Best and Worst of 2019

Time for my annual column highlighting the “Best” and “Worst” policy developments of the year, a tradition I sort of started in 2012 and definitely did in 2013, 2014, 2015, 2016, 2017, and 2018.

I’m trying to be a glass-half-full kind of guy, so we’ll start with the best policy developments for 2019.

Boris Johnson’s landslide victory – I was in London for the recent U.K. election and was pleasantly surprised when Boris Johnson won a surprising landslide. That’s not a policy development, of course, but it’s first on my list because it presumably will lead to a genuine Brexit. And when the United Kingdom escapes the sinking ship of the dirigiste European Union, I have some hopes for pro-market policies.

TABOR wins in Colorado – Without question, the best fiscal system for a jurisdiction is a spending cap that fulfills my Golden Rule. Colorado’s constitution has such a policy, known as TABOR (the Taxpayer Bill of Rights). Pro-spending lobbies put an initiative on the ballot to eviscerate the provision, but voters wisely rejected the measure this past November by a nearly 10-point margin.

Macroeconomic strength – A strong economy also isn’t a policy, but it’s partially the result of good tax reforms and much-needed regulatory easing. This has pushed up the value of stocks (though I worry we may be experiencing a bubble), but I’m much happier that it’s led to a tight labor market and increased wages for lower-skilled workers.

Now let’s look at the worst developments of 2019.

An ever-increasing burden of government spending – The federal government is far too big, and it keeps growing in size. Entitlements are the main problem, but Trump added to the mess by capitulating to another budget deal that increases the burden of discretionary spending.

Missed opportunity on China trade – Because he foolishly focused on the bilateral trade deficit, Trump missed a great opportunity to pressure China to eliminate (or at least reduce) various cronyist policies that actually do distort and undermine trade.

Repeal of the Cadillac tax – I never imagined I would be in a position of stating that it was a mistake to repeal a tax increase, but the recent repeal of the tax on high-end health plans is such bad policy in terms of health care (contributing to third-party payer) that it more than offsets my long-standing desire to deprive Washington of revenue.

I’ll close by noting my most-read and least-read columns of the year.

We’ll start with the popular items.

1. My most-read column from 2019 discussed a very impressive (and very understandable) example of tax avoidance from France.
2. In second place was my piece that lauded a columnist for the New York Times who admitted gun control is foolish policy.
3. Winning the bronze medal was my column from last week celebrating the dissolution of the Soviet Union.

By the way, my most-read article in 2019 was actually a quiz about political philosophy I shared back in 2015. Those must be popular items, because other quizzes (from 2014 and 2013) were actually the third-most and fourth-most popular columns for the year.

And here are the biggest duds.

1. The column with the least clicks (perhaps because it was only posted a couple of days ago) revolved around the technical issues of economic sanctions, extraterritoriality, and the strength of the dollar.
2. The second-worst-performing column was from late November and discussed the International Monetary Fund’s cheerleading for higher taxes in Japan.
3. Next on the list is my discussion from a few days ago about how Washington imposes policies that encourage households to make short-sighted financial choices.

P.S. About 80 percent of readers are from the United States, and that’s been relatively constant over the years. But it’s been interesting (at least to me) to observe where other readers reside. In the very beginning, Canada provided the second-biggest group of readers, but then the United Kingdom took over for several years, only to be dethroned by Australia in 2017 and 2018. For 2019, though, the United Kingdom reclaimed second place, presumably because I kept writing about Brexit. If we go by readers as a share of the population, I’m actually most popular in small tax havens.

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Protecting the Innocent: Gun-Free Zones vs. Armed Citizens

When I wrote yesterday’s column, which augmented my collection of satire about gun control, I had no idea I would feel compelled 24 hours later to address the issue from a serious perspective.

But two tragic events over the weekend underscore why the individual right of gun ownership is such an important part of the Constitution.

First, an anti-Semitic nutjob attacked Jews Saturday night.

At least five people have been stabbed in an attack at a synagogue in New York’s Rockland County. That attacker is now reportedly in custody after fleeing the scene. …The suspect has been identified as 37-year-old Grafton Thomas, of Greenwood Lake, New York, in Orange County. Thomas, covering his face with a scarf, reportedly entered the building and pulled out a machete to attack the victims during a Chanukah celebration. Thomas reportedly chased after and stabbed victims as they fled the synagogue before running off and escaping in a gray Nissan Sentra. …This incident happened amid a rash of anti-Semitic attacks this week. …“We will NOT allow this to become the new normal. We’ll use every tool we have to stop these attacks once and for all. The NYPD has deployed a visible and growing presence around Jewish houses of worship on the streets in communities like Williamsburg, Crown Heights and Boro Park,” New York City Mayor Bill de Blasio added in a tweet.

Needless to say, Mayor de Blasio is being dishonest when he claims he will “use every tool…to stop these attacks.”

Like politicians in Europe, he’s a dogmatic opponent of private gun ownership and believes Jews shouldn’t be allowed to defend themselves.

Fortunately, Jews who live outside New York City still enjoy some civil liberties and are now prepared to thwart attackers.

https://twitter.com/Breaking911/status/1211395543982886912

More power to these people, who are the Orthodox Jewish versions of these good ol’ boys from Texas.

For what it’s worth, I suspect dirtbags will be less likely to target the Jews in Rockland Country.

There was another attack at a house of worship over the weekend.

Though this report from Texas has a happy ending.

Police said they received a call shortly before 10 a.m. local time about gunshots at the West Freeway Church of Christ, in a suburb a less than an hour from downtown Fort Worth. After the suspect entered the church and fired a weapon, “a couple of members of the church returned fire,” killing the alleged shooter, state officials said at a news conference. …Gov. Greg Abbott (R) condemned the “evil act of violence” in a statement, adding: “Places of worship are meant to be sacred, and I am grateful for the church members who acted quickly to take down the shooter and help prevent further loss of life.” …New laws that took effect in 2019 allow Texans with concealed-carry permits to bring guns to places of worship unless a sign is posted prohibiting it.

The happy ending is that the bad guy was killed by armed members of the congregation, presumably minimizing the death toll.

I’ve joked before about Texans and guns, but we have a real-world case of how lives are saved. And what happened over the weekend wasn’t the first time.

Let’s now shift from anecdotes to data.

A few years ago, John Lott looked at the evidence about gun-free zones, armed citizens, and mass shootings.

…not one of the mass shootings since at least 2000…would’ve been stopped by these laws. Nor would renewing the federal “assault weapons” ban solve the problem; even research paid for by Bill Clinton’s administration found no evidence the ban reduced any type of crime. …a young ISIS sympathizer planned a shooting at one of the largest churches in Detroit. An FBI wire recorded him explaining why he had picked the church as a target: “It’s easy, and a lot of people go there. Plus people are not allowed to carry guns in church.” …PoliceOne, a private organization with 450,000 members (380,000 full-time active law enforcement and 70,000 retired), polled its members in 2013 shortly after the Newtown, Conn., massacre. Eighty percent of respondents said allowing legally armed citizens to carry guns in places such as Newtown and Aurora would have reduced the number of casualties. …According to police and prosecutors, there have been dozens of cases of permit holders clearly stopping what would have been mass public shootings. It’s understandable these killers avoid places where they can’t kill a large number of people. Research I have conducted with economist Bill Landes looked at 13 different types of gun-control laws. Right-to-carry laws were the only type that made a difference in the rate and severity of these mass public shootings. …even the most ardent gun-control advocate would never put “Gun-Free Zone” signs on their homes. Let’s finally stop putting them elsewhere.

Amen.

John Lott is an invaluable resource on these issues, as is Jacob Sullum.

Though it’s really an issue of common sense.

Mass shooters are evil, but they’re calculatingly evil. Even if they’re willing to die, they want a high body count. Armed citizens make that less likely.

The bottom lines is that we can save lives by making sure law-abiding people have the right to keep and bear arms.

What happened this past weekend simply provides us with more evidence.

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Gun Control Humor

I haven’t added to the collection of gun control humor since way back in August.

So let’s rectify that oversight, starting with this sarcastic tweet about the logic of gun control.

https://twitter.com/TaxReformExpert/status/1170395367910903808

Quite similar to this cartoon about stupid and illogical ways of fighting rape.

This cartoon strip zings both sides. While the left is sadly right that evil people won’t be stopped by “thoughts and prayers,” it’s also true that they are wildly wrong in thinking that gun control will succeed.

Indeed, advocates of gun control will make society less safe if they succeed in disarming law-abiding people.

Here’s some satire on both gun buy-backs and so-called red flag laws.

I’m skeptical about red flag laws, but I haven’t studied the issue enough to offer any commentary.

Though it’s definitely true that governments historically have the worst track record of violence.

But since this is a humor column, I’ll steer clear of serious analysis and instead note that the government of Baltimore was at least kind enough to provide some unintentional humor on the issue of buy-backs.

Since my left-leaning friends need plenty of tutoring on guns, here’s a helpful guide.

And we’ll close with some much-needed wisdom on being armed.

If you think this is an empty slogan, I very much recommend this article by someone who leans left but had an epiphany on the importance of self defense.

P.S. I have a collection of columns dealing with honest leftists on the issue of gun control. For other examples, click here, here, here, and here.

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If You’re Worried about High Household Debt and Low Levels of Saving, Get Angry at Washington

In this interview on Fox Business, I repeated my oft-stated concern that the Federal Reserve’s easy-money policy of artificially low interest rates (avidly supported by Trump) may have created the conditions for a boom-bust cycle.

For today’s column, though, I want to focus on the part of the interview where I fret about structural rather than cyclical factors.

More specifically, whenever there is angst and concern about household debt, I get rather frustrated because some folks want to blame the American people for not saving enough.

That may be true, but I point out that the real problem is that the federal government lures people into being short-sighted.

• We have pervasive double taxation of income that is saved and invested (see accompanying chart), so the message from Uncle Sam is to immediately consume any after-tax income.
• We have provisions in the tax code, such as the bias for debt over equity for businesses (somewhat mitigated by Trump’s 2017 tax plan) and the mortgage interest deduction for households, that encourage borrowing.
• We have a plethora of programs, such as Social Security, housing subsidies, unemployment insurance, college subsidies, and Medicaid/Medicare, that undermine incentives to save.

Given all these policies, I’m actually surprised that the national savings rate isn’t much lower.

By the way, I should emphasize that there’s nothing necessarily wrong with debt. It’s perfectly sensible for many households to borrow to buy a house, a car, or to finance education.

As I noted in the interview, what matters is keeping a sound ratio of debt to assets, and a sound ratio of interest expense to income.

It’s not easy for people to be sensible, however, when there are so many anti-savings policies from Washington.

I’ll close with a bit of good news.

Because the United States is a quasi-tax haven for foreigners, we do attract an immense amount of money from overseas. So even though the federal government discourages us from saving, we have access to capital from all over the world.

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Extraterritoriality, the Obama-Trump Policy of Sanctions, and Risks to America’s Economy

In order to protect against “Goldfish Government,” it’s very important to make sure that the powers of government are constrained by national borders.

This is the reason why I’m a passionate defender of tax competition and fiscal sovereignty (even if it means being subjected to slurs, attacks, and imprisonment!).

And it’s why I oppose extraterritorial tax laws such as FATCA.

The fight against extraterritoriality isn’t limited to fiscal issues. It’s also become a big problem in the area of financial regulation.

In a new study for the Center for Freedom and Prosperity, Bruce Zagaris addresses the over-use of sanctions and how they produce undesirable unintended consequences.

The widespread use of economic sanctions constitutes one of the paradoxes of contemporary American foreign policy. Although sanctions are often criticized, even derided, they are simultaneously and quickly becoming the policy mechanism of choice for the United States. The U.S. has economic sanctions against dozens of countries. Even though the success rate of sanctions is unimpressive, sanctions are so popular that they are being introduced by many states and municipalities. …In a global economy, unilateral sanctions tend to impose greater costs on U.S. businesses than on the target, which can usually find substitute sources of supply and financing. …As the U.S. is increasingly resorting to unilateral sanctions, they are inadvertently mobilizing a club of countries and international organizations, including U.S. allies, to develop ways to circumvent U.S. sanctions. …Sanctions are criticized due to their lack of effectiveness, adverse humanitarian effects, and adverse public health effects. Sanctions foment criminalization both during and after the sanctions as a way to circumvent sanctions. Sanctions also result in unintended negative effects on neighbor countries… The excessive use of economic sanctions, especially when U.S. allies oppose them and become targets, produces diplomatic tension, and damages the U.S.’s economy and reputation abroad. The growing number of countries in the club of targets has caused countries to develop innovative means to circumvent the use of the dollar.

I’ve previously written about how the dollar’s role as the world’s reserve currency could be threatened by extraterritoriality, so I fully agree with the concerns in Bruce’s study.

Interestingly, even the U.S. Treasury Secretary acknowledges that there is a problem.

[RTRS] 14 Dec – 07:20:39 AM – U.S TREASURY MNUCHIN SAYS IF WE ARE NOT CAREFUL WITH SANCTIONS, PEOPLE WILL START USING OTHER CURRENCIES

— Alastair (@StockBoardAsset) December 14, 2019

The issue also has been featured on the op-ed page of the Wall Street Journal.

Sahil Mahtani of Investec Asset Management opined that excessive sanctioning by Obama and Trump creates risks for the dollar.

Will the U.S. dollar soon lose its status as the world’s pre-eminent currency? …Developments in foreign-exchange markets during the past 18 months point toward dedollarization. …The increasing use of economic sanctions under Presidents Obama and Trump is the immediate cause of dedollarization. …the change in posture among the trans-Atlantic democracies is noteworthy. …the emergence of a genuinely multipolar world means the coming market cycle is likely to be different. The U.S. dollar may finally be knocked off its pedestal.

Other experts also have warned about how sanctions can backfire on the American economy.

With its weaponization and extra-territorial use of financial and now tech sanctions the Trump administration is doing its best to undermine over time the role of the dollar as the key global reserve currency. https://t.co/ShozLhWSbz

— Nouriel Roubini (@Nouriel) July 18, 2019

 

The Economist also has highlighted how promiscuous use of sanctions is both wrong and could backfire against America.

The United States…has increasingly punished foreign firms for misconduct that happens outside America. Scores of banks have paid tens of billions of dollars in fines. In the past 12 months several multinationals, including Glencore and ZTE, have been put through the legal wringer. …America has taken it upon itself to become the business world’s policeman, judge and jury. …as the full extent of extraterritorial legal activity has become clearer, so have three glaring problems. …Facing little scrutiny, prosecutors have applied ever more expansive interpretations of what counts as the sort of link to America that makes an alleged crime punishable there; indirect contact with foreign banks with branches in America, or using Gmail, now seems to be enough. …Second, the punishments can be disproportionate. In 2014 BNP Paribas, a French bank, was hit with a sanctions-related fine of $8.9bn, enough to threaten its stability. …Third, America’s legal actions can often become intertwined with its commercial interests. …American banks have picked up business from European rivals left punch-drunk by fines. Sometimes American firms are in the line of fire—Goldman Sachs is being investigated by the DOJ for its role in the 1MDB scandal in Malaysia. But many foreign executives suspect that American firms get special treatment and are wilier about navigating the rules. …escalating use of extraterritorial legal actions will ultimately backfire. It will discourage foreign firms from tapping American capital markets. It will encourage China and Europe to promote their currencies as rivals to the dollar… Far from expressing geopolitical might, America’s legal overreach would then end up diminishing American power.

