As I discuss the issue with them, I sometimes do a history quiz. I ask them a series of questions.
Why did the Union impose a blockade against the Confederacy during the Civil War?
Why did the British impose a blockade against the French during the Napoleonic War?
Why did the United States impose a blockade against Cuba during the Cold War?
In every case, the answer is the same. The blockade was imposed to weaken a country by denying it the benefit of trade. Simply stated, a nation will be poorer if it can’t take advantage of the fact that it makes more sense to import certain items.
I’ve never seen a meme that effectively captures the above principle, but Professor Don Boudreaux shared this image earlier today.
Given Trump’s promiscuous imposition of tariffs, it’s certainly timely.
And it does capture the essence of Trump’s trade policy.
Yes, he’s hurting Mexico, China, and other nations that are being hit with tariffs.
But the United States is the main victim. Tariffs are taxes on Americans who want to buy foreign goods and services. Tariffs are taxes that create inefficiencies in the American economy. Tariffs are taxes that create special advantages of cronyists at the expense of fair competition.
P.S. The little girl in the picture also is the star of a meme about Keynesian economics.
A couple of years ago, I praised federalism in part because state and local governments would be less likely to adopt bad policy (such as higher minimum wages) if they understood that jobs and investment could simply migrate to jurisdictions that didn’t adopt bad policy.
But “less likely” isn’t the same as “never.” Some state and local politicians can’t resist the temptation to raise taxes, even though that means workers “vote with their feet” for places with lower tax burdens.
And some state and local politicians continue to mandate higher minimum wages (see here, here, here, and here), even though that means workers have fewer job opportunities.
Today, we’re going to look at some fresh evidence from Emeryville, California.
Representatives from the Mills College Lokey School presented data from its recent ‘business conditions’ survey to our City Council on Tuesday. The study confirmed what restaurant owners warned when the ordinance was hastily passed in 2015. They are struggling, rapidly raising menu prices and increasingly looking to leave. …It’s getting harder to find small food service businesses that were around in 2015 when the MWO was passed. Emeryville institution Bucci’s, Commonwealth, Farley’s, Scarlet City … all gone. In fact, nearly all the brick & mortar businesses that comprised the short-lived Little City Emeryville small business advocacy group have moved, folded or sold. …The survey also identified that “the restaurant industry is clearly struggling.” Specifically, small, independent, non-franchise establishments are having the most difficulty.
Here’s some of the survey data on the negative effect.
Here’s some specific information on how restaurants have been adversely impacted.
…nearly all the new businesses that have opened have embraced the counter service model that requires fewer employees. Paradita Eatery, whose original plan was for a full service sit-down restaurant, cited Emeryville’s wage ordinance specifically for ‘pivoting’ to a counter service model. Counter service models require fewer employees to offset higher labor costs. …The only full service restaurant that has opened since the Minimum Wage was passed was 612One Asian Fusion which folded after just two years in business.
One of the reasons for the economic damage is that Emeryville has gone further and faster in the wrong direction.
The local law is more onerous than the state law and more onerous than other nearby communities.
But it’s not just workers who are suffering.
Consumers are adversely impacted as well.
One commenter, who identified herself as a resident, questioned why the survey did not include consumer data noting her dining frequency was altered by the drastic price increases she’s observed. …She noted that she used to frequent her local Doyle Street Cafe 2-3 times per month but last year went only twice. …Once franchise owner noted that the price increases they’ve been forced to pass along have ironically had the biggest impact on vulnerable communities that are more price-sensitive. “Our largest decrease in guests are folks over 50. Obviously our elderly, disabled, and folks on fixed incomes are unable increase their income to compensate for the price increases.”
Let’s close with a new video from Johan Norberg, which looks at the impact of minimum wage increases in San Diego.
P.S. If local communities are allowed to mandate minimum wages higher than the state level or federal, shouldn’t they also have the freedom to allow minimum wages that are lower than the state level or federal level?
There’s plenty of sunshine, a temperate climate, low humidity, and nice scenery.
I even realize that lots of people like San Francisco, even though it’s too chilly and too urban (and too officious and too regulatory) for my tastes.
And too expensive. Not just for me. For almost everyone.
In a column for the Washington Post, Karen Heller opines that San Francisco faces some serious problems. Here are some excerpts from her piece.
In a time of scarce consensus, everyone agrees that something has rotted in San Francisco. Conservatives have long loathed it as the axis of liberal politics and political correctness, but now progressives are carping, too. They mourn it for what has been lost, a city that long welcomed everyone and has been altered by an earthquake of wealth. …Real estate is the nation’s costliest. …a median $1.6 million for a single-family home and $3,700 monthly rent for a one-bedroom apartment. …In the shadow of such wealth, San Francisco grapples witha very visible homeless crisis of 7,500 residents, some shooting up in the parks and defecating on the sidewalks, which a 2018 United Nations report deemed “a violation of multiple human rights.” Last year, new Mayor London Breed assigned a five-person crew, dubbed the “poop patrol,” to clean streets and alleys of human feces. …“Our rich are richer. Our homeless are more desperate. Our hipsters are more pretentious,” says Solnit, who once wrote that “San Francisco is now a cruel place and a divided one.” …San Francisco has…the lowest percentage of children, 13.4 percent, of any major American city, and is home to about as many dogs as humans under the age of 18. …the African American population has withered to 5.5 percent compared to 13.4 percent a half century ago.
While Ms. Heller does a good job of describing how San Fran has become a city that’s unaffordable for anyone who’s not a rich, single, hipster, she doesn’t explain why that’s the case.
Though she does quote one resident who says it’s the fault of the free market.
“This is unregulated capitalism, unbridled capitalism, capitalism run amok. There are no guardrails,” says Salesforce founder and chairman Marc Benioff, a fourth-generation San Franciscan who in a TV interview branded his city “a train wreck.”
Is Mr. Benioff right? Has San Francisco become Hong Kong on the Bay?
Interestingly, Farhad Manjoo also wrote about the city.
But his column for the New York Times puts the blame on his fellow leftists.
…look at San Francisco… One of every 11,600 residents is a billionaire, and the annual household income necessary to buy a median-priced home now tops $320,000. Yet the streets there are a plague of garbage and needles and feces… At every level of government, our representatives, nearly all of them Democrats, prove inadequate and unresponsive to the challenges at hand. …Creating dense, economically and socially diverse urban environments ought to be a paramount goal of progressivism. …Urban areas are the most environmentally friendly way we know of housing lots of people. We can’t solve the climate crisis without vastly improving public transportation and increasing urban density. …Yet where progressives argue for openness and inclusion as a cudgel against President Trump, they abandon it on Nob Hill and in Beverly Hills.
And he argues that the solution is…gasp…capitalism!
More specifically, he says government-imposed zoning must be curtailed so the market can provide more housing.
…California lawmakers used a sketchy parliamentary maneuver to knife Senate Bill 50, an ambitious effort to undo restrictive local zoning rules and increase the supply of housing. …because the largest American cities are populated and run by Democrats — many in states under complete Democratic control — this sort of nakedly exclusionary urban restrictionism is a particular shame of the left. …This explains the opposition to SB 50, which aimed to address the housing shortage in a very straightforward way: by building more housing. The bill would have erased single-family zoning in populous areas near transit locations. …wealthy progressive Democrats are…keeping housing scarce and inaccessible…to keep people out. “We’re saying we welcome immigration, we welcome refugees, we welcome outsiders — but you’ve got to have a $2 million entrance fee to live here, otherwise you can use this part of a sidewalk for a tent,” said Brian Hanlon, president of the pro-density group California Yimby.
This is very remarkable analysis, especially since it comes from someone who is so far to the left that he actually proposed to criminalize billionaires.
By the way, I’m obviously not a fan of zoning laws, but it’s easy to understand why some people defend them.
In part, they like the fact that such laws artificially increase the value of their property. And I’m sure some of them are genuinely fond of their neighborhoods and don’t want things to change.
And I’ll even admit they have a point when they argue that changing zoning laws is a bit like breach of contract. After all, people move into a neighborhood under a certain set of rules and regulations.
But my sympathy has very narrow limits. And if you want to understand why, watch this video from the folks at Reason.
The bottom line is that the mess in San Francisco is a teachable moment. It’s helping folks on the left understand that government regulations impose very real costs.
And the fact that Farhad Manjoo is on the right side (at least on this one issue) means a teachable moment actually became a learnable moment.
P.S. San Francisco also has onerous rent control laws. So local officials not only make it difficult to build housing, they also make it difficult to make a profit on housing that’s already there. That means big windfalls for a few insiders, but scarce housing for everyone else.
Simply stated, there aren’t enough rich people to prop up big government. Moreover, at the risk of mixing my animal metaphors, those golden geese also have a tendency to fly away if they’re being treated like fatted calves.
I have some additional evidence to share on this issue, thanks to a new report from the Tax Foundation. The research specifically looks at the tax burden on the average worker in developed nations
The tax burden on labor is referred to as a “tax wedge,” which simply refers to the difference between an employer’s cost of an employee and the employee’s net disposable income. …The OECD calculates the tax burden by adding together the income tax payment, employee-side payroll tax payment, and employer-side payroll tax payment of a worker earning the average wage in a country. …Although payroll taxes are typically split between workers and their employers, economists generally agree that both sides of the payroll tax ultimately fall on workers.
The bad news for workers (and the good news for politicians) is that average workers in the advanced world loses more than one-third of their income to government.
In some cases, such as the unfortunate Spanish household I wrote about back in February, the government steals two-thirds of a worker’s income.
So which country is best for workers and which is worst?
Here’s a look at a map showing the tax burden for selected European nations.
Suffice to say, it’s not good to be dark red.
But that map doesn’t provide a complete answer.
To really determine the best and worst countries, the Tax Foundation made an important correction to the OECD data by including the burden of the value-added tax. Here’s why it matters.
The tax burden on labor is broader than personal income taxes and payroll taxes. In many countries individuals also pay a value-added tax (VAT) on their consumption. Because a VAT diminishes the purchasing power of individual earnings, a more complete picture of the tax burden should include the VAT. Although the United States does not have a VAT, state sales taxes also work to diminish the purchasing power of earnings. Accounting for VAT rates and bases in OECD countries increased the tax burden on labor by 5 percentage-points on average in 2018.
And with that important fix, we can confidently state that the worst country for ordinary workers is Belgium, followed by Germany, Austria, France, and Italy.
The best country, assuming we’re limiting the conversation to rich countries, is Switzerland, followed by New Zealand, South Korea, Israel, and the United States.
