To Improve Transportation, More Private Sector or More Federal Involvement?

There are some remarkable stories of the private sector showing initiative when governments fail to maintain infrastructure.

• In response to dithering by government, residents and businesses in Hawaii put up $4 million to fix an important community road.
• Smugglers in Russia repaired a road to facilitate untaxed trade between Russian and Belarus.
• I also wrote about a guy in England who was fed up with the slow pace of road repairs and built a private toll road.

Regarding the final example, here’s a video on his project.

I’m particularly amused that this example of practical libertarianism (I’m guessing without the cost overruns that are inevitable with government) was made possible because zoning laws (normally an obstacle to sensible land use) basically allowed the organizer to ask for forgiveness afterward rather than permission beforehand.

To be sure, these isolated examples are hardly a sign that infrastructure is going to be privatized in the United States.

But maybe we can at least learn a lesson on whether we should have more centralization and control from Washington, versus more decentralization and private-sector involvement.

Regarding the former, Chris Edwards explained for FEE that the federal gas tax should not be increased since politicians impose taxes for the ostensible purpose of building and maintaining roads, but then they divert the money to other programs that buy more votes.

…a federal gas tax increase makes no sense. State governments own America’s highways, and they are free to raise their own gas taxes whenever they want. Indeed, 19 states have raised their gas taxes just since 2015, showing the states are entirely capable of raising funds for their own transportation needs. …Also consider that gas taxes used to be a more pure user charge for highways, but these days gas tax money is diverted to inefficient nonhighway uses such as transit. …About 20 percent of those funds (about $8 billion) are diverted to transit and other nonhighway uses. …In 2016, state governments raised $44 billion from fuel taxes, and they diverted 24 percent—14 percent to transit and 10 percent to other activities. …The states also raised $38 billion from vehicle fees. They diverted 34 percent of those funds—13 percent to transit and 21 percent to other activities.

Regarding the latter, the City Manager of Milford, Delaware, wrote a column for the Washington Post about benefiting from private financing for road repairs.

…when I heard that a Domino’s marketing campaign was paying municipalities to repair potholes in return for credit for the work, I quickly responded. …Our role was easy. In exchange for a $5,000 check, Domino’s wanted its logo and a tag­line saying “Oh yes we did” in spray chalk on the road next to each repair. …In two weeks, they fixed more than 40 potholes of different sizes — about 20 to 25 percent of the potholes that appeared after the winter. …The program has elicited some complaints about what it means that a pizza chain is funding basic government projects. …But we saw this as a great idea for our community. …In many communities, there’s a constant competition between paying for police and paying for everything else. …if we demonstrate good stewardship of our resources, then hopefully fewer people will complain about paying taxes. …sometimes that means letting Domino’s pick up the tab.

Incidentally, sometimes “anarchists” decide to fix potholes without even waiting for permission.

Let’s close with some libertarian-themed humor.

Some people apparently thing that roads wouldn’t exist in the absence of government. This is an anti-empirical sentiment since many of the first main arteries in America were private roads. And we still have private highways being built today.

Not to mention plenty of neighborhood developments and office parks (or even stairs) that are examples of privately financed and privately maintained infrastructure.

Yet there are still doubters, so this sarcastic image is for them.

Speaking of sarcasm, this next image is a clever combination of two concepts.

First, politicians have an insatiable appetite to tax us over and over again.

Second, they don’t fulfill the responsibilities that they claim only government can handle.

The bottom line is that Washington should have no role in infrastructure. And even if you think infrastructure should be handled by state and local government, that definitely does not (or should not) imply a large public sector.

P.S. Here’s some more libertarian-themed infrastructure humor.

P.P.S. To be balanced, libertarians can be mocked because of our disdain for public goods.

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Young People Reject Socialism in the Classroom

Redistribution has a corrosive impact on both ends. Recipients are harmed because they get trapped in dependency, and workers are harmed because taxes discourage productive behavior.

Yet young people seem susceptible to this ideology, even when they are among the main victims.

While it might be tempting to shrug and assume they’re hopelessly clueless, this video shows young people are quite capable of grasping why redistribution is a bad idea.

I’ve previously shared a similar video, as well as a couple of written versions of this redistribution challenge.

In this case, though, we have some additional analysis.

Here are some excerpts from the accompanying article.

…for the first time ever, more young people say they’d prefer to live in a socialist country over a capitalist one. Whether it’s free healthcare, free college tuition, or universal basic income, students around America increasingly support higher taxes on the wealthy in order to pay for these progressive policies.  But would they support similar policies if they had skin in the game? …Campus Reform‘s Cabot Phillips went to Florida International University in Miami to test the waters on a “Socialist GPA” policy in which students with higher GPAs would be forced to “spread the wealth” and give some of their GPA points to students with lower GPAs. Despite the overwhelming number of students who initially said they’d support socialist policies, few agreed to go along with such a plan.

Interestingly, the students actually are quite perceptive when they apply incentives in their own lives.

“I’ve lost a lot of sleep so I don’t know if that would be fair,” one student said, while another answered no because “I like, study all day for my grades.” Yet another student, after expressing her support for socialism in America conceded, “I guess it would be kind of hypocritical for me to say no.” Another student, trying to justify his refusal to abide by such a policy, said, “you study for your grades, and they reflect how much time you’re studying.”

As a wonky economist, the first thing I wondered about is how young people would react if they were asked about a small amount of redistribution (say 1/10th of a point of a GPA) compared to a large amount of redistribution (a full point of GPA).

I’m guessing they would realize that the damage of the latter would be more than 10 times the damage of the former – which is exactly the same thing you find when you examine the deadweight losses of ever-higher tax rates.

Two final points.

• First, many young people don’t understand socialism. They think it’s just a proxy for caring. Or even for being sociable. It’s incumbent on advocates of freedom to help them understand the adverse implications (i.e., redistributing money is just as bad as redistributing GPAs).
• Second, it won’t be easy to make an ethical appeal to young people if they perceive (and many do) that capitalism is the same as cronyism. Which is why self-styled conservatives (or Trumpians) who support favors for special interests do a lot of damage to the cause of freedom.

P.S. Since they are huge net losers from the current system, young people should be very amenable to a message of genuine entitlement reform.

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Budget Dishonesty in Washington

Today is the 10th anniversary of International Liberty, and I was initially tempted to commemorate the day with another introspective column.

But I decided on a different focus because I just read a story that combines two things – wasteful spending and Washington dishonesty – that I don’t like.

Let’s look at the article, which was published in The Hill.

The Senate Budget Committee on Thursday approved a GOP-backed budget resolution that would allow for draconian spending cuts by reducing both defense and nondefense spending for 2020. …The Senate’s budget sticks to the legal caps for defense — falling from $716 billion to $643 billion, including off-book funds — and nondefense, which would drop from $640 billion to $542 billion. …The spending blueprint also would decrease spending on Medicaid, children’s health insurance and Affordable Care Act subsidies by $281 billion, and on Medicare by $77 billion. “…this is a disastrous budget for the middle class and working families of this country,” said Sen. Bernie Sanders (I-Vt.), the panel’s ranking member.

I was initially semi-excited when I read the story.

After all, we desperately need “draconian spending cuts” in Washington.

But I was only “semi-excited” because I feared – based on past experience – that these supposed reduction were fake.

So I decided to look at the actual numbers in the Senate’s proposed budget.

Lo and behold, my skepticism was warranted. There are zero genuine cuts. Instead, spending increases by an average of 3.5 percent annually under the Senate’s “draconian” budget plan.

Politicians claim there are “cuts” because spending levels in the Senate plan (orange line) don’t rise as fast as what would happen if spending was left on autopilot (blue line).

But this simply means that the burden of government spending won’t grow as fast as previously planned. I’ve exposed this scam in discussions with John Stossel and Judge Napolitano.

And I’ve condemned the Washington Post for playing this dishonest game as well. You also won’t be surprised that Obama used this dodgy approach.

The political elite like this dodgy game because they can pretend they are fiscally responsible while simultaneously making government bigger.

The bottom line is that politicians should be honest. If they want to argue that spending should grow 3.5 percent yearly (or even more), they should explain why Washington deserves more money.

But don’t lie to us about supposed spending cuts when the budget is expanding.

P.S. Remember the “sequester”? Politicians and interest groups squealed that the world was going to end because of an automatic spending cut that wasn’t even a cut.

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Banging the Drum for Tax Increases at the International Monetary Fund

It’s not easy to identify the worst international bureaucracy.

Some days, I’m tempted to pick the Organization for Economic Cooperation and Development. After all, the Paris-based bureaucracy is infamous for pushing bigger government and higher taxes.

Other days, I want to select the International Monetary Fund, which leverages its bailout authority to relentlessly coerce governments into imposing higher taxes to finance bigger budgets.

At least for today, I’m going to argue that the IMF wins the dubious prize of being the worst.

That’s because the bureaucracy is doubling down on its ideological zeal for bigger government. Here are some excerpts from a speech earlier this week by the organization’s top bureaucrat, Christine Lagarde (who, incidentally, receives a lavish tax-free salary).

Our issue today is international corporate taxation. …I believe we need new rules in this area. …reasons why a new approach is urgent. …the three-decade long decline in corporate tax rates, undermines faith in the fairness of the overall tax system. …New IMF research published two weeks ago analyzes various options in…better addressing profit-shifting and tax competition.

Ms. Lagarde wants to boost the tax burden on business, and she complained about the fact that corporate tax rates have come down in recent decades.

What she cleverly didn’t acknowledge, though, is that the IMF’s own research shows that lower rates have not resulted in less revenue.

But you have to give Lagarde and her minions credit. They act on their beliefs.

The IMF has been pushing for big tax increases in Bahrain.

The International Monetary Fund (IMF) has called on the Bahrain government to take further action to shore up its shaky financial position, saying a large package of revenue and expenditure measures – including new taxes – is “urgently needed”. …the IMF set out a number of policy ideas – including the controversial tax proposal – in a statement… Bikas Joshi, the official who led the IMF team that visited Bahrain…went on to say that a “large fiscal adjustment is a priority” for the country…he said. “The implementation of a value-added tax, as planned, would be important. Additional revenue measures—including consideration of a corporate income tax—would be welcome.”

The IMF has been warning against tax cuts and instead pushing for tax increases in Ireland.

The International Monetary Fund (IMF) has urged the Government not to cut taxes in the upcoming budget, warning it risked “over-stimulating” Ireland’s fast-growing economy. …The fund recommended boosting housing supply through State-backed social housing projects… It recommended the Government pursues a small budget surplus in 2019… To achieve this, it advised broadening the tax base. One way this could be done was by increasing the tax on diesel… In addition, the IMF recommended getting rid of various tax exemptions and preferential rates such as the lower 9 per cent VAT rate for the hospitality sector.

The IMF has urged so many taxes that it created a backlash in Jordan.

Thousands of Jordanians heeded a strike call…to protest at major, IMF-guided tax rises they say will worsen an erosion in living standards. …warning the government that sweeping tax amendments…would impoverish employees already hit by unprecedented tax hikes implemented earlier this year. …tens of thousands of public and private sector employees accused the government of caving in to International Monetary Fund (IMF) demands and squeezing a middle class… The amendments, which would double the income tax base, are a key condition of a three-year IMF economic program that aims to generate more state revenue… Jordan earlier…raised taxes on hundreds of food and consumer items.

The examples are part of a pattern. I’ve also written about the IMF pimping for higher taxes in big countries, in small countries, and even entire continents.

Needless to say, the IMF also agitates for tax increases in the United States.

And it’s even specifically targeted poor nations for tax increases! Maybe now you’ll understand why I joked about nations not allowing IMF bureaucrats to visit.

I want to close today’s column by returning to Lagarde’s speech because there was another part of her speech that belies belief. She actually wants people to think that higher taxes and bigger government are a recipe for more growth.

…the current situation is especially harmful to low-income countries, depriving them of much-needed revenue to help them achieve higher economic growth.

Yes, your eyes are not deceiving you. The IMF’s top bureaucrat made the absurdly anti-empirical argument that higher taxes are good for growth.

Even though that’s directly contrary to evidence on the factors that enabled North America and Western Europe to become rich.

Sadly, this is now a common rhetorical tactic by international bureaucracies. The OECD does the same thing, as does the United Nations.

I guess they all think if they repeat nonsense often enough, people will somehow conclude up is down and black is white.

For what it’s worth, I’ll wait for them to name a single country that ever became rich by imposing higher taxes and bigger government.

P.S. There are some good economists working in the research division of the IMF, and they periodically publish good research on topics such as spending caps, debt, decentralization, the size of government, demographics, government spending, and taxation. Too bad the bureaucrats working on policy never read those studies.

P.P.S. My favorite IMF study was the one that accidentally provided very compelling evidence against the value-added tax.

P.P.P.S. My least favorite IMF studies were the ones that actually suggested that it would be desirable if everyone had lower living standards so long as rich people disproportionately suffered. Disgusting.

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Fiscal Policy Lessons from Iceland

Iceland is a tiny little country with just 338,000 people (about the population of Santa Ana, CA), but that doesn’t mean it can’t teach us lessons about public policy.

I wrote about the nation’s approach to fisheries in 2016, and explained that the property rights-based system is the best way of protecting fish stocks from over-harvesting.

And in 2013, I wrote about how modest spending restraint was helping to solve fiscal problems created by the financial crisis.

Today, I want to further explore Iceland’s fiscal policy, largely because of this remarkable chart that accompanied a Bloomberg report on the country’s budget strategy.

As you can see, debt skyrocketed during the financial crisis and has since plummeted at a very rapid rate.

This shows debt reduction is possible. Indeed, there can be huge reductions in a very short period of time.

So there may be hope for nations that are in the midst of fiscal crisis (such as Greece), nations that are about to suffer fiscal crisis (Italy is a prime candidate), and nations that will suffer a crisis if there isn’t reform (most developed nations, including the United States).

But what are the specific policy lessons?

Here are some excerpts from the accompanying article, which basically tells us that the government is focused on spending restraint.

Iceland will continue to reduce public debt and sustain a budget surplus even as it lowers taxes in the next five years, Finance Minister Bjarni Benediktsson said. The plan is part of a financial road map… The balancing act between austerity and the proposed fiscal concessions means less room for the government to…step up other spending… “We will need to impose certain measures of restriction,” Benediktsson said. The government may have to seek cost savings of as much as 5 billion kronur ($42 million), he said. …The financial plan projects a decrease in taxes as well as the Treasury’s debt levels and interest burden. It also expects the bank tax to be lowered in four steps.

But the article didn’t tell us why Iceland’s debt fell so quickly.

So I dug into the IMF’s World Economic Outlook database and crunched some numbers. I specifically wanted to find out why debt fell, both before and after the 2008 crisis.

And I focused on three sets of numbers.

• Annual inflation rate
• Annual growth of government spending burden
• Annual increase in nominal gross domestic product

Here are those numbers, both for the years leading up to the 2008 crisis, as well as what happened starting in 2009.

For both the 2001-07 period and 2009-19 period, Iceland followed my Golden Rule. Government spending (the orange bars) grew slower than the economy (the grey bars).

So it shouldn’t be a surprise that debt fell during both eras.

But debt fell much faster starting in 2009 for the simple reason that the gap between spending growth and GDP growth was very significant over the past 10 years. This is the reason for the big reduction in debt.

And this spending restraint also generated some data that’s even more important – the burden of government spending has dropped from more than 48 percent of economic output in 2009 to less than 41 percent of GDP this year.

During the 2001-2007 period, by contrast, Iceland only barely satisfied the Golden Rule. Indeed, one could argue that spending was growing much too fast since the economy was in an unsustainable boom (Ireland was similarly profligate during the same period).

P.S. I recently shared an excellent IMF study showing three examples of big debt reductions in the pre-World War I era.

P.P.S. Unsurprisingly, the OECD has been pushing for higher taxes in Iceland.