To be sure, not every issue should be decided solely on the basis of economics. More GDP is good, but not at the cost of sacrificing honor and dignity.

Some nations might be so evil that sanctions are justified.

But policy makers should be fully aware that there are costs when sanctions are imposed.

Those costs include foregone trade, which would be bad for American consumers, workers, and businesses.

Most important, those costs could mean the dollar gets weakened or dethroned as the world’s reserve currency and the U.S. loses its “exorbitant privilege.”

And that could mean less investment in America, which translates into fewer jobs and lower wages.

P.S. The study by Bruce Zagaris is the third in a series on why extraterritoriality is a bad idea. The first study focused on extraterritorial taxation. The second study analyzed extraterritorial financial regulation.

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A Great Day in History: The End of the Soviet Union

Yesterday, most of us celebrated Christmas.

Today, all of us should celebrate the dissolution of the Soviet Union, which officially happened on this date in 1991 (aided and abetted by a Texas grocery store).

A 2016 FEE column by Richard Ebeling documents the relentless evil of Soviet communism.

…the curtain was lowered on the 75-year experiment in “building socialism” in the country where it all began following the Bolshevik Revolution in Russia, led by Vladimir Lenin in November 1917. Some historians have estimated that as many as 200 million people worldwide may have died as part of the 20th century dream of creating a collectivist “paradise on earth.” The attempt to establish a comprehensive socialist system in many parts of the world over the last 100 years has been one of the cruelest and most brutal episodes in human history. …as many as 68 million innocent, unarmed men, women, and children may have been killed in Soviet Russia alone over those nearly 75 years of communist rule in the Soviet Union. …This murderous madness never ended. In the 1930s, during the time of the Great Purges instituted by Soviet dictator Josef Stalin to wipe out all “enemies of the revolution” through mass executions, millions were sent to the Gulag prisons that stretched across all of the Soviet Union to be worked to death as slave labor to “build socialism.” …Soviet central planning even had quotas for the number of such enemies of the people to be killed in each region of the Soviet Union, as well as the required numbers to be rounded up to be sent to work in the labor camps in the frigid wastelands of the Siberia and the Arctic Circle… The nightmare of the socialist experiment, however, did not end with Stalin’s death in 1953. Its form merely changed in later decades. As head of the KGB in the 1970s, Yuri Andropov (who later was General Secretary of the Communist Party of the Soviet Union after Leonid Brezhnev’s death in 1982), accepted a new theory in Soviet psychiatry which said opposition to the socialist regime was a sign of mental illness.

Based on the sheer number of victims, Stalin understandably has the worst reputation of all Soviet dictators.

But let’s not forget that Lenin was a horrible human being as well.

Lenin’s streak of cruelty began long before he came to power. By his early 20s, his zealous dedication to Marxism led him to believe that anything justified revolution. When a famine broke out in the Volga region in 1891—one that would kill 400,000 people—Lenin welcomed the event, hoping that it would topple the Czarist regime. …Later, in 1905, when Czarist forces killed hundreds of striking workers and 86 children in Moscow, Lenin refused to mourn for the dead and, instead, hoped the event would further enflame class antagonisms. In his eyes, human lives were expendable… While in exile, Lenin railed against the imperial government for its oppressive ways—for instance, its censorship of the opposition and dismissal of parliament. Of course, once in power, Lenin repeated these policies and usually exceeded their cruelty, imprisoning and confiscating the property of his opponents. …Lenin appointed the homicidal Felix Dzerzhinsky to head up the Cheka (the secret police)… In less than a year, hundreds, if not thousands, were executed… He marked wealthy peasants, or kulaks, as enemies of the revolution and encouraged violence against them. He imposed fixed grain prices at low rates, straining peasants who already were living on the margins, seized their grain, and left them to starve. When the peasants began resisting, Lenin ordered government officials to torture them or apply poison gas.

By the way, it’s not directly relevant to the dissolution of the Soviet Union, but I can’t resist sharing this story from the BBC.

Karl Marx’s Grade I-listed memorial in Highgate Cemetery has been “mindlessly vandalised”. The marble plaque on the imposing sculpture’s base has been attacked, seemingly with a hammer. A cemetery spokesman said they did not know when it had happened, but believed it was within the last couple of days. No witnesses have come forward. …Ian Dungavell, chief executive of Friends of Highgate Cemetery Trust, said: “This is mindless vandalism, not political commentary. …This is not the first time the monument has been damaged. In 1970 a pipe bomb blew up part of the face, swastikas have been painted on it and emulsion paint has been thrown at it.

My only comment it that the memorial wasn’t “mindlessly vandalised.” There were 100 million reasons why it was defaced.

Now let’s look at the economic performance of the Soviet Union.

I’ll start with the simple and near-tautological observation that there’s no longer a Soviet Union in large part because its economy became so anemic.

Yet some people believed that the Soviet Union’s version of socialism could be economically successful. I wrote about their naivete as part of my collection of essays on the 100th anniversary of the Bolshevik revolution.

I suppose we can partially forgive them because much of the economic misery in the Soviet Union was hidden from outsiders.

What’s less forgivable is that some people still make absurd claims about the Soviet economy. Consider this screenshot of the first paragraph of the Wikipedia entry on the economy of the Soviet Union. I’ve highlighted in red the parts that are laughable.

Though, to be fair, there wasn’t a problem with unemployment and job security in the Soviet Union. Just like slaves in Alabama in 1830, Soviet workers were victims of state coercion. They were forced to show up at the collective farms and state-run industries.

And state coercion was the basis of a failed system. Contrary to whoever authored that Wikipedia entry, the Soviet Union did not enjoy high growth rates.

A 1994 World Bank study by William Easterly and Stanley Fischer exposed the Soviet Union’s very poor track record.

Soviet growth from 1960 to 1989 was the worst in the world after we control for investment and human capital; the relative performance worsens over time. …The declining Soviet growth rate from 1950 to 1987 can be accounted for by a declining marginal product of capital with a constant rate of growth of total factor productivity. The Soviet reliance on extensive growth (rising capital-to-out-put ratios) was no greater than that of market economies, such as Japan and the Republic of Korea, but a low elasticity of substitution between capital and labor implied especially acute diminishing returns to capital compared with the case in market economies.

“Worst in the world” is quite an achievement.

Not that any sentient being should be surprised. Politicians are bureaucrats don’t do a good job of allocating labor and capital.

If you want prosperity, it’s not a good idea to have central planning and other features of socialism.

Here’s a fascinating look at the world’s largest economies (by overall size, not on a per-capita basis) from 1961-1989.

How the Soviet Union lost the race with the US: a brilliant infographic on Soviet attempt and failure to catch up with America

pic.twitter.com/DxQ5suZkfi

— Alex Kokcharov (@AlexKokcharov) December 23, 2019

Here’s a chart based on the Maddison database, so we can make comparisons based on per-capita economic output.

As you can see, even though convergence theory says poor countries should grow faster than rich countries, the gap between the United States and the Soviet Union grew ever larger.

Last but not least, here’s a chart that compares the Soviet Union’s claims about growth (blue) with both CIA estimates (red) and later revisions from a Russian economist (green).

There are two lessons to be learned.

• First, socialism and central planning are a recipe for economic stagnation.
• Second, don’t believe official government numbers from dodgy regimes.

That latter point may be relevant for people who think China is an economic powerhouse.

P.S. The Soviet Union is gone, but most of the countries that emerged from the wreckage are still struggling with a legacy of statism and intervention.

P.P.S. In addition to celebrating today, we also should celebrate November 9.

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Merry Libertarian Christmas

Merry Christmas, even for my left-leaning friends and politically correct friends.

The good news is that – contrary to reports – Santa Claus did not get arrested last night.

And that’s good news because he does many things each year that could land him in prison.

In a column for FEE, David Rosenthal addresses the same topic of overcriminalization.

While most people know Jolly Old Saint Nick as a friendly figure, he too is not immune from the perils of administrative overreach and overcriminalization. …here is a list of some of the potential crimes and violations of federal law… Under the Reindeer Act, signed into law by President Franklin D. Roosevelt in 1937, only Alaska Natives are allowed to own reindeer in Alaska. …Even if Santa gets around the Reindeer Act, he may face civil and criminal penalties under the Lacey Act if his purchase, sale, possession, or use of reindeer—or any other flora or fauna— violates any state or federal law or the law of any foreign nation, no matter what language or code that foreign law is written in. …Despite Santa’s many years of experience, there is no Mr. Claus listed in the Federal Aviation Administration’s pilot certificates database. If Santa is piloting his sleigh without an airman’s certificate, he is in violation of 49 U.S.C. § 46317. …Any white lie that falls within the jurisdiction of the U.S. government could be a federal crime. …A government agent need only ask Santa if he committed burglary, trespass, or larceny, or ask him, “Are you really Santa Claus?” In that case, Santa really would need a Miracle on 34th Street to stay out of the slammer for lying. …Under IRS gift tax rules, the giver of gifts above a certain threshold is taxed at a rate up to 40 percent of the value of the gift. …Willful failure to file a gift tax return can land Santa in prison for up to one year under 26 U.S.C. § 7203.

Regarding whether Santa Claus is real, there is a downside to people being too gullible.

In the past, I’ve looked at the debate over whether Santa Claus is right wing or left wing, as well as the debate over whether Jesus is libertarian or socialist.

Here’s an amusing 2×2 matrix that builds on those themes.

Whoever created this put Jesus in the anti-capitalism camp, which irks me, but it’s still clever (just like this pro-socialism Christmas humor).

If you liked this adoption video, I imagine you’ll like these Christmas songs.

Speaking of songs, here are some economic-themed Christmas carols.

And if you like videos, Remy has two of them (here and here) showing how the TSA hurts the Christmas spirit.

Needless to say, I also have to share these libertarian-themed Christmas videos.

P.S. If you like Christmas cartoons, here are some featuring President Obama.

P.P.S. And this Jay Leno joke is always amusing.

P.P.P.S. If you’re doing some last-minute shopping for libertarians, check out this video. If you’re shopping for a taxpayer, this household item might be a good present. And if you’re shopping for an environmentalist, you can’t go wrong with this low-carbon gift.

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Trump’s Record on Spending Gets Worse Every Year

I wrote yesterday that the Trump tax plan is yielding significant benefits, but one of my caveats at the end of the column warned that Trump’s weak record on spending undermines the long-run sustainability of lower tax rates.

The latest example of Trump’s profligacy is the $1.4 trillion spending bill for the 2020 fiscal year that was just approved (this is the “discretionary” money for the parts of the budget that are annually appropriated, so keep in mind that there’s also more than $3 trillion of “mandatory” spending for entitlement programs in 2020).

This pork-filled spending bill became inevitable when Trump surrendered to the Democrats this summer and agreed to bust the spending caps (something politicians also did in 2013, 2015, and 2018).

It’s hard to capture the utterly reckless nature of the new spending bill.

Here’s how Senator Rick Scott described the legislation.

…a giant spending package — 2,313 pages long — that was…negotiated in secret, spends $1.4 trillion, and is chock full of member projects and special-interest giveaways. …more than $4,200 for every man, woman, and child in America. …This package includes $25 million for the “operation, maintenance, and security” of the Kennedy Center in Washington, D.C. It includes a $7.25 million increase in funding for the National Endowment for the Arts, the largest increase in a decade. …It includes more than $1 billion in new foreign-aid funding without any discussion about what we’re getting for this funding. …This bill spends $1.4 trillion, with no cuts or reforms. …How many more trillions of dollars do we need to spend before we wake up to the danger…? We need to reform the way Washington works, and we need to do it now.

The Wall Street Journal was similarly dismayed, opining about the bipartisan spending orgy and pointing out the real problem is that all this spending violates the Golden Rule of fiscal policy.

Congress has left town for the year but alas not before another bipartisan spending party that has typified the Trump Presidency. …The budget problem isn’t a shortage of revenue. CBO says tax receipts grew 4% last fiscal year, through September, and 3% in the first two months this year. Economic growth is feeding the Treasury. But spending is growing much faster: 8% last fiscal year, more than four times the inflation rate, and 6% in October and November this year. In addition to the latest discretionary bills, spending on Social Security (6%), Medicare (6.1%) and Medicaid (9.2%) continue to soar this year. Neither party shows any inclination to do anything about those programs, except expand them. Mr. Trump may yet join Barack Obama in the spending record books.

Regarding the final sentence in the above excerpt, I will predict now that Trump will exceed Obama’s profligacy.

And I’ll have the numbers to prove that early next year when I update my data on presidential spending.

In the meantime, I’ll close with this very depressing chart from the Committee for a Responsible Federal Budget.

The bottom line is that Republican big spenders are enablers of Democratic big taxers.

• In a couple of years, when there’s a big fight to get rid of the Trump tax cuts, every Republican who supported this awful deal (including Trump) will be responsible.
• When there’s a Democratic president and a big push for class-warfare taxes, every Republican who supported this awful deal (including Trump) will be responsible.
• When there’s a big fight after that to impose a European-style value-added tax, every Republican who supported this awful deal (including Trump) will be responsible.

Gee, isn’t bipartisanship wonderful?

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Assessing the Trump Tax Reform after Two Years

The Trump tax plan, which was signed into law right before Christmas in 2017, had two very good features.

• Restricting the deduction for state and local taxes.
• A reduction of the corporate tax rate to 21 percent.

The former was important because the federal tax code was subsidizing high tax burdens in states such as New Jersey, Illinois, and California.

The latter was important because the United States, with a 35 percent corporate rate, had the highest tax burden on businesses among developed nations.

The 21 percent rate we have today doesn’t make us a low-tax nation, but at least the U.S. corporate tax burden is now near the world average.

There were many other provisions in the Trump tax plan, most of which moved tax policy in the right direction.

Now that a couple of years have passed, what’s been the net effect?

In a column for today’s Wall Street Journal, former Trump officials Gary Cohn and Kevin Hassett make the case that the tax plan has produced good results.

…the tax cut reduced the cost of installing new plant and machinery by about 10%, suggesting that capital spending would jump by the same amount. This would increase the amount of capital per worker and drive up productivity and wages. …This predicted increase in capital has materialized, and has translated into additional economic growth. …Capital spending was 4.5% higher in 2018 than pre-TCJA blue-chip forecasts, and this trend continued in 2019. This extra capital improved productivity and wages… Over the past year, nominal wages for the lowest 10% of American workers jumped 7%. The growth rate for those without a high-school diploma was 9%. …when President Obama hiked marginal tax rates, …labor-force participation dropping 0.7% after the tax increase for workers 35 to 44, but dropping 1.5% for workers over 55. After passage of the TCJA, the opposite pattern emerged, with labor-force participation for those between 35 and 44 increasing 0.4%, and labor-force participation for those over 55 increasing 1.3%. … Before Mr. Trump took office in January 2017, the Congressional Budget Office forecast the creation of only two million jobs by this point. The economy has in fact created seven million jobs since January 2017. …the U.S. is the only Group of Seven country that will post growth above 2% this year.

And the White House has been publicizing some positive numbers.

Such as an increase in investment.

I suppose one can argue that the Blue Chip consensus forecast was wrong and that the Trump tax plan had no effect, but that seems like an after-the-fact rationalization.

