The race for the Democratic nomination is very depressing. All the candidates – even supposed moderates such as Biden and Buttigieg – are openly advocating a much bigger burden of government.
I’m hoping some of their proposals are simply election-year pandering, that they really don’t believe in statism, and that they would be reasonable if they got to the White House.
Some people speculate that Michael Bloomberg, the former New York City mayor, might be this year’s closet moderate. A few people have even sent me this CNN article as proof of his underlying rationality.
…when he was mayor of New York City, Bloomberg twice compared Social Security to a “Ponzi scheme” and repeatedly said cuts to that program as well as Medicare and Medicaid had to be part of any serious solution to reducing the federal deficit. …if there’s ever a Ponzi scheme, people say Madoff was the biggest? Wrong. Social Security is, far and away,” Bloomberg said in a January 2009 appearance… “We are giving monies out with the next guy’s money coming in and at the end of — when the music stops — it’s just not gonna be enough chairs for everybody,” Bloomberg said. …Bloomberg’s past comments are at odds with the mainstream positions within the Democratic Party. …During other radio appearances, Bloomberg called for passing Simpson-Bowles, the deficit cutting plan named after former Wyoming Republican Sen. Alan Simpson and former Clinton White House chief of staff Erskine Bowles.
I have mixed feelings after reading that article.
The good news is that Bloomberg at one point was semi-rational about entitlements.
He understood Social Security is a Ponzi scheme, meaning that the system is only made possible by having new people enter the scheme to finance promises made to people who joined earlier.
He recognized that some sort of corrective action was needed on entitlements because of enormous unfunded promises, driven by demographic change and poorly designed programs.
Here’s a simple way of thinking about Social Security. First, are people actually connected to reality? Do they understand math and demographics? If yes, they’re on the rational (left) side of this 2×2 matrix.
But even if people are rational and recognize there’s a problem, do they support the right type of reform (top half), which is personal retirement accounts?
As you can see, Bloomberg used to be in the bottom-left quadrant, which is bad but rational. Now he’s in the bottom-right quadrant, which is bad and irrational.
A politician who is good and rational will be in top-left quadrant.
P.S. Social Security technically isn’t a Ponzi scheme. That’s because people have the freedom to reject a con artist peddling a pyramid scam. With Social Security, by contrast, participants are legally required to be part of the scheme.
P.P.S. The logical assumption is that the top-right quadrant is empty other than a question mark. After all, any politicians who supports good policy presumably would also recognize there’s a problem. That being said, Trump could be the exception. He doesn’t think we have an entitlement problem, so he obviously belongs on the right side of the matrix. But if he decided to support individual accounts (Trump is very inconsistent on policy, but that does mean he is good on some issues), he could replace the question mark.
This video from the Center for Freedom and Prosperity is nearly 10 years old, so some of the numbers are outdated, but the seven reasons to reject tax increases are still very relevant.
I’m recycling the video because the battle over tax increases is becoming more heated.
Indeed, depending on what happens in November, we may be fighting against major tax-hike proposals in less than one year.
The one unifying principle on the left, as illustrated by this column for The Week by Paul Waldman, is the belief that Americans are under-taxed.
…as an American, when it comes to taxes you’ve got it easy. …we pay much lower taxes than most of our peer countries. In the United States, our tax-to-GDP ratio is about 26 percent, far below the 34 percent average of the advanced economies in the Organisation for Economic Co-operation and Development (OECD), and drastically less than some European countries (Denmark tops the list at 46 percent). …We have chosen — whether we did it consciously or not — to create a system that makes it easier for a small number of people to get super-rich, but also makes life more cruel and difficult for everyone else. …We could all pay more, and in return get more from government than we’re getting now. We just have to decide to do it.
This is a very weak argument since a cursory investigation quickly reveals that Americans have much higher living standards than people in other developed nations.
That’s a good thing, not a “cruel and difficult” consequence, though I’m not surprised that folks on the left are impervious to real-world evidence.
However, I am surprised when otherwise sensible people throw in the towel and say it’s time to surrender on the issue of taxes.
The latest example is James Capretta of the American Enterprise Institute.
…the GOP commitment, implied and explicit at the same time, to never, ever support a net tax increase, under any circumstance, is making sensible lawmaking far more difficult than it should be. It’s time to break free of this counterproductive constraint. …The no tax hike position got its start in the 1986 tax reform effort. Several business and policy advocacy organizations began asking members of the House and Senate, as well as candidates for seats in those chambers, to sign a pledge opposing a net increase in income tax rates. …The pledge became politically salient in 1992, when then President George H.W. Bush lost his bid for reelection. His loss is widely assumed to have been caused, at least in part, by his acceptance of a large tax hike…after having pledged never to increase taxes… Retaining the GOP’s absolutist position on taxes might be defensible if the party were advancing an agenda that demonstrated it could govern responsibly without new revenue. Unfortunately, Republicans have proved beyond all doubt that they have no such agenda. In fact, the party has gladly gone along with successive bipartisan deals that increased federal spending by hundreds of billions.
For what it’s worth, I don’t think Jim is theoretically wrong.
But every one of my options is a meaningless fantasy.
In the real world, those acceptable scenarios are not part of the discussion. Instead, two very bad things inevitably happen when tax increases are on the table.
The automatic default assumption is that tax increases should be 50 percent of any budget deal. That’s bad news, but the worse news is that the other 50 percent of the budget deal isn’t even genuine spending cuts. Instead, all we get is reductions (often illusory or transitory) in previously planned increases. The net result is bigger government (and it’s even worse in Europe!). This is why every budget deal in recent history has backfired – except the one that cut taxes in 1997.
Budget deals result in the worst types of tax increases for the simple reason that budget deals get judged by their impact on “distribution tables.” And since the make-believe spending cuts ostensibly will reduce benefits for lower-income and middle-class people, the crowd in Washington demands that the tax increases should target investors, entrepreneurs, business owners, and others with above-average incomes. Yet these are the tax hikes that disproportionately hinder growth.
The bottom line is that tax increases should be a no-go zone. If Washington gets more of our money, that will “feed the beast.”
But I sometimes wonder whether the more tangible threat to capitalism comes from self-described conservatives who say they support markets but embrace trendy ideas that would expand the size and scope of the federal government.
The people who gravitate to these ideas inevitably argue that a Reagan-style agenda of free markets and limited government is somehow inadequate.
They even make the laughable claim that the Republican Party in recent decades has been dominated by libertarian economic thinking. I’m not joking.
And they come up with creative justifications for bad ideas.
For instance, Oren Cass has concocted a “cost of thriving index” that purports to show ever-increasing economic pressure on families.
Cost-of-Thriving Index (COTI): the number of weeks of the median male wage required to pay for rent on a three-bedroom house at the 40th percentile of a local market’s prices, a family health insurance premium, a semester of public college, and the operation of a vehicle. …The COTI shows a declining capacity of a worker to meet the major costs of a typical middle-class household. As the COTI basket has become unaffordable, families have found workarounds, like having more household members work more hours, making do without, borrowing, and relying on government support. Each of these comes with its own costs, undermines the stability of families and the rationale for their formation, and creates high levels of stress and uncertainty. …The U.S. economy of recent decades has eroded, rather than reinforced, the American model of thriving, self-sufficient families.
Here’s his COTI graph, which supposedly shows that a breadwinner would have to work 53 weeks per year to buy what was easily affordable back in 1985.
I want to make a different point. So I’m going to ignore all the problems that exist with the methodology and data, and I’m going to assume – for the sake of argument – that Cass’ chart is accurate.
And the reason I’m willing to make that heroic assumption is that Cass inadvertently shows why bigger government and more intervention is a bad idea.
Here are the numbers he used to create his chart.
If you examine what’s happened with the different categories, you’ll quickly notice that almost all the increase in his index is the result of ever-high costs for health care and college.
Yet those are precisely the areas where there the role of government has increased.
The bottom line is that the chart should be modified to show the harmful impact of government.
The challenge for Cass is to somehow explain why more government is a good idea when his own numbers show that we’re getting bad results in the sectors where we already have lots of government.
Maybe, just maybe, there’s a lesson to be learned. Or a principle that should be applied.
Regardless, his views are wrong and easy to debunk.
Writing in the Washington Post, Francisco Toro opines about Bernie Sanders and Cuba.
…you can begin to glimpse the enormous concern Venezuelans and Cubans feel when we hear Bernie Sanders praise Fidel Castro’s education system. …Cuba’s overall educational performance is middling for the region: roughly similar to that of many other Latin American countries… There was never any need to build a police state to bring people to school — an insight so obvious, it’s ludicrous to even have to write it. …To Cubans and Venezuelans — who have witnessed much the same kind of propaganda — talk of Cuban educational prowess grates not because it’s wrong, exactly, but because it serves as a simple way to identify who’s ready to be duped by regime apologists. …When Sanders parrots Fidel’s propaganda, he fails the test.
What’s especially grating is that the propaganda is either false or misleading.
Marian Tupy and Chelsea Follett summarize just a few of the problems with fawning claims about Cuba’s performance.
…in a recent 60 Minutes interview on CBS. Senator Sanders applauded Cuba’s education and healthcare system. Potential Sanders supporters should know that Cuba’s literacy rate and healthcare system are nothing to lionize. First, consider literacy. …Cuba’s literacy rate rose by 26 percent between 1950/53 and 2000. But literacy rose even more, by 37 percent, in Paraguay. Food consumption in Cuba actually declined by 12 percent between 1954/57 and 1995/97. It rose by 19 percent in Chile and by 28 percent in Mexico over the same time period. …Next, consider healthcare. Sanders has repeatedly extolled Cuba’s healthcare system… Life expectancy is the best proxy measure of health. According to Cuba’s official data, it rose by 25 percent between 1960 and 2017. Yet life expectancy increased even faster in comparable countries: in Mexico it improved by 35 percent, in the Dominican Republic by 43 percent, and in impoverished Haiti by 51 percent.
The bottom line is that Cuba performs poorly when looking at education, health, nutrition, and other variables.
