Kamala Harris Wins the Big-Spender, Free-Stuff Primary

The invaluable John Stossel has an entertaining and informative video that estimates how many handouts are being promised by Joe Biden, Pete Buttigieg, Kamala Harris, Bernie Sanders, Donald Trump, and Elizabeth Warren.

Wow, how depressing.

When I wrote about about the “dangerous seduction of free” a month ago, I apparently underestimated the problem. We have politicians completely divorced from fiscal reality (the “Green New Deal” being a frightening example).

But the key question is whether the American people are actually getting seduced.

It’s not looking good on the Democratic side. Joe Biden is presumably part of the Democratic Party’s anti-socialist wing, which is encouraging. But all the other leading candidates are hard-core big spenders.

And it’s not looking good on the Republican side, either. Trump may not have crazy proposals for new spending, but in practice he’s been profligate. Indeed, I’m guessing he will wind up with a worse record on spending than Obama.

The bottom line is that the public sector already is too large in the United States. Yet we have politicians who want it to become an even bigger burden. In some cases, much bigger.

That has very serious economic consequences. Especially if it coincides with an erosion of societal capital.

For instance, I think some European countries have already reached a “tipping point” because of a dependency mindset.

Historically, the United States has been insulated from that problem because of a belief in personal responsibility. But ever-growing levels of dependency suggest that this advantage is dissipating.

I’ll close with a final observation about the candidates – Sanders, Warren, and Harris – who were identified in the video as advocating trillions of dollars of new spending.

How do they plan to finance this orgy?

• Sanders has a plethora of new taxes, including class-warfare tax increase and middle-class tax increases, so he definitely wants to put our money where his mouth is. In terms of fiscal policy, think of him as Sweden.
• Warren supports a bunch of new taxes, mostly on the rich, most notably a huge wealth tax, which surely would backfire but theoretically is a big source of money. In terms of fiscal policy, think of her as France.
• Harris has some class-warfare tax hikes but is mostly promising a free lunch since there’s a huge mismatch between what she wants to spend and the new taxes she has embraced. In terms of fiscal policy, think of her as Greece.

For what it’s worth, I’m waiting for the Hong Kong candidate.

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Trump’s Greek-Style Budget Deal

I point out in this interview that the 2011 Budget Control Act (BCA) was the only big victory for taxpayers this century. It imposed spending caps on discretionary spending and led to a sequester in early 2013, which was Barack Obama’s biggest defeat.

The bad news is that the BCA is merely legislation. That means politicians can conspire to bust the spending caps – which is what they did at the end of 2013, as well as in 2015, 2018, and again this year.

This most recent deal may be the worst of the worst. The Committee for a Responsible Federal Budget (CRFB) shows that it brings discretionary spending almost up to the level we reached during Obama’s pork-filled stimulus.

By the way, the chart also shows that Bush was a big spender and that we actually had a bit of spending restraint after the Tea Party-themed 2010 mid-term elections.

But let’s focus on today.

Here’s one more chart from CRFB. It shows that Trump is doing a good job of impersonating Obama with huge, across-the-board spending increases.

These charts show why I’m so depressed. And let’s not forget that they are only measures of discretionary spending. The outlook for entitlement spending is even worse!

In other words, we’re on the path to fiscal crisis. Is there a solution?

Yes, we could adopt constitutional restraints on the growth of government. I mentioned Colorado’s Taxpayer Bill of Rights in the interview, as well as the “debt brake” in Switzerland.

But there’s zero chance that today’s crop of politicians will enact this kind of sensible reform. We’ll probably have to wait until a crisis occurs. At which point it may be too late.

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China and Keynesian Economics: A Strategy for Stagnation and Debt

Earlier this month, I commented on a Wall Street Journal report that expressed puzzlement about some sub-par economic numbers in America even though politicians were spending a lot more money.

I used the opportunity to explain that this shouldn’t be a mystery. Keynesian economics never worked in the past, so it shouldn’t be a surprise that it’s not working today.

This is true in the United States, and it’s true in other nations.

Speaking of which, here are some excerpts from a story in the Wall Street Journal about China’s sagging economy.

A strategy by Chinese policy makers to stimulate the economy…hasn’t stopped growth from slowing, stoking expectations that Beijing will roll out more incentives such as easier credit conditions to get businesses and consumers spending. …The breakdown of second-quarter figures shows how roughly 2 trillion yuan ($291 billion) of stimulus, introduced by Premier Li Keqiang in March, is failing to make business owners less risk-averse. …While Beijing has repeatedly said it wouldn’t resort to flooding the economy with credit, economists say it is growing more likely that policy makers will use broad-based measures to ensure economic stability. That would include fiscal and monetary stimulus that risks inflating debt levels. Policy makers could lower interest rates, relax borrowing restrictions on local governments and ease limits on home purchases in big cities, economists say. Measures they could use to stimulate consumption include subsidies to boost purchases of cars, home appliances and other big-ticket items.

This is very worrisome.

China doesn’t need more so-called stimulus policies. Whether it’s Keynesian fiscal policy or Keynesian monetary policy, trying to artificially goose consumption is a dead-end approach.

At best, temporary over-consumption produces a very transitory blip in the economic data.

But it leaves a permanent pile of debt.

This is why, as I wrote just a couple of days ago, China instead needs free-market reforms to liberalize the economy.

A period of reform beginning in the late 1970s produced great results. Another burst of liberalization today would be similarly beneficial.

P.S. Free-market reforms in China also would help cool trade tensions. That’s because a richer China would buy more from America, thus appeasing folks like Trump who mistakenly fixate on the trade deficit. More important, economic liberalization presumably would mean less central planning and cronyism, thus mitigating the concern that Chinese companies are using subsidies to gain an unfair advantage.

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The IMF’s Brexit Analysis: Predictably Shoddy and Politicized

Back in 2016, I wrote “The Economic Case for Brexit.”

My argument was based on the fact the European Union was a slowly sinking ship, both because of grim demographics and bad public policy.

Getting in a lifeboat can be unnerving, but Brexit was – and still is – better than the alternative of continued E.U. membership.

But not everyone shared my perspective.

The BBC reported that year that Brexit would produce terrible consequences according to the International Monetary Fund.

Christine Lagarde said she had “not seen anything that’s positive” about Brexit and warned that it could “lead to a technical recession”. …The IMF said in a report on the UK economy that a leave vote could have a “negative and substantial effect”. It has previously said that such an outcome could lead to “severe regional and global damage”. The Fund said a Brexit vote would result in a “protracted period of heightened uncertainty” and could result in a sharp rise in interest rates, cause volatility on financial markets and damage London’s status as a global financial centre.

Yet none of these bad predictions were accurate.

Not right away and not in the three years since U.K. voters opted for independence.

Not that we should be surprised. The IMF has a very bad track record on economic forecasting. And the forecasts are probably especially inaccurate when the bureaucrats, given the organization’s statist bias, are trying to influence the outcome (the IMF was part of “Project Fear”).

But a history of bias and inaccuracy hasn’t stopped the IMF from continuing to interfere with British politics. Here are some excerpts from a story earlier this week.

Boris Johnson has been warned that a No Deal Brexit is one of the biggest risks facing the global economy. In a broadside against the new Prime Minister’s ‘do or die’ pledge to leave the European Union at the end of October with or without a deal, the International Monetary Fund said a chaotic departure could cause havoc across the world. …No Deal is one of the gravest threats to international economic performance, the IMF said. …Eurosceptics have long criticised the IMF for anti-Brexit rhetoric and it has been one of the loudest opponents of No Deal, saying in April that it could trigger a lengthy UK recession.

I was both disgusted and upset when I read this story.

I don’t like when the IMF subsidizes bad policy with bailouts, and I also don’t like when it promotes bad policy with analysis.

Fortunately, I don’t need to do any substantive number crunching because Professor Steve Hanke of Johns Hopkins University has a superb Forbes column on this exact issue.

No sooner than Boris Johnson put his foot over the threshold of 10 Downing Street, the International Monetary Fund (IMF) offered its unsolicited advice… In a preemptive strike, the Philosopher Kings threw cold water on the idea of a no deal, asserting that it would be a disaster. …such meddling is nothing new for the IMF. Indeed, a bipartisan Congressional commission (The International Financial Advisory Commission, known as the Meltzer Commission) concluded in 2000 that the IMF interferes too much in the domestic politics of member countries.

Professor Hanke is perplexed that anyone would listen to IMF bureaucrats given their awful track record.

…the IMF’s ability to…thrive…is quite remarkable in light of the IMF’s performance. As Harvard University’s Robert Barro put it, the IMF reminds him of Ray Bradbury’s Fahrenheit 451 “in which the fire department’s mission is to start fires.” Barro’s basis for that conclusion is his own extensive research.  His damning evidence finds that: A higher IMF loan participation rate reduces economic growth. IMF lending lowers investment. A greater involvement in IMF programs lowers the level of the rule of law and democracy. And if that’s not bad enough, countries that participate in IMF programs tend to be recidivists. In short, IMF programs don’t provide cures, but create addicts.

This is why I’ve referred to the IMF as the “dumpster fire” of the world economy and also called the bureaucracy the “Dr. Kevorkian” of international economic policy.

By the way, here’s Professor Hanke’s table of the IMF’s main addicts.

I wrote just two weeks ago about the IMF’s multiple bailouts of Pakistan, the net effect of what have been to subsidize bigger government.

Let’s close with more of Professor Hanke’s analysis.

The original reason for its creation has completely vanished.

The IMF, which was born in 1944, was designed to provide short-term assistance on the cheap to countries whose currencies were pegged to the U.S. dollar via the Bretton Woods Agreement. …But, in 1971, when President Richard Nixon closed the gold window, the Bretton Woods exchange-rate system collapsed. And, with that, the IMF’s original purpose was swept into the dustbin. However, since then, the IMF has used every rationale under the sun to reinvent itself and expand its scope and scale. …And, in the process of acquiring more power, it has become more political.

Sadly, he is not optimistic about shutting down this destructive – and cossetted – bureaucracy.

The IMF should have been mothballed and put in a museum long ago. After all, its original function was buried in 1971, and its performance in its new endeavors has been less than stellar. But, a museum for the IMF is not in the cards. …About all we can do is realize that the IMF is a political hydra with an agenda to serve the wishes of the political elites who allow it to grow new heads.

P.S. Here’s my explanation of how the U.K. can prosper in a post-Brexit world.

P.P.S. Here’s some academic research explaining how E.U. membership has undermined prosperity for member nations.

P.P.P.S. If you want Brexit-related humor, click here and here.

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A Bad Mix: China, Trump, and Trade

As I explained last year, Trump is right and wrong about China and trade. He’s correct that China doesn’t play fair, but he mistakenly fixates on the trade deficit rather than going after China’s subsidies and cronyism.

And, as I note in this brief interview from yesterday, he’s making a mistake by not using the World Trade Organization to curtail China’s anti-market policies.

For further information, I wrote a column about the five things everyone should understand about the US-China trade squabble.

But I also think there are two points from the interview that deserve elaboration.

• First, I should not have said the WTO was a “threat” to China. Yes, the Geneva-based organization almost surely would rule against many of China’s policies, but getting rid of subsidies and cronyism would be very beneficial for the Chinese economy. In other words, China would enjoy more growth and prosperity if it had to fix its bad policies in response to adverse WTO rulings. And, of course, the United States and other countries also would benefit as well.
• Second, I want to explain what I meant in my closing point about whether China could “trick Trump.” The best outcome of negotiations is genuine free trade between the US and China, with no subsidies and cronyism to tilt the playing field. But since Trump wrongly fixates on trade balances, I worry that China might seek to preserve its bad policies and instead mollify the president by agreeing to something gimmicky (like purchasing X tons of soybeans or importing Y number of cars).

I’ll close by addressing a common complaint that the WTO would not be an effective vehicle for liberalization.

Given how trade taxes have dropped since the WTO was created, I think this is a very bizarre assertion.

Unlike other international organizations, which have dismal track records, the WTO has actually helped increase economic freedom around the world.

And that’s good news for America. And the rest of the world as well.

The WTO also is willing to stand up to China when it’s wrong. Here are some excerpts from a recent report by Reuters.

China has halted a dispute at the World Trade Organization over its claim to be a market economy, a panel of three WTO adjudicators said on Monday… One trade official close to the case said so much of the ruling had gone against Beijing that it had opted to pull the plug before the result became official. “They lost so much that they didn’t even want the world to see the panel’s reasoning,” the official said. …China had insisted that they treat it as a “market economy”, countering their view that the price of Chinese exports could not be taken at face value due to state interference in the economy. …the United States and the EU…said Chinese goods — especially commodities such as steel and aluminum — were still heavily underpriced because of subsidies and state-backed oversupply.

Last but not least, here’s a chart from the Peterson Institute showing how the United States has been the most active participant in the WTO’s process for dispute resolution.

The bottom line is that both China and the United States will benefit if there’s more economic freedom and less government intervention.

But Trump doesn’t understand trade and China’s leaders don’t want to give up their grip on the allocation of capital. So I’m not holding my breath waiting for a good outcome.

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The Victims of Cuban Socialism

Cuba has a very sad history.

It traded a regular dictatorship for a communist dictatorship six decades ago, and the results have been predictably awful.