The White House also has been touting an increase in prime-age labor force participation.

These are impressive numbers. I’ve argued, for instance, that the employment/population ratio may now be a more important variable than the unemployment rate.

Regardless, the best numbers I’ve seen aren’t from the White House.

Andy Puzder recently shared this chart showing that workers in low-wage industries (the blue line) are enjoying the biggest gains.

I want everyone’s wages to increase, which is why I’m a big supporter of reforms that boost investment and productivity.

But I especially applaud when those reforms increase wages for those with modest incomes.

I’ll close with three caveats.

1. Because Trump has been very weak on the issue of government spending, it’s quite likely that his tax cuts eventually will be repealed or offset by other tax increases.
2. Trump obviously was talking nonsense when he claimed his tax plan would produce annual growth of 4 percent or higher. That being said, even more-modest increases in growth are very desirable.
3. Trump’s tax increases on trade are bad for prosperity and therefore are offsetting some of the benefits of his tax reductions on corporate and household income.

The bottom line is that Trump has made tax policy better (or less worse), but always remember that tax policy is just one piece of a large puzzle when looking at economic policy.

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Communism Humor

Let’s add to our collection of communism humor.

Yes, I realize that we probably shouldn’t laugh about a horrific ideology that has killed 100 million people.

Especially since it’s still producing hardship, brutality, and suffering in places such as North Korea and Cuba.

Nonetheless, I think mockery of this evil ideology serves a purpose.

Today, we’ll start with a modified version of the it’s-a-party motto that some communists use. In this version, however, there’s some truth in advertising.

Speaking of food, here’s the communist version of Five Guys.

Though it’s slightly inaccurate because not everyone dies. There’s always a fat-and-happy ruling elite. It’s the ordinary people who suffer.

In the past, I’ve mocked leftists for trying to explain away real-world failures with the excuse that “real communism hasn’t been tried.”

Well, in the interest of fairness, I finally received an example of communism working.

Though maybe I’m being too kind. After all, we haven’t actually seen the bottle get opened.

This image could just be another example of leftists having good intentions, but then being unable to deliver good results.

The bottom line is that we should mock communism, but let’s never forget that it is a miserable failure, just like socialism (its usually-less-totalitarian cousin).

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Government Mandates and Crummy Dishwashers

Four years ago, I wrote about how dishwashers don’t work very well because of foolish red tape from Washington.

The clever folks at the Competitive Enterprise Institute put together a video on the topic.

I especially like the fake commercial at the start of the video.

But I don’t like the way my dishwasher performs.

And Jeffrey Tucker of the American Institute for Economic Research shares my disdain.

American dishwashers used to work. They were wonderful labor-saving devices. They kept our kitchens cleaner. They sanitized the dishes, helping to stop cross-contamination and generally improving health over the iffy process of handwashing. …Then one day they just stopped doing the work. What happened? …Dishwashers used to wash all the dishes in under one hour. Now they take two hours, three hours, and four hours, and still don’t get the dishes clean. …All of this is directly due to government regulations. …Now everything comes out foggy and spotted. This is true no matter which dishwasher you get. …None of this has really hurt the dishwasher industry. Sales have consistently risen for the last ten years. My theory is that people are buying replacements, thinking (rationally) that they just need a newer model. What consumers don’t know, and what manufacturers don’t want to admit, is that they no longer work. The older the model, the more likely it is to be operational.

Here’s the most astounding factoid.

One in five homes have just stopped using their dishwashers altogether.

And here’s the bottom line.

These regulations have caused an infuriating and devastating degradation of the quality of appliances and the quality of life in our homes.

I agree. In my home, I don’t bother putting items in the dishwasher until I’ve thoroughly rinsed them. Otherwise, I’ll find food residue and have to wash them again.

Here’s a chart from the Competitive Enterprise Institute on the average cycle time of dishwashers. As you can see, modern dishwashers take much longer because they do such a poor job.

Since I generally run my dishwasher before heading to bed, I’m not particularly worried about how long it takes.

I just want clean dishes at the end of the process. But that’s now much more difficult because of government.

If you want more examples of the regulatory state’s war on modern life, there are plenty of examples.

• Inferior light bulbs
• Substandard toilets
• Inadequate washing machines
• Dribbling showers
• Dysfunctional gas cans

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Economics, Politics, and Trump

When I was in London last week for Boris Johnson’s landslide victory, many people asked me whether Trump would win again in 2020.

Since I was wrong about 2016, I told them I wasn’t the right person to ask.

That being said, Trump has some positive economic tailwinds.

For those of you who care about political outcomes, there’s a new CNN poll of battleground states.

It’s good news for Republicans, particularly if one assumes that there are some people who don’t want to admit that they will vote for Trump (which seems to have been true in 2016).

BATTLEGROUND STATE* VOTERS
Choice for President

Dem. Trump
Biden 47% 47%
Warren 46% 48%
Sanders 45% 49%
Buttigieg 43% 48%

Margin of error: +/-6.6% pts

* the 15 states decided by 8 points or less in 2016

— Jake Tapper (@jaketapper) December 20, 2019

Political betting markets also are pointing to a Trump victory.

Here’s a screenshot showing the 2019 odds of success for the various candidates. As you can see Trump’s numbers are trending upwards – including a positive bump after the House voted for impeachment!

Both polls and betting markets were wrong in 2016, so take all this data with a grain of salt.

For those who care about economic policy, I’ll simply regurgitate my usual comment that Trump is good on some issues (taxes and regulation) and bad on other issues (trade and spending).

I expect this pattern to continue if he’s reelected.

The big wild card is monetary policy.

As I said in the interview, I worry there’s a bubble caused by an easy-money approach. And bad things happen when bubbles pop.

P.S. I should have mentioned that the employment-population data is not as positive as the unemployment-rate data.

P.P.S. I mentioned macroeconomic political forecasts in the interview. I wrote about those predictions back in October.

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Women Should Have the Freedom to Discriminate against Men

I’ve previously argued that “freedom of association” is the best way of dealing with thorny social issues such as baking cakes for gay weddings and transgender bathroom usage.

Simply stated, people should have the freedom to do business with each other – or not do business with each other – based on their personal preferences.

I may disapprove of how various people exercise those preferences, but I wouldn’t ask a politician or bureaucrat to intervene.

Which brings us to today’s topic. Here are some excerpts from a New York Post story about a not-quite-women-only business.

The Wing was supposed to be the ultimate sanctuary for women: decidedly feminine in design, with walls and furniture in shades of millennial pink and a thermometer set at a women’s-clothing-friendly 72 degrees. …It offers perks that other co-working spaces can’t match — showers stocked with high-end beauty products…the company’s expansion and popularity has brought up a completely different issue…men wanting to come in and hang out. …it’s not against the rules for men to be at the lady lair, which costs anywhere from $185 to $250 a month in the US to join. But that’s only because legally the company can’t ban men. …The problem, multiple members have told The Post, is that the men physically take up too much space with their bigger bodies… While they aren’t using the members-only changing rooms and showers (yet), they are in the guest bathrooms. …The Wing…never had a membership policy, because, reps say, they didn’t think they’d need one. Instead, they simply billed themselves as a women’s co-working space and social club. …the New York City Commission on Human Rights…in 2018 opened an investigation into the company. The Wing’s large membership — more than 11,000 worldwide, according to reps — meant it couldn’t pass as a “social club,” and therefore can’t discriminate based on gender.

My reaction is that the New York City Commission on Human Rights should mind its own business.

If women want a female-only place to interact and do business, it’s not the job of government to interfere.

Yes, that means discrimination against men. Maybe that’s wrong, at least on some level, but not everything that’s wrong should be illegal.

Here’s another example, though the discrimination is based on politics rather than gender. As reported by the Hill, a California restaurant wants freedom not to associate with overt Trump supporters.

A restaurant owner and award-winning author in California tweeted that he will no longer serve customers who wear “Make America Great Again” hats at his eatery. “It hasn’t happened yet, but if you come to my restaurant wearing a MAGA cap, you aren’t getting served…”Some diners told The Associated Press on Thursday that they understand the restaurant owner’s position but added that they have mixed feelings about the ban. …“I see where he’s coming from, but I don’t think you should just keep people out because of a hat,” Jamie Hwang, a San Mateo resident, told the news agency. Another diner, Esther Shek, told the publication that she believes the hats have “come to represent racism, intolerance, exclusivity” but also added that López-Alt’s choice to refuse supporters of the president might spell trouble later.

In this case, I definitely think the restaurant owner is being petty. But I also recognize that it’s his restaurant. It’s his money and it’s his property.

By the way, it’s worth noting that freedom of association is a two-way street.

It means private businesses can refuse customers, but it also means customers can reject businesses.

A black couple in Georgia turned away a white repairman who showed up to their house while flying a large Confederate flag, leaving the couple in utter “disbelief” before saying he wasn’t welcome. …After a polite conversation with the contractor, Brown said, he was in “disbelief” that the man he hired from Facebook’s local marketplace would think the flag was acceptable to fly during house calls. Brown’s wife then came outside and bluntly turned the man away, video shows. …The repairman offered to remove the flag, but the damage was already done. He later reached out to the couple on Facebook to say he didn’t mean to offend them, Zeke Brown told ABC News. Brown replied to the contractor, explaining that the flag is “extremely offensive” to people of color while urging him to do some research.

Incidentally, I may be a bit of a Pollyanna on these issues, but I’m glad that the contractor reached out to the couple with an apology.

Having spent many years in Georgia and having interacted occasionally with people who displayed confederate flags, I concluded that very few of them were motivated by racial animus. It was more a form of social signalling about being rural, or being a hell raiser (a la Dukes of Hazard).

That being said, they obviously were not sensitive to the fact that blacks had a much more jaundiced view of what the flag represents.

Which is why I hope many of them eventually had the kind of epiphany that led a Texas man to get rid of his rebel flag tattoo. Simply stated, we should care about the feelings of others.

But I’m digressing.

Let’s conclude by addressing the negative aspect of freedom of association, which is that some bad people will discriminate for odious reasons.

The stereotypical example is a business in Alabama in 1958 that refused to serve black customers. This is partly inaccurate because much of the discrimination during that era was the result of government policies that mandated segregation (a.k.a., the Jim Crow laws).

But I’m sure there was also plenty of genuinely private discrimination.

That’s the bad news.

The good news is that such discrimination generally is punished by market forces.

And the best news is that our society is now increasingly vigilant against bias.

For instance, the Washington Post reported about a bakery that gained customers for being welcoming to everyone.

Nino Barbalace…opened a bakery and cafe in Dorchester, Mass. …He affixed a tiny pride flag to his restaurant’s window for the pride parade in June, and it has remained there since. Then came the Yelp review.“Well, that flag says all when you delve deeper and see the real customer base here, it’s clearly geared and catered ONLY to those who rally behind the rainbow flag.” That alarmed Barbalace, who posted an image of the one-star review on the restaurant’s Facebook page. “All are welcome at Zia Gianna, even this gentleman. We’d love to show him some kindness…” Barbalace wrote in his post on Aug. 13. …Customers rallied in response. Tiffany Andrade told Fox 25 that she dropped by the cafe on Friday to offer support. …“We love your place, and love your love for everyone no matter what,” one customer said. Another said: “Haven’t been in to your restaurant before, but now I’m putting it on my must-visit list. Love is love is love. Keep flying that flag!”

Kudos to Mr. Barbalace, by the way, for reaching out to the unfriendly reviewer.

The United States has made great progress and is one of the most tolerant places in the world.

But there’s always room for more progress and you’re far more likely to change hearts and minds with outreach – Daryl Davis and Matthew Stevenson are role models – rather than demonization.

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When It’s Politically Beneficial, Democrats Support Huge Tax Breaks for the Rich

Based on rhetoric, the Democratic Party is committed to a class-warfare agenda.

They want higher income tax rates, higher capital gains taxes, higher Social Security taxes, higher death taxes, a new wealth tax, and many other tax hikes that target upper-income taxpayers.

There are various reasons why they push for these class-warfare tax hikes.

• They want more revenue to finance bigger government.
• They think it’s politically advantageous to create social discord.
• They are envious and resentful of successful people.

I don’t pretend to know which factor dominates.

But that’s not important because I want to make a different point. Notwithstanding all their rhetoric, Democrats are sometimes willing to shower rich people with tax breaks.

The Wall Street Journal exposes the left’s hypocrisy in the fight over the deduction for state and local taxes.

Democrats have…grown more concentrated in the richest parts of the country. That explains the strange spectacle of a Democratic presidential field running on the most redistributionist agenda in memory even as Democrats in Congress try to expand a tax break for high-earners in the New York City, San Francisco and Los Angeles metropolitan areas. …Coastal Democrats have failed with gimmicks at the state and federal level to eliminate the SALT cap. The latest effort is the Restoring Tax Fairness for States and Localities Act, which passed the House Ways and Means Committee last week. …The bill would raise the SALT deduction cap in 2019 and eliminate it in 2020 and 2021. …The Tax Foundation found the biggest benefit from the unlimited deduction went to households with incomes above $1 million.

A related issue is the federal government’s special tax exemption for interest paid to holders of state and local government bonds.

I explained in 2013 why it’s bad tax policy.

Josh Barro explained the previous year why this tax break is a boon for the rich.

In 2011, 35,000 taxpayers making more than $200,000 a year paid no federal income tax. …61 percent of those avoided tax for the same reason: their income consisted largely of interest on tax-exempt municipal bonds. As Washington looks…to eliminate tax preferences for the wealthy, why not eliminate this exemption? …Nearly all of those bondholders are either for-profit corporations or individuals with high incomes. The higher your tax bracket, the greater the value of the tax preference… muni bonds have an unfortunate feature…subsidies are linked to the interest rate. That means issuers who must pay higher interest rates get more valuable subsidies. Perversely, the worse a municipality’s credit, the greater incentive it is given to borrow more money.

Needless to say, it’s not a good idea to have a tax break that benefits the rich while subsidizing profligate states like New Jersey and Illinois.

In a column for Real Clear Policy, James Capretta analyzes how Democrats are working hard to preserve a big loophole.

The push to get rid of the Cadillac tax is short-sighted for both parties, but particularly for the Democrats. …In its estimate of H.R. 748, CBO projects that Cadillac tax repeal would reduce federal revenue by $200 billion over the period 2019 to 2029, with more than half of the lost revenue occurring in 2027 to 2029. …When examined over the long-term, repeal of the Cadillac tax is likely to be one of the largest tax cuts on record. …If the Cadillac tax is repealed, the government will have less revenue to pay for the spending programs many in the party want to expand. And Republicans will be able to say that it was the Democrats, not them, who paved the way for this particular trillion dollar tax cut.

Not only is it a big tax cut to repeal the Cadillac tax, it’s also a tax cut that benefits the rich far more than the poor.

Here are some distributional numbers from the left-leaning Tax Policy Center. I’ve highlighted in red the most-important column, which shows that the top-20 percent get more than 42 percent of the tax cut while the bottom-20 percent get just 1.2 percent of the benefit.

For what it’s worth, I don’t care whether tax provisions tilt the playing field to the rich or the poor.

I care about good policy.

That’s why I like the Cadillac tax, even though it was part of the terrible Obamacare legislation.

In other words, I think principles should guide policy.

My Democratic friends obviously disagree. They beat their chests about the supposed moral imperative to “soak the rich,” but they’re willing to shower the wealthy with big tax breaks so long as key interest groups applaud.