But none of that should be a surprise since poor countries generally can’t afford good things or deliver good outcomes.
And the lesson we should learn is that Cuba is poor because government is far too big. Simply stated, the absence of capitalism has been a recipe for misery.
The most shocking statistic is that living standards in Cuba and Hong Kong were very similar when Castro first imposed his version of Marxist socialism.
Yet now there’s a giant gap, with people in Hong Kong enjoying unimaginable prosperity compared to the impoverished residents of Cuba.
Let’s close with two additional items. First, here’s a video from four guys who traveled to Cuba for an up-close view of socialism.
And if you liked that video, here’s another first-hand account of the (nonexistent) glories of Cuban socialism.
Our final item is this look at a street, both as it looked before communism and how it looks today.
The lesson, of course, is similar to the one that we get when examining North Korea from outer space. Communism simply doesn’t work.
Back in 2014, I shared a World Bank study that measured how tax complexity facilitates more corruption by government officials.
Not that anyone should have been surprised. Complex tax codes enable politicians to extort bribes when writing the law (a problem that definitely exists in Washington) and they makes it possible for bureaucrats to extort bribes when administering the system.
Now the World Bank has a new study showing how a larger regulatory burden enables and facilitates corruption.
The two authors, Mohammad Amin and Yew Chong Soh, wanted to use better types of data to get an accurate assessment of the problem.
Business regulations often create opportunities for public officials to collect bribes… If true, this simple insight provides a practical and powerful way for deregulation to combat corruption and its many harmful effects on the economy. …Regulation is often measured by laws on the books rather than the actual regulatory burden on the firms even though it is the latter that is the primary determinant of corruption… The present paper attempts to fill this gap in the literature by using firm-level survey data on the actual corruption and regulatory burden experienced by the firms. …the public choice theory, stresses that regulation is intended to create rents to be distributed between the industry incumbents and the corrupt public officials. In some cases, the main beneficiary of regulation is the industry (regulatory capture view) while in others, it is the politicians and public officials (tollbooth view). …The present paper contributes to the…literature in several ways. …most previous studies have used perceived corruption indices…we depart from the literature by using firms’ experience with corruption instead. … for regulation, we use the actual regulatory burden experienced by the firms rather than rules on the books. This is an important departure from the literature.
For those not familiar with the term, “public choice” refers to research on the self-interested behavior of people in government.
Anyhow, prior research already showed that red tape gave politicians and bureaucrats the ability to extort money from the private economy.
…several studies analyze the possible effects of regulation on corruption. Using macro-level data for a cross-section of 85 countries in 1999, Djankov et al. (2002) look at the relationship between entry regulations and the level of corruption. …Consistent with the tollbooth view, the study finds strong evidence of higher corruption associated with heavier regulation of businesses. Using data from three worldwide firm surveys, Kaufmann and Wei (2000) confirm that when bribe-extracting bureaucrats can endogenously choose regulatory burden and delay, the effective (not just nominal) red tape and bribery can be positively correlated across firms.
The results in the new World Bank study build on the earlier research and confirm (as I noted in a video more than 10 years ago) more power for government means more corruption by government.
Our results show a large positive impact of the regulatory burden on the level of overall corruption as well as petty corruption. For the baseline specification, the overall bribery rate (bribes as percentage of firms’ annual sales) rises by about 0.03 percentage point for each percentage point increase in the regulatory burden. …The results show that irrespective of the set of controls, there is a large positive relationship between Overall Corruption and Time Tax… That is, for each percentage point increase in the regulatory burden, the overall bribe rate increases by 0.028 percentage point. Alternatively, an increase in regulatory burden from its minimum to maximum level leads to 2.8 percentage points increase in the level of overall corruption. This is a large increase given that the mean level of overall corruption equals about 1.1 percent.
By the way, “time tax” is defined as “the average of the percentage of senior management’s time spent in dealing with business regulations”
Here’s a graphic from the study for those of you who like digging into the empirical details.
P.S. The World Bank also released a study last year showing how more regulation reduces business productivity. Needless to say, that ultimately translates into lower wages for workers.
P.P.S. I’ve been asked why the World Bank seems friendlier to good policy than either the International Monetary Fund or Organization for Economic Cooperation and Development. I point out that it’s not uncommon to see quality work from the professional economists at all international bureaucracies, even the IMF and OECD. But the World Bank seems to have a higher percentage of quality research. My guess it that this is a result of its focus on poverty alleviation.
Back in 2012, I asked readers to pretend they were criminals and to contemplate whether they would want to rob a house with armed residents.
This “IQ test” was designed to help people understand that cost-benefit analysis applies to all types of human behavior, including criminality. Some criminals are smart and some criminals are stupid, but all of them want to get the most benefit at the lowest cost.
And, at the risk of understatement, the possibility of getting shot is definitely a potential cost.
But don’t take my word for it. A Colorado TV station has a very revealing story about burglars engaging in cost-benefit analysis.
In the dead of night, when no one is awake — that’s when it’s most likely that a burglar will break into your home. It usually happens in minutes, but of all the house on the block, the thieves picked yours. What about your house made it a target? Two El Paso County jail inmates are spilling their secrets. They are two men behinds dozens of break-ins back in 2011. …Their opportunities came in the form of doors left unlocked, garage doors never closed and patio screens unlatched… When asked, what in a home will make you turn away? …They say any indication on your home or vehicles that you could fight back could keep them away. Inmate #2 explains, “If it’s something that says you’re Republican, you’re not going to get hit because Republicans like their 2nd Amendment rights. They love carrying guns. I’m not going to mess with that guy.” …”I don’t know if you’re in there with a shotgun waiting for me. We’re literally terrified,” Inmate #1 says.
This is common sense, which is why some folks on the left have had epiphanies on the issue of guns.
It also may explain why a strong majority of Americans agreed that gun ownership promotes safety.
Nearly six in 10 Americans say that gun ownership increases safety…58 percent agree with the statement that gun ownership does more to increase safety by allowing law-abiding citizens to protect themselves. …These findings represent a reversal from 1999, when a majority — 52 percent — said gun ownership reduces safety. And they come at a time when 47 percent of American adults say they have a firearm in the household, up from 44 percent in 1999.
There was a very recent episode in Texas that underscores why it’s important for good people to possess weapons.
New Texas gun laws made it possible for a security team at the West Freeway Church of Christ in White Settlement to act quickly and save countless lives of worshipers on Sunday, some lawmakers said. A gunman killed two people before a member of the congregation’s security team fatally shot him. “…we have taken a number of steps to help make sure that our places of worship — which should be a refuge from evils of the world — are safe for all who attend,” Lt. Gov. Dan Patrick said… State Sen. Donna Campbell…said the new law worked. “This is clearly why it was passed,” she said. “Evil is out there. But it’s not the gun. It’s the person who has control of the gun.” …State Rep. Matt Krause, R-Fort Worth, echoed the sentiment. …“The Texas Legislature understood there were some weaknesses in the laws preventing law abiding Texans from protecting themselves,” Krause said. “I think we saw the benefits of those recent laws taking effect.”
The gunman presumably thought the church was filled with unarmed victims.
Thankfully, that wasn’t the case. And this will send a signal to other lunatics. At least in Texas.
An entire town in Georgia is sending a message to bad guys about potentially very high costs.
An unconventional welcome sign greets visitors….addressing would-be criminals and warning them not to cross the locals.“Welcome to Harris County, Georgia,” it reads, sarcastically adding: “Our citizens have concealed weapons. If you kill someone, we might kill you back. We have ONE jail and 356 cemeteries. Enjoy your stay! -Sheriff Mike Jolley.” The sheriff said it’s his saucy way of welcoming people to his county while…warning them that a number of the citizens exercise their right to bear arms. …Jolley said over that the past several years, concealed weapon permits in Harris County have tripled. …Jolley said he is giving out-of-towners fair notice about what they can expect.
Crooks presumably realize that there are some unarmed homes in Harris County, notwithstanding the sign, but this message may influence their cost-benefit analyses.
The bottom line is that there are bad people in the world and gun-free zones (whether in public areas or private homes) tilt the playing field in favor of those bad people.
Early last year, I shared a video explaining that trade deficits generally don’t matter. I even suggested trade deficits might be a sign of economic strength because foreigners who earned dollars were anxious to invest them in the American economy.
I’m recycling this video to make a point about trade and the economy for both Trump supporters and Trump critics.
For Trump supporters, I want them to understand that the trade deficit has increased under his policies. The data from the latest Commerce Department report show that the yearly trade deficit has increased from about $500 billion at the end of the Obama years to a bit over $600 billion during the Trump years.
And the reason I’m making this point is that I want Trump supporters to realize that they shouldn’t be upset about trade balances. Indeed, they should be happy because there’s a strong argument that the trade deficit is increasing in large part because Trump’s pro-growth tax reform and regulatory reform and making America more attractive for foreign investors.
For Trump critics, I want them to understand the same point, though from a different perspective. Many of them have been (correctly) critical of Trump’s protectionism. And they’ve been happy to point out that his taxes on foreign goods haven’t reduced the trade deficit.
But I would like them to contemplate why the economy has continued to grow. Hopefully, they will realize that pro-market policies in other areas are offsetting the damage of protectionism and therefore be more supportive of capitalism.
The Wall Street Journal opined on this topic last year.
President Trump can take a bow that his tax reform and deregulation are working as intended. …The trade deficit grew… This is not bad economic news. Imports grew faster than exports as the U.S. economy accelerated and much of the world slowed. The dollar grew stronger as capital flowed into the U.S., and the trade deficit grew to offset the larger capital inflows as it must by definition under the national income accounts. …a larger trade deficit is a benign byproduct of a healthier American economy. Supply-side policies revived animal spirits and gave the economy a second wind. …The best way to respond to a trade deficit is to ignore it.
From a left-of-center perspective, Fareed Zakaria made the same point in a recent column for the Washington Post.