Oppression, persecution, rationing, spying, deprivation, and suffering are facts of life in that socialist hellhole.

For a while, it was subsidized by the Soviet Union, but that communist system eventually collapsed. More recently, it’s been subsidized by Venezuela, but now that socialist system also is collapsing.

And this means extra hardship for the people of Cuba.

Jose Nino explains one of the grim consequences of Cuba’s central planning.

Cuba is now implementing a rationing program to combat its very own shortages of basic goods. A CBC report indicates this program would cover basic items such as chicken, eggs, rice, beans, and soap. …When Fidel Castro took control of Cuba in 1959, the Cuban state maintained an iron grip on the economy. For decades, the country has been a communist garrison state with very little respect for property rights… Because of the economic dislocations caused by state control of many industries, the government has had to provide citizens with Libretas de Abastecimiento (supply booklets) to ration out basic goods like rice, sugar, and matches. …Cuba’s recent political behavior indicates that the country’s leadership still does not get basic economics. …After more than 50 years of embracing socialist governance, Cuba will have to learn that it needs to stick to the basic economic principles if it wants to break free from its long-standing cycle of poverty.

Bizarrely, there are still some proponents of the Cuban dictatorship.

Writing for CapX, Kristian Niemietz ponders this lingering semi-support for Cuba on the left.

…socialist experiments usually go through three stages, in terms of their reception by Western intellectuals. The first is a honeymoon period, during which they are widely held up as a glorious example of “real” socialism in action. The second is a period of angry defensiveness, during which some of the system’s failures are acknowledged, but blamed on external constraints. The third stage is the stage of retroactive disowning: intellectuals now claim that the country in question was never socialist, and that it is a cheap strawman to even mention it. The Western reception of the Soviet Union, Maoist China, Vietnam and, more recently, Venezuela followed this pattern to a tee. Cuba, in contrast, is a bit of an outlier, in that the country seems to be permanently stuck somewhere between stages two and three. It may no longer attract widespread enthusiasm, but Cuban socialism has never completely gone the way of Soviet, Maoist, Vietnamese or North Korean socialism.

Robert Lawson and Benjamin Powell have a book about statism and socialism that’s very informative. But also very entertaining.

Here are some excerpts from their chapter about a visit to Cuba.

In government-directed economies, a disproportionate amount of money is spent on what political leaders desire—typically, great Olympic sports teams, and a few showcase hotels and restaurants to impress foreigners. In Cuba’s case, this included the opulent Hotel Nacional… But we were on a mission to see what life was like inside Cuba’s socialist system. We couldn’t experience that by drinking Cuba libres at a fancy resort… Before the revolution, Cuba had a thriving urban middle class, along with widespread rural poverty. Twentieth-century socialists claimed socialism would deliver greater equality and out-produce capitalism by ending wasteful competition, business cycles, and predatory monopolies. Socialism hasn’t delivered the goods it promised in Cuba or anywhere else. Today, Cuba is a poor country made poorer by socialism. Socialism also gives tremendous power to government officials and bureaucrats who are the system’s planners—and with that power comes corruption, abuse, and tyranny. It is no accident that the worst democides of the twentieth century occurred in socialist countries like the Soviet Union, Communist China, and Nazi (National Socialist) Germany.

The book is basically a travelogue, mixed with economic insights that oscillate between amusing and horrifying.

The hotels are no good.

The Hotel Tritón’s decaying edifice was a crumbling tribute to Cuba’s central-planning problems. Cuba had the resources to make large capital investments in state-run enterprises when it received aid from the Soviet Union. But many of these hotels can’t generate enough revenue to sustain the initial investment. Cuban government planners then had to pick which hotels to subsidize to prevent decay. The Hotel Tritón didn’t make the cut. It was rotting, inside and out. And nobody cared because nobody owned it. …In a capitalist economy, entrepreneurs create businesses to make profits, which they earn by pleasing their customers. But in a socialist system, a bureaucrat decides which businesses can open, where they can operate, and what they can sell, and he really doesn’t care what the customer thinks. Adopting a socialist system is like turning your whole economy into a giant Department of Motor Vehicles.

The shopping is no good.

In Central Havana, the lack of commerce unrelated to tobacco, alcohol, or sex was striking. Habaneros lived in these neighborhoods. So where did they shop? …We found one store that was a large open room with high ceilings and cement support columns. …behind a counter, there were shelves with bottles of rum, cases of the local cola, a few canned goods, cartons of eggs, and large sacks of rice next to a scale. A line of Cubans shopped their way down the counter. The place was an odd mix, somewhere between the worst imaginable version of a grade school cafeteria and a grocery in which 95 percent of the stock is depleted.

The dining is no good.

… we decided on our last evening on the island to try a state-owned “Italian” restaurant on the main boulevard between the shitty Hotel Caribbean and the Capitol. We were disappointed to see that Italian meant nothing more than a few basic pizzas and a couple types of pasta, along with the same chicken, pork, seafood, and beef dishes we found everywhere else. We ordered two beers and “mozzarella from the oven” as an appetizer. To say that it was the equivalent of Taco Bell queso with tomato chunks in it would be insulting to Taco Bell. In fact, it was a steaming pot of greasy white goo. … most Cubans can’t afford to eat at the places we ate, and Cuba’s socialist economic system can’t even deliver variety to rich tourists. We were tired of the food after a week. But we could leave; Cubans are stuck with lousy food (outside the private restaurants), limited ingredients, and little variety for as long as they’re stuck with socialism.

And Che is no good.

Unfortunately for Cubans, Che wasn’t nearly as good at planning production as capitalists have been at plastering his image on merchandise. During Che’s stints as head of the National Bank of Cuba, minister of finance, and minister of industry, Cuba not only failed to industrialize (as promised), but its sugar production collapsed and severe rationing was introduced.

But Cubans are very good, at least when they’re out from under the tyranny of socialism.

We were in Little Havana, in Miami. The economic contrast between Little Havana and the real thing began before we even stepped out of our Uber. The half-hour car ride cost us only $13.72 instead of the absurd taxi costs in Cuba. …Unlike stores in Cuba, this store had hundreds of different items for sale. …we headed off to a Cuban restaurant for dinner. The six-page menu contained more options than we had seen from all of the restaurants in Cuba combined. …Cuban cuisine is excellent—just not when it’s served in Cuba. It’s not the Cubans’ fault. It’s the fact that socialism sucks. Cubans under a socialist system remain poor and eat bland food. Ninety miles away, Cubans who live in Miami become relatively rich and make wonderful food. Same people, two different economic systems, two drastically different economic— and gastronomic—outcomes.

By the way, I recommend the book.

There are also chapters about Sweden, Venezuela, North Korea, China, Georgia, and Russia/Ukraine.

My contribution today is this chart showing per-capita economic output in various Latin nations, derived from the Maddison database. At the time of the revolution, Cuba (orange line) was one of the richest nations. Now it has fallen far behind.

It’s always useful to look at decades of data because short-run blips aren’t a factor. Instead, you really learn a lot about which nations are enjoying good growth and which ones are stagnating.

What we’ve learned today is that the people of Cuba are poor because of awful economic policy. Other nations (most of which started in worse shape) have become much richer.

Perfect policy would be great, but even decent policy creates enough “breathing room” for more prosperity. Unfortunately, even that’s not allowed in Cuba.

P.S. For some unintentional Cuban-related humor, see here and here.

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China’s Choice: Statism and Stagnation or Reform and Prosperity

I’ve applauded China’s economic progress.

It’s economic liberty score jumped from 3.64 in 1980 to 6.46 in the most recent edition of Economic Freedom of the World.

That shift toward markets (which started in a village) helped to dramatically reduce poverty and turn China into a middle-income nation.

That’s the good news.

The bad news is that most of China’s economic liberalization (from 3.64 to 6.15) occurred between 1980 and 2003.

Since that time, China’s score has improved at a glacial pace. Moreover, because other nations have been more aggressive about reducing the burden of government, China’s relative ranking has actually dropped (from #88 to #107) since 2003.

Which is why I’ve warned that China needs another burst of pro-market reform if it wants to become a rich country.

Regarding this issue, the Wall Street Journal has a very interesting report about how China is under-performing.

The country’s state-led growth model is running out of gas. A recession or crisis may not be imminent, but the long-run implications are just as serious. Absent a change in direction, China may never become rich. …First, official statistics probably paint too flattering a picture. Per-capita income may be a quarter lower than reported, based on a study of nighttime light co-authored by Yingyao Hu of Johns Hopkins University. …Second, it doesn’t measure up to the economies China seeks to emulate. Taiwan, South Korea and Japan all opened their economies to global trade and investment, enjoyed superfast growth for several decades… In fact, China seems to be slowing sooner than the others.

Why is China underperforming?

Too much statism. Simply stated, the government has too much control over the allocation of labor and capital.

For 30 years the Communist Party opened ever more of the economy to private enterprise, trade, foreign investment and market forces. Yet it never relinquished its commitment to socialism and Mr. Brandt says that since the mid-2000s the government has tightened control over sectors… An inefficient state sector matters less if the private sector grows fast enough. But in recent years, private firms in China have faced multiple headwinds. State-controlled banks prefer to lend to state-owned enterprises… The domestic private sector’s share of total sales has dropped about 5 percentage points since 2016, according to Goldman, while the state sector’s share has risen roughly as much.

By the way, many observers (from the American Enterprise Institute, Peterson Institute for International Economics, the New York Times, the New York Post, and Investor’s Business Daily) echo the concern about China becoming more statist in recent years.

I’ll make a more restrained point.

I’ll start by sharing this very interesting chart from the WSJ story. It shows how China’s growth, while impressive, has not been as rapid as the growth enjoyed by other Asian economies.

If you look below, you’ll see I’ve now augmented the chart to explain why China has under-performed.

On the right side, I’ve added the historical rankings from Economic Freedom of the World. As you can see (and just as theory and evidence teaches us), the other nations on the chart enjoyed more growth because they had more economic freedom.

These numbers reinforce my argument that China needs more pro-market reform. Though I should add the caveat that EFW has added more nations over time, so this comparison overstates the degree to which China is lagging.

But it is lagging. The bottom line is that China needs to copy Hong Kong and Singapore if it wants to become a rich nation. Or even Taiwan, which is an under-appreciated success story.

P.S. Keep in mind that China also faces demographic decline, which makes good policy even more necessary and important.

P.P.S. Amazingly, both the OECD and IMF are trying to sabotage China’s economy.

P.P.P.S. The WSJ story is an example of good reporting. If you want an example of bad reporting about China, check out this bizarre story from the New York Times.

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The Hypocrisy of Bernie Sanders

Two months ago, I pointed out that San Francisco’s housing crisis was a “learnable moment” because some folks on the left actually now understand the negative consequences of government intervention.

Now I’m wondering if we might actually have a learnable moment on the issue of minimum wages for Crazy Bernie.

The Vermont socialist is experiencing something akin to what it’s like to be an entrepreneur or business owner. He’s having to generate revenue for his campaign and figure out the best way to allocate the funds.

And – surprise, surprise – he doesn’t want to pay above-market wages. Which makes him a giant hypocrite since he wants to use government coercion to impose higher minimum wages on the private sector.

Professor Art Carden highlights three things that Bernie should learn from this experience.

Bernie Sanders is having trouble with his unionized–and apparently underpaid–labor force. …the Sanders campaign “will limit the amount of time his organizers can work to guarantee that no one is making less than $15 per hour.” …I see three takeaways. First, …this is pretty much exactly what that story predicts. Firms don’t wish to hire as much labor as workers wish to supply at what is apparently an above-market wage. …Second, a $15 per hour national minimum wage will not be a free lunch, even for the people we claim we want to help. …there are a lot of hidden costs to higher minimum wages, like less-generous fringe benefits and stricter scheduling. A higher minimum wage will…also create a lot of losers: according to the Congressional Budget Office’s median estimate, “…1.3 million other workers would become jobless.” Third, this whole episode should make you more skeptical of socialism, even watered-down “democratic socialism.” …Sanders and his staff are struggling to manage an ideologically homogeneous group of people with similar worldviews…and a very well-defined end goal of “elect Bernie Sanders to the presidency.” Suffice it to say this does not make me confident that they can be trusted to organize something as complex and mind-bogglingly diverse as the US economy

So will this episode teach Crazy Bernie a lesson about the downside of minimum-wage laws?

Will his clueless volunteers now understand there are tradeoffs in the real world and that government can’t make people richer by waving a magic wand?

I won’t hold my breath, but it would be nice.

In the meantime, here’s a great video on the topic by John Stossel.

This confirms all the other research (see here, here, here, and here) we’ve seen on the negative impact of Seattle’s destructive new law.

Let’s close with an amusing Branco cartoon

P.S. Another Democratic presidential candidate also is a big hypocrite.

P.P.S. Actually, there are at least three hypocrites running for the Democratic nomination.

P.P.P.S. Here’s another video reviewing the evidence about Seattle’s job-killing increase in the minimum wage.

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How Women Are Disadvantaged by the Tax Code and Social Security System

I’m not a big fan of the current tax system. I’m also not supportive of America’s bankrupt Social Security system.

The country would be much better off with fundamental reform of both the tax system and Social Security.

Some groups will be reap especially large rewards if that happens.