By the way, this report just looks at the tax burden on average workers. We would also need estimates of the tax burden on things such as investment, business, and entrepreneurship to judge the overall merit (or lack thereof) of various tax regimes.
Let’s close by looking at the nations that have moved the most in the right direction and wrong direction this century.
Congratulations to Hungary, Israel, and Sweden.
I’m not surprised to see Mexico galloping in the wrong direction, though I’m disappointed that South Korea and Iceland are also deteriorating.
P.S. The bottom line is that global evidence confirms that ordinary people will be the ones paying the tab if Crazy Bernie and AOC succeed in expanding the burden of government spending in America. Though they’re not honest enough to admit it.
One advantage of being a child of the Cold War is that I got to live through the fall of the Berlin Wall. The collapse of the Evil Empire truly was one of Reagan’s most amazing accomplishments and a moment of joy for the world.
Best of all, the war ended peacefully.
Which is a wonderful thing since I hate to think of how many lives would have been lost if things heated up.
And since it’s Memorial Day in the United States, why don’t we display some patriotism (in the proper sense) by laughing at the idiocy of the communist ideology.
We’ll start with a collection of failures (though I wish the person who created it had a better grasp of the English language).
But I’m utterly sickened that there are some people who go one step further and advocate for Marxism.
Is this their thought process?
I’ve always been nauseated by the Che Guevara death cult.
So I obviously need to share this t-shirt collection.
Though I confess I prefer the t-shirt at the end of this column.
Communism is famous, of course, for the “bad luck” of having decade after decade of food shortages supposedly caused by weather (amazing how the bad luck quickly ends when people get to grow for themselves rather than the collective).
And this means we have many opportunities for dark comedy.
Yes, it’s not nice to laugh about famine, but I confess that this bit of satire got a chuckle from me.
Hmmm…, I need to do a bit of reshelving the next time I’m in a book store.
Though I must disagree with the premise. The communist bosses have always lived fat and happy lives. Ordinary people are the ones who starve.
But let’s not get caught up in details. If you like communism-starves-people humor, listen to Reagan’s jokes. And this prom dress satire is my all-time favorite, followed by this tweet from Marx.
I’ve repeatedly shared a flowchart to illustrate the pervasive double taxation in the current system (my example is for the United States, but many other nations make the same mistake).
And to help explain why this is economically misguided, I developed a (hopefully) compelling visual based on how to harvest apples.
But I’ve always wondered if I was presenting the information in an accessible and understandable manner. So for today’s presentation, I decided to experiment with some different visuals.
Here’s how I illustrated the current system.
As you can see, there are several additional layers of tax on people who save and invest their after-tax income.
And I explained to the crowd that this is very foolish since every economic theory agrees that saving and investment are key to long-run growth.
Even socialism. Even Marxism. (Socialists and Marxists are foolish to think government can be in charge of allocating capital, but at least they realize that future growth requires saving and investment.)
In other words, you don’t achieve good tax policy solely by having a low tax rate.
Yes, that’
s important, but genuine tax reform also means no bias against saving and investment.
Here’s another visual. This one shows the difference between the current system and the flat tax. As you can see, all the added layers of tax on saving and investment are jettisoned under true tax reform.
By the way, there are some people who prefer a national sales tax over a flat tax.
Why? Because it’s conceptually identical to the flat tax.
As you can see from this next visual, the difference between the two systems is that the flat tax grabs a bit of money when income is earned and the sales tax grabs a bit of money when income is spent (either today or in the future).
Remember, the goal is to eliminate the bias against saving and investing.
To economists who specialize in public finance, this is known as shifting to a “consumption base” system.
But I’ve never liked that language. What really happens under true tax reform is that we tax income, but using the right definition.
But this final visual shows that adding a VAT to the current system doesn’t solve the problem. All that happens is that politicians have a new source of revenue to expand the welfare state.
If a VAT was used to replace the current tax system, that might be a very worthwhile approach.
But that’s about as likely as me playing the outfield later this year for the New York Yankees.
P.S. The VAT visual is overly simplified and it sidesteps the logistical issue of whether politicians would go for a credit-invoice VAT or a subtraction-method VAT. But the visual is correct in terms of how a VAT would interact with the current system.
By the way, Professor Makin shared some fascinating Australia-specific data looking at spending increases (or decreases) by year. And also broke down the data by who controlled the government.
As you can see (echoing what I wrote two days ago), the supposedly left-wing Hawke and Keating governments were reasonably frugal.
John Howard, by contrast, was supposed to be a right-of-center leader. Yet he fell off the wagon after a strong start (and also set the stage for a very bad Labor government).
In recent years, the right-of-center Liberal-National coalition has done a decent job. It will interesting to see what happens when newly reelected Prime Minister Scott Morrison unveils the next budget.
My two cents (in addition to lowering the top tax rate) is that he should propose some sort of spending cap, like the ones in Switzerland and Hong Kong.
They say we’re a bit dorky. There’s probably some truth to that. The good news is that we’re probably not going to cheat on our significant others since we’re too focused on changing minds.
But if Libertarian Doofus is any indication (see here, here, here, and here), we also don’t have much success with procreation. Here’s another example.
That being said, if we miraculously manage to procreate, we have some handy rules for raising kids.
This gives me an excuse to write about Australia, especially since national elections just took place this past weekend. Interestingly, the incumbent, right-of-center government retained power in an upset, winning 77 or 78 seats (out of a possible 151).
Here’s the breakdown.
The folks at Slate lean to the left, so their article is understandably riddled with anguish.
Australia’s dysfunctional, unpopular, conservative government…held onto power for a third term in Saturday’s national election. This happened despite the fact that most analysts expected it to lose a large number of seats; despite being (seemingly) out of step with the nation’s emerging consensus on climate change.. A Labor Party win had been anticipated for three years, with the opposition winning every single poll of the last term. …Expected swings against the coalition in several regions of the country didn’t materialize, while there was a crucial 4 percent swing against Labor in the state of Queensland (alternately described as Australia’s Alabama or Florida). …Progressive Australians are—to understate things—“hurting,”…(only they’re threatening to move to New Zealand instead of Canada). …Labor’s environmental stance, while not actually all that bold, hurt it in coal-friendly Queensland and among voters worried about the costs of acting on climate change… Progressive Australians are reeling because any lingering illusions that we were a “fair” nation have been shattered. Whatever Labor’s political shortcomings, Australians in general voted against a detailed platform that aimed to seriously address climate change, raise wages, increase cancer funding, make child care free or significantly cheaper, close tax loopholes for corporations and the wealthy, fund the arts, fund the underfunded public broadcaster… Instead, they voted for … not much of anything (other than some tax cuts).
Since I’m a wonk, I’m much more interested in the policy implications rather than the political machinations.
The good news is that Labor’s defeat means Australia will be spared some costly tax increases and some expensive green intervention.
But it’s unclear whether there will be many pro-growth reforms.
The right-of-center Liberal-National Coalition has promised some tax relief, but I don’t know if it will be supply-side rate reductions or merely the distribution of favors using the tax code.
For what it’s worth, Australia needs to lower its top tax rate on households, which is nearly 50 percent. European-type tax rates are always a bad idea, and they are especially senseless for a country that has to compete with Hong Kong and Singapore.
It would also be nice if the newly reelected government chooses to fix some of the housing policies that have made Australian cities very unfriendly to families.
Joel Kotkin explains why this is a problem in an article for City Journal.
Few places on earth are better suited for middle-class prosperity than Australia. From early in its history, …the vast, resource-rich country has provided an ideal environment for upward mobility… Over the last decade, though, Australia’s luck has changed… Despite being highly dependent on resource sales to China—largely coal, gas, oil, and iron ore—Australia has embraced green domestic politics more associated with Manhattan liberals or Silicon Valley oligarchs than the prototypical unpretentious Aussie… Historically, the Australian Labor Party, like its counterpart in Britain, was a party of the working class. …These views seem almost quaint today, particularly for a Labor Party increasingly dominated by those operating outside the tangible economy, as part of the professional class—media, finance, public service—and concentrated in the largely family-free urban cores. …Australia’s commitment to renewable energy dwarfs that of even the most committed green-leaning countries. Per capita, Australia has installed roughly five times as many renewable-energy installations as the E.U., the U.S., or China, and even two-and-a-half times more than climate-obsessed Germany. …The most pernicious assault on Australia’s middle class comes from regulation of land and expenditures to promote urban density. …In Australia, only 0.3 percent of the country is urban. As in major cities in Great Britain, Australia, the U.S., and Canada, “smart growth” has helped turn Australia’s once-affordable cities into some of the world’s costliest. …Sydney’s planning regulations, according to a Reserve Bank study, add 55 percent to the price of a home. In Perth, Melbourne, and Brisbane, the impact exceeds $100,000 per house. Australian cities once filled with family-friendly neighborhoods are becoming dominated by dense apartments. …Today, many Australians face an uncharacteristically bleak future. Urged to settle where the planners and pundits prefer, they’re stuck in places both unaffordable and inhospitable, as part of a needless governmental drive to make life there more like that of the more congested, socially riven metropoles of Britain.
For all intents and purposes, I want Australian lawmakers to rekindle their reformist zeal.
If you look at the historical data from Economic Freedom of the World, you can see that Australia enjoyed a big jump in economic liberty between 1975-2000.
Basically climbing from 6 to 8 on a 0-10 scale.
Sadly, there hasn’t been much reform this century. That being said, Australia’s era of liberalization last century is still paying dividends. The country is routinely ranked in the top-10 for economic liberty.
Interestingly, many of the changes between 1975-2000 happened when the Labor Party was led by reformers such as Bob Hawke and Paul Keating.
Mr. Hawke, incidentally, just passed away. His obituary in the New York Times acknowledges that he liberalized the economy.
Bob Hawke, Australia’s hugely popular prime minister from 1983 to 1991, who presided over wrenching changes that integrated his nation into the global economy…, died on Thursday… Rising to power as a trade union leader, Mr. Hawke led his center-left Australian Labor Party to four consecutive election victories in a tenure of nearly nine years, in which Australia emerged dramatically from relative isolation… Confronting chronic strikes, soaring inflation, high unemployment and trade deficits, Mr. Hawke revolutionized the economy. He cut protective tariffs, privatized state-owned industries…reined in powerful unions… “We are now living in a tough, new competitive world in which we have got to make it on our own merits,” Mr. Hawke told The New York Times in 1985.
