that are grossly overpaid (see here and here, for instance), but otherwise didn’t really do anything special to merit awards.
In recent years, I’ve been more judicious. I only give the “honor” to bureaucrats who go above and beyond the call of duty.
A new Jersey bureaucrat got almost $250,000 per year for simultaneously holding six different government jobs.
Figuratively screwing taxpayers wasn’t good enough for a welfare bureaucrat in Pennsylvania.
The civil servant at the Veterans Administration who overlooked deadly waiting lists but had…um…time on his hands for other things.
In France (gee, what a surprise), a bureaucrat was provided a car and driver by taxpayers, yet still managed to run up nearly $150-per-day of taxi cab expenses.
We’re going to expand our list today, but by using a different approach. We’re going to have a poll so you can decide which bureaucrat is most worthy.
Federal prosecutors have charged Baltimore Police Commissioner Darryl De Sousa with three misdemeanor counts of failing to file federal taxes… De Sousa, 53, willfully failed to file federal tax returns for 2013, 2014 and 2015 despite having been a salaried employee of the Police Department in those years, prosecutors said Thursday. …“There is no excuse for my failure to fulfill my obligations as a citizen and public official,” he said in a statement. “My only explanation is that I failed to sufficiently prioritize my personal affairs.” …Mayor Catherine Pugh expressed “full confidence” in De Sousa. …De Sousa earned $93,104 in 2013, when he is first accused of failing to file taxes. He earned $101,985 in 2014 and $127,089 in 2015. …The Police Department routinely suspends with pay officers accused of a misdemeanors pending the outcome of the case. De Sousa remained on the job Thursday. He currently earns a salary of $210,000 a year.
The Kenilworth school superintendent charged Monday with defecating in public was caught in the act at the Holmdel High School football field and track after surveillance was set up due to human feces being found “on a daily basis,” police said. Thomas Tramaglini, 42, …was running at the track on the athletic fields at 5:50 a.m. before he was arrested. Track coaches and staff at Holmdel High School told the district’s resource officer that they found human feces on or near the football field and track daily… Tramaglini is also charged with lewdness and littering.
Los Angeles firefighter Donn Thompson had a busy year in 2017. If his pay stubs are to be believed, he literally never stopped working. Data obtained by Transparent California…show that Thompson pulled down $300,000 in overtime pay during 2017, on top of his $92,000 salary. Over the past four years, Thompson has earned more than $1 million in overtime… To earn that much in overtime pay, Thompson would have had to work more hours than actually exist in a single year. Either the highly paid firefighter found a way to stretch the space-time continuum or something fishy is going on. …earning $302,000 at a rate of $47.40 per hour would require working more than 6,370 hours. Add that to the 2,912 hours he worked as a salaried employee, and you get more than 9,280 hours worked, despite the fact that there are only 8,760 hours in a year. …Thompson…might very well be the highest paid firefighter in American history. …During 2017, the Los Angeles Fire Department had 512 employees who cashed in with at least $100,000 in overtime pay… Thompson was one of 26 employees to get at least $200,000 in overtime pay.
This is a tough contest.
In Baltimore, I suspect ordinary people don’t get a mulligan when they commit a crime, so Mr. De Sousa’s kid-glove treatment stands out. I’m also impressed (in a bad way) that his salary soared from $93K to $210K in just five years. Nice work if you can get it.
But let’s not forget Mr. Thompson. Claiming to have worked more hours than actually exist is rather extraordinary. Though ripping off taxpayers apparently is a tradition for firefighters, particularly in California.
As they say in Chicago, vote early and vote often.
If you like making your opinion heard, my most recent poll was about which state will be the first to suffer political collapse. And my favorite poll was to pick the best political cartoonist.
For all intents and purposes, people are being paid not to be productive.
Guided by the spirit of Calvin Coolidge, we need to reform the welfare state.
Professor Dorfman of the University of Georgia, in a column for Forbes, pinpoints the core problem.
The first failure of government welfare programs is to favor help with current consumption while placing almost no emphasis on job training or anything else that might allow today’s poor people to become self-sufficient in the future. …It is the classic story of giving a man a fish or teaching him how to fish. Government welfare programs hand out lots of fish, but never seem to teach people how to fish for themselves. The problem is not a lack of job training programs, but rather the fact that the job training programs fail to help people. In a study for ProPublica, Amy Goldstein documents that people who lost their jobs and participated in a federal job training program were less likely to be employed afterward than those who lost their jobs and did not receive any job training. That is, the job training made people worse off instead of better. …Right now, the government cannot teach anyone how to find a fish, let alone catch one.
And Peter Cove opines on the issue for the Wall Street Journal.
…the labor-force participation rate for men 25 to 54 is lower now than it was at the end of the Great Depression. The welfare state is largely to blame. More than a fifth of American men of prime working age are on Medicaid. According to the Census Bureau, nearly three-fifths of nonworking men receive federal disability benefits. The good news is that the 1996 welfare reform taught us how to reduce government dependency and get idle Americans back to work. …Within 10 years of the 1996 reform, the number of Americans in the Temporary Assistance for Needy Families program fell 60%.
Interestingly, European nations seem to be more interested in fixing the problem, perhaps because they’ve reached the point where reform is a fiscal necessity.
Let’s look at what happened when the Dutch tightened benefit rules.
A fascinating new study from economists in California and the Netherlands sheds light on how welfare dependency is passed from one generation to the next – and how to save children from lives of idleness.
A snowball effect across generations could arise if welfare dependency is transmitted from parents to their children, with potentially serious consequences for the future economic situation of children. …there is little evidence on whether this relationship is causal. Testing for the existence of a behavioural response, where children become benefit recipients because their parents were, is difficult… Our work overcomes these identification challenges by exploiting a 1993 reform in the Dutch Disability Insurance (DI) programme… The 1993 reform tightened DI eligibility for existing and future claimants, but exempted older cohorts currently on DI (age 45+) from the new rules. This reform generates quasi-experimental variation in DI use… Intuitively, the idea is to compare the children of parents who are just over 45 years of age to children whose parents are just under 45. .
Here’s the methodology of their research.
The first step is to understand the impact of the 1993 reform on parents. Figure 1 shows that parents who were just under the age 45 cut-off, and therefore subject to the harsher DI rules, are 5.5 percentage points more likely to exit DI by the year 1999 compared to parents just over the age 45 cut-off. These treated parents saw a 1,300 euro drop in payments on average. …the reform changed other outcomes as well. There is a strong rebound in labour earnings.
This chart from their research captures the discontinuity.
Here are the main results.
The second step is to see how children’s DI use changed based on whether the reform affected their parents. We measure a child’s cumulative use of DI as of 2014, by which time they are 37 years old on average. Figure 2 reveals a noticeable jump in child DI participation at the parental age cut-off of 45. There is an economically significant 1.1 percentage point drop for children if their parent was exposed to the reform, which translates into an 11% effect relative to the mean child participation rate of 10%. …welfare cultures, defined as a causal intergenerational link, exist.
This second chart illustrates the positive impact.
But here’s the most important part of the research.
Reducing access to redistribution to parents is a good way of boosting income and education for children.
…we examine whether a child’s taxable earnings and participation in other social support programmes change. Cumulative earnings up to 2014 rise by approximately €7,200 euros, or a little less than 2%, for children of parents subject to the less generous DI rules. In contrast, we find no detectable change in cumulative unemployment insurance receipt, general assistance (i.e. traditional cash welfare), or other miscellaneous safety net programs. Looking at a child’s educational attainment, there is intriguing evidence for anticipatory investments. When a parent is subject to the reform which tightened DI benefits, their child invests in 0.12 extra years of education relative to an overall mean of 11.5 years. …these findings provide suggestive evidence that children of treated parents plan for a future with less reliance on DI in part by investing in their labour market skills.
And it’s also worth noting that taxpayers benefit when welfare eligibility is restricted.
These strong intergenerational links between parents and children have sizable fiscal consequences for the government’s long term budget. Cumulative DI payments to children of the targeted parents are 16% lower. This is a substantial additional saving for the government’s budget, especially since there is no evidence that children substitute these reductions in DI income for additional income from other social assistance programmes. Furthermore, there is a fiscal gain resulting from the increased taxes these children pay due to their increased labour market earnings. Overall, we calculate that through the year 2013, children account for 21% of the net fiscal savings of the 1993 Dutch reform in present discounted value terms. This share is projected to increase to 40% over time.
Ryan Streeter of American Enterprise Institute explains that other European nations also are reforming.
Welfare reformers might draw some lessons from unlikely places, such as Scandinavia. While progressives like to uphold Nordic democratic socialism as a model for America, the Scandinavian welfare systems are arguably more pro-work than ours… For instance, to deal with declining labor force participation, Denmark eliminated permanent disability benefits for people under 40 and refashioned its system to make employment central. Sweden reformed its welfare system to focus on rapid transitions from unemployment to work. Their program lowers jobless assistance the longer one is on welfare. The Nordic model is more focused on eliminating reasons not to work such as caregiving or lack of proper training than providing income replacement. Similarly, the British government combined six welfare programs with varying requirements into a single “universal credit.” The benefit is based on a sliding scale and decreases as a recipient’s earnings increase, replacing several differing formulas for phasing out of welfare programs with one. An evaluation of the new program, which encourages work, found that 86 percent of claimants were trying to increase their work hours and 77 percent were trying to earn more, compared to 38 percent and 55 percent, respectively, under the previous system. …Scandinavia and Britain learned a while ago that successful welfare reform is not just about how much money a country spends on people who earn too little. It’s really about how to help them find and keep a good job. It’s time for America to catch up.
In effect, block grant all means-tested programs to the states and then phase out the federal funding. That would give states the ability to experiment and they could learn from each other about the best way of helping the truly needy while minimizing incentives for idleness.
P.S. This WIzard-of-Id parody is a very good explanation of why handouts discourage productive work.
I wrote two days ago about how the country of Georgia has achieved impressive economic performance thanks to major reforms to reduce the size and scope of government.
Today, I want to focus on what the country has achieved with regard to fiscal policy.
In part, this is an opportunity to highlight that Georgia is one of many nations to adopt a flat tax. Georgia’s 20 percent flat tax not only has a single rate, but also doesn’t have destructive forms of double taxation like a death tax or capital gains tax (it also has an Estonian-style corporate tax).
But my main goal is to draw attention to the fiscal rules in Georgia. Both the nation’s Constitution and its Organic Law have provisions that are designed to limit the growth of government.
First, let’s look at Article 94 of the Georgian Constitution, which states that no new taxes are allowed unless approved by a vote of the people.
The Organic Law also has good provisions on taxation, most notably a prohibition on using a referendum to adopt a discriminatory “progressive” tax (too bad we don’t have such a provision in America!).
Here’s the part that I really like.
There’s an aggregate spending cap. The government’s budget can’t consume more than 30 percent of economic output.
It also includes European Union-style “Maastricht” limits on deficits and debt, though I’ll simply observe that those rules are irrelevant if there’s a limit on overall spending.
In any event, the burden of spending in Georgia does comply with the spending cap, according to IMF data. Though I’ll be curious to see what happens if there’s ever a serious recession. If that happens, GDP falls, which could make it politically difficult to obey the cap.
Which is why I prefer the Swiss approach of simply allowing government to grow by a small amount every year. That seems more politically sustainable. But I’m happy with anything to fulfills my Golden Rule.
Yes, I realize he’s the most noteworthy person to be born in that town, but that’s hardly a reason to acknowledge – much less celebrate – the life of a totalitarian butcher.
In response, I thought about writing a column documenting Stalin’s awful crimes against humanity, but perhaps mockery is a more appropriate response.
…a group of Johns Hopkins University researchers released a report Tuesday indicating that the late Soviet Union leader Joseph Stalin was only one great purge away from creating a communist utopia. “Our research demonstrates that if Stalin had shipped a mere 100,000 more people to Siberia, the whole communist experiment would have worked out perfectly,” said historian and report co-author Franklin Morrison, adding that all of the USSR’s corruption, hunger, and disease would have disappeared overnight if Stalin had simply been able to let a few million more Ukrainians starve to death. “It’s a shame, because in 1953 the Soviet Union was really on the precipice of becoming a perpetual workers’ paradise devoid of all poverty and want. Unfortunately, Stalin passed away before he could round up just one last group of intellectuals and make them dig their own mass graves.”
Sadly, some leftist academic probably believe this satire.
They need a copy of this book.
Of course, some statists (like these dopes) will trot out their usual excuse that “real communism hasn’t been tried.”
Speaking of dopes, I wrote last month about the loathsome decision by the President of the European Commission to honor Karl Marx. Well, it appears he’s also going to authorize having Marx on the currency.
But the sensible folks at the European Central Bank intervened and insisted on an appropriate denomination.
I’ve saved the best for last.
Those of you familiar with the silly fuss over “cultural appropriation” will definitely appreciate this gem.
Marx must be very proud of the starvation caused by his ideas since he also tweeted on the topic back in March.
For additional examples of communist satire, click here, here, and here.
Normally when I write about Georgia, it’s to wax poetic about the Glorious Bulldogs. But I’m currently in Tbilisi, the capital of the nation of Georgia, which is wedged between Russia, Turkey, Armenia, and Azerbaijan.
So allow me to take this opportunity to highlight the benefits of sweeping pro-market reform. Georgia is ranked #8 according to Economic Freedom of the World and it doesn’t get nearly enough attention considering that lofty score.
This chart from EFW shows Georgia’s score since the reform wave started in 2004.
The fact that Georgia’s score jumped by one full point over 11 years is impressive, but it’s even more impressive to see how the country’s relative ranking has increased from #56 to #8.
Here are the numbers for 2004 and 2015. As you can see, there were particularly dramatic improvements in trade, regulation, and quality of governance (legal system and property rights).
My friend from Georgia, Gia Jandieri, said one of the worst legacies of Soviet rule was corruption. He and his colleagues at the local pro-market think tank explained to policymakers that reducing the size and scope of government was a good strategy to address this problem.
Georgia was ranked near the bottom by Transparency International in 2004, scoring just a 2 (on a 1-10 scale) and tied for #133 out of 146 nations. Now Georgia’s score has jumped to 56 (on a 1-100 scale), which puts it #46 out of 180 nations.
And a big reason why corruption has plummeted is that you no longer need all sorts of permits when setting up a business. Indeed, Georgia ranks #9 in the World Bank’s Ease of Doing Business.
For what it’s worth, Georgia is only three spots behind the United States (the previous year, they were eight spots behind America).
So what does all this mean? Well, according to both the IMF data and the Maddison database, per-capita GDP in Georgia has more than doubled since pro-market reforms were enacted.
In other words, ordinary people have been the winners, thanks to a shift to capitalism.
P.S. Since I just wrote about my visit to the anti-Nazi/anti-Marxist House of Terror Museum in Budapest, I should mention that the “lowlight” of my visit to Georgia was seeing Stalin’s boyhood home earlier today. I realize “thumbs down” is a grossly inadequate way of expressing disapproval for a tyrant who butchered millions of people, but I didn’t want to get arrested for urinating in public.
There are four comparatively admirable features of Canadian schooling. First, as explained by the Vancouver-based Fraser Institute, the central government has no role.
…the Canadian educational system is much more decentralized than in the United States. One of the starkest illustrations of the different models at work between the two countries, is the fact that Canada has no federal role, no federal ministry or department, and no federal cabinet position for K-12 education at all. …in Canada, this vital aspect of society is under the exclusive control and authority of the provinces. Furthermore, in many provinces the delivery responsibilities are decentralized to local and regional boards of education.
