The Best and Worst News of 2018

One of my annual traditions is to share the “best and worst news” for each year. I started in 2013, and continued in 2014, 2015, 2016, and 2017.

Looking back, 2016 clearly was the best year, though entirely because of things that happened overseas (the Brits vote for Brexit, Brazil adopting spending caps, abolition of the income tax in Antigua, and Switzerland’s rejection of a basic income).

What about this year?

Sadly, there’s not much to cheer about. Here’s the meager list.

Amendment 73 rejected in Colorado – As part of a plan to expand the burden of government (for the children!), the left wanted to gut the state’s flat tax and replace it with a so-called progressive tax. Fortunately, voters realized that giving politicians the power to tax the rich at higher rates would also mean giving them the power to tax everyone at higher rates. The proposal was defeated by 11 percentage points.

Deregulation – The Administration’s record is certainly far from perfect on regulatory issues. But big-picture measures of the regulatory burden indicate that the overall trend is positive. Easing dangerous Obama-era car mileage rules may be the best step that’s been taken.

Positive trends – I’m having to scrape the bottom of the barrel, but I suppose a drop in support for bad ideas has to count as good news, right? On that basis, I’m encouraged that the notion of universal government handouts became less popular in 2018. Likewise, I’m glad that there’s so much opposition to the carbon tax that some supporters of that new levy are willing to throw in the towel.

Now let’s look at the bad news.

Here are the worst developments of 2018.

Aggressive protectionism – It’s no secret that Trump is a protectionist, but he was mostly noise and bluster in 2017. Sadly, bad rhetoric became bad policy in 2018. And, just as many predicted, Trump’s trade taxes on American consumers are leading other nations to impose taxes on American exporters.

The Zimbabwe-ization of South Africa – My trip to South Africa was organized to help educate people about the danger of Zimbabwe-style land confiscation. Sadly, lawmakers in that country ignore me just as much as politicians in the United States ignore me. The government is moving forward with uncompensated land seizures, a policy that will lead to very grim results for all South Africans.

More government spending – Ever since the brief period of fiscal discipline that occurred when the Tea Party had some influence, the budget news has been bad. Trump is totally unserious about controlling the burden of government spending and even routinely rolls over for new increases on top of all the previously legislated increases.

The good news is that this bad news is not as bad as it was in 2015 when we got a bunch of bad policies, including resuscitation of the corrupt Export-Import Bank, another Supreme Court Obamacare farce, expanded IMF bailout authority, and busted spending caps.

I’ll close by sharing my most-read (or, to be technically accurate, most-clicked on) columns of 2018.

1. In first place is my piece explaining why restricting the state and local tax deduction was an important victory.
2. Second place is my column (and accompanying poll) asking which state will be the first to suffer a fiscal collapse.
3. And the third place article is my analysis of how rich nations can become poor nations with bad policy.

For what it’s worth, my fourth-most read column in 2018 was a piece from 2015 about political and philosophical quizzes. And the fifth-most read article was some 2012 satire about using two cows to describe systems of government.

I guess those two pieces are oldies but goodies.

Now for the columns that didn’t generate many clicks.

1. My worst-performing column was about how DC insiders manipulate so-called tax extenders to line their own pockets.
2. Next on the least-popular list was a piece that looked at proposals to make taxpayers subsidize wages.
3. And the next-to-next-to-last article explained how expanding the IMF would increase the risk of bailouts and bad policy.

I’m chagrined to admit that none of these columns reached 1,000 views.  Though I try to salve my ego by assuming that many (some? most?) of the 4,000-plus subscribers eagerly devoured those pieces.

The other noteworthy thing about 2018 is that I posted my 5,000th column back in July.

And I also shared data indicating that I’m relatively popular (or, to be more accurate, I get a lot of clicks) in places like the Cayman Islands, the Vatican, Monaco, Bermuda, Jersey, and Anguilla.

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Americans “Vote with their Feet” for Lower Taxes

I’ve written many times about people and businesses escaping high-tax states and moving to low-tax states.

This tax-driven migration rewards states with good policy and punishes those with bad policy.

And now we have some new data.

The Wall Street Journal recently opined on the updated numbers.

…some states are booming while others are suffering a European-style sclerosis of population loss and slow economic growth. …The eight fastest-growing states by population last year…also experienced rapid employment and GDP growth spurred by low tax rates and policies generally friendly to business and job creation. Nevada, Arizona, Texas, Washington, Utah, Florida and Colorado ranked among the eight states with the fastest job growth this past year, according to the Bureau of Labor Statistics. Nevada, Texas, Washington and Florida have no income tax. …Then there’s California. Despite its balmy weather and thriving tech industry, the Golden State last year lost more people to other states than it gained from foreign immigration. Since 2010, a net 710,000 people have left California for other states. …New York Gov. Andrew Cuomo recently blamed cold weather for the state’s population exodus, but last year frigid New Hampshire with no income tax attracted 3,900 newcomers from other states. …Illinois’s population has declined by 157,000 over the past five years… Cold weather? While Illinois’s population has declined by 0.8% since 2010, Indiana’s has grown 3.1% and Wisconsin’s by 2.2%.

Here’s my favorite part of the editorial.

America as a whole can thank the Founders for creating a federalist system that allows the economic and political safety valve of interstate policy competition.

Amen. Federalism is great for a wide range of reasons, but I especially like that people have the freedom to escape when policy is decentralized.

Companies escape high taxes.

Honeywell International Inc. is snubbing New Jersey and heading south. …Honeywell’s move follows other companies that have moved corporate offices out of states with elevated costs of living and high taxes, including General Electric Co.’s relocation of its headquarter to Boston from Connecticut. Those costs were exacerbated by a new law last year that removed state income-tax deductions on federal taxes. North Carolina has a lower state income tax than New Jersey for higher-paid employees.

Former governors escape high taxes.

Gov. Paul LePage said Monday that he plans to move to Florida for tax reasons… LePage and his wife, Ann, already own a house in Florida and often vacation there. He said he would be in Maine from April to September. Asked where he would maintain his legal residency, LePage replied Florida. …”I have a house in Florida. I will pay no income tax and the house in Florida’s property taxes are $2,000 less than we were paying in Boothbay. … At my age, why wouldn’t you conserve your resources and spend it on your family instead of on taxes?” …LePage often has cited Maine’s income tax – currently topping out at 7.15 percent, down from a high of 8.5 percent when he took office – as an impediment to economic growth and attracting/retaining residents.

Even sports stars avoid class-warfare tax regimes.

Bryce Harper and Manny Machado…will “take home” significantly higher or lower pay depending on which teams sign them and the applicable income tax rates in the states where those teams are based. This impact could be worth tens of millions of dollars. …For example, assume the Cubs and Dodgers offer identical eight-year, $300 million contracts to Machado. Lozano would warn the Dodgers that their offer is decidedly inferior. As a Dodger, Machado’s million-dollar wages would be subject to the top bracket of California’s state income tax rate. At 13.3%, it is the highest rate in the land. In contrast, as a Cub, Machado would be subject to the comparatively modest 4.95% Illinois income tax rate. …the difference in after-tax value of these two $300 million contracts would be $14 million.

Though Lozano needs to warn Machado that the recent election results significantly increase the danger that Illinois politicians will finally achieve their long-held goal of changing the state constitution and replacing the flat tax with a class-warfare system.

Since we’re talking about the Land of Lincoln, it’s worth noting that the editors at the Chicago Tribune understand the issue.

Every time a worker departs, the tax burden on those of us who remain grows. The release on Wednesday of new census data about Illinois was alarming: Not only has the flight of citizens continued for a fifth straight year, but the population loss is intensifying. This year’s estimated net reduction of 45,116 residents is the worst of these five losing years. …Residents fed up with the economic climate here are heading for less taxaholic, jobs-friendlier states. …Many of them left because they believed Illinois is headed in the wrong direction. Because Illinois politicians have raised taxes, milked employers and created enormous public indebtedness that the pols want to address with … still more taxation. …How bad does the Illinois Exodus have to get before its dominant politicians understand that their debt-be-damned, tax-and-spend policies are ravaging this state?

Wow, no wonder Illinois is perceived to be the first state to suffer a fiscal collapse.

Let’s now zoom out and consider some national implications.

Chris Edwards took a close look at the data and crunched some numbers.

The new Census data confirms that people are moving from tax-punishing places such as California, Connecticut, Illinois, New York, and New Jersey to tax-friendly places such as Florida, Idaho, Nevada, Tennessee, and South Carolina. In the chart, each blue dot is a state. The vertical axis shows the one-year Census net interstate migration figure as a percentage of 2017 state population. The horizontal axis shows state and local household taxes as a percentage of personal income in 2015. …On the right, most of the high-tax states have net out-migration. …On the left, nearly all the net in-migration states have tax loads of less than 8.5 percent. …The red line is fitted from a simple regression that was highly statistically significant.

Here’s the chart.

Professor Glenn Reynolds wrote a column on tax migration for USA Today.

He starts by warning states that it’s a very bad recipe to repel taxpayers and attract tax consumers.

IRS data show that taxpayers are migrating from high-tax states like New York, Illinois, and California to low-tax states like Texas and Florida. …In time, if taxpayers tend to migrate from high-tax states to low-tax states, and if people receiving government benefits tend to stay in place or migrate from lower-benefit states to higher-benefit states, then over time lower-tax states will tend to accumulate more people with high earnings, while higher-benefit states will tend to accumulate more people who live on the dole. …if high-benefits states are also high-tax states (as is often the case) since then states with high benefits will accumulate more people who draw on them, while shedding the taxpayers they need to support them. The problem is that the result isn’t stable: High-tax, high-benefit states will eventually go bankrupt because they won’t retain enough taxpayers to support their welfare spending.

He then makes a very interesting observation about the risk that people who leave states such as New York, Illinois, California, and New Jersey may bring their bad voting habits to their new states.

…migrants from high tax states might bring their political attitudes with them, moving to new, low-tax states for the economic opportunity but then supporting the same policies that ruined the states they left. This seems quite plausible, alas, and I’ve heard Coloradans lament that the flow of Californians to their state involved a lot of people doing just that. …If I were one of those conservative billionaires…I might try spending some of the money on some…sort of welcome wagon for blue state migrants to red states. Something that would explain to them why the place they’re moving to is doing better than the place they left, and suggesting that they might not want to vote for the same policies that are driving their old home states into bankruptcy.

Glenn makes a very good point.

As part of my work on defending TABOR in Colorado, I often run into people who fret that the state has moved in the wrong direction because of migration from left-leaning states.

Though Chuck DeVore shared some data on how migrants to Texas are more conservative than people born in the state.

Fascinating @CNN #Texas exit poll: those who moved to Texas favored Cruz over O’Rourke by 57-42 – https://t.co/RvFkMujXic This finding agrees w/ a @TexasTribune poll showing California expats in Texas were 2:1 conservative – https://t.co/OC5JVsg67s @TPPF pic.twitter.com/XAqgs4QFae

— Chuck DeVore (@ChuckDeVore) November 8, 2018

I’ll close today’s column with a helpful map from the Tax Foundation.

All you really need to know is that you should move if you live in a blue state and you should erect a no-leftists-allowed sign if you live in a gray state.

P.S. Everything I wrote about the benefits of tax migration between states also applies to tax migration between nations.

I will never stop defending the right of labor and capital to escape high-tax regimes. I especially enjoy the hysterical reactions of folks on the left, who think that my support of fiscal sovereignty means that I’m “trading with the enemy,” being disloyal to my government, or that I should be tossed in jail.

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How to Talk about Public Policy and Why It Matters

I periodically try to remind people that you can’t explain or understand economic performance by looking at just one policy.

I’ve argued, for instance, good tax policy isn’t a panacea if there are many other policies that expand the burden of government. Likewise, bad fiscal policy isn’t a death knell if there’s a pro-market approach on issues such as trade, regulation, and monetary policy.

Which was the point I made, in this short excerpt from a recent interview, when asked about the Trump tax cut.

This obviously has implications for Trump. He wants the economy to grow faster, but he is sabotaging his good tax reform with bad protectionism.

Which is why I’ve also explained that Trump’s overall “grade point average” for economic policy isn’t very good.

And here are two other examples, but showing that tax policy – by itself – does not drive the economy.

• The economy enjoyed good performance during the Clinton years because his one bad policy (the 1993 tax hike) was more than offset by many good policies.
• Similarly, the economy didn’t get strong growth during the Bush years because his one good policy (the 2003 tax cut) was more than offset by many bad policies.

The same is true for policy in other nations. That’s why I always check the Fraser Institute’s Economic Freedom of the World before writing about another country. I want a dispassionate source of data that covers all the major types of public policy.

And that generates counter-intuitive results, at least for people who focus on fiscal policy.

• I’ve crunched the data to show that nations such as Denmark and the Netherlands remain relatively rich because they have pro-market policies that offset onerous fiscal burdens.
• Likewise, some nations in Eastern Europe continue to lag economically because the pro-growth effect of their flat taxes are offset by weak scores in other areas, especially quality of governance.

There are a couple of takeaways from this type of nuanced analysis.

First, don’t pay excessive attention to partisan affiliations. Yes, sometimes a Republican such as Reagan reduces the burden of government, but plenty of GOPers (Hoover, the first Bush, Nixon) impose lots of statism.