That excellent reform, which was expanded by the Keating government (in power from 1991-96), is paying big dividends to Australia.
Indeed, let’s wrap up today’s column with some excerpts from a laudatory article in the Economist.
The last time Australia suffered a recession, the Soviet Union still existed and the worldwide web did not. …No other rich country has ever managed to grow so steadily for so long. …Public debt amounts to just 41% of GDP—one of the lowest levels in the rich world. That, in turn, is a function not just of Australia’s enviable record in terms of growth, but also of a history of shrewd policymaking. Nearly 30 years ago, the government of the day overhauled the pension system. Since then workers have been obliged to save for their retirement through private investment funds.
It’s noteworthy that the system of personal accounts, known as superannuation, manages to attract praise from unlikely quarters.
And it is one of the reasons for the country’s success. Here’s an accompanying chart showing that Australia has enjoyed more growth, higher wages, and less debt than other major nations.
Is Australian policy perfect? Of course not.
But does the data from Australia show that better policy leads to better results? Definitely.
With two dozens candidates in the race, it’s not feasible to review the fiscal and economic plans of every potential nominee for the Democratic Party.
But that doesn’t mean I’ll be silent. I’ve written several times about Crazy Bernie’s agenda, and I’ve recently opined about shortcomings in the plans of Kamala Harris and Elizabeth Warren (I haven’t written about Joe Biden’s agenda since he presumably represents a restoration of Obama’s knee-jerk statism).
Today let’s turn our attention to Pete Buttigieg. Known as Mayor Pete, he positions himself as a pragmatic millennial.
Notwithstanding his moderate demeanor, though, he’s been very aggressive about proposing higher taxes. And, as revealed in this report from Fox, that includes promoting new taxes as part of his unconventional campaign.
On fiscal policy, Buttigieg pushed for four distinct tax hikes when asked about the deficit, saying he favored a “fairer, which means higher” marginal income tax, a “reasonable” wealth tax “or something like that,” a financial transactions tax, and closing “corporate tax loopholes.” …Buttigieg indicated that the long odds didn’t faze him. “There’s a lot of us running for president on the Democratic side, but I think it’s safe to say I’m not like the others,” Buttigieg told Wallace, noting that seeking the presidency is inherently “audacious” — especially given that he would be the youngest person to ever become president. “I would say being a mayor in a city of any size in America right now is about as relevant as it gets,” Buttigieg added.
I agree. Mayor Pete is audacious.
But not because he’s running for President with so little experience. Instead, he’s audacious because his tax agenda is so troubling.
I also don’t like that he wants higher marginal tax rates on households and businesses. Because of exponentially increasing deadweight losses, that’s one of the most economically destructive ways of extracting revenue from the economy’s productive sector.
And I’m most worried about his advocacy of two new sources of taxation. Both proposals would do considerable damage. A financial transactions tax would wreak havoc with financial markets. And a wealth tax would dramatically reduce incentives to save and invest since it’s an explicit form of double taxation.
By the way, Mayor Pete probably supports a national energy tax. At least that’s a logical conclusion given his views on global warming. So we should add that levy to the list as well.
P.S. The only good news is that Buttigieg hasn’t (yet) embraced a value-added tax.
I also had an opportunity to discuss these issues yesterday on CNBC.
As you can see, I started with a political observation about the American people being naturally inclined to support growth and upward mobility, which suggests limited appeal for the spiteful agenda of Bernie Sanders, AOC, and the rest of the class-warfare crowd.
I hope I’m right about that, and a quick online search found this bit of somewhat-encouraging polling data from 2014.
Since I’m a bit of a bleeding-heart libertarian, I then took the opportunity to condemn various forms of cronyism (such as the corrupt TARP bailout) that transfer unearned money into the pockets of undeserving rich people.
I suggested that honest people from across the ideological spectrum could – and should – come together to curtail such nauseating policies. That’s the kind of fairness government should promote.
Though I’ll confess I’m not very hopeful. I concluded the discussion by observing that Senator Sanders recently chose to sacrifice the interests of poor children in order to curry favor with the union bosses at the National Education Association.
P.S. As indicated by his question about the desirability of millionaires, the host (Robert Frank) seemed sympathetic to good policy. He also was sufficiently well informed to know about how China’s partial liberalization has lifted hundreds of millions of people out of abject poverty.
In the debate over “fairness,” my statist friends mistakenly see the economy as a fixed pie. This leads them to claim that rich people are rich because poor people are poor.
But there’s no data to support this position (other than in kleptocracies such as Venezuela where a ruling socialist elite steals wealth).
So some folks on the left will back down from that extreme claim and instead assert that the rich are the only ones enjoying more prosperity as time goes by.
For evidence, they cite data showing that incomes have been mostly flat over the past 30-40 years for poor people and middle-class people, particularly when compared to the rich.
But there’s a big problem with their data. They look at income levels in some past year and then they compare that data with income levels in a recent year.
There is considerable income mobility in the United States, which means today’s rich and today’s poor won’t necessarily be tomorrow’s rich and tomorrow’s poor.
I don’t necessarily expect people to automatically believe me. So if you’re one of the skeptics, watch this video from Russ Roberts. It is almost eight minutes and it is filled with rigor and data, but it’s worth watching since it masterfully demonstrates that lower-income and middle-class households actually enjoy larger gains than rich households.
As Russ says, you have to follow the same people over time if you want legitimate analysis.
And he shares lots of data showing that the rich actually have smaller-than-average gains in income over time.
It’s also worthwhile to investigate what happens with families over time. What we find is that children from poor households are more likely to exceed their parents’ income than children from rich households.
In other words, Russ’ conclusion was right. The American dream still exists. And if we can convince politicians to focus on growth, we can achieve better outcomes for people of all income levels.
Simply stated, they think he’s authentic rather than a finger-in-the-wind politician.
But I’m not so sure that’s true.
I pointed out in 2015 that he’s not even true to his socialist ideology. Rather than promoting government ownership, central planning, and price controls, he has behaved like a conventional left-wing politician. Indeed, there was almost no difference between his voting record and those of Barack Obama and Hillary Clinton.
Whether that’s good or bad is a matter of judgement, of course.
Today, though, I want to highlight something that’s unambiguously bad. He’s decided that currying favor with union bosses at the National Education Association is so important that it’s okay to trap kids from poor families in failing schools. And that, to me, makes him a political hack rather than an honest leftist.
Check out these excerpts from a story in the New York Times.
Senator Bernie Sanders took aim at charter schools on Saturday… In a 10-point plan, Mr. Sanders…said that, if elected, he would…forbid…federal spending on new charter schools as well as…ban…for-profit charter schools — which account for a small proportion of existing charters. “The proliferation of charter schools has disproportionately affected communities of color,” Mr. Sanders wrote… Mr. Sanders of Vermont would also require that charter schools be subject to the same oversight as public schools… Parts of the plan focused on educators, declaring Mr. Sanders’s support for a $60,000 baseline for teachers’ starting salaries as well as unionization efforts by charter schoolteachers.
By the way, I’m not a big fan of charter schools. It would be far better to have true school choice and allow parents to pick high-performing private schools.
But charter schools are definitely a better option if the only other choice is a failing government school. Especially since pouring more money into a broken system doesn’t work. Regardless of whether it’s a Democrat plan to waste money or a Republican plan to waste money.
This assumes, however, that the goal is to help children get a good education so they have a better chance for a good life.
That’s not what motivates Bernie Sanders. Like many Democrats, his main goal is to appease the teacher unions. And that means protecting and preserving the privileges and perks of union members and the government’s education monopoly.
P.P.S. Just like it’s disgusting that Obama’s Secretary of Education chose private schools for his kids (as did Obama) while fighting against school choice for poor families.
P.P.S. On an uplifting note, Fran Tarkenton, the former Georgia Bulldog (he also played a bit in the NFL) used a sports analogy to explain the benefits of school choice.
P.P.P.S. It’s also uplifting to see very successful school choice systems operate in nations such as Canada, Sweden, Chile, and the Netherlands. And India doesn’t have school choice, but it’s a remarkable example of how private schools are the only good option for poor families that want upward mobility.
P.P.P.P.S. The Washington Post provides an example of honest and decent leftism, having editorialized in favor of poor children over teacher unions.
But the good news is that there’s a lot of real-world evidence that socialism fails every time it is tried.
I certainly do everything possible to educate people about the downside of this coercive system. Including an entire collection of anti-socialism humor.
Adding to that collection is the point of today’s column.
I haven’t seen his work before, but Pat Cross probably deserves to be an after-the-fact participant in my political cartoonist contest based on these two gems.
Next, we have a putative quote from Winston Churchill, and I added the caveat about “putative” because a quick online search suggests he didn’t actually say this.
But the sentiment is so accurate that it merits inclusion.
For what it’s worth, there’s a great quote about socialism and capitalism at the end of this column, which actually did come from Churchill.
I always try to conclude any collection of jokes with the one that made me laugh the most.
And that definitely is the case for this final image.
P.S. Some people complain that I share too many jokes about the topic. They say socialism is a real threat, not something to laugh about.
Given the horrible suffering that has been caused by various versions of socialism, I understand that sentiment.
But I’m reminded that the Soviet Union, which rivaled Germany’s national socialism and Mao’s China in terms of sheer brutality, was undermined by humor.
Every so often, I’ll see a story (or sometimes even just a photo, a court decision, or a phrase) that sums up the essence of government – a unseemly combination of venality and incompetence.
Today, we’re going to review three examples that make my point.
We’ll lead with a story that is a perfect case study of Washington.
Then Trump says we have to subsidize sectors of the economy hurt by retaliatory tariffs. That’s one bad policy leading to another bad policy (hmmm…., there’s a name for that).
And that second bad policy leads to something else bad, at least according to the New York Daily News.
The Department of Agriculture cut a contract in January to purchase $22.3 million worth of pork from plants operated by JBS USA, a Colorado-based subsidiary of Brazil’s JBS SA, which ranks as the largest meatpacker in the world. …The bailout raised eyebrows from industry insiders at the time, as it was sourced from a $12 billion program meant for American farmers harmed by President Trump’s escalating trade war with China and other countries. …previously undisclosed purchase reports…reveal the administration has since issued at least two more bailouts to JBS, even as Trump’s own Justice Department began investigating the meatpacker, whose owners are Joesley and Wesley Batista — two wealthy brothers who have confessed to bribing hundreds of top officials in Brazil. Both brothers have spent time in jail over the sweeping corruption scandal. …Nonetheless, Trump’s Agriculture Department issued $14.5 million in bailout cash for pork products from JBS in February and another $25.6 million earlier this month, totaling more than $62.4 million, according to the purchase reports. …Including the JBS bailouts, the administration doled out $11 billion in relief payments to farmers hurt in the trade war last year.