Second, Canadian taxpayers don’t spend as much money.
Adjusting for differences in currencies, in 2010 the United States (public and private) spent $11,826 per student on K-12 education. In contrast, the comparable figure for Canada was only $9,774… the United States spent about one-fifth (21%) more per student in 2010 for primary and secondary education, and…that difference arises from the higher level of government spending.
Especially compared to Canadians, which is the third admirable feature north of the border.
…on most international tests, Canada performs at least as well as, and often much better than, the United States. For example, the OECD administers the Programme for International Student Assessment (PISA), which in 2006 gave U.S. students a science score of 489, compared to Canada’s 534 and the OECD average of 500.
So why is Canada getting better results with less money?
There are probably several answers, but one reason is a Canadian version of school vouchers, which is the fourth positive attribute of the Canadian education system.
Five provinces in Canada make provision for funding qualifying independent schools. These are Quebec and the four western provinces: Manitoba, Saskatchewan, Alberta, and British Columbia. …Funding percentages vary across the five funding provinces. None offer funding toward the purchase or construction of capital assets. Funding is generally calculated as a percentage of the amount given to the local school district for the operational (recurrent) expenses of educating a student. Funding is generally paid directly to the independent school on a per-student basis.
The money follows the students, which means parents in the more enlightened provinces have a real choice.
Interestingly, even researchers from the Canadian government confirm that kids in private schools receive superior education.
Private high school students score significantly higher than public high school students on reading, mathematics, and science assessments at age 15, and have higher levels of educational attainment by age 23. …In the reading test, private school students outperformed their public school counterparts by 0.081 log points, or about 8% (Table 5). The gaps were slightly larger in the mathematics and science tests. By age 23, 99% of private school students had graduated from high school, about 3 percentage points above the figure for public school students. The private school advantage was more evident in postsecondary outcomes (measured at age 23)—postsecondary attendance (11.6 percentage points), university attendance (17.8 percentage points), postsecondary graduation (16.2 percentage points), university graduation (13.9 percentage points), and graduate or professional studies (8.1 percentage points).
Private schools produced better results even after adjusting for the quality of students.
…private high school attendance was positively associated with postsecondary attendance and graduation outcomes. Specifically, postsecondary attendance and graduation outcomes were 5- to 9-percentage-points higher among private high school students. …It is well documented that private high school students generally outperform their public school counterparts in the academic arena.
Parents seems to recognize where they can get the best education for their kids. The Fraser Institute tracks enrollment patterns and an ever-increasing number of children are attending independent schools.
So what’s the bottom line? Simply that what we see in Canada augments evidence fromSweden, Chile, and the Netherlands about the benefits of breaking up state-run education monopolies. And we can give India honorary membership in this club since so many parents have opted for private schooling even though there’s no choice program.
In 2016, I toured the Tuol Sleng Genocide Museum in Cambodia, which memorializes the victims of communist butchery in that nation.
Earlier today, I was lucky enough to get a tour through the House of Terror, a museum in Budapest that commemorates the horrors that Hungary endured during both Nazi occupation and Soviet occupation
Some of the exhibits are uplifting, such as the photo from the 1956 uprising that shows a toppled statue of Stalin.
Other parts are downright depressing.
Or, in the case of these torture instruments, certain exhibits are utterly horrifying (you can use your imagination to figure out what the communists did with the glass tubes).
If you go to Hungary, the House of Terror should be on your list of things to do.
I was particularly gratified to learn that it’s the most-visited museum in Budapest. Not simply because it’s filled with interesting material, but because it helps people understand that all forms of statism are wrong.
The House of Terror has exhibits on the brutality of Nazi rule and the brutality of Marxist rule.
Which is a good excuse for me to share excerpts from a couple of columns on the common thread between fascism and socialism.
In a column last November for the Foundation for Economic Education, Brittany Hunter shared some of Friedrich Hayek’s analysis of the philosophical link between national socialism and international socialism.
F.A. Hayek’s The Road to Serfdom, …in chapter twelve, …Hayek highlights the very important connection between the socialist and Nazi intellectuals by profiling a handful of prominent German Marxist supporters… Hayek points out that contrary to what many think, Nazism did not simply appear out of thin air and infect the minds of docile German people. There were academic roots that, while grown in the soil of socialist thought, grew into a philosophy that praised German superiority, ultimate war, and the degradation of the individual. …Beginning his list of influential thinkers prior to WWII, Hayek begins with the dedicated Marxist who later embraced nationalism and dictatorship, Werner Sombart (1863-1941). …He seethed with criticism for the English people, who, in his mind, had lost their warlike instincts. …His other main criticism of English culture was the emphasis placed on the individual. For Sombart, individual happiness was hampering societies from being truly great. …Professor Johann Plenge (1874-1963) was another leading intellectual authority on Marxist thought during this time. He also saw war with England as a necessary struggle between two opposite principles: emphasis on the individual and organization and socialism. …Interestingly enough, many…socialist philosophers eventually abandoned Marxism in favor of National Socialism… while Prussian militarism was seen to be the enemy of socialism, Spengler helped bridge that gap. Both schools of thought require an abandonment of the individual identity. …This hatred and fear of the individual is the worldview espoused by these thinkers and it continues on with those who claim to be socialists today. Unless the concept of individualism is completely eradicated, the glorified state cannot come into existence.
Earlier this year, Byron Chiado echoed this analysis of Hayek’s Road to Serfdom in another FEE column, pointing out that all forms of socialism reject classical liberalism.
The bulk of the book makes the argument that central planning and interventionism inevitably lead to authoritarianism… Towards the end of the book, he deals with the undeniable authoritarians of his time and casts the national-socialist movement as one built on disgust with liberalism. …Sombart, like many Germans in the early 20th century, was compelled by a case for war between the British and Germany on the grounds that the British…pursuit of individual happiness, which he saw as a disease contracted from a society built on commercialism. Laissez-faire was an unnatural anarchic order giving rise to parasites and dishonest merchants… another Marxist, Sociologist Johann Plenge…moved into the shamelessly totalitarian realm that attracted so many Marxist leaders… Hayek gives…a warning to England; that the “conservative socialism” en vogue at the time was a German export, which for reasons he details throughout the book, will inevitably become totalitarian. …This was not a sensationalist attempt to prove his point. Hayek was rather calmly pointing out an example of the type of government one could expect in a society that has discarded liberalism for planning.
Which is why libertarianism (what Hayek would have called liberalism, meaning classical liberalism) is the proper philosophy of government. Assuming, of course, one values individual rights and civil society.
I received my Ph.D. from George Mason University in Fairfax, VA, and I have very fond memories of that experience, including interactions with great economists such as James Buchanan and Walter Williams.
But not everyone has favorable views of GMU’s market-friendly program. There’s a group, UnKoch My Campus, that pretends to be horrified that the school has attracted contributions from philanthropists such as Charles Koch and David Koch.
In a column for the Washington Post, Steven Pearlstein opines about the ostensible controversy.
Thanks to a group of courageous and persistent students, George Mason University was recently forced to acknowledge that it had accepted millions of dollars from billionaire Charles Koch and other conservatives under arrangements that gave the donors input into several appointments at the university’s famously libertarian economics department. These arrangements violated traditional norms meant to insulate academic institutions from donor influence… The story fits neatly into the liberal narrative that the Koch brothers, Charles and David, have used their inherited oil wealth to fund the development of radical economic theories at Koch-funded universities.
At the risk of digressing before I even get started, I have to correct Pearlstein’s snide comment about “inherited oil wealth.”
The Koch brothers did inherit a valuable company, but they are not dilettantes with trust funds. They took a successful company and built it into an extremely successful firm. I wouldn’t be surprised if more than 90 percent of any contributions they make are a result of value they created.
Also, Charles Koch is a libertarian rather than a conservative.
Anyhow, back to our regularly scheduled program.
Pearlstein may have taken a cheap shot at the Kochs, but at least he doesn’t blindly parrot the leftist narrative.
…at Mason, the story is more complicated… I’ve been a professor at Mason. …I’m not a member of the economics department — they wouldn’t have me. But over the years, I’ve gotten to know and admire many of the economists there. For the most part, I have found them to be good economists and teachers, incredibly smart, intellectually honest and curious. …In the case of Mason’s economics department, the faculty have driven the donor relationships. In most instances, it was the faculty who approached and solicited Koch and other donors with specific projects in mind, not the other way around. …Our economics department is not libertarian and conservative because it is funded by Koch and his friends; they fund our economics department because its faculty is — and always has been — overwhelmingly conservative and libertarian. …rules and norms of university governance give faculty the power to hire people who think like they do. …Sorting by political or academic ideology is a naturally occurring phenomenon at universities.
Pearlstein suggests that university administrators should insist on more intellectual diversity.
The challenge is figuring out what to do about it. …It would have been better if Mason’s presidents and provosts had insisted on more ideological diversity in the law school and the economics department.
Perhaps there’s merit to that idea.
But if that’s Pearlstein’s goal, he should first focus on other departments at other schools. Because there’s an overwhelming bias in the other direction when looking at America’s system of higher education.
Here’s a report from Inside Higher Ed about some academic research by Mitchell Langbert, Anthony Quain, and Daniel Klein.
A new study…, published online by Econ Journal Watch, considered voter registration data for faculty members at 40 leading U.S. institutions in economics, history, communications, law and psychology. Of 7,243 professors total, about half are registered. Some 3,623 are Democrats while just 314 are Republicans. Economists are the most mixed group, with a ratio of 4.5 Democrats for every Republican. Historians as a group are the most lopsided, at 33.5 to one… There are also regional effects, with ratios highest in New England. …Women are much more likely to be registered Democrats, at 24.8 to one. Among men, the ratio is nine to one. …Brown University has the highest ratio for all five disciplines combined, at 60 to one, Democrat to Republican. It’s followed by Boston University (40 to one), Johns Hopkins University and the University of Rochester (both 35 to one), and Northeastern University (33 to one). The lowest ratio — that is, the most even mix of registered Democrats and Republicans — is at Pepperdine University, at 1.2 registered Democrats for every Republican. Case Western Reserve University is next, at 3.1 to one.
Here’s a chart from the report showing that economics is the most balanced discipline, but even in that field Democrats outnumber Republicans by a 4.5:1 margin.
Professor Langbert has some new research on this topic.
And, as pointed out in this report, the problem isn’t getting better.
An extensive study of 8,688 tenure-track professors at 51 of the 66 top-ranked liberal arts colleges in the U.S. published by the National Association of Scholars found that the ratio of faculty members registered as Democrats compared to those registered Republican is now a stunning 10.4 to 1. If two military colleges that are technically described as “liberal arts colleges” are removed from the calculations, the ratio is 12.7 to 1. …nearly 40% of the colleges in the study had zero faculty members who were registered Republican. Not a single one. Nearly 80% of the 51 colleges had so few Republican faculty members that they were statistically insignificant. …this trend toward an increasingly uniformly left-leaning faculty has spanned decades, both in the United States and Britain. “More than a decade ago, Stanley Rothman and colleagues provided evidence that while 39 percent of the professoriate on average described itself as Left in 1984, 72 percent did so in 1999,” Langbert writes. “They find a national average D:R ratio of 4.5:1.
Wow. University professors may be even further to the left than journalists.
Let’s circle back to the controversy at George Mason University.
Progressives dominate all but a few corners of American academia, but apparently they want it all. Witness the political and media assault on George Mason University, an island of intellectual diversity in Northern Virginia… an outfit called UnKoch My Campus…claims that donors like Charles and David Koch inappropriately influence university decisions. The demand is for “transparency” but the real goal is to silence conservative views. …Among the horrors supposedly uncovered by UnKoch is that one condition of these gifts was that George Mason rename its law school after Antonin Scalia. …The truth is that the naming request and decision went through normal university channels that included a vote by the university’s Board of Visitors, as well as the State Council on Higher Education for Virginia. …Donors are committing no crime in trying to judge if their philanthropy is fulfilling its purpose. The Kochs, God bless them, believe in supporting academics who believe in the principles of liberty and market economics. …Researchers from Stanford, Harvard and the University of Chicago Law School found last year that only 15% of American law school professors are conservative. We’re surprised it’s that many.
My two cents is that universities – either faculty and/or administrators – should be free to hire whoever they want under whatever rules they want. And students (or their parents) should be able to say no to schools that go overboard.
But here’s the catch. I don’t want to pay for any of it, either directly or via my kids. Let’s get rid of federal handouts for higher education.
P.S. My dissertation topic at GMU was Australia’s private retirement system, which was a clever decision on my part. Nobody in the United States at the time knew anything about the Aussie approach, which meant it was a) comparatively easy to make a contribution to the literature, and b) the professors on my committee didn’t know enough about the topic to nit-pick. Best of all worlds.
I’ve written over and over again that changing demographics are a very under-appreciated economic development. I’ve also written about why entrepreneurship is a critical determinant of growth.
There are chapters on theory and evidence. There are chapters on specific issues, such as taxes, regulation, migration, financial markets, and education.
It’s basically the literary equivalent of one-stop-shopping. You’ll learn why you should be concerned about demographic change. More important, since there’s not much policy makers can do to impact birthrates, you’ll learn everything you need to know about the potential policy changes that could help nations adapt to aging populations.
This short video is an introduction to the topic.
Let’s look at just a few of the highlights of the book.
In the opening chapter, Robert Murphy offers a primer on the importance of entrepreneurship.
…there is a crucial connection between entrepreneurship and economic prosperity. …There is a growing recognition that a society’s economic prosperity depends…specifically on entrepreneurship. …Two of the top names associated with the theory of entrepreneurship are Joseph Schumpeter and Israel Kirzner… Schumpeter famously invoked the term “creative destruction” to describe the volatile development occurring in a capitalist system… Kirzner has written extensively on entrepreneurship…and how…the alert entrepreneurial class who perceive these misallocations before their more complacent peers, and in the process earn pure profits… Schumpeter’s entrepreneur is a disruptor who creates new products first in his mind and then makes them a reality, whereas Kirzner’s entrepreneur is a coordinator who simply observes the profit opportunities waiting to be grasped. …If the goal is maximum economic efficiency in the long run, to provide the highest possible standard of living to citizens within the unavoidable constraints imposed by nature, then we need bold, innovative entrepreneurs who disrupt existing modes of production by introducing entirely new goods and services, but we also need vigilant, alert entrepreneurs who spot arbitrage opportunities in the existing price structure and quickly move to whittle them away.
Murphy describes in the chapter how there was a period of time when the economics profession didn’t properly appreciate the vital role of entrepreneurs.
But that fortunately has changed and academics are now paying closer attention. He cites some of the recent research.
An extensive literature documents the connection between entrepreneurship and economic growth. The studies vary in terms of the specific measure of entrepreneurship (e.g., small firms, self-employment rate, young firms, etc.) and the size of the economic unit being studied. …Carree et al. (2002) look at 23 OECD countries from 1976 to 1996. …They “find confirmation for the hypothesized economic growth penalty on deviations from the equilibrium rate of business ownership… An important policy implication of our exercises is that low barriers to entry and exit of businesses are necessary conditions for the equilibrium seeking mechanisms that are vital for a sound economic development” …Holtz-Eakin and Kao (2003) look at the birth and death rates of firms across US states, and find that this proxy for entrepreneurship contributes to growth. Similarly, Callejón and Segarra (1999) look at manufacturing firm birth and death rates in Spain from 1980 to 1992, and conclude that this measure of “turbulence” contributes to total factor productivity growth. …Wennekers and Thurik (1999) use business ownership rates as a proxy for “entrepreneurship.” Looking at a sample of 23 OECD countries from 1984 to 1994, they, too, find that entrepreneurship was associated with higher rates of employment growth at the national level.