For instance, a new report from the National Bureau of Economic Research examines the impact of taxes and Social Security on female labor supply.

…we ask to what extent the fact that taxes and old age Social Security benefits depend on one’s marital status discourages female labor supply and affect welfare. …as couples file taxes jointly, the secondary earner in the married couple faces a higher marginal tax rate, which tends to discourage their labor supply. …reduced labor supply does not necessarily imply lower Social Security benefits. Since women have historically been the secondary earners, both provisions tend to discourage female labor supply… to what extent are these disincentives holding it back? …We estimate our dynamic structural model using…data from the Panel Study of Income Dynamics (PSID) and from the Health and Retirement Study (HRS) for the cohort born in 1941-1945 (the “1945” cohort). …we also estimate our model for the 1951-1955 cohort (the “1955” cohort),

This chart from the study shows that married women face a tax penalty – i.e., higher marginal tax rates – compared to single women.

The main takeaway is that this marriage penalty, combined with discriminatory features of Social Security, discourages women from working.

How big is the effect?

The report, authored by Margherita Borella, Mariacristina De Nardi, and Fang Yang, finds that government policies have a significant adverse impact on labor-force participation.

For the 1945 cohort, we find that Social Security spousal and survivor benefits and the current structure of joint income taxation provide strong disincentives to work to married women and single women who expect to get married… For instance, the elimination of all of these marriage-based rules raises participation at age 25 by over 20 percentage points for married women and by five percentage points for single women. At age 45, participation for these groups is, respectively, still 15 and 3 percentage point higher without these marital benefits provisions. In addition, these marriage-based rules reduce the participation of married men starting at age 55, resulting in a participation that is 8 percentage points lower by age 65. Finally, for these cohorts, these marital provisions decrease the savings of married couples by 20.3% at age 66.1 In terms of welfare, abolishing these marital provisions would benefit…over ninety percent of the people in this cohort. …We find that the effects for the 1955 cohort on participation, wages, earnings, and savings are large and similar to those in the 1945 cohort, thus indicating that the effects of marriage-related provisions are large also for cohorts in which the labor participation of married women is higher.

What if these discriminatory policies were fixed?

It depends, of course, on how the problems are addressed.

The report finds that a budget-neutral approach (i.e., returning any budgetary windfall to taxpayers) would be a significant net plus.

…there would also be large aggregate gains from removing marriage related provisions and reducing the income tax… Overall our policy experiments thus indicate that removing marriage related taxes and Social Security benefits would increase female labor supply and the welfare of the majority of the populations.

Here are a couple of charts from the study, showing both an increase in labor supply and an increase in labor income.

I’ll close with a final point about family structure.

Some people will argue that the current penalties in the tax code and Social Security system are desirable because they don’t punish stay-at-home moms as much as working women.

That’s a very strange argument. Sort of like the folks on the left, including the IMF, who advocate policies that hurt the poor if rich people suffer even more.

P.S. If there’s reform, older people also will enjoy significant gains.

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Reckless and Irresponsible: Trump Is Making Big Government Even Bigger

Way back in early 2016, I asked whether Donald Trump believed in smaller government.

A few months later, I concluded that the answer was no. Trump – like Bush and Nixon – was a big-government Republican.

I wish that I was wrong.

But if you look at the budget deal he approved last year, there’s no alternative explanation. Especially since there was an approach that would have guaranteed a victory for taxpayers.

Now it appears that he is on the verge of meekly surrendering to another big expansion of the federal budget.

The Washington Post has a story on the new deal to increase spending.

…the final details of a sweeping budget and debt deal are unlikely to include many — if any — actual spending cuts… The agreement appeared likely to mark a retreat for White House officials who had demanded major spending cuts in exchange for a new budget deal. …instead of the $150 billion in new spending cuts recently demanded by White House acting budget director Russell Vought, the agreement would include a significantly lower amount of reductions. And those reductions aren’t expected to represent actual spending cuts, in part because most would take place in future years and likely be reversed by Congress at a later date. …In practical terms, the budget agreement would increase spending by tens of billions of dollars in the next two years, a stark reversal from the White House’s budget request several months ago… Agreeing on new spending levels also avoids onerous budget caps that would otherwise snap into place automatically under an Obama-era deal, and indiscriminately slash $126 billion from domestic and Pentagon budgets.

The establishment-oriented Committee for a Responsible Federal Budget (CRFB) is aghast at the grotesque profligacy of the purported agreement.

…this agreement is a total abdication of fiscal responsibility by Congress and the President. It may end up being the worst budget agreement in our nation’s history, proposed at a time when our fiscal conditions are already precarious. If this deal passes, President Trump will have increased discretionary spending by as much as 22 percent over his first term… There was a time when Republicans insisted on a dollar of spending cuts for every dollar increase in the debt limit. It’s hard to believe they are now considering the opposite – attaching $2 trillion of spending increases to a similar-sized debt limit hike.

I sometimes differ with the folks at the CRFB because they’re too fixated on debt rather than the size of government.

But in this case, we both find this rumored deal to be utterly irresponsible.

From a liberty-minded perspective, the Wall Street Journal opines about the spendthrift agreement.

House Speaker Nancy Pelosi and Treasury Secretary Steve Mnuchin are negotiating another spending blowout as part of a two-year budget deal, and let’s hope the talks break down. The price could be another $2 trillion in deficit spending… The Budget Control Act of 2011 puts caps on spending that both parties have to agree to lift. In 2018 Congress passed a two-year budget deal that blew out domestic spending by more than $130 billion in exchange for a buildup in defense. The bipartisan spending party is hoping to repeat the exercise for fiscal 2020 and 2021… After the last two-year deal Mr. Trump vowed never to sign another one, but here he is again. …The GOP may…underestimate the political cost of campaigning on another spending deal that increases the size of government. It will be harder to run against the spending plans of Elizabeth Warren or Kamala Harris with Mr. Trump’s first-term spending record.

I’ll close with a chart I prepared based on the numbers for domestic discretionary spending from the Mid-Session Review, as well as Table 8.1 from the Historical Tables, both from the Office of Management and Budget.

The numbers show that we had more fiscal restraint under Obama (blue line) than Trump (orange line). And Trump’s numbers will now be even worse with the new deal.

I added the Excel-generated trendline to show what would have happened if Obama-era policies were maintained.

But since that produced an unrealistic assessment, I also showed (green line) what spending would have looked like if politicians had obeyed commitments from the 2011 Budget Control Act (BCA).

Some of these numbers are back-of-the-envelope calculations, but the bottom line is clear. Trump is worse than Obama on spending.

And that means big tax increases inevitably will be the result.

P.S. When I recently issued a report card for Trump’s economic policy, I gave him a “B-” because I decided his good tax policy outweighed his bad spending policy. If this deal gets finalized, he drops to a “C-” because of the big expansion in the burden of spending.

P.P.S. Trump also is weak on entitlement spending, which is the biggest part of the federal spending burden.

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The Satirical Version of Supply-Side Jesus vs. Socialist Jesus

Yesterday’s column weighed in on the debate whether Jesus was a socialist.

Like Cal Thomas, I don’t think the Bible supports coercive redistribution by government.

Today, let’s look at the same issue, but from a humorous perspective.

For those on the other side of the debate, Socialist Jesus has a very efficient mechanism to collect alms for the poor.

This approach is supported by some parishoners.

From Babylon Bee, we have a story about a disciple of Socialist Jesus.

A lot of Christians are criticized for not being very compassionate to the poor. But you can’t say that about Larry DeManson, a local believer who is so committed to charity for those less fortunate than himself that he always votes for government to steal money from his neighbor and give it to the impoverished. …DeManson no longer has a guilty conscience whenever he sees people in need. “I don’t personally have to do anything,” he said. “The government does it for me.” The man cites the verse “somewhere in James” that says that “true religion before the Father is to forcibly redistribute money from those wealthier than you in order to take care of the poor.”

Now let’s look at an alternative approach.

Except we won’t be sharing insights from Libertarian Jesus.

Instead, courtesy of Imgur, we have the story of Supply-Side Jesus.

And this Supply-Side Jesus is an advocate of trickle-down economics.

He creates lots of jobs.

And he believes in self-sufficiency.

He also opposes class warfare.

Supply-Side Jesus is a fan of the entrepreneur class.

And he understands self-promotion.

But not everyone is happy.

Supply-Side Jesus was in trouble.

But he avoided trouble, thanks to majoritarianism.

Supply-Side Jesus then decided to enter politics.

I don’t know who created this cartoon strip, but kudos for some clever humor (though I imagine practitioners of the “Prosperity Gospel” won’t be amused).

As a general rule, I find that leftists are too dour to create effective political humor (see the Black NRA, for instance). But when they come up with something clever (see here, here, and here), I’m more than willing to applaud.

Even when they mock libertarians!

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Libertarian Jesus vs. Socialist Jesus

As part of my collection of pro-and-con libertarian humor, I’ve shared some images of “Libertarian Jesus.”

• Libertarian Jesus I
• Libertarian Jesus II (though I suppose this is actually an example of anti-Libertarian Jesus)
• Libertarian Jesus III

There’s another perspective, of course. Many mainline protestant denominations have very statist political agendas, and there’s a “liberation theology” strain of Catholicism.

Some of these people even might argue that Jesus was a socialist. Back in 2009, I shared some excerpts from a skeptical column by Cal Thomas on this topic. Today, let’s take a deeper look.

In a video for Prager University, Larry Reed looks at the Bible to determine whether Jesus was a socialist.

I’m certainly not an expert on theology, but I definitely liked Larry’s point about the warning against envy in the 10 Commandments.

After all, “Thou shall not covet” certainly seems inconsistent with class-warfare policy.

Let’s see what others have written on this topic.

In her Wall Street Journal column, Mary Anastasia O’Grady explains that socialism, with its emphasis on the collective, is inconsistent with Catholic religious teaching.

Socialists pose as humanitarians and sometimes even as Christians but their system strangles the person, who is at the heart of Catholic teaching. Catholic University of America research fellow Father John McNerney, author of “Wealth of Persons” (2016), describes the “real wellspring” of human progress as emanating from “the unique, irreplaceable and unrepeatable . . . reality of the individual acting in relation to his neighbor.” …Economists understand that the profit motive is integral to entrepreneurship. But it is about much more than material gains. Father McNerney illustrates the point in his book with the story of Agnes Morrogh-Bernard, a Sister of Charity who worked in the west of Ireland in the aftermath of that country’s notorious 19th-century famine. Starvation had wiped out whole communities, when not physically, spiritually. …Sister Agnes recognized that “mere philanthropic handouts could not recover” the annihilated Irish spirit. The community needed a creative outlet; it needed work. …Agnes’s “entrepreneurial acumen,” Father McNerney writes, was “the spark that ignited the bright star of a small industry in post-famine Ireland.”

Writing for FEE, Randy England opines on what is found in the Bible

Jesus spoke many times of the poor. He talked about the last judgment when he would commend those who help others, especially the poor… He said it was easier for a camel to go through the eye of a needle than for a rich man to get into heaven… Jesus’ exhortations to help the poor have been used as arguments for the redistribution of wealth from the rich to the poor. …Jesus looked to personal charity and the state of the rich man’s heart. …It is notable that Jesus never even hinted that third parties or the state should forcibly redistribute the rich man’s wealth. On the one occasion when Jesus was presented with an opportunity to work an equal distribution of wealth, he quickly declined… Instead, he warned against greed while declining to play the busybody.

In other words, Jesus wasn’t a socialist. Or, if we want to be more accurate (since he presumably didn’t have any views about government ownership, central planning, or price controls), he wasn’t a redistributionist.

At least not if that required government coercion.

P.S. Also from the humor collection, President Trump disagrees with Jesus.

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

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Elizabeth Warren’s Dirigiste Plan for Wall Street

I’m constantly surprised by what happens in the world of politics. I didn’t think Donald Trump had any chance of winning in 2016, yet I was obviously wrong.

I also thought Elizabeth Warren’s political career would be crippled after people found out she fraudulently claimed Indian ancestry to gain special preferences in hiring at law schools. Yet she’s now a serious candidate to be the Democratic nominee in 2020.

So, instead of political prognosticating, I’ll stick with policy analysis, which is what I do in this clip from an interview about Sen. Warren’s plan to give Washington more power over capital markets.

If you want specifics on her plan, this Politico story has lots of detail, and this CNN report also has plenty of information.

I’ve previously written about some of the provisions, such as Glass-Steagall and carried interest, so today I want to focus on the broader point from the interview.

Every single economic theory agrees that saving and investment play a key role in long-run growth and higher living standards. But who controls and directs how capital is allocated?

I prefer competitive markets, which reward decisions that make us more prosperous.

The socialists, by contrast, think government can directly control how capital is allocated. At the risk of understatement, that approach doesn’t have a good track record.

Elizabeth Warren prefers an indirect approach, which involves lots of regulation, taxation, red tape, and intervention. This cronyist approach also is misguided. Her corporatist agenda unavoidably will hinder the efficient (i.e., growth maximizing) allocation of capital and also reduce the overall level of saving and investment.

And that translates into less income for workers.

By the way, my disagreement with Sen. Warren’s policy agenda does not mean I have a pro-Wall Street perspective.