P.P.P.S. If you want to read about all of Iceland’s pro-market economic, Prof. Hannes Gissurarson has a must-read article in Econ Journal Watch.

P.P.P.P.S. Voters in Iceland had an opportunity to vote on bank bailouts and 93 percent said no.

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Nazis, Communists, Fascists, Socialists, and other Flavors of Collectivism and Authoritarianism

I’ve written about how totalitarian ideologies such as communism and Nazism have a lot in common. Both subordinate the individual to the state and both give the state power over the economy.

And both slaughter millions of people.

My buddy from grad school, Matt Kibbe, has a great video on this issue.

Needless to say, I agree with Matt’s characterization.

The battle is not right vs. left. It’s statism vs. individualism.

Let’s look at some writings on this issue.

We’ll start with an article by Bradley Birzer, published by Intellectual Takeout. He worries that totalitarianism on the left is making a comeback.

In 1936, you had three choices: National Socialism, international socialism, or dignity. In 2018, we find ourselves in similar circumstances… Why is this happening now…?  First, we scholars have failed to convince the public of just how wicked all forms of communism were and remain. …Almost all historians ignore the most salient fact of the 20th century: that governments murdered more than 200 million innocents, the largest massacre in the history of the world. Terror reigned in the killing fields, the Holocaust camps, and the gulags. …Second, an entire generation has grown up never knowing such things as the Soviet gulags or even the Berlin Wall. …most younger defenders of communism buy into the oldest propaganda line of the Left—that real communism has never been tried.

He explains that fascism and socialism are two sides of the same coin.

That the National Socialists embraced socialism is factually accurate. …they did nationalize very vital industry in Germany, even if by outright intimidation rather than through the law. In his personal diaries, Joseph Goebbels wrote in late 1925: “It would be better for us to end our existence under Bolshevism than to endure slavery under capitalism.” Only a few months later, he continued, “I think it is terrible that we and the Communists are bashing in each other’s heads.” Whatever the state of the rivalry between the two camps, Goebbels claimed, the two forces should ally and conquer. …The Italian fascists had even closer ties to the Marxists, with Mussolini having begun his career as a Marxist publicist and writer. A few Italian fascists even held positions in the Comintern.

Richard Mason makes similar points in a piece he wrote for the Foundation for Economic Education.

…how do we react to the hammer and sickle? I don’t have to write an article explaining the millions of deaths that occurred at the hands of communist regimes; like the Holocaust, the gulags of the Soviet Union and killing fields of Cambodia are widely known. Yet journalists in the UK openly and proudly advocate communism. Statues of Karl Marx are erected. …there is no justifiable way a fascist could argue ‘That wasn’t real Nazism.’ The same is not true for communism. …Since Karl Marx never implemented communism himself, the leaders of communist states always have that get-out-of-jail-free card. Any shortcomings, tragedies, or crises a communist regime faces can always be blamed on a misapplication of Marx’s infallible roadmap… The communist ideology in its purest form might be separated from its implementations, but at what point does its awful track record discredit any attempts to advocate it? …The history of communism is as bloodstained as that of Nazism; much more so, actually. It’s time we treated it as such.

Amen. I’ve weighed in on that issue, and I strongly recommend what Jeff Jacoby wrote on the issue as well.

And Sheldon Richman expands on this theme.

…fascism is socialism with a capitalist veneer. The word derives from fasces, the Roman symbol of collectivism and power: a tied bundle of rods with a protruding ax… Where socialism sought totalitarian control of a society’s economic processes through direct state operation of the means of production, fascism sought that control indirectly, through domination of nominally private owners. …Where socialism abolished all market relations outright, fascism left the appearance of market relations while planning all economic activities. Where socialism abolished money and prices, fascism controlled the monetary system and set all prices and wages politically.

He explains the vast gulf between capitalism and fascist economics.

…Entrepreneurship was abolished. State ministries, rather than consumers, determined what was produced and under what conditions. …Fascism is to be distinguished from interventionism, or the mixed economy. Interventionism seeks to guide the market process, not eliminate it, as fascism did. …Under fascism, the state, through official cartels, controlled all aspects of manufacturing, commerce, finance, and agriculture. Planning boards set product lines, production levels, prices, wages, working conditions, and the size of firms. Licensing was ubiquitous; no economic activity could be undertaken without government permission. …“excess” incomes had to be surrendered as taxes or “loans.” …since government policy aimed at autarky, or national self-sufficiency, protectionism was necessary: imports were barred or strictly controlled…fascist governments also undertook massive public-works projects financed by steep taxes, borrowing, and fiat money creation.

These are not new observations. Here’s what Ludwig von Mises wrote on this topic back in the 1940s.

The Marxians have resorted to polylogism because they could not refute by logical methods the theories developed by “bourgeois” economics, or the inferences drawn from these theories demonstrating the impracticability of socialism. As they could not rationally demonstrate the soundness of their own ideas or the unsoundness of their adversaries’ ideas, they have denounced the accepted logical methods. …The German nationalists had to face precisely the same problem as the Marxians. They also could neither demonstrate the correctness of their own statements nor disprove the theories of economics and praxeology. Thus they took shelter under the roof of polylogism, prepared for them by the Marxians. Of course, they concocted their own brand of polylogism. …Neither Marxian nor Nazi polylogism ever went further than to declare that the logical structure of mind is different with various classes or races. …Polylogism is not a philosophy or an epistemological theory. It is an attitude of narrow-minded fanatics.

And those fanatics are motivated by hate. The Nazis hate people of different races and religions, while the Marxists hate people of different incomes and classes.

Given the various articles cited above, this meme from The Matrix is spot on.

Well, we now know what happens when someone learns about the common characteristics of statist ideologies. The Daily Caller has a report on a student who got very upset after learning that the National Socialist Workers Party was…yes, socialist.

Social justice warrior and history major Shelby Shoup was arrested for throwing chocolate milk at a fellow student and College Republican tabling at Florida State University while saying “nazis weren’t socialists.” She has been charged with battery.

Since we’ve detoured into humor, this is a good opportunity to share this satire from the clever folks at the Babylon Bee.

At a press conference on Thursday, American Nazi Party leader Emmett Scoggins told reporters that his group is not trying to instate full-on Nazism, but a much better system called “democratic Nazism.” …Scoggins was questioned about the use of the word “democratic” and how democratic Nazism was any different from plain-old Nazism. “The main difference is we add the word ‘democratic’ on there because people like that word a lot more than just plain ‘Nazi,’” Scoggins said. …The conference ended with a long speech from Scoggins about…how “real” Nazism has never been tried.

I’ll close with my amateur attempt to classify various ideologies.

In the above video, Matt used a circle.

I’m wondering if a triangle makes more sense, with freedom at the top and totalitarianism at the bottom.

Here are a couple of additional observations on the triangle.

• Back in 2017, I differentiated between liberal socialism and Marxist socialism. The same is true across the board. We could add a line right above authoritarian, collectivism, and socialism and assert that ideologies above the line are democratic and that ideologies below that line are dictatorial.
• Given the difference between the technical definition of socialism (government ownership, central planning, price controls) and the everyday definition (lots of redistribution), I’m wondering whether I should use “welfare state” rather than “democratic socialism”? The end result isn’t pretty, regardless.
• If we just focus on economic policy, I think my “statism spectrum” suffices.
• If we just focus on the left, my Bernie-inspired classification system still holds up.

P.S. I like to think that there aren’t any civilized people willing to tolerate the Nazi ideology. But I do worry the same can’t be said about communism. The head of the European Commission recently helped celebrate Marx’s birthday, companies like Mercedes-Benz glorify racist murderers in their advertising (part of the Che death cult), and even symphonies use communist symbols.

How high does the death toll need to get before people realize that communism, like its sister ideology of Nazism is despicably evil?

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Four Options in the Fight over Parental Leave

I have this quaint notion that the Constitution guarantees economic liberty by limiting the power of Washington. Needless to say, parental leave is not one of the enumerated powers in Article 1, Section 8.

Sadly, many people (include the Chief Justice of the Supreme Court) don’t share my view.

So let’s set aside that objection and focus on the policy implications of a new entitlement program.

I’ve already explained why the federal government shouldn’t have a policy on parental leave, but the topic isn’t going away so let’s look at the issue again.

The first thing to realize is that the fight over “parental leave” involves several competing options.

Here are the four alternatives.

1. A “conservative” plan to allow new parents to finance time off by tapping into the bankrupt Social Security system.
2. A plan from the left to make parental leave an entitlement financed by payroll taxes.
3. A plan from the left to mandate that employers provide paid leave.
4. The libertarian notion that it’s none of the government’s business.

Let’s address Option #1.

Writing for National Review, Alexandra DeSanctis argues for an expansion of government’s role.

Joni Ernst of Iowa and Mike Lee of Utah recently introduced the Child Rearing and Development Leave Empowerment (CRADLE) Act, the latest conservative effort to develop a paid-leave policy that enables parents to stay home with their newborns. …It would amend the Social Security Act to allow parents to take up to three months off from work by drawing on their retirement benefits early in exchange for delaying their benefits after retiring.

You can read my concerns about this approach in this column from last March, so I don’t want to reinvent the wheel.

But Ms. DeSanctis makes some new arguments that cry out for rebuttal.

Starting with the notion that we should be ashamed that we’re not copying Europe’s decrepit welfare states.

The United States is the only country in the Organization for Economic Cooperation and Development (OECD) — an intergovernmental economic alliance of 36 member countries — that doesn’t have a national paid-leave program.

Wow, I never expected to see this type of argument in National Review. William F. Buckley must be spinning in his grave.

Heck, I made that argument a punchline in my recent collection of anti-Bernie Sanders satire.

She also wants to water down the definition of conservatism so that it means whatever is convenient for certain politicians.

The conservative argument against the proposal is intriguing as a matter of principle, but it is worth noting that the Republican politicians offering these paid-family-leave bills in recent years are also some of the most conservative policymakers in the Senate. …This new proposal is an effort not to expand the government but to protect and cultivate family life, which ought to be the chief goal of any country that cares about its future. …as the Right grapples with populist arguments for greater government prioritization of the needs of working-class Americans negatively affected by globalization, conservatives should embrace efforts to incentivize family growth and offer parents more flexibility in caring for their newborns.

I’m also less than impressed by her argument that Congress should “cultivate family life.”

Indeed, it’s precisely because strong families are good that Washington shouldn’t be involved.

Which is why I prefer what Rachel Greszler wrote for the Heritage Foundation. Here are some excerpts.

…a new national entitlement…could expand as other federal entitlements have, potentially costing hundreds of billions of dollars per year. …the role for the federal government is to remain neutral with regard to parents’ decisions to stay home or work outside the home. The government can, however, make it easier and less costly for workers to take family leave by reducing marginal tax rates so that workers have larger paychecks, supporting, instead of impeding, flexible work arrangements between employees and employers, and cutting costly regulations so that businesses can afford to provide paid leave.

And I definitely like articles that make the principled case against more government.

For instance, here are excerpts from a column by Veronique de Rugy.

Even if we pretend that it doesn’t change the size of government because the increased spending in the beginning will perfectly offset a few decades later with delayed benefit payments and increases in revenue (i.e., parents delay retirement and hence continue to send taxes to Uncle Sam), the plan increases the scope of the government immediately. You can’t wish away the fact that it drags the government into an area where it played no role before.

And George Leef, writing for Forbes, has similar concerns.

The notion that the government should help cover the costs of having a child springs naturally from the “progressive” mindset that government should be there to provide in case anyone needs (or merely prefers) assistance. It also dovetails with the liberal political mentality that many votes are to be won by giving people stuff. …But the big problem with this idea is not the dollars and cents one. Rather, it is the way it perpetuates and spreads the idea that the purpose of the federal government is to provide for our needs. …Kindly old Uncle Sam will be there to help when you need it. …This is the sort of thing Thomas Jefferson had in mind when he warned against ‘wasting the labors of the people under the pretense of taking care of them.’

What about other ways to address the issue?

Regarding Option #2 (an entitlement funded by payroll taxes), Vanessa Brown Calder’s article in National Review is must-reading on the issue.

…government-supported paid leave is costly. Paid-leave proposals such as the FAMILY Act would result in new payroll taxes on all current workers, whether or not they intend to use benefits. …realistic assumptions based on the national use of the federal unpaid FMLA program…suggest the FAMILY Act would result in costs of around $450 per year in taxes for the average worker. …the program is likely to expand, as similar programs have in other OECD countries. For example, the average length of paid maternity, parental, and home-care leave available to mothers in OECD-30 countries in 1970 was 17.2 weeks. In 2016 that number had tripled, to an average of 52.5 weeks, or over a year in benefits. Large expansions of programs are accompanied by large expansions in program costs. For example, Norway expanded leave from 18 to 35 weeks between 1987 and 1992, which nearly doubled the cost to taxpayers from $12,354 to $24,022 per eligible birth.

Imposing taxes to finance that much new spending isn’t very popular, even in left-wing states.

For instance, the New York Times reports that politicians in California want to impose a paid-leave mandate, but they are having a hard time figuring out how to make the numbers work.

The United States has long been the only industrialized country not to offer paid leave to new parents. Instead of waiting for the federal government, the incoming governor of California intends to change that… What’s unclear is how California would pay for it. The proposal, which the governor-elect, Gavin Newsom, is expected to include with his budget after he is sworn in on Monday, would be the most generous state policy in the nation, at a time when federal paid leave proposals have stalled. Yet it does not include a plan to finance it… California’s existing paid leave program is financed by a 1 percent payroll tax. Increasing that tax would require the approval of two-thirds of the Legislature, not assured despite Democratic control.

Interestingly, folks on the left are making the same argument that Ms. DeSanctis used in National Review.

“…we’re falling behind our economic competitors,” said Heather Boushey, the executive director of the Washington Center for Equitable Growth, who advised Hillary Clinton on economic issues during her 2016 presidential campaign.

I’ll merely add that “we’re falling behind” only in the race to impose more government.

We’re way ahead in the race for more prosperity.

I also found this passage to be laughable.

California has a history of fervent opposition to taxes. Democrats now have supermajorities in both the Senate and the House, but many of them have embraced fiscally conservative policies.

You almost have to assume that the reporter who wrote this piece never visited the state.

California has the nation’s most onerous state income tax. And it ranks very low in measures of fiscal policy.

Yes, there is a supermajority requirement to raise taxes, but politicians in Sacramento have been very successful in overcoming that barrier.

Let’s shift to Option #3 (mandating the employers provide leave).

Vanessa Brown Calder authored a comprehensive study on parental leave last year. She included a section on how this approach would harm female workers.

Economist Lawrence Summers studied the effects of mandating government benefits and concluded that women’s wages would be reduced to reflect the cost. Summers states that “if wages could freely adjust, these differences in expected costs would be offset by differences in wages.” If not, “there will be efficiency consequences as employers seek to hire workers with lower benefit costs.” …Economist Jonathan Gruber studied maternity-benefit mandates in Illinois, New York, and New Jersey, and his findings “consistently suggest” women’s wages were reduced to reflect the cost of benefits. The estimated reduction in wages was around 100 percent of the cost of benefits. Government-mandated leave has similar effects internationally. A study of 16 European countries over a period of around 20 years found that “parental leave is associated … with reductions in [women’s] relative wages at extended durations.” Other researchers have noted that “work-family policies … have also contributed to … lower wage-levels for women relative to men.”

This data is especially noteworthy since there is additional evidence that women get hurt when government intervenes on their behalf.

To conclude, let’s look at how her research supports Option #4 (no interference from Washington).

Here are her main findings.

…ample data show that the private market provides paid leave at rates about 30 to 50 percentage points higher than proponents claim. Private paid leave provision has grown three- or fourfold over 50 years and continues to grow. This trend indicates industry is responsive to employee demands. …Government intervention is also unlikely to correct gender or labor-market inequality in ways proponents desire. For example, families may respond to the policy by increasing women’s household work contributions relative to men’s. Redistributive effects of government intervention are likely to harm workers.