In a chapter on taxation, Seth Giertz highlights the negative impact of taxes on entrepreneurship, particularly what happens with tax regimes have a bias against saving and investment.
High tax rates discourage both consumption and savings. But, for a given average tax rate, taxes on an income base penalize savings more heavily than taxes on consumption. …a consumption tax base is neutral between the decision to save versus consume. By contrast, an income tax base results in the double taxation of savings. …three major features of tax policy that are important for entrepreneurship. First, capital accumulation and access to capital is essential for innovation to have a big impact. Despite this, tax systems generally tax savings more heavily than consumption….Second, the tax treatment of risk affects incentives for entrepreneurship, since entrepreneurship tends to entail high risk. …progressivity can sometimes discourage entrepreneurship. This is because tax systems do not afford full offsets for losses, making progressivity effectively a tax increase. …Third, tax policy can lead entrepreneurial activity to shift from productive toward unproductive or destructive aims. Productive entrepreneurship tends to flourish when the route to great wealth is achieved primarily through private markets… High taxes reduce the rewards from productive entrepreneurship. All too often, smart, talented, and innovative people are drawn out of socially productive endeavours and into unproductive ones because the private returns from devising an innovative tax scheme—or lobbying government for special tax preferences—are greater than those for building the proverbial better mousetrap.
In a chapter I co-authored with Brian Garst, Charles Lammam, and Taylor Jackson, we look specifically at the negative impact of capital gains taxation on entrepreneurship.
We spend a bit of time reminding readers of what drives growth.
One of the more uncontroversial propositions in economics is that output is a function of labor (the workforce) and capital (machines, technology, land, etc.). Indeed, it is almost a tautology to say that growth exists when people provide more labor or more capital to the economy, or when—thanks to vital role of entrepreneurs—labor and capital are allocated more productively. In other words, labor and capital are the two “factors of production,” and the key for policymakers is to figure out the policy recipe that will increase the quantity and quality of those two resources. …In the absence of taxation, people provide labor to the economy so long as they value the income they earn more than they value the foregone leisure. And they provide capital to the economy (i.e., they save and invest) so long as they value future consumption (presumably augmented by earnings on capital) more than they value current consumption.
And we highlight how entrepreneurs generate the best type of growth.
this discussion also helps illustrate why entrepreneurship is so important. The preceding analysis basically focused on achieving growth by increasing the quantity of capital and labor. Such growth is real, but it has significant “opportunity costs” in that people must forego leisure and/or current consumption in order to have more disposable income. Entrepreneurs, by contrast, figure out how to increase the quality of capital and labor. More specifically, entrepreneurs earn profits by satisfying consumer desires with new and previously unknown or underused combinations of labor and capital. In their pursuit of profit, they come up with ways of generating more or better output from the same amount of labor and capital. This explains why we have much higher living standards today even though we work far fewer hours than our ancestors.
And here’s what we say about the counterproductive impact of capital gains taxation, particularly when combined with other forms of double taxation.
…the effective marginal tax rate on saving and investment is considerably higher than the effective marginal tax rate on consumption. This double taxation is understandably controversial since all economic theories—even Marxism and socialism—agree that capital is critical for long-run growth and higher living standards. …capital gains taxes harm economies in ways unique to the levy. …entrepreneurs play a vital role in the economy since they figure out more efficient ways to allocate labor and capital. …The potential for a capital gain is a big reason for the risk they incur and the effort they expend. Thus, the existence of capital gains taxes discourages some entrepreneurial activity from ever happening. …the capital gains tax is more easily avoidable than other forms of taxation. Entrepreneurs who generate wealth with good ideas can avoid the levy by simply choosing not to sell. This “lock-in effect” is not good for the overall economy… Most governments do not allow taxpayers to adjust the value of property for inflation when calculating capital gains. Even in a low-inflation environment, this can produce perverse results. …taxpayers can sometimes pay tax even when assets have lost value in real terms. …Capital gains taxes contribute to the problem of “debt bias,” which occurs when there is a tax advantage for corporate investments to be financed by debt instead of equity. …Excessive debt increases the probability of bankruptcy for the firm and contributes to systemic risk.
We then cite a lot of academic studies. I strongly encourage folks to peruse that section, but to keep this column manageable, let’s close by looking at two charts that reveal how some nation – including the United States – have uncompetitive tax systems.
Here are long-run capital gains tax rates in developed nations.
By the way, even though the data comes from a 2018 OECD report, it shows tax rates as of July 1, 2016. So not all the numbers will be current. For instance, I assume Macron’s reforms have mitigated France’s horrible score.
Speaking of horrible scores, here are the numbers showing the combined burden of the corporate income tax and capital gains tax. Sadly, the United States was at the top of this list as of July 1, 2016.
The good news is that the recent tax reform means that the United States no longer has the world’s most punitive tax system for new investment.
This morning in Monaco, I moderated a panel for the Convention of Independent Financial Advisors on the implications of an “uber-ized” economy. In my introductory comments, I asserted that the best part of capitalism was “creative destruction.” Simply stated, we all benefit when entrepreneurs come up with products such as personal computers that make our lives better.
But I also pointed out that creative destruction was the most painful part of capitalism. Think, for example, about the people who used to work in the typewriter industry.
One of the speakers, Professor Philippe Silberzahn of the EMLYON Business School, cited another example. Kodak used to be one of the biggest and most profitable companies in America, but the digital camera (ironically, first invented by Kodak) set the firm into a death spiral. What was creative for the rest of us wound up causing destruction for the people who worked at Kodak and the investors who owned shares of Kodak.
It’s easy, as an armchair economist, to argue in favor of creative destruction. As explained in this video, this is why we are far richer than our ancestors. Even if our ancestors worked in the candle industry and were bankrupted and tossed out of work when the electric light bulb hit the market.
But armchair theorizing (even when accurate) doesn’t change the fact that change means temporary pain. And this is a political challenge. Especially since those who suffer are the “seen” and the beneficiaries often are “unseen.”
But none of that changes the fact that politicians should not intervene. Assuming, of course, the goal is long-run increases in living standards for everyone.
In a column for CapX, Tim Worstall elaborates on how we become richer when we produce more with less.
Warren Buffett tells us all that slashing jobs is just the capitalist way. …But Buffett is wrong. This isn’t the capitalist way at all. This is just the way that any and every economy should work. Whether communist, socialist, social democratic or capitalist, all economies will economise on inputs into a process. That is what actually makes us richer. Buffett’s subsequent point – that “people live better when there is more output per capita” – is right. But that’s not specific to capitalism. …as Paul Krugman has pointed out, productivity isn’t everything but in the long run it’s pretty much everything. …Today, instead of everyone working in the fields, just 2 per cent of us do so. The other 98 per cent of the population are busing trying to sate some other human desire or want. And thus, we have the labour to run a health service, libraries, ballet companies, vital cat picture websites, manufacturing, ketchup plants and the like. Being economical with labour is the very thing that makes civilisation itself possible. … William Nordhaus has pointed out…entrepreneurs – for devising a new process which uses different or fewer inputs is the very definition of entrepreneurship – end up with some 3 per cent or so of the value they create. The remaining 97 per cent flows to the rest of us in the form of consumer surplus.
By the way, I’m not surprised that Buffett is wrong. He’s goofed before when venturing into public policy.
Tim closes with a very important point.
Not enough people realise that using fewer resources to do something makes us richer. And yes, human labour is just such a scarce resource that we wish to economise upon using. Perhaps if people understood this, they’d stop arguing that solar power is better than nuclear because it produces more jobs for the same amount of electricity produced.
And since we’re on that topic, here’s an item from Libertarian Reddit revealing a leftist who genuinely seems to think that the goal should be to produce less per unit of labor.
Sounds like Ms. Kohn should spend some time with this video.
But I like to be even-handed in my disdain for bad economics. Trump is a protectionist who wants to preserve certain jobs in certain industries.
Well, I don’t know if this artist is a left-wing Trump critic or right-wing Trump critic, but he’s right about the foolishness of trying to stop progress.
But this brings me back to where I started. The VHS worker was a victim, just as the workers at Kodak were victims.
It’s the inevitable consequence of progress. But if we try to stop progress, we all lose in the long run. The best way to help workers and investors who suffer from creative destruction is to have pro-growth policies so that if you’re in a disrupted sector, you have plenty of opportunities to quickly rebound.
I’m currently in Monaco, which is a remarkable place for two reasons.
First, it is has an unusual economic model. There is no income tax, and you won’t be surprised to learn that I think this helps to explain why it is the world’s richest jurisdiction. Makes me wish we could reverse that terrible day in 1913 when the income tax was imposed in the United States.
Second, there are a lot of beautiful people in this small nation, especially relative to the small overall population.
With one exception, I’ve never commented on the looks of a population for the simple reason that it has nothing to do with public policy.
But that may be changing, in part because some ostensibly unattractive young men (known as “incels” because they are involuntarily celibate) are dealing with their frustration by killing others.
That strikes me a crazy reaction. I’ve endured many periods of involuntary celibacy in my life and it never occurred to me to murder anyone.
But let’s deal seriously with this issue. There’s no question that some people are lucky because they won the genetic lottery. If you’re naturally attractive, you have many more relationship options, whether you’re looking for one-night stands or marriage. And it’s not just sex and relationships. Being physically attractive makes life easier in all sorts of ways.
That’s not fair. But does that unfairness justify intervention?
Professor Robin Hanson of George Mason University doesn’t think so, but he wonders why people concerned about income equality aren’t similarly concerned about access-to-sex equality.
I’ve long puzzled over the fact that most of the concern I hear expressed on inequality is about…income inequality… many seem to be trying hard to inform those who rank low of their low status. Their purpose seems to be to induce envy, to induce political action to increase redistribution. …They remind the poor that they could consider revolting, and remind everyone else that a revolt might happen. This strengthens an implicit threat of violence should redistribution be insufficient. …One might plausibly argue that those with much less access to sex suffer to a similar degree as those with low income, and might similarly hope to gain from organizing around this identity, to lobby for redistribution along this axis and to at least implicitly threaten violence if their demands are not met. …personally I’m not very attracted to non-insurance-based redistribution policies of any sort, though I do like to study what causes others to be so attracted.
Hanson’s column generated a lot of response.
Ross Douthat addressed the topic in a column for the New York Times.
…it brings me to the case of Robin Hanson, a George Mason economist, libertarian and noted brilliant weirdo. Commenting on the recent terrorist violence in Toronto, in which a self-identified “incel” — that is, involuntary celibate — man sought retribution against women and society for denying him the fornication he felt that he deserved, Hanson offered this provocation: If we are concerned about the just distribution of property and money, why do we assume that the desire for some sort of sexual redistribution is inherently ridiculous? …Hanson’s post made me immediately think of a recent essay in The London Review of Books by Amia Srinivasan, “Does Anyone Have the Right To Sex?” Srinivasan, an Oxford philosophy professor, covered similar ground (starting with an earlier “incel” killer) but expanded the argument well beyond the realm of male chauvinists to consider groups with whom The London Review’s left-leaning and feminist readers would have more natural sympathy — the overweight and disabled, minority groups treated as unattractive by the majority, trans women unable to find partners and other victims… Srinivasan ultimately answered her title question in the negative: “There is no entitlement to sex, and everyone is entitled to want what they want.” But her negative answer was a qualified one. …like other forms of neoliberal deregulation the sexual revolution created new winners and losers, new hierarchies to replace the old ones, privileging the beautiful and rich and socially adept in new ways and relegating others to new forms of loneliness and frustration.
Writing for Slate, Jordan Weissmann had a very sour reaction to Hanson’s column.
If you’ve ever heard of George Mason University economist Robin Hanson, there’s a good chance it was because he wrote something creepy. …Last week, Hanson was back at it again. In a post that left many readers agog, he decided to use a heinous incident of misogynistic violence as an opportunity to contemplate the concept of “redistributing” sex to men who have trouble getting laid. …His brief post is more or less a lame attempt to compare people who worry about income inequality with incels who worry about “sexual inequality,” and suggest that they’re maybe not so different. …Some people have read Hanson’s piece and concluded that he believes women should be forced to have sex with men who strike out on Tinder, like some sort of giant socialized harem. I don’t think that’s the case. The professor, again, leans libertarian and, as he clarified on Twitter, opposes all sorts of government redistribution, including in this case.
By the way, I can’t resist commenting on the absurdity of Weissmann stating that he doesn’t “think” that Hanson believes in coerced sex redistribution.
Of course he knows that Hanson is opposed to that route. But since Weissmann presumably believes in coerced income redistribution, he wants to lash out at Hanson for pointing out that there’s an unseemly link between the two ideas.
I’ll close by pointing out that attractiveness helps with income as well as sex. And Omar Al-Ubaydli of the Mercatus Center asks, in a column for the Washington Examiner, whether that justifies redistribution.
Do attractive workers get paid more than unattractive ones? Some labor economists think so, having clearly demonstrated the existence of the “beauty premium,” which shows attractive workers have higher wages and more job opportunities. So, should we look to implement a “ridiculously good looking” tax? …what truly leads to higher wages for our photogenic friends. Is it because our beautiful colleagues are more effective at their jobs? Or is it because we are biased toward them… If physical attractiveness brings about superior productivity…then the beauty premium is morally justifiable. Employers pay for productivity… But if, on the other hand, earnings differences can be attributed to bigoted oppression of those blessed with less beauty, then there may be moral grounds for some positive discrimination and equal-pay legislation.
But if there’s a tax on beauty, what about other natural traits, like athletic skill?
If I deserved a subsidy from Gisele Bundchen for being less beautiful, would I deserve one from Lionel Messi for being a less capable soccer player?
Or a tax on height?
If the idea of a beauty tax seems strange or unlikely, then you may be surprised to learn that several respected economists have argued in favor of a height tax, whereby tall people are forced to subsidize the short.
As a libertarian, this isn’t a difficult issue. Like Robin Hanson, I don’t believe in coerced redistribution, whether for sex or money.
I have zero sympathy for violent “incels”, but I also recognize that life can be very unfair for people who lost the aforementioned genetic lottery. This is not a problem with a solution, but it’s one of the reasons I support legalized prostitution.
P.S. The U.K. actually has decided that some people have a right to sex, though fortunately there’s no coercion (other than the threats needed to collect taxes).
As a general rule, we worry too much about deficits and debt. Yes, red ink matters, but we should pay more attention to variables such as the overall burden of government spending and the structure of the tax system.
That being said, Greece shows that a nation can experience a crisis if investors no longer trust that a government is capable of “servicing” its debt (i.e., paying interest and principal to people and institutions that hold government bonds).
This doesn’t change the fact that Greece’s main fiscal problem is too much spending. It simply shows that it’s also important to recognize the side-effects of too much spending (if you have a brain tumor, that’s your main problem, even if crippling headaches are a side-effect of the tumor).
This in in part because the Italian economy is moribund, as noted by the Wall Street Journal.
Italy’s national elections…featured populist promises of largess but neglected what economists have long said is the real Italian disease: The country has forgotten how to grow. …The Italian economy contracted deeply in Europe’s debt crisis earlier this decade. A belated recovery now under way yielded 1.5% growth in 2017—a full percentage point less than the eurozone as a whole and not enough to dispel Italians’ pervasive sense of national decline. Many European policy makers view Italy’s stasis as the likeliest cause of a future eurozone crisis.