Trump campaigned relentlessly on the notion that America’s economy was being ruined by large trade deficits. …He promised on the campaign trail in June 2016, “You will see a drop like you’ve never seen before.”In reality, the trade deficit has risen substantially under Trump. …when the United States has grown robustly, its trade deficit has tended to rise. If you want to achieve a sharp decline in the trade deficit, it’s easy — just trigger a recession. …while the United States has a deficit in manufactured goods with the rest of the world, it runs a huge surplus in services (banking, insurance, consulting, etc.). …The United States is also the world’s favorite destination to invest capital, by a large margin. As Martin points out, when you look at this entire picture, “the trade deficit should be something to brag about rather than denounce.” …Trump’s trade policy has been an enormously costly exercise, forcing Americans to pay tens of billions in taxes on imported goods, then using tens of billions of dollars in taxpayer funds to compensate farmers for lost income (because of retaliatory tariffs)… All to solve a problem that isn’t really a problem.
Veronique de Rugy of the Mercatus Center, writing for Reason, summarizes the issue.
President Donald Trump hates the trade deficit. …If elected, he promised, he would “end our chronic trade deficits.” …free traders…explained, a country’s trade balance is determined overwhelmingly by factors such as the U.S dollar serving as a reserve currency, the ratio of savings to investment opportunities at home and abroad, and the relative attractiveness of that country’s investment climate. As long as the United States is growing and remains an attractive place to invest, we Americans will continue to run trade deficits with the rest of the world. …They want these dollars, in part, to buy American exports. …More important, and often overlooked: Foreigners want dollars also to invest in America’s powerful economy. …the current-account deficit is a mirror image of the capital-account surplus. This is why Mark Perry of the American Enterprise Institute describes imports as “job-generating foreign investment surpluses for a better America.” It is thus no surprise that as the American economy grew, the trade deficit also grew.
I’ll close with a chart that’s in the video because it reinforces the three columns cited above.
As you can see, the link between the trade deficit and an investment surplus isn’t just a theoretical construct. It’s an accounting identity.
You can argue I’m being unfair. After all, I pointed out during the last campaign that his voting record in the Senate was almost identical to the voting records of Hillary Clinton and Barack Obama (his vote rating also was similar to supposed moderate Joe Biden when he was a Senator).
But that doesn’t necessarily mean they think the same or have the same agenda. As the cartoon illustrates, Bernie wants to travel at a faster rate in the wrong direction.
And it’s quite likely that he wants to travel farther in the wrong direction. And he may even want to get to a very unpleasant destination.
You don’t have to believe me. You can simply listen to what Bernie Sanders has said, in this video narrated by Maxim Lott.
And if that’s not enough, here’s a video from Reason that has more of Crazy Bernie’s extremist statements.
So what should we think when we examine Bernie’s past statements, review his voting record in Congress, and also analyze his current platform?
Is he a radical? Crazy? A Marxist? A democratic socialist? A socialist democrat? Some combination of all those options?
We obviously have no way of knowing what his real motives and thoughts are, but James Pethokoukis of the America Enterprise Institute speculates whether Sanders has learned anything.
What lessons have the events of the last half century taught Bernie Sanders? …He’s certainly seen a lot that would seem to have direct bearing on his ideology, especially the collapse of the Soviet Union… Was he “very distressed” at the failure of the centrally planned Soviet economy? He certainly should have been, but only offers a condemnation of the authoritarian political system. …No wonder he’d rather talk about Scandinavia as his socialist success story. Those tiny economies score well on just about every economic metric. But there’s more to them than universal healthcare and generous paid leave. The Nordic model, according to a recent JPMorgan report, “entails a lot of capitalism and pro-business policies…” That’s stuff antithetical to the Sanders democratic socialist agenda. Indeed, the report concludes, “A real-life proof of concept for a successful democratic socialist society, like the Lost City of Atlantis, has yet to be found.”
For what it’s worth, Ryan Bourne points out that his agenda is more extreme than Jeremy Corbyn’s (which is not an easy task).
…some commentators are downplaying his socialist credentials, painting the veteran Senator as no more than a moderate social democrat. …To simply label him a socialist, without any caveats, is misleading. But it’s even more grossly misleading to suggest his “democratic socialist” ambitions stop at a Scandinavian-style welfare state. More redistribution is central to his agenda, sure, but he also proposes massive new market interventions, including the Green New Deal, a federal jobs guarantee, expansive price and wage controls… Sanders’ platform goes far beyond any modern social democracy in terms of government size and scope. Indeed, his policies can only be considered moderate if some three-way lovechild of the economics of 1970s Sweden, Argentina, and Yugoslavia’s market socialism is the baseline. …compare Labour’s 2019 manifesto against the Sanders’ economic platform. Doing so makes clear that Bernie is more radical than Corbyn on economics, both in absolute terms and relative to their countries’ respective politics. …Combined with national insurance, Labour’s top marginal income tax rate would have been 52%. Sanders’ top federal income taxrate alone would be 52%, bringing a top combined top rate of around 80% once state and payroll taxes are considered. Sanders wants a new wealth tax too, another option Labour shirked. …where there are differences, it’s because Sanders is offering the more radical leftwing policies. He and Labour both proposed big minimum wage rises, national rent control, mandated employee ownership, and workers on boards, for example. But where Labour proposed 10% worker ownership stakes in large companies, Sanders would mandate 20%… on the role of government, the declared economic platforms are instructive. Call it “democratic socialism,” or just plain old “interventionism,” Bernie Sanders is, in many respects, putting a more radical interventionist offer to the electorate than Jeremy Corbyn did.
Interestingly, social democrats from Nordic nations think Bernie Sanders is too far to the left.
Johan Hassel, the international secretary for Sweden’s ruling Social Democrats, visited Iowa before the caucuses, and he wasn’t impressed with America’s standard bearer for democratic socialism, Sen. Bernie Sanders (I-Vt.). “We were at a Sanders event, and it was like being at a Left Party meeting,” he told Sweden’s Svenska Dagbladet newspaper… “It was a mixture of very young people and old Marxists, who think they were right all along. There were no ordinary people there, simply.” …Lars Løkke Rasmussen, then the prime minister of Denmark, made a similar point in a speech at Harvard in 2015, when Sanders was gaining national attention. “I know that some people in the U.S. associate the Nordic model with some sort of socialism,” he said. “Denmark is far from a socialist planned economy. Denmark is a market economy”.
Giancarlo Sopo, opining for the Washington Examiner, worries that Sanders actually is an unrepentant Marxist.
Sanders is not the nice, Nordic-style “democratic socialist” he claims to be. At his core, Sanders is almost certainly an all-out Marxist. …The man has no business being anywhere near the Oval Office — not even on a guided tour. …Sanders has been an unabashed apologist for communism, an evil ideology with a body count of 100 million people dead in its wake. …While people such as my grandfather were languishing as political prisoners in Cuba, Sanders said that he was so “excited” about the island’s communist revolution that watching JFK get tough on Fidel Castro made him want to “puke.” …The 78-year-old presidential candidate even honeymooned in the Soviet Union and came back full of praise for it. Some may not grasp how bizarre this was during the Cold War… Sanders’s platform, which openly calls for nationalizing major industries such as higher education, healthcare, and even the internet, falls well outside the mainstream of U.S. politics and more closely resembles the central planning committees in Cuba and Venezuela.
Last but not least, in a column for the Wall Street Journal, Elliot Kaufman compares Sanders’ radical past with his modern rhetoric.
Campaigning for U.S. Senate in 1971, he demanded the nationalization of utilities. In 1973 he proposed a federal takeover of “the entire energy industry,” and in 1974 he wanted a 100% tax on all income above $1 million. In 1976 he asserted that workers needed to “take immediate control of the economy if we are to survive” and called for “public ownership of utilities, banks and major industries.” He had a plan for “public control over capital.” As late as 1987 he asserted that “democracy means public ownership of the major means of production.” …He had also begun a dalliance with the Socialist Workers Party, a communist group that had followed Leon Trotsky. Mr. Sanders endorsed the SWP’s presidential nominee in 1980 and 1984, spoke at SWP campaign rallies during that period, and in 1980 was part of its slate of would-be presidential electors. …After three decades in Congress, he has settled on a populist vision that fits in on the Democratic left. In a major speech last June elaborating his idea of socialism, he cast himself in the tradition of Franklin D. Roosevelt… He enumerated a series of positive rights—to “quality health care,” “as much education as one needs,” “a good job that pays a living wage,” “affordable housing,”… But he said nothing about state control over the means of production or Fidel Castro’s revolution.
So who’s the real Bernie Sanders?
I have no idea whether he still wants government ownership and control of the means of production (i.e., pure socialism with state-run factories, collective farms, etc). I also don’t know whether his past support for awful Marxist dictatorships meant he actually was a Marxist.
A few years ago, I created a three-pronged spectrum in an attempt to illustrate the various strains of leftism.
I’ve decided to create a more up-to-date version. It shows that the Nordic nations are part of the rational left. A bit further to the left are conventional leftists such Joe Biden, Hillary Clinton, and then Barack Obama.
At that point, there’s a divergence, with Hitler and Stalin representing totalitarian socialism at the top and pure socialists (such as the U.K.’s Clement Attlee, who nationalized industries and sectors after World War II) at the bottom.
Without knowing what he truly thinks, I’ve put Bernie Sanders in a middle category for “Crazies.”
I suspect he has sympathies for the two other strains of leftism, but the real-world impact of his policies is that America would become an even-worse version of Greece (though hopefully not as bad as Venezuela).
P.S. Given that he’s now the leading candidate to win the Democratic Party’s nomination, and given that he’s ahead in some national polls, I’m very thankful that America’s Founders bequeathed to us a system based on separation of powers. If Sanders somehow makes it to the White House, he’ll have a very difficult time pushing through the radical parts of his agenda. Yes, it’s true that recent presidents (both Obama and Trump) have sought to expand a president’s power to unilaterally change policy, but I feel confident that even John Roberts and the rest of the Supreme Court would intervene to prevent unilateral tax increases and nationalizations.