In the past, I opposed the TARP bailout and the Dodd-Frank regulatory expansion, both of which were supported by the big players on Wall Street.

And I currently oppose the Fed’s easy-money policy and also want to remove the tax code’s preference for debt, which again puts me on the other side from the big players on Wall Street.

The bottom line: I support economic liberty, not big business.

P.S. Here’s some political humor that will be very appropriate if there’s a Trump-Warren race next year.

P.P.S. Here’s some satire regarding Warren’s class warfare.

P.P.P.S. On a serious note, I strongly recommend Kevin Williamson’s analysis of Warren’s fake populism.

P.P.P.P.S. And I recommend my own work on Warren’s mistaken viewpoints on corporate taxation and corporate governance.

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Taxes Are Unpleasant and Obamacare Is Awful, but there’s a Strong Case for the Cadillac Tax

When I followed public policy in my younger days, I periodically would see stories about legislation that was approved by the House of Representatives with only one dissenting vote.

My memory isn’t perfect, I’m sure, but it seems that Ron Paul was always that lonely member. And my recollection is that he was (as usual) always on the correct side, voting for liberty and against government.

Something similar happened yesterday, except this time six members of Congress voted against a repeal of the “Cadillac Tax” that is part of Obamacare.

It was an eclectic group, but it included Justin Amash and Chip Roy, who are two of the most committed and principled supporters of free markets and limited government in Congress.

I freely admit that this is not a slam-dunk issue. After all, it’s almost always a good idea to lower taxes and almost always a good idea to jettison provisions of Obamacare.

But since the healthcare exclusion is arguably the most damaging loophole in the tax code and a major cause of ever-rising costs (because of “third-party payer“), there’s actually a very strong case – from both sides of the ideological spectrum – for retaining the Cadillac Tax.

From the right, I recommend this analysis from Alan Viard at the American Enterprise Institute.

…employer-provided health insurance gets a big tax break. Workers pay income and payroll taxes on their cash wages, but not on their health insurance benefits. …the tax break is poorly targeted because it applies even to high-cost “Cadillac” health plans. The tax system should not artificially encourage Cadillac plans, which boost demand for medical services and drive up health care costs for everyone. Although the Cadillac tax does not directly change the tax break for high-cost employer plans, it offsets the break by imposing a separate 40 percent tax on those plans. That round-about approach is far from ideal, but it gets the job done. …the Cadillac tax has won support from economists across the ideological spectrum.

From the left, here’s some of what Bruce Bartlett wrote for the New York Times.

Although obviously a form of income to the worker, the Internal Revenue Service nevertheless ruled that it was not taxable, although businesses could still deduct the cost. This anomalous tax treatment was a fabulous tax loophole for both businesses and workers… Congress codified the I.R.S. ruling.. Various tax expenditures for health cost hundreds of billions of dollars in lost revenue per year, according to the Congressional Research Service. Eliminating them could finance a significant reduction in tax rates. …If the Republicans are serious about using tax reform to improve the competitiveness of American businesses, the best thing they can do is reform employer-based health insurance.

For honest folks on the left, they should be motivated by the fact that this exclusion overwhelmingly benefits upper-income taxpayers.

This chart from the Tax Policy Center has the details about this reverse form of class warfare.

I’m more concerned about the fact that the healthcare exclusion is bad policy. Along with Medicare, Medicaid, and other forms of government intervention, it has crippled free markets and contributed to a very inefficient and costly healthcare system.

Like other loopholes, it should be repealed. But not so politicians get more money.

Every single penny should be returned to taxpayers as part of pro-growth tax reform that lowers marginal tax rates and reduces the tax bias against saving and investment.

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Green New Deal: Cronyism on Steroids

From a macroeconomic perspective, President Obama’s so-called stimulus was a flop. The federal government borrowed and redistributed almost $1 trillion, yet the economy stagnated.

From a microeconomic perspective, the faux stimulus may have been an even bigger failure. One of the worst features was the laughable and scandal-ridden green energy program, which featured corrupt boondoggles such as Solyndra.

Well, if you liked Solyndra, you’ll love the “Green New Deal,” a proposal to dramatically expand Washington’s power over the private economy.  As I explained in an article for the American Conservative, the plan introduced by Congresswoman Alexandria Ocasio-Cortez (AOC) is cronyism on steroids.

Looking at Representative Alexandria Ocasio-Cortez’s Green New Deal, one is reminded of Voltaire’s comment that the Holy Roman Empire was neither holy, nor Roman, nor an empire. But that might be slightly unfair. There is some Green in the GND, though the ideas aren’t New, and it’s definitely not a Deal. At least not for taxpayers. …budget gurus have examined the GND wish list and they calculate that the 10-year cost could reach $90 trillion. That’s trillion, not billion—a staggering amount of money. For all intents and purposes, Ocasio-Cortez wants to expand the burden of federal spending from 21 percent of economic output to about 50 percent of economic output. …The economic implications of these policies are horrifying. The GND would mean Greek-style fiscal policy in the United States, with concomitant economic stagnation.

But it’s not just bad fiscal policy.

The scheme would give politicians and bureaucrats immense powers to micro-manage the productive sector of the economy.

It’s equally important to consider how the GND would dramatically expand Washington’s power over the economy—above and beyond new taxes and higher spending. …the government would be obliged to end any and all reliance on fossil fuels and shift the nation to 100 percent renewable energy. …the government would be obliged to provide universal and unrestricted access to health care for everyone. …the government would be obliged to provide everybody with a job that includes generous benefits, including paid vacations and a comfortable retirement. …the government would be obliged to create a nationwide system that was so quick and so effective that commercial air travel could be ended. …the government would be obliged to gut and rebuild every single structure in the country so that they all met a zero-net-carbon goal.

What would this mean?

A feeding frenzy of well-connected special interests at the expense of ordinary taxpayers, which would be very unseemly.

That’s the direct cost.

But from an economic perspective, what matters is that labor and capital increasingly would be allocated by political forces (i.e., cronyism) rather than market forces (i.e., the preferences of consumers).

For all intents and purposes, the GND is a form of central planning. Not full Soviet style steering of the economy, but nonetheless a step in that direction.

And this indirect costs imposed by this approach wouldn’t be trivial.

Every single one of these costly ideas will serve as a magnet for consultants, contractors, administrators, and others who will want to profit by “helping” to implement the various pieces of the GND. For those who remember the corruption and cronyism of the Obama administration’s green energy program (part of the failed stimulus), Ocasio-Cortez wants to do the same thing. But far more extensive. …what happens if the “invisible hand” of consumer-driven competition is replaced (or substantially weakened) because politicians adopt something like the Green New Deal? …market forces will get squeezed as politicians directly allocate resources in the economy. …cronyism and regulation undermine the free market just as taxes and spending undermine the free market. The mechanism—direct versus indirect—isn’t the same, but in both cases the preferences of consumers no longer drive the economy.

The bottom line is that the GND is a corporatist scheme using the environment as a pretext.

If you don’t believe me, just look at what AOC’s top aide said about the proposal.

The chief of staff for Rep. Alexandria Ocasio-Cortez stated that her signature Green New Deal was not really about saving the planet after all. In a report by the Washington Post, Saikat Chakrabarti revealed that “it wasn’t originally a climate thing at all … we really think of it as a how-do-you-change-the-entire-economy thing.” …The Green New Deal itself was fraught with complications in its February roll-out, which included confusing language and contradictions in the “Frequently Asked Question” section. …The Green New Deal, which some estimated could cost upwards of $93 trillion to enact, also promised “economic prosperity for all.”

Refreshingly honest on the part of Mr. Chakrabarti, but also a stark warning to the rest of us.

By the way, the excerpt mentions the “confusing language” in the original GND documents. I would call is terrifying language. This section is particularly crazy.

David Harsanyi highlighted 10 of the most bizarre provisions in a column for the Federalist.

It is not hyperbole to contend that GND is likely the most ridiculous and un-American plan that’s ever been presented by an elected official to voters. …the plan’s authors assure us that this “massive transformation of our society” needs some “clear goals and a timeline.” The timeline is ten years. Here are some of the goals: …Ban affordable energy. …Eliminate nuclear energy. …Eliminate 99 percent of cars. …Gut and rebuild every building in America. …Eliminate air travel. …A government-guaranteed job. ….Free education for life. …A salubrious diet. …A house. …Free money. …Bonus insanity: Ban meat.

And remember, all these provisions are enforced by politicians and bureaucrats repressing market forces and replacing them with political pull.

Alex Brill of the American Enterprise Institute summarizes why this is a bad idea.

…funding allocations will undoubtedly be determined by political forces rather than market forces. …final allocation will depend on the relative clout of the lawmakers and will inefficiently differ from the allocations that consumers and producers would demand. In short, the Green New Deal would be a deficit financed expansion of federal bureaucratic power to dictate investment decisions in one of the most dynamic sectors of the economy. …further centralizing energy market decisions puts at risk the free market economy that our nation has relied on for economic growth for more than two centuries.

Exactly right, which is why the GND would translate to fewer jobs and lower living standards.

Here are two real-world examples from the Wall Street Journal showing why green cronyism is a bad idea.

The first is from the United States.

…consider the public housing projects near Rep. Alexandria Ocasio-Cortez’s New York office. The New York City Housing Authority (Nycha)…is switching to LED lighting, which lasts longer than incandescent bulbs and consumes less energy. Sounds smart, until you see how many union workers it takes to screw in a light bulb. One recent project focused on 23 housing developments, and changing the light bulbs and fixtures there cost $33.2 million. Supplies account for a fraction of that cost. Under Nycha’s Project Labor Agreement, electricians make $81 in base pay and $54 in fringe per hour, and overtime is usually time and a half. Add administrative and contracting expenses. All in, Nycha paid an average of $1,973 per apartment to install LEDs. …In the private economy, $1,973 could go a long way toward improving a dilapidated apartment. Only in the world of green government spending is replacing light bulbs for two grand a unit a cost-saving measure.

Don’t forget, by the way, that light bulbs also are more expensive once government is part of the equation.

The second is from Australia.

The Green New Deal…calls among other things for “upgrading all existing buildings in the United States…” We’ve tried it in Australia—on a much smaller scale—and it didn’t go well. On Feb. 3, 2009, Labor Prime Minister Kevin Rudd and his treasurer, Wayne Swan, announced the Energy Efficient Homes Package. “To support jobs and set Australia up for a low carbon future the Rudd Government will install free ceiling insulation in around 2.7 million Australian homes…” There were only 250 registered insulation businesses in Australia when the package was announced. That number quickly blew out to 7,000 because the government was handing out free money to installers. …They received their rebates directly from the government rather than from homeowners, who therefore had little incentive to check if the work had been done well or even at all. …Almost every insulation job went right up to the $1,600 cap, regardless of size or ceiling area. …Nearly 100 houses caught fire. …In February 2010, a year after the Energy Efficient Homes Package was announced, it was abandoned.

I also recommend this column about what happened in Germany.

Let’s close with a bit of humor.

Our first example is a modification of the famous map of the Korean Peninsula showing the difference between capitalism and communism.

In this case, however, we show a “successful” low-carbon economy.

By the way, some people don’t get the joke. Jeffrey Sachs actually ranks hellholes such as Cuba ahead of the United States in part because impoverished people don’t consume much energy.

And some environmentalists put together a grotesquely misnamed “Happy Planet Index” that also ranked the grim disaster of Venezuela ahead of America.

To conclude, here’s a cartoon strip that nicely summarizes how the GND is fueled.

In other words, the middle class will pay a lot more if AOC’s scheme is ever adopted.

P.S. Donald Trump is also at least somewhat guilty of wanting to replace market forces with government intervention.

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Two Things to Understand about Debt Limit Hysteria

One of the few theoretical constraints on Washington is that politicians periodically have to raise a “debt ceiling” or “debt limit” in order to finance additional spending with additional red ink.

I have mixed feelings about this requirement. I like that there is some limit on spending, even if it’s only a potential restraint.

On the other hand, fights over the debt limit are mostly just opportunities for Republicans and Democrats to engage in posturing and finger pointing rather than adopt positive reforms.

Moreover, the scholarly research clearly suggests that spending caps are the only effective fiscal rule, so what’s the point of having a debt limit if potential spending restraint never turns into actual spending restraint?

Catherine Rampell of the Washington Post looks at the current fight and opines that we shouldn’t even have a debt limit.

The government is about to run out of money because of an arbitrary cap on how much it can borrow… Lawmakers and the White House are haggling over  the conditions under which they will, once again, temporarily raise that cap, known as the debt ceiling. But the better solution would be to abolish it entirely… Most recently, the government hit the official debt limit on March 1 . Since then, the Treasury Department has engaged in “extraordinary measures” to shift money around and continue paying its bills… Initially Treasury predicted that its extraordinary measures would get us to October, but more recent forecasts suggest we will hit the wall as soon as early September. Which means the drop-dead deadline before we become global deadbeats could happen while Congress is away on summer vacation.

She worries that a failure to raise the debt ceiling could have very negative consequences.

So what happens if we default on our debt obligations? Well, for one, it would violate the Constitution, which says the “validity of the public debt of the United States . . . shall not be questioned.” No small thing. …U.S. debt instruments are currently considered the safest of safe assets because creditors believe they’ll be paid back on time and in full. …Calling our creditworthiness into question could therefore set off a chain reaction of global financial panic.