The same is true in other nations. Many of the pro-market reforms in Australia and New Zealand were initiated by Labour governments.

Second, let’s close by explaining why this matters. When people fixate on partisan labels rather than policy changes, it can lead them to very erroneous conclusions.

• For instance, even though the Great Depression was mostly the result of government intervention, many people think it was caused by capitalism simply because a Republican president was in office when it started.
• Similarly, even though the recent financial crisis was caused by government intervention, many people want to blame free markets merely because a Republican president was in office when it started.

P.S. In the interview, I said monetary policy might deserve some of the blame if the economy turns south. I want to stress, however, that I’m not blaming the Fed for trying to “normalize” today. Instead, the problem is all the easy-money policy earlier this decade.

As scholars from the Austrian School have explained, artificially low interest rates and other types of Keynesian monetary policy create the conditions for subsequent suffering.

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Reagan’s Pro-Trade Wisdom

President Trump’s view of global trade is so bizarre, risky, uninformed, misguided, and self-destructive that I periodically try to maintain my sanity by reviewing the wisdom of one of America’s greatest presidents.

• Ronald Reagan’s remarks in 1985 about the self-destructive impact of trade barriers.
• Ronald Reagan’s remarks in 1988 about the economic benefits of trade liberalization.

Today, let’s travel back to 1982 for more wisdom from the Gipper.

What’s especially remarkable is that Reagan boldly defended free and open trade at the tail end of the 1980-82 double-dip recession that he inherited.

Many politicians, facing an unemployment rate above 10 percent, would have succumbed to the temptation for short-run barriers.

But just as Reagan did the right thing on inflation, even though it was temporarily painful, he also advocated good long-run policy on trade. He understood Bastiat’s wise insight about “seen” benefits vs “unseen” costs.

Trump, by contrast, has a very cramped and limited understanding of trade. Which is why almost all economists disagree with his approach.

…on Trump’s other point — that protectionism offers Americans the road to riches — most specialists in international trade would beg to differ. “Even by Washington standards, Trump’s tweet was profoundly wrong,” said Daniel J. Mitchell, a conservative economist. In a recent column criticizing Trump’s tweet, Mitchell wrote, “The last time the United States made a big push for protectionism was in the 1930s. At the risk of understatement, that was not an era of prosperity.” …said Lawrence White, a professor at New York University’s Stern School of Business…”tariffs, like any tax, generally introduce an inefficiency and makes the two sides of the trading relationship poorer — not richer.”

I appreciated the chance to be quoted in the story, and I also was happy that a link to one of my columns was included.

Though I gladly would have traded that bit of publicity if Politifact instead had shared my “edits” to Trump’s infamous “Tariff Man” tweet.

I’ll conclude by noting that Reagan’s record didn’t always live up to his rhetoric.

P.S. I winced when Reagan positively cited the International Monetary Fund in his remarks. Though maybe the IMF in the early 1980s wasn’t the pro-tax, anti-market, bailout-dispensing bureaucracy that it is today.

P.P.S. I noted that Reagan was one of America’s great presidents. I also include Calvin Coolidge and Grover Cleveland on that list.

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The Economy Is Faltering and Trump’s Protectionism and Weakness on Spending Deserve Part of the Blame

In this interview yesterday, I noted that there are “external” risks to the economy, most notably the spillover effect of a potential economic implosion in China or a fiscal crisis in Italy.

But many of the risks are homegrown, such as Trump’s self-destructive protectionism and the Federal Reserve’s easy money.

Regarding trade, Trump is hurting himself as well as the economy. He simply doesn’t understand that trade is good for prosperity and that trade deficits are largely irrelevant.

Regarding monetary policy, I obviously don’t blame Trump for the Fed’s easy money policy during the Obama years, though I wish that he wouldn’t bash the central bank and instead displayed Reagan’s fortitude about accepting the need to unwind such mistakes.

The interview wasn’t that long, but I had a chance to pontificate on additional topics.

• Economists are lousy forecasters.
• On trade, I’m especially worried about Trump pulling America out of the WTO and/or imposing big trade taxes on the auto sector.
• The reduction in the corporate tax rate is the crowing achievement of the Trump presidency.
• Trump’s track record on government spending is very anemic.
• Trump says a border wall is needed for national security, yet he’s weaker on spending than Franklin Roosevelt and Harry Truman.
• The Trump tax plan does reduce revenue in the short run, but we could still quickly balance the budget with modest spending restraint.
• Government spending is not “juice” for the economy. Federal outlays merely divert resources from the productive sector.

The bottom line is that Trump has a very mixed record on the economy. But I fear the good policies are becoming less important and the bad policies are becoming more prominent.

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The Feel-Good Story of 2018

Back in 2014, I wrote a feel-good story from Ferguson, Missouri, about how armed black men protected a white-owned store during riots that wreaked havoc in the city.

Sarah Silverman surely wouldn’t approve, but I thought it was a heartwarming combination of human solidarity and individual rights.

It’s time for another feel-good story. The Washington Free-Beacon reported earlier this month that Dick’s Sporting Goods is suffering because the company adopted an anti-gun posture.

Dick’s Sporting Goods told investors during the Goldman Sachs Retailing Conference that its gun-control stance hurt sales of its hunting business, outdoors business, and that it may close its outdoor-focused Field & Stream stores. Edward Stack, chairman and CEO of Dick’s, said during the event that the sporting goods chain’s recent 3.9 percent drop in same-store sales was the result of a mix of factors beyond their control as well as some he called “self-imposed.” Specifically, he said, “the decisions we made on firearms” negatively affected their bottom line… The company insisted during the earnings call that while their embrace of gun-control policies was hurting store foot traffic as well as their hunting and outdoors business, they’ve found ways to offset the losses. …Still, Dick’s admitted both firearms customers and the firearms industry have rebutted the retailer because of their gun-control advocacy. …The company said it may soon close down their entire Field & Stream chain of 35 stores across 18 states.

By the way, I was interviewed earlier this year by a French TV program on the issue of gun control. Here’s the part where I discussed the company’s foolish decision.

Since I’m not a shareholder, part of me is unconcerned about decisions made by the management at Dick’s.

The CEO presumably lives in a wealthy area, far removed from the threat of crime or chaos, so I’m guessing he has no understanding or appreciation of the need for self defense.

And he probably thought – foolishly, we’ve learned – that the company’s decision would help the bottom line by generating positive coverage from the establishment media.

It brings to mind this insightful tweet, which I saw thanks to Amy Alkon.

We are living in an era of woke capitalism in which companies pretend to care about social justice to sell products to people who pretend to hate capitalism.

— Clay Routledge (@clayroutledge) September 6, 2018

Except the people who buy sporting goods are not the vapid social justice warriors who proclaim their hostility to capitalism while patronizing some of the world’s most aggressively hyper-capitalist companies.

In any event, I don’t care that the senior management at Dick’s has adopted an anti-gun ideology.

But I get very agitated when the company gets in bed with government in a campaign to reduce the freedoms of other people.

Dick’s decided to hire their own gun-control lobbyists in order to push for stricter gun laws nationwide. That action led the National Shooting Sports Foundation—the firearms industry’s trade group—to expel the retailer.

This is why I’m happy to see Dick’s go downhill.

Schadenfreude rocks!

P.S. I love capitalism because it a moral system that generates unparalleled prosperity, but I always remind people that this doesn’t make me a fan of big companies. Too many large firms (in finance, health, tech, energy, manufacturing, autos, pharma, agriculture, etc) are far too willing to seek “profits” using the coercive power of government.

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Have a Very Merry Libertarian Christmas

In the past, I’ve highlighted Christmas rivalries.

• Is Santa Claus liberal or conservative?
• Do we want a Christmas that celebrates political correctness or mocks political correctness?
• How about an Ayn Rand vs Karl Marx Christmas?
• Or how about Ted Cruz vs Karl Marx on Christmas?
• Last but not least, anybody up for a Christmas battle between libertarians and socialists?

This Christmas, though, let’s just go with a libertarian theme. We’ll start with a new video from the clever folks at Reason.

Since the video mentioned Santa sneaking in the country and evading tariffs, here’s a cartoon strip featuring a protectionist Scrooge.

Poor Santa Claus.

He already buried by red tape and he’s been hassled by the IRS and other federal agencies.

Plus he has to deal with children who make impossible requests.

The last thing he needs is trade taxes reducing the amount of toys he can distribute.

But there is hope for a détente between Trump and Santa.

Now let’s focus on some good news.

Here’s a video about the blessings of capitalism. It has a Christmas theme, but free enterprise is a gift every single day of the year.

The above video makes a very Schumpeterian point about how capitalism is the system that best serves the needs of poor people.

But let’s not digress from out holiday theme.

We now have another video from Reason. Remy sings about how a corrupt tax code forces a very unsavory form of redistribution from the poor to the rich.

And if you liked that Remy video, he has a pair of great Christmas-themed videos (here and here) about the TSA.

Merry Christmas!

P.S. Here are Christmas carols to enlighten Keynesians.

P.P.S. Here’s a Christmas commercial for fans of the 2nd Amendment.

P.P.P.S. Jay Leno shared the best-ever Christmas joke.

P.P.P.P.S. Speaking of best-ever, you’ll understand why this Christmas present ranks among my favorites.

P.P.P.P.P.S. Here are some additional Christmas-themed TSA songs.

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A New Edition of Shutdown Humor

The government is (partially) shut down, yet I’m not happy or excited.

That’s because Washington isn’t fighting about something I care about, such as the near-shutdown over spending levels in 2011 or the shutdown over Obamacare in 2013.

Instead, the latest drama in Washington is because Trump wants money for a border wall, which is an issue that doesn’t motivate me (though I keep asking my GOP friends why they don’t propose to finance the wall by cutting back on wasteful domestic programs).

But at least this battle gives me an opportunity to augment my collection of shutdown humor.

My favorite for today comes from libertarian Reddit.

Amen. As Jay Leno joked back in 2013, the real problem is that politicians eventually figure out how to get the government going again.

Sticking with that theme, let’s enjoy excerpts from some satire by Babylon Bee earlier this year.

As the federal government faces a shutdown…, millions of Americans reported…a sense of relief washing over them like a wave of peace and serenity at the possibility of a powering-down of our volatile governing bodies. “Maybe it wouldn’t be so bad if the federal government would just close up shop and go away for a little while,” one smiling man told reporters. “They’re such a source of strife and frustration in our daily lives—we need a little peace of mind. I really hope they’ll go ahead and take a little break.” “Don’t worry about us, politicians—we’ll be fine. Just go ahead, shut her down and take as much time as you need,” he added.

So even if it’s only a partial shutdown, and even though it’s not for the reasons I would prefer, I still share the sentiment in the Babylon Bee article.

Which is a good segue to an amusing image from Imgur.

The seal in the above image should thank Hank Stanson, at least according to another article from Babylon Bee.

…local libertarian man Hank Stanson reportedly wrote a letter to Santa asking for the entire government to cease operations forever for Christmas this year. “Dear Santa, all I want for Christmas is for you to shut down the federal government permanently,” his modest request read. “All non-essential services should be shut down immediately.” …”I’ve been a very good boy this year,” he wrote, arguing his case. “I haven’t smoked any marijuana, and I haven’t shouted at any police officers that taxation is theft yet. When a prominent politician died earlier this year, I even waited a full day before blasting him on my Facebook page. So please, Santa Claus, please make this staunch liberty lover a very happy man this year.”

I’ve also been a good boy. I waited a full week after George H.W. Bush died before pointing out that he was not a good president.

On a semi-serious note, it’s worth noting that shutdowns don’t actually save any money.

Notwithstanding this bit of satire, we still have to pay taxes.

And the vast army of minions in the federal bureaucracy get paid for sitting at home.

That’s the message in another contribution from Imgur.

To be fair, I don’t actually object to bureaucrats getting paid during shutdown.

I’m much more concerned that they oftentimes work for agencies and departments that shouldn’t exist.

Which brings us to the final bit of humor for today.

This hits the nail on the head.

Every employee at the Department of Housing and Urban Development is nonessential.

The same is true for the Department of Education, Department of Agriculture, Department of Transportation, Department of Energy, and many other boxes on the federal flowchart.

P.S. I linked above to a couple of prior examples of shutdown humor. You can enjoy other editions by clicking here, here, and here.

P.P.S. People say fiscal policy is dry, but we’re actually fun-loving people. There’s also debt-limit humor and sequestration humor.

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A Government “Success Story”

I often write about the failure of government.

• The federal government launched a multi-trillion dollar War on Poverty and the poverty rate, which had been consistently falling, now is stuck around 13 percent.
• Governments at all levels have pumped ever-increasing amounts of money into government schools, but there have been no positive effects on student achievement.
• The federal government created programs to make college more affordable, yet the main effect has been to make it easy for colleges and universities to charge higher tuition.

In other words, there’s lots of evidence that government spending makes things worse.

Needless to say, this puts a lot of pressure on folks who favor bigger government. They desperately want to find any type of success story so they can argue that increasing the size and scope of the public sector generates some sort of payoff.

And they got their wish. Check out the ostensibly good news in a story from the San Fransisco Chronicle.