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Refundability = Redistribution

I generally identify three big problems with the tax code.

• High tax rates on productive behavior.
• Double taxation of saving and investment.
• Loopholes to encourage inefficiency.

But it may be time to include another item. Politicians have learned how to use “refundability” as a tool to redistribute income through the tax system.

A “refundable” provision gives money to selected people who file tax returns, even if they don’t pay any tax.

In other words, refundability isn’t the same as over-paying your taxes and then getting your money back after filing a tax return.

Nor is it like a traditional tax preference, where you can lower your tax bill if you do something politicians like – such as having a mortgage or contributing to charity.

With refundability, you get money even if your tax liability is zero.

For instance, the “earned income tax credit” is now the federal government’s fastest-growing redistribution program and 88 percent of the money is actually spending rather than a tax break.

Writing about this issue back in 2010, I referred to refundability as a form of political alchemy. Politicians can increase spending but pretend they are cutting taxes.

And it’s a bipartisan problem. Republicans utilize this gimmick and Democrats utilize this gimmick.

The most-recent example is a proposal by Senators Mitt Romney (R-UT) and Michael Bennet (D-CO), and I’ve highlighted the relevant portions of their press release.

Create a New Young Child Tax Credit: Create a new tax credit of $2,500 per child for children up to age six. The first $1,500 would be fully refundable, meaning that every taxpayer receives that amount regardless of income (up to the current law phase-out levels of $200,000 for individuals and $400,000 for couples). The next $1,000 would phase in at a 15 percent rate beginning at the first dollar of income, and begin phasing down at current law income thresholds. Reform Existing Child Tax Credit: Make critical reforms to a key measure that provides a $2,000 credit per child for children from age six up to age 17, including eliminating the current $1,400 cap on refundability, making the first $1,000 per child fully refundable regardless of income up to the phase-out threshold, and making the next $1,000 per child phase-in at a 15 percent rate starting at the first dollar income.

To make matters worse, Romney and Bennet want to finance this additional redistribution spending by imposing capital gains taxes on the assets of dead people.

So more spending financed by higher taxes. Perhaps now people will understand why I was so hostile to Romney when he was running for President in 2012.

I’ll close with a comment about political honesty and transparency.

If Senators Romney and Bennet proposed to have the government send checks to people for having kids, I wouldn’t support that idea. But I would give them credit for introducing an honest proposal for more redistribution.

But they instead chose to mask their agenda by laundering additional redistribution through the tax code.

The bottom line is that we already have record amounts of redistribution in America. And refundable provisions of the internal revenue code are the fastest-growing type of redistribution.

Adding to the problem is not a good idea.

P.S. Unsurprisingly, as is so often the case with redistribution programs, there’s rampant fraud with the EITC and other refundable tax provisions.

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The Best Part of USMCA Is that Most of NAFTA Is Preserved

One of my big 2018 worries was that Trump would wreck NAFTA.

We dodged that bullet, but my two cents is that the new deal is underwhelming.

The bottom line is that his revisions to the pact – which is now called USMCA – create some new barriers to trade.

But there also are a few good parts of the deal.

And at least a source of economic uncertainty is now in the past. Indeed, that’s the real victory. There’s now presumably no risk that Trump will cause a meltdown of North American trade.

The Wall Street Journal‘s editorial hits the nail on the head.

Donald Trump is the most protectionist American President since Herbert Hoover, so one of our trade-policy goals of the last three years has been damage control. That’s the best case now for supporting Mr. Trump’s revisions to the North American Free Trade Agreement…  the new U.S.-Mexico-Canada trade deal puts to rest Mr. Trump’s threats to abandon the 1994 agreement and blow up continental trade. The new deal preserves most of the tariff-free trade in the original Nafta. …There’s particular political value in committing both Mexico’s President Andrés Manuel López Obrador, the left-wing economic nationalist known as AMLO, and Mr. Trump, the Republican mercantilist, to open trading rules for North America.

Sadly, the Trump Administration pushed for some European-style managed trade and regulatory harmonization.

The shame is that in many respects the new deal is worse than Nafta, especially its bows to politically managed trade. …This raises the cost of manufacturing, making North American products less competitive worldwide. Also reducing North American competitiveness is a new rule mandating that 40% of an auto qualifying for tariff-free trade in the region has to be produced by workers earning $16 an hour. Mandating wage rates ignores the relationship between productivity and output and sets a bad precedent for future trade deals. …The unions battered Mexico to allow a new enforcement process that will give American unions a new way to intrude in Mexican labor disputes. …North American auto production costs will also rise thanks to a new layer of protection for U.S. steel. The new deal mandates that 70% of steel used in North American vehicles must be made on the continent… Our concern now is that the deal’s concessions to politically managed trade will become the new baseline for future negotiations. …Senators will have to consider whether these bad precedents are worse than the benefit of saving most of the original Nafta.

I mentioned in the interview that the International Monetary Fund did an analysis of USMCA.

Here’s what the IMF set out to measure.

This paper uses a global, multisector, computable-general-equilibrium model to provide an analytical assessment of five key provisions of USMCA: (1) higher vehicle and auto parts regional value content requirement, (2) new labor value content requirement for vehicles, (3) stricter rules of origin for USMCA textile and apparel trade, (4) agricultural trade liberalization that increases U.S. access to Canadian supply-managed markets and reduces U.S. barriers on Canadian dairy, sugar and sugar products, and peanuts and peanut products, and (5) trade facilitation measures. In the context of successful ratification of USMCA, the paper also examines the effect of the removal of U.S. tariffs on steel and aluminum imports from Canada and Mexico and their reciprocal withdrawal of surtax countermeasures.

And what are the results?

Mostly nothing. There are  few good provisions and a few bad provisions, so the net result is trivial.

Indeed, it’s worth emphasizing that the the most unambiguously positive result will be the removal of Trump’s anti-growth taxes on imports of steel and aluminum.

At the aggregate level, effects of the USMCA are relatively small. According to the analysis of this paper, key provisions in USMCA would lead to diminished economic integration in North America, reducing trade among the three North American partners by more than US$4 billion (0.4 percent) while offering members a combined welfare gain of US$538 million. Effects of the USMCA on real GDP are negligible. …The results show that the tighter rules of origin in the auto sector and the labor value content requirement would not achieve their desired outcomes. The new rules lead to a decline in the production of vehicles and parts in all three North-American countries, with shifts toward greater sourcing of both vehicles and parts from outside of the region. …The three countries would gain much from ending the dispute triggered by the U.S. tariffs on steel and aluminum. USMCA scenario is extended to include the removal of U.S. steel and aluminum tariffs and a reciprocal elimination of Canadian and Mexican retaliatory import surtaxes. The extension would increase the welfare gain for the Canada, Mexico and the United States by $2.5 billion.

P.S. I mentioned an ideal free trade agreement in the interview. I also should have pointed out that unilateral free trade also is a good option. Assuming, of course, one understands the benefits of trade.

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Don’t Copy the United Kingdom’s Government-Run, Single-Payer Health System

I’m on my way back to the United States from England. My election-week coverage (starting here and ending here) is finished, but I’m still in the mood to write about the United Kingdom.

Yesterday, I shared some “Great Moments in British Government” and today I want to look at the U.K.’s single-payer health scheme.

The National Health Service (NHS) is inexplicably popular. Boris Johnson and Jeremy Corbyn basically competed over who would dump the most money into the system.

This near-universal affection is a mystery. There’s a lot of data suggesting the system doesn’t work.

Consider these details from a column by a British doctor.

One of the most curious political phenomena of the western world is the indestructible affection in which the British hold their National Health Service. No argument, no criticism, no evidence can diminish, let alone destroy, it. …Yet again, however, the NHS is in ‘crisis.’ The British Red Cross has called the present situation an incipient humanitarian crisis, as if the country were now more or less in the same category as Haiti after a hurricane… The current NHS has a budget 50 per cent greater than it had 10 years ago. It employs 25 per cent more doctors than it did then. …but the net result, according to those who say the present situation is the worst ever, is that it is less able than ever before to perform satisfactorily its most elementary tasks such as treating emergencies promptly. …The difference in the standard mortality rate of the richest and poorest is now almost double what it was when the NHS began. …in 2014 the Commonwealth Fund of New York, a foundation whose purpose is to promote an effective, efficient and equitable health care system, published a report in which it compared 11 western health care systems. …The measure on which it was next to worst was the number of deaths preventable by health care. …thousands of people die every year in Britain who would have been saved in any other country in Europe.

Here are some passages from a recent editorial by the Wall Street Journal.

The NHS managed to treat only 83.6% of emergency-room patients within four hours in October, compared to 89.1% a year earlier and well short of the government’s target of 95%. …The NHS also missed its target for 93% of patients with suspected cancer to be seen by a specialist within two weeks of referral by a family doctor. In September, 90.1% of patients saw a specialist within two weeks, down from 91.2% in September 2018. A bureaucrat or Senator Elizabeth Warren might think that’s good enough for government work. But it’s definitely not for the nearly 10% of patients and their families who had to live with a suspected cancer diagnosis… Politicians who want a U.S. version of the NHS via Medicare for All should explain why they want Americans to catch this British disease.

Here are some insights from a former British hospital director.

…the people at the very top of the NHS’s regional and national organisations still truly believe in command and control. They are the only people left who still believe in the power of the five year plan to solve pressing public policy problems. They set targets in the same way as the managers of the Soviet tractor factories… The hospital I was involved in had a problem with its A&E waiting times. We were provided with “help” from multiple NHS intervention teams. There were so many of them that they arrived in a bus… Each of them wanted slightly different information, each had a different view of what the problem was… After several weeks of this they came up with an action plan containing 147 individual actions, each of which then had to be measured and monitored and reported back to the intervention teams. We all knew that the action plan was there to tick the box required by the central bureaucracy, not to solve the problem. …Every profession has its own powerful union, dressed up as a professional body, that is quite happy to hold their employer to ransom. When I was on the hospital board it took two years of negotiations to get the pharmacists to work shifts so that the pharmacy could stay open until 7pm.

Even the left-leaning Guardian recognizes there are major problems.

British households will need to pay an extra £2,000 a year in tax to help the NHS cope with the demands of an ageing population, according to a new report that highlights the unprecedented financial pressures on the health system. …The report said the NHS has been struggling to cope… Niall Dickson, chief executive of the NHS Confederation, which commissioned the report and represents 85% of NHS bodies, said: “This report is a wake-up call. And its message is simple – if we want good, effective and safe services, we will have to find the resources to pay for them.” …“If we are to have a health and social care system which meets our needs and aspirations, we will have to pay a lot more for it over the next 15 years. This time we won’t be able to rely on cutting spending elsewhere – we will have to pay more in tax…” The report said…the money would have to be found from the three main sources of government revenue: income tax, VAT or national insurance.

An expert from the U.K.’s Taxpayers Alliance exposes some warts in the NHS.

Hardly a day goes by without stories of how cash-strapped the service is and how it is on the brink of collapse. According to pretty much everyone in the newspapers, on the TV, and on social media the solution is simple – more money. …The NHS is certainly in a sickly state, but more money is not the solution. International league tables frequently rank the NHS near the bottom in terms of healthcare quality. Moreover, the UK ranks 19th out of 23 for mortality amenable to healthcare and 20th out of 24 developed countries for cancer survival. The failings of the NHS are perhaps best summed up by The Guardian…: “The only serious black mark against the NHS was its poor record on keeping people alive”. …A specific ‘NHS tax’ is a particularly bad idea. …throwing more money at the NHS is not an adequate solution. Scotland spends more money per capita on healthcare than England, but has longer waiting times for appointments and slower response times for ambulances. …As the head of the NAO Amyas Morse observed… “Over the last ten years, there has been significant real growth in the resources going into the NHS, most of it funding higher staff pay and increases in headcount. The evidence shows that productivity in the same period has gone down, particularly in hospitals.”

Sally Pipes of the Pacific Research Institute also reveals some NHS shortcomings.

The United Kingdom’s single-payer system is in turmoil. It’d be foolish to import that failed model. The NHS has rationed care for decades. But wait times and delays have gotten markedly worse in recent months. The NHS recently canceled 55,000 non-urgent operations… Last month, nearly 15 percent of emergency-room patients had to wait more than four hours to be seen by a physician. The conditions are so bad in U.K. hospitals that, in a letter to the nation’s government, 68 British emergency room physicians recently complained about patients “dying prematurely in corridors” as a result of overcrowding. …no amount of money can fix a system in which government bureaucrats, and not markets, determine how to distribute healthcare resources.

Bruce Bawer is certainly not impressed with the NHS.

…the Brits have been brainwashed for generations into thinking their NHS is some kind of miracle. …What makes this NHS-worship especially grotesque is that the NHS, far from being successful, is a world-class disaster. Last July the BBC reported that the NHS was “increasingly” rationing such treatments as “hip and knee replacements and cataract surgery … as well as drugs for conditions such as arthritis.” …the NHS has always “covertly” rationed health care…cutting corners, canceling operations and doctor appointments, and extending already long waiting times even for urgent treatments. In October came reports that patients’ obesity and tobacco use were increasingly being used as excuses for denying them care. In November, a Cambridge University study concluded that 120,000 Brits had perished unnecessarily during the previous seven years…hospitals all over Britain — including operating rooms and maternity wards — were infested by cockroaches, maggots, insects, and rats. …the NHS is no role model. On the contrary, its history is a cautionary tale — and its prospects are nothing less than nightmarish.

Charles Hughes of the Manhattan Institute shares some grim news about the NHS’s performance.

A tracker from the BBC found that for 18 months hospitals across England, Wales, and Northern Ireland have failed to meet any of their three key targets, namely four-hour waits at the emergency department, cancer care within 62 days, and treating at least 92 percent of patients for planned hospital care or surgery within 18 weeks.  Waiting lists have ballooned. As of August 2017, the most recent month of data available, 409,000 had been waiting longer than 18 weeks for hospital treatment, an increase of almost 73,000 from the previous August. The median wait now stands at 7.1 weeks. …Citizens dissatisfied with rationing and wait times are turning to alternative options, forbidden in Canada. About 10 percent of people purchase supplemental private insurance for more timely treatment, many through company offerings. …Profit-driven hospital firms have seen a 15-25 percent year-on-year increase in the number of patients paying for their treatment themselves. People are also venturing abroad in their quest to get needed medical care. According to the Office of National Statistics, the total number of people leaving the U.K. for medical care surged from 48,000 in 2014 to almost 144,000 in 2016.

Some of the rationing and delays are simply due to government incompetence.

Some of it involves targeting certain segments of the population.

The NHS will ban patients from surgery indefinitely unless they lose weight or quit smoking, under controversial plans drawn up in Hertfordshire. The restrictions – thought to be the most extreme yet to be introduced by health services – immediately came under attack from the Royal College of Surgeons. …In recent years, a number of areas have introduced delays for such patients – with some told operations will be put back for months, during which time they are expected to try to lose weight or stop smoking. …The criteria also mean smokers will only be referred for operations if they have stopped smoking for at least eight weeks, with such patients breathalysed before referral.

My understanding is that the NHS does a good job with emergency care (you get maimed in a car accident) and a decent job with routine care (your annual check-up).

But you’re in big trouble if you have a chronic condition. Like people with cancer in Scotland.