This chart shows how markets are naturally responsive when government doesn’t intervene.

And this chart from her study shows that women do better in the United States than in other nations.

In other words, benign neglect is the policy that produces the best outcomes.

Sadly, this is one of the many issues where the Trump Administration is on the wrong side.

The bottom line is that Option #4 is the only choice that is good for freedom, good for women, and good for the economy.

Option #1 is not as bad as Options #2 and #3, but it is still a step in the wrong direction (as I noted last year, supporters “are proposing to do the wrong thing in the best possible way”).

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Battle of Economic Logic: Restaurant Workers 1 – Hollywood Celebrities 0

Time for a confession.

I don’t particularly enjoy writing columns about the minimum wage because it’s such a slam-dunk issue. Simply stated, it is cruel and illogical when politicians mandate wage levels that are higher than the productivity of low-skilled workers.

Yet, at the risk of being repetitive, I periodically share evidence showing that higher minimum wages lead to more unemployment (see here, here, here, here, here, here, here, here, here, and here).

The issue also is disturbing because I’ve had several friends on the left privately admit that they understand that jobs are lost when the minimum wage goes up, but they think that’s okay because it’s a good political issue for their side.

How utterly immoral. And racist, at least in outcome if not intent.

Today, though, I’m actually excited to write about the topic because I have a new angle.

As reported by the New York Times, a bunch of millionaire celebrities are trying to convince the governor of New York to raise the minimum wage for restaurant staff.

…a group of Hollywood actresses waving the banner of the Time’s Up movement have been pressing Gov. Andrew M. Cuomo to apply New York’s minimum wage to workers who earn tips, arguing that it would make waitresses less vulnerable to sexual harassment. Among the celebrities weighing in are Sarah Jessica Parker, Michelle Williams, Amy Poehler and Amy Schumer. …advocates like Ms. Jayaraman and celebrity activists are focused on state-by-state battles. Last week, Hillary Clinton wrote to Mr. Cuomo and other leaders in Albany, calling on them to eliminate the lower wage for tipped workers. …a letter sent to Mr. Cuomo by Hollywood celebrities including Ms. Poehler, Reese Witherspoon and Natalie Portman…urged the governor to eliminate the lower minimum wage for servers.

Do the workers appreciate this display of “solidarity” from the Hollywood crowd?

Not exactly.

Waitresses and other servers are resisting the proposal, saying they can make more money from tips and do not need celebrities to help protect them from harassment. …In New York City, many servers at busy restaurants and bars earn more than enough in tips to push their hourly wage well above the $15 minimum. …Raising wages for tipped workers, many waitresses say, could threaten an economic lifesaver if it forces restaurants to change tipping policies or, worse, puts them out of business.

The best part of the story is that the supposed beneficiaries clearly have a much better understanding of economics than the virtue-signaling celebrities.

…“The resounding message from servers in New York to these actresses in Hollywood is to just leave us alone,” said Maggie Raczynski, a bartender at an Outback Steakhouse in upstate New York. “These celebrities have literally no idea. I feel like they need to butt out.” …D. Sweeney, a former actor who said he made a “very comfortable living” as a bartender in New York, was adamant about his opposition to the proposed change. …Raising restaurant labor costs any further, he said, could trigger several changes in the business model that would hurt workers more than they would help. “Immigrant support staff will be the first to be fired,” he said. …The servers fired back in a letter to the actresses, saying, “Thank you for your concern. But we don’t need your help and we’re not asking to be saved.” In an interview this week, Ms. Raczynski said her employer had already trimmed staff to offset the steady rise in wages that Mr. Cuomo championed a few years ago.

This is a heartwarming story.

The fact that restaurant owners are opposed to intervention is not surprising, but it’s great to see that restaurant workers are savvy enough to realize that they’ll get hurt if politicians increase the minimum wage.

Reminds me of the great story from Seattle when employers and workers both protested against additional tax hikes on companies.

To paraphrase an evil man, “workers and capitalists of the world unite!”

Let’s close by recycling this video tutorial on the minimum wage.

P.S. Switzerland doesn’t have a minimum wage, and Swiss voters very much prefer that outcome.

P.P.S. You can enjoy additional cartoons on the minimum wage by clicking here and here.

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Socialism Humor, the Bernie Sanders Edition

I’m not a fan of Crazy Bernie, to put it mildly.

His policies would turn us into serfs and condemn people to poverty and deprivation.

But the silver lining of that dark cloud is that he is the unwitting source of some great humor. And that’s our topic today.

We’ll start with a brutal tweet. I don’t know @djPaulMarco, but – as the youngsters say – he dunked on the Vermont Senator.

 

Next we have some politically oriented humor.

I like to think this isn’t what really motivates Bernie’s young supporters, but you have to wonder what’s rattling around in their heads.

Sticking with the political theme, Ms. Ocasio-Cortez (who also is a great target for mockery) technically will still be too young to be on the ticket in 2020, but this bit of humor aptly describes the direction America will be heading if the so-called Green New Deal gets imposed on the country.

And since Senator Sanders wants government-coerced equality, I’m sure he’ll support this idea.

Especially since the DNC did this to him back in 2016.

The same principle apparently applies to yard signs as well.

Now let’s shift to public policy, though this next image also illustrates the socialist approach to vote buying.

In any event, it captures the essence of socialist economics.

A good theory, until there’s nobody left to do the buying.

Speaking of drinks, here’s a Bernie special offer.

I’m also a huge fan of this clever satire. Very appropriate to close with this item given what I wrote last weekend.

For other examples of Bernie humor, you can click here, here, here, here, here, here, here, and here.

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A Simple Reform to Avert a Future Greek-Style Fiscal Crisis in America

In the absence of genuine entitlement reform, the United States at some point is going to suffer from a debt crisis.

But red ink is merely a symptom. I used numbers from Greece in this interview to underscore the fact that the real problem is government spending.

The discussion was triggered by comments from the Chairman of the Federal Reserve.

Federal Reserve Chairman Jerome Powell said Wednesday that reducing the federal debt needs to return to the forefront of the agenda, warning that the government’s finances are unsustainable. “I do think that deficits matter and do think it’s not really controversial to say our debt can’t grow faster than our economy indefinitely — and that’s what it’s doing right now,” Powell said.

As I noted in my comments, Powell is right, but he’s focusing on the wrong variable.

The real crisis is that spending is growing faster than the private sector (Powell needs to learn the six principles to guide spending policy).

To be more specific, politicians are violating my Golden Rule.

Spending grew too fast under Bush. It grew too fast under Obama (except for a few years when the “Tea Party” was in the ascendancy). And it’s growing too fast under Trump.

Most worrisome, the burden of spending is expected to grow faster than the private sector far into the future according to the long-run forecast from the Congressional Budget Office.

That doesn’t mean we’ll have a crisis this year or next year. We probably won’t even have a crisis in the next 10 years or 20 years.

But I cited Greek data in the interview to point out that excessive spending eventually does create a major problem.

Here’s the data from International Monetary Fund’s World Economic Outlook database. To make matters simple (I should have done this for the interview as well), I adjusted the numbers for inflation.

So how can America avoid a Greek-style fiscal nightmare?

Simple, just impose a spending cap. At the end of the interview, I added a plug for the very successful system in Switzerland, but I’d also be happy if we copied Hong Kong’s spending cap. Or the Taxpayer Bill of Rights from Colorado.

The bottom line is that spending restraint works and a constitutional spending cap is the best way to achieve permanent fiscal discipline.

P.S. By contrast, proponents of “Modern Monetary Theory” argue governments can finance ever-growing government by printing money. For what it’s worth, nations that have used central banks to finance big government (most recently, Venezuela and Zimbabwe) are not exactly good role models.

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New York Vs. Florida, Round #2

I used to think Texas vs. California was the most interesting and revealing rivalry among states. It was even the source of some clever jokes and cartoons.

But the growing battle between Florida vs. New York may now be even more newsworthy.

I wrote last month about how many entrepreneurs, investors and business owners are escaping bad tax policy by moving from the Empire State to the Sunshine State.

Not that we should be surprised.

Florida ranks #1 for economic freedom while New York languishes in last place.

A big reason for the difference is that Florida has no state income tax, which compares very favorably to the punitive system in New York.

And because the federal tax code no longer provides an unlimited deduction for state and local taxes, I expect the exodus from New York to Florida to accelerate.

What’s especially amusing is that Alexandria Ocasio-Cortez’s mother is one of the tax refugees.

Here are some excerpts from a report in the New York Post.

The mother of soak-the-rich Congresswoman Alexandria Ocasio-Cortez said she was forced to flee the Big Apple and move to Florida because the property taxes were so high. “I was paying $10,000 a year in real estate taxes up north. I’m paying $600 a year in Florida. It’s stress-free down here,” Blanca Ocasio-Cortez told the Daily Mail… Her daughter raised eyebrows with her pitch to hike the top marginal tax rate on income earned above $10 million to 70 percent. She has also gotten behind the so-called Green New Deal, which would see a massive and costly government effort.

The former Governor of Florida (and new Senator from the state) obviously is enjoying the fact that New York politicians are upset.

Here’s some of what Rick Scott wrote in today’s Wall Street Journal.

America is a marketplace where states are competing with each other, and New York is losing. Their loss is Florida’s gain… I would like to tell New Yorkers on behalf of the rest of America that our hearts go out to you for your sagging luxury real-estate market. But you did this to yourself, and you can fix it yourself. If you cut taxes and make state and local government efficient, maybe you can compete… I made more than 20 trips to high-tax states like California, Connecticut, Illinois, New York and Pennsylvania to lure businesses to Florida. The tax-happy leaders of those states were furious, which made the visits all the more enjoyable for me. They called me every name in the book. But they were the ones who raised taxes, and bad decisions have consequences. The elites in New York and Washington should commission a study of Florida to see what happens when conservative ideas are put into practice. …Florida’s economy is thriving, expanding at a record pace. …There’s a reason Rep. Alexandria Ocasio-Cortez’s mom left New York for Florida. And there’s a reason companies are fleeing high-tax states, bringing jobs with them to Florida.

I mentioned above that having no state income tax gives Florida a big advantage over New York.

Courtesy of Mark Perry, here a comprehensive comparison of the two states.

Wow. If this was a tennis tournament, the announcers would be saying “game, set, and match.” And if it was a boxing contest, it would be a knock-out.

The bottom line is that we should expect more rich people to escape New York and move to Florida because they’ll get to keep more of their money.

And we should expect more lower-income and middle-class people to also make the same move because Florida’s better policy means more jobs and more opportunity (sadly, Rep. Ocasio-Cortez has learned nothing from her mother’s move).

P.S. New York actually doesn’t do terribly in nationwide rankings for pension debt, though it is still below Florida.

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New Academic Study: Payroll Tax Burdens Stifle Entrepreneurship

When I write about Social Security, I normally focus on two serious deficiencies.

1. The program was never properly designed to deal with demographic change, which means there’s a gargantuan long-run budgetary shortfall of $44 trillion.
2. The program is a very bad deal for workers (especially minorities), offering a paltry retirement benefit compared to what could be obtained with private savings.

I’ve neglected to explain, though, that there’s also an economic cost. All government spending is a burden since resources get diverted from the productive sector of the economy. Moreover, the associated payroll taxes have an adverse impact on incentives for employment.

Those taxes also have a negative effect on entrepreneurship, according to new research from three economists. Here are some excerpts from their study, which has been published by the National Bureau of Economic Research. We’ll start with a look at the methodology.

Entrepreneurship plays a central role in modern economies. In the US, for example, new businesses account for 20% of total gross job creation. While entrepreneurs can be very successful…, entrepreneurship remains one of the most economically risky lines of activity and can result in large wealth losses. …the marginal value of resources for entrepreneurs can be substantial, given how cash-constrained they often are. Therefore, mandating social insurance, while reducing risks,could significantly affect entrepreneurial activity. …In this paper, we…exploit quasi-experimental variation in the amount of social insurance contributions and…administrative data on the full population of Finnish entrepreneurs to address this question. …We use a standard differences-in-differences strategy and exploit a reform in 2011 that changed the ownership share rule from 50% to 30% to assess how relaxing the social insurance mandate affects entrepreneurial activity. …Overall, we find that social insurance contributions are reduced by an aver-age of 19% for the treatment group, which has more discretion over insurance contributions after the reform. This reduction represents a large cash windfall, equivalent to, on average, a 5 percentage-point reduction in corporate taxes.

Here are the key results, which show that payroll taxes have a decidedly negative effect on new firms.

…we observe a larger than average decrease in social insurance contributions by the owners of younger firms. The cash saved from the lower contributions is channeled into their firms, as we observe an increase in both employee compensations and other input costs, and an increase in turnover after the reform. …entrepreneurs in younger firms are more liquidity-constrained and have access to better growth opportunities than more mature firms. …Figure 2 shows the effect of the 2011 reform on business activity for young firms that are equal to or younger than five years old. …we estimate a 9.9% increase in turnover and a 6% increase in employee wage costs. Overall, these results imply that firms use the saved cash to pay for additional intermediate inputs and labor in order to increase turnover, and suggests that these firms might be facing liquidity constraints.

Here’s the aforementioned Figure 2, showing the both sales and wages are higher when social insurance taxes are lower.

The bottom line is clear.

…our findings imply that the social insurance mandate…crowds out business activity for young firms… the social insurance mandate for entrepreneurs has heterogeneous efficiency costs. Efficiency gains could be achieved by…lower social insurance contributions.

What is meant by efficiency gains?

That’s simply economic jargon for faster growth and higher living standards. And those results occur because entrepreneurs play a key role in driving innovation.

P.S. This issue is timely and important since politicians such as Bernie Sanders and Alexandria Ocasio-Cortez are pushing “Medicare for All” and other schemes that would require huge increases in payroll taxes.

P.P.S. Other Democrats, such as Barack Obama and Hillary Clinton, have urged higher payroll taxes that would deliberately target entrepreneurs, investors and business owners.

P.P.P.S. You can enjoy some Social Security cartoons here, here, and here. And we also have a Social Security joke if you appreciate grim humor.

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The Case against Socialism, Part I

I relentlessly mock socialism, in part because it’s such a target-rich environment. But I’m also hoping that humor is a way of debunking this wretched ideology. I’m worried, after all, that socialism may triumph thanks to a combination of “public choice” and diminishing societal capital.

Today, let review the case against socialism. We’ll start with this short clip from a recent interview, where I recycled my argument that greater levels of socialism produce greater levels of economic misery.

I now have some new evidence on my side, thanks to the just-released Economic Report of the President.

Here are some excerpts from the socialism chapter (begins on page 381), including some analysis about how to define the term.

…economists generally agree about how to define socialism, and they have devoted enormous time and resources to studying its costs and benefits. …we review the evidence from the highly socialist countries showing that they experienced sharp declines in output, especially in the industries that were taken over by the state. We review the experiences of economies with less extreme socialism and show that they also generate less output, although the shortfall is not as drastic as with the highly socialist countries. …Whether a country or industry is socialist is a question of the degree to which (1) the means of production, distribution, and exchange are owned or regulated by the state; and (2) the state uses its control to distribute the country’s economic output without regard for final consumers’ willingness to pay or exchange (i.e., giving resources away “for free”). …we find that socialist public policies, though ostensibly well-intentioned, have clear opportunity costs that are directly related to the degree to which they tax and regulate.

The chapter looks at totalitarian forms of socialism.