P.P.S. More than 10 years ago, I speculated that America’s separation-of-powers system would save the country from Obamacare and cap-and-trade. I was half right.
Back in 2012, I warned that the value-added tax (a hidden version of a national sales tax) was enabling bad fiscal policy in Japan, in large part because politicians wouldn’t make much-needed entitlement reforms if they had the option of raising the VAT.
Later that year, I repeated my warning, noting that politicians in Japan were becoming increasingly vocal about grabbing more money.
Unsurprisingly, these warnings had no effect. In 2013, Japan’s politicians announced the VAT would increase the following year.
Needless to say, Japan’s politicians didn’t learn from this mistake. Notwithstanding my warnings in 2018 and 2019, they just increased the VAT yet again.
So how’s that working out for them?
In a column for the Wall Street Journal, Mike Bird discusses the economic impact of the most-recent increase in the value-added tax.
Japan’s economy shrank sharply in the final three months of 2019, logging its second-worst quarter in the past decade. That would be easier to stomach if it weren’t because of a mistake policy makers have now made three times. In October, Japan raised its sales tax to 10% from 8%—and spending tanked. Household consumption fell 11.5% on an annualized basis in the October-December quarter, fueling a 6.3% fall in annualized gross domestic product. Sales-tax increases in 1997 and 2014 likewise knocked the economy off course. The three worst quarters for household consumption in the past quarter-century were those in which sales tax was raised. …the thinking that led to such destructive behavior is bizarrely resilient.
Here’s the accompanying chart, which shows how every increase in the VAT caused a drop in consumption.
For what it’s worth, I don’t find this chart very persuasive.
Yes, consumption drops in the short run when there’s an increase in the VAT, but there doesn’t seem to be any impact on the long-run trend.
But I’m digressing. Let’s get back to Japan’s VAT mistake.
The Wall Street Journalopined on the issue earlier this week.
The third time wasn’t the charm for Tokyo’s long-running attempt to increase its consumption tax. Data released Monday show Japan’s economy contracted in the last three months of 2019 as the tax hike hammered growth—as many warned and like the previous two times the tax has been raised since its 1989 introduction, in 1997 and 2014. …Wage growth is anemic despite a tight labor market, and the Labor Ministry calculates that inflation-adjusted pay fell 3.5% from 2012-2018. The tax rise creates a new and higher squeeze on household incomes. …The usual suspects are now calling for more Keynesian spending on public works and social spending. Three decades of similar blowouts have created the fiscal mess that always becomes justification for more consumption-tax hikes. …It’s too late for Japan to avoid the costs of Mr. Abe’s economic failures. But other governments can learn the lessons that Japan’s leaders refuse to heed.
Unfortunately, other leaders aren’t learning the right lessons.
Let’s close by citing three additional sentences from the WSJ editorial.
The fiscal pyromaniacs at the IMF want even further VAT increases in Japan.
The International Monetary Fund thinks the consumption-tax rate will have to rise to 15% over the next decade, and to 20% by 2050. But first the fund’s wizards say Tokyo must expand its Keynesian spending to make the economy “strong” enough to bear the tax hikes to pay for the spending. Got that?
I wrote last year about the IMF’s perverse fixation on ever-increasing VAT burdens in Japan, so I’m not surprised that the international bureaucracy is continuing its campaign.
It enables politicians to siphon money from the productive sector of the economy, whether we’re looking at poor nations or rich nations.
By contrast, it’s difficult to generate more revenue from the personal income tax because of the Laffer Curve.
P.S. Some VAT advocates actually claim the levy is good for growth. That’s a nonsensical claim. VATs drive a wedge between pre-tax income and post-tax consumption. What they really mean to say is that VATs don’t do as much damage, on a per-dollar-raised basis, as conventional income taxes (with punitive rates and double taxation).
So, in the interest of fair play and equal time, here’s a test that purports to tell you whether you’re actually a communist.
Here’s the short description.
Communism is a social and political ideology whose ultimate goal is the establishment of a communist society, which is defined as a socioeconomic order based on common ownership and the absence of social classes, inequality, and private property. While Communism encompasses several of schools of thought, this test uses the classical Marxist texts and history as its foundations to determine whether you qualify as a Marxian communist.
By the way, I can’t resist commenting on the ludicrous assertion that communism is a “socioeconomic order based on…the absence of…inequality”.
Let’s focus on the quiz, and I’ll simply note that not all of the questions have easy answers.
For instance, how should Question #8 be interpreted? There are plenty of nations in Europe that have very large governments, yet very high levels of political freedom. So is the correct answer to “disagree”?
But that requires us to decide what is meant by “absence of a free market economy.” Does this imply the technical meaning of socialism, involving government ownership, central planning, and price controls? If so, then world history suggests the correct answer is “agree.”
Or should one “partly agree” or “partly disagree,” meaning the choices closer to the middle?
I also have mixed views about the correct answer to Question #12.
I’d like to strongly disagree, but would that answer simply be a reflection of society as I’d like it to be?
In reality, some people do see themselves of members of groups.
But if tax rates are low for people making $65,000, there’s no reason why they wouldn’t work hard.
It would have been better if the question asked whether people “would work hard in countries where they cannot improve their living standards from their work.”
Last but not least, I’m also not sure how to interpret Question #15.
Who determines an “individual’s best interests”? For some people, that may mean stealing money from the elderly. If so, the answer is disagree.
But if we’re operating in a moral framework and asking whether the pursuit of self interest makes society better, the answer is agree.
I mention these caveats because I want a good excuse for the fact that I didn’t get a perfect score.
According to the quiz (here’s another link to it), the bad news is that I’m 6-percent commie.
Though the good news is that means I’m in the “Not Communist” grouping.
My bottom line is that I would be 0-percent commie if the questions were designed properly!
P.S. Instead of bothering with the quiz, you can use two cows to determine whether you’re a communist.
The coronavirus obviously is bad news, but I repeated my long-held view in this interview that excessive government intervention is the greatest threat to China’s prosperity.
My hypothesis is that the coronavirus almost certainly will be a short-term challenge.
What’s far more worrisome, especially in the long run, is that government has far too large a role in China’s economy. Yes, there was a good period of pro-market liberalization starting in 1979, but there’s been very little progress this century.
As a result, China only ranks #113 according to Economic Freedom of the World. Which makes the Chinese tiger a paper tiger.
Let’s look at five potential threats to China’s economy.
1. Coronavirus. We don’t know whether the disease is contained or getting worse. But unless it becomes a pandemic like the 1918 Spanish Flu, the effects presumably will be transitory. This is why I downplayed its importance during the interview.
2. Trump’s trade war. I gave this issue a passing mention in the discussion. Trump is hurting both America and China with his trade war, but China is probably bearing a heavier burden. In an ideal world, China wouldn’t practice mercantilism. But in that ideal world, Trump would have addressed the issue more effectively by utilizing the World Trade Organization.
3. Hong Kong. The host gave this issue a passing mention at the end of the interview. I’ll merely note that a Chinese crackdown would have an adverse impact on how global investors view China.
Now let’s look at the two biggest threat’s to China’s long-run prosperity.
And we’ll start with an issue that I failed to mention in the interview (though I have discussed it in the past).
4. Bad demographics. This is a global problem, but it is especially acute in China because of the coercive one-child policy. That oppressive system has been relaxed, but that may be too little, too late. Here are some excerpts from a column by George Will.
Demography does not dictate any nation’s destiny, but it shapes every nation’s trajectory… Although China’s working-age population (there, 15-64) almost doubled between 1975 and 2010, fertility has been below the replacement level for at least 25 years. China’s population will shrink after 2027; its working-age population has been shrinking for five years and will be atleast 100 million smaller by 2040… Furthermore, there will be “tens of millions of surplus men” in China because during the “one-child” policy (1979-2015), many parents chose abortion rather than the birth of a girl.
5. Bad public policy. I’ve saved this issue for last because it’s the most important and merits the most attention.
A column in the Wall Street Journal by the Hudson Institute’s John Lee neatly summarizes the problem.
The model involves offering state-owned enterprises and national champions such as Huawei cheap finance and privileged domestic-market access at the expense of an independent private sector. China showers state businesses with subsidies… The current Chinese model is self-defeating. Less-deserving companies continue to receive the bulk of finance and opportunity. The staggering misallocation of capital is worsening, which makes the mushrooming debt even harder to manage. And allocation of opportunity is political. This means that the private sector, and therefore household income, will continue to remain artificially suppressed… China’s economy is inefficient, bloated, dysfunctional—plagued by institutions and policies that are not fit for their purposes.
I mentioned in the interview that President Xi may be moving China in the wrong direction.
This article, published last month in Hong Kong’s South China Morning Post, augments my concern.
China has implemented a new regulation to officially put Communist Party committees at the centre of power in running state-owned enterprises, a move reflecting Beijing’s strong desire to enhance the control of its vast state sector. …“All major business and management decisions must be discussed by the Communist Party organ before being presented to the board of directors or management for decision,” according to the regulation. …For those enterprises under the direct control of the central government, the board of directors must include a “special deputy party secretary” who takes no management role and is exclusively responsible for “party building”. The first role of the directors or executives who are party members is to execute the will of the party in performing their duties, it added.
I’ll cite one more article, this one by Desmond Lachman for the Bulwark.
In much the same way as our fears about Soviet and Japanese economic dominance proved to be illusory, there is good reason to think that China’s rapid economic rise will prove to be another paper tiger. …One factor..that does not bode well for China’s future economic performance is President Xi’s apparent intention to destroy the foundation on which China’s economic miracle rested. He is reversing the economic reforms introduced by Deng Xiaoping in 1979, aimed at giving the private sector increased room to breathe dynamism into the Chinese economy. Fearful of the challenge that a thriving Chinese private sector might pose to the Communist Party’s political hold on the country, President Xi is now reestablishing party discipline and increasing the role of China’s state enterprises. …Even more troubling for China’s long-run economic outlook are its highly unbalanced economy and it’s gargantuan credit bubble. …China has a massive amount of unused industrial capacity and an enormous overhang of unoccupied housing and commercial property.