Investing billions of dollars in affordable housing and homeless programs in recent years has apparently put the brakes on what had been a surge in California’s homeless population, causing it to dip by 1 percent this year, a federal report released Monday showed. …The report put California’s homeless population this year at 129,972, a drop of 1,560 in the number of people on the streets in 2017. …“I think San Francisco has shown that when targeted investments are made, we see reductions in homelessness here,” Kositsky said. He pointed out that family, youth and chronic veterans homelessness dropped in the city’s last full count — although the number of chronically homeless people went up.

Maybe I’m not in the Christmas spirit, but I don’t see this as a feel-good story.

Are we really supposed to celebrate the fact that the government spent “billions of dollars” and the net effect is that the homeless population dropped just 1 percent?

The story doesn’t contain enough details for precise measurements, but even if we assume “billions” is merely $2 billion, then it cost taxpayers close to $1.3 million to get one person off the street. For that amount of money, taxpayers could have bought each of them a mansion!

In other words, the program has been a rotten investment. Heck, it makes Social Security seem like a good deal by comparison.

To be sure, maybe the number isn’t quite so bad because we’re comparing multi-year outlays with a one-year change in the homeless population. Though maybe the number is even worse because taxpayers actually coughed up far more than $2 billion.

The bottom line is that if my friends on the left see this as an example of success, I’d hate to see their definition of failure.

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World’s Best Tweet about Socialism and Capitalism

I wrote a column earlier this month about the “world’s most depressing tweet,” which came from the Census Bureau and noted that the suburbs of Washington, DC, are the richest parts of America.

To be sure, I was engaging in a bit of hyperbole since a tweet about famine, war, or genocide surely would be more depressing. Nonetheless, I think it is a very bad sign that so many undeserving people are making so much money thanks to a bloated and cronyist central government.

Today I want to share another tweet that deserves some sort of special accolade.

I thought about calling it the “world’s best-ever tweet,” but I’m going to be more restrained and simply assert that it is the best tweet about socialism and capitalism.

“Real Socialism” has never been tried in the same way that “Real Capitalism” has never been tried.

The difference is ‘almost Socialism’ resulted in the impoverishment & death of hundreds of millions of people.

While ‘Almost Capitalism’ has lifted billions from absolute poverty.

— Mark (@markantro) January 23, 2018

This is spot on.

I’ve dealt with countless leftists who claim that the failure of places such as Venezuela, Cuba, North Korea, Greece, Zimbabwe, and the Soviet Union don’t count because they weren’t “real socialism” or “real communism.”

Indeed, that’s even become a humorous theme (see here, here, and here from my collection of socialism/communism humor).

But shouldn’t we learn something from the fact that “almost socialism” invariably produces awful results?

Similarly, there has never been a society that is 100 percent capitalist. The world’s freest nations today, such as Hong Kong and Singapore, have state sectors that consume about 20 percent of economic output. Likewise, government consumed 10 percent of GDP during the height of the western world’s supposedly laissez-faire period in the 1800s.

That being said, shouldn’t we learn something from the fact that “almost capitalism” created the amazing hockey stick of human progress? Shouldn’t we learn something from the fact that “some capitalism” is capable of dramatically reducing global poverty?

P.S. If there was a prize for the most short-sighted, naive, and anti-empirical tweet, this example would win the prize.

P.P.S. And this tweet wins the prize for the best comeback. Consider it a case of tweet-on-tweet violence.

P.P.P.S. Last but not least, here’s a tweet that sums up the essential difference between libertarians and statists.

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Subsidies for Higher Education Are Emptying the Pockets of Students and Lining the Pockets of Bureaucrats

I’m not as eloquent on the issue as Professor Daniel Lin, but I recently explained on Fox Business that government subsidies for higher education have enabled big increases in tuition, an outcome that has been good for bureaucrats and bad for students.

In effect, this is simply a story of “third-party payer,” which happens when consumers get to buy something with other people’s money.

Sellers respond by increasing prices since they know that consumers won’t care as much about price.

Indeed, this is the main problem plaguing America’s health sector.

Simply stated, government subsidies are a recipe for higher costs and inefficiency, regardless of the product or sector.

We definitely see the bad consequences in higher education. Mitch Daniels, the head of Purdue University, correctly identifies the problem of third-party payer in a column for the Washington Post.

…let’s design an economic sector guaranteed to cost too much. …we will sell a product deemed a necessity, with little or no option for the customer to avoid us altogether. Next, we will arrange to get paid for inputs, not outputs — how much we do, not how well we do it. We will make certain that actual results are difficult or impossible to measure with confidence. And we’ll layer on a pile of complex federal regulations to run up administrative costs. Then, and here’s the clincher, we will persuade the marketplace to flood our economic Eden with payments not from the user but from some third party. This will assure that the customer, insulated from true costs, will behave irrationally, often overconsuming and abandoning the consumerist judgment he practices at the grocery store or while Internet shopping. Presto! Guaranteed excessive spending, much of it staying in the pockets of the lucky producers. You say, “Oh, sure, this is American health care.” …Your answer is correct but incomplete. It worked so well in health care, we decided to repeat the formula with higher education. …by evading accountability for quality, regulating it heavily, and opening a hydrant of public subsidies in the form of government grants and loans, we have constructed another system of guaranteed overruns. It is the opposite of an accident that the only three pricing categories that have outpaced health care over recent decades are college tuition, room and board, and books.

Amen.

Daniels has done a great job controlling costs at Purdue, but I’m even more impressed that he is willing to look at the problems for our entire system of higher education (as such, I’ll forgive him for being the Budget Director during the big-spending Bush Administration).

I especially like his solution, which in part would require colleges to repay taxpayers if there are loan defaults, thus ensuring that they have some skin in the game.

…a promising movement is advancing in education to put some of the risk of lousy results — students who do not graduate or who graduate without having learned enough to earn their way in the world — on the institutions that “educated” them. It is about time. This game has been skinless far too long. …even a small degree of risk-sharing in higher education would cause significant behavior change. …Even a small charge, plus the embarrassment of its public announcement, would probably jar many schools from their complacent ruts.

By the way, some people (including Paul Krugman) claim higher tuition is caused by budget cuts. Preston Cooper shared some of his research on this issue in the Wall Street Journal.

A typical student in an American public college pays thousands of dollars more in tuition than just a decade ago. Students and parents are worried and frustrated, and many point the finger at state legislators… Hillary Clinton blamed “state disinvestment” in higher education for soaring tuition and declared her support for “free college.”While the “disinvestment” narrative is simple and appealing, it collapses under scrutiny. …Tuition goes up no matter what state legislators do. Public colleges, with state boundaries insulating them from competition, and generous federal student aid programs at their disposal, charge as much as they can get away with. Changes in state funding are largely irrelevant.

He’s right about federal aid enabling higher tuition. Academic scholars have found a very clear link.

Now let’s focus on the problem of ever-expanding bureaucracy.

David Frum points out in the Atlantic that college bureaucracies have done a marvelous job of….drum roll…advancing the interests of college bureaucracies.

One of the most famous essays on bureaucracy ever written was built upon a deceptively simple observation. Between 1914 and 1928, the number of ships in the British Navy declined by 67 percent. The ranks of officers and men shrank by 31 percent. But the number of Admiralty officials administering the shrunken force rose by 78 percent. …Here was the origin of Parkinson’s famous laws of bureaucracy, including “work expands to fill the time available” and “officials make work for each other.” …Why does college education cost so much? The Parkinson of American academia is Ralph Westfall, a professor at California Polytechnic University in Pomona. He computed in 2011 that over the 33 years from 1975 to 2008, the number of full-time faculty in the California state university system had barely increased at all: up from 11,614 to 12,019. Over the same period, the number of administrators had multiplied like little mushrooms: 3,000 had become 12,183. …with our universities. We’ve been thinking of them as institutions for teaching and learning—and wondering why we seem to be spending so much without achieving more. But if you think of them as institutions generating a perpetual cycle of employment in specialties for which there would otherwise be no demand at all? Why in that case, they are succeeding brilliantly.

George Will, in a column about political correctness and campus snowflakes, shares this factoid about bureaucracy in California’s higher-education system.

…between the 1997-1998 academic year and the Great Recession year of 2008-2009, while the University of California student population grew 33 percent and tenure-track faculty grew 25 percent, senior administrators grew 125 percent. “The ratio of senior managers to professors climbed from 1 to 2.1 to near-parity of 1 to 1.1,”

Writing for the Boston Globe, Professor Benjamin Ginsberg warned that higher tuition is feeding an ever-expanding bureaucracy

…over the last half-century, America’s universities have slowly been taken over by a burgeoning class of administrators and staffers who are less interested in training future entrepreneurs and thinkers as they are in turning institutions of learning into cash cows for a growing academic bureaucracy. …Every year, hosts of administrators and staffers are added to university payrolls, even as budget crises force schools to shrink their full-time faculties. There are armies of functionaries – vice presidents, associate vice presidents, assistant vice presidents, provosts, associate provosts, vice provosts, assistant provosts, deans, deanlets, and deanlings, each commanding staffers and assistants. In turn, the ranks of administrators have expanded at nearly twice the rate of the faculty, while administrative staffs have outgrown the academics by nearly a factor of five. No wonder college is so expensive!

Let’s close with this bit of satire from libertarian Reddit.

P.S. You won’t be surprised to learn that Hillary Clinton, when looking for solutions to a problem caused by government subsidies, recommended even more government subsidies.

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Paul Ryan’s Legacy

Most politicians are contemptible. They are shallow, grasping, insecure clowns who want to expand the size and scope of government so they have more power to dictate how the rest of us live our lives.

To make matters worse, many of them know they are doing the wrong thing, but they don’t have the moral courage to resist the corrupt, go-along-to-get-along culture of Washington.

But that doesn’t mean they’re bad people. When people ask me what motivates politicians, I sometime explain the theory of “public choice.” In other cases, I tell the simple story of the guy who is endlessly conflicted between an angel on one shoulder and a devil on the other shoulder.

And I tell them that a good politician is one who – more often than not – sides with the angel.

And that’s why, when asked to comment on the outgoing Speaker of the House, I applauded Paul Ryan. You can watch the entire interview here, but I’ve excerpted a segment that hits the two main points.

Simply stated, Ryan was instrumental in moving the ball forward on tax reform. I very much doubt we would have achieved a lower corporate tax rate or scaled back the state and local tax deduction without all the work he did during his time at the Budget Committee and Ways & Means Committee.

And while entitlement reform never happened, first because of Obama and now because of Trump, it’s nonetheless a remarkable achievement that Ryan was able to:

• Put together budgets with genuine Medicaid and Medicare reform.
• Get those budgets approved by the House and Senate.

By the way, I’m not being a naive cheerleader.

Ryan had plenty of bad votes, including the horribly corrupt TARP bailout. And he routinely supported many other elements of George W. Bush’s big-government agenda.

And his tax record wasn’t perfect, either. His Roadmap budget plan had some great reforms, but also included a value-added tax. More recently, he supported the border-adjustment tax (sort of a pre-VAT).

But even Saint Ronald wasn’t perfect.

P.S. My biggest sin of omission in the interview is that I didn’t mention the de facto five-year spending freeze between 2009-2014, an achievement that largely overlapped with Ryan’s tenure as Chairman of the Budget Committee.

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Fiscal Fights with Friends: If a Carbon Tax Is Imposed, Hauser’s Law Won’t Protect America from Bigger Government

I have a series of columns where I explore tactical disagreements with folks who generally favor free markets and less government.

• In Part I, I defended the flat tax, which had been criticized by Reihan Salam
• In Part II, I explained why I thought a comprehensive fiscal package from the American Enterprise Institute was too timid.
• In Part III, I disagreed with Jerry Taylor’s argument for a carbon tax.
• In Part IV, I highlighted reasons why conservatives should reject a federal program for paid parental leave.

Today, we’re going to revisit the carbon tax because Josiah Neeley and William Murray of the R Street Institute have a column in the Hill that claims that levy would not finance bigger government.

…There have been numerous tax rate changes in the past 70 years, with the marginal income tax rate falling from a high of over 90 percent in the 1950s to as low as 28 percent in the late 1980s. Yet during this entire time period, federal tax revenue has stayed in a fairly narrow band when measured as a percentage of gross domestic product, never rising above 20 percent or falling much below 15 percent between 1950 and 2018. This phenomenon, which keeps federal revenues within a relatively narrow band, is known as Hauser’s law…the belief that any kind of new taxation introduces even greater government spending is based on very little actual evidence. Instead, Hauser’s law provides evidence that certain kinds of tax swaps, such as exchanging an income tax for a carbon tax, may actually increase the rate of economic growth without increasing the tax share of the overall economy.

They also claim that higher taxes don’t lead to more spending.

…demand for government spending drives tax policy, not the other way around. This conclusion has important implications for the carbon tax debate. …The relative imperviousness of the gross domestic product tax percent equilibrium since the late 1940s suggests that spending pressures drive taxes and not the other way around.

I have two responses to this analysis.

First, I very much want Hauser’s Law to be true. It would be very comforting if politicians in Washington could never seize more than 20 percent of the private sector’s output.

Sadly, that’s simply not the case. Just look at Europe, where central governments routinely extract far more than 40 percent of economic output.

All that’s required is taxes that target lower- and middle-income taxpayers. That’s happened in Europe because of harsh value-added taxes, punitive payroll taxes, onerous energy taxes, and income taxes that impose very high rates on ordinary people.