…looking closely at the most extreme socialist cases, which are Maoist China, the USSR under Lenin and Stalin, Castro’s Cuba… Food production plummeted, and tens of mil-lions of people died from starvation in the USSR, China, and other agricultural economies where the state took command. Planning the nonagricultural parts of those economies also proved impossible. …Venezuela is a modern industrialized country that elected Hugo Chávez as its leader to implement socialist policies, and the result was less output in oil and other industries that were nationalized. In other words, the lessons from socialized agriculture carry over to government takeovers of oil, health insurance, and other modern industries: They produce less rather than more. …A broad body of academic literature…finds a strong association between greater economic freedom and better economic performance, suggesting that replacing U.S. policies with highly socialist policies, such as Venezuela’s, would reduce real GDP more than 40 percent in the long run, or about $24,000 a year for the average person.

For what it’s worth, the International Monetary Fund published some terrible research that said dramatically reduced living standards would be good if Americans were equally poor.

So I guess it makes sense that Crazy Bernie endorsed Venezuelan economic policy.

But I’m digressing. Let’s get back to the contents of the chapter, including this table that shows the collapse of agricultural output in Cuba following nationalization.

The chapter also looks at what is sometimes referred to as “democratic socialism” in the Nordic nations.

These countries don’t actually practice socialism since there is no government ownership of the means of production, no central planning, and no government-dictated prices.

But they do have bigger government, and the report echoes what I said in the interview about this leading to adverse consequences.

…the Nordic countries’ policies now differ significantly from policies that economists view as characteristic of socialism. …Nordic taxation overall is greater… Living standards in the Nordic countries, as measured by per capita GDP and consumption, are at least 15 percent lower than those in the United States. …a monopoly government health insurer to provide healthcare for “free” (i.e., without cost sharing) and to centrally set all prices paid to suppliers, such as doctors and hospitals. We find that if this policy were financed through higher taxes, GDP would fall by 9 percent, or about $7,000 per person in 2022.

The report notes that Nordic nations have cost sharing, so the economic losses in that excerpt would apply more to the British system, or to the “Medicare for All” scheme being pushed by some Democrats.

But Nordic-style fiscal policy is still very expensive.

It means higher taxes and lower living standards

I’ve previously shared AIC data, so regular readers already know this data.

And regular readers also won’t be surprised at this next chart since I wrote about Nima Sanandaji’s work back in 2015.

Here’s the bottom line from the report.

Highly socialist countries experienced sharp declines in output, especially in the industries that were taken over by the state. Economies with less extreme forms of socialism also generate less output, although the shortfall is not as drastic as with the highly socialist countries.

In other words, lots of socialism is really bad while some socialism is somewhat bad.

Let’s close by citing some other recent publications, starting with this editorial from the Wall Street Journal.

Democrats are embracing policies that include government control of ever-larger chunks of the private American economy. Merriam-Webster defines socialism as “any of various economic and political theories advocating collective or governmental ownership and administration of the means of production and distribution of goods.” …consider the Democratic agenda that is emerging from Congress and the party’s presidential contenders. …Bernie Sanders’ plan, which has been endorsed by 16 other Senators, would replace all private health insurance in the U.S. with a federally administered single-payer health-care program. Government would decide what care to deliver, which drugs to pay for, and how much to pay doctors and hospitals. Private insurance would be banned. …The Green New Deal…, endorsed by 40 House Democrats and several Democratic presidential candidates, would require that the U.S. be carbon neutral within 10 years. …this would mean a complete remake of American electric power, transportation and manufacturing. …as imagined by Rep. Alexandria Ocasio-Cortez, all of this would be planned by a Select Committee For a Green New Deal. Soviet five-year plans were more modest.

The column also mentions government-guaranteed jobs, Washington imposing controls on businesses, and confiscatory tax rates, all of which are terrible policies.

Whether this is technically socialist can be debated.

What can’t be debated is that this agenda would make the U.S. – at best – akin to Greece in terms of economic liberty.

Here’s a look at some excerpts from a column in the Weekly Standard.

…more and more people, particularly young people, tell pollsters they’re open to the idea of voting for a socialist. In a poll this summer, Democrats by a 10-point margin said they prefer socialism to capitalism. …The tide has certainly shifted against free enterprise, an economic system that has lifted countless masses out of abject poverty, and toward socialism, whose track record is far worse, to put it charitably. …The younger generation also seems curiously unwilling to credit capitalism with the creation of modern conveniences they hold so dear. There’s a reason text messaging and Netflix didn’t emerge from Cuba or North Korea. Socialism is traditionally defined as the government owning the means of production, and it just as traditionally leads to authoritarianism. …With a body count in the millions, you’d think “socialism” would be hard to rebrand. But thanks to Bernie, being a socialist is in vogue. …The Sandernistas say that “democratic socialism” is a more benign variant, akin to what is practiced in Scandinavia. Yes, Sweden, Norway, and Denmark are clean, prosperous, and beautiful countries…and not particularly socialist. Their tax rates may be high, but they have thriving private sectors and no minimum wage laws. Their economies rank as “mostly free,” the same category as the United States

Most interesting, we also have a column by Cass Sunstein, a former Obama appointee.

President Donald Trump was entirely right to reject “new calls to adopt socialism in our country.” He was right to add that “America was founded on liberty and independence — not government coercion,” and to “renew our resolve that America will never be a socialist country.” …socialism calls for government ownership or control of the means of production. By contrast, capitalism calls for private ownership and control — for a robust system of property rights. In capitalist systems, companies and firms, both large and small, are generally in private hands. In socialist systems, the state controls them. …Socialist systems give public officials a great deal of authority over prices, levels of production and wages. …Whether we are speaking of laptops or sneakers, coffee or candy bars, umbrellas or blankets, markets establish prices, levels of production and wages on the basis of the desires, the beliefs and the values of countless people. No planner can possibly do that. …Those who now favor large-scale change should avoid a term, and a set of practices, that have so often endangered both liberty and prosperity.

Last but not least, here’s a video about socialism.

Narrated by Gloria Alvarez, it looks at the grim evidence from Cuba and Venezuela.

And she also points out that Nordic nations are not socialist.

Indeed, most of them would be closer to the United States than to France on this statism spectrum.

In other words, the real lesson is not that socialism is bad (that should be obvious), but rather that there’s a strong relationship between national prosperity and economic liberty.

Simply stated, the goal of policy makers should be to reject all forms of collectivism (including communism and fascism) and instead strive to minimize the footprint of government.

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Understanding the Trade Deficit

In January, I shared a short video about protectionism, which expanded on some analysis from a one-minute video from last year.

Today, here’s a short video explaining the trade deficit, which also expands on a one-minute video from last year.

Simply stated, trade deficits are largely irrelevant.

And since trade balances don’t matter, then it makes no sense to fight trade wars. Especially when protectionist-minded politicians inflict lots of casualties on their own people.

Given all the dramatic rhetoric in Washington about trade deficits – especially from President Trump, it’s worth pointing out that there’s nothing radical or unconventional about my analysis.

Kevin Williamson, for instance, made similar points when he explained the economics of trade deficits for National Review.

A trade deficit is just a bookkeeping entry, not a debt that has to be paid. Countries don’t trade — people do. Americans are no more harmed by the trade deficit with Germany than you are by your trade deficit with Kroger. …trade deficits…are not really driven by consumer behavior… It’s true that many Americans prefer German cars and French wines — and cheap electronics and T-shirts made in China — but trade deficits mostly are the result of several other causes: macroeconomic factors such as tax policies and savings rates, the strength of a country’s currency, and, most important, its attractiveness to investors. …Far from being victimized by such trade, Americans are enriched by it.

Indeed, while more trade is associated with more prosperity, Kevin notes that there’s no link with trade balances.

Trade deficits are not a sign of economic trouble, and trade surpluses are not necessarily a sign of economic health. The last time the U.S. ran a trade surplus with the world was 1975, when our economy was in a shambles. Britain ran a trade deficit from Waterloo to the Great War, a century marking the height of its power, and it grew vastly wealthy.

Neil Irwin, writing for the New York Times, points out that a trade deficit is the same as a capital surplus.

A core idea that Donald J. Trump has embraced throughout his time in public life has been that the United States is losing in trade with the rest of the world, and that persistent trade deficits are evidence of this fact. …The vast majority of economists view it differently. In this mainstream view, trade deficits are not inherently good or bad. …When a country runs a trade deficit, there is a countervailing force. …the flow of capital is the reverse of the flow of goods. And the trade deficit will be shaped not just by the mechanics of what products people in the two countries buy, but also by unrelated investment and savings decisions. The cause and effect goes both directions. …the flow of capital into the country — the inverse of the trade deficit — creates benefits that can be good for jobs, by encouraging more domestic investment.

Amen. I wrote back in 2017 about why it’s good when foreigners invest and create jobs in America.

Irwin also explains that the U.S. gets significant benefits because the dollar is the world’s reserve currency.

…the dollar isn’t used just in trade between the United States and other countries. The dollar is a global reserve currency, meaning that it is used around the world in transactions that have nothing to do with the United States. When a Malaysian company does business with a German company, in many cases it will do business in dollars; when wealthy people in Dubai or Singapore’s government investment fund want to sock away money, they do so in large part in dollar assets. That creates upward pressure on the dollar for reasons unrelated to trade flows between the United States and its partners. That, in turn, makes the dollar stronger…maintaining the global reserve currency creates…a lot of advantages. Lower interest rates and higher stock prices are among them.

For what it’s worth, politicians should ignore the trade deficit and focus instead on preserving the dollar’s special status as a reserve currency.

Let’s also review some commentary from Jeff Jacoby in the Boston Globe.

For centuries, economists have pointed out the destructive folly of tariffs and other trade barriers. Tirelessly they explain that a trade deficit is not a defeat, just as a shopper’s “deficit” with a department store is not a defeat. They implore policymakers to see that trade restrictions always impose more costs on a country’s economy than any benefits they generate. …Nations don’t trade with each other. We speak as if they do out of habit and convenience, but it’s not true. The United States and Canada are not competing firms. America doesn’t buy steel from China, and China doesn’t buy soybeans from America. Rather, hundreds of individual American companies choose to buy steel from Chinese mills and fabricators, and hundreds of Chinese-owned firms make deals to buy soybeans from far-flung American growers.

He explains that trade is peaceful and productive cooperation.

…international trade occurs among countless sellers and buyers, all acting independently in their own best interest. …To those individuals, national trade deficits and surpluses are irrelevant. They aren’t competing — they’re cooperating. Buyers and sellers aren’t in conflict with each other, let alone with each other’s countries. On the contrary: By doing business together, traders create wealth and connections, knitting the world together in mutual interest, making the planet more harmonious.

Reminds me of Bastiat’s observation about trade and war.

But that’s a separate issue. The focus today is on the meaning (or lack thereof) of trade deficits.

Let’s close with a chart from the video (which I first shared exactly one year ago), which clearly shows that a trade deficit is simply the flip side of an investment surplus.

P.S. I’m still waiting for an anti-trade person to answer these questions I asked back in 2011.

P.P.S. And I also challenge anyone to defend Trump on this issue when compared to Reagan.

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Economic Liberty and the Constitution

Two days ago, I wrote about how the Constitution was designed, in large part, to protect Americans from majoritarianism.

The Supreme Court is doing a reasonably good job of protecting some of our liberties (or, in the Heller case, restoring our liberties), but I point out in this clip from a recent interview that the Justices have failed to protect our property rights.

But since I’m now a lawyer, let’s focus instead on what legal scholars have written on this issue.

The late Professor Bernard Siegan authored a great book, Economic Liberties and the Constitution. If you care about these issues, you should buy it.

In the meantime, here are some excerpts from an article he wrote for Chapman Law Review.

The original Constitution of 1787 granted limited powers to each of the three branches of government… The federal government was limited in power so that it could not deprive citizens of their privileges and immunities… The Constitution was passed by delegates who had lived under and were steeped in the common law. Most terms and provisions of the Constitution are of common law origin and cannot fully be understood without reference to the common law. Thus, although there were no specific protections for the right of property or economic activity or press and speech, the United States government was given no power in the Constitution to deprive people of these common law rights.

Siegan explains some of the thinking that motivated James Madison.

The most influential Framer of both the United States Constitution and the Bill of Rights was James Madison, a delegate to the Constitutional Convention from Virginia… He spent considerable time preparing for the Convention by studying the writings of leading authorities on government, particularly the Scottish philosopher and historian David Hume, who advocated freedom for commerce as essential to the viability and progress of a nation. As a result of his…extensive review of literature on the subject of government, Madison concluded that for a nation to be politically and economically successful considerable limitation of government powers was required, enabling the productive, inventive, and competitive talents of the people to flourish. He believed that the welfare of a nation mandated the creation of a commercial republic that would depend on freedom of the markets and not on the authority of the state.

There’s also an excellent book, The Dirty Dozen, written by Robert Levy and William Mellor, which outlines twelve terrible Supreme Court decisions that expanded the power of government (including Wickard v. Filburn and Kelo v City of New London).

Here are some excerpts from remarks by Levy.

The Tenth Amendment says quite clearly that the federal government is authorized to exercise only certain enumerated powers, the ones that are listed there and that are specifically delegated to the national government. The Tenth Amendment goes on to say, if the power is not listed there, if it’s not enumerated and delegated to the national government, then it is reserved to the states or, depending on the provisions of state constitutions and state laws, to the people. …No matter how worthwhile the goal, no matter how much Congress thinks that it has identified a really important problem, and no matter how sure Congress is that it knows how to fix the problem, if there’s no constitutional authority to pursue it, then the federal government has to step aside and leave the matter to the states or private parties.

In other words, the Founders weren’t joking when they listed the enumerated powers.

They even included an amendment as part of the Bill of Rights to reinforce those limitations on the power of government.

Speaking of amendments, advocates of bigger government could have used that approach to expand the power of Washington. But, as Levy points out, they didn’t need to follow the rules because the Supreme Court decided to no longer protect economic liberty.

…the Supreme Court has accomplished through the back door what the states and the Congress could not have accomplished through the prescribed amendment process. Regrettably, I think, the modern court has lost its compass… Much of the court’s enduring mischief…started during the New Deal and continues today.

Last but not least, Professor Richard Epstein (my former debating partner) has a great book entitled The Classical Liberal Constitution. It also belongs in your library (and will help underscore the differences between classical liberalism and today’s statist version of liberalism).

Until then, here are excerpts from one of his articles.

…the Constitution…does offer broad and specific protections to private property through the Takings Clause (“nor shall private property be taken for public use without just compensation”^4×4. U.S. Const. amend. V. ) and through the Due Processes Clauses of the Fifth and the Fourteenth Amendments (providing that neither the federal government nor the states may deprive any person of “life, liberty or property, without due process of law”^5×5. Id.; id. amend. XIV. ). …a unified conceptual framework should apply to what are called economic and personal liberties, even if it were possible to articulate some hard-edged separation between them. The analytical origin of this position is that voluntary contracting, whether for the transfer of goods and services or the formation of long-term associations, works as well in the one domain as in the other.

Epstein points out that there was a spirited debate when the Constitution was drafted and adopted, but both sides in that debate would oppose the expansion of government power that largely began in the 1930s.

…there were many differences between the Federalists and Antifederalists, but anyone would be hard pressed to find a single point of contention that could be cashed out to support the hallmark legislation of the New Deal. …the Contracts Clause imposes limitations on how the state could regulate ot only existing contracts, but also those contracts that had not yet been made. And whatever doubts that existed were largely removed by the adoption of the Fourteenth Amendment, where the correct reading of the Privileges or Immunities, Due Process, and Equal Protection Clauses all place powerful limitation on the scope of state power to regulate economic and noneconomic matters alike. …neither the Federalists nor the Antifederalists in the ratification debates supported such massive federal schemes as the National Labor Relations Act.

Let’s close with this clever image someone posted on Facebook.

P.S. Here’s some satire about Obama and the Bill of Rights.

P.P.S. And here’s what Professor Epstein said about his interactions with Obama at the University of Chicago.

P.P.P.S. I image Levy/Mellor book would be re-titled The Dirty Thirteen if it was updated to include the horrific Obamacare decision.