Why would Italy be the cause of a future crisis?
For the simple reason that it is only the 4th-largest economy in Europe, but this chart from the Financial Times shows it has the most nominal debt.
So what’s the solution?
The obvious answer is to dramatically reduce the burden of government.
Interestingly, even the International Monetary Fund put forth a half-decent proposal based on revenue-neutral tax reform and modest spending restraint.
The scenario modeled assumes a permanent fiscal consolidation of about 2 percent of GDP (in the structural primary balance) over four years…, supported by a pro-growth mix of revenue and expenditure reforms… Two types of growth-friendly revenue and spending measures are considered along the envisaged fiscal consolidation path: shifting taxation from direct to indirect taxes, and lowering expenditure and shifting its composition from transfers to investment. On the revenue side, a lower labor tax wedge (1.5 percent of GDP) is offset by higher VAT collections (1 percent of GDP) and introducing a modern property tax (0.5 percent of GDP). On the expenditure side, spending on public consumption is lowered by 1.25 percent of GDP, while productive public investment spending is increased by 0.5 percent of GDP. The remaining portion of the fiscal consolidation, 1.25 percent of GDP, is implemented via reduced social transfers.
Not overly bold, to be sure, but I suppose I should be delighted that the IMF didn’t follow its usual approach and recommend big tax increases.
So are Italians ready to take my good advice, or even the so-so advice of the IMF?
Nope. They just had an election and the result is a government that wants more red ink.
The Wall Street Journal‘s editorial page is not impressed by the economic agenda of Italy’s putative new government.
Five-Star wants expansive welfare payments for poor Italians, revenues to pay for it not included. Italy’s public debt to GDP, at 132%, is already second-highest in the eurozone behind Greece. Poor Italians need more economic growth to generate job opportunities, not public handouts that discourage work. The League’s promise of a pro-growth 15% flat tax is a far better idea, especially in a country where tax avoidance is rife. The two parties would also reverse the 2011 Monti government pension reforms, which raised the retirement age and moved Italy toward a contribution-based benefit system. …Recent labor-market reforms may also be on the block.
Simply stated, Italy elected free-lunch politicians who promised big tax cuts and big spending increases. I like the first part of that lunch, but the overall meal doesn’t add up in a nation that has a very high debt level.
And I don’t think the government has a very sensible plan to make the numbers work.
…problematic for the rest of Europe are the two parties’ demand for an exemption from the European Union’s 3% GDP cap on annual budget deficits. …the two parties want the European Central Bank to cancel some €250 billion in Italian debt.
Demond Lachman of the American Enterprise Institute suggests this will lead to a fiscal crisis because of two factors. First, the economy is weak.
Anyone who thought that the Eurozone debt crisis was resolved has not been paying attention to economic and political developments in Italy…the recent Italian parliamentary election…saw a surge in support for populist political parties not known for their commitment to economic orthodoxy or to real economic reform. …To say that the Italian economy is in a very poor state would be a gross understatement. Over the past decade, Italy has managed to experience a triple-dip economic recession that has left the level of its economy today 5 percent below its pre-2008 peak. Meanwhile, Italy’s current unemployment level is around double that of its northern neighbors, while its youth unemployment continues to exceed 25 percent. …the country’s public debt to GDP ratio continued to rise to 133 percent, making the country the most indebted country in the Eurozone after Greece. …its banking system remains clogged with non-performing loans that still amount to 15 percent of its balance sheet…
Second, existing debt is high.
…having the world’s third-largest government bond market after Japan and the United States, with $2.5 trillion in bonds outstanding, Italy is simply too large a country for even Germany to save. …global policymakers…, it would seem not too early for them to start making contingency plans for a full blown Italian economic crisis.
Since he writes on issues I care about, I always enjoy reading Lachman’s work. Though I don’t always agree with his analysis.
Why, for instance, does he think an Italian fiscal crisis threatens the European currency?
…the Italian economy is far too large an economy to fail if the Euro is to survive in anything like its present form.
Would the dollar be threatened if (when?) Illinois goes bankrupt?
But let’s not get sidetracked.3
To give you an idea of the fairy-tale thinking of Italian politicians, I’ll close with this chart from L’Osservatorio on the fiscal impact of the government’s agenda. It’s in Italian, but all you need to know is that the promised tax cuts and spending increases are on the left side and the compensating savings (what we would call “pay-fors”) are on the right side.
Well, Senate Republicans recently had a chance to atone for their sins by voting for a proposal from Rand Paul to balance the budget.
So what did they do? Rejected it, of course.
In a column for Reason, Eric Boehm justly condemns Republicans for being big spenders.
The Senate on Thursday resoundingly rejected the Kentucky Republican’s plan to balance the federal budget by 2023, voting 76 to 21 against a bill that would have required a $400 billion cut in federal spending next year, followed by 1 percent spending increases for the rest of the next decade. …Paul’s proposal never really had a chance of passing, coming as it did just months after Congress approved enormous spending hikes that busted Obama-era caps once championed by Republicans as necessary for fiscal restraint. …Paul’s plan would have balanced the budget by 2023, as long as revenue met current CBO projections. By 2028, his proposal envisioned a $700 billion surplus instead of the $1.5 trillion deficit currently projected by the CBO.
A Lifezette column by Brendan Kirby was even more critical of big-government Republicans.
Sen. Rand Paul (R-Ky.) was hoping his Republican colleagues would be embarrassed by their vote to jack up federal spending earlier this year and support his plan to phase in a balanced budget. Few were. Paul got 20 other Republican senators on Thursday — less than half of the Senate GOP caucus — to vote for his “penny plan,” which would balance the federal budget over five years… No Democrats back the proposal. …Even though Paul’s bid failed, it did pick up the support of some senators who voted for the spending bill in February, including Senate Majority Whip John Cornyn (R-Texas). The others were Sens. Marco Rubio (R-Fla.), John Barrasso (R-Wyo.), Joni Ernst (R-Iowa), Deb Fischer (R-Neb.) and Jerry Moran (R-Kan.). …Paul also got more votes than he did for a similar proposal last year.
Kirby’s article ended on an upbeat note based on voting patterns.
I also want to close on an upbeat note, but for an entirely different reason. Here are the annual numbers from the CBO baseline (what will happen to spending and revenue if government continues on its current path) and the numbers for Senator Paul’s proposal.
And why do these depressing numbers leave me with a feeling of optimism?
For the simple reason that they show how simple it is to make progress with some modest spending restraint. The lower set of number show that Senator Paul quickly gets to a balanced budget by imposing an overall reduction of about 2 percent on spending in 2019, followed by annual increases of about 1 percent until 2025.
I think that’s a great plan, but I’d also be happy with a plan that allows spending to grow by 1 percent each year. Or even 2 percent each year.
My bottom line is that we need some sort of spending cap so that the burden of government spending grows slower than the productive sector of the economy. In other words, comply with the Golden Rule.
And what’s especially remarkable is that solving our fiscal problems is still quite feasible notwithstanding the reckless spending bill that was recently approved (Paul’s proposal, incidentally, leaves in place the small – and temporary – tax cut from the recent reform legislation).
P.S. Senator Paul would achieve a balanced budget in just five years by letting spending grow during that period by a bit less than 4/10ths of 1 percent per year. Does that sound impossibly radical? Well, it’s what Republicans managed to achieve during the heyday of the Tea Party revolution, when they actually produced a five-year nominal spending freeze. In other words, zero spending growth! If they could impose that level of discipline with Obama in the White House, why not do the same with Trump (who quasi-endorsed the Penny Plan) at the other end of Pennsylvania Avenue?
Moreover, Walter Williams and Thomas Sowell have already dissected his irrational ramblings on economics and explained that free markets are better for the poor. Especially when compared to government dependency.
But since Pope Francis just attacked tax havens, and I consider myself the world’s foremost defender of these low-tax jurisdictions, I can’t resist adding my two cents. Here’s what the Wall Street Journal just reported about the Pope’s ideological opposition to market-friendly tax systems.
The Vatican denounced the use of offshore tax havens… The document, which was released jointly by the Vatican’s offices for Catholic doctrine and social justice, echoed past warnings by Pope Francis over the dangers of unbridled capitalism. …The teaching document, which was personally approved by the pope, suggested that greater regulation of the world’s financial markets was necessary to contain “predatory and speculative” practices and economic inequality.
“The supranational dimension of the economic system makes it easy to bypass the regulations established by individual countries,” the Vatican said. “The current globalization of the financial system requires a stable, clear and effective coordination among various national regulatory authorities.”
And he said that governments should have more money to spend.
A section of the document was dedicated to criticizing offshore tax havens, which it said contribute to the “creation of economic systems founded on inequality,” by depriving nations of legitimate revenue.
I wanted California to decriminalize marijuana because I believe in freedom. Smoking pot may not be a wise choice in many cases, but it’s not the role of government to dictate private behavior so long as people aren’t violating the rights of others.
Politicians, by contrast, are interested in legalization because they see dollar signs. They want to tax marijuana consumption to they can have more money to spend (I half-joked that this was a reason to keep it illegal, but that’s a separate issue).
Lawmakers need to realize, though, that the Laffer Curve is very real. They may not like it, but there’s very strong evidence that imposing lots of taxes does not necessarily mean collecting lots of revenue. Especially when tax rates are onerous.
Here’s some of what the AP recently reported about California’s experiment with taxing pot.
So far, the sale of legal marijuana in California isn’t bringing in the green stuff. Broad legal sales kicked off on Jan. 1. State officials had estimated California would bank $175 million from excise and cultivation taxes by the end of June. But estimates released Tuesday by the state Legislative Analyst’s Office show just $34 million came in between January and March. …it’s unlikely California will reap $175 million by midyear.
Governor Jerry Brown’s January budget proposal predicted that $175 million would pour into the state’s coffers from excise and cultivation taxes…analysts believe revenue will be significantly lower… Some politicians argue high taxes are to blame for the revenue shortfalls preventing that prediction from becoming reality, saying the black market is “undercutting” the legal one. …The current taxes on legal marijuana businesses include a 15 percent excise tax on purchases of all cannabis and cannabis products, including medicinal marijuana. The law also added a $9.25 tax for every ounce of bud grown and a $2.75-an-ounce tax on dried cannabis leaves for cultivators.
These results should not have been a surprise.
I’ve been warning – over and over again – that politicians need to pay attention to the Laffer Curve. Simply stated, high tax rates don’t necessarily produce high revenues if taxpayers have the ability to alter their behavior.
Moreover, it’s not just cranky libertarians who make this point. Vox isn’t a site know for rabid support of supply-side economics, so it’s worth noting some of the findings from a recent article on pt taxes.
After accounting for substitution between products by consumers, we find that the tax-inclusive price faced by consumers for identical products increased by 2.3%. We find that the quantity purchased decreased by 0.95%…, implying a short-term price elasticity of -0.43. However, over time, the magnitude of the quantity response significantly increases, and our estimates suggest that the price elasticity of demand is about negative one within two weeks of the reform. We conclude that Washington, the state with the highest marijuana taxes in the country, is near the peak of the Laffer curve – further increases in tax rates may not increase revenue. …tax revenue has historically been one of the many arguments in favour of legalising marijuana…the optimal taxation of marijuana should be designed to take into account responses…excessive taxation might prop up the very black markets that legal marijuana is intended to supplant. As additional jurisdictions consider legalising marijuana and debate over optimal policy design, these trade-offs should be explored and taken into account.
Let’s close by reviewing some interesting passages from a McClatchey report, starting with some observations about the harmful impact of excessive taxes.
Owners of legalized cannabis operations face a range of challenges… But taxes – local, state, federal – present a particular headache. They are a big reason why, in California and other states, only a small percentage of cannabis growers and retailers have chosen to get licensed and come out of the shadows. …In a March report, Fitch Ratings suggested that California may not realize the tax revenue – $1 billion a year – the state projected when Proposition 64, a legalization initiative, was put before voters in 2016. “While it is still too early to assess California’s revenue performance, comparatively high taxes on legal cannabis will likely continue to divert sales to illegal markets, reducing potential tax collections,” Fitch said in its report. …Add it all up, and state-legal cannabis in some parts of California could be taxed at an effective rate of 45 percent, Fitch said in a report last year.
Interestingly, even politicians realize they need to adapt to the harsh reality of the Laffer Curve.
Some state lawmakers blame the taxation for creating a price gap between legal and illegal pot that could doom California’s regulated market. Last month, Assembly members Tom Lackey, R-Palmdale, and Rob Bonta, D-Oakland, introduced legislation, AB 3157, that would reduce the state marijuana sales tax rate from 15 percent to 11 percent, and suspend all cultivation taxes until June 2021.
And I can’t resist including one final passage that has nothing to do with taxes. Instead, it’s a reference to the lingering effect of Obama’s dreadful Operation Choke Point.
Davies owns Canna Care, a medical marijuana dispensary in Sacramento. Like other state-legal cannabis businesses nationwide, her pot shop operates largely with cash. Most banks won’t transact with enterprises deemed illegal by the U.S. government. That forces Davies to stuff $10,000 in bills into her purse each month… even lawyers who represent state-legal marijuana businesses face financial risks. Sacramento lawyer Khurshid Khoja recently lost his two bank accounts with Umpqua Bank, after Umpqua started asking him about his state-legal cannabis clients.
The good news is that Trump has partially eased this awful policy. The bad news is that he only took a small step in the right direction.
But let’s get back to our main topic. I’ve written several times on whether our friends on the left are capable of learning about the Laffer Curve. Especially in cases when they imposed a tax in hopes of changing behavior!
What’s happening in California with pot taxes is simply the latest example.
And I’m hoping leftists will apply the lesson to taxes on things that we don’t want to discourage – such as work, saving, investment, and entrepreneurship.
P.S. I’ve pointed out that some leftists want high tax rates on income even if no money is collected. That’s because their real goal is punishing success. I wonder if there are some conservatives who are pushing punitive marijuana taxes because they want to discourage “sin” rather than collect revenue.
But sometimes I get odd results. For instance, the Political Left/Right Test, put me exactly in the middle, and another political quiz pegged me as a “moderate.”
The former might be reasonable since libertarians have some right-wing views and some left-wing views. But the latter quiz concluded that I had “few strong opinions,” which is a nonsensical result.
Anyhow, I found another test. This new survey is called the Political Compass Test, and it’s based on the theory that the traditional left-right economic spectrum is insufficient.
…the social dimension is also important in politics. That’s the one that the mere left-right scale doesn’t adequately address. So we’ve added one, ranging in positions from extreme authoritarian to extreme libertarian.
And here’s the four quadrants that are created by their two lines.
While no system will capture everything, I have no objection to their theoretical construct.
But I think two of the examples they provide are somewhat crazy.
First, Hitler was the head of the National Socialist Workers Party and he belongs on the left side of the horizontal axis. Second, it’s absurd to have Thatcher anywhere near Stalin and Hitler on the vertical axis.
I also think Friedman should be moved more in the libertarian direction, but at least they have him in the correct quadrant.
Now let’s look at my results. I’m somewhat disappointed because I’m not way on the right for economic issues. And I’m even more irked that I’m barely on the libertarian side for social issues.
For what it’s worth, some of the questions were more about attitude and outlook rather than policy. And since I’m the boring kind of libertarian, perhaps that’s why I don’t get a strong score.
Let’s close by looking at my score compared to various famous people. I’m closest to Gary Johnson, which strikes me as a reasonable result.