Needless to say, a carbon tax would be a step in that direction.

Second, the authors offer zero evidence that “government spending drives tax policy, not the other way around.”

By contrast, there is some persuasive data for the “starve the beast” hypothesis, which is based on the notion that higher taxes will encourage more spending.

In other words, Milton Friedman was right when he warned that “History shows that over a long period of time government will spend whatever the tax system raises plus as much more as it can get away with.”

Though I actually don’t think this causality debate is very important. The bottom line is that higher taxes are a bad idea if they trigger higher spending, and higher taxes also are a bad idea if they merely enable higher spending.

The column in the Hill is a spin-off from a recent study published by the R Street Institute.

Let’s look at that publication to further explore this issue. It starts with the basic hypothesis that a revenue-neutral carbon tax would be desirable.

…a carbon tax…provides a source of revenue that can be put to beneficial purposes, such as funding cuts to other existing taxes. By using the revenue from a carbon tax to replace existing ones, such a revenue neutral “tax swap” would greatly reduce or eliminate the economic costs of the tax. Indeed, in some cases, even if benefits from reduced emissions are not considered, a tax swap could be a net positive for the economy. …many critics of a carbon tax are skeptical as to whether a revenue-neutral carbon tax could be enacted. Some critics go further, arguing that even if a carbon tax started out as revenue neutral, it would not remain so. …While there are no guarantees, the existing evidence suggests that a revenue-neutral carbon tax would not lead to larger government over the long term and could even shrink it.

I don’t object to the notion that a carbon tax would be theoretically desirable if it replaced a tax that did more damage per dollar collected, such as the corporate income tax.

My concern has always been such a swap is highly unlikely. Indeed, many proponents of the carbon tax are very explicit about wanting to use the revenues to create a new entitlement. That would be the worst outcome, assuming we want more growth.

And, as noted above, I don’t think Hauser’s Law would save us from higher overall taxes and a larger burden of government spending.

Interestingly, the study basically acknowledges the same thing.

…given that Hauser’s Law is not an iron law of economics, it would be imprudent to put too much weight on it when considering the effects of a tax swap.

There are a couple of other parts of the study that deserve attention, including the assertion that politicians would have a hard time using the carbon tax as a money machine.

…a carbon tax has natural limitations that preclude it from being used to generate ever-increasing amounts of tax revenue. This is because higher carbon-tax rates induce a more rapid fall in greenhouse gas emissions. This, in turn, limits the overall revenue collected from the tax. In fact, unlike revenue from income, sales or property taxes, which tends to increase over time even at a constant tax rate, revenue from a carbon tax is likely to remain stable or fall gradually as emissions decline.

Since I’m a fan of the Laffer Curve, I think this argument is very reasonable in theory.

In effect, the R Street Institute is making the same argument – excessive tax rates can reduce revenue – that Alexander Hamilton used when endorsing tariffs.

But where is the point where carbon taxes become excessive? I don’t know the answer, but I’m very worried that there would be ample leeway to collect a lot of tax revenue before getting close to the revenue-maximizing point (the Congressional Budget Office estimates that a $25-per-ton carbon tax would generate more than $1 trillion in the first ten years).

The bottom line is that I worry that a carbon tax likely would be akin to a value-added tax. Yes, there are negative feedback effects from a VAT, as I noted at the end of yesterday’s column. But that doesn’t change the fact that the revenue-generating capacity of the VAT helps to explain Europe’s bloated welfare states.

I understand how a carbon tax, in theory, might not enable bigger government. But I see no way, in reality, that politicians wouldn’t use this new levy to finance even more spending.

P.S. If you’re not already convinced that a carbon tax will mean bigger government, then all you need to know is that both the International Monetary Fund and the Organization for Economic Cooperation and Development support higher energy taxes for the United States.

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World Bank Study Confirms the Ever-Increasing Damage of Ever-Increasing Tax Rates

A couple of weeks ago, I used a story about a local tax issue in Washington, DC, to make an important point about how new tax increases cause more damage than previous tax increases because “deadweight losses” increase geometrically rather than arithmetically.

Simply stated, if a tax of X does Y amount of damage, then a tax of 2X will do a lot more damage than 2Y.

This is the core economic reason why even left-leaning international bureaucracies agree that class-warfare taxes are so destructive. When you take a high tax rate and make it even higher, the damage grows exponentially.

As such, I was very interested to see a new study on this topic from the World Bank. It starts by noting that higher tax rates are the wrong way to address fiscal shortfalls.

…studies have used the narrative approach for individual or multi-country analyses (in all cases, focusing solely on industrial economies, and mostly on industrial European countries). These studies find large negative tax multipliers, ranging between 2 and 5. This recent consensus pointing to large negative tax multipliers, especially in industrial European countries, naturally entails important policy prescriptions. For example, as part of a more comprehensive series of papers focusing on spending and tax multipliers, Alesina, Favero, and Giavazzi (2015) point that policies based upon spending cuts are much less costly in terms of short run output losses than tax based adjustments.

The four authors used data on value-added taxes to investigate whether higher tax rates did more damage or less damage in developing nations.

A natural question is whether large negative tax multipliers are a robust empirical regularity… In order to answer this highly relevant academic and policy question, one would ideally need to conduct a study using a more global sample including industrial and, particularly, developing countries. …This paper takes on this challenge by focusing on 51 countries (21 industrial and 30 developing) for the period 1970-2014. …we focus our efforts on building a new series for quarterly standard value-added tax rates (henceforth VAT rates). …We identify a total of 96 VAT rate changes in 35 countries (18 industrial and 17 developing).

The economists found that VAT increases did the most damage in developing nations.

…when splitting the sample into industrial European economies and the rest of countries, we find tax multipliers of 3:6 and 1:2, respectively. While the tax multiplier in industrial European economies is quite negative and statistically significant (in line with recent studies), it is about 3 times smaller (in absolute value) and borderline statistically significant for the rest of countries.

Here’s a chart showing the comparison.

Now here’s the part that merits close attention.

The study confirms that the deadweight loss of VAT hikes is higher in developed nations because the initial tax burden is higher.

Based on different types of macroeconomic models (which in turn rely on different mechanisms), the output effect of tax changes is expected to be small at low initial levels of taxation but exponentially larger when initial tax levels are high. Therefore, the distortions and disincentives imposed by taxation on economic activity are directly, and non-linearly, related to the level of tax rates. By the same token, for a given level of initial tax rates, larger tax rate changes have larger tax multipliers. …In line with theoretical distortionary and disincentive-based arguments, we find, using our novel worldwide narrative, that the effect of tax changes on output is indeed highly non-linear. Our empirical findings show that the tax multiplier is essentially zero under relatively low/moderate initial tax rate levels and more negative as the initial tax rate and the size of the change in the tax rate increase. …This evidence strongly supports distortionary and disincentive-based arguments regarding a nonlinear effect of tax rate changes on economic activity…the economy will inevitably suffer when taxes are increased at higher initial tax rate levels.

What makes these finding especially powerful is that value-added taxes are less destructive than income taxes on a per-dollar-raised basis.

So if taking a high VAT rate and making it even higher causes a disproportionate amount of economic damage, then imagine how destructive it is to increase top income tax rates.

P.S. The fact that a VAT is less destructive than an income tax is definitely not an argument for enacting a VAT. That would be akin to arguing that it would be fun to break your wrist because that wouldn’t hurt as much as the broken leg you already have.

I’ve even dealt with people who actually argue that a VAT isn’t economically destructive because it imposes the same tax on current consumption and future consumption. I agree with them that it is a good idea to avoid double taxation of saving and investment, but that doesn’t change the fact that a VAT increases the wedge between pre-tax income and post-tax consumption.

And that means less incentive to earn income in the first place.

Which is confirmed by the study.

Panels A and B in Figure 18 show the relationship between the VAT rate a and the perceived effect of taxes on incentives to work and invest, respectively, for a sample of 123 countries for the year 2014. Supporting our previous findings, the relationship is highly non-linear. While the perceived effect of taxes on the incentives to work and invest barely changes as VAT rates increase at low/moderate levels (approximately until the VAT rate reaches 14 percent), it falls rapidly for high levels of VAT rates.

Here’s the relevant chart from the report.

The moral of the story is that all tax increases are misguided, but class-warfare taxes wreak the most economic havoc.

P.S. Not everyone understands this common-sense observation. For instance, the bureaucrats at the Congressional Budget Office basically argued back in 2010 that a 100 percent tax rate was the way to maximize growth.

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Baltimore’s Anti-Gun Government Offers Free Money to Gun Owners

I have many examples of gun control humor, all of which were created to mock anti-2nd Amendment zealotry.

But nothing I’ve ever read is as funny as this week’s gun buyback scheme by the Baltimore Police Department, which was organized by anti-gun politicians and bureaucrats.

Here’s what the Baltimore Sun reported about the buyback scheme.

Mayor Catherine E. Pugh and Interim Police Commissioner Gary Tuggle announced the launch of the gun buyback program at a news conference Tuesday at police headquarters. Pugh said the program is one strategy to try to reduce violence in the city… “We are coming towards the end of the year and we are doing everything we can to stay under a certain number, but I don’t want to even talk about that,” Pugh said, describing the buyback event as part of the city’s violence reduction initiatives. …Pugh did not say how much the buyback program would cost, but she believes the city has enough money for it. She said nonprofits would be contributing.

So why is this so funny? Shouldn’t I be upset that Baltimore politicians and bureaucrats want law-abiding people to give up guns, which will make life easier for criminals?

After all, that is bad policy.

But there’s a very amusing part of this story. Baltimore is offering $25 for every “hi-capacity” magazine.

And this creates a very interesting opportunity to make a quick buck since a quick online search reveals that one popular magazine (holds 30 rounds, so easily qualifies) can be purchased for about $11-$13.

Before you buy a truckload of magazines in hopes of some easy cash, I must warn you that there is a slight obstacle. If the poster above is accurate, the buyback is only for residents of Baltimore.

That being said, it shouldn’t be too difficult to find a local guy to act as your “straw seller.”

P.S. Some of you might feel guilty about participating since taxpayer money will be squandered on the buyback. That’s a noble sentiment. However, the story in the Sun also noted that some of the financing would come from nonprofits. And that means participants will probably be helping to deplete the bank accounts of George Soros and Michael Bloomberg. More money for you and less money for them is a win-win situation.

P.P.S. To the best of my recollection, my only other example of gun-buyback humor is at the end of this column.

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In a Single Story, Everything You Need to Know about Waste and the Federal Government

What’s the most inefficient and wasteful part of the federal government?

It’s impossible to answer that question without greater detail.

Are we supposed to identify the worst cabinet-level department? If that’s the case, then bureaucracies such as the Department of Housing and Urban Development or the Department of Education would be high on the list.

Or are we supposed to identify the most counter-productive activity of Washington? If that’s the case, then agriculture subsidies, job-training programs. or subsidies for the Organization for Economic Cooperation and Development come to mind.

But what if we’re simply asked to identify the dumbest single thing our overlords in D.C. have financed? That would generate a very long (and ever-growing) list of options. Today, we’re going to look at an example.

Here’s a story that perfectly symbolizes the waste, ineffectiveness, and corruption of Washington.

Customs and Border Protection hired Accenture to hire and recruit 7,500 agents within the next five years. But just 10 months into the contract, only two accepted job offers have been processed, according to the Department of Homeland Security’s Office of the Inspector General. Accenture, a global management consulting company headquartered in Ireland, was awarded a $297 million contract to achieve the hiring goal. But the report says that $13.6 million has been spent in the last 10 months, and that CBP “risks wasting millions of taxpayer dollars on a hastily approved contract that is not meeting its proposed performance expectations.” …CBP ultimately agreed to the four recommendations in the report, including that the CBP commissioner should assess Accenture’s performance.

This is outrageous on several levels.

• First, federal employees make much more than folks in the private sector, so I’m mystified why it’s necessary to spend any money to attract applicants.
• Second, why did Uncle Sam sign a contract to pay Accenture nearly $40,000 for each CBP agent hired, assuming the company fully delivered?
• Third, it goes without saying (but I’ll say it anyhow) that it is absurd that taxpayers to date have paid $6.8 million each for two new CBP bureaucrats.

Sadly, there won’t be any consequences for this boondoggle, at least if history is any guide.

Nobody at the CBP will get fired.

Nobody at the CBP will be demoted.

Nobody at the CBP will lose a bonus.

Simply stated, people in the government don’t care whether our money is being wasted.

Before concluding, we need to add an additional reason to be outraged.

• Fourth, this is an all-too-typical example of government contracting, with a “beltway bandit” scamming the system for unearned riches.

Maybe I should create a Waste Hall of Fame to augment the Moocher Hall of Fame and Bureaucrat Hall of Fame.

In addition to this squalid Accenture contract, other examples could be the $15 million scam to improve the IRS’s image, the State Department paying 35 times the market price for some Kindles, bonuses for VA bureaucrats who left veterans to die on waiting lists, gold-plated renovations for the CFPB headquarters, and $6,000-a-piece interviews about erectile dysfunction.

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New Research: Even Talking about Tax Increases Can Cause Economic Damage

I recently wrote about the failed 1990 budget deal. My big complaint was that President George H.W. Bush compounded the mistake of higher taxes by also allowing a big increase in the burden of government spending.