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Communism and Socialism Humor

There’s nothing funny about communism and socialism in the real-world.

The totalitarian version is horrifying and brutal, while the benign version is “merely” debilitating to economic performance and vitality.

But that doesn’t mean we shouldn’t enjoy some laughs by mocking these awful ideologies.

We’ll start today’s collection with a look at socialism vs. democratic socialism.

I actually think there is a real difference between Marxist socialism and liberal socialism, but I also think economic coercion and political coercion are kissing cousins.

Our next bit of satire reminds me of Venezuela. Chavez and Maduro chose the option on the right.

Next we have examples of false advertising (though I’m sure we’ll be told that “real socialism” and “real communism” haven’t been tried.

Let’s close today’s edition with a tribute to Crazy Bernie.

While I enjoy Bernie-focused humor (see here, here, here, here, here, and here), I have to point out that the above image, while amusing, isn’t accurate.

Michael Moore and Chavez’s daughter also have huge bank accounts.

To see the entire collection of communism and socialism humor, click here.

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Majoritarianism and Democracy vs. Liberty and the Constitution

While she’s mostly known for radical proposals such as confiscatory tax rates and the Green New Deal, Alexandria Ocasio-Cortez also made waves with recent comments about imposing “democracy” on the economy.

In a discussion last year at Ponoma College in California, I explained why majoritarianism is misguided.

For all intents and purposes, unchecked democracy gives 51 percent of the people a right to rape and pillage 49 percent of the people.

Thankfully, America’s Founders realized that approach was incompatible with individual liberty.

They drafted a Constitution that explicitly limited the power of politicians (and thus also limited the power of people who vote for politicians).

Why? Because they understood history.

Professor Victor Davis Hanson explains how they recognized the dangers of majoritarianism.

The half-millennia success of the stable Roman republican system inspired later French and British Enlightenment thinkers. Their abstract tripartite system of constitutional government stirred the Founding Fathers to concrete action. Americans originally were terrified of what 51 percent of the people in an unchecked democracy might do on any given day—and knew that ancient democracies had always become more not less radical and thus more unstable. For all the squabbles between Adams, Jefferson, Hamilton, and Madison, they agreed that a republic, not a direct democracy, was a far safer and stable choice of governance. …We often think that a Bill of Rights was designed to protect Americans from monarchs and dictators. It certainly was. But the Founders were just as terrified of what that the majority of elected representatives without restraint might legally do on any given day to an individual citizen. …All consensual governments are prone to scary wild swings of mob-like emotion—and to demagogues who can almost rein in or goad the dêmos. But the Founders sought to make American government immune to Athenian-style craziness through a system of checks and balances that vented popular frenzies without a great deal of damage.

In a column for the Foundation for Economic Education, Professor Gary Galles explains the difference between liberty and democracy.

…far too little attention seems to be given to the differences between democracy—the process by which we select members of government—and liberty—the key to good government. …our Constitution and Bill of Rights…put some things beyond majority determination… Unfortunately, democracy…is entirely consistent with choices that destroy liberty…the growing reach of government makes our exercise of democracy an increasing threat to liberty, defending that liberty requires understanding the limits of democratic determination.

George Will, citing the work of Professor Randy Barnett, explains that the fight is – or should be – between statist majoritarians and libertarian constitutionalists.

Regarding jurisprudence, Democrats are merely results-oriented, interested in…expanding government’s power… Republicans…have grown lazily comfortable with rhetorical boilerplate in praise of “judicial restraint.” …all progressives are Hobbesians in that they say America is dedicated to a process — majoritarian decision-making that legitimates the government power it endorses. Not all Lockeans are libertarians, but all libertarians are Lockeans in that they say America is dedicated to a condition — liberty. …Lockeans favor rigorous judicial protection of certain individual rights — especially private property and freedom of contract — that define and protect the zone of sovereignty within which people are free to act as they please. Hobbesians say the American principle is the right of the majority to have its way. …Lockeans say the Constitution, properly construed and enforced by the judiciary, circumscribes the majoritarian principle by protecting all rights that are crucial to individual sovereignty. …Barnett says, yes, the Constitution — “the law that governs those who govern us” — is libertarian. And a Lockean president would nominate justices who would capaciously define and vigorously defend, against abuses by majoritarian government.

You don’t have to be a Randian to heartily endorse and embrace this sentiment (h/t: Libertarian Reddit).

The most cogent warning about majoritarianism comes from the great Thomas Sowell.

"In the modern welfare state, a vote becomes a license to take what others create — and these others include generations yet unborn."

— Thomas Sowell (@ThomasSowell) April 19, 2017

To emphasize the dangers of majoritarianism, I’ll close by simply citing Brazil in the past and Venezuela today.

P.S. Though I must admit that the Swiss are an example of how majoritarianism can lead to good outcomes.

P.P.S. I strongly encourage you to read what Walter Williams wrote on this topic.

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The Macro Damage of Trade Taxes

In a video I shared two months ago included a wide range of academic studies showing that government-imposed trade barriers undermine economic prosperity.

Not that those results were a surprise. Theory teaches us that government intervention is a recipe for economic harm. And we certainly have painful history showing the adverse consequences of protectionism.

When I debate the issue, I like to cite real-world examples, such as the fact that the nations with the lowest trade barriers tend to be very prosperous while protectionist nations are economic laggards.

No wonder there’s such a strong consensus among economists.

Today, we’re going to add to pro-trade consensus.

A new study from the International Monetary Fund investigates the macroeconomic impact of trade taxes. Here’s the basic outline of the methodology.

Some economies have recently begun to use commercial policy, seemingly for macroeconomic objectives. So it seems an appropriate time to study what, if any, the macroeconomic consequences of tariffs have actually been in practice. Most of the predisposition of the economics profession against protectionism is based on evidence that is either a) theoretical, b) micro, or c) aggregate and dated. Accordingly, in this paper, we study empirically the macroeconomic effects of tariffs using recent aggregate data. …Our panel of annual data is long if unbalanced, covering 1963 through 2014; more recent data is of greater relevance, but older data contains more protectionism. Since little protectionism remains in rich countries, we use a broad span of 151 countries, including 34 advanced and 117 developing countries.

And here are the results.

Our results suggest that tariff increases have adverse domestic macroeconomic and distributional consequences. We find empirically that tariff increases lead to declines of output and productivity in the medium term, as well as increases in unemployment and inequality. … a one standard deviation (or 3.6 percentage point) tariff increase leads to a decrease in output of about .4% five years later. We consider this effect to be plausibly sized and economically significant… Why does output fall after a tariff increase? …a key channel is the statistically and economically significant decrease in labor productivity, which cumulates to about .9% after five years. …Protectionism also leads to a small (statistically marginal) increase in unemployment…we find that tariff increases lead to more inequality, as measured by the Gini index; the effect becomes statistically significant two years after the tariff change. To summarize: the aversion of the economics profession to the deadweight losses caused by protectionism seems warranted; higher tariffs seem to have lower output and productivity, while raising unemployment and inequality. … there are asymmetric effects of protectionism; tariff increases hurt the economy more than liberalizations help.

These graphs show the main results.

The simple way to think about this data is that protectionism forces an economy to operate with sand in the gears. Another analogy is that protectionism is like having to deal with permanent and needless road detours. You can still get where you want to go, but at greater cost.

The bottom line is that things simply don’t function smoothly once government intervenes.

Lower growth, reduced productivity, and higher unemployment are obvious and inevitable consequences, as shown in the IMF study.

And while I don’t worry about inequality when some people get richer faster than other people get richer in a genuine free market, it’s morally disgusting for politicians to support protectionist policies that are especially harmful to the poor.

P.S. Everything in the IMF study about the damage of trade taxes also applies to the economic analysis of other forms of taxation. Indeed, deadweight losses presumably are even higher when considering income taxes. So the IMF deserves to be castigated for putting politics above economics when it pimps for higher taxes.

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New Illinois Governor Wants to Accelerate the State’s Fiscal Collapse with a “Progressive” Tax

I wrote a couple of weeks ago about how New York is committing slow-motion fiscal suicide.

The politicians in Illinois must have noticed because they now want (another “hold my beer” moment?) to accelerate the already-happening collapse of their state.

The new governor, J.B. Pritzker, wants to undo the state’s 4.95 percent flat tax, which is the only decent feature of the Illinois tax system.

And he has a plan to impose a so-called progressive tax with a top rate of 7.95.

Here are some excerpts from the Chicago Tribune‘s report., starting with the actual plan.

Democratic Gov. J.B. Pritzker embarked on a new and potentially bruising political campaign Thursday by seeking to win public approval of a graduated-rate income tax that he contended would raise $3.4 billion by increasing taxes for the wealthy…for his long-discussed plan to replace the state’s constitutionally mandated flat-rate income tax. Currently, all Illinois residents are taxed at 4.95 percent… Pritzker’s proposal is largely reliant on raising taxes significantly on residents making more than $250,000 a year, with those earning $1 million and up taxed at 7.95 percent of their total income. …The corporate tax rate would increase from the current 7 percent to 7.95 percent, matching the top personal rate. …The governor’s proposal would give Illinois the second-highest top marginal tax rate among its neighboring states.

And here’s what would need to happen for the change to occur.

Before Pritzker’s plan can be implemented, three-fifths majorities in each chamber of the legislature must approve a constitutional amendment doing away with the flat tax requirement. The measure would then require voter approval, which couldn’t happen until at least November 2020. …Democrats hold enough seats in both chambers of the legislature to approve the constitutional amendment without any GOP votes. Whether they’ll be willing to do so remains in question. Democratic leaders welcomed Pritzker’s proposal… voters in 2014 endorsed the idea by a wide margin in an advisory referendum.

The sensible people on the Chicago Tribune‘s editorial board are not very impressed, to put it mildly.

…how much will taxes increase under a rate structure Pritzker proposed? You might want to cover your eyes. About $3.4 billion annually… That extraction of dollars from taxpayers’ pockets would be in addition to roughly $5 billion raised annually in new revenue under the 2017 income tax hike. …How did Springfield’s collection of all that new money work out for state government and taxpayers? Here’s how: Illinois remains deeply in debt, continues to borrow to pay bills, faces an insurmountable unfunded pension liability and is losing taxpayers who are fed up with paying more. The flight of Illinoisans to other states is intensifying with 2018’s loss of 45,116 net residents, the worst of five years of consistent, dropping population. …Illinois needs to be adding more taxpayers and businesses, not subtracting them. When politicians raise taxes, they aren’t adding. A switch to a graduated tax would eliminate one of Illinois’ only fishing lures to attract taxpayers and jobs: its constitutionally protected flat income tax. …Pritzker’s proposal, like each tax hike before it, was introduced with no meaningful reform on the spending side of the ledger. This is all about collecting more money. …In fact, the tax hike would come amid promises of spending new billions.

And here’s a quirk that is sure to backfire.

For filers who report income of more than $1 million annually, the 7.95 percent rate would not be marginalized; meaning, it would be applied to every dollar, not just income of more than $1 million. Line up the Allied moving vans for business owners and other high-income families who’ve had a bellyful of one of America’s highest state and local tax burdens.

The Tax Foundation analyzed this part of Pritzker’s plan.

This creates a significant tax cliff, where a person making $1,000,000 pays $70,935 in taxes, while someone earning one dollar more pays $79,500, a difference of $8,565 on a single dollar of income.

That’s quite a marginal tax rate. I suspect even French politicians (as well as Cam Newton) might agree that’s too high.

Though I’m sure that tax lawyers and accountants will applaud since they’ll doubtlessly get a lot of new business from taxpayers who want to avoid that cliff (assuming, of course, that some entrepreneurs, investors, and business owners actually decide to remain in Illinois).

While the tax cliff is awful policy, it’s actually relatively minor compared to the importance of this table in the Tax Foundation report. It shows how the state’s already-low competitiveness ranking will dramatically decline if Pritzker’s class-warfare plan is adopted.

The Illinois Policy Institute has also analyzed the plan.

Unsurprisingly, there will be fewer jobs in the state, with the losses projected to reach catastrophic levels if the new tax scheme is adjusted to finance all of the Pritzker’s new spending.

And when tax rates go up – and they will if states like Connecticut, New Jersey, and California are any indication – that will mean very bad news for middle class taxpayers.

The governor is claiming they will be protected. But once the politicians get the power to tax one person at a higher rate, it’s just a matter of time before they tax everyone at higher rates.

Here’s IPI’s look at projected tax rates based on three different scenarios.

The bottom line is that the middle class will suffer most, thanks to fewer jobs and higher taxes.

Rich taxpayer will be hurt as well, but they have the most escape options, whether they move out of the state or rely on tax avoidance strategies.

Let’s close with a few observations about the state’s core problem of too much spending.

Steve Cortes, writing for Real Clear Politics, outlines the problems in his home state.

…one class of people has found a way to prosper: public employees. …over 94,000 total public employees and retirees in Illinois command $100,000+ salaries from taxpayers…former Chicago Mayor Richard M. Daley, who earned a $140,000 pension for his eight years of service in the Illinois legislature. …Such public-sector extravagance has fiscally transformed Illinois into America’s Greece – only without all the sunshine, ouzo, and amazing ruins.

So nobody should be surprised to learn that the burden of state spending has been growing at an unsustainable rate.

Indeed, over the past 20 years, state spending has ballooned from $34 billion to $86 billion according to the Census Bureau. At the risk of understatement, the politicians in Springfield have not been obeying my Golden Rule.

And today’s miserable fiscal situation will get even worse in the near future since Illinois is ranked near the bottom when it comes to setting aside money for lavish bureaucrat pensions and other retirement goodies.

Indeed, paying off the state’s energized bureaucrat lobby almost certainly is the main motive for Pritzker’s tax hike. As as happened in the past, this tax hike is designed to finance bigger government.

Yet that tax hike won’t work.

Massive out-migration already is wreaking havoc with the state’s finances. And if Pritzker gets his tax hike, the exodus will become even more dramatic.

P.S. Keep in mind, incidentally, that all this bad news for Illinois will almost certainly become worse news thanks to the recent tax reform. Restricting the state and local tax deduction means a much smaller implicit federal subsidy for high-tax states.

P.P.S. I created a poll last year and asked people which state will be the first to suffer a fiscal collapse. Illinois already has a big lead, and I won’t be surprised if that lead expands if Pritzker is able to kill the flat tax.

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Cross-Border Investment Threatened by Extraterritorial Tax and Regulatory Policy

When I write about the benefits of trade, I periodically point out that America has a trade deficit because it has a foreign investment surplus.

And since investment is a key driver of economic growth and rising wages, that’s a good outcome.

It basically means that foreigners who earn dollars by exporting to America are helping to finance America’s future prosperity by then plowing that money back into our financial markets (see this video for more details).

That’s the good news.

The bad news is that politicians are making cross-border investment more difficult.

They are using tax and regulatory policies to hinder the flow of money, just like they use protectionist policies to hinder the flow of goods and services.

A new report from the Center for Freedom and Prosperity, authored by Bruce Zagaris, explains this unfortunate development. He starts by explaining some of the bad policies imposed by Washington.

The ever-growing complexity and reach of the U.S. tax system impinges on the ability of U.S. taxpayers to live abroad, work abroad, open bank accounts abroad, or conduct business abroad. …These developments create a challenging environment, with taxpayers being subject to onerous – and sometimes conflicting – requirements. The complex array of obligations put taxpayers in legal jeopardy as governments threaten to impose sanctions on investors and businesses… The U.S. has even proactively prosecuted individuals and companies for cross-border tax activities that do not violate American laws. …The paperwork and reporting requirements for cross-border economic activity are extensive. …The icing on the cake of intrusiveness and costly compliance is the Foreign Account Tax Compliance Act.

FATCA is horrid legislation, perhaps the single worst part of the internal revenue code.

And bad policy from the U.S. has given other nations an excuse to adopt similar bad rules – aided and abetted by statist international bureaucracies such as the European Commission and Organization for Economic Cooperation and Development.