I agree.

Defaulting on the debt (i.e., not paying bondholders what they’ve been contractually promised) would be very damaging to financial markets.

In reality, however, what we’re really talking about is potentially a delay in making promised payments. Which would be harmful, though presumably not nearly as bad as long-run default.

And even a delay in payments might not happen if the Treasury Department made sure that tax revenue was set aside to make all promised payments to bondholders.

Though Ms. Rampell doesn’t like this idea, which is sometimes called “prioritization.”

Some right-wingers…have in the past suggested  that defaulting is no big deal, perhaps even desirable. They (mistakenly) think that a debt default would allow those in charge to unilaterally decide which bills deserve payment and which don’t, bypassing the democratic budget process.

I’m not sure why she says prioritization is a “mistaken” view.

I testified to Congress about this issue in 2013 and in 2016. If the debt limit isn’t raised, meaning no ability to issue new debt, that would be the same as an overnight balanced budget requirement (i.e., spending could only equal current tax revenue).

If that happened and Treasury made sure to prioritize interest payments (to avoid the potentially bad results Ms. Rampell and others warn about), who would have the power to stop that from happening?

I’m guessing lawsuits would be filed, but I can’t imagine a judge would issue an injunction to require a default.

Let’s dig deeper into this issue. Back in 2017, when a similar fight occurred, Heather Long of the Washington Post identified five reasons to worry.

Unless Trump and Congress pass a law raising the U.S. debt limit — a legal cap on how much the U.S. government is allowed to borrow — the Treasury Department will soon run out of money to pay its bills, triggering a first-in-modern-U.S.-history default that threatens to turn the world economy on its head. …The danger…is that at some point someone will miscalculate and the government will actually hit the debt limit, sparking a default, intentional or otherwise. Here are five reasons that would cause global panic.

How persuasive are these reasons?

First, it would trigger a wild ride for stocks and bonds. Wall Street doesn’t like bad surprises. …There would probably be an immediate, negative reaction in the markets.

If there’s an actual default, that would be horrible news.

If there’s a temporary default, that also would be bad news, though presumably far less catastrophic than a permanent default (though some will fan the flames of hysteria).

Second, America’s cheap funding source would end. …As soon as the United States actually defaults, investors would start suing the country, and they would almost certainly insist on much higher interest rates in the future.

Interest rates surely would climb because of the perception of added risk for investors.

Though I wonder by how much. I think Italy is heading toward a fiscal/financial crisis, yet investors are buying up plenty of that government’s debt at very low interest rates.

Third, real people won’t get paid. …The Trump administration would have to either stop payments to everyone or they would have to pick who gets paid and who does not. That means deciding between bondholders, Social Security recipients, welfare recipients, …etc.

Interesting, Ms. Long accepts that prioritization would happen.

For what it’s worth, I’m guessing bondholders and Social Security recipients would be at the front of the line.

Fourth, America’s global power would decline. …The U.S. dollar is the world’s reserve currency. People carry dollars and hold U.S. bonds all over the world because they believe America is their best and safest bet. A default would probably cause the value of the dollar to drop and global investors to shift some money out of U.S. assets.

This is an interesting claim.

The U.S. dollar is the world’s reserve currency.

Does drama over the debt limit, or even a temporary default, lead investors to shift, en masse, to another currency?

Perhaps, though I don’t see an alternative. The euro is compromised because the European Central Bank surrendered its independence by engaging in indirect bailouts of some of Europe’s decrepit welfare states.

The Chinese financial system is too debt ridden and too opaque to give investors confidence in that nation’s currency. And other nations are simply too small.

Fifth, a recession is possible. …hitting the debt limit could cause a sharp drop in markets and sentiment around the world as everyone worries that if the United States defaults, who’s next? Investors might start panicking and ditching bonds of other countries in Europe and Asia, too.

These are all reasonable concerns.

It all depends, of course, whether there’s a temporary default and how long it lasts.

And since we may be in the midst of a debt bubble fueled by easy money, any triggering event could lead to very bad outcomes.

Which is why it would make sense for lawmakers to embrace prioritization. There has been legislation to make that happen.

For what it’s worth, it should be quite feasible to prioritize.

Here’s the latest 10-year forecast from the Congressional Budget Office. As you can see from the parts I’ve circled, the government is projected to collect far more revenue than would be needed to fulfill obligations to bondholders.

To be sure, prioritization means that some recipients of federal largesse would have to wait in line. This would be unseemly and unwelcome, but it already happens in profligate states such as Illinois without causing any economic or fiscal disarray.

Who knows, maybe politicians would even decide that it’s time to jettison some federal programs. But since I understand “public choice,” I won’t be holding my breath awaiting that outcome.

I’ll close with two observations.

The first, which I’ve already discussed, is that a failure to increase the debt limit should not result in default. Unless, of course, the Treasury Department wants that to happen. But that’s inconceivable, which is why I fully expect prioritization if we ever get to that point.

The second is that debt limit fights are messy and counterproductive, but I don’t want it abolished since there’s a chance that one of these battles eventually may force politicians to deal with our fiscal mess – thus saving the country from a future Greek-style economic and fiscal meltdown.

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Norway, Sweden, Socialism, and the Welfare State

The Nordic nations punch above their weight in global discussions of economic policy.

Advocates of bigger government in the United States, such as Bernie Sanders, claim that those countries are proof that socialism can work.

But there’s a big problem with that claim. The Nordic nations don’t have any of the policies – government ownership, central planning, or price controls – that are characteristics of a socialist economy.

But they do have high taxes and big welfare states. And since some politicians seem to think America should copy those policies, let’s see what we can learn by examining the Nordic nations.

NIma Sanandaji, writing for Foreign Policy, highlights what is good – and not so good – about government policy in the region. He starts by looking specifically at Norway.

Erlend Kvitrud, a member of the Norwegian Green Party, links democratic socialist economic policies and Nordic countries’ prosperity. …the left has for decades showcased the Nordic nations as proof that socialism can work not only in theory but also in practice. …Inconveniently for fans of the Nordic welfare model, though, Norway’s actual economic success rests on its wealth of natural resources. …Norway’s oil fund is the world’s largest sovereign wealth fund, worth around $200,000 per citizen. It wasn’t Norway’s social democratic economic policies that created the country’s wealth. It was nature. …The other Nordic countries, which lack Norway’s oil and natural gas riches, have lower living standards than the United States.

He’s certainly correct in highlighting the role of oil wealth in Norway.

And he also points out that Norway became a successful and prosperous nation before the welfare state was imposed.

What’s more, the Nordic countries’ social successes predate their high-tax, high-social spending policies. …economists Anthony Barnes Atkinson and Jakob Egholt Sogaard shows that most of the progress toward income inequality in Norway and Sweden happened before 1970, at a time when the two countries had low tax regimes and less redistributive policies. Similarly, the Nordic countries’ social successes were more pronounced in those years. Relative to the rest of the world, for example, they had a greater advantage in life span and child mortality in 1970 than they do today. In other words, the Nordic model arose after those countries were already prosperous and egalitarian.

These are all good points, but I think Nima actually overlooks one very powerful argument.

Yes, per-capita GDP in Norway is very similar to the United States, but gross domestic product is an imperfect measure of living standards. The data in relatively small economies can be misleading if there is a particular sector that distorts national statistics – such as financial services in Luxembourg or corporations in Ireland.

That’s why, if you want to measure the prosperity of households, it’s best to review the OECD’s data on “actual individual consumption.”

I’ve shared that data for all developed nations in the past, and the Council of Economic Advisers recently did a specific comparison of the United States and Nordic nations.

Norway is still impressive, ranked higher than its neighbors, but not in the same league as the United States.

By the way, in another article, this time for National Review, Nima explains that America actually has more women in management than any of the Nordic nations.

Science Daily once bluntly stated that “the Nordic countries are the most gender equal nations in the world.” There is some truth to this. …A common assumption is that the gender-equality progress of the Nordics is due to their social-democratic welfare policies. …The truth is that Nordic countries have a long history of gender equality, stretching back to the time of the Vikings. …One might expect this to translate into many women reaching the top of the business world. But this clearly is not the case. …the share of women among managers, as recorded by the International Labour Organization, is 43 percent in the United States, compared with 36 percent in Sweden and 28 percent in Denmark. …a pattern emerges: Those with more extensive welfare-state policies have fewer women on top. Iceland, which has a moderately sized welfare state, has the most women managers. Second is Sweden, which has opened up welfare services such as education, health care, and elder care for private-sector competition. Denmark, which has the highest taxes and the biggest welfare state in the modern world, has the lowest share of women in managerial positions. …The true lesson, that a large welfare state actually can impede women’s progress.

Let’s return to the big-picture economic comparisons.

Professor Hannes Gissurason of the University of Iceland authored a report on the Nordic model for the Foundation for European Reform.

It’s a very detailed study covering lots of issues.

The five Nordic countries, Sweden, Denmark, Finland, Norway, and Iceland, are rightly regarded as successful societies. They are affluent, but without a wide gap between rich and poor. They provide social security, but without a significant erosion, it seems, of their freedoms. They are small, but they all enjoy a good reputation around the world as peaceful, civilised democracies. The Nordic nations are healthy and well-educated and the crime rate is low. But what is it that other nations can learn from the Nordic success story?

For today, let’s focus on the third chapter, which look at three distinct eras of Swedish economic history.

…a distinction can be made between three Swedish models. The liberal model was developed in the mid-19th century, when liberal principles of free trade and unfettered competition were generally accepted and implemented in Sweden. The years between 1970 and 1990 were the heyday of the social democratic welfare model, although it had of course started its development much earlier and was to last for a few more years. The third model emerged in the 1990s after the experience of the social democratic model: this was the liberal welfare model.

The first era, which was based on classical liberal principles of free markets and limited government, is when Sweden became rich.

It was the liberal model which made Sweden wealthy, as Swedish economist Nima Sanandaji has well documented. Between 1870 and 1936, Sweden enjoyed the highest growth rate in the industrialised world… What produced the astonishing growth after 1870 was the introduction of economic freedom into a relatively poor society, but with strong traditions of self-reliance, hard work, thriftiness, and respect for the law and a high level of education. Money was sound, with the Swedish krona being on the gold standard… The environment was friendly to business and taxes were relatively low, even after the Social Democrats took over. In 1955, for example, tax revenues in Sweden, as a proportion of GDP, were the same as in the US, 24%.

The second era is when Sweden shifted to what some people call democratic socialism, but more accurately should be called the era of big government.

There were high taxes and lots of redistribution programs. And, not surprisingly, this led to economic stagnation.

…In 1975, tax revenues, as a proportion of GDP, had risen to 39% in Sweden, but was still only 25% in the US… In 2004, 38 of the largest companies in Sweden were entrepreneurial which means that they had been started as privately owned enterprises within the country. …Only two had been formed after 1970. While the public sector grew, the private sector stagnated. Between 1950 and 2000, the Swedish population grew from seven to almost nine million. Incredibly, the net job creation in the private sector during this period was close to zero. All the new jobs were in the public sector. …Many entrepreneurs left the country, including the founders of IKEA, Tetra Pak, and H&M.

Big government undermines initiative and weakens economic performance.

The study includes this data on how Swedes get richer in America than they do back home.

All this bad news created the conditions for the third era, which featured market-based reforms – regardless of which party or parties were in control of government.

Reluctantly, the Social Democrats started some reforms, deregulating credit and foreign exchange markets and changing the tax system, lowering marginal income tax from 73% to 51% and the capital gains tax to 30%. In 1991 a non-socialist government was voted in again. Now it was also anti-socialist, and it immediately abolished the wage earner funds… energy, postal, telephone, railway, and airline markets were all deregulated. …The government introduced school vouchers, sold stateowned companies, and carried out reforms in the labour market, especially designed for small businesses and private job agencies. The government also allowed for some choice in health care and assistance to the elderly. …when the Social Democrats returned to power in 1994…welfare benefits were cut; a new pension system was established, partly with self-funded pensions; collective bargaining was reformed; the inheritance tax was abolished. The centre-right government which was in power 2006–2014 continued liberalising the Swedish economy: the wealth tax was abolished, …property rights were strengthened, and the corporate tax was cut to 22%.

In other words, for the past twenty or so years, Sweden has been a leader in pro-market reforms.

Yes, there’s still a big government. But not as big as it used to be.

Yes, there are still high taxes. But not as high as they used to be.

And what’s the lesson we can learn?

This chart is very persuasive. It shows how Swedish prosperity, measured relative to the United States, declined during the era of big government.

But there’s been some convergence ever since policy makers started liberalizing the Swedish economy.

And we see a similar pattern if we compare Sweden to all other industrialized nations.

P.S. A very interesting study suggests that widespread migration to America made Sweden more statist.

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Pakistan: A Case Study of IMF Malfeasance

I’ve labeled the International Monetary Fund as the “dumpster fire” of the world economy.

I’ve also called the bureaucracy the “Dr. Kevorkian” of international economic policy, though that reference many not mean anything to younger readers.

My main complaint is that the IMF is always urging – or even extorting – nations to impose higher tax burdens.

Let’s look at a fresh example of this odious practice.