But some of the other results are very bizarre. First of all, Milton Friedman magically moved. Now he’s very libertarian on social issues, but squishy on economics. Needless to say, that’s nonsense.
But not nearly as nonsensical as Benito Mussolini being on the far right for economic policy. That’s crazy. He was a strident opponent of capitalism.
Likewise, they have Hillary Clinton on the right side of the spectrum for economic policy. The person who did that must have been on some crazy drugs at the time.
And I’m not a Trump fan, but I think it’s laughable to have him ranked as more authoritarian than Mugabe, Mao, and Castro.
As Marian Tupy explained last year, “…in 1998, Slovaks kicked out the nationalists and elected a reformist government, which proceeded to liberalise the economy, privatise loss-making state-owned enterprises and massively improve the country’s business environment. …In 2005, the World Bank declared Slovakia the “most reformist” country in the world.”
And these policies paid off. According to research from both Europe and the United States, Slovakia has enjoyed reasonably strong growth that has resulted in considerable “convergence” to western living standards.
But in recent years, Slovakia has gradually moved in the wrong direction, which means I have good and bad memories of my visits.
The nation’s strong rise and subsequent slippage can be seen in the data from Economic Freedom of the World.
The drop may not seem that dramatic. And in terms of Slovakia’s absolute score, it “only” fell from 7.63 to 7.31.
But what really matters (as I explained last year when writing about Italy) is the relative score. And if you take a closer look at the data, Slovakia has dropped in the rankings from #20 in 2005 to #53 in 2015.
This relative decline is not good news for a nation that wants to compete for jobs and investment. Moreover, I’m not the only one to be worried about slippage in Slovakia.
Jan Oravec is similarly concerned about a gradual erosion of competitiveness in his country.
…the World Economic forum, which compares the competitiveness of 140 countries around the world, Slovakia ranked 67th. …If we…look at the long-term evolution of the Slovak economy’s competitiveness not only in this, but in other rankings, we realize…a tragic story of a dramatic decline in our competitiveness. Let us start by looking back at our previous scores: In 2000, we ranked 38th, while in 2010 we painfully fell to 60th – today we hold the aforementioned 67th place. …If we take a look at the evolution of Slovakia’s situation from the last 10 years, we come to the conclusion that there has been a significant drop in the ranking of our competitiveness. While 10 years ago we usually ranked in the top third or quarter of the ranked countries, today we usually rank in the bottom half… An explanation to this negative trend is twofold: Other countries have been improving while our business environment has been worsening, or stagnating at best.
There are three glaring examples of slippage in Slovakia.
The second is that the private social security system was weakened.
The third is an erosion of fiscal discipline.
To be sure, it’s not as if Slovakia went hard left. The top tax rate under the new “progressive” system is 25 percent. And as I noted last month, that means high-income workers in Slovakia are still treated rather well compared to their counterparts in other industrialized nations.
And the leftist government in Slovakia weakened – but did not completely reverse – personal retirement accounts.
Jan Oravec explains the good reform that was adopted last decade.
During 2003 two main legislative acts – the Social Insurance Act and the Old-Age Pension Savings Act – were prepared by the reform team. …Prior to reform Slovaks were obliged to pay to the PAYGO system contributions of 28.75 % of their gross wages, and the system promised in exchange to pay an average old-age benefit amounting to 50 % of gross wages. The reform allowed workers to redirect a significant part of their contributions, 9 % of gross wage, to their personal retirement accounts.
Under current law, however, the amount that workers are allowed to place in private accounts has been reduced. Moreover, the government is forcing the accounts to invest in government bonds, which means workers will earn sub-par returns. These are bad changes, but at least personal accounts still exist.
Even the bad news on government spending isn’t horrible news. As you can see from this OECD data, the spending burden (measured as a share of GDP) has climbed to a higher plateau in recent years, wiping out some of the gains that were achieved thanks to a period of strong restraint early last decade. That being said, Slovakia is still in better shape than many other industrialized nations.
So where does Slovakia go from here?
That’s not clear. The Prime Minister that imposed some of the bad policies recently was forced out of office by scandal, but his replacement isn’t any better and there’s not another election scheduled until 2020.
P.S. Like other nations in Central and Eastern Europe, Slovakia faces demographic decline. To avert long-term crisis, reform is a necessity, not a luxury.
A couple of weeks ago, I expressed disgust that the President of the European Commission was going to give a speech commemorating the 200th birthday of Karl Marx.
It’s disgusting when serious publications such as the New York Timespublish fan-boy columns about Marxism. But what should we think when Teen Vogue publishes an article celebrating Marx? Here’s some of pabulum offered to readers.
Karl Marx…developed the theory of communism, which advocates for workers’ control over their labor (instead of their bosses). …his ideas can still teach us about the past and present. …The famed German co-authored The Communist Manifesto with fellow scholar Friedrich Engels in 1848, a piece of writing that makes the case for the political theory of socialism— where the community (rather than rich people) have ownership and control over their labor — which later inspired millions of people to resist oppressive political leaders… His writings have inspired social movements in Soviet Russia, China, Cuba.
As a human being, I’m utterly nauseated by the description of communism as a means of resisting oppressive political leaders. Is the author really that clueless?!? For heaven’s sake, communism and oppressive politics may as well by synonyms.
The article then offers up some oleaginous descriptions of how students are being fed Marxist propaganda.
So how can teens learn the legacy of Marx’s ideas and how they’re relevant to the current political climate? …Public high school teacher Mark Brunt teaches excerpts from The Communist Manifesto alongside curriculum about the industrial revolution in his English class. …Brunt talks about how these factory workers did all of the leg work — including slaughtering animals and packaging meat on top of working long days with little, if any, time off — to keep the factories intact, yet had very little control over their work, including their working conditions, compared to the profiteering factory owners. …He then introduces Marx’s distinction between the proletariat — the working class as a whole — and bourgeoisie — the ruling class who controls the workers and profits from their labor.
Needless to say, Mr. Brunt is wrong about the history of sweatshops.
But he’s downright delusional when trying to explain why workers reject Marxism.
In his advanced class, Brunt also introduces the idea of false consciousness, which is defined as the many ways the working class is mislead to believe certain ideologies. …“You’re tricked into thinking your allies are different and your enemies are different than they actually are.”
Gee, Mr. Brunt, maybe workers reject Marxism because they like freedom and better living standards.
College students also get subjected to propaganda.
Former Drexel University professor George Ciccariello-Maher uses Marx to teach history… “When I teach Marx, …There’s this myth of the free market, but Marx shows very clearly that capitalism emerged through a state of violence.” …Some examples of violence that aided in the establishment of capitalism in the United States include stealing the land of Indigenous people and trafficking Africans through slavery.
Wow, only an academic could blame capitalism (a system of mutually beneficial voluntary exchange) for the actions of governments (land expropriations and state-sanctioned slavery).
But I’m not overly agitated by the incoherent thoughts of bitter “educators.”
What does upset me is that some impressionable young ladies looking for make-up tips and relationship advice may accidentally read this terrible article and actually conclude that Marx, instead of being a totalitarian, was some well-meaning, run-of-the-mill leftist.
Which is why this tweet from a journalist at the Weekly Standard is a nice summary of what’s wrong with the article.
But it’s even worse than the tweet suggests. The author didn’t under-estimate the body count resulting from communist tyranny. She wrote an entire article about Marx and never mentioned any of the death, misery, and destruction resulting from Marx’s evil ideology.
So let’s set the record straight.
Writing for the Wall Street Journal, Professor Paul Kengor opined about the real Marx.
May 5 marks the bicentennial of Karl Marx, who set the stage with his philosophy for the greatest ideological massacres in history. Or did he? …deniers still remain. “Only a fool could hold Marx responsible for the Gulag,” writes Francis Wheen in “Karl Marx: A Life” (1999). Stalin, Mao and Kim Il Sung, Mr. Wheen insists, created “bastard creeds,” “wrenched out of context” from Marx’s writings.
But, as Kengor explains, Marx’s writing were a green light for totalitarianism.
In “The Communist Manifesto,” he and Friedrich Engels were quite clear that “the theory of the Communists may be summed up in the single sentence: abolition of private property.” …Marx and Engels acknowledged their coercive nature: “Of course, in the beginning, this cannot be effected except by means of despotic inroads.” In the close of the Manifesto, Marx said, “The Communists . . . openly declare that their ends can be attained only by the forcible overthrow of all existing social conditions.” They were right about that. Human beings would not give up fundamental liberties without resistance. Seizing property would require a terrible fight, including the use of guns and gulags. Lenin, Trotsky, Stalin and a long line of revolutionaries and dictators candidly admitted that force and violence would be necessary. We’re told the philosophy was never the problem—that Stalin was an aberration, as were, presumably, Lenin, Trotsky, Ceausescu, Mao, Pol Pot, Ho Chi Minh, the Kims and the Castros… Couldn’t any of them read? Yes, they could read. They read Marx. The rest is history—ugly, deadly history.
Unless you’re reading vapid articles in Teen Vogue. In which case you’ll be less knowledgeable about history when you’re done.
P.S. While it’s tempting to laugh at the article in Teen Vogue, you can enjoy deliberate humor about communism by clicking here, here, here, here, and here.
It starts by noting that the aggregate tax burden is higher in Illinois than it is in adjoining states.
Just what are Illinois’ neighbors doing on taxes? They’re taxing less, for starters. In Illinois, state and local taxes account for 9.3 percent of state income. The state and local taxes in Illinois’ six neighboring states account, in aggregate, for 8.0 percent of the income of those states.
Here’s the table showing the gap between Illinois and its neighbors. And it’s probably worth noting that the tax gap is the largest with the two states – Indiana and Missouri – that have the longest borders with Illinois.
While the aggregate tax burden is an important measure, I’ve explained before that it’s also important to focus on marginal tax rates. After all, that’s the variable that determines incentives for productive behavior since it measures how much the government confiscates when investors and entrepreneurs generate additional wealth.
And this brings us to the most important point in the article. Illinois politicians want to move in the wrong direction on marginal tax rates while neighboring jurisdictions are moving in the right direction.
Except for Iowa, all of Illinois’ neighbors have cut their income taxes since Illinois adopted its “temporary” income tax increases in 2011—and Iowa is on the verge of adopting a tax reform package that cuts individual income tax rates… Over the same period, Illinois’ single-rate income tax was temporarily raised from 3 to 5 percent, then allowed to partially sunset to 3.75 percent before being raised to the current 4.95 percent rate. A 1.5 percent surtax on pass-through business income brings the rate on many small businesses to 6.45 percent. Now there are calls to amend the state constitution to allow graduated-rate income taxes, with proposals circulating to create a top marginal rate as high as 9.85 percent (11.35 percent on pass-through businesses).
Here’s the chart showing the top rate in various states in 2011, the top rates today, and where top tax rates could be in the near future.
For all intents and purposes, they’re trying to drive job creators out of the state (a shift that already has been happening, but now will accelerate).
Normally, when I write that a jurisdiction is committing fiscal suicide, I try to explain that it’s a slow-motion process. Illinois, however, could be taking the express lane. No wonder readers overwhelmingly picked the Land of Lincoln when asked which state will be the first to suffer a fiscal collapse.
P.S. Illinois politicians claim they want to bust the flat tax so they can impose higher taxes on the (supposedly) evil rich. High-income taxpayers doubtlessly will be the first on the chopping block, but I can say with 99.99 percent certainty that class-warfare tax increases will be a precursor to higher taxes on everybody.
And why does it seem like the size and scope of government keeps expanding around the world?
If I’m feeling optimistic, I’ll disagree with the tone of those questions. There are reasons to be cheerful, after all. the Soviet Empire collapsed and there’s solid data that global economic liberty has increased over the past few decades. And for those who care about evidence, there’s a slam-dunk argument that smaller government means more prosperity.
But if I’m feeling pessimistic, I’ll look at grim numbers suggesting that the burden of government automatically will expand because of demographic change. And I also worry about eroding societal capital, with more and more people thinking it’s okay to live off the government. And let’s not forget “public choice,” the theory that explains why politicians have an incentive to make government bigger.
I go back and forth on whether the glass is half full or half empty, and I’m not sure which side is winning. All I can say for sure is that Americans are getting increasingly polarized as we have big fights about the proper role of government.
Which is why I’ve always thought decentralization would be a good idea. No just for policy reasons, but also for domestic tranquility. All the leftists could move to places such as California, Illinois, and New Jersey and vote themselves Greek-style government. And all the advocates of limited government could move to more laissez-faire states such as New Hampshire, Texas, and South Dakota.
But statists will never agree to that approach. And these two sentences from Reddit‘s Libertarian page succinctly explain the left’s opposition.
This guy nails it.
Libertarians have no objection to a bunch of statists creating some sort of socialist or communist mini-society, so long as it’s voluntary. Indeed, we’ve periodically had experimental societies in America based on Marxist principles. Starting with the Pilgrims (who learned from their mistake). And I still laugh every time I think about Bernie Sanders getting ejected from a hippie commune because he was too lazy to do his share of the common work.
But this tolerance isn’t a two-way street. Libertarians will let socialists create statist systems inside a free society, but the left won’t allow libertarian outposts in statist societies.
Heck, our statist friends don’t even like it when other nations have pro-market policy. That’s one of the reasons international bureaucracies always persecute so-called tax havens. Folks on the left may be misguided, but they’re usually not stupid. They know that statist systems will quickly fail if productive people have the ability to move themselves (or at least their money) across national borders.
The bottom line is that federalism is good because it means people can easily move when a government imposes bad policy. This is also a recipe for tolerance and tranquility, though only one side sees it that way.
Ordinary Americans have a low opinion of Washington, but they’re underestimating the extent of the problem.
The nation’s capital is basically a playpen for special interests. It’s now the richest region of the country, with lobbyists, bureaucrats, contractors, politicians, and other insiders and cronies getting fat and happy thanks to money that is taken from people in the productive sector of the economy.
Let’s take an up-close look at how this sordid game is played.
Here are some excerpts from a column by Catherine Rampell in today’s Washington Post.
The GOP is no longer the Party of Reagan. It’s the Party of Michael Cohen. …the Cohen blueprint for achieving the American Dream: Work minimally, if you can, and leverage government connections whenever possible. …following Donald Trump’s unexpected presidential victory, Cohen cashed in. …Cohen told companies that he could provide valuable “insights” into the new administration. Huge multinational corporations lined up to purchase these “insights,” dumping millions into Essential Consultants LLC… Cohen is hardly the only prominent Trumpster invoking White House connections… Cabinet members and other senior government officials, too, have enjoyed a sweetheart apartment deal, lobbyist-arranged vacations and private jet rides. These are not amenities secured through brains, honesty and hard work, the virtues that Republicans traditionally say are required for upward mobility and financial comfort. They are the fruits of luck, cronyism and a loose approach to ethical lines.
This is disgusting. Republicans often come to Washington claiming they’re going to “drain the swamp.” Many of them, however, quickly decide it’s a hot tub.
But don’t forget that sleaze is a bipartisan activity in Washington.
Here are excerpts from a Wall Street Journalreport about influence-peddling on the other side of the aisle.