The difficulties caused by extraterritorial taxation are exacerbated by similar moves by other nations, often implemented as a response to aggressive policies by the United States. … the OECD has developed compliance and enforcement initiatives. …extraterritorial tax rules also are impinging on corporations. …The EU has taken a series of aggressive steps to impose tax on cross-border transactions. …Overly aggressive tax compliance and enforcement initiatives erode globalization, impede the ability of normal commerce and the movement of people, capital, and goods, and threaten privacy.

I especially like Bruce’s conclusion. All of the rules that stifle and hinder cross-border investment only exist because politicians have adopted bad tax laws.

Most of the policies reviewed above are only necessary because governments not only tax income, but also impose extra layers of tax on income that is saved an invested, exacerbated by decisions to impose such tax laws on income earned outside national borders. In a neutral, territorial tax system that taxes economic activity only one time, such as the Hall-Rabushka flat tax, almost all international tax conflicts disappear.

Amen. If we had a flat tax, there would be no case to be made for these bad policies.

Writing for the Washington Times, Richard Rahn of the Institute for Global Economic Growth cites this new study as he warns that an ever-expanding web of global tax rules is throwing sand in the gears of the global economy.

Global economic growth, particularly foreign investment, is slowing. One reason is likely the growing complexity of engaging in cross-border financial transactions. Major companies, banks and other financial institutions have been required to pay, in some cases, multi-billion-dollar fines to various governments for some alleged tax or other violation. The question is: Why is this occurring when virtually all of these institutions have compliance officers, tax lawyers, accountants, auditors, etc.? Much of the problem seems to stem from the ever-changing regulations and laws among countries, which are increasingly impossible to understand and comply with, even by the most sophisticated businesses. …The Center for Freedom and Prosperity Foundation has just published an important paper by the highly regarded international tax lawyer Bruce Zagaris, titled “Why the U.S. and the Worldwide Tax Systems Have Run Amok.” …Overly complex and even incomprehensible rules govern many international wealth and business transfers, as well as very onerous reporting requirements for people that have foreign interests. …In his paper, Mr. Zagaris details the problems caused by FATCA and a number of other international tax-related rules and regulations. Many of the rules and regulations would never meet basic cost-benefit analysis. They create much pain for little or no gain.

I would modify that last sentence.

The only “gain” from all these tax rules is a comparatively small amount of additional tax revenue for politicians (Obama originally promised $100 billion annually from FATCA and the actual law is projected to collect than $1 billion per year).

Yet there is great pain imposed on the private sector.

Moreover, laws to hinder cross-border capital flows are especially disadvantageous for the United States, as illustrated by this chart from Bruce’s report.

Sadly, damage to the productive sector of the economy is not something that politicians lose sleep over.

After all, they wouldn’t be imposing risky extraterritorial policies if they actually cared about what’s best for the nation.

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Is Socialism on the Winning Side of History?

Socialism is a joke. It doesn’t work. And it is so often a gateway to totalitarianism.

But that doesn’t mean it won’t happen. In this interview, I express my concern that the United States has passed a tipping point.

In the discussion, I included my usual caveat about the meaning of socialism.

I prefer the technical definition, which involves government ownership of the means of production, central planning, and government-dictated prices. But most people assume it simply means big government, in which case it’s hard to find nations that don’t qualify.

Regardless of the best definition, the reason for my pessimism is simple. It’s a combination of changing demographics and poorly designed entitlement programs.

For all intents and purposes, we’re on a trajectory (the “most predictable crisis in history“) to become another Greece.

The good news is that we probably have a couple of decades before the crisis occurs. The bad news is that our political class seems to have no interest in the reforms that would be necessary to avert the crisis.

Though maybe the crisis will occur sooner than we think. I wrote back in 2015 that the debate between Hillary Clinton and Bernie Sanders was merely a discussion over how fast we should drive in the wrong direction.

Well, Crazy Bernie didn’t get the nomination, but he seems to have won the war for the soul of the party. As I point out in this second clip, the radicals are now in the ascendancy on the left.

By the way, here’s the interview with Thomas Sowell that was used as a lead-in to my interview. He may be even more pessimistic than I am.

Though you’ll notice that Professor Sowell included a caveat, speculating that maybe there will be some unforeseeable development that saves the western world (or perhaps just the United States) from gradual decay.

Let’s close this column with some optimism on that point.

I’m old enough to remember the malaise of the 1970s, which wasn’t just based on the economic mess caused by Nixon-style and Carter-style statism. Many people also thought capitalism was no better than communism and that we needed to find some sort of middle ground (and some economists were horribly guilty of this sin).

Thankfully, Reagan had a different approach (including mockery rather than moral equivalence) and the western world won the Cold War.

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Gun Control Humor

I shared some socialism humor yesterday to start the weekend, so let’s end the weekend by adding to our collection of satire about gun control.

We’ll start with a fairy tale, loosely based on this video, for left-wing children. Or, to be more precise, a fairy tale for parents who want to raise anti-empirical left-wing children.

This book belongs on the shelf along with the leftist version of The Little Red Hen, the leftist version of The Little Engine that Could, and the leftist version of The Ant and the Grasshopper.

I’ve already shared several variations of this next image. But it never gets old, so here’s another.

There’s nothing particularly amusing or satirical about these rules for gun safety, but the final rule at the end is too good not to share (as I’m sure the guy at the bottom of this column would agree).

Returning the theme of fairy tales, here’s a Michael Ramirez cartoon about the utter failure of gun control in Chicago.

I’m guessing Obama’s book includes this example of rigorous, Chicago-related, social-science research.

Here’s another cartoon that builds on many previous examples.

The video at the end of this column also is a good lesson about gun-free zones.

And if you want some serious analysis explaining why gun-free zones don’t work, click here and here.

Last but not least, here’s my favorite part of today’s collection (h/t: Libertarian Reddit).

Amen. Just like the image at the end of this column.

I’ll close by including links (here, here, and here) for those who want serious discussion on gun control, the Bill of Rights, and the Constitution.

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Socialism Humor

I realize that mocking socialism is like taking candy from a baby, but I have several items to add to our collection.

But today I’m going to follow the advice of some readers who have told me that I should make a serious point with each bit of satire so that readers (especially those not already immersed in these issues) understand why socialism is both laughable and tragic.

Our first example is some humor based on The Simpson’s, and it makes the important point that majoritarian coercion is still coercion.

Which is why America’s Founders did their best to limit the extent of majoritarian democracy.

I like this next image because it’s the satirical version of my column on why the left should be nice to upper-income taxpayers.

Sadly, my friends on the left seem unable to resist killing – or at least driving away – those golden geese.

And when more and more people are riding in the wagon and fewer and fewer people are pulling the wagon, the end result is not pretty.

Speaking of not pretty, this is the R-rated version of a great Michael Ramirez cartoon.

President Eisenhower also had something to say about free stuff.

Moving to our next example, socialists have this romantic notion of a society where everyone pulls together for the common good.

But when they try to set up such systems on a voluntary basis, they inevitably fail because of an unsolvable incentive structure.

Which is what makes this sign funny…and accurate.

Reminds me of this superb tweet.

Our final example just appeared in my inbox this morning, so it’s very well timed.

It makes the all-important point that ever-expanding government power is bad for civil liberties (hence this very powerful poster about gun control) and bad for full stomachs.

While the image is funny, the real-world consequences are not.

Poor people are starving to death in Venezuela.

And don’t forget the tens of millions of deaths thanks to famines in Mao’s China or the Ukraine under Stalin. Or the mass starvation in North Korea (which was portrayed as a triumph against obesity by an especially despicable bureaucrat at the World Health Organization).

To be sure, there’s a big difference between liberal socialism and totalitarian socialism. I’d take the former if forced to choose. And even when considering liberal socialism, there’s are big differences between market-friendly versions and intervention-based versions.

But, all things considered, I prefer freedom and prosperity.

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The Pitfalls of Central Planning: Government-Directed Industrial Policy Will Hinder China’s Growth

During my early years in public policy, back in the late 1980s, I repeatedly crossed swords with people who argued that Washington should have more power over the economy so that the United States could compete with Japan, which supposedly was an economic juggernaut because of “industrial policy” directed by wise and far-sighted bureaucrats at the Ministry of International Trade and Industry.

Given Japan’s subsequent multi-decade slump, it certainly seems like I was right to warn against giving American politicians the power to pick winners and losers.

But not everybody learned from that experience. In the words of Yogi Berra, “It’s deja vu all over again,” only this time we’re supposed to be terrified because the Chinese government wants to subsidize and promote certain industries as part of “Made in China 2025”.

At the risk of understatement, I’m not scared.

Yes, China has enjoyed some impressive growth since it partially liberalized its economy in the late 1900s, but it will remain far behind the United States unless – as I recently explained on CNBC – there is a new wave of free-market reforms.

Needless to say, a government initiative to favor certain industries is hardly a step in that direction.

Some Chinese policy makers even realize that it’s counterproductive to give that kind of power to politicians and bureaucrats.

Here are some excerpts from a report in the South China Morning Post.

“Made in China 2025” has been a waste of taxpayers’ money, China’s former finance minister Lou Jiwei has said…“[Made in China] 2025 has been a lot of talking but very little was done,” Lou, chairman of the National Council for Social Security Fund, said on Wednesday… “those industries are not predictable and the government should not have thought it had the ability to predict what is not foreseeable.” …“The negative effect of [the plan] is to have wasted taxpayers’ money.” He suggested the market should have played a greater role in developing the industries that MIC2025 was designed to push. “The [resources] should have been allocated by the market; the government should give the market a decisive role,” Lou said. “Why has the government pushed so hard on this strategy? [Hi-tech industry prospects] can all change in a few years, it is too unforeseeable.”

Sounds like Mr. Lou learned from Obama’s Solyndra fiasco that cronyism doesn’t work.

But some of his colleagues still need to be educated.

Made in China 2025 (MIC2025) strategy, Beijing’s blueprint for tech supremacy. …Since the plan’s launch in 2015, the government has poured money into MIC2025 to try to turn a number of domestic industries – including artificial intelligence, pharmaceuticals and electric vehicles – into global leaders by 2025. …Lou said: “It [the strategy] should not have been done that way anyway. I was against it from the start, I did not agree very much with it.

I hope senior government officials change their minds about this harmful exercise in central planning.

Not because I’m afraid it will work, but rather because I like China and I want the country to prosper. The partial reforms from last century produced great results for China, including huge reductions in poverty.

Additional reforms could lead to mass prosperity. But that won’t happen if the Chinese government tries to control the allocation of resources.

Let’s close with a big-picture look at central planning and industrial policy, starting with the common-sense observation that there are degrees of intervention.

Here’s my back-of-the-envelope perspective. We have examples of nations, such as the Soviet Union, where the government had near-total control over the allocation of labor and capital. And I suppose Hong Kong would be the closest example of a laissez-faire jurisdiction. And then there’s everything in between.

I’ve already shared two great videos on government planning versus the market. I strongly recommend this Prager University video, narrated by Professor Burton Folsom, on the failure of government-dictated investment. And also this video narrated by Professor Russ Roberts, which shows how a decentralized market efficiently provides a bounty to consumers.

Here’s a third, which celebrates the work of the late Don Lavoie, one of my professors when I studied at George Mason University.

By the way, there is a terrible flaw in the video. The photo that appears at 1:38 shows select faculty and students in 1987. Why is that a flaw? For the simple reason that I was part of the photo but got cropped out in the video.

P.S. Some people worry that China’s industrial policy will have a negative spillover effect on the United States because American companies will lose market share to the subsidized Chinese companies. That’s a legitimate concern and American officials should use the World Trade Organization to counter mercantilist policies.

P.P.S. To my dismay, some people don’t want China to become a rich nation. I assume those people are hoping China follows the advice of the OECD and IMF.

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Individualism and Society

When talking with people who dislike free enterprise, it’s quite common that they will admit (at least once I share some of the evidence) that markets produce more prosperity than statism.

But that generally doesn’t convince them. In part, this is because they believe it is wrong to have significant income disparities. Especially if they’ve been snookered into thinking that the rich are getting richer at the expense of the poor.

To be fair, they generally don’t favor rabid redistribution. And I rarely find anyone who agrees with the twisted IMF prescription to hurt the poor so long as the rich suffer even more. But it bothers them that some people are poor and others are rich.

They’re also skeptical about capitalism because they think it implies the stereotype of a Randian world of ultra individualism where people are so fixated on making money that family and community are afterthoughts.

It is true that individualism-based societies generate much more prosperity than collectivism-based societies, at least according to research from scholars at the University of California at Berkeley.

But does that additional growth come at a cost? Are individualism-based societies cold, harsh, and disconnected?

We have the answer, thanks to a study authored by academics at the University of Tartu in Estonia. They investigated this very issue.

Many social scientists have predicted that one inevitable consequence of modernization is the unlimited growth of individualism, which poses serious threats to the organic unity of society. Others have argued that autonomy and independence are necessary conditions for the development of interpersonal cooperation and social solidarity. We reanalyzed available data on the relationship between individualism-collectivism and social capital within one country (the United States) and across 42 countries.

They considered the hypothesis that individualism corrodes community.

…many theorists have seen the unlimited growth of individualism as a threat to the organic unity between individuals and society. Particularly in France, the concept of individualism has historically carried a negative meaning, denoting individual isolation and social dissolution… For many critics, individualism mainly fosters social atomization, which, in its turn, leads to the disappearance of social solidarity and to the dominance of egoism and distrust. …Thus, in the opinion of communitarians, society should exert a balancing force to excessive individualism, which endangers both individual rights and civic order.

And they also considered the opposite hypothesis, which says that individualism builds social capital.

…individualism does not necessarily jeopardize organic unity and social solidarity. On the contrary, the growth of individuality, autonomy, and self-sufficiency may be perceived as necessary conditions for the development of interpersonal cooperation, mutual dependence, and social solidarity. …normative or ethical individualism even elevates social welfare by promoting trust as well as by encouraging people to work creatively, from which others can benefit…individualism (as it is conceptualized in psychology) is also associated with higher self-esteem and optimism…individualistic cultures are higher on subjective wellbeing…and they report higher levels of quality-of-life… People in individualistic cultures tend to have more acquaintances and friends…they are more extraverted and open to new experience…and they are more trusting and tolerant toward people of different races.

The authors crunched numbers for states and nations.

Here’s what they found in American states.

…states with higher levels of social capital tend to be more individualistic. According to Figure 1, high levels of both community-based social capital and individualism prevail in the states that belong to the Plains region: Montana, North Dakota, South Dakota, and Nebraska. Low social capital and collectivistic tendencies, on the other hand, can be found in the area of the former Confederacy, in the states of South Carolina, Louisiana, Mississippi, Georgia, and so on.

As you can see, there’s a clear correlation showing that more individualism is associated with higher levels of social capital.

And the same is true for countries.

Figure 2 shows that the countries with the highest levels of interpersonal trust are the countries most characterized by high levels of individualism: Finland, Norway, Sweden, Denmark, the Netherlands, Canada, and the United States.

As you can see from the chart, interpersonal trust and individualism are correlated.

As is so often the case, it’s interesting to look at the outliers.

The authors note that Utah and Nevada are outlier states. I’m assuming those results may have something to do with Mormonism and gambling, respectively. But maybe there are other explanations.

Looking at nations with high levels of interpersonal trust, China is a big outlier at one end and the Nordic nations are outliers at another end. For what it’s worth, the authors admit that the Chinese results are counterintuitive.

Now let’s circle back and consider policy implications.

I’ve argued that big government undermines charity, it undermines civil society, and that it undermines societal capital as well.

In a free society, by contrast, people have the ability to strive and prosper in order to have the time and resources to enjoy the things – such as family, neighborhood, friendship and community – that are the sources of happiness and contentment.