According to a Reuters report, IMF-supported tax increases are provoking economic strife in Pakistan.

Markets and wholesale merchants across Pakistan closed on Saturday in a strike by businesses against measures demanded by the International Monetary Fund… Markets and wholesale merchants across Pakistan closed on Saturday in a strike by businesses against measures demanded by the International Monetary Fund. …Prime Minister Imran Khan’s government..is having to impose tough austerity measures having been forced to turn to the IMF for Pakistan’s 13th bailout since the late 1980s. …Under the IMF bailout, signed this month, Pakistan is under heavy pressure to boost its tax revenues.

I’m not surprised the private sector is protesting against IMF-instigated tax hikes.

We see similar stories from all over the world.

But what really grabbed my attention was the reference to 13 bailouts. Good grief, you would think the IMF bureaucrats would learn after five or six attempts that they shouldn’t throw good money after bad.

That being said, I wondered if the IMF was pushing for big tax hikes because they had demanded – and received – big spending cuts in exchange for the previous 12 bailouts.

So I went to the IMF’s World Economic Outlook Database to peruse the numbers…and I discovered that the IMF’s repeated bailouts actually led to big increases in the burden of spending.

The IMF’s numbers, which go back to 1993, show that outlays have tripled. And that’s after adjusting for inflation!

Looking closely at the chart, I suppose one could argue that Pakistan was semi-responsible up until the turn of the century. Yes, the spending burden increased, but at a relatively mild rate.

But the brakes definitely came off this century. Enabled by endless bailouts from the IMF, Pakistan’s politicians definitely aren’t complying with my Golden Rule.

I’ll close with one final point.

The IMF types, as well as others on the left, actually want people to believe that Pakistan should have a bigger burden of government spending.

According to this novel theory, the public sector in the country, which currently consumes more than 20 percent of GDP, is too small to finance the “investments” that are needed to enable more prosperity.

Yet if this theory is accurate, why is Pakistan’s economy stagnant when there are prosperous jurisdictions with smaller spending burdens, such as Hong Kong, Singapore, and Taiwan?

And if the theory is accurate, why did the United States and Western Europe become rich in the 1800s, back when governments only consumed about 10 percent of economic output?

This video tells you everything you need to know.

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Is Democratic Socialism Better than other Types of Socialism?

I’ve repeatedly warned about the downsides of socialism, calling it “evil and stupid,” as well as a “dreary failure.”

Though these debates can be frustrating because of vague definitions.

Some people, when they talk about socialism, are referring to government ownership, central planning, and price controls.

Others, by contrast, are referring to Scandinavia’s market-based welfare states.

And there’s also a distinction to be made between Marxist socialism and less totalitarian versions.

Speaking of which Joseph Stiglitz opined in the Washington Post about the benefits of so-called democratic socialism.

…no one in the United States is advocating a government takeover of coal mines or oil fields — not Ocasio-Cortez, not Sanders, not anybody. …the extremes of capitalism and its dysfunction have given rise to questions such as: Can capitalism be saved from itself? …American democratic socialists — or call them what you will — is simply advocating a model that embraces government’s important role in social protection and inclusion, environmental protection, and public investment in infrastructure, technology and education. They recognize the public’s regulatory role in preventing corporations from exploiting customers or workers… Millennials respond to the label “democratic socialist” in a pragmatic way. They say, if it means ensuring a decent life for all Americans, then we’re for it. …many of these ideas have the support of a majority of Americans, especially the young.

I don’t doubt that many people respond favorably to polling questions about getting things for free.

Even the young. Maybe especially the young.

Indeed, the desire to get something for nothing is the Achilles Heel of democracy.

But does any of that mean socialism works?

Professor Ilya Somin of George Mason Law School is appropriately skeptical.

He explains why socialism imposed by a democratically elected government won’t be any more successful than the totalitarian forms of socialism.

Historically, socialism—defined as government control over all or most of the economy—has led to mass murder, poverty, and oppression on an enormous scale. …The current horrible oppression in Venezuela…is just the latest iteration of the same pattern. …current advocates of democratic socialism argue that this awful record isn’t relevant to their proposals. …we are assured that latter-day socialists don’t actually mean to impose government control over the means of production. They just want greatly increased regulation and welfare state spending. Unfortunately, the…expansion of government power advocated by modern socialists is so great that it would put most of the economy under state control, even if much industry formally remained under private ownership. It goes far beyond any Scandinavian precedent. …The standard agenda favored by most democratic socialists –  single-payer health care, universal free college, and a guaranteed federal job for anyone who wants one—would cost some $42.5 trillion over a ten year period ($4.25 trillion per year). …many enterprises would officially remain under private ownership, implementation of the democratic socialist agenda would ensure that the federal government controls the lion’s share of actual economic resources.

Professor Somin warns that the Sanders/AOC agenda would push America way to the left of the Nordic nations.

Often, their agenda is analogized to the policies of Scandinavian nations, which have large welfare states, but remain relatively prosperous and free. …The democratic socialist agenda goes well beyond the Nordic nations advocates sometimes cite as models. While these countries have comparatively large welfare states, they combine them with low levels of regulation and high openness to international trade. To take just one example, none of the Nordic nations have a national government-mandated minimum wage. The Nordic nations actually come close to the United States (and occasionally even outscore it) on standard measures of economic liberty. Iceland (slightly ahead of the US) and Denmark (slightly behind) were statistically indistinguishable from the US in the latest Index of Economic Freedom ranking put out by the conservative Heritage Foundation. Finland and Sweden were only slightly lower. When Danish Prime Minister Lars Løkke Rasmussen tried to explain to Bernie Sanders that his country is not actually socialist, the latter should have listened.

I’ve made similar arguments about relatively high levels of economic liberty in Scandinavia, so I obviously think this is spot on.

Somin also speculates that democratic socialism in America may morph into totalitarian socialism. Which is what’s happened in Venezuela. And may happen to Greece.

I worry that he’s right, particularly since redistribution erodes societal capital.

Though I hope he’s wrong.

In any event, that’s a secondary issue. At least for now.

What matters today is that politicians are promising lots of freebies. Notwithstanding the “investment” argument made by Stiglitz and others, those new handouts will undermine prosperity.

And that’s true regardless of whether the additional spending is financed with new taxes or new debt (or printing money).

 

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A Lesson from China about Growth and Shared Prosperity

I’ve just finished up a week of teaching at Northeastern University in Shenyang, China.

I mostly taught public finance and explained issues such as marginal tax rates, double taxation, the Rahn Curve, the Laffer Curve, and the fiscal implications of demographic change.

I also gave a lecture on comparative economics and looked at nations that converged or diverged over several decades. And this lecture included some material on China’s impressive (but still incomplete) reforms and subsequent growth.

The goal of the classes was to make the students aware of key issues rather than to proselytize.

But one thing I noticed in the class discussions is that students were under the impression that capitalism was mostly for the benefit of the rich.

I tried to preemptively deal with that question by recycling my charts showing how poverty fell dramatically after China shifted toward free markets.

That’s very compelling data, as far as I’m concerned, but I’m not overly confident the students were similarly impressed.

So in future years, I think I’m going to steal some data from Professor Ken Schoolland, who was also part of the faculty.

It’s from a xerox, so the resolution isn’t the best, but This data showing changes in income distribution between 1980 and 2008 is very powerful.

As you can see, almost everybody was very poor back in 1980, which was about when China began liberalizing its economy.

By 1995, a significant share of the population climbed out of poverty.

And the 2008 numbers show that a majority of the population was middle class or above.

Very impressive. It seems a rising tide does lift all boats.

To be sure, China hasn’t turned into a mainland version of Hong Kong. It’s not even close to Taiwan.

But you don’t need perfection. Chinese data confirms that partial reforms (what I call giving an economy “breathing room“) can generate significant benefits.

P.S. There’s also data on how incomes have expanded over time for both the United States and the entire world.

P.P.S. Much to my dismay, I forgot to inform the student about how the IMF and the OECD want to sabotage China’s economy.

Addendum: Thanks to @Mike Mendyke for a much cleaner version of the visual.

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Joe Biden: Providing another Great Moment in Left-Wing Hypocrisy

I wrote last month about a group of leftist millionaires who said they should pay more in taxes.

My response was to ask why they aren’t taking advantage of the existing process that allows them to send extra money to the federal government? There’s even a special website that facilitates payments from people who want to voluntarily pay more tax.

Yet, in a glaring example of hypocrisy, these rich statists won’t “put their money where their mouths are.”

Now we have a new example of a rich leftist who says one thing and does another.

And he happens to be a former Vice President of the United States. Tax Notes reports that Joe Biden, who says he wants higher taxes if he wins the 2020 presidential election, has been very aggressive about minimizing the amount of his money that is taken by the IRS.

Former Vice President Joe Biden’s tax returns show he took advantage of a planning strategy that the Obama administration tried to shut down. The planning technique involves the use of an S corporation to allow only a small portion of an individual’s earnings to be subject to self-employment tax. On the portion that isn’t on the hook for self-employment taxes, in some cases it can also escape the 3.8 percent net investment income tax for high-income earners enacted into law during the Obama administration. “It’s truly astounding to me that Biden would take such an aggressive position while contemplating a run for president,” Steven Rosenthal of the Urban-Brookings Tax Policy Center said. “I don’t get it,” he added. …Biden, who is now a Democratic presidential candidate for 2020, released federal and state tax information on June 9 showing he and his wife, Jill, earned millions from speaking and writing engagements since leaving office.

Interesting, there are some Democrats who have chosen not to take advantage of this strategy.

…before becoming president, Barack Obama earned income as an author but listed it on Schedule C, subjecting it to self-employment tax. Sen. Elizabeth Warren, D-Mass., similarly earned income as author and listed the amounts on Schedule C.

What makes Biden’s hypocrisy so remarkable is that the Obama-Biden Administration proposed to make this type of avoidanceillegal.

In its proposed fiscal 2017 budget, the Obama administration would’ve expanded the 3.8 investment to passthrough income so it wouldn’t escape the 3.8 percent tax based on a technicality. The provision, included in a section entitled “loophole closers,” would have raised $271.7 billion over 10 years, according to the Treasury Department’s analysis of the proposal.

So Biden wanted to take away the right of other people to protect their money, yet he is perfectly happy to copy their tax-minimization tactics.

By the way, I should say, quite emphatically, that Biden made the right choice for his family.

Voluntarily giving more money to Washington would be wasteful and reckless. I’m not going to claim that politicians in D.C. are the worst people in the country. But I will assert that they’re the ones with the worst incentive to use money wisely.

In any event, there’s definitely something distasteful about a rich leftist politician behaving like a “greedy capitalist” in his private life. Especially since this politician in the past has asserted that it’s patriotic to pay more tax!

Does this make him a fiscal draft dodger? Is there smoke coming out of the Hypocrisy Meter?

And if so, does that mean John Kerry also is unpatriotic? And what about Bill and Hillary Clinton?

Though Governor Pritzker of Illinois may be the most aggressive example of taxes-for-thee-but-not-for-me.

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Heartwarming Stories of Civil Disobedience

I was delighted to learn in 2013 that an overwhelming majority of Americans would disobey if politicians passed laws to confiscate private firearms.

And we have firsthand evidence from Colorado and Connecticut that gun owners engage in widespread civil disobedience.

But people elsewhere in the world also have a bit of rebelliousness. Here are some excerpts from a column in Reason about what’s been happening in New Zealand.

New Zealand’s government—which also stepped up censorship and domestic surveillance after bloody attacks on two Christchurch mosques earlier this year—is running into stiff resistance to new gun rules from firearms owners who are slow to surrender now-prohibited weapons and will probably never turn them in. Officials should have seen it coming. …As of last week, only around 700 weapons had been turned over. There are an estimated 1.5 million guns—with an unknown number subject to the new prohibition on semiautomatic firearms—in the country overall. Traditionally relaxed in its approach to firearms regulation, and enjoying a low crime rate, New Zealand has no firearms registration rule. That means authorities have no easy way of knowing what guns are in circulation or who owns them. “These weapons are unlikely to be confiscated by police because they don’t know of their existence,” Philippa Yasbek of Gun Control NZ admitted. “These will become black-market weapons if their owners choose not to comply with the law and become criminals instead.”

Congrats to the Kiwis.

The spirit of civil disobedience exists throughout the Antipodes.

That gun owners would, in large numbers, defy restrictions should have been anticipated by anybody who…glanced across the Tasman Sea to Australia. “In Australia it is estimated that only about 20% of all banned self-loading rifles have been given up to the authorities,” wrote Franz Csaszar, professor of criminology at the University of Vienna, after Australia’s 1996 compensated confiscation of firearms following a mass murder in Port Arthur, Tasmania. Csaszar put the number of illegally retained arms in Australia at between two and five million. “Many members of the community still possess grey-market firearms because they did not surrender these during the 1996–97 gun buyback,” the Australian Criminal Intelligence Commission conceded in a 2016 report. “The Australian Criminal Intelligence Commission continues to conservatively estimate that there are more than 260,000 firearms in the illicit firearms market.”

Congrats to the Aussies.

For what it’s worth, the Australian government hasn’t undertaken a big effort to round up guns. And I also don’t think the New Zealand government will mount a big campaign. Maybe they’ve watched this Reason video?