However, I didn’t blame the agreement for that year’s recession for the simple reason that the downturn began in July and the tax hike was signed in November (that would make me like Paul Krugman, who wanted people to think that Estonia’s 2008 recession was caused by spending cuts in 2009).

But maybe I’m not being sufficiently critical. After all, Bush announced he would abandon his no-tax pledge in June, and that was then followed by months of tax-hike negotiations. Isn’t it reasonable to think all that talk would have a negative effect, especially on investors and business owners?

The answer may be yes, at least in part. There’s a very interesting new study by Sandra García-Uribe at Spain’s central bank. She examines how the anticipation of tax changes affects economic performance.

Prior to the approval of laws, there is often widespread information about the progress of bills. This information may be valuable for the forecasts that agents make about the economic environment in the future. …This paper provides a way to account for the economic responses to anticipation of tax shocks… In this paper I introduce a new measure of mass media anticipations of tax bill approvals by exploiting the content of news in the US television during the period 1968-2007. …this is the first paper that exploits a dynamic factor model to account for fiscal policy effects on economic activity. The factor specification considers the dynamics of the factor and the potential effects of tax changes and their anticipation on it.

She’s definitely correct about there being a process for tax legislation, so people (“agents” in economic jargon) have ample warning.

The study includes data on how tax increases harm growth once they are adopted.

Figure 3 presents the implementation effects of exogenous tax liability changes on economic activity, in the period 1948 to 2007…The figure shows the cumulative effects in terms of an increase in tax liabilities of a one percent of QGDP together with the one-standard-error bands. The maximum effects are achieved 29 months after implementation of the tax changes when monthly economic activity growth drops by 99.56%. …the maximum implementation effect of a 1% of QGDP increase of tax liabilities is a reduction of monthly economic activity growth of 0,28%. …For the period that we dispose of television data, 1968 to 2007, immediate implementation effects are -6.6% for monthly economic activity growth. Two months after implementation the effects are -10.7%. Maximum effects are a -69.1% and happen 25 months after implementation.

Here’s a chart showing the negative impact of tax increases.

But does the discussion of tax changes also impact the economy?

According to the research, the answer is yes.

Anticipating tax increases reduces economic activity by 1,36% while anticipating tax cuts stimulates it by 3,04%. …Conditional on the media release of information about a potential tax approval, it is likely that people is aware of what is the net tax liability change associated to the potential approval since media also makes reference to terms like ”increase”, ”rise” or ”cut”. There are 20 episode approvals in the sample and learning how to predict the sign joint to the approval based on 10 approvals per sign resulted in something unfeasible. I construct an indicator variable that captures the mention of ”increase” or ”rise” within the tax news to approximate the possibility of a tax rise approval. …In columns (3) and (4) I control for this indicator and its interaction with media anticipation of tax approvals …A 10% probability of tax approvals conditional on the tax news at t not mentioning tax increases significantly stimulates current monthly economic activity growth by 3.04%. In the case of the media mentioning tax increases the effect is a reduction of monthly economic activity growth by 1.36%.

For economic junkies, here’s the relevant table from the study.

By the way, none of this changes my view that monetary policy is always the first place to look when assigning blame for economic downturns and volatility.

Simply stated, taxation is just one of many factors that determine economic performance. But the fact that it’s not the only thing that matters doesn’t change the fact that it’s a very bad idea to increase the tax burden.

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Trade and Creative Destruction

I have a four-part video series on trade-related topics.

• Part I focused on the irrelevance of trade balances.
• Part II looked at specialization and comparative advantage.

Here’s Part III, which explains how trade (whether domestic or international) leads to creative destruction, which results in some painful short-run costs but also yields immense long-run benefits.

I recently argued that creative destruction is the best part and worst part of capitalism.

It’s bad if you’re a worker in a company that loses out (or if you’re an investor in that company). but it’s also what enables us to become more prosperous over time.

I’m not alone. Writing for CapX, Oliver Wiseman reviewed Capitalism in America, a new book by Alan Greenspan and Adrian Wooldridge. Here are some key observations.

…there was nothing predictable about America’s rise from colonial backwater to world-beating economy. …The fight for independence began a year before the publication of Adam Smith’s The Wealth of Nations; “the new country was conceived in a revolt against a mercantilist regime that believes a nation’s economic success was measured by the size of its stock of gold.” …The Constitution’s limits on the power of the majority set America apart from the rest of the world and “did far more than anything else to guarantee America’s future prosperity…” On top of this fortuitous start is the country’s “greatest comparative advantage”: its “talent for creative destruction”, the driving force of innovation, growth and prosperity that “disequilibriates every equilibrium and discombobulates every combobulation”. Americans realised that “destruction is more than an unfortunate side effect of creation. It is part and parcel of the same thing”. …The result is a system that has squeezed more productive energy out of its human capital than other countries, and generated unparalleled prosperity.

For those interested in economic history, Joseph Schumpeter gets most of the credit for developing the concept of creative destruction.

This Powerpoint slide is a nice summary of Schumpeter’s contribution.

And here’s a Tweet showing that Schumpeter was under no illusions about the folly of socialism.

Turns out, Schumpeter was a troll. pic.twitter.com/7ApBK5UYSy

— Damir Marusic (@dmarusic) December 12, 2018

The bottom line is that creative destruction is what gives us churning, and churning is what dethrones rich and powerful incumbents. My friends on the left should be cheering for it.

Instead, they push for regulations and taxes that hinder creative destruction. And that means less long-run prosperity for all of us.

Addendum: The original one-minute video no longer exists and has been replaced by a longer video that covers the same material in greater detail.

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Piketty Urges Higher Taxes in Response to French Tax Revolt

Less than 10 years ago, many European nations suffered fiscal crises because of a combination of excessive spending, punitive taxes, and crippling debt.

The crises have since abated, largely because of direct and indirect bailouts. But the underlying policy mistakes haven’t been fixed.

Indeed, the burden of government spending has increased in Europe and debt levels today are much higher than they were when the previous crisis began.

Unsurprisingly, these large fiscal burdens have resulted in anemic economic performance, which helps to explain why middle-class French taxpayers launched nationwide protests in response to a big increase in fuel taxes.

The French President, Emmanuel Macron, capitulated.

But some have suggested that Macron’s problem is that he wasn’t sufficiently bold.

I’m not joking. Led by Thomas Piketty, a few dozen European leftists have issued a Manifesto for bigger government.

We, European citizens, from different backgrounds and countries, are today launching this appeal for the in-depth transformation of the European institutions and policies. This Manifesto contains concrete proposals, in particular a project for a Democratization Treaty and a Budget Project… Our proposals are based on the creation of a Budget for democratization which would be debated and voted by a sovereign European Assembly. …This Budget, if the European Assembly so desires, will be financed by four major European taxes, the tangible markers of this European solidarity. These will apply to the profits of major firms, the top incomes (over 200,000 Euros per annum), the highest wealth owners (over 1 million Euros) and the carbon emissions (with a minimum price of 30 Euros per tonne).

Here are the taxes they propose as part of their plan to expand the burden of government spending.

I’m surprised they didn’t include a tax on financial transactions.

And here’s a video (in French, but with English subtitles) explaining their scheme.

To put it mildly, this plan is absurd. It would impose another layer of government and another layer of tax on a continent that already is suffocating because the public sector is too large.

I’m not the only one with concerns.

In a column for Bloomberg, Leonid Bershidsky points out why he is underwhelmed by Piketty’s proposal.

The reforms proposed by Piketty and a group of intellectuals and politicians — notably Pablo Iglesias, leader of Spain’s leftist Podemos party — include the creation of a European Assembly. It would have the power to shape a common budget and impose common taxes… Piketty advocates four measures that would collect a total equivalent to 4 percent of Europe’s GDP… What is being proposed is essentially a return to the fiscal policies of the 1970s, which provoked Astrid Lindgren to write her satirical essay “Pomperipossa in Monismania.” In 1976, the children’s author was confronted with a tax bill of 102 percent of her income. …Hit them with new taxes and watch them flee to the U.S. and Asia. They won’t stay like patriotic Lindgren, whose essay helped to topple the Swedish government in 1976. And no amount of government funding…will repair the damage that envy-based taxation can wreak on economies already finding it hard to innovate.

Let’s not forget, by the way, the many thousands of French households who also have suffered 100 percent-plus tax rates.

But let’s not digress.

Writing for CapX, John Ashmore explains why Piketty’s plan will make Europe’s problems even worse.

…a group of politicians, academics and policy wonks spearheaded by…French economist Thomas Piketty…have put their names to a new Manifesto for the Democratisation of Europe. …For the most part, the manifesto reads like a souped up version of the kind of policies we’ve heard time and again from leftwing politicians. …The details of today’s ‘manifesto’ make Labour’s Marxist Shadow Chancellor John McDonnell look like a moderate centrist. Where Labour advocate putting corporation tax back up to 26 per cent, Piketty and co want it hiked to 37 per cent. And while we Brits spent plenty of the Coalition years discussing whether income tax should be 45p or 50p in the pound, the Manifesto goes all guns blazing for a 65 per cent top rate… these measures are projected to raise 800bn euros, equivalent to four times the current EU budget. …that would be a huge transfer of power, not from the rich from the poor, but from taxpayers to politicians.

A 65-percent top tax rate? At the risk of understatement, that’s a recipe for less entrepreneurship and less innovation.

Moreover, based on America’s experience during the Reagan years, it’s safe to say that actual tax receipts would fall far, far short of the projection.

But the higher spending would be real, as would the inevitable increase in red ink. And it’s worth noting that the Manifesto proposes to subsidize the debt of bankrupt welfare states. Very much akin to the eurobond scheme, which I pointed out would be like cosigning a loan for an unemployed alcoholic with a gambling addiction.

P.S. During my recent trip to London, I repeatedly warned people that a real Brexit was the only sensible choice because the European Union at some point will fully morph into a transfer union (i.e., a European budget financed by European taxes). It was nice of Piketty to issue a Manifesto that confirms my concerns. Simply stated, the United Kingdom will be much better off in the long run if it escapes.

P.P.S. Let’s not forget that Piketty’s core argument for class warfare has been thoroughly and repeatedly debunked. Indeed, only 3 percent of economists agree with his theory.

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How Washington Profits from “Tax Extenders”

Since I’m a proponent of tax reform, I don’t like special favors in the tax code.

Deductions, exemptions, credits, exclusions, and other preferences are back-door forms of cronyism and government intervention.

Indeed, they basically exist to lure people into making decisions that otherwise aren’t economically rational.

These distortionary provisions help to explain why we have a hopelessly convoluted and deeply corrupt tax code of more than 75,000 pages.

And they also encourage higher tax rates as greedy politicians seek alternative sources of revenue.

This current debate over “tax extenders” is a sad illustration of why the system is such a mess.

Writing for Reason, Veronique de Rugy explains how special interests work the system.

Tax extenders are temporary and narrowly targeted tax provisions for individuals and businesses. Examples include the deductibility of mortgage-insurance premiums and tax credits for coal produced from reserves owned by Native American tribes. …These tax provisions were last authorized as part of the Bipartisan Budget Act of 2018, which retroactively extended them through the end of 2017, after which they have thus far been left to remain expired. If Congress indeed takes up extenders during the current lame-duck session, any extended provisions are likely to once again apply retroactively through the end of 2018, or perhaps longer. There are several problems with this approach to tax policy. Frequently allowing tax provisions to expire before retroactively reauthorizing them creates uncertainty that undermines any potential benefits from incentivizing particular behaviors.

To make matters more complicated, a few of the extenders are good policy because they seek to limit double taxation (a pervasive problem in the U.S. tax system).

…not all tax extenders are a problem. Some are meant to avoid or limit the double taxation of income that’s common in our tax code. Those extenders should be preserved. Yet others are straightforward giveaways to special interests. Those should be eliminated.

Veronique suggests a sensible approach.

It’s time for a new approach under which tax extenders are evaluated and debated on their individual merits. The emphasis should be on eliminating special-interest handouts or provisions that otherwise represent bad policy. Conversely, any and all worthy provisions should be made permanent features of the tax code. …The dire need to fix the federal budget, along with the dysfunctional effects from extenders, should provide the additional motivation needed to end this practice once and for all.

Needless to say, Washington is very resistant to sensible policies.

In part, that’s for the typical “public choice” reasons (i.e., special interests getting into bed with politicians to manipulate the system).

But the debate over extenders is even sleazier than that.

As Howard Gleckman explained for Forbes, lobbyists, politicians, and other insiders relish temporary provisions because they offer more than one bite at the shakedown apple.

If you are a lobbyist, this history represents scalps on your belt (and client fees in your pocket). If you are a member of Congress, it is the gift that keeps on giving—countless Washington reps and their clients attending endless fundraisers, all filling your campaign coffers, election after election. An indelible image: It is pre-dawn in September, 1986. House and Senate tax writers have just completed their work on the Tax Reform Act.  A lobbyist friend sits forlornly in the corner of the majestic Ways & Means Committee hearing room. “What’s wrong,” I naively ask, “Did you lose some stuff?” Oh no, he replies, he got three client amendments in the bill. And that was the problem. After years of billable hours, his gravy train had abruptly derailed. The client got what it wanted. Permanently. And it no longer needed him. Few make that mistake now. Lawmakers, staffs, and lobbyists have figured out how to keep milking the cash cow. There are now five dozen temporary provisions, all of which need to be renewed every few years. To add to the drama, Congress often lets them expire so it can step in at the last minute to retroactively resurrect the seemingly lifeless subsidies.