The bottom line, as I stated in the interview, is that China is in trouble. It’s been pursuing a toxic combination of Keynesianism and industrial policy.
The main symptom of all that intervention is pervasive “third-party payer,” which is the term for a system where people buy goods and services with other people’s money.
And that means buyers are not sensitive to price. Which means sellers have little incentive to be efficient and keep prices under control.
The net effect is that the free market is not allowed to operate in most parts of the health care system. So it shouldn’t be a surprise that we have ever-rising costs and lots of bureaucracy.
Let’s look at an example.
One of my former colleagues, Michael Cannon, recently wrote about what happened when Obamacare mandated that birth control be covered by insurance (third-party payer) rather than being directly purchased by consumers.
The Affordable Care Act (ACA) dramatically expanded insurance coverage for prescription contraceptives such as “the pill.” From August 2012 through January 2014, the federal government phased in the ACA’s requirement that nearly all private health insurance plans must cover all Food and Drug Administration‐approved prescription contraceptives with no cost‐sharing. …As a result of these changes, the share of consumers who are sensitive to the price of contraceptives plummeted. …among women with large‐employer coverage who use oral contraceptives, “the share experiencing out‐of‐pocket spending…declined from 94 percent in 2012 to 11 percent in 2017.” …The ACA’s reshaping of the market for oral contraceptives precisely coincided with a dramatic increase in prices for those items. …As the mandate began to take effect and as the ACA made oral contraceptives seem “free” to more purchasers, prices for hormones and oral contraceptives began to rise. …Once the mandate took full effect, prices began to rise rapidly. From May 2013 through May 2019, while real prices for non‐prescription drugs and prescription drugs overall rose just 12 percent and 37 percent, respectively, prices for hormones and oral contraceptives rose 108 percent. …these data suggest that trying to make oral contraceptives “free” for insured consumers had the unintended consequence of making them far more expensive.
Here’s the chart, which is a powerful – and depressing – illustration of how government intervention leads to rising prices.
Notice how birth control costs (the orange line) begin to skyrocket as the Obamacare mandate took effect.
Another depressing thing to consider is that consumers get tricked into thinking that birth control is free.
In reality, of course, the higher costs get built in to the price of health insurance, which then means less take-home pay for the people who thought they were benefiting. But since they don’t understand that this is what’s happening, they decide their employers are too greedy or that compensation is stagnant.
Sigh.
Needless to say, the companies selling birth control lobbied to get their product automatically covered. After all, they knew they could raise prices (as shown in the chart) once customers started buying with other people’s money.
P.S. Several years ago, Sandra Fluke got her 15 minutes of fame by asserting that she had a right to third-party-financed birth control. That led to some clever jokes, including this cartoon, these images, this cartoon, and this video.
I have Republican friends who don’t trust Michael Bloomberg because he switched parties and Democratic friends who don’t trust him for the same reason. I tell all of them that it’s more important to focus on his policy agenda rather than his partisan identification.
Though that’s not a happy topic, at least from a libertarian perspective. For instance, I recently criticized his very bad tax plan.
Today, let’s consider his view on housing finance, which has generated controversy since video has surfaced with Bloomberg stating that the financial system got in trouble because anti-redlining policies required banks to make loans to customers in poor neighborhoods.
Other candidates, such as Elizabeth Warren, argue that this makes Bloomberg a supporter of racist practices (with the obvious implication that he might actually be a racist).
I’m reluctant to make such accusations, especially when I tracked down this longer version of the video and discovered that Bloomberg merely listed a bunch of policies that contributed to the housing bubble and financial crisis.
In the latter part of his answer, he focused on “securitization,” which is what happens when mortgages are bundled together and sold to investors (as “mortgage-backed securities”).
Much of what he says isn’t controversial.
But I want to point out a sin of omission.
Bloomberg mentioned Fannie Mae and Freddie Mac, but only in passing. This is troubling because these two government-created entities, as explained in this video, deserve much of the blame for both the bubble and the subsequent crisis.
Yes, the Federal Reserve also deserves criticism for flooding the economy with too much liquidity.
But it was the government’s housing intervention, specifically Fannie Mae and Freddie Mac, that channeled much of that excess liquidity into the housing market.
Simply stated, financial institutions were willing to make sloppy loans because they knew those mortgages could be bundled into securities and sold to Fannie Mae and Freddie Mac.
P.P.S. Obama was bad on this issue and Trump is bad on this issue, so I won’t be surprised if Bloomberg also is bad on this issue if he gets to the White House.
I wrote last October about how poor nations that followed the pro-market recipe of the “Washington Consensus” in the 1980s and 1990s got good results. Johan Norberg addresses the same topic in this video.
Sadly, international organizations are infamous nowadays for the bizarre argument that developing nations should try to boost prosperity by imposing higher taxes and bigger government. I’m not joking.
I was even a credentialed participant at a conference on precisely this topic at the United Nations. It was a strange experience to be surrounded by anti-empirical people, but at least I wasn’t threatened with arrest, as happened at an OECD event.
Needless to say, these folks also think it’s a good idea to use foreign aid to finance bigger fiscal burdens in poor nations.
I’ve previously explained why this is a bad idea, at least if we care about achieving more prosperity for people. Simply stated, there’s considerable evidence that foreign aid retards economic growth by subsidizing bad policy.
Today, though, let’s focus on a different adverse consequence of aid, which is that it erodes the quality of governance.
For instance, the Economist reports on some spiked research from the World Bank, which showed that foreign aid subsidizes corruption.
Their conclusion was dispiriting. World Bank payouts to 22 aid-dependent countries during 1990-2010 were followed by a jump in their deposits in foreign financial havens. The leaks averaged about 5% of the bank’s aid to these countries. …The…working paper…passed an exacting internal review by other researchers in November. But, according to informed sources, publication was blocked by higher officials. They may have been worried about how it would look if the bank’s own researchers said that a chunk of its aid ended up in Swiss bank accounts and the like.
In 2019, a total of $39.2 billion was spent on foreign assistance, and at a quick glance it has left a lot to be desired. …Foreign aid is not a get-rich-quick scheme for developing countries. Instead of building wealth, it comes with some not-so-pleasant consequences for the recipient nation. …governments receiving aid no longer have to be accountable to their citizens. Knowing that US taxpayers will bail them out, some governments have no incentive whatsoever to innovate or keep corruption in check. …It is the height of naivete to believe that developing countries will magically become rich via wealth transfers from First World countries. It ignores many of the institutions of freedom—private property and federalism—that enabled countries like the US to become the most prosperous societies in human history.
Some folks may think Jose’s conclusion is too sweeping.
So let’s cite some more scholarly evidence.
Three economists, including one from the World Bank, found that foreign aid undermines democracy.
In this paper we investigate the relationship between aid and political institutions. One view of this relationship suggests that aid is needed to advance democratic institutions in developing countries. …A second view holds that foreign aid could leads politicians in power to engage in rent-seeking activities in order to appropriate these resources… By doing so political institutions are damaged because they became less democratic and less representative. Our findings support the second view. Foreign aid damages the political institutions of the country by reducing democratic rules. The magnitudes are striking. If the average share of foreign aid over GDP in a country were 1.9% over the period 1960-1999, then the recipient country would have gone from the average level of democracy in recipient countries in the initial year to a total absence of democratic institutions.
Here’s a graph from the study showing the negative relationship between aid and democracy.
The bottom line is that foreign aid doesn’t work. At least not if the goal is to improve the lives of the less fortunate.
The most important referendum in 2019 was the effort to get Colorado voters to eviscerate the Taxpayer Bill of Rights. Fortunately, the people of the Centennial State comfortably rejected the effort to bust the state’s successful spending cap.
The most important referendum in 2020 will ask voters in Illinois whether they want to get rid of the state’s flat tax and give politicians the leeway to arbitrarily impose higher rates on targeted taxpayers.
And I’ve also written that Illinois’ flat tax, enshrined in the state constitution, is the only decent feature of an otherwise terrible fiscal system.
So if the politicians convince voters to get rid of the flat tax, it will hasten the state’s economic decline (if you want more information, I strongly recommend perusing the numerous reports prepared by the Illinois Policy Institute).
Today, though, I want to focus on politics rather than economics.
To be more specific, I want to expose how supporters of higher taxes are using disingenuous tactics.
For instance, the state’s governor, J.B. Pritzker, warns that he’ll have to impose big spending cuts if voters don’t approve the referendum.
Gov. J.B. Pritzker said the state’s next budget will be balanced, but said if voters don’t approve a progressive income tax in November, he would have to reduce state spending across the board in future years. …the governor said 15 percent cuts in state spending would be needed across the board. …Illinois’ most recent budget called for spending about $40 billion dollars in state money. The state spends another $40 billion of federal tax money. …Pritzker is set to deliver his budget address on Feb. 19. He said he will propose a balanced budget to begin in July without relying on revenue from the proposed progressive income tax.
For what it’s worth, I actually think it would be good news if the state was forced to reduce the burden of government spending.
But that’s actually not the case.
How do I know Pritzker is lying?
Because his own budget documents project that state revenues (highlighted in red) are going to increase by nearly 2 percent annually under current law.
In other words, he wants a tax increase so he can increase overall spending at an even faster pace.
Of course, his tax increase also will increase the pace of taxpayers fleeing the state, which is why the referendum is actually a form of slow-motion fiscal suicide.
But let’s set that aside and examine another lie. Or, to be more accurate, a delayed lie.
The politicians in Illinois already have approved legislation to impose tax increases on the state’s most successful taxpayers, though the higher rates won’t actually become law until and unless the referendum is approved.
In hopes of bribing voters to approve the referendum, supporters assert that the other 97 percent of state taxpayers will get a cut.
That’s true. Most taxpayers will get a tiny reduction compared to the current 4.95 percent tax rate.
But how long will that last? Especially considering that the state’s long-run fiscal outlook is catastrophically bad?
The bottom line is that approving the referendum is like unlocking all the cars in a crime-ridden neighborhood. The expensive models will be the immediate targets, but it’s just a matter of time before everyone’s vehicle gets hit.