Though I confess I’m not sure how to best explain this to skeptics.

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Historical Evidence on Reducing Large Debt Burdens

The long-run fiscal outlook for most developed nations is very grim thanks to demographic change and poorly designed entitlement programs.

For all intents and purposes, we’re all destined to become Greece according to long-run projections from the International Monetary Fund, Bank for International Settlements, and Organization for Economic Cooperation and Development.

Are there any solutions to this “most predictable crisis“?

Politicians such as Alexandria Ocasio-Cortez and Bernie Sanders would like us to believe the answer involves never-ending tax increases. But such an approach is a recipe for more debt because the economy will weaken and governments will spend more money (look at what’s been happening in Europe, for instance).

A more sensible approach is a spending cap. I’ve pointed out, for instance, how Swiss government debt has plummeted ever since voters imposed annual limits on budgetary growth.

We also can learn lessons from history according to new research from the International Monetary Fund.

The report contains some very interesting economic history and the evolution of government finance, including the Bank of England being created and given a monopoly so the government would have a vehicle for borrowing money (as I observed in my video on central banking).

But it mostly tells the story of how governments and public finance simultaneously evolved.

Although the written record points to instances of public borrowing as long as two thousand years ago, recent scholarship points to 1000-1400 A.D. as when borrowing agreements with states were concluded with regularity and debt contracts entered into by sovereigns were standardized. …The supply of loans from city-states and territorial monarchies was driven by the need to finance military campaigns and secure borders. …From the 16th century, Europe’s political geography coalesced into the nation states recognized at the Peace of Westphalia in 1648. In parallel, many European states evolved from absolutist regimes to more limited government. …Fiscal states thus evolved in response to the efforts of rulers to secure borders, expand territory and survive. After 1650, larger, more centralized states increasingly possessed the fiscal machinery to raise revenue in uniform ways and had a veto player, such as a parliament, to monitor and discipline public expenditure.

There’s also lots of information in the report about how some governments, primarily outside of Europe, began to borrow money.

In many cases, this produced bad results, with defaults and economic crisis. As the authors wrote, “Debasement and restructuring also have a long history.”

But the part of the report that caught my eye was the description of how three advanced nations – the United Kingdom, the United States, and France – successfully dealt with large debt burdens before World War I.

…we describe three notable debt consolidation episodes before World War I: Great Britain after the Napoleonic Wars, the United States in the last third of the 19th century, and France in the decades leading up to 1913. While the colorful debt crises and defaults of the first era of globalization have been much discussed, less attention has been paid to these successful consolidation episodes. We focus on these three cases because they involved three of the largest economies of the period, but also because their debt burdens were among the heaviest. British public debt as a share of GDP was higher in the aftermath of the Napoleonic Wars, for example, than Greek public debt in 2018. But in all three cases, high public debts were successfully reduced relative to GDP.

In each case, war-time spending was the cause of the debt buildup.

The Napoleonic Wars, Franco-Prussian War and U.S. Civil War were the three most expensive conflicts of the 19th century. …debt accounted for the single largest share of wartime financing.

Here’s a table showing that these nations dramatically reduced their debt burdens.

To be sure, there were differences in the three nations.

The reduction in the British debt-GDP ratio was by far the largest and longest: the debt ratio fell from 194 percent in 1822 to 28 percent nine decades later. …The French public-debt-GDP ratio fell from 96 percent in 1896 to 51 percent in 1913… This case ranks second in size but first in pace. U.S. (federal or union) government debt was not as high at the end of the Civil War, and the subsequent consolidation was more leisurely; however, the process is notable for having reduced the debt-GDP ratio to virtually zero by World War I.

When the authors investigated how these nations reduced their debt burdens, they found that limited government was a common answer.

This was true in the United Kingdom.

Britain achieved the impressive feat of maintaining an average primary surplus of 1.6 percent of GDP for nearly a century (the only deficit in Figure 2 is at the time of the Boer War). One of the political legacies of Peel and Gladstone was a fiscal theory or philosophy of “sound finance” emphasizing budget surpluses, low taxes and minimal government expenditure. …demands for spending on welfare relief from the disenfranchised masses were kept in check. In exchange, the self-taxing class of income-tax-paying electors relieved the non-electors from the burden of direct taxation… Budget surpluses then made feasible further reductions in tariffs and taxes, which reduced the cost of living for the working class

It was true in the United States.

In the U.S., primary surpluses were consistently achieved… Southern states opposed an expansive role for the federal government, while entitlements limited to Civil War pensions contained pressure for public spending.

And it was true even in France.

In France, debt reduction was entirely accounted for by primary surpluses. Those surpluses exceeded British levels, reaching 2.5 percent of GDP on average, albeit over a shorter period.

Remember, this was a period when total government spending only consumed about 10 percent of economic output.

And this was a period when there was no welfare state. Redistribution was virtually nonexistent. Not even in France.

So it shouldn’t be a surprise that debt quickly fell in all three countries.

The common thread was small government.

…in all three of these large-scale debt consolidations, governments and societies went to great lengths to service and repay heavy debts. …it reflected prevailing conceptions of the limited functions of government, and limited popular pressure for public programs, entitlements and transfers.

What’s equally important is to note what didn’t happen.

No default. No inflation. No indirect confiscation.

…there was no restructuring or renegotiation of official or privately-held debts in these cases. Nor was there financial repression, i.e., measures artificially depressing interest rates. …Governments for their part did little to bottle up savings at home or to otherwise use regulation and legislation to artificially depress yields. …None of these three governments undertook involuntary restructurings despite the inheritance of heavy debt.

Now let’s shift from the past to the future

The authors point out how debt is rising today because of the welfare state rather than war.

The end of the last century also saw, for the first time, a secular increase in public-debt-to-GDP ratios in a variety of countries in conjunction not with wars and crises but in response to popular demands on governments for pensions, health care, and other often unfunded social services.

Given the demographic changes I mentioned at the beginning of the column, this does not bode well.

So what are the likely implications? As the authors note, there are two ways of dealing with high debt levels.

Countries have pursued two broad approaches to debt reduction. The orthodox approach relies on growth, primary surpluses, and the privatization of government assets. In turn this encourages long debt duration and non-resident holdings. Heterodox approaches, in contrast, include restructuring debt contracts, generating inflation, taxing wealth and repressing private finance.

At the risk of understatement, I fear Robert Higgs is right and that today’s politicians (and today’s voters!) will choose the latter approach.

Given that those policies will make a bad situation even worse, I’m not overflowing with confidence about the future.

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Is Trump’s Treasury Department Supporting a Cronyist Plan to Empower Fannie Mae and Freddie Mac?

What’s the worst thing the government does?

That’s a difficult question to answer. I’ve argued that giving U.S. tax dollars to the OECD is the worst item in the budget, on a per-dollar-spent basis.

And I’ve expressed scathing disdain for the horrid practice of civil asset forfeiture. There are also really destructive features of the tax system, such as FATCA and the death tax.

But you could make a strong case for Fannie Mae and Freddie Mac as well.

These two government-created corporations not only reduce long-run growth by distorting the allocation of capital, they also bear considerable responsibility for last decade’s financial crisis since they played a major role in fueling the housing bubble.

The U.K.-based Economist describes America’s interventionist regime as a form of socialism.

…the mortgage system…is…largely nationalised and subject to administrative control. …America’s mortgage-finance system, with $11 trillion of debt, is probably the biggest concentration of financial risk to be found anywhere. …The supply of mortgages in America has an air of distinctly socialist command-and-control about it. …The structure of these loans, their volume and the risks they entail are controlled not by markets but by administrative fiat. …the subsidy for housing debt is running at about $150 billion a year, or roughly 1% of GDP. A crisis as bad as last time would cost taxpayers 2-4% of GDP, not far off the bail-out of the banks in 2008-12. …the securitisation of loans, most of which used to be in the private sector, is now almost entirely state-run. …There are at least 10,000 relevant pages of federal laws, regulatory orders and rule books. …In the land of the free, where home ownership is a national dream, borrowing to buy a house is a government business for which taxpayers are on the hook.

In other words, our system of housing finance is mucked up by government intervention (very much akin to the way healthcare is a mess because of government).

That’s the bad news.

The good news is that Fannie and Freddie have been in “conservatorship” every since they got a big bailout last decade. And that means the two cronyist firms are now somewhat constrained. They can’t lobby, for instance (though Republicans and Democrats still seek to expand subsidies in response to campaign cash from other housing-related lobbyists).

But the worst news is that there are people in the Trump Administration who want to go back to the bad ol’ pre-bailout days.

The Wall Street Journal opined on the issue as Trump prepared to take office. The editorial noted that the implicit government guarantee for Fannie Mae and Freddie Mac led to an explicit bailout.

Fan and Fred’s owners feasted for decades on an implied taxpayer guarantee before the housing crisis. Since everyone knew the two government-created mortgage giants would receive federal help in a crisis, they were able to run enormous risks and still borrow cheaply as they came to own or guarantee $5 trillion of mortgage paper. When the housing market went south, taxpayers had to stage a rescue in 2008 and poured nearly $190 billion into the toxic twins.

As part of that bailout and the subsequent “conservatorship,” Fannie and Freddie still get to operate, and they still have a big implicit subsidy that allows near-automatic profits (at least until and unless there’s another big hiccup in the housing market), but the Treasury Department gets those profits.

Needless to say, this upsets the shareholders. They bought stock so they could get a slice of the undeserved profits generated by the Fannie/Freddie cronyist business model.

They claim going back to the pre-bailout days would be a form of privatization, but the WSJ editorial correctly warns that it’s not pro-free market to allow these two government-created companies to distort housing markets with their government-granted favors, preferences, and subsidies.

…the expectation that Treasury secretary nominee Steven Mnuchin is going to revive the Beltway model of public risk and private reward. …private shareholders of these so-called government-sponsored enterprises keep pretending that something other than the government is responsible for their income streams. As if anyone would buy their guarantees—or give them cheap financing—if Uncle Sam weren’t standing behind them. …what they really want is to liberate for themselves the profits that flow from a duopoly backed by taxpayers. …We’re all for businesses getting out of government control—unless they’re playing with taxpayer money. Americans were told that Fannie and Freddie were safe for years before the last crisis. The right answer is to shut them down.

Amen. Not just shut them down, dump them in the Potomac River.

The Wall Street Journal then revisited the issue early last year, once again expressing concern that the Treasury Secretary wants to go back to the days of unchecked cronyism.

Fannie Mae is again going hat in hand to taxpayers… Washington should take this news as a kick in the keister to finally start winding down the mortgage giant and its busted brother, Freddie Mac . But the Trump Administration seems to be moving in the opposite direction. …The pair, now in “conservatorship,”…were left in limbo. Hedge funds bought up their shares, betting they could pressure Washington into bringing back the old business model of public risk and private reward. …Treasury Secretary Steven Mnuchin told the Senate Banking Committee: “I think it’s critical that we have a 30-year mortgage. I don’t believe that the private markets on their own could support it.” But many countries have robust housing markets and ownership rates without a 30-year mortgage guarantee. Mr. Mnuchin sounds like his predecessor, Democrat Jack Lew. Wasn’t Donald Trump elected to eliminate crony capitalism?

This issue is now heating up, with reports indicating that the Treasury Secretary is pushing to restore the moral hazard-based system that caused so much damage last decade.

The Trump administration is at war with itself over who should take the lead in the reform of the government-backed mortgage companies Fannie Mae and Freddie Mac… The battle centers on whether the Treasury Department should continue to advocate what it views as a plan for the future of the mortgage companies or cede control of those efforts to the incoming chief of the Federal Housing Financial Agency (FHFA), economist Mark Calabria.

The good news is that Trump has nominated a sensible person to head FHFA, which has some oversight authority over Fannie and Freddie.

And it’s also good news that some of the economic people at the White House understand the danger of loosening the current limits on Fannie and Freddie.

White House economic officials…are seeking to prevent a repeat of the risk-taking activities by the companies that contributed to the mortgage bubble, leading to its 2008 collapse and $200 billion government bailout. These officials, who spoke on the condition of anonymity, also say any reform must have the blessing of Calabria, a long-time libertarian economist and frequent critic of the outfit’s pre-crisis business model. ..He is also wary of returning Fannie and Freddie to their previous incarnations as private companies that have shareholders, but also receive backing from the federal government if they get in trouble as they did in 2008.

But it seems that the Treasury Department has some officials who – just like their predecessors in the Obama Administration – learned nothing from the financial crisis.

They want to give Fannie and Freddie free rein, perhaps in order to help some speculator buddies.

Treasury Secretary Steve Mnuchin and his top house advisor Craig Phillips, have so far taken the lead… In January, acting director of the Federal Housing Agency Joseph Otting privately told employees about plans…, referring to Mnuchin’s past statements on the matter… Mnuchin also has business ties with at least one of the major investors in the GSE’s stock that has benefited amid the speculation… Paulson – who has stakes in the GSE’s preferred class of stock — has also submitted a proposal… A key feature of the framework touted by Mnuchin, Phillips, Otting and Paulson is that both Fannie and Freddie would have some backing from the federal government in times of emergency while remaining public companies, a business model similar to the one the GSEs operated with before 2008.

Given the Treasury Department’s bad performance on other issues, I’m not surprised that they’re on the wrong side on this issue as well.

Tobias Peter of the American Enterprise Institute outlines the correct approach.

The GSEs, however, do very little that cannot be done – and is not already done – by the private sector. In addition, these institutions pose a significant financial risk to U.S. taxpayers. Weighing this cost against the minimal benefits makes the case that the GSEs should be eliminated. …regulators have tilted the playing field in favor of the GSEs. …GSE borrowers can thus take on more debt to offset higher prices. With inventories lower than ever, this extra debt ends up driving prices even higher, creating a vicious cycle of more debt, higher prices, greater risk and, ironically, more demand for the GSEs. What keeps the GSEs in business are the same failed housing policies that brought us the last financial crisis. The GSEs are not needed in the housing market – and they have become detrimental to the market’s long-term health. They could be eliminated… This would create space for the re-emergence of an active private mortgage-backed securities market that ensures a safer and more stable housing finance system with access for all while letting taxpayers off the hook.

Mr. Peter is correct.

Here’s a flowchart that shows what happened and the choice we now face.

At the risk of stating the obvious, real privatization is the right approach. This would mean an end to the era of special favors and subsidies.

• No taxpayers guarantees for mortgage-backed securities
• No special exemption from complying with SEC red tape.
• No more special tax favors such as special exemptions.

Sadly, I’m not holding my breath for any of this to happen.

The real battle in DC is between conservatorship and fake privatization (which really should be called turbo-charged and lobbyist-fueled cronyism).

And if that’s the case, then the obvious choice is to retain the status quo.

P.S. This is a secondary issue, but it’s worth noting that Fannie and Freddie like to squander money. Here are some excerpts from a report published by the Washington Free Beacon.

Fannie Mae is charging taxpayers millions for upgrades to its new headquarters, including $250,000 for a chandelier. The inspector general for the Federal Housing Finance Agency (FHFA), which acts as a conservator for the mortgage lender, recently noted $32 million in questionable costs in an audit for Fannie Mae’s new headquarters in downtown Washington, D.C. …The inspector general reported that costs for the new headquarters have “risen dramatically,” to $171 million, up from $115 million when the consolidated headquarters was announced in 2015. …After the inspector general inquired about the chandelier, officials scrapped plans for a $150,000 “hanging key sculpture,” and $985,000 for “decorative screens” in a conference room.

The bottom line is that Fannie and Freddie, at best, undermine prosperity by diverting money from productive investment, and, at worst, they saddle the nation with financial crisis.

They should be shut down, not resuscitated.

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My Sporadically Successful Career as a Global Money Launderer

I’ve written repeatedly about how anti-money laundering (AML) laws are pointless, expensive, intrusive, discriminatory, and ineffective.

And they especially hurt poor people according to the World Bank.