More than 1,300 cancer patients in Scotland suffered agonising delays of more than two months to start treatment last year in breach of government targets. New figures show that, on average, 110 patients every month waited longer than 62 days for medical care after they were red-flagged by doctors for suspected cancer. The disclosure has prompted a wave of fresh criticism of the SNP, which in 2007 made a manifesto pledge to “ensure” suspected cancer patients were diagnosed and treated within 62 days.

I want to close by basically replicating some of my conversations from this past week with ordinary people in and around London.

When I highlighted shortcomings of the NHS, they routinely got defensive, admitted that their system isn’t perfect, and then attacked the American health system.

I think I surprised them by then stating that the U.S. healthcare system is a convoluted mix of waste and inefficiency.

I basically tried to give them this short speech, pointing out that our problems also are caused by government.

The Brits mess up their system by having the government directly provide medical care. We mess up our system with government-created third-party payer. In either case, the results aren’t pretty.

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Great Moments in British Government

Technically, my coverage of U.K election week began last Monday with a look at Jeremy Corbyn’s radical statism, and ended yesterday with some analysis of Boris Johnson’s victory.

But since I’m still in England, this is an opportune time for a new edition of Great Moments in British Government.

For those who aren’t regular readers, I should add that “Great Moments” is a sarcastic term for odd stories that illustrate the incompetence and venality of government (state, local, foreign, etc).

We’ll start with a story that shows how insiders use government as a racket to enrich their lifestyles.

Local councils are spending millions on luxury cars for mayors and officials in “ceremonial” roles, an investigation has found. Over the past three years, 207 local authorities have spent more than £4.5million on vehicles including Bentleys, Jaguars and S-class Mercedes, information disclosed under the Freedom of Information Act reveals. The cars were used by mayors, lord mayors or chairmen. The TaxPayers’ Alliance, a campaign group which carried out the investigation, said the money went on officials who “often fulfil ceremonial duties within their local authority and serve as the ‘first citizen’.

Sounds like Washington’s gilded class!

For our next example, bureaucrats in the United Kingdom don’t do a very good job of teaching traditional subjects such as math and reading, so they’ve decided to try sharing their knowledge on a rather unconventional topic.

Children as young as six are being taught about touching or ‘stimulating’ their own genitals as part of classes that will become compulsory in hundreds of primary schools. Some parents believe the lessons – part of a controversial new sex and relationships teaching programme called All About Me – are ‘sexualising’ their young children. …Documents obtained by The Mail on Sunday detail how All About Me classes involve pupils aged between six and ten being told by teachers that there are ‘rules about touching yourself’. An explanation of ‘rules about self-stimulation’ appears in the scheme’s Year Two lesson plan for six and seven-year-olds. Under a section called Touching Myself, teachers are advised to tell children that ‘lots of people like to tickle or stroke themselves as it might feel nice’. …In one, pupils are told that when a girl called Autumn ‘has a bath and is alone she likes to touch herself between her legs. It feels nice’.

For what it’s worth, I wouldn’t have wanted my kids being exposed to this kind of topic, but I must admit that bureaucrats probably have some expertise on the matter.

Next, we have a story about a woman getting fined for feeding birds.

Neighbours complained about birds flocking to Maureen Francis’ garden after she began feeding them with bird seed and other food… Wiltshire Council gave Francis the protection notice after receiving complaints and told her she could only put out one ‘small caged bird feeder’. But she refused to comply with their demands, leading to the council taking her to court ‘for the sake of the neighbours’. When Francis failed to attend the hearing last week, magistrates convicted her of failing to comply with a protection notice in her absence. She was fined £250 for over feeding the animals and ordered to pay almost £1,600 in costs. Councillor Jerry Wickham, Wiltshire Council’s cabinet member for public protection, said: “Our officers made numerous attempts to engage with Mrs Francis to try and resolve this problem. “We were reluctant to take legal action but for the sake of the neighbours, prosecution was the only option.”

Gives over-criminalization a whole new meaning.

Last but not least, British officials decided it’s okay if a two-second journey is replaced by a one-hour trip.

Motorists in southwest England will need to pay special attention when driving through Dorset County next week, where officials are putting a 41-mile detour around a 65-foot stretch of construction work. …The small section of road A352 in Godmanstone, Dorset, will be closed Monday through Friday while construction crews work on a new sewage system… The detour is estimated to take an hour to complete. The closed portion of the road would take just over two seconds to travel at the 30 mph speed limit. …The council acknowledged that most residents will ignore the lengthy detour and use smaller roads to get around the construction work. Anyone caught using the closed stretch of road will be fined $1,291.

A few years ago, a clever entrepreneur in the United Kingdom dealt with a similar detour by building a private toll road.

I don’t know if such an option exists in this case, but I can state with considerable confidence that this impossibly inconvenient detour wouldn’t be an option if a private road company was making a sewage repair.

Why? Because private companies cater to customers.

Which is a good excuse to re-share this classic scene from Ghostbusters.

Amen.

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U.K. Election Week, Part V: A Tory Landslide for Brexit and Beyond

I was very surprised by the 2016 election in the United States, but I didn’t have a rooting interest, so I watched the results mostly for reasons of morbid curiosity.

Because of my support for Brexit, by contrast, I was intensely interested in the results of yesterday’s election in the United Kingdom.

So you can imagine my joy when the BBC announced at 10:00 last night that Boris Johnson and the pro-Brexit Conservative Party were going to win a landslide.

Here are maps showing the results, as well the seats that changed hands (it’s a parliamentary system, so a party that wins a majority of seats can form a government).

At the risk of oversimplifying, the Conservative Party (the Tories) prevailed because they picked up dozens of working class seats. Like American Democrats (at least in 2016), the Labour Party has been captured by the urban left and lost touch with ordinary people.

But here’s the data that I find most encouraging.

When asked before the election about why they might be worried about a Corbyn government, every single group of voters (even Corbyn supporters!) was concerned that he would spend too much money.

And many of them also were concerned he would damage the economy.

Why is this data encouraging?

Because we’re always told about polls suggesting the people support bigger government. I’m skeptical of these polls because they basically ask voters whether they would like Santa Claus to exist. So it’s not a big surprise the people say they want free things from government.

This data, however, suggests that – when push comes to shove – they understand that freebies aren’t free. As Margaret Thatcher warned, left-wing governments eventually will run out of other people’s money.

Now that Boris Johnson has won and has a big majority, what comes next?

I’m assuming a genuine Brexit will happen (yes, politicians have a nasty habit of doing bad things, but I can’t imagine Johnson engaging in the level of betrayal that would be required to strike a deal for a Theresa May-style Brexit in name only).

So I’ll be watching two other issues.

1. Will Boris become the next Margaret Thatcher? I’ve already fretted that he’s too sympathetic to big government, but hopefully he pursues a pro-market agenda. Lower tax rates and genuine federalism (explained here by the Institute of Economic Affairs) would be a good place to start.
2. Will the U.K. and E.U. agree to a good trade deal? In hopes of avoiding regulatory competition, the European Union doubtlessly wants any future trade deal with the U.K. to be based on regulatory harmonization. That would be very bad news. The U.K. should pursue a pact based on genuine free trade and mutual recognition.

Fingers crossed for good answers to these questions.

P.S. Regarding yesterday’s election, there were some big losers other than the Labour Party. The people who sell property in places such as Monaco, Cayman Islands, Jersey, Bermuda, and Switzerland doubtlessly are disappointed that there won’t be an influx of tax refugees escaping a Corbyn-led government.

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U.K. Election Week, Part IV: A Final Edition of Brexit Humor (Hopefully)

Today’s election in the United Kingdom presumably will decide Brexit, more than three years after the British people voted to leave.

• If Boris Johnson wins, the government will honor the results of the 2016 referendum and extricate the United Kingdom from the European Union.
• If the other parties win enough seats to block a Tory majority, they almost certainly will undo Brexit, presumably by setting up a rigged second referendum.

So this is likely my last opportunity to share some Brexit-themed humor.

For today’s collection, we’ll start with a 1990s-era Bird & Fortune skit mocking Tory euroskepticism. Sort of Brexit-themed before Brexit.

Rather reminiscent of this example of British stereotyping.

For those who don’t really understand the ins and outs of Brexit, Europe, and the United Kingdom, here’s a video that’s guaranteed to leave you even more confused.

Next we have a PG-13 song from John Oliver, put together back in 2016 before the referendum.

You’ll notice that the song implies the U.K. would be hurt by leaving, so it’s worth noting that all the “Project Fear” predictions (the IMF being a typical example) were wildly wrong.

The U.K.’s economy has done better than continental Europe since Brexit was approved (in a just world, this would be the source of great embarrassment to the international bureaucracies and establishment voices who preached doom and gloom).

Indeed, the main selling point of Brexit is to enable more prosperity by escaping a slow-growth dirigiste European Union.

But I’m digressing. Let’s get back to humor. Here’s a French perspective on Brexit.

And here’s some satire from Ireland.

Here’s a joke that’s obviously anti-Brexit, but nonetheless is rather funny and worth sharing.

Since I’m disseminating lots of anti-Brexit humor today, here are some signs from people who presumably are not planning on voting for Boris Johnson.

This young lady is right about free trade, but wrong in thinking that approach requires a supranational government.

Here’s a clever mother-daughter duo.

I don’t know whether this comic is pro-Brexit or anti-Brexit, but he has a clever take on all the indecision that’s existed since the 2016 referendum (and he accurately explains the phony out-but-not-really-out Brexit that Theresa May wanted).

Speaking of indecision, we’ll wrap up with this cartoon that reflects some of the irritation that Europeans must be feeling as they wait to see what will finally happen.

 

If you want to peruse previous examples of Brexit-themed humor, I shared some satire shortly after the referendum in 2016, which included a very clever Hitler video.

I then shared some additional examples of Brexit humor earlier this year, including an amusing video message for the practitioners of Project Fear.

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U.K. Election Week, Part III: Remembering Margaret Thatcher

For two simple reasons, I want Boris Johnson to win a clear majority tomorrow in the elections for the British Parliament.

1. He’s not a lunatic socialist, like Jeremy Corbyn, the leader of the Labour Party and the British version of Bernie Sanders.
2. He’s promised a real Brexit, meaning the U.K. escapes a doomed-to-decline, ever-more-dirigiste European Union.

Beyond that, his platform is not terribly exciting for supporters of limited government.

Which makes me all the more nostalgic for Margaret Thatcher, the only good British Prime Minister in my lifetime (just as Ronald Reagan was the only good President in my lifetime).

I’ve previously shared two great videos of Thatcher, one about the real source of government funds and the other about the poisonous ideology of class warfare.

I can’t imagine Boris Johnson giving either speech.

Or making this statement.

Or giving these remarks.

As far as I know, Boris Johnson isn’t hostile to free markets and limited government.

He just doesn’t seem animated by a desire to shrink the public sector.

Thatcher, by contrast, was so sound on such issues that “Thatcherism” is now a term to describe good economic policy.

In a book review for City Journal, Alberto Mingardi celebrates Thatcherism.

Forty years on, Margaret Thatcher’s election as Great Britain’s first female prime minister still looks miraculous. …Right after World War II, Labour prime minister Clement Attlee, overly optimistic about the capacity of government to do great things, laid the foundations of the British welfare state. …The postwar economic consensus was so robust that it became known as Butskellism, since the policies of Rab Butler, the Conservative chancellor of the Exchequer from 1951 to 1955, and his Labour predecessor Hugh Gaitskell were indistinguishable. The glory days of interventionism didn’t last, however. By 1979, a third of the British workforce was employed by government, directly or indirectly, yet unemployment continued to rise throughout the 1970s. Inflation rose to double digits, exceeding 25 percent… Thatcher recognized the economic crisis as a failure of politics. She offered a gospel of government retrenchment and individual initiative that sounded outdated. She wanted to make people responsible again for their economic destinies, instead of entrusting their fates to state guidance. This meant denationalizing the British economy. Before Thatcher took office, “privatization” was a word out of science fiction; ten years after she left office, it was a global norm. She changed England and, by changing England, changed the world. …Thatcher aimed to stimulate self-reliance and independence, and she saw these virtues threatened by the culture of passivity that statism engenders. …the British political establishment always looked down on this shopkeeper’s daughter. And yet Thatcher’s defining quality, and the reason why we still speak of Thatcherism, is that she told people things that they didn’t want to hear.

And here are some excerpts about Thatcherism from a column by Roger Bootle for the U.K.-based Telegraph.

No previous British Prime Minister has had an ism named after them. …and if such an ism had been conjured up, it would surely not have been about economics. …“Thatcherism” was both substantial and essentially about political economy. …The main high intellectual influences, coming via Keith Joseph, were from Friedrich von Hayek and Milton Friedman. …Baroness Thatcher was ideological by nature. …When she first burst onto the stage it was a time for isms. Domestically, the 1970s had been a period of crisis. At various points, not just the economy but the whole system of democratic government in Britain seemed at the point of collapse. …Baroness Thatcher would have seen her ideological enemy then as “socialism”, which had brought the country low: excessive levels of government spending and taxation, lax financial discipline… Much of it was just the traditional liberal economic agenda, developed in the 19th century – free markets, free trade, competition, a small state, requiring only low levels of taxation, and financial probity. …Saying that this was just a retread of old 19th century liberalism doesn’t convey how radical these ideas were at the time, after decades in which markets were held under suspicion and even in a supposedly capitalist country like the UK, the state’s role in the economy was overwhelming. …there was more to Thatcherism than simply the liberal agenda. Classical liberalism was fleshed out with some more homespun beliefs – in value for money, efficiency, self-reliance, saving and wealth accumulation.

Warms my heart!

Speaking of which, I finally found some video of Margaret Thatcher’s famous line about socialists running out of other people’s money.

Shifting topics, nobody knows with total confidence whether Thatcher would have supported Brexit.

She was sympathetic to the original concept of Europe as a free-trade zone.

But as the free-trade pact began morphing into a pro-centralization supra-national government, she became increasingly hostile.

This video captures some of that skepticism.

For what it’s worth, I’m confident she would have been on the right side and supported Brexit.

I’ll close with an overall assessment of Thatcher’s overall economic record.

We’ll start with the United Kingdom’s score from Economic Freedom of the World.

As you can see, there was a dramatic increase in economic liberty during the Thatcher years.

The scores from EFW, which only exist in every fifth year, don’t exactly coincide with Thatcher’s tenure, but the trend is unmistakable.

Conversations with British experts lead me to state that she had three amazing accomplishments.

1. Radical reductions in tax rates on income, with the top rate falling from 83 percent (98 percent for investment income) down to 40 percent. Unsurprisingly, the rich paid more tax with lower rates, just as happened when Reagan lower the top tax rate.
2. Ending capital controls, meaning that people actually had the freedom to take money out of the country (many supposed experts advised against this liberalization, much as so-called experts advised Erhardt not to remove price controls in post-WWII Germany).
3. Industry privatization, which meant undoing the pure socialist policies that resulted in the nationalization of major industries (gas, telecom, steel, coal, transport, etc) and gave government ownership and control over the means of production.

Her only notable bad policy is that she increased the value-added tax.

I also give Thatcher credit for a better-than-expected record on spending restraint (the same is true for David Cameron), and I also think she deserves praise from helping to bring inflation under control.