Indeed, this warning has such universal application that I’m going to make it my sixth theorem.
Back in 2012, when America had a budget deficit above $1 trillion, Investor’s Business Daily opined that America’s fiscal mess could have been avoided if politicians had simply adopted a TABOR-style spending cap starting in 1998.
As illustrated by the accompanying chart, IBD showed how a giant deficit would have become very manageable if politicians simply limited spending so it grew no faster than population plus inflation.
What makes this alternative history so bittersweet is that there are places – such as Switzerland and Hong Kong – that already have successful spending caps that deliver positive results.
To understand the benefits of spending caps, especially since we’re now back in an environment of $1 trillion-plus deficits, let’s replicate the IBD exercise.
Here’s a chart showing actual spending (orange line) and revenue (blue line) over the past 20 years, along with what would have happened to spending with a 3-percent cap on annual spending increases (grey line).
The net result is that today’s $1 trillion surplus would be a budget surplus of nearly $500 billion.
More important, the burden of spending today would be much lower, which means more resources being allocated by the productive sector of the economy. And that would mean more jobs and more prosperity.
P.S. While a spending cap is simple and effective, that doesn’t mean it’s easy. Abiding by a cap would force politicians to set priorities, which is a constraint they don’t like. In the long run, complying with a cap also would require some much-need entitlement reform, which also won’t be popular with the interest groups that control Washington.
I pointed out yesterday that Donald Trump has increased domestic spending at a faster rate than Barack Obama, Bill Clinton, or Jimmy Carter.
The day before, I castigated him for proposing a budget that expands the burden of government spending by $2 trillion over the next decade.
And two days before that, I explained that he hasn’t really changed the trend line on jobs.
So it’s safe to say I don’t go out of my way to say nice things.
But I’m also very fair. I don’t hesitate to praise politicians whenever they do good things, or to point out evidence that their policies are having a desirable effect.
And here’s a tweet that suggest Trump has made a positive difference.
This is an amazing shift.
Especially since Trump hasn’t actually fixed the problems that lead some successful people to expatriate.
But he has moved policy in the right direction is some of those areas thanks to the 2017 tax legislation.
His other achievement, which is probably even more important, is that he’s not Hillary Clinton. In other words, we’re not getting the bad tax policies that might have occurred in a Clinton Administration.
So it’s understandable that there’s been a big drop in the number of expatriates. The type of people who might move (the “canaries in the coal mine“) now think things are getting better rather than worse.
By the way, we’re talking about small numbers of people. But they’re often exactly the type of people – entrepreneurs, inventors, and innovators – that help drive growth.
P.S. I’ll add today’s column to my collection of noteworthy tweets.
Trump’s new budget was released yesterday and almost every media outlet wrote about supposed multi-trillion dollar spending cuts when, in reality, the President’s budget actually calls for nearly $2 trillion of additional spending over the next 10 years.
I’ve done this exercise in the past, starting in 2012 and most recently in 2017, but this is the first year we have enough data to include Trump’s performance.
And if we simply look at overall spending numbers (adjusted for inflation, of course), we get the shocking result that Obama increased spending at the slowest rate.
This surprising outcome is due in part to factors such as falling interest rates, a slowdown in military expenditures, and the fiscal impact of the 2010 elections (in other words, gridlock can be beneficial).
Trump, meanwhile, is near the bottom of the list (though not as bad as George W. Bush and LBJ).
What happens, though, if we remove interest payments from the data? After all, those outlays truly are uncontrollable (barring a default) and they mostly reflect spending decisions of prior administrations.
So if we want to judge a president’s fiscal policy, we should look at “primary spending,” which is the term used by budget geeks when looking at non-interest spending.
This measure doesn’t radically alter the results, but some presidents wind up looking better and others fall.
Another way of looking at the numbers is to remove the fiscal impact of bailouts, such as TARP (and also the savings & loan bailouts of the late 1980s).
The reason for this alteration is that the bailouts cause a big spike in spending when they occur, and then cause a drop afterwards because repayments actually are considered “negative spending,” as are the premiums that banks pay each year (I’m not kidding).
So presidents who are in office when the bailouts occur wind up looking worse, even though their policies may not have contributed to the problem. And the presidents who are in office when the repayments occur (remember, those count as negative spending) wind up looking better than they really are.
Here are the adjusted rankings (calculated by subtracting rows 46, 50, and 51 of Table 3.2). As you can see, Obama takes a bit of a tumble and Reagan is now the most fiscally prudent president.
Last but not least, now let’s also remove defense spending so we can see which presidents did the best (and the worst) when it comes to social welfare spending.
This is the most important category for those of us who believe the federal government should get out of the business of income redistribution and social insurance.
Reagan easily tops the list, limiting outlays to 0.5 percent annual growth. The other thing that’s remarkable is that every other Republican was worse than Bill Clinton, Jimmy Carter, and Barack Obama.
I would prefer not to write about President Trump’s new budget, largely because I know it’s not a serious proposal.
Even before he was elected, I pointed out that Trump was a big-government Republican who had no intention of dealing with serious fiscal issues such as the rising burden of entitlement spending.
So I wasn’t surprised that he capitulated to swamp-friendly budget deals in 2017, 2018, and 2019. And I’m depressingly confident that the same thing will happen this year.
That being said, I want to comment on how the media is covering his latest budget.
Take a look at some of the headlines that are dominating the news this morning.
All of these headlines make is seem like Trump is proposing a Reagan-style budget with lots of cuts, especially with regards to domestic programs.
All of that would be great news…if it was true.
In reality, here’s what Trump is projecting for total spending over the next 10 years.
Can you find the spending cuts?
And here’s what’s happening with domestic spending (mandatory outlays plus domestic discretionary) according to Trump’s budget.
Can you find the spending cuts?
Last but not least, here’s Trump’s plan for domestic discretionary spending.
Can you find the spending cuts?
So why is there such a big disconnect in the media? Why are there headlines about cutting and slashing when government is growing by every possible measure?
For the simple reason that the budget process in Washington is pervasively dishonest, as I’ve explained in interviews with John Stossel and Judge Napolitano. Here are the three things you need to know.
The politicians created a system that automatically assumes big increases in annual spending, called a baseline.
When there’s a proposal to have spending grow slower than the baseline, the gap between the proposal and the baseline is called a cut.
It’s like being on a diet and claiming progress because you’re gaining two pounds each month rather than five pounds.
Defenders of this system argue that programs should get built-in increases because of things such as inflation, or because of more old people, which leads to more spending for programs such as Social Security and Medicare.
It’s certainly reasonable for them to argue that budgets should increase for these reasons.
But they should be honest. Be forthright and assert that “Spending should climb X percent because…”
Needless to say, that won’t happen. The pro-spending politicians and interest groups like the current approach because it allows them to scare voters by warning about “savage” and “draconian” spending cuts.
Remember how Obama said the sequester would wreak havoc because of massive cuts? Except there weren’t any cuts, massive or otherwise. As Thomas Sowell pointed out, Obama was trying to deceive voters.
Next, we have a depiction of what “sharing” really means in Bernie’s world.
Some may argue that this is unfair because he’s never embraced a 100 percent tax rate.
That’s true if you’re just focusing on the personal income tax. But when you add the wealth tax to the equation, there will be people paying more than 100 percent of their income to the IRS.
Our next example mocks Bernie for becoming a millionaire (owner of three homes!) while campaigning against the rich.
I’m rather amused by this next image. Bernie got the most votes in Iowa, but appears to be getting fewer delegates. Presumably that’s one form of redistribution he doesn’t favor.
P.P.S. Barring a big surprise, Elizabeth Warren almost surely will be out of the race after New Hampshire, so we probably won’t have any opportunity to add to our Looney-Liz collection (here, here, here, and here).
There’s endless “spin” in over-politicized and self-serving Washington, with Democrats and Republicans both trying to convince people why any particular bit of economic data is either wonderful news or horrible news.
Since I care about policy rather than politics, I like to think I’m largely immune from this tendency. I criticize either Republicans or Democrats when they do something wrong, and I also offer praise when either Republicans or Democrats do something right.
That applies to Trump, of course.
For instance, the Department of Labor just released new numbers on the job market and Trump loyalists are bragging that this is additional confirmation that the president has steered the economy into glorious prosperity after the supposed wretched misery of the Obama years.
Is that true?
Well, here’s a chart showing total employment in the United States, taken directly from the Bureau of Labor Statistics. We see that jobs have been increasing, but can anybody identify a change in the trend line when Trump took office in January 2017?
For what it’s worth, the average monthly increase in employment has actually been smaller under Trump than it was under Obama.
Though Brian Riedl of the Manhattan Institute correctly observes that it’s harder to get more jobs when the unemployment rate is low.
Counterpoint: Job creation is a lot easier when the unemployment rate is over 5% (towards the end of Obama), then when it is already below 4% (the past couple years).
Eventually, you run out of qualified, unemployed people to move into jobs. https://t.co/6aaEsRLh6l
Now that we’ve looked at total employment, let’s examine the BLS numbers for the unemployment rate.
Yes, we see better numbers during the Trump years, but we’ve been getting better numbers ever since 2010.
Can anyone look at this data and make a compelling case that there was some big change starting in 2017?
Next we have the BLS chart showing the employment-population ratio, which measures the share of the adult population which is actually employed (a key factor since economic output is a function of the quantity and quality of both labor and capital).
Notice, once again, that there’s no obvious change in the trend line when Trump took over from Obama.
It’s not good news, by the way, that the employment-population ratio is still below where it was before the 2008 crisis.
Though it’s worth noting that the employment-population numbers look much better if they’re adjusted for demographic change.
But adjusting the numbers for demographic change doesn’t have any impact on the point I’m making today. Notice that there hasn’t been any obvious change in the trend since Trump got to the White House.
So why do I keep making the point that the trend hasn’t changed?
Because I want people to understand that policy matters, not partisan affiliation. And the bottom line is that the trend line hasn’t noticeably changed because Trump hasn’t noticeably changed the overall level of economic freedom compared to Obama.