Tony Podesta was in line to be king of K Street. His lobbying firm ended 2015 as the third largest in Washington, D.C., with nearly $30 million in revenue from more than 100 clients, spanning Alphabet Inc.’s Google to Wells Fargo & Co. With his longtime friend Hillary Clinton expected to win the White House, 2016 promised to be even better. Mr. Podesta…hosted lawmakers and power brokers at his flat in Venice during the Art Biennale. It was one of many homes around the globe, including the Washington mansion where he displayed a collection of museum-grade artwork. In early 2016, he was ready to buy a $7.4 million condo overlooking Madison Square Park in New York City. …At age 59, he married Heather Miller, a congressional staffer 26 years younger. …Mrs. Podesta started her own lobbying firm, Heather Podesta + Partners, and they emerged a Washington power couple. …Mr. Podesta drew an annual salary of more than $2 million and made millions more in commissions and bonuses. …The Podesta Group grew from the 20th largest lobbying firm to third in three years, in terms of domestic and foreign lobbying revenues, propelled by business during President Barack Obama’s first term.
But this story of graft and corruption has a happy ending.
Then he fell, a calamitous collapse… The Podesta Group lost its banker over news the firm did work for the U.S. subsidiary of a Russian bank under sanctions. …Mrs. Clinton’s…victory would go a long way to fixing many of his problems. She lost…and Mr. Podesta, like many who had banked on her victory, did too. Clients who had hired him for access to a new Clinton administration fell away. By the end of the year, the departures cost the firm more than $10 million in annual business… the Podesta Group did public relations work in 2015 for Raffaello Follieri, an Italian businessman who had pleaded guilty to swindling millions of dollars from an investment fund run partly by Mr. Clinton, one of Mr. Podesta’s early patrons. …Before closing the firm’s doors, Mr. Podesta gave himself an advance on his lobbying commissions.
The common theme, as explained by Karen Tumulty for the Washington Post, is that D.C. is an utterly corrupt place.
…the game in Washington never really changes. The only things that shift from election to election are the most sought-after players. …When Trump won, the traditional rosters of lobbyists — ex-congressmen, lawyers from white-shoe firms, former congressional staffers — were of little use in figuring out and gaining access to a band of outsiders who came to town vowing to demolish the old order. Cohen was not the only Trump insider to see a chance to cash in… The president’s former campaign manager, Corey Lewandowski, along with former Trump aide Barry Bennett, also opened a consulting firm, which quickly had more business than it could handle. “It was like shooting fish in the barrel,” Bennett told The Post. …Nor is Team Trump unique in seizing these opportunities. President Barack Obama had not been in office a month before his 2008 campaign manager, David Plouffe, was paid $50,000 to give a speech in Azerbaijan to a group with close ties to that repressive government. …Washington continues to have a most durable ecosystem: The swamp is never drained; it just gets taken over by different reptiles.
If a company hires a lobbyist or give cash to a politician because it wants handouts or government intervention that will produce unearned profit, that’s wrong. Sort of like being a co-conspirator to a crime.
However, if a company hires a lobbyist and donates money because it is fighting tax hikes or new regulatory burdens, that’s noble and just. Sort of like engaging in an act of self-defense.
But wouldn’t it be wonderful if there wasn’t a need for either the bad type of lobbying or the good type of lobbying?
Richard Ebeling, a professor at the Citadel, offers a very good solution in a column for the Foundation for Economic Education. He starts by explaining that government and corruption have always been connected.
The corruption of government officials seems to be as old as recorded history. …the ancient Roman senate passed laws against such political corruption in the first century, B.C. …Emperor Constantine issued one of the strongest decrees against corruption during this time in A.D. 331. …Today, high levels of political corruption remain one of the major problems people confront around the world. …Political corruption, clearly, is found everywhere around the world… Why?
Richard answers his own question, pointing out that big government is a major enabler of corruption.
Part of the answer certainly…can be found in the relationship between the level of corruption in society and the degree of government intervention in the marketplace. In a generally free market society, …government officials have few regulatory or redistributive responsibilities, and therefore they have few special favors, privileges, benefits, or dispensations to “sell”… The smaller the range of government activities, therefore, the less politicians or bureaucrats have to sell to voters and special interest groups. And the smaller the incentive or need for citizens to have to bribe government officials to allow them to peacefully go about their private business and personal affairs. …On the other hand, the…interventionist state…taxes the public and has huge sums of money to disburse to various programs and projects. It imposes licensing and regulatory restrictions on free and open competition. It transfers great amounts of income and wealth to different groups through sundry “redistributive” schemes. …Those in the government who wield these powers hold the fate of virtually everyone in their decision-making hands. It is inevitable that those drawn to employment in the political arena often will see the potential for personal gain… The business of the interventionist state, therefore, is the buying and selling of favors and privileges. It must lead to corruption because by necessity it uses political power to harm some for the benefit of others, and those expecting to be either harmed or benefited will inevitably try to influence what those holding power do with it.
So what’s the bottom line?
Ending global political corruption in its various “petty” and “grand” forms, therefore, will only come with the removal of government from social and economic life. When government is limited to protecting our lives and property, there will be little left to buy and sell politically.
Amen. That’s the message I also shared in this video from the Center for Freedom and Prosperity.
Sadly, Donald Trump’s promises to “drain the swamp” don’t seem to have been very sincere. Earlier this year, he meekly acquiesced to a budget deal that produced a feeding frenzy among the swamp creatures.
How is that any different from what would have happened if Hillary Clinton was in the White House? Big government doesn’t magically become less harmful and corrupt just because Republicans are in charge.
A couple of months ago, I thought I did something meaningful by sharing six separate examples of the International Monetary Fund pressuring sub-Saharan African nations to impose higher tax burdens. This was evidence, I suggested, that the IMF had a disturbing agenda of bigger government for the entire region.
Nonetheless, I thought it was scandalous that the IMF was systematically agitating for taxes in a region that desperately needs more investment and entrepreneurship. And my six examples were proof of a continent-wide agenda!
But it turns out that I wasn’t exposing some sort of sinister secret. The IMF just published a new report where the bureaucrats openly argue that there should be big tax hikes in all sub-Saharan nations.
Domestic revenue mobilization is one of the most pressing policy challenges facing sub-Saharan African countries. …the region as a whole could mobilize about 3 to 5 percent of GDP, on average, in additional revenues. …domestic revenue mobilization should be a key component of any fiscal consolidation strategy. Absent adequate efforts to raise domestic revenues, fiscal consolidation tends to rely excessively on reductions in public spending.
Notice, by the way, the term “domestic revenue mobilization.” Such a charming euphemism for higher taxes.
And it’s also worth pointing out that the IMF openly urges more revenue so that governments don’t have to impose spending restraint.
Moreover, the IMF is happy that there have been “substantial gains in revenue mobilization” over the past two decades.
Over the past three decades, many sub-Saharan African countries have achieved substantial gains in revenue mobilization. For the median sub-Saharan African economy, total revenue excluding grants increased from around 14 percent of GDP in the mid-1990s, to more than 18 percent in 2016, while tax revenue increased from 11 to 15 percent. …Two-thirds of sub-Saharan African countries now have revenue ratios above 15 percent, compared with fewer than half in 1995. …the region still has the lowest revenue-to-GDP ratio compared to other regions in the world. The good news is that there are signs of convergence. Over the past three decades, the increase in sub-Saharan Africa’s revenue ratio has been double that for all emerging market and developing economies.
To the bureaucrats at the IMF, the “convergence” toward higher taxes is “good news.”
However, there is some data in the report that is genuine good news.
In most regions of the world, there has been a trend in recent years toward reducing rates for the CIT and the personal income tax (PIT). In sub-Saharan African countries, the average top PIT rate has been reduced from about 44 to 32 percent since 2000, while average top CIT rates have been reduced by more than 5 percentage points during the same period.
Here are two charts showing the decline in tax rates, not only in Africa, but in most other regions.
By the way, the IMF bureaucrats appear to be surprised that revenues went up as tax rates went down. I guess they’ve never heard of the Laffer Curve.
Despite this decline in rates, total direct taxes (PIT and CIT) as a percentage of GDP have been trending upward.
Rather than proposing lower tax rates, the report urges a plethora of tax hikes.
Successful experiences in revenue mobilization have relied on efforts to implement broad-based VATs, gradually expand the base for direct taxes (CIT and PIT), and implement a system to tax small businesses and levy excises on a few key items.
Wow. I don’t know what’s worse, claiming that tax increases are good for growth, or pushing higher taxes in the world’s poorest region.
Let’s close by debunking the IMF’s absurd contention that bigger government would be good for Africa.
I suppose the simplest response would be to share my video series about the economics of government spending, especially since I cite a wealth of academic research.
But let’s take an even simpler approach. The IMF report complained that governments in sub-Saharan Africa don’t have enough money to spend.
The bad news is that the IMF wants us to believe that a low fiscal burden is a bad thing. The bureaucrats at the IMF (and at other international bureaucracies) actually want people to believe that bigger government means more prosperity. Which is why the report urges big tax hikes.
But you won’t be surprised to learn that the IMF doesn’t provide any evidence for this bizarre assertion.
Though I’ve had folks on the left sometimes tell me that bigger government must be good for growth because rich nations in the western world have bigger governments while poor nations in Africa have comparatively small governments.
If you want to get in the weeds of public finance theory, the IMF bureaucrats are misinterpreting Wagner’s Law.
But there’s no need to delve into theory. When people make this assertion to me, I challenge them to identify a poor nation that ever became a rich nation with big government.
So let’s take the previous chart, which supposedly showed too little spending in sub-Saharan Africa, and add another column (in red) showing the level of government spending in North America and Western Europe in the 1800s.
The obvious takeaway is that African nations should cut taxes and reducing spending. The exact opposite of what the IMF recommends.
In other words, the IMF’s agenda of bigger government and higher taxes is a recipe for continued poverty.
But keep in mind that fiscal policy is just one piece of the puzzle. As explained in Economic Freedom of the World, a nation’s prosperity also is affected by regulatory policy, trade policy, monetary policy, and quality of governance.
And nations in sub-Saharan Africa generally score even lower in those areas than they do for fiscal policy. So while those countries should reduce their fiscal burdens, it’s probably even more important for them to address other policy mistakes.
To end on an upbeat note, here’s a video from Reason about how free markets can help bring prosperity to Africa.
I also recommend this video from the Center for Freedom and Prosperity since it does a great job of debunking the argument that higher taxes and bigger government are a recipe for prosperity.
And this video about Botswana is a good case study of how African nations can enjoy more prosperity with market-oriented policy.
The problem in the U.K. is the same as the problem in the United States. And France. And Germany. And Japan. Simply stated, the welfare state is becoming an ever-larger burden in large part because the elderly population is expanding in developed nations compared to the number of potential taxpayers.
The good news, as noted in this BBC story, is that some folks in the United Kingdom realize this is bad news for young people.
Lord Willetts…said the contract between young and old had “broken down”. Without action, young people would become “increasingly angry”.
The bad news is that these folks apparently think you solve the problem of young-to-old redistribution by adding a layer of old-to-young redistribution.
I’m not joking.
A £10,000 payment should be given to the young and pensioners taxed more, a new report into inter-generational fairness in the UK suggests. The research and policy organisation, the Resolution Foundation, says these radical moves are needed to better fund the NHS and maintain social cohesion. …The foundation’s Intergenerational Commission report calls for an NHS “levy” of £2.3bn paid for by increased national insurance contributions by those over the age of 65. It says that all young people should receive a £10,000 windfall at the age of 25 to help pay for a deposit on a home, start a business or improve their education or skills.
To be fair, proponents of this idea are correct about young people getting a bad deal from the current system. And they are right about older people getting more from government than they pay to government.
“There’s no avoiding the pressures for more spending on healthcare and social care, the question is how we meet those pressures,” he replied. “Extra borrowing is unfair on the younger generation. “Extra taxes on the working population – when especially younger workers have not really seen any increase in their pay – will be very unfair. “It so happens that the older people who will benefit most from extra spending on health care have got some resources, so at low rates, it’s reasonable to expect them to contribute.
But I fundamentally disagree with their conclusion that bigger government is the answer.
“It is better than any of the alternatives.”
For what it’s worth, what’s happening in the U.K. is an example of Mitchell’s Law. Young people are getting a bad deal because of programs created by government.
But rather than proposing to unwind the programs that caused the problem, the folks at the Resolution Foundation have decided that creating additional programs financed by additional taxes is the way to go.
By the way, you won’t be surprised to learn that the group also has other bad ideas.
The report calls for the scrapping of the council tax system, replacing it with a new property tax which would raise more money from wealthier homeowners. The proceeds would be used to halve stamp duty for first-time buyers.
Let’s close by looking at some interesting data about the attitudes of the young.
…a poll undertaken for the Intergenerational Commission also suggested people were more pessimistic in Britain about the chances of the next generation having “better lives” than the one before it – compared with almost any other country.
Here’s the chart showing data for the U.K. and several other nations.
Congratulations to France for having the most pessimistic young people (maybe this is why so many of them would move to the U.S. if they had the chance).
And I think the South Koreans are too glum and the Chinese are too optimistic. The Italians also are too upbeat. But otherwise these numbers generally make sense.
Simply stated, the current tax code (as shown in the chart) has a very harsh bias against income that is saved and invested.
Anything that can be done to reduce the magnitude of this “double taxation” will lead to better economic performance.
Now that the lower corporate tax rate has been implemented, there’s a debate about whether it is having desirable affects.
In this CNBC debate, I explain that stock “buybacks” and employee bonuses are positive short-run results, but that I’m much more interested in the potential long-run benefits.
As with all brief interviews, it’s difficult to share a lot of information. My main goal was to point out that there’s nothing wrong with buybacks for shareholders or bonuses for workers, but that it’s much more important to focus on potential changes in long-run growth.
And we’ll get more long-run growth, I argue, because the lower corporate rate reduces the tax burden on capital (i.e., saving and investment). Jared dismisses this as “trickle-down economics,” but that’s simply his pejorative term for common-sense microeconomics.
But you don’t have to believe me. Many scholars have pointed out that harsh taxes on capital wind up hurting workers. Let’s look at some of the findings from an academic study by Gregory Mankiw, Matthew Weinzierl, and Danny Yagan.
Perhaps the most prominent result from dynamic models of optimal taxation is that the taxation of capital income ought to be avoided. …The intuition for a zero capital tax can be developed in a number of ways. …First, because capital equipment is an intermediate input to the production of future output, the Diamond and Mirrlees (1971) result suggests that it should not be taxed. Second, because a capital tax is effectively a tax on future consumption but not on current consumption, it violates the Atkinson and Stiglitz (1976) prescription for uniform taxation. In fact, a capital tax imposes an ever-increasing tax on consumption further in the future, so its violation of the principle of uniform commodity taxation is extreme. A third intuition for a zero capital tax comes from elaborations of the tax problem considered by Frank Ramsey (1928). In important papers, Chamley (1986) and Judd (1985) examine optimal capital taxation in this model. They find that…a zero tax on capital is optimal. …any tax on capital income will leave the after-tax return to capital unchanged but raise the pre-tax return to capital, reducing the size of the capital stock and aggregate output in the economy. This distortion is so large as to make any capital income taxation suboptimal compared with labor income taxation, even from the perspective of an individual with no savings.
And here’s some analysis by Garret Jones at George Mason University.
Chamley and Judd separately came to the same discovery: In the long run, capital taxes are far more distorting that most economists had thought, so distorting that the optimal tax rate on capital is zero. If you’ve got a fixed tax bill it’s better to have the workers pay it. …let me sum up a key implication of Chamley-Judd: Under standard, pretty flexible assumptions, it’s impossibleto tax capitalists, give the money to workers, and raise the total long-run income of workers. Not, hard, not inefficient, not socially wasteful, not immoral: Impossible. If you tax capital income and hand all of the tax revenue to workers, then in the long run (or the “steady state”) you’ll wind up with a smaller capital stock. And since workers use the capital stock to earn their wages, the capital tax pushes down their wages.