In other words, the temporary nature of extenders is a feature, not a bug.

This is a perfect (albeit depressing) example of how the federal government is largely a racket. It enriches insiders (as I noted a few days ago) and the rest of us bear the cost.

All of which reinforces my wish that we could rip up the tax code and replace it with a simple and fair flat tax. Not only would we get more growth, we would eliminate a major avenue for D.C. corruption.

P.S. I focused today on the perverse process, but I can’t help but single out the special tax break for electric vehicles, which unquestionably is one of the most egregious tax extenders.

EV tax credits…subsidize the wealthy at the expense of the lower and middle classes. Recent research by Dr. Wayne Winegarden of the Pacific Research Institute shows that 79 percent of EV tax credits were claimed by households with adjusted gross incomes greater than $100,000. Asking struggling Americans to subsidize the lifestyles of America’s wealthiest is perverse… Voters also shouldn’t be fooled by the promise of large environmental benefits. Modern internal combustion engines emit very little pollution compared to older models. Electric vehicles are also only as clean as the electricity that powers them, which in the United States primarily comes from fossil fuels.

I was hoping that provisions such as the EV tax credit would get wiped out as part of tax reform. Alas, it survived.

I don’t like when politicians mistreat rich people, but I get far more upset when they do things that impose disproportionate costs on poor people. This is one of the reasons I especially dislike government flood insurance, Social Security, government-run lotteries, the Export-Import Bank, the mortgage interest deduction, or the National Endowment for the Arts. Let’s add the EV tax credit to this shameful list.

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George H.W. Bush: Good Man, Bad President

I’m not a fan of President Bush. The first one or the second one.

Both adopted policies that, on net, reduced economic liberty.

Today, let’s focus on the recently deceased George H.W. Bush (a.k.a., Bush 41). By all accounts, he was a very good man, but that doesn’t mean he was a very good president. Or even a mildly good one.

Steve Moore’s column in the Washington Times is a damning indictment of his infamous read-my-lips tax betrayal.

Liberals love George H.W. Bush for the very tax increase betrayal that destroyed his presidency. …This was not just the political blunder of the half-century, it was a fiscal policy catastrophe. …What the history books are writing is that Mr. Bush showed political “courage” in breaking his “Read my lips: No new taxes” pledge, and he was thrown out of office for doing the right thing. Wrong. The quick story is that the Reagan expansion — in no small part due to the reduction of the highest tax rates from 70 percent to 28 percent — was shrinking deficit spending dramatically by the end of Ronald Reagan’s presidency. The budget deficit had fallen in half down to 2.9 percent of GDP by 1988. It was headed to below 2 percent if Mr. Bush simply had did nothing. …the 1990 budget deal became a license for Democrats to spend and spend. …Government expenditures accelerated at a faster pace than at any time in 30 years. In two years time, the domestic budget grew by almost 20 percent above inflation. …The tax increases either caused the recession or exacerbated it — ending the Reagan expansion. The economy lost 100,000 jobs and the unemployment rate rose and the unemployment rate rose from 5.5 percent to 7.4 percent. Real disposable income fell from 1990 to the eve of the 1992 election. If this tax hike was a success, so was the Hindenburg.

There’s a lot of good analysis in Steve’s column.

But I want to emphasize the part about the budget deficit being on a downward trajectory when Reagan left the White House. That’s absolutely accurate, as confirmed by both OMB and CBO projections.

All Bush needed to do was maintain the Gipper’s pro-market policies.

Unfortunately, he decided that “kinder and gentler” meant putting Washington first and giving politicians and bureaucrats more power over the economy.

And not just on fiscal policy.

Jim Bovard points out in USA Today that Bush 41 also had some very unseemly bouts of protectionism.

Bush was the most protectionist president since Herbert Hoover. Like Trump, he spoke of the need for level playing fields and fair trade. But Bush-style fairness gave federal bureaucrats practically endless vetoes over Americans’ freedom to choose foreign goods. Bush’s Commerce Department ravaged importers with one bureaucratic scam after another, using the dumping law to convict 97 percent of imports investigated, claiming that their prices were unfairly low to American producers (not consumers). Bush also ordered the U.S. International Trade Commission to investigate after ice cream imports threatened to exceed one percent of the U.S. market. And he perpetuated import quotas on steel and machine tools. …he slapped new textile import quotas on Nigeria, Indonesia, Egypt, the Philippines, Burma (now Myanmar), Costa Rica, Panama, Pakistan and many other nations. Mexico was allowed to sell Americans only 35,292 bras in 1989 — part of a byzantine regime that also restricted imports of tampons, typing ribbons, tarps, twine, table linen, tapestries, ties and thousands of other products.

To be fair, George H.W. Bush played a key role in moving forward NAFTA and the WTO/GATT, so his record on trade is mixed rather than bad.

Let’s return to the tax issue. Alan Reynolds explains that the Bush 41 tax hike was a painful example of the Laffer Curve in action.

The late President G.H.W. Bush famously reneged on his “no new taxes” pledge… The new law was intended to raise more revenue from high-income households and unincorporated businesses.  It was supposed to raise revenue partly by raising the top tax rate from 28% to 31% but more importantly by phasing-out deductions and personal exemptions… Treasury estimates expected revenues after the 1990 budget deal to be higher by a half-percent of GDP.  What happened instead is that revenues fell from 17.8% of GDP in 1989 to 17.3% in 1991, and then to 17% in 1992 and 1993.  Instead of rising from 17.8% of GDP to 18.3% as initial estimates assumed, revenues fell to 17%. …A recession began in October 1990, just as the intended tax increase was being enacted.  To blame the weak revenues of 1991-93 entirely on that brief recession begs the obvious question: To what extent was a recession that began with a tax increase caused or at least worsened by that tax increase?  …When discussing tax increases (or tax cuts), journalists and economists must take care to distinguish between intended effects on revenue and actual effects.

We’ll never know, of course, how the 1990 tax increase impacted the economy. As a general rule, I think monetary policy is the first place to look when assigning blame for downturns.

But there’s no question that the tax increase wasn’t helpful.

That being said, my biggest complaint about Bush 41 was not his tax increase. It was all the new spending.

Not just new spending in general. What’s especially galling is that he allowed domestic spending to skyrocket. Almost twice as fast as it increased under Obama and more than twice the rate of increase we endured under Clinton and Carter.

The opposite of Reaganomics, to put it mildly.

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There’s No Galt’s Gulch, but New Zealand, Switzerland, and Hong Kong Are the Next-Best Alternatives

What’s the world’s freest nation?

I’ve suggested that Australia as an option if the United States ever suffers a Greek-style collapse, but my answer wasn’t based solely on that country’s level of freedom.

Another option is to look at Economic Freedom of the World, which is an excellent resource, but it only measures the degree to which a nation allows free markets.

If you want to know the world’s freest nation, the best option is to peruse the Human Freedom Index.  First released in 2013, it combines economic freedom and personal freedom.

The 2018 version has just been published, and, as you can see, New Zealand is the world’s most-libertarian nation, followed by Switzerland and Hong Kong. The United States is tied with Sweden for #17.

If you scan the top-20 list, you’ll notice that North America, Western Europe, and the Antipodes (Australia and New Zealand) dominate.

And that also is apparent on this map (darker is better). So maybe “western civilization” isn’t so bad after all.

Here is an explanation of the report’s guiding methodology. Simply stated, it’s a ranking of “negative liberty,” which is basically freedom from government coercion.

The Human Freedom Index casts a wide net in an attempt to capture as broad a set of freedoms as could be clearly identified and measured. …Freedom in our usage is a social concept that recognizes the dignity of individuals and is defined by the absence of coercive constraint. …Freedom thus implies that individuals have the right to lead their lives as they wish as long as they respect the equal rights of others. Isaiah Berlin best elucidated this notion of freedom, commonly known as negative liberty. In the simplest terms, negative liberty means noninterference by others. …This index is thus an attempt to measure the extent to which the negative rights of individuals are respected in the countries observed. By negative rights, we mean freedom from interference—predominantly by government—in people’s right to choose to do, say, or think anything they want, provided that it does not infringe on the rights of others to do likewise.

Unsurprisingly, there is a correlation between personal freedom and economic freedom.

Though it’s not a perfect correlation. The Index highlights some of the exceptions.

Some countries ranked consistently high in the human freedom subindexes, including Switzerland and New Zealand, which ranked in the top 10 in both personal and economic freedom. By contrast, some countries that ranked high on personal freedom rank significantly lower in economic freedom. For example, Sweden ranked 3rd in personal freedom but 43rd in economic freedom; Slovenia ranked 23rd in personal freedom but 71st in economic freedom; and Argentina ranked in 42nd place in personal freedom but 160th in economic freedom. Similarly, some countries that ranked high on economic freedom found themselves significantly lower in personal freedom. For example, Singapore ranked in 2nd place in economic freedom while ranking 62nd in personal freedom; the United Arab Emirates ranked 37th in economic freedom but 149th in personal freedom; and Qatar ranked 38th in economic freedom but 134th in personal freedom.

This raises an interesting question. If you had to move, and assuming you couldn’t move to a nation that offered both types of freedom, would you prefer a place like Sweden or a place like Singapore?

As an economist, my bias would be to choose Singapore.

But if you look at the nations in the top-10 for personal freedom, they’re all great place to live (and they tend to be very market-oriented other than their big welfare states). So I certainly wouldn’t blame anyone for instead choosing Sweden.

P.S. There are some very attractive micro-states that were not including in the Human Freedom Index, presumably because of inadequate data. I suspect places such as Bermuda, Liechtenstein, Monaco, and the Cayman Islands would all get very high scores if they were included.

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More Evidence for Private Social Security

The world is in the middle of a dramatic demographic transition caused by increasing lifespans and falling birthrates.

One consequence of this change is that traditional tax-and-transfer, pay-as-you-go retirement schemes (such as Social Security in the United States) are basically bankrupt.

The problem is so acute that even the normally statist bureaucrats at the Organization for Economic Cooperation and Development are expressing considerable sympathy for reforms that would allow much greater reliance on private savings (shifting to what is known as “funded” systems).

Countries should introduce funded arrangements gradually… Policymakers should carefully assess the transition as it may put an additional, short-term, strain on public finances… Tax rules should be straightforward, stable and consistent across all retirement savings plans. …Countries with an “EET” tax regime should maintain the deferred taxation structure… Funded, private pensions may be expected to support broader economic growth and accelerate the development of local capital markets by creating a pool of pension savings that must be invested. The role of funded, private pensions in economic development is likely to become more important still as countries place a higher priority on the objective of labour force participation. Funded pensions increase the incentive to work and save and by encouraging older workers to stay in the labour market they can help to address concerns about the sustainability and adequacy of public PAYG pensions in the face of demographic changes.

Here’s a chart from the OECD report. It shows that many developed nations already have fully or partly privatized systems.

By the way, I corrected a glaring mistake. The OECD chart shows Australia as blue. I changed it to white since they have a fully private Social Security system Down Under.

The report highlights some of the secondary economic benefits of private systems.

Funded pensions offer a number of advantages compared to PAYG pensions. They provide stronger incentives to participate in the labor market and to save for retirement. They create a pool of savings that can be put to productive use in the broader economy. Increasing national savings or reallocating savings to longer-term investment supports the development of financial markets. …More domestic savings reduces dependency on foreign savings to finance necessary investment. Higher investment may lead to higher productive capacity, increasing GDP, wages and employment, higher tax revenues and lower deficits.

Here’s the chart showing that countries with private retirement systems are among the world leaders in pension assets.

The report highlights some of the specific nations and how they benefited.

Over the long term, transition costs may be at least partially offset by additional positive economic effects associated with introducing private pensions rather than relying solely on public provision. …poverty rates have declined in Australia, the Netherlands and Switzerland since mandatory funded pensions were introduced. The initial transformation of Poland’s public PAYG system into a multi-pillar DC approach helped to encourage Warsaw’s development as a financial centre. …the introduction of funded DC pensions in Chile encouraged the growth of financial markets and provided a source of domestic financing.

For those seeking additional information on national reforms, I’ve written about the following jurisdictions.

• Australia
• Denmark
• Chile
• Switzerland
• Hong Kong
• Netherlands
• Faroe Islands
• Sweden

At some point, I also need to write about the Singaporean system, which is one of the reasons that nation is so successful.

P.S. Needless to say, it would be nice if the United States was added to this list at some point. Though I won’t be holding my breath for any progress while Trump is in the White House.

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Research on Why Lower-Income People Are Skeptical about a Bigger Welfare State

There was a book last decade by Thomas Frank, What’s the Matter with Kansas?, that asked why lower-income voters in the state didn’t vote for greater levels of redistribution.

The author claimed these voters were sidetracked by cultural issues, which may very well be part of the story. I like to think that these Kansans also were motivated by ethics and that they realized it would be wrong to use government coercion to take money from other people.

And maybe, unlike the folks at the IMF, they were not motivated by envy and they realized that high taxes and more redistribution would make them worse off over time because of the negative impact on overall prosperity.