Yes, Trump has moved policy in the right direction on some issues (taxes and regulation), but he’s also moved policy in the wrong direction on other issues (trade and spending). Simply stated, his bad policies are offsetting his good policies.
Obama moved policy in the wrong direction, of course, but that was largelyduring his first two years. There was a policy stalemate his final six years.
And in terms of overall economic liberty, the post-2010 policy stalemate under Obama produced similar scores to the zig-zag policy we’re getting under Trump. So we shouldn’t be surprised that the trend lines are so similar.
Sadly, it doesn’t appear that the Pope took my advice (though I think it’s amusing that at least someone in the Vatican is paying attention).
There’s a wealth of evidence that markets are the best way of helping the poor. But the Pope wants more government.
Moreover, there’s also plenty of data showing that higher tax rates and more spending hurt the poor. Yet the Pope wants more government.
And there’s lots of research on capitalism and upward mobility for the less fortunate. Nonetheless, the Pope wants more government.
For instance, he’s once again advertising his ignorance about economics, development, and fiscal policy.
Pope Francis blasted the practice of tax cuts for the rich as part of a “structure of sin” and lamented the fact that “billions of dollars” end up in “tax haven accounts” instead of funding “healthcare and education.” Speaking at the seminar set up by the Pontifical Academy for Social Sciences the Pope criticized “the richest people” for receiving “repeated tax cuts” in the name of “investment and development.” These “tax haven accounts” impede “the possibility of the dignified and sustained development of all social agents,” claims the Pope. He added that “the poor increase around us” as poverty is rising around the world. This poverty can be ended if the wealthiest gave more.
In an attempt to add some rigorous analysis to the discussion, Professors Antony Davies and James Harrigan wrote a column for the Foundation for Economic Education on capitalism and its role in global poverty reduction.
Galileo ran afoul of the Inquisition in 1633 when he was found “vehemently suspect of heresy.” …One might think that being this profoundly wrong about something well outside the realm of theology would cause the magisterium, and the pope specifically, to tread very carefully even 386 years later. But one would be wrong. Because here comes Pope Francis yet again, offering economic opinions from the bulliest of pulpits about something he understands no better than a garden-variety college freshman. …According to the pontiff, “the logic of the market” keeps people hungry. But “the market” has no logic. The market isn’t a thing, let alone a sentient thing. “The market” is the sum total of individual interactions among billions of people. …Whenever a trade occurs, both sides are better off for having made it. We know this because if they weren’t, the trade wouldn’t occur. …Not surprisingly to anyone but perhaps Pope Francis, some of the first financial speculation in which humans ever engaged involved food. Financial speculation and its more evolved cousins, options and futures contracts, evolved precisely as a means to fight hunger. …speculators took some of the risk of price fluctuations off the backs of farmers, and this made it possible for farmers to plant more food.
Davies and Harrigan inject some hard data into the debate.
If these arguments are too esoteric for Francis, there is also overwhelming evidence. Economic freedom measures the degree to which a country’s government permits and supports the very sorts of markets against which Francis rails. …If we list societies according to their economic freedom, the same pattern emerges again and again and again. Whether comparing countries, states, or cities, societies that are more economically free exhibit better social and economic outcomes than those that are less economically free. …even Francis should be able to see it quite clearly from his Vatican perch. …Extreme poverty rates for the half of countries that are less economically free are around seven times the extreme poverty rates for the half of countries that are more economically free.
Here’s one of the charts from their column.
As you can see, the state-controlled economies on the left have much higher levels of poverty than the market-driven economies on the right.
They also share some economic history.
…if the world around Francis doesn’t provide enough compelling evidence, the world prior to Francis certainly does. At the turn of the 18th century, around 95 percent of humans lived in extreme poverty. That was at the advent of the Industrial Revolution and of capitalism. …the extreme poverty rate fell from 95 percent to below ten percent. With the flourishing of capitalism, the extreme poverty rate fell tenfold at the same time that the number of humans grew tenfold.
And they doubtlessly would get very upset if anyone equated their ideology with the “national socialism” of Hitler’s Germany.
Such angst would be understandable. There are profound differences among the various versions of socialism. At the risk of understatement, a politician who wants to take my money is much better than one who wants to take my life.
From the perspective of economic policy, though, there’s a common link. All strains of socialism reject free enterprise. They want to replace capitalism with some sort of regime based on government planning and coercion.
This observation gets some people rather upset.
In a column for the Washington Post, Ronald Granieri of the Foreign Policy Research Institute expresses dismay that some people are pointing out that Hitler’s National Socialist Workers’ Party was, well, socialist.
Did you know that “Nazi” is short for “National Socialist”? That means that Hitler and his henchmen were all socialists. …There is only one problem: This argument is untrue. Although the Nazis did pursue a level of government intervention in the economy that would shock doctrinaire free marketeers, their “socialism” was at best a secondary element in their appeal. …The Nazi regime had little to do with socialism, despite it being prominently included in the name of the National Socialist German Workers’ Party. …The NSDAP’s 1920 party program, the 25 points, included passages denouncing banks, department stores and “interest slavery,” which suggested a quasi-Marxist rejection of free markets. But these were also typical criticisms in the anti-Semitic playbook …linking socialism and Nazism to critique leftist ideas became a political weapon in the post-World War II period, perhaps unsurprisingly given that the Cold War followed directly on the heels of World War II. Scholars as diverse as Zbigniew Brzezinski and Hannah Arendt used the larger concept of “totalitarianism” to fuse the two. …National Socialism preserved private property, while also putting the entire resources of society at the service of an expansionist and racist national vision, which included the conquest and murderous subjugation of other peoples. It makes no sense to think that the sole, or even the primary, negative aspect of this regime was the fact that it used state power to allocate financial resources.
Mr. Granieri makes some very good points. I’m not a historian, but I assume he’s correct in stating that Nazis hated capitalism in large part because it was associated with Jews.
And he’s definitely correct in stating that there are much more important reasons to despise Nazis other than their version of socialism (private ownership, but government control, often referred to as fascism).
But none of that changes that fact that all forms of socialism involve hostility to capitalism. Especially among the most repugnant forms of socialism.
Indeed, Nazism and communism are like different sides of the same coin. Joshua Hofford, in a column for the Foundation for Economic Education, examines the commonalities and differences between the two ideologies.
Karl Marx and Frederick Engels are the fathers of both…the swastika and the hammer-and-sickle. …The platform for Soviet socialism was nearly identical to that of National Socialism under the Nazi Party. Though the application of Soviet socialism was Marxian in nature—committed to international socialist revolution and the elimination of class enemies—and National Socialism under the Nazi Party was instituted to the elimination of racial enemies, both were dedicated to the remaking of mankind… Endemic to both Soviet and Nazi socialism, the destruction of class and racial enemies was a literal, not figurative, stage of revolution. …both versions of socialism were dedicated to constructing a new social reality by any means necessary… In addition to belonging to the shared brotherhood of worldwide socialism, clearly, both communism and Nazism were equally totalitarian. …The Nazis rejected the call to international revolution and the class warfare of their Soviet Marxist kin, however, this made them no less socialist. All substantial power and ownership of German business under the Third Reich, while managed and owned by individuals, was in the hands of the state. Price controls, salary caps, and production quotas were set by the nation and left owners to navigate a glut of bureaucracy.
In a column for the Wall Street Journal, Juliana Pilon shares a historical tidbit to illustrate the disdain for capitalism that characterized Nazis and communists.
Known officially as the Treaty of Non-Aggression Between Germany and the Union of Soviet Socialist Republics, the Hitler-Stalin pact…stunned the world. …As German negotiator Karl Schnurre had observed…, “there is one common element in the ideologies of Germany, Italy and the Soviet Union: opposition to the capitalist democracies. Neither we nor Italy have anything in common with the capitalist West. Therefore it seems to us rather unnatural that a socialist state would stand on the side of the Western democracies.” …capitalist democracy was their common enemy.
And Michael Rieger, writing for FEE, notes that there are genuine differences among different strains of socialism, though all involve a powerful state.
The Nazis didn’t call their ideology “national socialism” because they thought it sounded good. They were fervently opposed to capitalism. The Nazi Party’s chief propagandist, Joseph Goebbels, even once remarked that he’d sooner live under Bolshevism than capitalism. …why…would the Nazis call themselves “socialists”? In part, it’s because the term “socialism” has been constantly evolving and changing since its inception. …Marxist-Leninists came to more narrowly define “socialism” to mean the intermediary period between capitalism and communism where the state owned the means of production and centrally managed the economy. In establishing national socialism, the Nazis sought to redefine socialism yet again. National socialism began as a fusion of socialist ideas of a technocratically-managed economy with Völkisch nationalism, a deeply anti-Semitic form of German nationalism. …The Nazis also distinguished themselves from Marxists in their support for private property, although this came with some caveats. The Nazi government did not own the means of production in Germany, but they certainly controlled them. They set up control boards, cartels, and state-sponsored monopolies and konzerns, which they then carefully planned and regulated. …democratic socialists don’t believe in total government ownership of the means of production, nor do they wish to technocratically manage the economy as the Nazis did. …The wide variance between utopian socialism, communism, national socialism, and democratic socialism makes it remarkably easy for members of each ideology to wag their fingers at the others and say, “That wasn’t real socialism.” …all self-described socialists have shared the belief that top-down answers to society’s problems are superior to the bottom-up answers created by the free market.
Page 133: “Hitler took over a small proletarian group called the German Workers’ Party…and reorganized its economic aims into a radical twenty-five point programme: …abolition of unearned incomes, state to take over trusts and share profits of industry, land for national needs to be expropriated without compensation. he also added the words ‘National Socialist’ to its title. …the radical and socialist element in his programme always remained strong.”
Page 293: “He regarded himself as a socialist, and the essence of his socialism was that every individual or group in the state should unhesitatingly work for national policy. So it did not matter who owned the actual factory so long as those managing it did what they were told. …’Our socialism reaches much deeper. …Why should we need to socialize the banks and the factories? We are socializing the people.”