Wow. I don’t know if this is better or worse than the Administration spending $13.6 million to hire two agents for the border patrol.
And I don’t know whether it’s better or worse than this next example of government foolishness.
A report published by Quartz estimates the amount of many Washington has wasted on abstinence programs.
Between 1982 and 2017, Congress spent over $2 billion on programs which teach teens that the best way to address their desire to have sex is to wait until they get married, according to a new study… Called abstinence only until marriage (AOUM), these programs accurately explain that the best way to avoid pregnancy and sexually transmitted diseases is to not have sex. …From 1995 to 2011–2013, the share of US adolescents who received instruction on abstinence but no instruction about birth control methods, increased from 8% to 28% of females and from 9% to 35% of males, according to the report. …Scientific evidence shows the approach doesn’t actually delay teens having sex, or engaging in risky sexual behaviors.
By the way, I’m also sure that the money spent on regular sex education and birth control education hasn’t worked, either.
Indeed, I wonder if such spending actually makes things worse (such as the Indiana driver education program that turned kids into worse drivers).
For our third example, here’s some of what the New York Timeswrote about refrigerators on Air Force One.
…two of the refrigerators on the president’s plane need to be upgraded, and these specially designed “chillers” aren’t cheap. The Boeing Company was awarded a nearly $24 million contract in December to engineer the refrigerators for Air Force One, the Defense Department said. …Perhaps in anticipation of taxpayer sticker shock, the Air Force also said “the engineering required to design, manufacture, conduct environmental testing and obtain Federal Aviation Administration certification” were all included in the cost. …Air Force One must be able to feed passengers and crew for weeks without resupplying, according to the news website Defense One. …Two galleys can provide up to 100 meals at one sitting, according to the Air Force.
This story presumably involves two common features of government contracting.
Second, ask for something excessive in the first place. What’s the point, for instance, of storing several weeks of food when the longest-possible trips are maybe 20 hours? Yes, I watched Independence Day and I realize that Air Force One may become the mobile White House in an emergency, but wouldn’t MREs be acceptable for our pampered politicians and senior staff if there was a real crisis?
That’s the term developed by Joseph Schumpeter to describe the economic churning caused by competition, innovation, and markets (international trade is just a minor part of this process, though it’s the part that generates the most controversy).
The bad news is that some people lose their jobs as the economy evolves and changes. And some companies go bankrupt. There are real victims and tragic stories.
But the good news is that other jobs are created. And entrepreneurs start new businesses.
And the better news is that our living standards increase. Especially over time. Even for many of those who lost jobs in the short run.
That’s why we’re much richer, on average, than our parents and grandparents.
Needless to say, a key measure of a healthy and dynamic economy is for the job gains to exceed the job losses.
So when I spoke to congressional staff earlier this week about trade and protectionism, I figured I should go beyond theory and include some numbers.
I went to the relevant website at the Bureau of Labor Statistics and found that more than 28 million jobs were lost in 2017 (final data for 2018 is still not available).
That sounds terrible. And for many workers, it was horrible news.
But the good news, as you can see in the screenshot below (click to expand), is that the U.S. economy created more than 30 million new jobs that year.
The obvious takeaway from this data is that the crowd in Washington should adopt policies that ensure we have strong growth so that people who lose jobs have lots of good options for new employment.
For what it’s worth, that message seems to be lost on Bernie Sanders, who has a long list of policies that would turn America into a version of Greece, France, and Italy.
Earlier this year, I reviewed new fiscal projections from the Congressional Budget Office (CBO) and showed that balancing the budget would be relatively easy if politicians simply limited spending so that it didn’t grow faster than inflation.
Though I made sure to point out that the primary goal should be to limit the burden of spending. That’s because government spending, regardless of whether it’s financed by taxes or financed by borrowing, undermines prosperity by diverting resources from the productive sector of the economy.
We now have some new numbers from CBO. The number-crunching bureaucrats have put together their estimates of the latest Trump budget and that’s generated some predictable squabbling between Republicans and Democrats.
Most of the finger-pointing has focused on the (relatively trivial) fiscal impact of the Trump tax cuts.
The Wall Street Journal wisely put the focus instead on the growth of government.
You wouldn’t know it from the press coverage, but there’s some modest good news about the federal budget. The deficit is rising, but not as much as feared because tax revenues are increasing due to faster economic growth. …So why has the federal deficit increased by $145 billion this fiscal year to $531 billion? Because federal spending continued to rise rapidly—7% in the first seven months to $2.571 trillion. That’s $178 billion more than in the same period a year ago. …The media blame deficits on tax reform, but the facts show the main culprit is spending. No one in the political class wants to talk about entitlements but that’s where the money is.
The WSJ’s editorial focused on short-run data.
I want to augment that analysis by looking at medium-run and long-run numbers.
We’ll start with this chart looking at what will happen over the next 10 years. As you can see, Washington is violating my Golden Rule by allowing spending to grow faster than the private economy.
As a result, the burden of federal spending, measured as a share of gross domestic product, is projected to climb over the next decade.
(For what it’s worth, since tax revenues will be growing at the same pace as spending, there won’t be any meaningful change in the deficit as a share of GDP.)
Now let’s look at the most-recent long-run data from CBO. These numbers are even more depressing because the spending burden continues to grow faster than the private sector. A lot faster.
Which is why the burden of federal spending is projected to increase from less than 21 percent of GDP today to nearly 29 percent of GDP by 2049.
And if you include spending by state and local governments (which currently consumes more than 11 percent of economic output and also is projected to increase), the terrible news gets even worse.
Moreover, the tax burden is projected to climb as well, and that doesn’t even include any estimate of what will happen if politicians manage to impose a value-added tax, an energy tax, a wealth tax, a financial transactions tax, or any of the other revenue-raising schemes under consideration in Washington.
In other words, the U.S. is on track to become just like Greece, France, and Italy.
P.S. There is an alternative to this dismal future. But can we convince politicians to adopt a spending cap and then make it work with genuine entitlement reform? I’m not holding my breath for any of that to happen.
Just last month, I wrote about Argentina’s grim economic outlook and criticized the supposed right-of-center President, Mauricio Macri, for failing to deliver any meaningful economic liberalization.
And reform is desperately needed.
According toEconomic Freedom of the World, Argentina is one of the most statist nations on the planet (the only nations that do worse are Libya and Venezuela).
For all intents and purposes, Argentina is suffering from decades of bad policy.
Argentina is a sobering example of how statist policies can turn a rich nation into a poor nation. …After World War II, Argentina was one of the world’s 10-richest nations. But then Juan Peron took power and initiated Argentina’s slide toward big government, which eroded the nation’s competitiveness and hampered growth.
To put it mildly, the country is an economic tragedy and it should be a lesson for all countries about the importance of good policy.
Yet why am I writing again about Argentina after last month’s analysis?
Because a story in the New York Times discusses the nation’s upcoming presidential election and manages to paint a grotesquely inaccurate picture of what’s been happening in the country. We’re supposed to believe that Macri has been a hard-charging free-market fundamentalist.
Since taking office more than three years ago, President Mauricio Macri has broken with the budget-busting populism that has dominated Argentina for much of the past century, embracing the grim arithmetic of economic orthodoxy. Mr. Macri has slashed subsidies… “It’s a neoliberal government…It’s a government that does not favor the people.” …tribulations playing out under the disintegrating roofs of the poor are a predictable dimension of Mr. Macri’s turn away from left-wing populism. He vowed to shrink Argentina’s monumental deficits by diminishing the largess of the state. …Mr. Macri’s…presidency was supposed to offer an escape from the wreckage of profligate spending.
And we’re also supposed to believe that his failed free-market policies are paving the way for a return to left-wing populism.
As the October election approaches, Mr. Macri is contending with the growing prospect of a challenge from the president he succeeded, Cristina Fernández de Kirchner… Her return would resonate as a rebuke of his market-oriented reforms while potentially yanking Argentina back to its accustomed preserve: left-wing populism.
For what it’s worth, I suspect that Kirchner will win the next election. So that part of the article is correct.
But the part about free-market reforms is laughably inaccurate.
You don’t have to believe me. Let’s look at the Argentinian data from Economic Freedom of the World. Maybe I’m being dogmatic, but I hardly think a tiny improvement in 2015 followed by backsliding in 2016 qualifies as “diminishing the largess of the state.”
The bottom line is that Macri should have been bold and made sweeping changes once he was in charge. Like Chile after Allende’s Marxist regime was deposed.
Those reforms doubtlessly would have triggered protests. But if they became law, they would have produced tangible results.
Instead, Macri chose a timid approach and the economy has remained stagnant. Yet because many voters think he adopted reforms, they blame him and they blame free markets.
The net result is that they will probably vote for Kirchner, which presumably will mean even more statism for the long-suffering people of Argentina.
P.S. What’s happening in Argentina is not an isolated example. It’s very common for supposed right-wing politicians to choose bad policies, which then paves the way for left-wing election victories. Look at how Bush’s statist policies created the conditions for an Obama victory. Or how Sarkozy set the stage for Hollande in France. Or how Theresa May’s fecklessness in the United Kingdom may lead to a win for Jeremy Corbyn.
P.P.S. I’m tempted to also warn that Trump’s risky protectionism may lead to a victory for Crazy Bernie or some other Democrat in 2020. But Trump does have some good policies as well, so it’s hard to know whether the economy will be a net plus or net minus in the election.
By refusing to implement a Clean Brexit and instead pursuing a Brexit-in-Name-Only, Prime Minister Theresa May has dramatically reduced support for the Conservative Party in the United Kingdom.
The poll numbers are now so bad that it is conceivable to imagine that Jeremy Corbyn could win the next election.
That would be horrible news. The leader of the Labour Party is an unreconstructed hard-core socialist. A real socialist who would move the country toward government ownership, central planning and price controls.
Theodore Dalrymple aptly summarizes for City Journal what a Labour government would mean for the U.K.