Well, it appears that the folks in Kansas aren’t that different from people in India, Morocco, Nigeria, Mexico, and South Africa. At least that’s the takeaway from some new research that Christopher Hoy wrote about for the World Bank. Here’s the issue he investigated.

Social commentators and researchers struggle to explain why, despite growing inequality in many countries around the world,  there is often relatively limited support among poorer people for policies where they are set to benefit (such as increases in cash transfers or in the minimum wage). …Conventional theories of preferences for redistribution, such as the Meltzer-Richard Hypothesis, imply that if poor people were made aware they were relatively poorer than most other people in their country, they would become more supportive of redistribution. Yet there is little empirical evidence that evaluates this prediction. …empirical evidence is needed to understand how poorer people’s misperceptions of their relative position in the national income distribution effects their support for redistribution.

Here’s the methodology he used.

I conducted the first cross country survey experiment on preferences for redistribution in the developing world… The experiment involved over 16,000 respondents in five developing countries that make up almost 25% of the global population (India, Nigeria, Mexico, South Africa and Morocco). …To test whether informing poor people of their relative position in the national income distribution makes them more supportive of redistribution, I randomly allocate half of the respondents in each country to be told which quintile their household belongs to in the national income distribution (based upon their reported household income and the number of household members). …After the treatment they were asked if they thought the gap between the rich and poor was too large and whether the government was responsible for closing this gap.

And here are some of the results.

People tend to think they are in the middle of the income distribution, regardless of whether they are rich or poor. …poor people who perceived themselves to be in the bottom two quintiles of the distribution were between 15 to 28 percentage points more likely to prefer lower levels of inequality than poor people who perceived themselves to be in the top two quintiles. …Surprisingly, telling poor people that they are poorer than they thought makes them less concerned about the gap between the rich and poor in their country…there was no effect from the treatment on these people’s support for the government to close the gap between the rich and poor.

Here’s a chart showing how people became less sympathetic to government-coerced redistribution after learning more about their own economic status.

The author speculates on possible reasons for these results.

A plausible channel that is causing this effect is people using their own living standard as a ‘benchmark’ for what they consider acceptable for others. …people…realise two points. Firstly, there are fewer people in their country with a living standard they considered to be relatively poor than they had thought. Secondly, what they had considered to be an ‘average’ living standard (their own standard of living) is actually relatively poor compared to other people in their country. I show how both of these points would lead people to respond by being less likely to be concerned about the gap between the rich and poor in their country. …there are opposing channels through which poorer people’s preferences for redistribution respond to information about their relative position. On the one hand, poorer people may be more supportive if they are set to benefit from redistribution. However, on the other hand they may be less supportive if they are less concerned about the absolute living standard of people who are relatively poor.

These are all plausible answers.

Though I have the same questions about this research as I did about Frank’s book. Do people in these five developing nations have any level of moral aversion to redistribution and/or do they understand (at least implicitly) that a tax-and-redistribute model is a recipe for national economic decline?

Perhaps a more practical way of looking at the issue is to ask whether lower-income people care most about economic growth or economic inequality.

Many of the professional left, including the ideologues at the IMF, are fixated on the latter and they’re willing to hurt the poor if the rich suffer even greater harm (in other words, Margaret Thatcher was right about their motives).

By contrast, I strongly suspect the average lower-income person is far more interested in more prosperity for their family and far less concerned about the prosperity of the rich family on the other side of town. They presumably are unaware of the powerful Chinese data on poverty reduction and inequality, but they instinctively understand that a rising tide lifts all boats.

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The World’s Most Depressing Tweet

I periodically will make use of “most depressing” in the title of a column when sharing bad news.

And new data from the Census Bureau definitely qualifies as bad news. It confirms what I’ve written about how the Washington region has become the richest part of America.

But the D.C. area didn’t become wealthy by producing value. Instead, it’s rolling in money because of overpaid bureaucrats, fat-cat lobbyists, sleazy politicians, beltway-bandit contractors, and other grifters who have figured out how to hitch a ride on the federal gravy train.

Anyhow, here’s a tweet with the bad news (at least if you’re a serf elsewhere in America who is paying taxes to keep Washington fat and happy).

Highest counties by median household income (2013-2017):
-Loudoun County, Va.
-Fairfax County, Va.
-Howard County, Md.
-Falls Church City, Va.
-Arlington County, Va. https://t.co/1AA3U00xBA #ACSdata

— U.S. Census Bureau (@uscensusbureau) December 6, 2018

Most of my friends who work for the federal government privately will admit that they are very fortunate.

But when I run into someone who denies that bureaucrats get above-market compensation, I simply share this data from the Labor Department. That usually shuts them up.

By the way, there’s strong evidence from the European Central Bank that overpaid bureaucrats have a negative impact on macroeconomic performance.

And the World Bank has produced a study showing how bureaucrats manipulate the political process.

…public sector workers are not just simply implementers of policies designed by the politicians in charge of supervising them — so called agents and principals, respectively. Public sector workers can have the power to influence whether politicians are elected, thereby influencing whether policies to improve service delivery are adopted and how they are implemented, if at all. This has implications for the quality of public services: if the main purpose of the relationship between politicians and public servants is not to deliver quality public services, but rather to share rents accruing from public office, then service delivery outcomes are likely to be poor.

Here’s my video explaining how bureaucrats are overpaid. It was filmed in 2010, so many of the numbers are now out-dated, but the arguments are just as strong today as they were back then.

But keep in mind that the bureaucracy is only one piece of the puzzle.

The D.C. metropolitan region is unjustly rich because of everyone else who has figured out how to divert taxpayer money into their pockets. That includes disgusting examples of Democrat sleaze and Republican sleaze.

Simply stated, Washington is riddled with rampant corruption as insiders get rich at our expense. No wonder many of them object to my license plate!

P.S. Here’s some data comparing the size and cost of bureaucracy in various nations.

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France, Taxes, and Riots

Maybe there’s hope for France. When Greeks, Belgians, and the Brits riot, it’s because they want more handouts.

The French, by contrast, have taken to the streets to protest higher taxes. And they have plenty of reasons to be upset, as the Wall Street Journal reports.

France became the most heavily taxed of the world’s rich countries in 2017… The Organization for Economic Cooperation and Development’s annual review of taxes in its 36 members published on Wednesday showed the French government’s tax revenues were the equivalent of 46.2% of economic output, up from 45.5% in 2016 and 43.4% in 2000. The Danish government’s tax take, which was the highest among OECD members between 2002 and 2016, fell to 46% of gross domestic product from 46.2% in the previous year and 46.9% in 2000. …The rise in French tax revenues was in line with a longstanding trend… The average tax take across the organization’s members edged up to 34.2% of GDP in 2017 from 34% in 2016 and 33.8% in 2000.

I suppose we should applaud Denmark for no longer being at the top of this list.

The tax burden on Danes is still absurdly high, but at least there is a small bit of progress (presumably because of a modest amount of long-overdue spending restraint).

Shifting back to France, the WSJ story mentions that the French president had to retreat on his plan for higher fuel taxes.

President Emmanuel Macron backed off a fuel-tax increase that enraged much of the nation and sparked a grass-roots protest movement against his government. …Before Tuesday’s climb down, Mr. Macron’s government had planned to raise fuel taxes in an effort to cut automobile pollution. …But the planned move sparked the worst riots to hit Paris in decades on Saturday, leaving the city’s shopping and tourist center dotted with burning cars and damaged storefronts. Protesters vandalized the Arc de Triomphe, rattling Mr. Macron’s administration and the country.

For what it’s worth, I’m glad Macron backed down. He actually has some good proposals to liberalize the French economy. That’s where he should be focused, not on concocting new ways to fleece citizens.

To be sure, over-taxation is not limited to France. Here are the most heavily taxed nations according to the OECD report.

Income taxes and payroll taxes generate most of the revenue, as you can see. But keep in mind that all of these countries also have onerous (and ever-increasing) value-added taxes, as well as other levies.

If I was in France (or any of these nations), the first thing I would point out is that people are getting ripped off.

A huge chunk of their income is seized by tax collectors, yet they’re not getting better services in exchange.

Are schools, roads, and healthcare in France better than they are in Switzerland or New Zealand, where the burden of government is much lower?

Or are they better in France than they are in Hong Kong and Singapore, where the fiscal burden is much, much lower?

The European Central Bank confirms that the answer is no.

Here is the data on taxes and spending for OECD member nations. For some reason, not all countries in the OECD’s tax database are included in the OECD’s spending database. Regardless, the obvious takeaway is that big welfare states require confiscatory tax regimes (with the middle class getting pillaged).

A few closing observations on this data.

• Governments also have non-tax revenues, so red ink is only a partial explanation for the gap between spending and taxes in various nations.
• Because of somewhat distorted GDP data, the actual tax burden in Ireland and Luxembourg is worse than shown in these numbers.
• From 1965-present, the tax burden has increased the most in Greece. Needless to say, that has not been a recipe for economic or fiscal success.
• The U.S. has a modest fiscal burden compared to other industrialized nations, which helps to explain why living standards are higher in America.
• Mexico is not a low-tax nation. Like many developing economies, its government is simply too incompetent and corrupt to enforce onerous tax laws.

Circling back to our main topic, I joked years ago that the French national sport is taxation. It’s so bad that thousand of taxpayers have faced effective tax rates of more than 100 percent. Indeed, taxes are so onerous that even EU bureaucrats have warned taxes are excessive.

P.S. I guess we shouldn’t be surprised that more than half the population would flee to America if they had the opportunity.

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The Economic Illiteracy of Tariff Man

Both Barack Obama and Hillary Clinton have said really foolish things, but Donald Trump may have set a new record for economic illiteracy with this tweet.

….I am a Tariff Man. When people or countries come in to raid the great wealth of our Nation, I want them to pay for the privilege of doing so. It will always be the best way to max out our economic power. We are right now taking in $billions in Tariffs. MAKE AMERICA RICH AGAIN

— Donald J. Trump (@realDonaldTrump) December 4, 2018

This tweet contains an astounding collection of inaccurate and offensive statements.

Here my corrective commentary.

I’ll briefly elaborate, starting at the top left and going clockwise.

• It is true that the United States used to rely on Hamilton-style tariffs, but trade taxes didn’t cause growth in the 1800s. Our prosperity was more a result of no income tax, no welfare state, and no intrusive regulatory/administrative state.
• Trade builds wealth and enhances prosperity, and that’s true whether the people trading live next door, across town, in different states, or in different nations.
• Trade taxes (like all taxes) create a wedge between buyers and sellers, meaning that economic output is lower (“deadweight loss“) when people have to pay for the “privilege.”
• Protectionism is a form of cronyism. Politicians gain power because they have power to pick winners and losers.
• Tariffs are taxes. The money that is being collected is coming out of the pockets of Americans.
• The last time the United States made a big push for protectionism was in the 1930s. At the risk of understatement, that was not an era of prosperity.

The bottom line is that Trump is playing with fire. Indeed, what’s happening in financial markets is a very worrisome sign that he’s putting the economy at risk.

To be sure, I don’t think all of the volatility on Wall Street can be blamed on Trump’s protectionist policies and statement (the Federal Reserve should be blamed for creating a fragile market with easy-money policies). But a trade war could be the trigger that leads to the next recession.

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Supply-Side Economics and the Post-Reagan Years

Steve Moore and Art Laffer are the authors of Trumponomics, a largely favorable book about the President’s economic policy.

I have a more jaundiced view about Trump.

I’m happy to praise his good policies (taxes and regulation), but I also condemn his bad policies (spending and trade).

And as you might expect, some people are completely on the opposite side from Moore and Laffer.

Writing for New York, Jonathan Chait offers a very unfriendly review of the book. He starts by categorizing Steve and Art (as well as Larry Kudlow, who wrote the foreword) as being fixated on tax rates.

The authors of Trumponomics are Larry Kudlow (who left in the middle of its writing to accept a job as director of the National Economic Council), Stephen Moore, and Arthur Laffer. The three fervently propound supply-side economics, a doctrine that holds that economic performance hinges largely on maintaining low tax rates on the rich. …Kudlow, Moore, and Laffer are unusually fixated on tax cuts, but they are merely extreme examples of the entire Republican Establishment, which shared their broad priorities.

For what it’s worth, I think low tax rates are good policy. And I suspect that the vast majority of economists will agree with the notion that lower tax rates are better for growth than high tax rates.

But Chait presumably thinks that Larry, Steve, and Art overstate the importance of low rates (hence, the qualification about “economic performance hinges largely”).

To bolster his case, he claims advocates of low tax rates were wrong about the 1990s and the 2000s.

In the 1990s, the supply-siders insisted Bill Clinton’s increase in the top tax rate would create a recession and cause revenue to plummet. The following decade, they heralded the Bush tax cuts as the elixir that had brought in a glorious new era of prosperity. …The supply-siders have maintained absolute faith in their dogma in the face of repeated failure by banishing all doubt. …they have confined their failed predictions to the memory hole.

If Chait’s point is simply that some supply-siders have been too exuberant at times, I won’t argue. Exaggeration, overstatement, and tunnel vision are pervasive on all sides in Washington.

Heck, I sometimes fall victim to the same temptation, though I try to atone for my bouts of puffery by bending over backwards to point out that taxation is just one piece of the big policy puzzle.

Which is why I want to focus on this next excerpt from Chait’s article. He is very agitated that the book praises the economic performance of the Clinton years and criticizes the economic performance of the Bush years.