Even economists on the left agree about the link between productivity and wages. Here’s a recent article from the Wall Street Journal, citing Larry Summers about why wages are still linked to productivity and why growth should still be the goal.
Wages are supposed to track worker productivity… Many on the left argue the link is now broken and redistributing income from the wealthy downward would help workers more than faster economic growth. But a new study co-authored by Harvard University economist Lawrence Summers says that’s wrong. …The problem, they conclude, is that the positive influence of productivity on pay has been overwhelmed by other forces pushing the other way. …Over one- to five-year periods between 1973 and 2015, they found that a one-percentage-point increase in productivity growth generally led to a 0.5- to one-percentage-point increase in average or median pay growth, depending on the type of workers measured. …In an interview, Mr. Summers says the idea that “policy should shift from growth to inequality is badly misleading.”
Let’s close with some excerpts from an article in the Cayman Financial Review by Orphe Divounguy.
Historically, productivity growth has led to gains in compensation for workers and greater profits for firms. This has big implications for tax policy – especially the degree to which capital is taxed since capital – an essential ingredient to improvements in workers’ living standards – is highly responsive to changes in the tax climate. …The standard theory of optimal taxation argues that a tax system should maximize social welfare subject to a set of constraints. The goal should be to enact a tax system that maximizes households’ welfare… Pioneering work on optimal taxation is the work of Frank Ramsey (1927), who suggested…only commodities with inelastic demand are taxed. Another important contribution on this topic is the work of James Mirlees (1971), who posits that when a tax system aims to redistribute income from high ability to low ability individuals, the tax system should provide sufficient incentive for high-ability/high-income taxpayers to keep producing… the empirical evidence on the effects of taxation largely supports a move away from capital taxation. …higher taxes on capital income discourage investments in productive capital. This reduction in productive capital causes workers to become less productive, thus causing the real wage to decrease.
Amen. The bottom line is that you can’t punish capital without punishing labor.
When I wrote about “crazy Bernie Sanders” in 2016, I wasn’t just engaging in literary hyperbole. The Vermont Senator is basically an unreconstructed leftist with a disturbing affinity for crackpot ideas and totalitarian regimes.
Though it’s worth noting that he’s at least crafty enough to steer clear of pure socialism. He wants massive increases in taxes, spending, and regulation, but even he doesn’t openly advocate government ownership of factories.
Then again, there probably wouldn’t be any factories to nationalize if Sanders was ever successful in saddling the nation with a Greek-sized public sector.
He’s already advocated a “Medicare-for-All” scheme with a 10-year price tag of $15 trillion, for instance. And now he has a new multi-trillion dollar proposal for guaranteed jobs.
In a column for the Washington Post, Robert Samuelson dissects Bernie’s latest vote-buying scheme. Here’s a description of what Senator Sanders apparently wants.
Sen. Bernie Sanders (I-Vt.) wants the federal government to guarantee a job for every American willing and able to work. The proposal sounds compassionate and enlightened, but in practice, it would almost certainly be a disaster. …Just precisely how Sanders’s scheme would work is unclear, because he hasn’t yet submitted detailed legislation. However, …a job-guarantee plan devised by economists at Bard College’s Levy Economics Institute…suggests how a job guarantee might function. …anyone needing a job could get one at a uniform wage of $15 an hour, plus health insurance (probably Medicare) and other benefits (importantly: child care). When fully deployed, the program would create 15 million public-service jobs, estimate the economists. …the federal government would pay the costs, the program would be administered by states, localities and nonprofit organizations.
As you might expect, the fiscal costs would be staggering (and, like most government programs, would wind up being even more expensive than advertised).
This would be huge: about five times the number of existing federal jobs (2.8 million) and triple the number of state government jobs (5 million). …The proposal would add to already swollen federal budget deficits. The Bard economists put the annual cost at about $400 billion. …overall spending is likely underestimated.
But the budgetary costs would just be the beginning.
Bernie’s scheme would basically destroy a big chunk of the job market since people in low-wage and entry-level jobs would seek to take advantage of the new government giveaway.
…uncovered workers might stage a political rebellion or switch from today’s low-paying private-sector jobs to the better-paid public-service jobs… The same logic applies to child-care subsidies.
And there are many other unanswered questions about how the plan would work.
Does the federal government have the managerial competence to oversee the creation of so many jobs? …Can the new workers be disciplined? …Finally, would state and local governments substitute federally funded jobs for existing jobs that are supported by local taxes?
If the plan ever got adopted, the only silver lining to the dark cloud is that it would provide additional evidence that government programs don’t work.
The irony is that, by assigning government tasks likely to fail, the advocates of activist government bring government into disrepute.
But that silver lining won’t matter much since a bigger chunk of the population will be hooked on the heroin of government dependency.
In 2015, Jamelle Bouie poured cold water on Obama’s gun control agenda.
Last year, Leah Libresco confessed that gun control simply doesn’t work.
Now it’s time to look at another person who has changed his mind.
Here are some excerpts from a column in the Des Moines Register written by a long-time supporter of gun control.
I was 14 years old when John Lennon was killed — it affected me deeply and it was the biggest event that led to my anti-gun feelings. As I got older, my heroes were JFK, RFK and MLK, which furthered my anti-gun sentiments. …I thought the Second Amendment was not relevant to our modern-day society and it should be repealed. …In 2012 I tweeted: “@BarackObama please repeal the 2nd amendment and stop the @nra.” …I was a lifelong Democrat. In the 2016 presidential debates I watched…Hillary Clinton… I voted for her. …I was a little turned off by…the NRA.
But he began to change his mind as the election was happening.
I decided to leave San Francisco and to build a house in Washington. …as my house was being built I started wondering what I would do in the event of a home invasion. I knew right away becoming a gun owner was going to be the best way to defend myself.
Sounds like he’s part of the 22 percent in my poll who support the 2nd Amendment because of concerns about crime.
But he also enjoyed the process of becoming proficient.
I gave it a lot of thought and decided I was going to purchase a gun and learn to shoot… I started going to the range and discovered that I really enjoyed target shooting.
His philosophical shift apparently wasn’t because he was convinced by the NRA, but rather because he grew increasingly concerned about the left’s radical opposition to private firearms (something I’ve noticed as well).
I gradually came around to see how extremely anti-gun, anti-Second Amendment the left was. For a large portion of them, their ultimate goal is a full gun ban and to repeal the Second Amendment — I know I was one of them.
And even though he no longer considers himself on the left, he doesn’t want his friends on that side of the debate to misinterpret his views.
To my easily confused friends on the left — no, I am not calling for violence; no, I am not a terrorist, no, I am not racist. Peace.
Since the author’s overall perspective has changed, I guess he doesn’t belong on my “honest leftists” page, but his shift on gun rights is nonetheless worth noting.
Hopefully he’s now sufficiently “woke” on guns that he would be part of the resistance if his former fellow travelers on the left ever tried a gun ban.
To close on a humorous note. Here’s the visual version of my IQ test on guns.
Instead, we live in a surreal parallel universe where teacher unions are pushing a narrative that taxpayers should cough up more money because teachers supposedly are underpaid.
Let’s look at the data.
An article in City Journal debunks the claim that teachers are underpaid.
…protests across the country have reinforced the perception that public school teachers are dramatically underpaid. They’re not: the average teacher already enjoys market-level wages plus retirement benefits vastly exceeding those of private-sector workers. Across-the-board salary increases, such as those enacted in Arizona, West Virginia, and Kentucky, are the wrong solution to a non-problem. …At the lowest skill levels—a GS-6 on the federal scale—teachers earn salaries about 26 percent higher than similar white-collar workers. …The average public school teaching position rated an 8.8 on the federal GS scale. After adjustment to reflect the time that teachers work outside the formal school day, the BLS data show that public school teachers on average receive salaries about 8 percent above similar private-sector jobs. …Data from the Survey of Income and Program Participation show that teachers who change to non-teaching jobs take an average salary cut of about 3 percent. Studies using administrative records in Florida, Missouri, Georgia, and Montana showed similar results. …public-employee retirement and health benefits are bleeding dry state and local budgets. Neither the public nor teachers fully appreciates the costs of these programs. We forget the value of benefits when considering how teacher pay compares with private-sector work.
But I think the key factoid from the above article is that teachers take a pay cut, on average, when they leave the profession. Along with the “JOLTS” data, that’s real-world evidence that teachers are getting paid more than counterparts in the economy’s productive sector.
Allysia Finley of the Wall Street Journalalso punctures the false claims of the union bosses.
Teachers unions… They’re using misleading statistics… They conflate school funding and state education spending. In Oklahoma, unions proclaimed that per pupil school spending fell by 28.2% over the past decade. That refers to the inflation-adjusted state’s general funding formula. But total per pupil outlays increased by 16% in nominal terms between 2006 and 2016… They use elevated spending baselines. Teachers unions nearly always compare school spending and teacher salaries today with peak levels before the great recession, which were inflated like housing prices. Between 2000 and 2009, average per pupil spending across the country increased 52%…per pupil spending ticked up by 7.5% between 2012 and 2015. School spending growth…increased faster than the consumer price index. …They don’t account for other forms of compensation. Since 2000, per pupil spending on employee benefits has doubled. …pensions and health benefits are the fastest-growing expenses for many school districts, and most of the money goes to retired teachers. …the unions are lying with statistics.
In a column for the Denver Post, a parent showed that his state’s teachers are getting above-average compensation.
Teachers are…mostly paid via a union “salary schedule,” meaning they get pay raises based on only two factors: the number of college degrees and certificates they earn, and how many years they’ve been on the job. That makes a pretty lousy incentive structure… We keep hearing Colorado is 49th in the country for educational spending. That lie is repeated so often it becomes legend. Funding for Colorado schools are split between the local school district and the state. So, if you compare only the state funding part to states that have no local match, yep, ours looks low. But when you look at total funding, which can be counted in different ways, the picture doesn’t look so dire. …According to the Colorado Department of Education, the average salary for teachers here is $52,728. But that’s only one piece of the compensation. The school year is about 180 days, or 36 weeks. So, the pay is $1,465 for every week a teacher is teaching. Vacation time? Well, 52 weeks in a year, minus 36 weeks in the classroom, that’s 16 weeks off, roughly 4 months! Compare that to someone who only gets 2 weeks off but still gets paid $1,465 a week when working, that’s the equivalent of $73,233. And let’s count the present-cost value of their retirement benefits. …Not bad for a system where you can retire at 58.
Let’s close with some excerpts from Jason Riley’s column in the Wall Street Journal.
The nation’s K-12 schools are…turning into hotbeds of political activism. …teachers are demanding higher pay, better benefits and more education funding overall. …The American Federation of Teachers and the National Education Association have thousands of state and local affiliates. They are among the richest and best-organized pressure groups in the country. And they are on a roll. That’s good news for their members but not necessarily for children, parents and taxpayers. …Teachers unions support work rules that prevent the most capable teachers from being sent to low-performing schools, that shield teachers from meaningful evaluations, and that require instructors to be laid off based on seniority instead of performance. …those rules do nothing to address the needs of students. …politicians love to highlight education outlays. It helps them win votes and ward off union agitators. But the connection between school spending and educational outcomes is tenuous. …total spending per pupil at the state level rose, on average, by an inflation-adjusted 18%. During this period, it fell in Arizona… Yet on 2015 federal standardized exams, Arizona made more progress than any other state. New York, by contrast, boasts the highest spending per pupil and teacher pay in the country, but you wouldn’t know it from the test results.
For what it’s worth, the final few sentences in the above excerpt should be main issue being discussed in state capitals. Lawmakers should be asking why more and more money never produces better outcomes.
But that’s really not the problem. It’s the symptom of the problem.
Our primary challenge in education is that we rely on government monopolies that are captured by special interests. We need school choice so that competitive forces can be unleashed to generate better results. There’s strong evidence that choice produces good outcomes in the limited instances where it is allowed in the United States.
And in that kind of system, we may actually wind up with better teachers that are paid just as much. Or maybe even more.
P.S. There’s also strong evidence for school choice from nations such as Sweden, Chile, and the Netherlands.
I wrote last July about how greedy politicians in Seattle, Washington, were trying to impose a local income tax.
That effort has been stymied since there’s anti-income-tax language in the state constitution (Washington is one of nine states without that punitive levy), but that doesn’t mean the city’s tax-and-spend crowd has given up.
There’s a proposal for a new scheme to impose a “head tax” on successful companies.
The top three percent of the high grossing businesses in Seattle will carry the load of Seattle’s proposed employee head tax. Backers are calling it the “Progressive Tax on Business.” The tax will apply only to those companies with $20 million or more annually in taxable gross receipts as measured under the City’s Business and Occupation tax. The city estimates that will be 500 businesses. …the tax is based on total revenues and not net-income. …Councilmember Mike Obrien has been pushing to a head tax for two years and doesn’t believe businesses will leave Seattle because of it.
I suppose this might be a good opportunity to point out that this tax is bad for growth and that it will encourage out-migration from the city.
Or perhaps I could make a wonky point about how this tax is related to the income tax in the same way a gross receipts tax is related to a sales tax.
But I’m motivated instead to focus on the very heartening response to this tax grab by both business and labor.
Here’s how the city’s leading employer is responding.
Amazon is…making its opposition known to a proposed Seattle tax by bringing a halt to all planning on a massive project scheduled for construction in Downtown Seattle, and may tweak its plans to occupy a new downtown skyscraper. “I can confirm that pending the outcome of the head tax vote by City Council, Amazon has paused all construction planning on our Block 18 project in downtown Seattle and is evaluating options to sub-lease all space in our recently leased Rainier Square building,” says Amazon Vice President Drew Herdener. …Jon Scholes, president of the Downtown Seattle Association, said the City Council should take heed of Amazon’s decision.
But some of the class-warfare politicians are oblivious to real-world concerns.
Two supporters of the tax, City Council members Kshama Sawant and Mike O’Brien, seemed unmoved by Amazon’s decision. “I understand Amazon doesn’t like it. I’m sure they would love to go to a city that has no taxes. And maybe they will find that place,” O’Brien said. …Added Sawant, “Amazon is perfectly capable of paying that, double, even four times that.” She also called Amazon’s tactic “extortion.”
I don’t know if Sawant is an idiot or a demagogue. What’s she’s basically arguing is that if a victim runs away from a mugger, the victim is an extortionist.
Wow, that’s a novel (and French) way of looking at the world.
That being said, there’s probably nothing surprising about the business community resisting a tax on business. So here’s the part of the story that really warms my heart.
Construction workers shouted down Seattle City Councilmember Kshama Sawant on Thursday as she attempted to speak in favor of Seattle ‘s proposed new “head tax” at an open-air news conference. The construction workers shouted “No head tax!” each time Sawant tried to speak in favor of the measure… The conference, held outside Amazon’s Spheres, was intended to show support for the head tax and opposition to Amazon’s announcement of a construction pause on a massive downtown construction project. But the group of about 20 construction workers showed up and drowned out Sawant’s message. …construction workers…praised Amazon for providing well-paying jobs to thousands of Seattle-area residents.
Unsurprisingly, Ms. Sawant doesn’t care about workers. She simply wants the money so she can buy votes.
Amazon would pay more than $20 million of that total under the proposal. …Sawant maintains that Amazon could easily afford to pay that amount.