Thanks to the current imbroglio over Brexit, Britain could soon be Venezuela without the oil or the warm weather. The stunning incompetence of the last two Tory prime ministers, David Cameron and Theresa May, might result in a Labour government, one led by Jeremy Corbyn, a man who has long admired Hugo Chavez… Corbyn’s second in command, John McDonnell, would, as Chancellor of the Exchequer, be in charge of the economy. Only five years ago, he said that the historical figures he most admired were Marx, Lenin, and Trotsky… he argued for the nationalization of land. He also favors nationalizing railways and public utilities, which can be done only through rates of taxation so high that they would amount to the nationalization of everything—with a resultant economic collapse—or by outright confiscation… The arrival in power of such men will produce an immediate crisis, which they will blame on capitalism, the world economic system, the Rothschilds, and so forth. They will use the crisis to justify further drastic measures. …None of this is inevitable, but thanks to the bungling of Brexit, it is considerably closer.
This video tells you everything you need to know.
Let’s look at a couple of specific topics.
Writing for CapX, Eamonn Ives explains what’s wrong with the Labour Party’s agenda for more government spending.
…what Jeremy Corbyn and John McDonnell are arguing for is a long way from Keynesian doctrine. They propose a massive injection of government spending in the economy, despite the UK experiencing unprecedented levels of employment and (admittedly rather anaemic) growth. Keynes, by contrast, argued for counter-cyclical fiscal policy. …Of course, the money would have to be found from somewhere: either in existing budgets, or levying new or higher taxes, or through quantitative easing, or additional borrowing. …this model only makes sense if governments are more strategic in deploying resources than private firms and individuals. And, as failed socialist experiment after failed social experiment has shown, there is no evidence to suggest that is the case. …It’s often remarked that if something’s too good to be true, then it probably is. Labour’s voodoo economics are no exception to this. If they really want to stimulate the economy, they should be celebrating, not denigrating the real way to foster genuine economic growth: tax cuts and other supply-side reforms.
Andrew Lilco opines for CapX on an Elizabeth Warren-type scheme that’s been proposed by John McDonnell, the guy would be Chancellor of the Exchequer (what Americans would call a Treasury Secretary) in a Labour government.
John McDonnell…proposed that businesses should be required to share profits with workers either in the form of bonuses or share distributions. He said he wants to “transform the economy”… Indeed, he says the “overthrow of Capitalism” is now his “job”. …What would be the economic effects? Many firms already pay bonuses to staff if the they make higher-than-expected profits, and other firms offer key staff bonuses in the form of shares. …But problems arise if one mandates that all firms should be run that way or attempts to cap returns at some state-set “fair” level. …The essential definitive feature of capitalism is that it is a system of opportunity for those without money to have their projects funded. …If we…cap their rates of return to a “fair” level, that will…mean that only certain sorts of investment occur. In particular, it means an end to high risk investment, where very high rates of return when a project is successful make up for all the losses in other less successful ventures when projects are not successful. …That would have fairly clear implications for the sort of economy the UK would have. …New technologies and new products would come in gradually, but only from abroad and only later than other countries had them. …That in turn will, over time, drag the state into a wider and wider role in the economy.
Speaking of McDonnell, what sort of politician is willing to be part of an event that celebrates brutal communist dictators?
John McDonnell now on stage with not just one but two banners depicting Stalin and Mao. This is the man who will be running the economy if Labour win a general election. pic.twitter.com/d96W8SnUd8
Because they wrongly assume the economy is a fixed pie, some of my friends on the left think it’s bad for there to be rich people. They actually think that must mean the rest of us have less income.
But that’s not true. At least it’s not accurate if we start with the assumption that wealth is earned honestly and not accumulated thanks to subsidies, bailouts, protectionism, and other forms of cronyism.
So if it’s good to have more honest rich people, what’s the recipe to make that happen?
Frans Rautenbach, author of South Africa Can Work, recently crunched numbers and wrote about economic policy and the prevalence of billionaires.
Here is some of Frans’ accompanying analysis.
I calculated the relative number of billionaires by dividing the population of a country by the number of billionaires, to calculate the number of people per billionaire. So, the lower the number the greater the percentage of billionaires. …What is immediately clear, is that the three top performers in the table are Hong Kong, Switzerland and Singapore, all countries with exceptionally free markets and very low tax burdens. What that makes clear is, if a country is really serious about nurturing billionaires, free markets and low taxes are the way to go.
By the way, Frans focused on major countries.
If he included every jurisdiction, I very much suspect Monaco would be at the top of the list.
What we also see, is that not all the Nordic countries are world-beaters in the billionaire stakes. The social democracy system (high taxes and spending on welfare benefits) has not worked to make Finland and Denmark top performers. …a fair question: Why do Sweden and Norway beat the US in the super-rich game? We now know that the high-equality welfare state of social democracy is not the reason. If that were so, it would have been fair to expect Finland and Denmark to beat the US too. And we would have expected all four these countries to have dynamic, high-growth economies – which they don’t. Having said that, it remains true that both Sweden and Norway are free markets in their own right. …The only criterion that identifies them as statist is size of government (tax, government spending, and so on). According to the other four criteria (trade policy, monetary policy, regulatory policy, and property rights and rule of law), these countries are very free. …What is more, until about 1950, Sweden and Norway had smaller governments than the UK, the US, Japan, Germany and France.
Now that we’ve looked at the policies associated with having more rich people, let’s look at the policies that are needed to retain them.
Bloomberg has a very interesting story on the migration of millionaires around the world.
The world’s wealthy are increasingly on the move. About 108,000 millionaires migrated across borders last year, a 14 percent increase from the prior year, and more than double the level in 2013, according to Johannesburg-based New World Wealth. Australia, U.S. and Canada are the top destinations, according to the research firm, while China and Russia are the biggest losers. …Wealth migration figures…can also be a key future indicator, said Andrew Amoils, head of research at New World Wealth. “It can be a sign of bad things to come as high-net-worth individuals are often the first people to leave — they have the means to leave unlike middle-class citizens,” he said. …Australia tops most “wish lists” for immigrants because of its perceived safety, no inheritance tax and strong business ties to China, Japan and South Korea.
Here’s an accompanying chart.
I’ll simply note that if the numbers were adjusted for population, the United States would not rank nearly so high (I’m guessing America’s unfair death tax is a major reason why some rich people choose other countries).
What can we say about the nations losing rich people?
If you peruse the data from Economic Freedom of the World, you’ll notice that they don’t rank very high.
China’s tightening grip on capital outflows in recent years has placed many of the country’s wealthier citizens in the crosshairs of the taxman, leading to a shift of assets and people. …Turkey losing 4,000 millionaires last year, the third straight year that many have left. About 7,000 millionaires left Russia last year.
My two cents is that rich people aren’t fully confident about stability in come countries (think Russia) and they’re quite worried about government greed in other nations (think France).
Another issue is that successful entrepreneurs and investors don’t feel comfortable having their private financial data being promiscuously shared, and one way to minimize government snooping is to move to move.
The desire for privacy is also prompting rich individuals to reconsider their place of residence. Under the Common Reporting Standard, launched by the Organisation for Economic Co-operation & Development in 2017, banks and other financial institutions are disclosing data on foreign account holders to their local tax authority. …”Many wealthy people are looking for opportunities to reduce risks associated with spreading information about their accounts,” said Polina Kuleshova of Henley & Partners. …Citizenship and residency by investment programs are big business: currently, the industry is worth an estimated $2 billion annually… The Organisation for Economic Co-operation & Development is scrutinizing…these schemes. In October 2018, it released a blacklist of 21 jurisdictions, including Malta and Cyprus, that it believes are undermining international efforts to combat tax evasion.
Since I’m a critic of the OECD’s efforts to create a global tax cartel, I’m glad people still have some options to protect themselves. Including the CBI programs.
If Congresswoman Alexandria Ocasio-Cortez didn’t exist, I might have to invent her since she helps to make socialism such an easy target for mockery.
Though I actually admire the fact that she doesn’t try to disguise her agenda. Like “Crazy Bernie,” she openly and boldly pushes for an ideological agenda that would put the United States somewhere between Greece and Venezuela in the global rankings for economic liberty.
And while that would be a horrible outcome, it does generate the satire for today’s column.
We’ll start with a clever cartoon I saw on Facebook. It appears that Ms. AOC slept through a critical class.
Indeed, even though it should be difficult to overlook 100 million deaths caused by socialism, she may have slept through all her classes according to the satirists at Babylon Bee.
The problem has become so acute that her economics degree from Boston University has been revoked.
…an independent degree quality control board issued an emergency recall on her economics degree. Basic Economic Understanding Bureau officials burst into the congresswoman’s office and confiscated her economics degree early Tuesday morning “for the safety of the nation.” They found it hanging on the wall next to a hammer & sickle flag. They tore it down and returned it to Boston University for safekeeping. …one BEUB official said. “We pulled up Representative Ocasio-Cortez’s Twitter account, and sure enough, she compared the price of a croissant with the price of an hour of human labor. She seemed to have no understanding of the underlying facts.” …While officials were not allowed to detain Ocasio-Cortez herself for a recall and were forced to release her after questioning, they recommended she read Basic Economics by Thomas Sowell or Economics in One Lesson by Henry Hazlitt to aid her in her recovery.
Second, while it would be nice if AOC read Thomas Sowell, I doubt it would help. My experiences with dedicated leftists suggest that they are impervious to understanding tradeoffs.
But since I’ve written over and over again about the foolishness of socialism, let’s bring another voice to the discussion. In an article for Quillette, Jonathan Church summarizes the economic blindness of AOC.
With over 3.5 million followerson Twitter…and an audacious personality, she has become a vociferous presence in the contemporary social discourse…she is alarmingly prone, not simply to making mistakes that arise from climbing the learning curve on complex policy issues, but to making reckless intellectual mistakes that should easily be avoided by someone who has gloatedabout having an economics degree. Rarely does an AOC remark on economic issues go by, in fact, in which she does not demonstrate an ideological impulsiveness that compromises any presumed adherence to sound economic reasoning, prompting doubts about how much she learned when she studied economics at Boston University. …AOC repeatedly demonstrates a glaring lack of command not only of facts, but of basic economic principles.
And what are these mistakes?
The article has many examples, but my favorites deal with the so-called Green New Deal and her misunderstanding of employment data.
…her Green New Deal…appears to be inspired by the highly-risky, nonsensical ideas of Modern Monetary Theory… Instead of focusing on entitlement reform and addressing the demographics and rising health care costs which lie at the root of America’s looming debt crisis, the Green New Deal would “spend the U.S. into oblivion,”… in one high-profile PBS interview last year, she claimed that unemployment in America “is low because everyone has two jobs” and “people are working 60, 70, 80 hours a week.” She was subsequently chastened byPolitifact.