I’ll close with examples of noncompliance in America.

The Old West desert town of Needles, California,…is gaining notoriety… Leaders have declared it a “sanctuary city” for people who believe California’s strict gun laws have encroached too much on their constitutional right to keep and bear arms. The City Council in the town of 5,000 that borders Arizona and is a few miles from the southern tip of Nevada last month unanimously declared Needles a “2nd Amendment Sanctuary City.” …This effort is part of a national trend of officials in more conservative areas resisting tougher state gun laws. In New Mexico, more than two dozen sheriffs in predominantly rural areas vowed to avoid enforcement, equipped with supportive “Second Amendment Sanctuaries” resolutions from county commissions. In Washington, sheriffs in a dozen counties said earlier this year that they won’t enforce the state’s sweeping new restrictions on semi-automatic rifles until the courts decide whether they are constitutional.

P.S. I also shared encouraging polling data on public attitudes about gun control in 2015.

P.P.S. And this polling data from cops in 2013 also gives me a reason to be optimistic.

P.P.P.S. Last but not least, don’t forget that jury nullification is another way for individual Americans to fight bad laws.

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Keynesian Economics and Journalistic Malpractice

Given the repeated failures of Keynesian economic policy, both in America and around the world, you would think the theory would be discredited.

Or at least be treated with considerable skepticism by anyone with rudimentary knowledge of economic affairs.

Apparently financial journalists aren’t very familiar with real-world evidence.

Here are some excerpts from a news report in the Wall Street Journal.

The economy was supposed to get a lift this year from higher government spending enacted in 2018, but so far much of that stimulus hasn’t shown up, puzzling economists. Federal dollars contributed significantly less to gross domestic product in early 2019 than what economic forecasters had predicted after Congress reached a two-year budget deal to boost government spending. …Spending by consumers and businesses are the most important drivers of economic growth, but in recent years, government outlays have played a bigger role in supporting the economy.

The lack of “stimulus” wasn’t puzzling to all economists, just the ones who still believe in the perpetual motion machine of Keynesian economics.

Maybe the reporter, Kate Davidson, should have made a few more phone calls.

Especially, for instance, to the people who correctly analyzed the failure of Obama’s so-called stimulus.

With any luck, she would have learned not to put the cart before the horse. Spending by consumers and businesses is a consequence of a strong economy, not a “driver.”

Another problem with the article is that she also falls for the fallacy of GDP statistics.

Economists are now wondering whether government spending will catch up to boost the economy later in the year… If government spending were to catch up in the second quarter, it would add 1.6 percentage points to GDP growth that quarter. …The 2018 bipartisan budget deal provided nearly $300 billion more for federal spending in fiscal years 2018 and 2019 above spending limits set in 2011.

The government’s numbers for gross domestic product are a measure of how national income is allocated.

If more of our income is diverted to Washington, that doesn’t mean there’s more of it. It simply means that less of our income is available for private uses.

That’s why gross domestic income is a preferable number. It shows the ways – wages and salaries, small business income, corporate profits, etc – that we earn our national income.

Last but not least, I can’t resist commenting on these two additional sentences, both of which cry out for correction.

Most economists expect separate stimulus provided by the 2017 tax cuts to continue fading this year. …And they must raise the federal borrowing limit this fall to avoid defaulting on the government’s debt.

Sigh.

Ms. Davidson applied misguided Keynesian analysis to the 2017 tax cut.

The accurate way to analyze changes in tax policy is to measure changes in marginal tax rates on productive behavior. Using that correct approach, the pro-growth impact grows over time rather than dissipating.

And she also applied misguided analysis to the upcoming vote over the debt limit.

If the limit isn’t increased, the government is forced to immediately operate on a money-in/money-out basis (i.e. a balanced budget requirement). But since revenues are far greater than interest payments on the debt, there would be plenty of revenue available to fulfill obligations to bondholders. A default would only occur if the Treasury Department deliberately made that choice.

Needless to say, that ain’t gonna happen.

The bottom line is that – at best – Keynesian spending can temporarily boost a nation’s level of consumption, but economic policy should instead focus on increasing production and income.

P.S. If you want to enjoy some Keynesian-themed humor, click here.

P.P.S. If you’re a glutton for punishment, you can watch my 11-year old video on Keynesian economics.

P.P.P.S. Sadly, the article was completely correct about the huge spending increases that Trump and Congress approved when the spending caps were busted (again) in 2018.

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Bizarre Moments in Taxation

Every so often, I share very weird stories about government regulations, from both America and around the world. And when I say weird, I’m not exaggerating.

But we also have some strange examples of tax loopholes.

I’m not talking about corporate jets, which should be characterized as a business expense.

Instead, I’m referring to bizarre examples of income that is arbitrarily exempt from tax.

The weirdest example in the United States is from Nevada (probably because politicians have a conflict of interest).

Today I want to write about a new tax loophole in Poland.

Polish lawmakers have approved a measure that would exonerate most workers under the age of 26 from income taxes… The bill would exonerate workers under the age of 26 from Poland’s 18 percent personal income tax for those whose gross earnings don’t surpass 85,500 zlotys (20,000 euros, $22,500) per year. That level is higher than Poland’s average income… Some two million people could benefit from the measure.

So what’s motivating this example of age-based tax discrimination?

Poland has long been haemorrhaging skilled workers to other EU states where they can find better paying jobs, posing both a long-term demographic risk and short-term problem finding enough labourers to continue the country’s streak of economic growth since the fall of communism in 1989.

I certainly agree that Poland faces a demographic challenge (along with other nations in Eastern Europe), both because of emigration and low birth rates.

And I also agree that Poland’s economy has been relatively successful since escaping the evil of communism.

But I’m not very confident that this policy is the right recipe for continued prosperity.

• First, I don’t like discrimination in the tax code, whether based on the source of income, the use of income, the level of income, or – in this case – the age at which income is earned.
• Second, this policy doesn’t affect social insurance taxes and value-added taxes, which are actually the biggest burden for ordinary workers in many Eastern European nations.
• Third, unless Poland’s government imposes some spending discipline, a tax preference for young people may lead to higher taxes on other groups, thus offsetting any economic benefit.

To be sure, I’m glad Poland is addressing the issue by lowering taxes rather than by creating new programs and subsidies, as we’ve seen in some other European nations.

I’m simply not expecting big results.

P.S. You can click here to peruse other oddball examples of international tax policy.

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Socialism Humor

Given the misery that it has inflicted on the world, it’s just about impossible to think of socialism as a gift.

However, when I want new material for my humor collection, I think of socialism as the gift that keeps on giving. The ideology is such a failure that it creates a target-rich environment for satire.

Such as this funny t-shirt.

Reminds me of the Churchill quote about the socialism.

Next we an image that mocks socialism, though it’s actually not humorous.

It’s sad that socialism is ruining nations such as Venezuela, and it’s downright tragic that there’s so much terrible suffering. But at least it gives us the opportunity to share this meme.

Last but not least, if you follow the news closely, you may have seen that Nike decided that it wouldn’t sell sneakers adorned with the flag designed by Betsy Ross.

Why would they do something like that? Because Colin Kaepernick somehow decided that flag is a racist symbol.

For those who want to understand that crazy decision, I strongly recommend this column by Jonah Goldberg.

But if you simply want to laugh at Nike, this bit of satire from Babylon Bee is must reading.

Nike has released a new patriotic shoe just in time for the Fourth of July: the Sanders Air Marx, the official, signature shoe of Senator Bernie Sanders. …The shoes pack in all kinds of useful features for people living in a socialist regime, including…ActiveShrink technology helps the shoe shrink right along with you as you wither away from starvation… Breadline Padding Plus helps you stand in breadlines for hours hoping the government is generous enough to give you some food… The shoes are completely edible and can be boiled into soup or gruel in a pinch… The shoes are not available for purchase but will be given from Nike according to their ability to each customer according to their needs. …The Sanders Air Marx is only available in one size, as Sanders remarked: “who needs a choice of shoe size when there are starving children in the world?”

And here’s the new sneaker for the discerning socialist shopper.

It’s the little touches that make this so clever, including a Venezuela flag.

P.S. I can’t imagine any company would ever actually try to sell a sneaker like this. Then again, I never would have imagined that dupes and apologists would be walking around with trendy Che Guevara t-shirts.

P.P.S. Here’s another Churchill quote about socialism.

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A Great Moment in Local Government

San Francisco used to be famous for cable cars.

Now it’s getting well known for its “poop patrol” and maps that warn people about the ubiquitous presence of human excrement.

Why are people defecating on city sidewalks? Because there’s a major problem with government-created homelessness thanks to rent control and zoning restrictions.

And homelessness gives us our topic for today because we have an astounding example of government waste.

More specifically, a story from the San Francisco Chronicle nicely summarizes the efficiency and competence of the public sector.

An experiment to put a homeless shelter in a San Francisco public school gym has so far been a costly failure, …costing taxpayers about $700 for each person who spends the night. …only five families have used the facility at 23rd and Valencia streets in the Mission, with an average occupancy of less than two people per night… The facility is completely empty several nights each month, Kositsky said, although shelter workers are on-site seven nights a week and through holidays, whether anyone shows up or not.

I’ve been to San Francisco many times. Hotels are not cheap.

But I’ve never had to pay anywhere close to $700 per night.

Though maybe this San Francisco program is a bargain since it costs the state $1.3 million per year to house a homeless person.

So why did the city create this boondoggle? For the same reason that many programs are created. Politicians and bureaucrats exaggerated about a problem.

Supervisor Hillary Ronen and the school’s administrators…advocated for the shelter, saying there were dozens of families facing homelessness at Buena Vista Horace Mann who needed someplace to sleep. The principal at the time, Richard Zapien, said he had identified 60 families in unstable housing.

But here’s a passage that captures the real story.

This program was created to funnel money to a non-profit group and I wouldn’t be surprised to learn that officers of this group are supporters (campaign cash, get-out-the-vote, etc) of the politicians who created the program.

The city has been paying the nonprofit Dolores Street Community Services $40,000 per month to manage the shelter, and if it were to be successful, would spend up to $900,000 per year to serve up to 20 families at a time with all-night staffing, food and support services to help them find permanent housing.

In other words, we have another example of how government is a racket.

No matter how flawed and foolish a program may be, never forget that it’s putting unearned money in the pockets of some group of people. And that group of people know how to play the game, since they then recycle some of the loot back to the politicians.

Politicians don’t care if the money is wasted. They don’t care if there’s rampant fraud.

They’re simply buying votes. With our money.

P.S. There is a sure-fire way of reducing this kind of corrupt behavior, but don’t hold your breath expecting it to happen.

P.P.S. Though you may want to hold your breath if you visit the city.

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New Job Numbers and the Trump Economy Vs Obama Economy

When comparing the Obama economy and the Reagan economy, I often used a database from the Minneapolis Federal Reserve that compared jobs and growth data during business cycles.

That made sense since both presidents had an economic expansion that began relatively early in their tenures.

But what about comparing Obama and Trump? The Minneapolis Fed data isn’t overly useful since we’re in the same expansion that began during the Obama years.

To avoid that methodological problem, some people have been comparing the final years of the Obama Administration with the early years of the Trump Administration.

Let’s do the same thing using the just-released jobs data from the Bureau of Labor Statistics. The unemployment rate is only 3.7 percent, which is certainly good news. But the employment-population ratio is a better gauge of the real strength of the jobs market.

But those numbers don’t tell us much. They’ve been improving during the Trump years, but not in a way that seems different than the trend that was underway in Obama’s final years.

What about if we look at income data instead of employment data?

The Wall Street Journal has an editorial comparing the fate of workers under both administrations.

Time to wake up from the Barack Obama economy, folks, and admit how many more Americans are prospering from the faster economic growth and tighter labor market after the policy changes of 2017. …the economic expansion reached its 10th anniversary, the longest on record. But the accounts ignore that the last two years have been far different than the first eight in economic policies and results. We’re long enough into the Trump era to track the differences. ……Average hourly earnings for production-level manufacturing workers have grown at an annual rate of 2.8% during the Trump Presidency compared to 1.9% during Barack Obama’s second term.

The WSJ shares data on income growth in key states, and it certainly seems that Trump deserves bragging rights.

The WSJ also argues that Trump’s policies have been beneficial for minorities.

The jobless rate for blacks is 6.2%, which is only 2.9 percentage-points higher than for whites versus a 4.6 percentage-point difference before the start of the 2008 recession. Unemployment has fallen twice as much among blacks as whites since December 2016. Nearly one million more blacks and two million more Hispanics are employed than when Barack Obama left office, and minorities account for more than half of all new jobs created during the Trump Presidency. Unemployment among black women has hovered near 5% for the last six months, the lowest since 1972, and a mere 3.5% of high school graduates are unemployed. …The Trump Administration…policy mix of deregulation and tax reform has unleashed more private investment and job creation that has lifted productivity and wages for the non-affluent. The result has been faster growth and less inequality.

All this is positive news, but I’m not quite as hopeful about Trump’s policies as the WSJ.

The numbers are accurate, though I’m not sure whether we should give all the credit to Trump since it would be more accurate to say that policy has moved only marginally in the right direction.

Yes, tax policy and regulatory policy has moved in the right direction, but we’re moving in the wrong direction on spending policy and trade policy. And maybe monetary policy as well.