That’s a miserable track record, even by government standards.

Now it’s time to share two personal stories to illustrate how AML laws work in practice.

Episode 1

Last decade, I wrote an article for a U.K.-based publication that focused on the insurance industry. I didn’t even realize they paid, so I was obviously happy when a check arrived in the mail.

The only catch was that the check was in British pounds and various charges and conversion fees would have consumed almost all the money if I tried to deposit the money in my local bank.

But that wasn’t too much of a problem since I had an upcoming trip to give a speech in England.

I figured I would swing by the British bank where the magazine had an account, show them my passport, and get my cash.

Oh, such youthful naiveté.

Here’s what actually happened. I stopped by a branch and was told that I couldn’t cash the check because anti-money laundering rules required that I have an address in the U.K. (my hotel didn’t count).

Needless to say, I was a bit irritated. Though I didn’t give up. In hopes that my experience was an anomaly (i.e., a particularly silly teller with a bureaucratic mindset), I stopped at another branch of the bank.

But that didn’t work. I got the same excuse about AML requirements.

And I was similarly thwarted at a third branch. By the way, the tellers sympathized with my plight, but they said the government was being very strict.

So I figured the way to get around this regulatory barrier would be to sign the check and have a friend deposit the money in her account and then give me some cash.

But her bank said this was also against the AML rules.

Fortunately, we got lucky when we went to another branch of her bank. A teller basically acknowledged that government’s rules made it impossible for me to get my money and she decided to engage in a much-appreciated act of civil disobedience.

This episode was annoying, but the silver lining is that I was in the U.K. to speak at an international economic crime conference in Cambridge on the topic of money laundering.

So I began my speech a day or two later by pseudo-confessing that I had just violated the nation’s silly and counterproductive laws on money laundering (I said “this may have happened to me” to give me some legal wiggle room since the audience was dominated by government officials, and I didn’t want to take any risks).

Episode 2

Today, I had my second incident with anti-money laundering laws.

I have a friend from the Caribbean who now operates a small Dubai-based business and he asked me if I could use Western Union to wire some money to an employee in the Dominican Republic.

I’ve done this for him a couple of times in the past (it is far cheaper to send money from the U.S.), so I stopped by a branch this morning, filled out the paperwork and sent the money.

Or, to be more accurate, I thought I sent the money.

As I was walking out, I got a text from Western Union saying that they put a hold on the transfer and that I needed to call a 1-800 number to answer some questions.

So I made the call and was told that they blocked the transfer because they were trying to “protect me” from potential consumer fraud.

It’s possible that this was a potential reason, but I immediately suspected that Western Union was actually trying to comply with the various inane and counter-productive AML laws and regulations imposed by Washington.

My suspicions were warranted. Even though I explained that I wasn’t a victim of fraud and answered 10 minutes of pointless questions (how long did I know my friend in Dubai? when did I last see him? what would the employee use the money for?), Western Union ultimately decided to reject the transfer.

Why? I assume because AML laws and regulations require companies to flag “unusual transactions,” and financial institutions would rather turn away business rather than risk getting some bureaucrat upset.

So my unblemished track record of being a successful “money launderer” came to an end.

But here’s the real bottom line.

Other than wasting about 30 minutes, I didn’t lose anything. But a small business owner will now have to pay $150 more for a transaction, and an employee from a poor country will have to wait longer to get money.

In some sense, even Western Union is a victim. The company lost the $20 fee for my transaction. But that’s probably trivial compared to the money that they pay for staffers who have the job of investigating whether various transfers satisfy Uncle Sam’s onerous rules.

Even my “successful” example of money laundering in Episode 1 was costly. I lost about two hours of my day.

And if I wasn’t for the nice teller who decided to break the law, I probably would have lost out on about $100. Perhaps not worst outcome in the world, but now think about how poor people suffer when they suffer similar losses thanks to these policies.

Remember, by the way, all these costs aren’t offset by any benefits. There is zero evidence that AML laws reduce underlying crime rates (which was the rationale for these laws being imposed in the first place!).

P.S. You may not think AML policy lends itself to humor, but here’s an amusing anecdote involving our former President.

P.P.S. Some folks on the left use AML arguments to justify their “war on cash,” and they’re pushing to restrict cash as an interim measure.

P.P.P.S. Leftist politicians frequently accuse so-called tax havens of being sanctuaries for dirty money, but those low-tax jurisdictions have much better track records than onshore nations.

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Great Moments in German Tax Enforcement

Germany is like the Nordic nations.

It gets a decent ranking (#20) for overall economic freedom, but mostly because a bad score for fiscal policy is offset by reasonably good scores in other policy areas.

Taking a closer look at fiscal policy, there’s a heavy burden of government spending (not as bad as France, for what it’s worth) and taxes consume a big chunk of household income.

And the Germans are big believers in enforcing onerous tax laws. Sometimes in remarkable ways.

• Using parking meters to levy taxes on the services of prostitutes.
• Losing 30€ for every 1€ collected by taxing online sales of coffee.
• Imposing a new development tax for an 80-year old street
• Levying a fine on a one-armed man for having a one-handled bicycle.

To be fair, the last example is a penalty rather than a tax, but it’s included because it captures Germany’s über-zealous approach to enforcement.

Today, we’re going to add to this list by looking at what happens to taxpayers when they can’t afford their country’s onerous tax burden.

One of the consequences, as reported by the BBC, is that you can lose the family pooch.

A town in Germany has made headlines for seizing a family’s dog over unpaid taxes – and then selling it on eBay. German media report that officials in Ahlen initially wanted to seize the wheelchair of a disabled resident as the most valuable item on the premises. Instead, they settled on a pedigree pug bitch named Edda. One of the officials then listed the dog on eBay at an apparent bargain price of €750 – half of what its new owner expected to pay. …Edda’s new owner was Michaela Jordan, a police officer, who told the newspaper she was initially suspicious of the low price. Upon calling the number listed in the advert, she spoke to an employee of Ahlen’s administration, who explained that the dog had been seized because the owner owed the city money – including for unpaid dog tax. …the former owner said…her three children miss the dog.

I feel sorry for the kids.

Though, to look on the bright side, they learned a lesson about big government. I’m guessing they are now immune to the European Commission’s attempt to brainwash children in favor of higher taxes.

And I guess we should all be happy that the tax police didn’t seize the wheelchair (maybe they were inspired by Francois the Merciful?).

In any event, I also noticed that the dog’s new owner is a bureaucrat – i.e., a net tax consumer rather than a net tax payer. There’s probably a lesson there as well.

Though even bureaucrats should be careful when dealing with government.

Edda had medical problems that were not disclosed. Since changing owners in December, she has needed four operations due to eye problems, including an emergency operation over Christmas. …totalling about €1,800.

The bottom line is that Germans are over-taxed and they have tax collectors that go above and beyond the call of duty.

Ideally, the nation’s taxpayers will get angry, have their version of the Tea Party, and elect some better politicians. Until that happens, I recommend they copy the clever tax-avoidance tactics of their French, Spanish, Irish, and Austrian neighbors.

P.S. You won’t be surprised to learn that Germany’s surtax to finance reunification is still being imposed even though East Germany was aborbed almost three decades ago (though it took more than 100 years for Washington to repeal the “temporary” telephone tax to finance the Spanish-American War).

P.P.S. Germany needs another Ludwig Erhard.

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The Folly of Rent Control

People sometimes ask me how I’ve managed to write a column every single day since November 2009.

Sadly, the answer has a lot to do with politicians having a vote-buying and power-grabbing incentive to produce a never-ending supply of bad policies.

Consider what just happened in Oregon.

Oregon Gov. Kate Brown signed into law a first-in-the-nation rent control bill Thursday…Senate Bill 608′s rent control and eviction protections go into effect immediately. …The law caps annual rent increases to 7 percent plus inflation throughout the state, which amounts to a limit of just over 10 percent this year. …The bill passed quickly through the House and Senate amid a Democratic supermajority.

This is spectacularly bad policy.

• My first reaction is that such laws should be unconstitutional since politicians are violating a provision of the Bill of Rights by taking part of the value of private property without compensation.
• My second reaction is that such laws will backfire because they address (in a bone-headed fashion) the symptom of rising rents rather than the (usually government-caused) problem of inadequate housing supply.
• My third reaction is that price controls never work, regardless of the market or sector, so limits on rent will exacerbate housing problems.

By the way, economic illiteracy is not confined to Oregon. Or even to the United States

Berlin is contemplating rent control as well.

…local politicians here have proposed a radical idea to tackle the problem: introducing a rent cap that would freeze all existing rents for the next five years. …By freezing existing rents for five years, Zado said, the city could help prevent massive increases. …but there could also be significant downsides. Such a policy could exacerbate the city’s existing housing shortage: some experts say it might lead developers to seek buyers, not renters, for their new apartments. …said Michael Voigtländer of the German Economic Institute in Cologne. “That lack of housing won’t be solved if the rents are capped.” …head of the German Housing Industry association, told German newspaper Die Zeit it could even keep developers from building additional housing in the coming years: “A rent stop would lead to our member companies building about 50,000 fewer apartments in the next five years,” he said.

The national government also is acting in a self-destructive manner.

Germany has taken nationwide action in recent years to begin grappling with this problem: in 2015, parliament passed a law restricting how much landlords could raise rents. Under that legislation, the rental price on a new contract should be no more than 10% higher than the average price in that particular neighbourhood.

Let’s see what experts have to say about this issue.

We’ll start with the perspective of landlords, which was included in this New York Times report.

…landlords say that the legislation will compel owners to take their properties off the rental market because they will no longer be able to earn enough rent from them — deepening the housing crisis rather than easing it. …Mr. DiLorenzo said his primary fear was that lawmakers would ultimately bar rents from rising more than a bare minimum, which would prevent landlords from meeting their expenses and eventually drive them out of business. The real solution to rising rents, he said, is to make it easier to build decent and affordable housing in Oregon by eliminating a multitude of fees and regulations.

Landlords have an obvious interest in this issue, so let’s now share some insights from people who don’t have a dog in the fight, but who understand economics.

Megan McArdle debunks this inane example of price controls.

Serial experimentation with this policy has repeatedly shown the same result. Initially, tenants rejoice, and rent control looks like a victory for the poor over the landlord class. But the stifling of price signals leads to problems. …incomes rise, and rents don’t. People with higher incomes have more resources to pursue access to artificially cheap real estate: friends who work for management companies, “key fees” or simply incomes that promise landlords they won’t have to worry about collecting the rent. …lucky insiders come to dominate rent-controlled apartments, especially because having gotten their hands on an absurdly cheap apartment, said elites are loathe to move and free up space for others. The longer the rent-control policies remain, the more these imbalances grow. …Deprived of the ability to make a profit, landlords skimp on maintenance and refuse to build new housing.

Megan also explains that the damage of rent control is compounded by policies that restrict the development of additional housing.

Rent control is one of the most effective ways to destroy a city’s housing stock, but it’s far from the only one. You can also enact extremely strict building codes, with lengthy and highly bureaucratic processes, which will restrict the supply of housing. This is what has happened in many American cities… policymakers should remember that a price is just the intersection of supply and demand. If you alter the price, but don’t alter the supply or the demand, the problem doesn’t go away; rationing just shows up in different forms.

Mark Hemingway, originally from Oregon, explains in the Wall Street Journal what is happening in the state.

Virtually every mainstream economist, from Paul Krugman to Thomas Sowell, has condemned rent control as bad policy. Oregon’s problem isn’t rising rents. It’s the lack of affordable housing… the state remains resistant to new development. Oregon adopted widely hailed “smart growth” policies in the 1970s, imposing “urban growth boundaries” around cities to prevent sprawl. …This has artificially inflated the price of land within the boundaries. …On top of all this, Oregon has a red-tape problem that skews developer incentives. “Systems and development charges and permit fees for even a 500-square-foot unit in the city of Eugene right now are close to about $20,000 per unit,” says real-estate agent James St. Clair. “There’s no incentive to build small affordable units…” Rather than addressing the lack of housing supply, legislators have seized on rent control.

For those who prefer videos over words, here’s a succinct video from Johan Norberg on the folly of rent control.

Mark Perry of the American Enterprise Institute summarize the real problem in a column for the Foundation for Economic Education.

…rent control is making a comeback in response to rising housing prices in urban areas across the country in states like California, Illinois, Washington, and Massachusetts. …As the graphical Supply/Demand analysis…illustrates very clearly, rent control laws that artificially force the rental price of housing (P₁ above) below the market-clearing equilibrium price (P₀) are guaranteed to create a housing shortage by: a) increasing the number of rental units demanded at the artificially low rents (Q_D) and b) decreasing the number of rental units supplied to the market (Q_S). You can artificially restrict the amount of rent a landlord can legally charge for a rental unit, but you can’t force developers, builders, and landlords to build or supply more rental housing in the future. And the supply of rental housing in markets with rent control is guaranteed to decline. …Price controls aren’t the answer. Building more housing is the only real solution to increase the supply of affordable housing.

Here’s Mark’s graph.

In another column for FEE, Luis Pablo de la Horra summarizes why rent control is so misguided.

Rent control is one of those policies that continues to attract the favor of the public despite the fact it has repeatedly proven to be ineffective when it comes to improving the lives of those it is aimed at. …Rent controls often lead to a shortage of rental houses since landladies and landlords find it unprofitable to rent out their apartments at capped prices. In addition, the stock of dwellings tends to deteriorate because home-owners will have little incentive to invest in the maintenance and refurbishment of their houses. …here is some empirical evidence. A 2017 paper published by three Stanford economists shows that rent controls in San Francisco reduced rental housing supply by 15 percent, which in turn increased rental prices in the other parts of the city by around 5 percent. Another recent paper blames restrictions on the use of land (the so-called zoning) for the increasing housing prices in large US cities.

Let’s see what the other side has to say on the topic. Unsurprisingly, the New York Times is on the wrong side.

Here are some excerpts from an editorial that is a case study of economic illiteracy.

New York’s system of rent regulation, limiting how much landlords can charge tenants, began in the 1940s to help a growing middle class. There are about one million apartments covered under rent-restricting regulations now… here are some actions lawmakers can take: …Return control of the rent laws to New York City… Landlords’ ability to raise the rent by 20 percent every time an apartment is vacated is a perverse incentive… Lawmakers should scrap this incentive entirely. …the state agency that enforces rent laws…needs more funding… require landlords to submit receipts for improvements to individual apartments to the agency and the tenant.

This is remarkably bad. And sad as well. The New York Times in recent memory was actually economically sensible, endorsing a flat tax and urging elimination of the minimum wage.

Now it fully embraces policies that even rational left-leaning economists condemn.

Indeed, you can probably tell a lot about the ethics of your left-wing friends if you ask them about rent control.

The ones with good intentions will reject rent control while the demagogues (and the ignorant) will applaud this foolish example of price controls.

Minneapolis provides a good example of ethical leftists, as Elliot Kaufman explains in the Wall Street Journal.

Earlier this month the City Council overwhelmingly approved an ambitious plan to encourage higher-density development and increase the supply of housing. …The Comp Plan would allow the construction of duplexes and triplexes in areas once reserved for single-family homes, rezoning areas near public transportation for larger apartment buildings, and doing away with parking requirements for new housing. …The Comp Plan takes a market-based approach but proclaims left-wing goals. It vows to “eliminate” racial and economic disparities and aggressively fight climate change. …The Comp Plan promotes denser development, which urbanists on both left and right see as the solution to a host of problems. More density in a city like Minneapolis could help renew both geographic and economic mobility.

We’ll close with this great quote from a Swedish economist.

P.S. Rent control can be a great scam for privileged insiders.

P.P.S. Rent control also rewards and empowers unscrupulous and reprehensible people.

P.P.P.S. Amazingly, California voters actually rejected a state referendum to allow rent control (though this isn’t stopping one of their politicians from trying to muck up rental markets).

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