But I’m digressing. Let’s enjoy some more humor.
Here’s a satirical video that’s received a lot of attention. It features an 8-year old Mini-AOC.
Also, you’ve probably seen information about how to detect if someone is using illicit substances.
Well, here’s how to tell if someone is buzzed on things they shouldn’t be using.
Here’s some more clever satire from Babylon Bee. It appears Ms. AOC is not cut out for success on some game shows.
Alexandria Ocasio-Cortez was pumped to attend a taping of The Price Is Right in Hollywood this week. The special guest introduced herself as a U.S. representative and rising star of the Democratic Party. Things got interesting when the game began and every time it was her turn to estimate the price of an item her answer was “free.” …She went on to guess that diamond earrings, a set of jet skis, and even a giant pile of cash were all free. Carey unveiled a package containing world-class healthcare and she said, “Definitely free.” …Cortez was never able to advance to the game proper, and as the credits rolled she appeared visibly upset. A hot mic picked up comments she made in frustration, claiming that the game was rigged by capitalism and that “everybody knows giant piles of money are free, that’s like basic economics 101”.
Last but not least, I assume everyone has seen Jack Nicholson in The Shining.
The remake is even more terrifying!
As always, feel free to peruse the entire collection of socialism-themed humor.
I spend much of my time analyzing the foolish and counterproductive policies imposed by Washington. Often accompanied by some mockery of politicians and their silly laws.
And since this is “International Liberty,” I obviously like to pay attention to what happens in other nations as well. I guess you could call it the global version of misery-loves-company.
We’ll start in Egypt, where we got a version of alchemy. Except instead of turning a base metal into gold, a donkey was turned into a zebra.
A zoo in Egypt has denied painting black stripes on a donkey to make it look like a zebra after a photo of the animal appeared online. Student Mahmoud Sarhan put the images on Facebook after visiting Cairo’s International Garden municipal park. Aside from its small size and pointy ears, there were also black smudges on its face. …the enclosure contained two animals and that both had been painted. When contacted by local radio station Nogoum FM, zoo director Mohamed Sultan insisted the animal was not a fake.
The most amusing part of the report, though, was learning that zoos routinely try to mislead customers.
This is not the first time that a zoo has been accused of trying to fool its audience. Unable to find a way around the Israeli blockade, a zoo in Gaza painted two donkeys to look like zebras in 2009. Another Gaza zoo put stuffed animals on display in 2012 because of the shortages of animals. In 2013, a Chinese zoo in Henan province tried to pass off a Tibetan mastiff dog as an African lion, and in 2017 a zoo in Guangxi province disappointed visitors by exhibiting blow-up plastic penguins. Weeks later, another Guangxi zoo drew condemnation for displaying plastic butterflies. …Papua New Guinea is one of the poorest countries in Apec, with 40% of the population living on less than $1 a day according to the UN.
I have to confess, though, that I don’t know if any of these zoos were private. So maybe we have a problem that isn’t just limited to government.
Our next story is from India.
It seems that the military doesn’t understand that submarines are supposed to be watertight.
…it’s a good idea to, like, close the hatches before you dive. Call it a lesson learned for the Indian navy, which managed to put the country’s first nuclear-missile submarine, the $2.9 billion INS Arihant, out of commission in the most boneheaded way possible. The Hindu reported yesterday that the Arihant has been out of commission since suffering “major damage” some 10 months ago, due to what a navy source characterized as a “human error” — to wit: allowing water to flood to sub’s propulsion compartment after failing to secure one of the vessel’s external hatches. …It’s hard to articulate how major a foul-up this is… Indian authorities ordered the pipe replacement because they “likely felt that pipes exposed to corrosive seawater couldn’t be trusted again, particularly pipes that carry pressurized water coolant to and from the ship’s 83 megawatt nuclear reactor.”
Sounds like India’s navy would have been better off if the person in charge of the hatch had been one of the country’s famous no-show bureaucrats.
Now let’s turn our attention to Papau New Guinea, where the roads are so poor that it makes no sense to have fancy, high-speed cars.
Yet that didn’t stop the government from using a summit as an excuse to buy 40 Maseratis
Papua New Guinea’s government is under scrutiny for importing 40 luxury Maserati cars from Italy for the…Asia-Pacific Economic Cooperation (Apec) summit. The Quattroporte sedans, which cost more than $100,000 each (£75,000), will be used by foreign leaders. Media and activists have questioned if the poor Pacific country has wasted millions. …Apec Minister Justin Tkatchenko said the cars, which can reach speeds of 240 km/h (149 mph), would “provide the level of carriage for leaders that is the standard for vehicles used at Apec summits”. …Some of the Pacific country’s main roads are poorly maintained, with vehicle speeds limited to 80 km/h (50 mph). Other roads wind through mountainous terrain and often require a four-wheel-drive vehicle to navigate.
Incidentally, the government claimed that the Maseratis would be resold to private buyers, meaning no net cost to taxpayers. Highly unlikely, to be sure.
Moreover, if there was a follow-up story, I wouldn’t be surprised to learn that they magically wound up in the hands of politicians and their family members.
The bottom line is that governments manage to combine malicious venality with staggering incompetence. Quite a feat.
P.S. For what it’s worth, America’s political elite prefers to rely on taxpayer-financed limousines.
P.S.S. I’ve noticed on my trips to Cayman that there are lots of fancy, high-performance cars. In some sense this isn’t surprising. After all, zero-tax Cayman is a wealthy place. Yet I’ve always wondered why people buy such cars on a small island where high-speed travel is both difficult and unnecessary. But at least those are people spending their own money (though the government there certainly is capable of over-spending in other ways).
When I want to feel optimistic about China, I look at data from Economic Freedom of the World to confirm that there was a lot of economic liberalization (triggered in part by some civil disobedience) between 1980 and the early 2000s.
But I also look at the same data if I want to feel pessimistic about China. That’s because there hasn’t been any additional liberalization in the past 15 years. China is basically treading water, and that means it is actually losing ground as other nations reform.
Which raises an interesting question: Is Trump’s saber rattling on China trade helping or hurting?
Here’s some of what I wrote for Inside Sources on this issue.
President Donald Trump has launched a new attack in his trade war with China… Is it possible…that his bluster will produce a good long-run deal to offset short-run costs? Let’s hope so, but it’s unclear…we all have a stake in the outcome of these trade negotiations. So here are five things to understand as discussions continue.
Starting with two reasons why there’s a trade deficit and why it doesn’t matter.
First:
Americans are much richer than their counterparts in China. …per-capita economic output in the United States is six times larger than it is in China ($60,000 compared to $10,000). This means Americans can afford to buy a lot more, including more goods and services from around the world. As such, a bilateral trade deficit with China is neither surprising nor worrisome.
And second:
The United States enjoys a far higher level of economic freedom than China. …the United States is ranked No. 6 while China is a lowly No. 107. This helps to explain why Chinese entrepreneurs who earn dollars by selling to American consumers often decide to invest those dollars in the American economy (the United States is the world’s top destination for global investment). This means the trade deficit is matched by a capital surplus.
I then explain China is guilty of protectionism and it would be good for both nations if these barriers were eliminated.
China has more protectionist barriers than America. …average Chinese tariffs are nearly three times higher than America tariffs. And China is also guiltier of using subsidies to help domestic companies. …people of both nations are the main victims of these bad policies, but it would be good for all of us if those trade barriers were reduced.
But what’s the best approach to encourage better policy from China?
I don’t think Trump’s unilateral protectionism will be successful.
Bullying and tit-for-tax retaliation is not an effective strategy. …tariffs hurt China, but they also hurt the United States by raising the price of consumer and intermediate goods. Taxes on Chinese goods also reduce incentives for America companies to become more efficient and better producers. Perhaps most important, there is little reason to think these taxes will have the desired effect of altering Chinese behavior.
The WTO is an underused tool for trade liberalization. It has a dispute resolution process that has been successfully used to cajole and pressure nations into reducing trade barrier. The president has publicly criticized the WTO, but he probably doesn’t realize that the United States wins about nine out of every 10 cases when it challenges other nations’ trade barriers. …many other nations would have supported the United States if we had used the WTO as a vehicle to achieve more liberalization.
It’s not too late for the president to select that strategy, of course, but that won’t be likely as long as he mistakenly sees trade as a zero-sum proposition.
Let’s close by looking at relevant excerpts from three other articles.
First, a columnist for National Reviewexplains how cronyism infects the Chinese economy.
…just because China has many private companies, allows Communist-Party member Jack Ma to become a billionaire as head of Alibaba Group, and translates capitalist classics into Mandarin doesn’t mean it’s capitalist. The fact that few describe the Chinese economic system without putting a modifier in front of the term “capitalism” — “authoritarian,” “state,” “predatory,” “Communist,” etc. — should tell us something. …China has more than 150,000 state-owned enterprises, accounting for 40 percent of industrial assets. However, Chinese state capitalism is not just, or even principally, about the number and size of such enterprises; it’s about the central role the Chinese Communist Party (CCP) plays in virtually all aspects of economic life. …Chinese state capitalism is a system in which the purpose of firms — private and public — is to fulfill the goals of the Communist Party. …capitalism is…a system in which…property owners have considerable…freedom to pursue their goals without influence from the state. By this standard, China’s is far from a capitalist economy.
Second, here are some excerpts from an Atlantic column about why it is difficult to alter China’s misguided approach.
…the trade dispute is about far more than tariffs and deficits. It is a contest of two very different national ideologies. Though the Trump administration has deviated from this somewhat, the United States believes that openness—political, economic, and social—creates prosperity, resolves disagreements within society, and promotes the diversity that spawns innovation and progress. China—or, more accurately, its leadership—sees government control as critical to developing the economy, achieving social peace, and forwarding the best interests of the nation overall. Americans tend to think open, free markets that are operating in a fair regulatory environment produce the best economic results. Beijing, on the other hand, doesn’t trust market forces and instead wants the state to play a more direct role in achieving the economic outcomes it determines are necessary for the country. …As a result, what Trump is demanding is extremely difficult to achieve: a “level playing field” for American firms. In fact, nothing of the sort actually exists in China, even for Chinese companies. The state has a nasty tendency to favor its own, with government-controlled businesses enjoying a smorgasbord of official assistance, including tax credits, low-interest loans from state banks, and other subsidies that give them an undue edge in local competition. That leaves private Chinese companies and entrepreneurs often facing the same kinds of hurdles to doing business that foreign ones face.