A brief economic history in Trumponomics touts the gains made from 1982 to 1999, and laments “those gains stalled out after 2000 under Presidents George W. Bush and Barack Obama.” Notice, in addition to starting the Reagan era in 1982, thus absolving him for any blame for the recession that began a year into his presidency, they have retroactively moved the hated leftist Bill Clinton into the right-wing hero camp and the beloved conservative hero George W. Bush into the failed left-wing statist camp.

Well, there’s a reason Clinton is in the good camp and Bush is in the bad camp.

As you can see from Economic Freedom of the World (I added some numbers and commentary), the U.S. enjoyed increasing economic liberty during the 1990s and suffered decreasing economic liberty during the 2000s.

For what it’s worth, I’m not claiming that Bill Clinton wanted more economic liberty or that George W. Bush wanted more statism. Maybe the credit/blame belongs to Congress. Or maybe presidents get swept up in events that happen to occur when they’re in office.

All I’m saying is that Steve and Art are correct when they point out that the nation got better overall policy under Clinton and worse overall policy under Bush.

In other words, Clinton’s 1993 tax increase was bad, but it was more than offset by pro-market reforms in other areas. Likewise, Bush’s tax cuts were good, but they were more than offset by anti-market policies in other areas.

P.S. Chait complained about Moore and Laffer “starting the Reagan era in 1982, thus absolving him for any blame for the recession that began a year into his presidency”.

Since I’m a fan of Reaganomics, I feel compelled to offer three comments.

• First, the recession began in July 1981. That’s six months into Reagan’s presidency rather than one year.
• Second, does Chait really want to claim that the downturn was Reagan’s fault? If so, I’m curious to get his explanation for how a tax cut that was signed in August caused a recession that began the previous month.
• Third, the recession almost certainly should be blamed on bad monetary policy, and even Robert Samuelson points out that Reagan deserves immense praise for his handling of that issue.

P.P.S. Bill Clinton’s 1993 tax hike didn’t produce the budget surpluses of the late 1990s. If you don’t believe me, check out the numbers from Bill Clinton’s FY1996 budget.

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The Looming Debt Crisis in Developing Economies

I don’t like writing about deficits and debt because I don’t want to deflect attention from the more important underlying problem of excessive government spending.

Indeed, I constantly explain that spending is what diverts resources from the productive sector of the economy, regardless of whether outlays are financed by taxes or borrowing. This is why a spending cap is far and away the best rule for fiscal policy.

That being said, red ink does matter when politicians incur so much debt that investors (i.e., the folks in the private sector who buy government debt) decide that a government no longer is trustworthy. And when that happens, interest rates climb because investors insist on getting a higher return to compensate for the risk of default.

And if things really deteriorate, a government may default (i.e., no longer make promised payments) and investors obviously will refuse to lend any more money. That’s basically what happened in Greece.

Sadly, most governments have not learned from Greece’s mistakes. Indeed, government debt in Europe is now significantly higher than it was before the 2008 recession.

This suggests that there will be another fiscal crisis when the next recession occurs. Italy presumably will be the big domino to fall, though there are many other nations in Europe that could get in trouble.

But the problems of excessive spending and excessive debt are not limited to Europe. Or Japan.

The World Bank has a new report that shows that red ink is a growing problem in the rest of the world. More specifically, the report is about “fiscal space,” which some see as a measure of budgetary flexibility but I interpret as an indicator of budgetary vulnerability. Here’s how it is defined in the report.

…fiscal space is simply defined as the availability of budgetary resources to conduct effective fiscal policy. …some studies define it as the budgetary room to create and allocate funding for a certain purpose without threatening a sovereign’s financial position. …Debt service capacity is a critical component of fiscal space. It has multiple dimensions, including financing needs that are related to budget positions and debt rollover, access to liquid markets, resilience to changes in market valuations of debt, and the coverage of contingent liabilities. …Market participants’ perceptions of sovereign risk reflect and, in turn, influence an economy’s ability to tap markets and service its obligations. Thus, fiscal space can function as an essential instrument of macroeconomic risk management.

And what is “effective fiscal policy”?

From the World Bank’s misguided perspective, it’s the ability to engage in Keynesian spending.

Countries with ample fiscal space can use stimulus measures more extensively.

But let’s set aside that anti-empirical assertion.

I found the report useful (though depressing) because it had data showing how debt levels have increased, especially in emerging market and developing economies (EMDEs).

Fiscal space improved during 2000−07, but has shrunk around the world since the global financial crisis. …debt sustainability indicators, including government debt and fiscal sustainability gaps, have deteriorated in at least three-quarters of countries in the world. …and perceptions of market participants on sovereign credit risks have worsened. …Since 2011, fiscal space has shrunk in EMDEs. …fiscal deficits widened to 3 to 5 percent of GDP in 2016, on average… Government debt has risen to 54 percent of GDP, on average, in 2017. …EMDEs need to shore up fiscal positions to prevent sudden spikes in financing costs… Fiscal space has been shrinking in EMDEs since the global financial crisis. It needs to be strengthened.

Here is a set of charts from the report, showing both developed nations (red lines) and developing nations (yellow lines). The top-left chart shows debt climbing for EMDEs and the bottom-right chart shows debt ratings dropping for EMDEs.

The EMDEs have lower debt levels, but their debt is rated as more risky because poorer nations don’t have a very good track record of dealing with recessions and fiscal crises (would you lend money to Argentina?).

In any event, the yellow lines in the top-left chart and bottom-right chart are both headed in the wrong directions.

The bottom line? It won’t just be European welfare states that get in trouble when there’s another recession.

By the way, the report from the World Bank offers some policy advice. Some of it potentially good.

Pension reforms could…support fiscal credibility and generate long-term fiscal gains… credible and well-designed institutional mechanisms can help support fiscal discipline and strengthen fiscal space. …Fiscal rules impose numerical constraints on budgetary aggregates—debt, overall balance, expenditures.

But most of it bad.

Fiscal sustainability could be improved by increasing the efficiency of revenue collection… Measures to strengthen revenue collection could include broadening tax bases to remove loopholes for higher-income households or profitable corporates. In countries with high levels of informality, taxing the informal sector—for example, by promoting a change in payment methods to non-cash transaction and facilitating collective action by informal sector associations—could help raise revenues directly, as well as indirectly… In EMDEs, reforms to broaden revenue bases and strengthen tax administration can generate revenue gains.

At the risk of stating the obvious, the problem in developing nations is bad government policy, not insufficient revenue in the hands of politicians.

P.S. I included the caveat that some of the recommendations were “potentially good” since the report didn’t specify the type of pension reform or the type of fiscal rule. I like to think the authors were referring to personal retirement accounts and spending caps, but it’s not clear.

P.P.S. The IMF subsidizes and encourages bad fiscal policy with bailouts. Fortunately, there is a much more sensible approach.

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The Equal-Pay Myth that Refuses to Die

While capitalism is the only system to produce mass prosperity, I actually support free enterprise more because it is a moral system based on voluntary exchange. The various forms of statism, by contrast, are based on government coercion.

But non-coercion is not the only moral reason to support capitalism. I also applaud that free markets penalize racism and sexism. Simply stated, narrow-minded people are going to lose business to ethical competitors and forego income if they make choices based on animus rather than what makes economic sense.

This doesn’t mean an end to racism and sexism, but it certainly suggests that systemic and pervasive discrimination is very unlikely without government intervention (such as the Jim Crow laws that created government-enforced racism).

This is why I’m naturally suspicious of the claim that there’s a gender pay gap.

Mark Perry and Andrew Biggs of the American Enterprise Institute summarize the issue, pointing out that wage differences reflect personal choices and economic realities

…the 20% gender wage gap is actually a tiresome statistical myth that persists in the face of overwhelming evidence to the contrary. …The reality is that men and women make very different career and work choices, and frequently play very different family roles, especially for families with children. While gender discrimination undoubtedly occurs, it is individuals’ choice – not discrimination – which accounts for the vast majority of gender differences in earnings. …Compensating wage differentials are differences in pay that are designed to attract employees to jobs that otherwise would be undesirable. …The undesirable aspects of certain jobs can range from the mundane to the gruesome. For instance, men have longer average commute times to their jobs than women. In the U.S., the average male spends 33 more hours commuting to work each year. How much extra pay would you demand to spend the equivalent of four additional eight-hour days sitting in traffic or on a bus riding to work? …men are also much more likely to be injured or killed on the job. Economists have long found that, all else equal, more dangerous jobs pay higher average wages than safer jobs. And the 20 jobs with the highest occupational fatality rates are on average 94% male and 92.5% of workplace fatalities overall are men.

Writing for the Hill, Christina Hoff Summers of AEI issues a challenge that left-feminists are unable to answer. They never even try.

Everywhere we hear that for the same work, women only make 77 cents for every dollar a man makes. Think about that. If it were true, why wouldn’t businesses only hire women? Wages are the biggest expense for most businesses. So, hiring only women would reduce costs by nearly a quarter — and that would go right to the bottom line.

She points out that academic research repeatedly had debunked the claim that there is systemic discrimination that requires government intervention.

…this claim has been debunked over and over again. …The 23-cent gender pay gap we often hear about is simply the difference between the average earnings of all men and women who work full-time. It does not account for differences in occupations, positions, education, job tenure, or hours worked per week. When economists account for these relevant factors, the wage gap narrows to a few cents. By now, even feminist wage gap activists agree — at least when pressed.

Speaking of academic evidence, the Wall Street Journal opines about some recent research from Harvard economists.

Progressives claim that the pay difference between men and women is caused by sexism that government must redress. But a new study offers compelling evidence that the choices and priorities of women account for much of the disparity. The study examined data from the Massachusetts Bay Transportation Authority because it is a union shop with uniform hourly wages in which men and women adhere to the same rules and enjoy the same benefits. Workers are promoted based on seniority, not performance. Male and female workers of the same seniority have the same options for scheduling, routes, vacation and overtime. Under such rigid work rules, even a sexist boss or manager would have little ability to give men preferential treatment. Yet even at the Transportation Authority, female train and bus operators earned less than men. To explain why, Harvard economists Valentin Bolotnyy and Natalia Emanuel looked at time cards and scheduling from 2011 to 2017, also factoring in sex, age, date of hire, tenure, and whether an employee was married or had dependents. They found that male train and bus operators worked about 83% more overtime hours than their female colleagues and were twice as likely to accept an overtime shift on short notice. …The study ratifies the common-sense observation that men and women often have different priorities, and the best way to accommodate them is through the marketplace, not the untender mercies of government.

Notwithstanding all this evidence, some journalists are willing to publicize nonsensical numbers. Here are some excerpts from a column by Annie Lowrey in the Atlantic.

Do women earn…a shocking 49 cents on the dollar, as calculated by the social scientists Stephen Rose and Heidi Hartmann in a new analysis published by the Institute for Women’s Policy Research? …According to Rose, …the most accurate way to compare women’s and men’s earnings is to take the career-long view. “When you look at all women versus all men over time, the gap is 51 cents,” he said, referring to the 15-year figure. …What might help close this wide, long earnings chasm? Rose and Hartmann suggest…paid family leave and child-care subsidies…public-policy changes would give women more control over their working lives, and would help foster a more equitable workplace. And that would be good for everybody.

I’m guessing Ms Lowrey knows this study is tripe because she seeks to preserve her credibility by noting that pay gaps basically disappear when using honest numbers.

The most common way to measure the gender earnings gap is to look at how much women working full-time and year-round make, and compare it with what men working full-time and year-round make. …That number has some significant shortcomings, researchers have long argued. Women work different kinds of jobs than men do and have different levels of work experience, too. …Comparing apples to apples and oranges to oranges, women earn close to what men earn: Women in similar workplaces with similar titles and similar credentials make pretty much what their male peers do, whether they are fast-food employees making close to the minimum wage or corporate executives making hundreds of thousands of dollars a year.

But she doesn’t explain why the study is garbage.

To understand that, we’ll turn to Carrie Lukas, who debunks the IWPR numbers for National Review.

The study claims that the wage gap has been woefully understated, and that in reality women “earn just 49 cents to the typical men’s dollar, much less than the 80 cents usually reported.” How did they come to this jaw-dropping conclusion? Simple. They have redefined the “gender wage gap.” They are no longer looking at full-time workers, or even at consistent part-time workers. Rather, they are comparing the earnings of all women and all men who worked at any point during a 15-year period. More than four out of every ten women took more than a year out of the work force during that period, which was nearly twice the rate of men. As a result, women, on average, earned a lot less. That’s hardly a shock. …IWPR is misleading readers with the suggestion that the “wage gap” is really 49 cents on the dollar. …those who care about women’s economic advancement should seek to build an awareness of the very real consequences of the choices women make they decide what to study, which fields to enter, and how to plan their work lives so they can make informed choices.

Let’s close with this video from Ms. Sommers, which includes some rather amusing information about hypocrisy in the Obama White House.

P.S. Since I mentioned the previous administration, it’s worth noting that one of Obama’s appointees to the Council of Economic Advisers refused to defend the White House’s absurd claim that women only got 77 cents for doing the same work as men.

P.P.S. Given its track record of shoddy and biased output, is anyone surprised that the Paris-based Organization for Economic Cooperation and Development is pushing dishonest gender pay data?

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