Let’s close with some good news. Seattle isn’t normally considered a hotbed of free market thinking (though a disproportionate share of my readers are in the state of Washington).
So I’m guessing Ms. Sawant and her greedy colleagues probably are not very happy about this (admittedly unscientific) polling data.
This is very encouraging. Hopefully it’s a sign of the good things that can happen with private workers (unionized or not) and private employers join forces to protect themselves from politicians.
It will be interesting to see how the City Council responds. If they move forward with this tax grab, Seattle truly will be in the running to the Greece of America.
And if that trend continues, don’t be surprised if Amazon’s soon-to-be-announced second headquarters eventually morphs into its primary headquarters (hopefully without any cronyism).
P.S. It goes without saying (but I’ll say it anyhow) that the state of Washington should never, ever, allow a state income tax.
But I was surprised by the margin. Even though there’s a good case to be made for basket-case jurisdictions such as New Jersey, California, and Connecticut, Illinois not only got a plurality of votes, it received an absolute majority.
Based on what’s happening in the Land of Lincoln, it appears that state politicians want to receive a supermajority of votes. There’s pressure for ever-higher taxes to finance an ever-more-bloated bureaucracy.
The Wall Street Journaleditorialized about the consequences of the state’s self-destructive fiscal policy.
Democrats in Illinois ought to be especially chastened by new IRS data showing an acceleration of out-migration. The Prairie State lost a record $4.75 billion in adjusted gross income to other states in the 2015 tax year, according to recently IRS data released. That’s up from $3.4 billion in the prior year. …Florida with zero income tax was the top destination for Illinois expatriates… What’s the matter with Illinois? Too much for us to distill in one editorial, but suffice to say that exorbitant property and business taxes have retarded economic growth. …Taxes may increase as Democrats scrounge for cash to pay for pensions. …Illinois’s unfunded pension liabilities equalled 22.8% of residents’ personal income last year, compared to a median of 3.1% across all states and 1% in Florida. …Illinois’s economy has been stagnant, growing a meager 0.9% on an inflation-adjusted annual basis since 2012—the slowest in the Great Lakes and half as fast as the U.S. overall. This year nearly 100,000 individuals have left the Illinois labor force.
Here’s a chart showing a very depressing decline in the state’s labor force.
By the way, I wonder whether the chart would look even worse if government bureaucrats weren’t included.
The Chicago Tribune has a grim editorial about what’s happening.
From millennials to retirees, …Illinois is losing its promise as a land of opportunity. Government debt and dysfunction contribute to a weak housing market and a stagnant jobs climate. State and local governments face enormous pension and other obligations. Taxes have risen sharply; many Illinois politicians say they must rise more. People are fleeing. Last year’s net loss: 33,703.
In an editorial for the Chicago Tribune, Kristen McQueary correctly worries about the trend.
It’s one thing to harbor natural skepticism toward government. It’s quite another to take the dramatic step of moving your family, your home, your livelihood to another state to escape it. But it’s happening. The naysayers and deniers blame the weather. They eye-roll the U-Haul rebellion. They downplay the dysfunction. Good riddance to those stingy taxpayers, they trumpet. But that is a shallow, ignorant and elitist viewpoint that dismisses the thoughtful and wrenching decisions thousands of once-devoted Illinoisans have made. For four years in a row, Illinois has lost population in alarming numbers. In 2017, Illinois lost a net 33,703 residents, the largest numerical population decline of any state. That’s the size of St. Charles or Woodridge or Galesburg. Wiped off the map. In one year. …Policy choices have consequences. …People are fleeing Illinois. And still, Democratic leaders in Chicago and Cook County, and their supporters, generally deny that high taxes, underfunded pensions, government debt and political dysfunction are the reasons for the exodus — or that it’s acute.
Newspapers in other states have noticed, as evinced by this editorial from the Las Vegas Review-Journal.
When the progressive political class preaches equality and prosperity, but bleeds productive citizens dry by treating them as little more than human ATMs, there should be little surprise when those same citizens take themselves (and their green) to greener pastures. Perhaps no state in the nation is seeing a bigger such exodus than Illinois. …On the flip side, all of the states surrounding Illinois saw their populations increase… Illinois is experiencing a self-inflicted storm of fiscal distress. …While state income taxes in Illinois don’t reach they level impose in states such as New York and California, that’s not for a lack of trying. The state raised its rate by 32 percent over the summer, and Democrats want to even more progressive tax rates to pay for all the goodies they’ve promised to Big Labor in order to grease their re-elections. …Illinois is a financial basket case — which is what you get when you combine political patronage with powerful public-sector unions that control leftist politicians. The state should be a case study for other jurisdictions on how not to conduct public policy. After all, who will pay the bills when the taxpayers flee?
Steve Chapman, in a column for Reason, expects more bad news for Illinois because of pressure for higher taxes.
With the biggest public pension obligations, the slowest personal income growth, and the biggest population loss of any state, it has consistently recorded achievements that are envied by none but educational to all. The state is in the midst of a debilitating fiscal and economic crisis. …Illinois has endured two income tax increases in the past seven years. In 2011, the flat rate on individual income jumped from 3 percent to 5 percent. In 2015, under the original terms, it fell to 3.75 percent—a “cut” that left the rate 25 percent above what it was in 2010. Then last year, over Gov. Bruce Rauner’s veto, the legislature raised the rate to 4.95 percent. None of these changes has ended the state’s economic drought, and it’s reasonable to assume they actually made it drier. …well-paid people can’t generally leave the country to find lower tax rates. They can leave one state for another, and they do. …A 2016 poll by the Paul Simon Public Policy Institute at Southern Illinois University found that nearly half of residents would like to leave the state—and that “taxes are the single biggest reason people want to leave.”
The Wall Street Journalopined on the state’s slow-motion suicide.
The only…restraint…on public union governance in Illinois…the state’s flat income tax. …Democrats in Springfield have filed three constitutional amendments to establish a graduated income tax… Democrats are looking for more revenue to finance ballooning pension costs, which consume about a quarter of state spending. …Connecticut and New Jersey provide cautionary examples. Democrats in both states have soaked their rich time and again, and the predictable result is that both states have fewer rich to soak. Economic growth slowed and revenues faltered. This vicious cycle is already playing out in Illinois amid increasing property, income and business taxes. Over the last four years, Illinois GDP has risen a mere 0.9% per year, half the national average and the slowest in the Great Lakes region. Between 2012 and 2016, Illinois lost $18.35 billion in adjusted gross income to other states. …Democrats claim a progressive income tax will spare the middle-class, but sooner or later they’ll be the targets too because there won’t be enough rich to finance the inexorable demands of public unions. …Once voters approve a progressive tax, Democrats can ratchet up rates as their union lords dictate.
While a bloated and over-compensated bureaucracy (especially unfunded promises for lavish retiree benefits) is the top fiscal drain, the state also loves squandering money in other ways.
Here are some excerpts from a piece in the Belleville News-Democrat.
Illinois is the dependency capital of the Midwest. No other state in the region has more of its population dependent on food stamps… So what’s driving the state’s dependency crisis? State bureaucrats using loopholes and gimmicks to keep more people dependent on welfare. According to the Illinois Department of Human Services, nearly 175,000 able-bodied childless adults are on the program. These are adults in their prime working years — between the ages of 18 and 49 — with no dependent children and no disabilities keeping them from meaningful employment. …the state has relied upon loopholes and gimmicks to trap more and more able-bodied adults in dependency. Federal law allows states to seek temporary waivers of the work requirement in areas with unemployment rates above 10 percent or with a demonstrated lack of job opportunities in the region. …the Illinois Department of Human Services…used old data and it gerrymandered the request in whatever way was necessary to keep more able-bodied adults on welfare. …State bureaucrats have gamed the system and as a result, thousands of able-bodied adults will remain trapped in dependency, with little hope of better lives.
Let’s close with some excerpts from a very depressing column in the Chicago Tribune by Diana Sroka Rickert.
…this is a state government that has been broken for decades. It is designed to reject improvement in every form, at every level. …The Thompson Center…is a near-perfect representation of state government. It is gross, rundown, and nobody cares. …there is a disturbing sense of entitlement among some state employees. …Underperformers aren’t fired; they’re simply transferred to different positions, shuffled elsewhere on the payroll or tucked away at state agencies. …this is a state government that is ranked last by almost every objective and measurable standard. A state government that fails every single one of its residents, day after day — and has failed its residents for decades. A state government that demands more and more money each year, to deliver increasingly less value.
Indeed, there is a gun store less than a mile from the federal parliament in Bern that sells (gasp!) military-style assault rifles.
Sadly, it wasn’t open when I walked by this past weekend, so I could only snap a photo of the display window.
I couldn’t help but mentally compare the Swiss capital, where guns are sold, with the U.S. capital, where favors are sold.
There’s also a pro-gun culture in Switzerland, as reflected in this article.
“Shooting is becoming increasing popular again among the young, and the federal decision to lower the age of access to lessons is a big part of it,” says a happy Christoph Petermann, deputy chief of communications for the Swiss Target Shooting Federation. In 2016, the government lowered the age at which young people can attend target shooting lessons from 17 to 15. “In addition, we’re particularly pleased with the number of girls and young women who choose shooting…” When it comes to training children how to shoot, …Children are admitted from the age of five – but not to shoot with an assault rifle. This young, they train with pistols, air rifles, crossbows or bows. It gets serious from the age of ten – with small-calibre weapons – and from 12, in general, with assault rifles.
Unfortunately, Swiss gun rights are being attacked.
…the EU gun control plans, due to be completed by 2019, aim to curb online weapons sales and impose tight restrictions on assault weapons. …Swiss army-issue weapons would still be allowed to be kept at home after military service, in keeping with tradition. Hunters are also not affected by the plan. But certain semi-automatic weapons – such as those with magazines holding over 20 rounds of ammunition – and some high-capacity shoulder-supported rifles would be banned. …Gun collectors will be required to catalogue and report their collections to the authorities.
Needless to say, Swiss gun groups are not happy.
Critics…say the government proposal was decided undemocratically and the clampdown will have no influence on public safety or terrorism in Europe. They are concerned about its impact on their right to bear arms and are particularly unhappy with restrictions on certain categories of semi-automatic weapons and magazines, the possible impact on army-issue guns, and additional bureaucracy. …Jean-Robert Consolini, the owner of Lagardere Armoury, said he would fight the proposal. “These terror attacks were carried out by people using guns from the black market, not from a legal trade via an armoury. So, this directive won’t prevent the traffic of weapons…” Today, Switzerland has among the highest gun ownership rates per capita among Western countries. It is thought that around two million are in circulation. High rates of ownership and existing gun laws reflect the country’s deep-rooted belief in the right to bear arms and the needs of its militia army.
Monsieur Consolini is completely correct, by the way, about the EU directive having no effect on terrorists, who invariably can get weapons on the black market.
In any event, American gun groups have sympathy for their Swiss counterparts.
The National Rifle Association has opined about the controversy.
Switzerland…has the most civilian-owned firearms per capita in Europe and ranks third worldwide… The experience of Switzerland, just like many parts of the United States, serves to refute gun control advocates’ contention that more firearm ownership means more violence. Unfortunately, …a tradition of peaceful gun ownership will not dissuade gun prohibitionists. …the latest push for gun control in Switzerland stems from the updates to the European Union Firearms Directive Brussels adopted in April 2017. …The most controversial change to EU gun law…classified handguns equipped with a magazine with a capacity greater than 20 rounds and long guns equipped with a magazine with a capacity greater than 10 rounds as Category A firearms. Category A firearms are generally prohibited for civilian use. Further, the legislation required EU Member States to create firearms registries… Switzerland is not a member of the EU, however, the country is a member of the Schengen Area… As such, Switzerland is obligated to conform to the EU’s firearms restrictions.
Here are more details from the NRA report.
On April 9, Swiss gun rights organization ProTell (named for legendary marksman William Tell…) expressed their opposition to the EU changes to the Swiss legislature. Calling Switzerland’s gun laws “an expression of trust and respect between citizen and state,”… In December, ProTell made clear that it is willing to fight any further restrictions on gun rights through the referendum process. The Swiss People’s Party has also registered its staunch opposition to the new EU restrictions.
So what’s going to happen?
There are two possible positive outcomes.
First, as I noted last year, the Czech Republic is on the right side of this fight. And its government is challenging the European Commission’s interference in what should be a matter decided by national governments.
The Czech Republic filed a lawsuit…against a new European Union directive tightening gun ownership, aimed at limiting access to semi-automatic and other weapons… EU interior ministers gave a final nod to the changes…despite the Czech Republic, Luxembourg and Poland voicing opposition. The Czech Interior Ministry said the directive was too harsh, affecting for example thousands of hunters – a popular activity with a long tradition in the central European country. …“Such a massive punishment of decent arms holders is unacceptable, because banning legally-held weapons has no connection with the fight against terrorism,” Interior Minister Milan Chovanec said in a statement. “This is not only a nonsensical decision once again undermining people’s trust in the EU, but implementing the directive could also have a negative impact on the internal security of the Czech Republic, because a large number of weapons could move to the black market,” he said. …The lower chamber of the Czech parliament approved a bill in June putting gun owners’ rights in the constitution.
In theory, the Czech government’s legal argument should prevail since “subsidiarity” is ostensibly enshrined in European treaties.
But I fear that principle of decentralization will be overlooked because of the pro-harmonization ideology that is so prevalent in EU institutions.
So the second option for a positive outcome is a referendum in Switzerland, which has a long tradition of direct democracy.
And since the Swiss tend to be very sensible when voting on national issues, we can hope that they reject gun control and – for all intents and purposes – tell the European Commission to take a hike.
Let’s hope so. There are very few libertarian-minded jurisdictions in the world. It would be a shame if the Swiss rolled over and let EU bureaucrats dictate their gun laws.
P.S. For more info on global gun control data on information, click here and here.
A new Jersey bureaucrat got almost $250,000 per year for simultaneously holding six different government jobs.of the Police Department in those years, prosecutors said Thursday. …“There is no excuse for my failure to fulfill my obligations as a citizen and public official,” he said in a statement. “My only explanation is that I failed to sufficiently prioritize my personal affairs.” …Mayor Catherine Pugh expressed “full confidence” in De Sousa. …De Sousa earned $93,104 in 2013, when he is first accused of failing to file taxes. He earned $101,985 in 2014 and $127,089 in 2015. …The Police Department routinely suspends with pay officers accused of a misdemeanors pending the outcome of the case. De Sousa remained on the job Thursday. He currently earns a salary of $210,000 a year.
due to human feces being found “on a daily basis,” police said. Thomas Tramaglini, 42, …was running at the track on the athletic fields at 5:50 a.m. before he was arrested. Track coaches and staff at Holmdel High School told the district’s resource officer that they found human feces on or near the football field and track daily… Tramaglini is also charged with lewdness and littering.
To earn that much in overtime pay, Thompson would have had to work more hours than actually exist in a single year. Either the highly paid firefighter found a way to stretch the space-time continuum or something fishy is going on. …earning $302,000 at a rate of $47.40 per hour would require working more than 6,370 hours. Add that to the 2,912 hours he worked as a salaried employee, and you get more than 9,280 hours worked, despite the fact that there are only 8,760 hours in a year. …Thompson…might very well be the highest paid firefighter in American history. …During 2017, the Los Angeles Fire Department had 512 employees who cashed in with at least $100,000 in overtime pay… Thompson was one of 26 employees to get at least $200,000 in overtime pay.
International Liberty 