Third, Professor Deirdre McCloskey has a more optimistic assessment, arguing that it is foolish for the U.S. government to fixate on China’s distortionary policies.
The White House is pursuing two stupid policies, trying to reduce the United States’ “balance of payments” with China and trying to protect “intellectual property” from China’s thievery. These policies are leading to a crash in the Chinese economy, which has been grossly ill-managed under President Xi Jinping. …when did you last feel the U.S. balance of trade? You feel only the idiotic policies advocated in reaction to it by Peter Navarro, a White House economist who never learned economics. (His Ph.D. is from Harvard. I’m thinking of turning mine back in.) It would be better if the government did not calculate and announce the balance of payments at all. It’s meaningless and an occasion for sin. What about China stealing intellectual property? Intellectual property sounds nice. …Patents and copyrights make things that are free in nature artificially scarce in order to cream off profit for the influentials. They are comparable to hack medallions, recently threatened by monopoly breakers Uber and Lyft. …Economists would be satisfied with a rough-and-ready rule of, say, a 10-year monopoly. But asserting an expansive right to intellectual property, which Congress then regularly extends in order to preserve the privileges of drug companies and the Walt Disney Corporation, is no solution.
I’ll add one final point.
We should support Chinese economic reform because it is good for the United States and good for China.
All three of the Baltic nations rank highly according to Economic Freedom of the World. Estonia and Lithuania are tied for #13, and Latvia isn’t far behind at #23.
Rather impressive for nations that suffered decades of communist enslavement.
But this doesn’t mean I’m optimistic for the future of these countries.
Simply stated, they need a lot more reform to prepare themselves for demographic decline.
And demographic decline is a huge issue, in large part because young people are moving away. Here are some excerpts from a Bloomberg report.
According to the UN’s Department of Economic and Social Affairs, nine of the world’s countries most at risk of losing citizens over the next few decades are former East bloc nations. Porous borders and greater opportunity in the west have lured people away. …The trend is hitting especially hard in the Baltics. Latvia, with a current population of 1.96 million, has lost about 25 percent of its residents since throwing off Soviet control in 1991. The U.N. predicts that by 2050, it will have lost an additional 22 percent of its current population…and by 2100, 41 percent. In Estonia, with a population of 1.32 million, the U.N. foresees a 13 percent decline by 2050 and a 32 percent drop by 2100. And in Lithuania, the current population of 2.87 million is expected to drop by 17 percent by 2050. By 2100, it will have lost 34 percent. …Latvian demographer Mihails Hazans said that, as of 2014, one in three ethnic Latvians age 25 to 34 — and a quarter of all Latvians with higher education — lived abroad.
Part of the issue is also fertility.
Here’s a chart from the World Bank showing that all three Baltic nations are way below the replacement rate.
The combination of these two factors helps to explain this map.
As you can see, the Baltics don’t quite face the same challenges as Moldova.
But that’s the only silver lining in these grim numbers.
By the way, people should be free to emigrate.
And women should be free to choose how many children to have.
But when a country also has a welfare state and – over time – there are more and more old people and fewer and fewer young taxpayers, that’s a recipe for some sort of Greek-style fiscal crisis.
P.S. One of the reasons I like the Baltic nations is that they cut spending (actual spending cuts, not fake DC-style reductions in planned increases) when they were hit by the global financial crisis last decade.
P.P.S. Even better, Paul Krugman wound up beclowning himself by trying to blame Estonia’s 2008 recession on spending cuts that occurred in 2009.
I’m doing my third field trip to the United Nations.
In 2012, I spoke at a conference that was grandiosely entitled, “The High Level Thematic Debate on the State of the World Economy.” I was a relatively lonely voice trying to explain that a bigger burden of government would hinder rather than promote economic development.
In 2017, I was a credentialed observer to the 14th Session of the Committee of Experts on International Cooperation in Tax Matters, as well as the Special Meeting of ECOSOC on International Cooperation in Tax Matters. I somehow survived having to spend several days listening to government officials wax poetic about various schemes to extract more money from the productive sector of the economy.
This year, I”m at the U.N. participating in the 17th International Forum of the Convention of Independent Financial Advisors. My panel focused on taxation and the U.N.’s Sustainable Development Goals.
Here are the goals, which presumably are widely desirable.
The controversial part is how to achieve these goals.
Many of the folks at the U.N. assert that governments need more money. A lot more money.
A new Fund to support UN activities that will help countries achieve the Sustainable Development Goals was launched today by UN Deputy-Secretary-General Amina Mohammed at a ministerial meeting to review financing for sustainable development. …Ms. Mohammed said the new Fund will “provide some muscle” to help UN country teams support countries’ efforts and priorities to achieve the 2030 Agenda – the global agenda that sets out 17 goals to promote prosperity and improve people’s well-being while protecting the environment. “It will help us hit the ground running and to pick up the pace,” for financing the Goals, she said, cautioning that it was still only part of the estimated $300 trillion that will be needed.
Needless to say, $300 trillion is a lot of money. Even when spread out between now and 2030.
To put that number in perspective, the annual GDP (economic output) of the United States is about $20 trillion.
My concern, whether the number is $300 or $300 trillion, is that folks at the United Nations have a very government-centric view of development.
Which is why I tried to explain that the only successful recipe for progress is free markets and small government.
Take a look at this list of the top-25 jurisdictions as ranked by the United Nations.
I concluded with my challenge, asking participants to identify a single nation – anywhere in the world at any point in history – that became rich with big government and high taxes.
The answer is none. Zero. Zilch. Nada.
The bottom line is that many people at the U.N. have a sincere desire to help the world’s less-fortunate people. But they need to put facts and empirical data above statist ideology.
P.S. Maybe the U.N. doesn’t do the right thing about fighting poverty because it has some people who are very dishonest about the topic?
P.P.S. I don’t know whether to classify this as absurd or dishonest, but Jeffrey Sachs actually claimed that Cuba ranks about the United States in meeting the Sustainable Development Goals.
So is it time for me to retract my 2015 criticism?
Nope.
Look at this horrifying tweet that Trump issued yesterday. The President is actually claiming that the economy is doing well because of higher tax payments.
For 10 months, China has been paying Tariffs to the USA of 25% on 50 Billion Dollars of High Tech, and 10% on 200 Billion Dollars of other goods. These payments are partially responsible for our great economic results. The 10% will go up to 25% on Friday. 325 Billions Dollars….
Needless to say, it’s strange to see a Republican president make the same argument.
But Trump’s tweet isn’t just bad from the perspective of fiscal policy.
He also shows that he doesn’t understand trade policy, either from a technical perspective or an economic perspective.
For instance, the tariffs (i.e., trade taxes) technically are paid by those making the purchases (i.e., importers), not by the sellers (i.e., Chinese companies).
But just as the corporate income tax is really a tax on people (either as workers, consumers, or shareholders), the burden of trade taxes also falls on people.
In other words, American consumers are paying for Trump’s tariffs.
Which gives me an excuse to share Trump’s second-worst-ever tweet, which was issued this morning.
The United States has been losing, for many years, 600 to 800 Billion Dollars a year on Trade. With China we lose 500 Billion Dollars. Sorry, we’re not going to be doing that anymore!
At the risk of understatement, the United States doesn’t “lose” $500 billion by trading with China.
Americans voluntarily purchase lots of output from China and both sides benefit (otherwise the transactions wouldn’t occur).
And many Chinese use the dollars they earn to invest in the U.S. economy, another set of win-win transactions.
The net result of all these voluntary transactions is that America has a trade deficit, which is a meaningless figure. Basically the flip side of having a capital surplus.
The bottom line is that Trump should stick to tax policy and regulatory policy, since those are areas where his policies have been beneficial.
P.S. If Trump was focused on Chinese technology theft or Chinese industrial subsidies, I would be at least partly sympathetic. Especially if he utilized the World Trade Organization and included our allies. But he’s mostly attacking China because he doesn’t like the voluntary decisions of American and Chinese consumers and businesses.
But perhaps more than anything else, I wish they understood that poor people aren’t poor simply because rich people are rich.
John Stossel has a new video from Reason about the issue.
Spot on.
John is right about income growth. That’s why I think it’s so important to have policies that enable more growth. When the economy does well, that’s good for the poor, good for the rich, and good for the rest of us as well.
Heck, poor Americans are rich compared to people in many developing nations.
I also like what John said about income mobility. People can rise out of poverty. And they can fall out of prosperity.
By the way, I wish the discussion about unfairness also mentioned height and looks. There’s fairly solid academic evidence that taller people and better-looking people earn more money and have better lives.
That’s genuine unfairness, just like having better parents is a source of genuine unfairness.
Yet not even Bernie Sanders or AOC have proposed taxes to equalize those sources of real unfairness (since I don’t want to give them any ideas, hopefully they don’t read my columns).
P.S. I started today’s column by giving examples of things I wish leftists understood. Well, there are also issues where I wish my friends on the right had more insight. For instance, I would like them to understand that tax cuts very rarely pay for themselves. I wish they realized that spending caps are far preferable to balanced budget rules. And I wish they understood that disapproval of things such as drug use, gambling, and prostitution doesn’t mean those activities should be illegal.
P.P.S. I also mentioned at the start of the column that higher incomes for some people doesn’t imply lower incomes for other people. I should have included the caveat that this isn’t true if government is tilting the playing field. Bailouts, protectionism, subsidies, and other forms of cronyism enable the politically well connected to prosper at the expense of everyone else.
Back in April, I observed that, “If you would have loudly condemned a policy under Obama but support a similar policy under Trump, you’re the problem.”
We now have a good test case.
The President already has demonstrated – repeatedly – that he likes to spend other people’s money.
But now he’s unleashing his inner Obama, having reached a tentative deal with Chuck Schumer and Nancy Pelosi for a $2 trillion infrastructure blowout.
Notwithstanding the GOP’s supposed belief in the Constitution and limits on the role of the federal government, there are plenty of Republicans on Capitol Hill (especially on the committees that will get to direct this money to various campaign contributors) who will gladly join this spending orgy.
The relevant question, though, is whether there are some good GOPers to stop this boondoggle.
The Washington Postreports that there are some holdouts.