To be sure, this simplified assessment only skims the surface. And it doesn’t address “sins of omission,” such as her inability to pare back the the country’s creaky government-run health care system (though she did some incremental reforms, such as internal markets).

Nonetheless, the bottom line is that Thatcher was an amazingly successful Prime Minister. For all intents and purposes, she saved the United Kingdom.

P.S. If you want to see my assessments of American presidents, I’ve looked at Reagan, Clinton, Hoover, Nixon, the second Bush, and Obama.

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U.K. Election Week, Part II: Political Humor

I realize the prospect of a hard-core socialist government for the United Kingdom isn’t funny. Nor is it amusing to think that the political class could undo Brexit and leave the country trapped inside a slowly dying European Union.

So many people are in no mood to laugh about what might happen in Thursday’s election.

Nonetheless, here’s some election-themed humor from London.

We’ll start with this modernized version of this classic scene from Love, Actually.

But two can play at this game.

Here’s an ad from a Labour candidate.

The choice at this election… #LoveActually #MerryXmas #Tooting pic.twitter.com/laP589NlMm

— Dr Rosena Allin-Khan (@DrRosena) November 22, 2019

Let’s not forget that there’s another political party, the Liberal Democrats.

Though they are a distant third place.

Unless, of course, pollsters are very creative in how they ask questions.

As is the case in the United States, many voters in the United Kingdom are not happy with their choices.

So this cartoon, featuring Guy Fawkes, who tried – but failed – to blow up Parliament in the early 1600s, makes a lot of sense.

Let’s close with some attention to the major candidates for Prime Minister.

Boris Johnson of the Conservative Party has a reputation for liking the opposite sex (sort of a British version of Bill Clinton).

Which has created some opportunities for amusing satire.

Most of the humor involving Jeremy Corbyn, by contrast, revolves around his statist ideology.

For instance, here’s an Advent Calendar from the Labour Party.

And here’s a look at the future if Corbyn wins the election.

Brits will have free broadband, but maybe not anything else.

Reminds me of this satirical poster from Obama’s 2012 campaign.

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U.K. Election Week, Part I: The Threat of Corbynomics

I’m currently in London for discussions about public policy, particularly the potential for the right kind of free-trade pact between the United States and United Kingdom.

I deliberately picked this week for my visit so I also could be here for the British election. As a big fan of Brexit, I’m very interested in seeing whether the U.K. ultimately will escape the slowly sinking ship otherwise known as the European Union.

But the election also is an interesting test case of whether people are willing to vote for socialism. The Brits actually made this mistake already, voting for Clement Attlee back in 1945. That led to decades of relative decline, culminating in a bailout from the International Monetary Fund.

Margaret Thatcher then was elected in 1979 to reverse Attlee’s mistakes and she did a remarkable job of restoring the British economy.

But do voters understand this history?

We’ll find out on Thursday because they’ll have the opportunity to vote for the Labour Party, led by Jeremy Corbyn, who is the British version of Bernie Sanders.

And he doesn’t hide his radical vision for state control of economic life. Here’s how the Economist describes Corbyn’s agenda.

…the clear outlines of a Corbyn-led government emerged in the manifesto. Under Labour, Britain would have a larger, deeper state… Its frontiers would expand to cover everything from water supply to broadband to how much a landlord may charge a tenant. Where the state already rules, such as in education or health, the government would go deeper, with the introduction of free child-care for pre-schoolers and a “National Care Service” for the elderly. …The government would spend £75bn on building 100,000 council homes per year, paid for from a £150bn “transformation fund”, a pot of money for capital spending on public services. Rent increases would be capped at inflation. The most eye-catching proposal, a plan to nationalise BT’s broadband operations and then offer the service free of charge… Surviving policies from 2017 include a plan to nationalise utilities, alongside Royal Mail and the rail network, and a range of new rights for workers, from a higher minimum wage to restored collective-bargaining rights. All told, government spending would hit 45.1% of GDP, the highest ratio in the post-war era outside of a recession and more than in Germany… To pay for it all, very rich people and businesses would be clobbered. Corporation tax would rise to 26% (from 19% now), which Labour believes, somewhat optimistically, would raise another £24bn by 2024.

As reported by City A.M., the tax increases target a small slice of the population.

Jeremy Corbyn…is planning to introduce a new 45 per cent income tax rate for those earning more than £80,000 and 50 per cent on those with incomes of £125,000 or more. The IFS…estimates that would affect 1.6m people from the outset, rising to 1.9m people by 2023-24. Labour’s policy would add further burden to the country’s biggest tax contributors, with the top five per cent of income tax payers currently contributing half of all income tax revenues, up from 43 per cent just before the financial crisis.  But the IFS warned the amount this policy would raise was “highly uncertain”, with estimates ranging from a high of £6bn to an actual cost of around £1bn, if the policy resulted in a flight of capital from the UK. Lawyers have previously warned that high net worth individuals are poised to shift billions out of the country in the event of a Corbyn government.

Is that a smart idea?

We could debate the degree to which upper-income taxpayers will have less incentive to be productive.

But the biggest impact is probably that the geese with the golden eggs will simply fly away.

Even the left-leaning Guardian seems aware of this possibility.

The super-rich are preparing to immediately leave the UK if Jeremy Corbyn becomes prime minister, fearing they will lose billions of pounds if the Labour leader does “go after” the wealthy elite with new taxes, possible capital controls and a clampdown on private schools. Lawyers and accountants for the UK’s richest families said they had been deluged with calls from millionaire and billionaire clients asking for help and advice on moving countries, shifting their fortunes offshore and making early gifts to their children to avoid the Labour leader’s threat to tax all inheritances above £125,000. …Geoffrey Todd, a partner at the law firm Boodle Hatfield, said many of his clients had already put plans in place to transfer their wealth out of the country within minutes if Corbyn is elected. …“There will be plenty of people on the phone to their lawyers in the early hours of 13 December if Labour wins. Movements of capital to new owners and different locations are already prepared, and they are just awaiting final approval.” …On Thursday, Corbyn singled out five members of “the elite” that a Labour government would go after in order to rebalance the country. …The shadow Treasury minister Clive Lewis went further than the Labour leader, telling the BBC’s Newsnight programme: “Billionaires shouldn’t exist. It’s a travesty that there are people on this planet living on less than a dollar a day.

Some companies also are taking steps to protect shareholders.

National Grid (NG.) and SSE (SSE) are certainly not adopting a wait-and-see approach to the general election. Both companies have moved ownership of large parts of their UK operations overseas in a bid to soften the blow of potential nationalisation. With the Labour manifesto reiterating the party’s intention to bring Britain’s electricity and gas infrastructure back into public ownership, energy companies (and their shareholders) face the threat of their assets being transferred to the state at a price below market value.

The Corbyn agenda violates the laws of economics.

It also violates the laws of math. The Labour Party, for all intents and purposes, wants a big expansion of the welfare state financed by a tiny slice of the population.

That simply doesn’t work. The numbers don’t add up when Elizabeth Warren tries to do that in the United States. And an expert for the Institute for Fiscal Studies notes that it doesn’t work in the United Kingdom.

The Institute for Fiscal Studies has told ITV News Labour's manifesto spending and taxation pledges are "colossal" and "not credible".

Read more: https://t.co/9IqX8DFX44 pic.twitter.com/6a8iJUyLWN

— ITV News (@itvnews) November 21, 2019

The bottom line is that Corbyn and his team are terrible.

That being said, Boris Johnson and the current crop of Tories are not exactly paragons of prudence and responsibility.

They’re proposing lots of additional spending. And, as City A.M. reports, Johnson also is being criticized for promising company-specific handouts and protectionist rules for public procurement.

In a press conference today, Johnson promised to expand Britain’s state aid regime once the UK leaves the EU. “We will back British businesses by introducing a new state aid regime which makes it faster and easier for the government to intervene to protect jobs when an industry is in trouble,” a briefing document said. Head of regulatory affairs at the Institute of Economic Affairs (IEA) Victoria Hewson said support for state aid was “veiled support for cronyism.” …A spokesperson for the Institute of Directors said: “It’s not clear how these proposals will fit with ambitions of a ‘Global Britain’. The Conservatives must be wary of opening a can of worms on state aid, it’s important to have consistent rules in place to resist the impulse of unwarranted protectionism.” Johnson also promised to introduce a buy British rule for public procurement. …IEA economics fellow Julian Jessop said: “A ‘Buy British’ policy is pure protectionism, and it comes with heavy costs.

Perhaps this is why John O’Connell of the Taxpayers Alliance has a rather pessimistic view about future tax policy. Here are excerpts of a column he wrote for CapX.

Theresa May’s government implemented a series of big state, high tax policies. Promises of no strings attached cash for the NHS; new regulations on net zero; tax cuts shelved and the creation of more quangos. After his surprise non-loss in the election, Corbyn shifted even further to the political left, doubling down on his nationalisation plans. All in all, the 2017 election result was terrible for people who believe in a small state. …A report from the Resolution Foundation found that government spending is rising once again, and likely to head back towards the heights of the 1970s over the coming years. The Conservatives’ recent spending review suggests state spending could be 41.3% of GDP by 2023, while Labour’s spending plans could take it to 43.3%. This compares to the 37.4% average throughout the noughties. Based on the manifestos, Labour are working towards a German-sized state, while the Tories’ plan looks more Dutch. Unsurprisingly we see this mirrored by the tax burden, which at 34.6% of GDP has already reached a fifty-year high. It is likely to increase further. …British taxpayers are presented with something of a Hobson’s choice: Boris Johnson will see taxes increase and spending shoot up, while Jeremy Corbyn has £1.2 trillion worth of unfunded spending rises just waiting to become unimaginable tax hikes for everyone. Whoever you vote for, you’ll get higher taxes, the question is just about how high.

Let’s close by looking at the big picture.

Here’s a chart showing the burden of government spending in the United Kingdom since 1900. I’ve augmented the chart to show the awful trend started by Attlee (in red) and then the positive impact of Thatcher (in green).

You can also see that Tony Blair and Gordon Brown did a bad job early this century, followed by a surprisingly good performance by David Cameron.

Now it appears that British voters have to choose between a slow drift in the wrong direction under Boris Johnson or a rapid leap in the wrong direction under Jeremy Corbyn.

Normally I would be rather depressed by such a choice. I’m hoping, however, that Brexit (assuming it actually happens!) will cause Boris Johnson to make smart choices even if he is otherwise tempted to make bad choices.

P.S. Unsurprisingly, Corbyn has been an apologist for thugs and dictators.

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Taxation, Benefits, and Relative Prosperity in Finland

I’ve written many columns about Sweden and Denmark over the past 10-plus years, and I’ve also written several times about Norway and Iceland.

But I’ve mostly neglected Finland, other than some analysis of the country’s experiment with “basic income” in 2017 and 2018.

Now, thanks to a very interesting column in the New York Times, it’s time to rectify that oversight. According to the authors, Anu Partanen and Trevor Corson, Finland is a great place with lots of goodies provided by taxpayers.

Finland, of course, is one of those Nordic countries that we hear some Americans, including President Trump, describe as unsustainable and oppressive — “socialist nanny states.”…We’ve now been living in Finland for more than a year. The difference between our lives here and in the States has been tremendous… What we’ve experienced is an increase in personal freedom. …in Finland, we are automatically covered, no matter what, by taxpayer-funded universal health care… Our child attends a fabulous, highly professional and ethnically diverse public day-care center that amazes us with its enrichment activities and professionalism. The price? About $300 a month — the maximum for public day care, because in Finland day-care fees are subsidized for all families. …if we stay here, …College would also be tuition free. If we have another child, we will automatically get paid parental leave, funded largely through taxes, for nearly a year… Compared with our life in the United States, this is fantastic.

Interestingly, the authors are not clueless Bernie Sanders-style leftists.

They fully understand and appreciate that Finland (like all Nordic nations) is not a socialist country.

…surely, many in the United States will conclude, Finnish citizens and businesses must be paying a steep price in lost freedoms, opportunity and wealth. …In fact, a recent report by the chairman of market and investment strategy for J.P. Morgan Asset Management came to a surprising conclusion: The Nordic region is not only “just as business-friendly as the U.S.” but also better on key free-market indexes, including greater protection of private property, less impact on competition from government controls and more openness to trade and capital flows. …What to make of all this? For starters, politicians in the United States might want to think twice about calling the Nordics “socialist.” …in Finland, you don’t really see the kind of socialist movement…, especially around goals such as curtailing free markets and even nationalizing the means of production. The irony is that if you championed socialism like this in Finland, you’d get few takers. …a 2006 study by the Finnish researchers Markus Jantti, Juho Saari and Juhana Vartiainen demonstrates…throughout the 20th century Finland remained — and remains to this day — a country and an economy committed to markets, private businesses and capitalism.

This is a very accurate assessment. Finland is more market-oriented than the United States in many categories.

Moreover, the country is ranked #21 for economic freedom out of 162 nations in Economic Freedom of the World, with a score of 7.80. That’s just .05 behind Taiwan and .09 behind Chile.

That being said, the burden of taxes and spending is rather onerous.

…after World War II, …Finnish capitalists also realized that it would be in their own long-term interests to accept steep progressive tax hikes. …the nation’s commitment to providing generous and universal public services…buffered and absorbed the risks and dislocations caused by capitalist innovation. …Visit Finland today and it’s obvious that the much-heralded quality of life is taking place within a bustling economy of upscale shopping malls, fancy cars and internationally competitive private companies. …Yes, this requires capitalists and corporations to pay fairer wages and more taxes than their American counterparts currently do.

The column concludes by suggesting that American capitalists follow the same model.

Right now might be an opportune moment for American capitalists to pause and ask themselves what kind of long-term cost-benefit calculation makes the most sense.

So should the United States copy Finland, as the authors suggest?

People would get lots of taxpayer-financed freebies, but there would be a heavy price. Taxes consume nearly 50 percent of an average family’s income (even higher according to some measures).

That’s compared to about 30 percent in the United States.

And there’s a very Orwellian aspect of the Finnish tax system. As the New York Times reported last year, everyone in the country has the right to know how much income you earn.

Pamplona can boast of the running of the bulls, Rio de Janeiro has Carnival, but Helsinki is alone in observing “National Jealousy Day,” when every Finnish citizen’s taxable income is made public at 8 a.m. sharp. The annual Nov. 1 data dump is the starting gun for a countrywide game of who’s up and who’s down. …Finland is unusual, even among the Nordic states, in turning its release of personal tax data — to comply with government transparency laws — into a public ritual of comparison. …A large dosage of Thursday’s reporting concerned the income of minor celebrities… The country’s best-known porn star, Anssi “Mr. Lothar” Viskari, was reported to have earned 23,826 euros (about $27,000).

Given the onerous level of Finnish taxes, it’s probably safe to say that “Mr. Lothar” is getting screwed more than he’s…um….well, you get the point.

So what’s the bottom line? Should America be more like Finland? Is the country reasonably successful because of high taxes, or in spite of high taxes?

The U.S. should not mimic Finland, at least if the goal is higher living standards. Finland has some advantages over the United States (including better business taxation), but the United States has more overall economic liberty.

And that presumably helps to explain why, based on data from the Organization for economic Cooperation and Development, the average American enjoys 40 percent higher living standards than the average Finn.

But the most compelling piece of data, for those who prefer apples-to-apples comparison, is that Americans of Finnish descent produce 47 percent more than Finns in Finland.