What’s the overall effect?

I gave Trump a report card last year. Here’s an updated version, along with grades for Obama.

Trump’s GPA is higher, but it’s not as if either one of them was a good student.

And before people berate about today’s supposedly strong economy, don’t forget that we may be in a bubble fueled by debt and easy money.

P.S. Speaking of grades, this satirical college transcript may be my favorite example of anti-Obama humor.

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What We Should Be Celebrating on the 4th of July

For my annual Independence Day columns, I sometimes try to make serious points, such as last year when I shared the very wise words of Calvin Coolidge, who is probably America’s most-underappreciated president.

Or when I wrote about the proper meaning of patriotism, as I did in 2010 and 2014.

Other years, I celebrate July 4 with some humor, such as my sarcastic Declaration of Dependency in 2011.

Or some cartoons about Obamacare vs. American principles the following year.

For 2019, let’s mix seriousness and satire.

We’ll start with the former. John Stossel’s column for Reason explains what Americans should be celebrating.

We have reason to celebrate. The Fourth honors the founding of America. It’s the anniversary of the day in 1776 that the Declaration of Independence was approved. The Declaration was important. It didn’t say that America would be the best country because it would have the biggest military, toughest leaders, most government giveaways, or tightest borders. The great innovation that day in Philadelphia was the declaration that the United States would have a limited government, rooted in the idea that every individual has inalienable rights. …It was America’s emphasis on limited government—wanting to make sure no one in government would ever again wield power like that of the British king—that made our revolution the greatest and most lasting success of recent centuries. …France created revolutionary committees that murdered dissenters. Russia replaced its czar with a communist police state that confiscated farms, killing millions. …America happened—and continues to happen—spontaneously, when its leaders are smart enough to just stay out of our way. America will do best if we remember that the Declaration of Independence talks about limited government and reminds us that every individual has inalienable rights.

Amen.

Reminds me of what Reagan said.

One of the key takeaways is that American ideals are inspiring, but government policies often leave much to be desired.

Harry Stewart, one of the famed Tuskegee Airmen, has a great essay in the Wall Street Journal on patriotism even when your government is flawed.

On June 27, 1944, I graduated from Tuskegee Army Flying School, established in Alabama shortly before America’s entry into World War II to train young African-American men as Army combat pilots. …The train ride down South was eye-opening for a teenager who’d never traveled far from New York. When the train crossed the Mason-Dixon Line, the conductor came by and pointed at me: “Move to the colored car.” It was disconcerting, but I saw it as an unavoidable hurdle to earning my wings. I swallowed hard and kept going. …You weren’t just learning to fly; you were serving your country, and you were going to fight. …I flew 43 combat missions with the 332nd Fighter Group… Our commander was the legendary Benjamin O. Davis Jr., who had endured four years of the silent treatment from white cadets at West Point but nevertheless managed to graduate 35th out of a class of 276. …His convictions were encapsulated in his statement: “The privileges of being an American belong to those brave enough to fight for them.” …I am proud that I contributed to the cause. We called it winning the Double V, victory against totalitarianism abroad and institutional racism at home. July 4 is my birthday, but I celebrate my country’s birthday too. America was not perfect in the 1940s and is not perfect today, yet I fought for it then and would do so again.

There’s a lesson in those words for Colin Kaepernick.

Now let’s enjoy some satire, though combined with a serious message.

Bryan Riley of the National Taxpayers Union has a July 4th-themed column on Trump’s destructive trade taxes.

…the next round of tariffs symbolizes just how un-American this trade war has become. …on $300 billion in imports, would include tariffs on tea and fireworks. They might as well be considering a tax on bald eagles. …the 1773 Boston Tea Party was a response to England’s 3 pence per pound tariff on tea imported from China. As President John F. Kennedy observed, “When the people of Boston in 1773 threw cargoes of tea into the harbor, the American Revolution was in effect under way, symbolized by this revolution against a tariff–a tariff which meant taxation without representation.” …As we celebrate our country’s 243rd birthday, let’s also celebrate the American patriots who are following in the footsteps of our country’s founders by opposing costly new tariffs. …As we celebrate our country’s 243rd birthday, let’s also celebrate the American patriots who are following in the footsteps of our country’s founders by opposing costly new tariffs.

Reminds me of the clever AAF visual on how government makes it more expensive to celebrate today.

Last but not least, here’s an alien learning about the long-term consequences of America’s fight for independence, which began as a tax revolt.

Taxation without representation wasn’t very appealing, but the cartoon makes a very good point about the downside of taxation with representation.

Which is a good opportunity to remind everyone why America’s Founders were wise to create a republic rather than a majoritarian democracy.

Too bad the Supreme Court, most recently with Obamacare, has failed in its job to protect economic liberty.

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The Continuing Battle against Cronyism at the Export-Import Bank

One of the worst examples of Washington cronyism is the Export-Import Bank, which has provided subsidies for big companies that sell to foreign buyers.

Corrupt firms such as Boeing and General Electric argue that they need help from the Ex-Im Bank in order make those sales.

Is that true?

Interestingly, we had a real-world test earlier this decade when the Ex-Im Bank was temporarily shut down and then, after re-opening, was largely unable to provide subsidies to big corporations.

So what happened? Veronique de Rugy of Mercatus explains that exporters did just fine when the Ex-Im Bank was curtailed.

Back in 2015, there was widespread agreement in Congress that the Export-Import Bank — the U.S. government’s export credit agency — was nothing but a crony bank, mostly serving the greedy interests of Boeing and other large companies. As a result, Congress let the bank’s charter expire. It was reauthorized a few months later but in a much-diminished form, operating at 15% capacity. …A thorny problem for those supporting Ex-Im’s revival is that we now have nearly a half-decade’s worth of data on what happened to U.S. exports, economic growth, jobs and beneficiaries while the institution was mostly dormant between 2015 and 2019. During that time, …its activities dropped from $21 billion in 2014 (the last year the bank functioned at full capacity) to $3.6 billion in 2018. …Back in 2014, 65% of the bank’s activities benefited 10 giant companies. Boeing alone got 40% of Ex-Im’s largesse. On the foreign side, the bank’s clients belong to a who’s who list of large, wealthy, successful and often state-owned companies. …Most of this profligacy ended between 2015 and 2018. During that time, the share of funding that benefited large firms dropped by 93%. …once Ex-Im stopped extending giant deals to giant companies, American taxpayers’ liability fell from $112 billion in 2014 to $72.5 billion in 2018. U.S. exports continued to grow without being impacted whatsoever by Ex-Im limitations, and many beneficiaries of the bank had their best year ever in 2018, demonstrating that none of these subsidies are necessary for their success.

Sadly, the Ex-Im Bank is now back in business (and President Trump deserves a big chunk of the blame).

But its charter has to be renewed this year.

There’s no chance of killing the program, but there may be an opportunity to at least curtail its power and authority.

Negotiations on Capitol Hill have produced a compromise package between the top Democrat and top Republican on the House Financial Services Committee.

But not everyone is a fan. The Washington Examiner opined that the deal should be rejected.

House Financial Services Chairwoman Maxine Waters, D-Calif., has drafted a bill that would expand the Ex-Im Bank, rename it, free it from oversight, and charge it with a handful of irrelevant liberal mandates. The committee’s top Republican, Rep. Patrick McHenry, R-N.C., has unfortunately agreed to Waters’ bill. …Republicans should outright reject Waters’ proposal. It’s pitched as a compromise, but the Senate GOP has no reason to compromise. Either fix Waters’ bill or let the Ex-Im Bank’s charter expire in the fall. The “reforms” in Waters’ bill are weak tea. They don’t do anything to steer the Ex-Im Bank away from being welfare for America’s largest corporations.

So did House Republicans kill the deal, which should have been an easy decision?

Not exactly. According to a Politico report, House Democrats stopped it.

But not because they’re opposed to corporate welfare. They rebelled because they want a deal that’s even worse.

House Financial Services Chairwoman Maxine Waters on Wednesday shelved a bipartisan Export-Import Bank bill that sparked a fierce backlash from her own caucus… The delay raises questions about the fate of the beleaguered bank, which, without action by Congress, will see its operating charter lapse in September. …the original compromise she drafted with McHenry ignited criticism from a wide swath of the Democrats on the committee… They objected to new restrictions that would be imposed on the bank and big manufacturers such as Boeing, that benefit from its loan guarantees… Rep. Denny Heck (D-Wash.)…had been raising concerns about sections of the bill that would impose new disclosure requirements on major manufacturers and restrict the agency from providing financial support for deals with Chinese state-owned enterprises. …The restrictions turned out to be one of the biggest sticking points for Democrats. …The bank is only now returning to full operation after years of being hobbled by conservative Republican lawmakers who criticized the agency as engaging in “crony capitalism” and posing a risk to taxpayers.

The moral of the story is that big government and big business shouldn’t be in bed together.

The federal government shouldn’t redistribute money, and it’s especially offensive to have programs that give handouts to rich and powerful companies.

And it’s not just the Ex-Im Bank.

• Look at the way the major pharmaceutical companies and big insurance companies got into bed with the White House to line their pockets via Obamacare.
• And examine how big financial firms pillaged taxpayers as part of the sleazy TARP bailout.
• How about the way big agri-businesses rip off consumers with the ethanol scam.
• Don’t forget H&R Block is trying to get the IRS to drive competitors out of the market.
• Big Sugar also gets a sweet deal by investing in politicians.
• Another example is the way major electronics firms enriched themselves by getting Washington to ban incandescent light bulbs.
• Needless to say, we can’t overlook Obama’s corrupt green-energy programs that fattened the wallets of well-connected donors.
• And General Motors became Government Motors thanks to politicians fleecing ordinary Americans.

P.S. If you want to understand why export subsidies are economically harmful, I strongly recommend this video from Mercatus.

P.P.S. I have no objection to companies getting profits, but I want them to earn money by serving consumers and not steal money by fleecing taxpayers.

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The Dangerous Seduction of “Free”

By offering all sorts of freebies to various constituencies, Bernie Sanders has positioned himself as the true-believing socialist in the Democratic race (even though he’s actually a member of the “top-1 percent”).

But he has plenty of competition. Kamala Harris and Elizabeth Warren are strong competitors in the free-lunch Olympics, and most of the rest of the candidates are saying “me, too” as well.

Assuming these candidates get a warm reception, this is a worrisome development.

Part of America’s superior societal capital is (or has been) our immunity to the free-lunch message.

If that’s changing, it will be very hard to be optimistic about the future.

Antony Davies of Duquesne University and James Harrigan of the University of Arizona wrote for FEE about the dangerous – and seductive – ideology of something-for-nothing.

…politicians are tripping over each other to offer voters more “free” things, including everything from health care and college to a guaranteed basic income. But voters should be fostering a healthy sense of skepticism. If there is one eternal and immutable fact in economics, it is that nothing is free. Nothing. …as voters, our healthy skepticism seems to go right out the window. When politicians promise all sorts of “free” things, it doesn’t occur to many of us that those things can’t possibly be free. It doesn’t occur to us that, like businesses seeking our dollars, politicians will tell us whatever it takes to get hold of our votes. …Don’t be so gullible…when you hear Alexandria Ocasio-Cortez and Bernie Sanders tell you how health care and higher education will be free for everyone, remember that…health care and higher education cannot and will never be free.

Davies and Harrigan are economically right. Indeed, they are 100 percent right.

There’s no such thing as a free lunch.

But there are lunches that financed by others. And that’s why I’m worried about support for Sanders and other hard-left Democrats.

I don’t want America to turn into Europe, with people thinking they have a “right” to a wide array of goodies, paid for by someone else.

So what’s the alternative to the something-for-nothing ideology of the modern left?

Bobby Jindal, the former Louisiana governor, recently opined on this topic in the Wall Street Journal.

Progressives are changing the Democratic Party’s focus…to subsidizing everything for everybody. …Democrats now promise free college, free health care and more—for everyone. Republicans can’t outspend Democrats, but they can make the case for freedom and against the idea that everything is “free”… The Republican ideal is…an aspirational society. …becoming dependent on government is the American nightmare. …Republicans have to do more than mock the Green New Deal…if they want to persuade young voters of the case for limited government and personal freedom. …“free” means more government control at the expense of consumer autonomy. When progressives promise government will pay for health care and college, they are really saying government will run medicine and higher education. …“Free” means less efficiency, more expense and lower quality. …“Free” means robbing from America’s children. …Despite proposed marginal rates as high as 70% or even 90%, none of the tax plans Democrats have put forward would raise nearly enough revenue to pay for the promised spending. …Republicans can’t outbid Santa Claus. Americans are willing to work hard and sacrifice for a better life but need to know how pro-growth policies benefit them. Voters may be tempted by progressives’ crazy plans… They will embrace effective market-based solutions that promote freedom if Republicans offer them.

Gov. Jindal has a great message about trumpeting growth as an alternative to redistribution.

Though I’m not brimming with confidence that Republicans are overly sincere when they use this type of rhetoric.

And some of them, like Trump, don’t even bother with pretending that they want to curtail dependency and shrink the social welfare state.

And that does not bode well for America’s future.

P.S. As is so often the case on issues of policy and ethics, Professor Walter Williams is a great source of wisdom.

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