A $2 trillion infrastructure deal outlined this week by President Trump and top Democrats is already losing momentum, as the president’s own chief of staff is telling people inside and outside the administration that the effort is too expensive… Democratic leaders in Congress…said they were pleasantly surprised by the president’s willingness to back a large-scale spending effort. …But the initiative has run into immediate opposition from Republicans who balk at the hefty price tag and from conservative allies who are pushing lawmakers to block it. …Earlier in the administration, Trump praised Sen. Elizabeth Warren (D-Mass.) — a potential 2020 foe — for her ideas because, in his view, she was determined to spend more than Republicans. He would tell aides to get a list of projects and “let’s just spend it,” in the words of one former administration official. …Trump always wanted to spend more. …raising fuel tax rates by 35 cents and pegging them to rise with inflation would generate only about a quarter of the necessary revenue over 10 years. …Getting the remaining $1.5 trillion would involve much more significant tax increases… But even fully reversing the corporate income tax cut, which dropped the rate from 35 percent to 21 percent, would not close the gap
One obvious takeaway from this article is that taxes eventually will increase if Republicans don’t get serious about spending restraint.
Indeed, I’ve already warned that Trump’s profligacy is making tax increases more likely.
The editors at National Reviewshare my concern about the plan for a bipartisan budget-busting package.
Some time ago, President Trump’s team produced a $1.5 trillion infrastructure plan, which was really a $200 billion infrastructure plan with some wishful thinking attached. …now the president has joined forced with Nancy Pelosi and Chuck Schumer on something new: a $2 trillion infrastructure plan, which also is composed mainly of wishful thinking. …What could possibly go wrong? You can tell this is backward by the fact that the triumvirate has settled on a price tag — an incomprehensibly large one — but is remarkably fuzzy on what’s to be bought with that $2 trillion. …We have been here before, with Barack Obama and his “shovel-ready” projects. The lesson of Obama’s failed stimulus bill — which was in considerable part an infrastructure program — is that doing things backwards does not work. …figuring out how to pay for this is at the bottom of the current agenda. …This is not a sane way to proceed. …The infrastructure scheme deserves to die an early and unlamented legislative death.
It should just “die an early an unlamented legislative death.” It never should have been born in the first place.
I’m not surprised that Trump is supporting a pork-filled budget plan for infrastructure. As I warned back before the 2016 election, he’s a big-government Republican.
What’s not clear, though, is how many GOP lawmakers will support his Greek-style approach to the transportation budget.
P.S. The correct infrastructure policy for Washington is to have no infrastructure policy. That’s because transportation should be handled by state and local government. Or, even better, the private sector. In my fantasy world, we’d shut down the Department of Transportation and repeal the federal gas tax.
Some of his potential 2020 opponents, by contrast, are coherent but crazy.
And economic craziness exists in other nations as well.
In a column for the New York Times, Jochen Bittner writes about how a rising star of Germany’s Social Democrat Party wants the type of socialism that made the former East Germany an economic failure.
Socialism, the idea that workers’ needs are best met by the collectivization of the means of production… A system in which factories, banks and even housing were nationalized required a planned economy, as a substitute for capitalist competition. Central planning, however, proved unable to meet people’s individual demands… Eventually, the entire system collapsed; as it did everywhere else, socialism in Germany failed. Which is why it is strange, in 2019, to see socialism coming back into German mainstream politics.
But this real-world evidence doesn’t matter for some Germans.
Kevin Kühnert, the leader of the Social Democrats’ youth organization and one of his party’s most promising young talents, has made it his calling card. Forget the wannabe socialism of American Democrats like Bernie Sanders or Alexandria Ocasio-Cortez. The 29-year-old Mr. Kühnert is aiming for the real thing. Socialism, he says, means democratic control over the economy. He wants to replace capitalism… German neo-socialism is profoundly different from capitalism. …Mr. Kühnert took specific aim at the American dream as a model for individual achievement. …“Without collectivization of one form or another it is unthinkable to overcome capitalism,” he told us.
What makes Kühnert’s view so absurd is that he obviously knows nothing about his nation’s history.
Just in case he reads this, let’s look at the evidence.
Jaap Sleifer’s book, Planning Ahead and Falling Behind, points out that the eastern part of Germany was actually richer than the western part prior to World War II.
The entire country’s economy was then destroyed by the war.
What happened afterwards, though, shows the difference between socialism and free enterprise.
Before…the Third Reich the East German economy had…per capita national income…103 percent of West Germany, compared to a mere 31 percent in 1991. …Here is the case of an economy that was relatively wealthy, but lost out in a relatively short time… Based on the official statistics on national product the East German growth rates were very impressive. However, …the actual performance was not that impressive at all.
Sleifer has two tables that are worth sharing.
First, nobody should be surprised to discover that communist authorities released garbage numbers that ostensibly showed faster growth.
What’s really depressing is that there were more than a few gullible Americans – including some economists – who blindly believe this nonsensical data.
Second, I like this table because it confirms that Nazism and communism are very similar from an economic perspective.
Though I guess we should give Germans credit for doing a decent job on product quality under both strains of socialism.
For those who want to read further about East German economic performance, you can find other scholarly articles here, here, and here.
I want to call special attention, though, to a column by an economist from India. Written back in 1960, even before there was a Berlin Wall, he compared the two halves of the city.
Here’s the situation in the capitalist part.
The contrast between the two Berlins cannot miss the attention of a school child. West Berlin, though an island within East Germany, is an integral part of West German economy and shares the latter’s prosperity. Destruction through bombing was impartial to the two parts of the city. Rebuilding is virtually complete in West Berlin. …The main thoroughfares of West Berlin are near jammed with prosperous looking automobile traffic, the German make of cars, big and small, being much in evidence. …The departmental stores in West Berlin are cramming with wearing apparel, other personal effects and a multiplicity of household equipment, temptingly displayed.
Here’s what he saw in the communist part.
…In East Berlin a good part of the destruction still remains; twisted iron, broken walls and heaped up rubble are common enough sights. The new structures, especially the pre-fabricated workers’ tenements, look drab. …automobiles, generally old and small cars, are in much smaller numbers than in West Berlin. …shops in East Berlin exhibit cheap articles in indifferent wrappers or containers and the prices for comparable items, despite the poor quality, are noticeably higher than in West Berlin. …Visiting East Berlin gives the impression of visiting a prison camp.
The lessons, he explained, should be quite obvious.
…the contrast of the two Berlins…the main explanation lies in the divergent political systems. The people being the same, there is no difference in talent, technological skill and aspirations of the residents of the two parts of the city. In West Berlin efforts are spontaneous and self-directed by free men, under the urge to go ahead. In East Berlin effort is centrally directed by Communist planners… The contrast in prosperity is convincing proof of the superiority of the forces of freedom over centralised planning.
Back in 2011, I shared a video highlighting the role of Ludwig Erhard in freeing the West German economy. Given today’s topic here’s an encore presentation.
Samuel Gregg, writing for FEE, elaborates about the market-driven causes of the post-war German economic miracle.
It wasn’t just Ludwig Erhard.
Seventy years ago this month, a small group of economists and legal scholars helped bring about what’s now widely known as the Wirtschaftswunder, the “German economic miracle.” Even among many Germans, names like Walter Eucken, Wilhelm Röpke, and Franz Böhm are unfamiliar today. But it’s largely thanks to their relentless advocacy of market liberalization in 1948 that what was then West Germany escaped an economic abyss… It was a rare instance of free-market intellectuals’ playing a decisive role in liberating an economy from decades of interventionist and collectivist policies.
As was mentioned in the video, the American occupiers were not on the right side.
Indeed, they exacerbated West Germany’s economic problems.
…reform was going to be easy: in 1945, few Germans were amenable to the free market. The Social Democratic Party emerged from the catacombs wanting more top-down economic planning, not less. …Further complicating matters was the fact that the military authorities in the Western-occupied zones in Germany, with many Keynesians in their contingent, admired the economic policies of Clement Atlee’s Labour government in Britain. Indeed, between 1945 and 1947, the Allied administrators left largely in place the partly collectivized, state-oriented economy put in place by the defeated Nazis. This included price-controls, widespread rationing… The result was widespread food shortages and soaring malnutrition levels.
But at least there was a happy ending.
Erhard’s June 1948 reforms…abolition of price-controls and the replacement of the Nazi-era Reichsmark with much smaller quantities of a new currency: the Deutsche Mark. These measures effectively killed off…inflation… Within six months, industrial production had increased by an incredible 50 percent. Real incomes started growing.
I’ll close with my modest contribution to the debate. Based on data from the OECD and Wikipedia, here’s a look at comparative economic output in East Germany and West Germany.
You’ll notice that I added some dotted lines to illustrate that both nations presumably started at the same very low level after WWII ended.
I’ll also assert that the blue line probably exaggerates East German economic output. If you doubt that claim, check out this 1990 story from the New York Times.
The bottom line is that the economic conditions in West Germany and East Germany diverged dramatically because one had good policy (West Germany routinely scored in the top 10 for economic liberty between 1950 and 1975) and one suffered from socialism.
These numbers should be very compelling since traditional economic theory holds that incomes in countries should converge. In the real world, however, that only happens if governments don’t create too many obstacles to prosperity.
Since I think comparative economics can be very enlightening, I’m quite pleased to see a new study by David Burton of the Heritage Foundation, which uses several metrics to assess the relative merits of socialism and free enterprise.
This is not necessarily an easy task since socialism is a moving target.
Some people still adhere to the technical definition, which means government ownership, central planning, and price controls. While others assume that socialism is high tax rates and lots of redistribution.
Here’s David’s summary.
State ownership of the means of production is the central tenet of traditional socialist or communist thought. Traditional socialist and communist economic policies involve state-owned enterprises and a high degree of state control over all aspects of economic life. Over time, politicians came to understand that they did not need to have legal ownership of, or legal title to, businesses or other property in order to control them by regulation, administrative actions, or taxation. Furthermore, not having legal title meant that they could disclaim responsibility when government control did not work out well. Thus, the meaning of the term “socialist” evolved considerably during the last half of the 20th century to mean a strong state role in the economy, the pursuit of aggressive redistributionist policies, high levels of taxation and regulation, and a large welfare state—but not necessarily government ownership of the means of production.
And I hope everyone agrees with the arguments about individual choice and civil society.
Now let’s look at David’s description of the morality of socialism.
For what it’s worth, I think the final point is the most compelling.
Socialism (whether the technical version or the redistribution version) basically creates a zero-sum game in which people are told it is moral to take from others simply because they produce more.
And this doesn’t necessarily mean the poor taking from the rich. Yes, that’s a big part of it, but there are all sorts of government programs that burden lower-income and middle-class people in order to line the pockets of the well-connected.
I even realize that lots of people like San Francisco, even though it’s too chilly and too urban (and 
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