Is Finland a relatively rich nation? Yes.

Is Finland a relatively free nation? Definitely.

Is Finland a good example of western civilization? Unquestionably.

The bottom line is that Finland seems like a great country (I’ve never visited). All I’m saying is that Americans would not be as prosperous if we had Finnish-style taxation and Finnish-style spending.

P.S. Researchers at Finland’s central bank seem to agree with my concern.

P.P.S. And Finland’s former Prime Minister understood the downside of an excessive public sector.

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A Quiz to Identify Your Ideological Perspective

Since I’m an out-of-the-closet libertarian with a track record of more than 5000 columns, there’s not much mystery about my philosophical outlook.

However, knowing my weakness for this kind of thing, a reader sent me an online “Political Sextant Quiz” and I naturally couldn’t resist.

Some of the questions were easy.

For instance, I know we shouldn’t abolish wages since that would be an extreme version of price controls. So “disagree” was the only sane answer.

Likewise, it’s a no-brainer (at least for me) to answer that I want government limited to core public goods (though fire services easily could be privately provided).

Other questions were harder to answer.

For instance, what does “my culture” mean in this next question, and what does it mean to say I “support those of my culture”?

Lacking any additional information, I interpreted this first question to be about my view on western civilization (rule of law, individual rights, etc), which I like. On the other hand, liking my culture doesn’t mean I want to reflexively put one of my neighbors “over” someone else.

So I opted for “slightly agree.”

And I gave the same answer for the second question because capitalism has produced immense material prosperity, yet “more than enough” implies that additional economic growth would be meaningless.

Needless to say, I wasn’t really happy with these questions.

The ambiguous wording left me wondering whether my answers would be interpreted the wrong way (such as being opposed to additional levels of production)?

But when I clicked to get my score, I was largely satisfied.

Since I want to get rid of 90 percent of government, it makes sense that I’m 90 percent anarcho-capitalist. I’ve never been sure what it means to be a bleeding-heart libertarian compared to a regular libertarian, but 88 percent seems reasonable. And I got my highest grade, 92 percent, for minarchism, which seems to a good description of my actual position.

Anyhow, here’s the link to the Political Sextant Quiz. See if you like your results.

And if you want to do more of this kind of thing, I’ve shared several other quizzes over the past decade.

• The Political Compass test (I’m a “right libertarian”).
• The Definitive Political Orientation test (I’m a “right libertarian”).
• The Circle test (I’m a “minarchist”).
• The Libertarian Purity test (I’m a “hard-core libertarian”).
• The 8 Values test (I’m a “libertarian capitalist”).
• The world’s smallest political quiz (I’m a “100-percent libertarian”).
• The 5-dimensional quiz (I’m a “conservative libertarian total-isolationist nationalist traditionalist”).

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Class-Warfare Taxation, Government Spending, and Economic Growth

Arthur Okun was a well-known left-of-center economist last century. He taught at Yale, was Chairman of the Council of Economic Advisors for President Lyndon Johnson, and also did a stint at Brookings.

In today’s column, I’m not going to blame him for any of LBJ’s mistakes (being a big spender, creating Medicare and Medicaid).

Instead, I’m going to praise Okun for his honesty. Is his book, Equality and Efficiency: The Big Trade Off, he openly acknowledged that higher taxes and bigger government – policies he often favored – hindered economic performance.

Sadly, some folks on the left today are not similarly honest.

A column in the New York Times by Jim Tankersley looks at the odd claim, put forth by Elizabeth Warren and others, that class-warfare taxes are good for growth.

Elizabeth Warren is leading a liberal rebellion against a long-held economic view that large tax increases slow economic growth… Generations of economists, across much of the ideological spectrum, have long held that higher taxes reduce investment, slowing economic growth. …Ms. Warren and other leading Democrats say the opposite. …that her plans to tax the rich and spend the revenue to lift the poor and the middle class would accelerate economic growth, not impede it. …That argument tries to reframe a classic debate…by suggesting there is no trade-off between increasing the size of the pie and dividing the slices more equitably among all Americans.

Most people, when looking at why some nations grow faster and become more prosperous, naturally recognize that there’s a trade-off.

So what’s the basis of this counter-intuitive and anti-empirical assertion from Warren, et al?

It’s partly based on their assertion that more government spending is an “investment” that will lead to more growth. In other words, politicians ostensibly will allocate new tax revenues in a productive manner.

Ms. Warren wrote on Twitter that education, child care and student loan relief programs funded by her tax on wealthy Americans would “grow the economy.” In a separate post, she said student debt relief would “supercharge” growth. …Ms. Warren is making the case that the economy could benefit if money is redistributed from the rich and corporations to uses that she and other liberals say would be more productive. …a belief that well-targeted government spending can encourage more Americans to work, invest and build skills that would make them more productive.

To be fair, this isn’t a totally absurd argument.

The Rahn Curve, for instance, is predicated on the notion that some spending on core public goods is correlated with better economic performance.

It’s only when government gets too big that the Rahn Curve begins to show that spending has a negative impact on growth.

For what it’s worth, modern research says the growth-maximizing size of government is about 20 percent of economic output, though I think historical evidence indicates that number should be much lower.

But even if the correct figure is 20 percent of GDP, there’s no support for Senator Warren’s position since overall government spending currently consumes close to 40 percent of U.S. economic output.

Warren and others also make the discredited Keynesian argument about government spending somehow kick-starting growth, ostensibly because a tax-and-spend agenda will give money to poor people who are more likely to consume (in the Keynesian model, saving and investing can be a bad thing).

Democrats cite evidence that transferring money to poor and middle-class individuals would increase consumer spending…liberal economists say taxes on high-earners could spur growth even if the government did nothing with the revenue because the concentration of income and wealth is dampening consumer spending.

This argument is dependent on the notion that consumer spending drives the economy.

But that’s not the case. As I explained two years ago, consumer spending is a reflection of a strong economy, not the driver of a strong economy.

Which helps to explain why the data show that Keynesian stimulus schemes routinely fail.

Moreover, the Keynesian model only says it is good to artificially stimulate consumer spending when trying to deal with a weak economy. There’s nothing in the theory (at least as Keynes described it) that suggests it’s good to endlessly expand the public sector.

The bottom line is that there’s no meaningful theoretical or empirical support for a tax-and-spend agenda.

Which is why I think this visual very succinctly captures what Warren, Sanders, and the rest (including international bureaucracies) are proposing.

P.S. By the way, I think Tankersley’s article was quite fair. It cited arguments from both sides and had a neutral tone.

But there’s one part that rubbed me the wrong way. He implies in this section that America’s relatively modest aggregate tax burden somehow helps the left’s argument.

Fueling their argument is the fact that the United States now has one of the lowest corporate tax burdens among developed nations — a direct result of President Trump’s 2017 tax cuts. Tax revenues at all levels of government in the United States fell to 24.3 percent of the economy last year, the Organization for Economic Cooperation and Development reported on Thursday, down from 26.8 percent in 2017. America is now has the fourth lowest tax burden in all of the O.E.C.D.

Huh? How does the fact that we have lower taxes that other nations serve as “fuel” for the left?

Since living standards in the United States are considerably higher than they are in higher-taxed Europe, it’s actually “fuel” for those of us who argue against class-warfare taxation and bigger government.

Though maybe Tankersley is suggesting that America’s comparatively modest tax burden is fueling the greed of U.S. politicians who are envious of their European counterparts?

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Redistribution Programs and Work Requirements

Building on the success of state-level reforms in Kansas, Maine, Wisconsin, Alabama, and Georgia, the Trump Administration has proposed to tighten rules that impose work requirements on childless and able-bodied adults who receive food stamps.

Since I want to get Washington out of the business of redistribution, this is not the ideal solution.

But are work requirements better than the status quo?

Here’s some of what National Review wrote about the proposal.

Our food-stamp program has some bizarre loopholes… In theory, the program has a strict time limit for “ABAWDs,” or able-bodied adults without dependents… But in practice, the executive branch has broad discretion to waive the limit for large geographic areas with weak labor markets — and previous administrations used that discretion promiscuously. As of 2017, about a third of the U.S. population lived in waived areas. …Under the new rule, effective in April of next year, these waivers won’t be granted to areas with unemployment below 6 percent. And states will be far more limited in the geographical configurations they can request waivers for. …Many on the left complain about the rule simply because it will reduce the number of people on food stamps — by about 700,000, roughly 2 percent of total food-stamp enrollment… But…there is clearly room for cuts. (Despite the recovery, total enrollment is about double what it was in 2000.) …The 1996 welfare reform proved the effectiveness of this approach.

As you might expect, this proposal is causing angst for some lawmakers.

Congresswoman Marcia Fudge condemned the proposal in a column for the Washington Post.

…taking food from the tables of hungry Americans during the holidays…that’s the latest act of cartoonish villainy by the Trump administration. …the Agriculture Department played the part of the Grinch, finalizing a rule to cut billions of dollars from the Supplemental Nutrition Assistance Program (SNAP), formerly known as food stamps. The rule will remove nearly 700,000 from the program…, representing a callous escalation of the Trump administration’s war on people in need. …both red and blue states want the flexibility this rule will eliminate. The rule will dramatically reduce the flexibility of states to decide how best to serve the needs of their own citizens.

My view on food stamps (as well as other redistribution programs) is that Washington should have no role.

So if Congresswoman Fudge wants her state to give goodies to able-bodied adults with no children, that would be a decision for Ohio’s politicians (or, even more relevantly, Oregon’s politicians).

I’m fine with that type of flexibility, but there’s a catch that Ms. Fudge doesn’t mention. She wants taxpayers from across the country to subsidize that decision.

That’s not the way it should work. I’m all in favor of “the flexibility of states,” but that principle should apply to both raising money and spending money.

By the way, work requirements are not just an issue for the food stamp program.

There are also discussions about whether people getting Medicaid should have an obligation to work.

Writing for the Federalist, John Daniel Davidson applauds an initiative from the White House to move in that direction.

The Trump administration…will allow states to impose work requirements on abled-bodied adults to qualify for Medicaid. …it’s about time. …imposing work requirements on able-bodied adults will…help enrollees far more than Medicaid coverage will, mostly by giving them a strong incentive to secure full employment. …By putting millions of able-bodied adults on the Medicaid rolls, Obamacare created perverse incentive for those enrollees to limit their income so they could keep their Medicaid coverage. …Work requirements are a proven way to unwind perverse incentives and improve people’s lives. …progressives consider work requirements insulting and demeaning.

It was also a major focus of the very successful 1996 welfare reform legislation.

In an article for City Journal, Kay Hymowitz points out that law is still yielding big dividends.

…the Census Bureau released its report on the nation’s income, poverty, and health-insurance coverage for 2018. …poverty in single-mother households sank to its lowest rate . . . ever. What’s more, the decline took place entirely among black and Hispanic single-mother families. …this is a “Wow!” moment. …More black and Hispanic women have jobs and are working more hours. “The rise in full-time, year-round work led to an increase in incomes and earnings at the household level,” the Census Bureau found. Better yet, the growing number of hours worked by single mothers led to a decline in child poverty of 2.5 percentage points. …the 1996 welfare-reform law…overturned Aid to Families with Dependent Children, which had entitled poor single mothers to cash benefits. As a result, unemployment among the growing number of single mothers was high. Essentially, welfare reform said no more free lunch, instituting work requirements and replacing open-ended AFDC with a time-limited grant to poor mothers (TANF, or Temporary Assistance to Needy Families). …full-time, year-round work can reduce poverty and…poor minority women can improve their lives and the lives of their children through nine-to-five labor. Any “welfare-reform-is-a-failure” narrative should collapse under the weight of such demonstrated facts.

And it’s worth pointing out that one of America’s major redistribution programs – the EITC – is entirely based on work.

Recipients only get a handout if they also earn some money.

Regarding the desirability of work requirements, we can learn from what’s happened in other countries.

In an article from last year, Ryan Streeter of the American Enterprise Institute found good news from work-oriented reforms, especially in Nordic nations.

A majority of Americans, including 55 percent of people living in poverty, believe the purpose of welfare is to help people get on their feet, not just to dispense benefits. Eight in 10 low-income respondents believe working should be required to receive welfare benefits. …Welfare reformers might draw some lessons from unlikely places…the Scandinavian welfare systems are arguably more pro-work than ours… For instance, to deal with declining labor force participation, Denmark eliminated permanent disability benefits for people under 40 and refashioned its system to make employment central. Sweden reformed its welfare system to focus on rapid transitions from unemployment to work. Their program lowers jobless assistance the longer one is on welfare. …Similarly, the British government combined six welfare programs with varying requirements into a single “universal credit.” …An evaluation of the new program, which encourages work, found that 86 percent of claimants were trying to increase their work hours and 77 percent were trying to earn more, compared to 38 percent and 55 percent, respectively, under the previous system.

Regarding the reforms in the United Kingdom, here are some excerpts from a report by Emily Top for E21.

The UK overhauled its welfare system with the Welfare Reform Act 2012. …In addition to simplifying the programs into one, the Act required claimants to agree to a “Claimant Commitment,” in which they sought the services of a work coach to improve their job prospects and get hired. …the program has led to an increase in UK labor force participation as well as a decrease in dependence on benefits. During the same period that the labor force participation rate in the U.S. declined from 84 percent to 82 percent for prime age workers, the rate in the UK increased from 84 percent to 86 percent.

Let’s close by looking at some academic research on work requirements in the United States.

Three professors studied the impact of Bill Clinton’s welfare reform on recipients and found significant societal benefits.

The US Personal Responsibility and Work Opportunity Reconciliation Act (PRWORA) of 1996, often referred to as ‘welfare reform’, was a major policy shift in the US that sought to dramatically reduce dependence of single parents on government benefits by promoting work… The key strategy for reducing dependence was to promote employment by imposing work requirements as a condition for receiving benefits in concert with a lifetime limit on receipt of cash assistance. …The reforms have been successful in that welfare caseloads have declined dramatically – 78% since their peak in 1994. …In a series of recent papers, we investigated the effects of welfare reform in the US – which is still in effect today – on women’s illicit drug use and other types of crime… We found robust evidence that welfare reform led to a 10%–21% decline in illicit drug use among women at risk of relying on welfare, as well as associated declines in drug-related arrests (6%–7%), drug-related hospital emergency department episodes (7%–11%), and possibly drug-related prison admissions (11%–19%). These findings provide some support of the ‘mainstreaming’ argument underlying welfare reform. …We found that welfare reform led to decreases in female arrests for property crime – which is the type of crime women are most likely to commit (Campagniello 2014) – by 4–5%… The findings from this study point to broad-based work incentives – and, by inference, employment – as an important determinant of female property crime…

These are all good outcomes.

Though the best news – both for taxpayers and poor people – is contained in this chart from their research.

P.S. While the Trump proposal is not my ideal policy, it does compare well with the Obama Administration’s efforts to expand food stamp dependency – including bribes for states that signed up additional recipients.

P.P.S. With all redistribution programs, there is an ever-present challenge – highlighted by Thomas Sowell – of how to avoid trapping people in dependency with high implicit marginal tax rates.

P.P.P.S. There’s also a moral issue of whether people should feel ashamed for taking government handouts.

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Government Schools, the New York Times, and the Butterfield Effect

To help me follow policy developments, I get 30-plus daily emails from various news outlets and institutions, and I scroll through these messages to see what I should be reading.

Given my interest in fiscal policy, I’m always on the lookout for articles on tax reform and the burden of government spending.

But since I just wrote about the dismal performance of government schools as part of my series for National Education Week, I obviously noticed this story (highlighted in red) in an email from the New York Times.

My immediate reaction, given the wealth of evidence, was to scoff at the discredited notion that more spending is a key to better educational outcomes.

We have plenty of data showing that pouring more money into government schools doesn’t produce good results.

Anyhow, I clicked on the story and read that supposed experts are puzzled about stagnant academic performance.

The performance of American teenagers in reading and math has been stagnant since 2000, according to the latest results of a rigorous international exam, despite a decades-long effort to raise standards and help students compete with peers across the globe. …The disappointing results from the exam, the Program for International Student Assessment, …follow those from the National Assessment of Educational Progress, an American test that recently showed that two-thirds of children were not proficient readers. …Low-performing students have been the focus of decades of bipartisan education overhaul efforts, costing many billions of dollars, that have resulted in a string of national programs — No Child Left Behind, Race to the Top, the Common Core State Standards, the Every Student Succeeds Act — but uneven results.

By the way, we haven’t had a “decades-long effort to raise standards.”

What we really had is a decades-long effort to appease teacher unions by pouring more money into the existing school monopoly.

That was the real purpose of failed schemes like Bush’s No Child Left Behind (I call it No Bureaucrat Left Behind) and Obama’s Common Core.

I briefly thought how much fun I would have if I was an editor at the New York Times. Then the email summary would have looked like this.

To be fair, I don’t think spending (either a lot or a little) is the issue.

The real problem is the structure of our education system. We have a very inefficient monopoly that has been captured by the teacher unions, which means mediocre results.

It doesn’t matter that most teachers are well meaning and it doesn’t matter that most parents are well meaning. Until we replace the monopoly with school choice, things won’t get any better.

Let’s close with some speculation about whether the above story is an example of media bias?

Perhaps, but I think it’s most likely that it’s an an example of the “Butterfield Effect.” As I explained back in 2010, this is a term used to mock journalists for being blind to the real story.

A former reporter for the New York Times, Fox Butterfield, became a bit of a laughingstock in the 1990s for publishing a series of articles addressing the supposed quandary of how crime rates could be falling during periods when prison populations were expanding. A number of critics sarcastically explained that crimes rates were falling because bad guys were behind bars and invented the term “Butterfield Effect” to describe the failure of leftists to put 2 + 2 together.

In other words, the journalist who wrote the aforementioned story may not be biased. Or even a leftist.

But such people inhabit a world where government is universally perceived as a means of solving problems.

P.S. Here are some of my favorite examples of the “Butterfield Effect,” all of which presumably were caused by some combination of media bias and economic ignorance.

• A newspaper article that was so blind to the Laffer Curve that it actually included a passage saying, “receipts are falling dramatically short of targets, even though taxes have increased.”
• Another article was entitled, “Few Places to Hide as Taxes Trend Higher Worldwide,” because the reporter apparently was clueless that tax havens were attacked precisely so governments could raise tax burdens.
• In another example of laughable Laffer Curve ignorance, the Washington Post had a story about tax revenues dropping in Detroit “despite some of the highest tax rates in the state.”
• Likewise, another news report had a surprised tone when reporting on the fully predictable news that rich people reported more taxable income when their tax rates were lower.
• A New York Times article was headlined, “Trillions Spent, but Crises like Greece’s Persist,” indicating nobody realized spending was the problem rather than solution.
• The news staff of the Wall Street Journal also demonstrated their ignorance of the Laffer Curve with a story headlined: “Despite Top-Property Tax Rate in Connecticut, the State’s Capital Teeters on Bankruptcy.”

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Should Government Bureaucracies Be Relocated Outside the Beltway?

An utterly depressing statistic is that the Washington, D.C.-area is now the richest region of the country.

At the risk of understatement, that wealth is largely unearned. It’s mostly a reflection of overpaid bureaucrats, greedy politicians, fat-cat lobbyists, beltway-bandit contractors, and other insiders who have their snouts buried in the federal trough.

I’m not a fan of class warfare, but there’s one exception: It’s galling that lower-income and middle-class taxpayers across the nation are subsidizing a gilded class in Washington.

That’s the type of redistribution that should be ended first.

So what can be done to address this inequity? Is there an approach that will curtail D.C.’s entitled, self-aggrandizing elite?

In a column for the Wall Street Journal, Terry Wanzek, a state legislator from North Dakota, makes the case for new legislation that would shift government bureaucracies from Washington to the hinterland.

The Hawley-Blackburn bill calls for moving Agriculture and its more than 100,000 employees to Missouri. Other departments would go elsewhere: Commerce to Pennsylvania, Education to Tennessee, Energy to Kentucky, Health and Human Services to Indiana, Housing and Urban Development to Ohio, Interior to New Mexico, Labor to West Virginia, Transportation to Michigan, and Veterans Affairs to South Carolina. …The bill’s sponsors pitch their legislation as an employment program…but the main benefit would come from putting regulators into proximity with the people whose lives and businesses they regulate. …This would be a government “of the people”—something that is lacking as the administrative state inexorably grows in Washington, D.C.

This is an interesting proposal. But does that mean it’s a good idea?

Clyde Wayne Crews of the Competitive Enterprise Institute is not overly impressed.

In today’s Wall Street Journal, he opines that it would backfire.

The bill’s sponsors, Sens. Josh Hawley of Missouri and Marsha Blackburn of Tennessee, would send the Agriculture and Education departments to their respective states. Eight other federal departments and most nondepartment agencies would also be dispersed throughout the land, often to places intended to suit their functions—for example, the Transportation Department would be sent to Michigan to be near the auto industry. …The only understandable part of this plan is conservatives’ visceral desire for revenge. People across the county can see the massive houses Washington bureaucrats and consultants occupy, walled off in single-party strongholds like Fairfax, Va. …But since when did Republicans accept the idea that the federal government ought to be a premier job creator? The GOP insisted for decades that many New Deal agencies and subsequent government bodies should never have been created in the first place, and that their red tape and interference is a dominant cause of economic inefficiency. …It will be impossible to uproot or at least prune the bureaucracy once its seeds are spread to every state. …Would legislators from the “lucky” chosen states ever have the gumption to slash funding from agencies that employ thousands of their constituents and pay them generously? The HIRE Act would tie Middle America inextricably to big progressive government, remaking America in Washington’s image.

So who is right?

I wrote about this topic back in 2016.

Part of me liked the idea, though mostly for punitive reasons.

…it wouldn’t be a bad idea. …locate some bureaucracies in the dodgy parts of cities such as Detroit. Especially departments such as HUD and HHS since they helped cause the economic misery in inner cities. And the Department of Education could be placed somewhere like Newark where government-run schools are such awful failures.

But I concluded it would be a bad idea.

Shouldn’t we focus on shutting down counterproductive bureaucracies rather than moving them? …If we move bureaucracies (whether they are necessary ones or useless ones), does that create the risk of giving other parts of the nation a “public-choice” incentive to lobby for big government since they’ll be recipients of federal largesse? Will we simply get duplication, meaning a new bureaucracy somewhere in America without ever really getting rid of the original bureaucracy in Washington, DC?

So I’m siding with Mr. Crews over Mr. Wanzek.

P.S. I’ve already identified bureaucracies that should be terminated.

• Get rid of the Department of Housing and Urban Development.
• Shut down the Department of Agriculture.
• Eliminate the Department of Transportation.
• Abolish the Department of Education.
• Pull the plug on the Department of Energy.
• Phase out the Department of Veterans Affairs.
• Privatize the Postal Service.
• Dump the Small Business Administration.

Looking at this list, it reminds me that I need to make the case for the abolition of some other bureaucracies.

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A Primer on “Full Expensing” of Business Investment

Whenever I review a tax proposal, I automatically check whether it is consistent with the “Holy Trinity” of good policy.

1. Low marginal tax rates on productive activity such as work and entrepreneurship.
2. No tax bias (i.e., extra layers of tax) penalizing saving and investment.
3. No complicating preferences and loopholes that encourage inefficient economic choices.

A good proposal satisfies one of these three principles. A great proposals satisfies all of them.

And that’s a good way of introducing today’s topic, which is about whether we should replace “depreciation” with “expensing.” Or, for those who aren’t familiar with technical tax terminology, this issue revolves around whether there should be a tax penalty on new investment.

Erica York of the Tax Foundation has a nice summary of the issue.

While tax rates matter to businesses, so too does the measure of income to which those tax rates apply. The corporate income tax is a tax on profits, normally defined as revenue minus costs. However, under the current tax code, businesses are unable to deduct the full cost of certain expenses—their capital investments—meaning the tax code is not neutral and actually increases the cost of investment. …Typically, when businesses incur capital investment costs, they must deduct them over several years according to preset depreciation schedules, instead of deducting them immediately in the year the investment occurs. …the delay in taking deductions means the present value of the write-offs (adjusted for inflation and the time value of money) is smaller than the original cost. …The delay effectively shifts the tax burden forward in time as businesses face a higher tax burden today because they cannot fully deduct their costs, and it decreases the after-tax return on the investment. …Ultimately, this means that the corporate income tax is biased against investment in capital assets to the extent that it makes the investor wait years or decades to claim the cost of machines, equipment, or factories on their tax returns.

Here’s a visual depiction of how the current system works.

The key thing to understand is that businesses are forced to overstate their income, which basically means a higher tax rate on actual income (thus violating principle #1).

Back in 2017, Adam Michel and Salim Furth wrote about this topic for the Heritage Foundation.

Here is their main argument.

The current system gives companies a partial deduction for each dollar invested in the economy. The real value of the deduction depends on the vagaries of the tax code, future inflation, and the company’s cost of borrowing. The classification of investments by type and the somewhat arbitrary assignment of the number of years over which each investment must be written off are called depreciation schedules. The imperfect design of these schedules creates unequal tax rates on investment across industries. …Adopting full expensing would reduce effective tax rates everywhere, but especially in industries disfavored under the current system. The result would be more economically efficient: The tax code would no longer be steering investment to arbitrarily favored industries. …Expensing lowers the cost of capital investments. …Both the U.S. capital stock and the demand for labor to operate and service the new investments would be permanently larger. A larger capital stock and higher labor demand would increase the number of jobs and place upward pressure on wages.

A key takeaway is that the tax bias created by the current system is a penalty on new investment (thus violating principle #2).

And the current approach of depreciation also is incredibly complicated (thus violating principle #3).

Expensing can also significantly cut compliance costs. According to IRS research, business tax compliance costs are over $100 billion per year, representing a massive waste of money and effort. Other estimates place the cost of complying with depreciation schedules alone at over $23 billion annually, or 448 million hours each year. Considering that the total compliance cost for traditional C corporations is equal to 14 percent of their taxes paid, expensing could make major inroads toward simplifying business taxpaying and lowering compliance costs.

Unsurprisingly, some politicians are on the wrong side.

Not only are they against a neutral system based on expensing, Erica York explains that they want to make the current system even more biased against new investment.

…proposals to stretch deductions over longer periods of time, such as those from Senators Warren (D-MA) and Sanders (I-VT)…would increase the cost of capital, bias the tax code against investment, and lead to less capital accumulation and lower productivity, output, and wages.

Yes, I know readers are shocked to learn that “Crazy Bernie” and “Looney Liz” want to make a bad situation even worse.

Returning to the policy discussion, the fight over depreciation vs. expensing also matters for national competitiveness.

In another study for the Tax Foundation, Amir El-Sibaie looks at how the U.S. compares to other developed nations.

Currently, the U.S. tax code only allows businesses to recover an average of 67.7 percent of a capital investment (e.g., an investment in buildings, machinery, intangibles, etc.). This is slightly higher than the Organisation for Economic Co-operation and Development’s (OECD) average capital allowance of 67.2 percent. …Since 1979, overall treatment of capital assets has worsened in the U.S., dropping from an average capital allowance of 75.8 percent in the 1980s to an average capital allowance of 67.7 percent in 2018. Capital allowances across the OECD have also declined, but by a lesser extent over the same period: 72.4 percent in the 1980s to 67.2 percent in 2018. …The countries with the best average treatment of capital assets are Estonia (100 percent), Latvia (100 percent), and Slovakia (78.2 percent). Countries with the worst treatment of capital assets are Chile (41.7 percent), the United Kingdom (45.7 percent), and Spain (54.5 percent).

The bad news is that the United States is much worse than Estonia (the gold standard for neutral business taxation).

The good news is that we’re not in last place. Here’s a comparison of the United States to the average of other developed nations.

By the way, there are folks in the United Kingdom who want to improve that nation’s next-to-last score.

Here are some excerpts from a column in CapX by Eamonn Ives.

…successive governments have…cut the headline rate of corporation tax. …That said, some of the positive effects of the cuts to corporation tax were blunted by changes to the tax code which allow businesses to write off the cost of capital expenditure… Typically, corporate tax systems let firms deduct day to day expenses – like labour and materials – right away. However, the cost of longer-term investments – such as those in machinery and industrial premises – can only be deducted in a piecemeal manner, over a set period of time. …this creates a problem for businesses, because the more a tax deduction for capital investment is spread out, the less valuable it becomes to a firm. This is not only because of inflationary effects, but also due to what economists would call the time value of money… Thankfully, however, a solution is at hand to iron out this peculiarity. ‘Full expensing’ allows firms to immediately and entirely deduct the cost of any investment they undertake from their corporation tax bill.

He cites some of the research on the topic.

A 2017 study, from Eric Ohrn, found that in parts of America, full expensing has increased investment by 17.5%, and has increased wages by 2.5%. Employment also rose, by 7.7% after five years, as did production, by 10.5%. If the same results were replicated in the UK, the average worker could stand to earn a staggering additional £700 a year. Another academic study, this time from the UK itself, found that access to more generous capital allowances for small and medium sized enterprises which were offered prior to fiscal year 2008/09 increased the investment rate by 11%.

Let’s conclude.

When I discuss this issue, I usually start by asking an audience for a definition of profit.

That part is easy. Everyone agrees that profit is the difference between cost and revenue.

To show why depreciation should be replaced by expensing, I then use the very simple example of a lemonade stand.

In the start-up year for this hypothetical lemonade stand, our entrepreneur has total costs of $25 (investment costs for the actual stand and operating costs for the lemons) and total revenue of $30. I then explain the different tax implications of expensing and depreciation.

As you can see, our budding entrepreneur faces a much higher tax burden when forced to depreciate the cost of the lemonade stand.

For all intents and purposes, depreciation mandates that businesses overstate profits.

This is unfair. And it’s also bad economic policy because some people will respond to these perverse incentives by deciding not to invest or be entrepreneurial.

To be fair, businesses eventually are allowed to deduct the full cost of investments. But this process can take as long as 39 years.

Here’s another comparison, which shows the difference over time between expensing and a five-year deprecation schedule. I’ve also made it more realistic by showing a loss in the first year.

In both examples, our entrepreneur’s five-year tax bill is $3.

But the timing of the tax matters, both because of inflation and the “time value” of money. That’s why, in a good system, there should only be a tax when there’s an actual profit.

Needless to say, good tax reform plans such as the flat tax are based on expensing rather than depreciation.

P.S. This principle applies even if businesses are investing in private jets.

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