I’ll close by re-sharing my humble contribution to this discussion, which is a triangle to replace the traditional right-vs-left line.
My triangle acknowledges that there are differences between communists and Nazis (as well as between populists and democratic socialists, and between Republicans and Democrats).
But it makes the key point that there are ever-greater losses of economic liberty as one descends from libertarianism.
And the closer you get to the bottom of the triangle, the greater the likelihood that you lose political liberty as well.
In an amazing display of incompetence, we still don’t know whether Bernie Sanders or Pete Buttigieg won the Iowa caucus.
This has created some opportunities for satire, with people asking how a political party that can’t properly count 200,000 votes somehow can effectively run a healthcare system for 340 million people.
That’s a very good point, but today let’s focus on a contest that does have a clear winner.
As explained in this video, John Stossel and his team crunched the numbers and they have concluded that “Crazy Bernie” wins the free-stuff primary.
Senator Sanders doubtlessly will be very happy with this victory, especially since he trailed Kamala Harris when Stossel did the same calculations last summer.
America’s taxpayers, however, might not be pleased with this outcome. Especially if Bernie Sanders somehow gets to the White House.
Last week, I shared new numbers from the Congressional Budget Office, which showed that the federal budget is now consuming $4.6 trillion.
Bernie Sanders is proposing a staggering $4.9 trillion of new spending – more than doubling the burden of government spending!
I’ve argued, over and over again, that the best way to help the poor is to focus on policies designed to boost growth rather than policies designed to reduce inequality.
When making this argument, I sometimes ask people whether they would rather be a poor person in Hong Kong or France? There’s no welfare state in the former, but lots of opportunity, whereas France has plenty of handouts but not much hope for upward mobility.
But no matter how often I’ve tried to analyze and explain why we shouldn’t fixate on inequality, I’ve never come close to cramming this much insight into such a concise observation.
Kudos to @Jon_StewartMill. In just ten words, he captures the key insight that I’ve tried to get across in several dozen columns.
I’ll close with some speculation about why some people fixate on inequality. What makes them focus on trying to drag down the rich instead of finding ways to build up the poor?
I’m not sure, though there is polling data to suggest that some people really are motivated by envy and resentment of success.
But I suspect that politicians who play the class-warfare card simply think it’s a way of maximizing votes.
Even worse than the politicians are the “poverty hucksters” who deliberately lie about poverty in hopes of advancing a redistributionist agenda.
P.S. The most powerful numbers on why growth matters more than inequality come from China.
P.P.S. The most reprehensible effort to reduce inequality (by making everyone poorer) came from the IMF.
P.P.P.S. The most accurate political analysis of inequality came from Margaret Thatcher.
P.P.P.P.S. The best satire on the issue of inequality can be found in this “modest proposal.”
The Vermont Senator and his supporters say that’s wrong and that the real goal is to make America into a Nordic-style welfare state.
Since those nations mitigate the damage of their large public sectors with very pro-market policies on regulation, trade, and property rights, that wouldn’t be the worst outcome.
The answer is yes, according to Ishaan Tharoor’s WorldView column in the Washington Post.
Sanders and some of his Democratic competitors are clear about what they want to change in the United States. They call for the building of a robust social democratic state, including programs such as universal healthcare, funded in large part by new taxation on the ultrarich and Wall Street. …Sanders is particularly fond of the “Nordic model” — the social plans that exist in countries such as Denmark, Sweden, Norway and Finland, which deploy higher taxation to provide quality public services and keep inequality at rates lower than the United States. …Across the Atlantic, at least one leading proponent of the Nordic model welcomed its embrace by U.S. politicians. “We feel that the Nordic Model is a success story,” said Finnish Prime Minister Sanna Marin… “I feel that the American Dream can be achieved best in the Nordic countries, where every child no matter their background or the background of their families can become anything, because we have a very good education system,” she said.
But is Bernie Sanders really talking about turning America into Finland?
Tharoor correctly notes that the Nordic nation tell a very mixed story.
Sanders’s ascent in the past five years has spurred considerable debate over what lessons should be learned from the Nordic countries he celebrates. A cast of centrist and conservative critics note, first, that these Nordic countries are more capitalist than Sanders concedes, with generous pro-business policies and their own crop of billionaires; and, second, that the welfare states in Nordic countries are largely financed by extensive taxes on middle-class wages and consumption.
The last excerpt is key.
The big welfare states in Europe – and specifically in Nordic nations such as Finland – are financed with big burdens on lower-income and middle-class taxpayers.
According to data from the Tax Foundation and OECD, middle-income Finnish taxpayers are forced to surrender about 15 percent more of their income to government.
Why such a big difference?
Because Finland has an onerous value-added tax, punitive payroll taxes, and their income tax imposes high rates on people with modest incomes.
In other words, it’s not the rich who are financing the welfare state. Yet Bernie Sanders never mentions that point.
I’ll close by simply noting that Finland (like other Nordic nations) is not a statist hellhole. As I wrote just two months ago, the nation has some very attractive policies.
Indeed, the country is almost as market-oriented as the United States according to Economic Freedom of the World (and actually ranked above America as recently as 2011).
Bernie Sanders, though, wants to copy the bad features of Finland.
He wants America to have a big welfare state, but doesn’t want Finland’s very strong rule of law or robust property rights for people in the private sector. Nor does he want Finland’s 20 percent corporate tax rate.
And I suspect he doesn’t realize that Finland just learned an important lesson about the downsides of giving people money for nothing.
Most important of all, I’m very confident he doesn’t understand why Americans of Finnish descent generate 47 percent more national income than Finns who stayed home.
P.S.S. Researchers at Finland’s central bank seem to agree with my concern about excessive government spending.
One of the most significant developments in 2020 politics is how Democratic presidential candidates have embraced hard-left economic policies.
Prominent analysts on the left have noted that even Joe Biden, ostensibly the most moderate of the candidates, has a very statist economic platform when compared to Barack Obama.
And “Crazy Bernie” and “Looney Liz” have made radicalism a central tenet of their campaigns.
So where does Michael Bloomberg, the former mayor of New York City, fit on the spectrum?
The New York Times has a report on Bloomberg’s tax plan. Here are some of the key provisions, all of which target investors, entrepreneurs, small business owners, and other high-income taxpayers.
Former Mayor Michael R. Bloomberg of New York unveiled a plan on Saturday that would raise an estimated $5 trillion in new tax revenue… The proposal includes a repeal of President Trump’s 2017 tax cuts for high earners, along with a new 5 percent “surcharge” on incomes above $5 million per year. It would raise capital gains taxes for Americans earning more than $1 million a year and…it would partially repeal Mr. Trump’s income tax cuts for corporations, raising their rate to 28 percent from 21 percent. …Mr. Bloomberg’s advisers estimate his increases would add up to $5 trillion of new taxes spread over the course of a decade, in order to finance new spending on health care, housing, infrastructure and other initiatives. That amount is nearly 50 percent larger than the tax increases proposed by the most fiscally moderate front-runner in the race, former Vice President Joseph R. Biden Jr. …Mr. Bloomberg’s advisers said it was possible that he would propose additional measures to raise even more revenue, depending on how his other domestic spending plans develop.
These are all terrible proposals. And you can see even more grim details at Bloomberg’s campaign website.
Every provision will penalize productive behavior.
Though it would be more accurate to say that there’s a partial absence of additional bad news.
Bloomberg hasn’t embraced some of the additional bad ideas being pushed by other Democratic candidates.
It would…maintain a limit on federal deductions of state and local tax payments set under the 2017 law, which some Democrats have pushed to eliminate. …the plan notably does not endorse the so-called wealth tax favored by several of the more liberal candidates in the race, like Senators Elizabeth Warren and Bernie Sanders.
I’m definitely happy he hasn’t embraced a wealth tax, and it’s also good news that he doesn’t want to restore the state and local tax deduction, which encouraged profligacy in states such as California, New Jersey, and Illinois.
It also appears he doesn’t want to tax unrealized capital gains, which is another awful idea embraced by many of the other candidates.
But an absence of some bad policies isn’t the same as a good policy.
And if you peruse his website, you’ll notice there isn’t a single tax cut or pro-growth proposal. It’s a taxapalooza, what you expect from a France-based bureaucracy, not from an American businessman.
To add insult to injury, Bloomberg wants all these taxes to finance an expansion in the burden of government spending.
For what it’s worth, this is my estimate of what will happen to America’s tax burden (based on the latest government data) if Bloomberg is elected and he successfully imposes all his proposed tax increases. We’ll have a more punitive tax system that extracts a much greater share of people’s money.
P.S Take these numbers with a grain of salt because they assume that Bloomberg’s tax increases will actually collect $5 trillion of revenue (which won’t happen because of the Laffer Curve) and that GDP won’t be adversely affected (which isn’t true because there will be much higher penalties on productive behavior).
Is Greece the international version of New Jersey or is New Jersey the American version of Greece?
Is New Jersey the national version of Chicago, or is Chicago the the local version of New Jersey?
The answer is yes, regardless of how the question is phrased because – in all cases – we’re talking about examples of how politicians (and short-sighted voters) create “Goldfish Government.”
Let’s examine Chicago to see how this process works.
The Washington Postnoted early last year that the new mayor was going to face an enormous fiscal challenge because of the reckless choices made by previous generations of politicians.
The city has been underfunding its pensions for decades, with dire results. Chicago’s pension plans collectively have only about a quarter of the assets they’ll need to pay benefits, one of the worst funding ratios in the nation. To put that hole in dollar terms, Chicago is about $28 billion short of what it needs, even under relatively favorable assumptions about future returns, or about $10,000 for every man, woman and child living in the city. …radical surgery still needed. Within a few years, pension contributions are projected to suck up more than 20 percent of the city’s budget. And Chicago can’t count on much help from the state, which is dealing with its own, equally severe case of pension underfunding. …what’s happening in Illinois is merely the earliest and most extreme manifestation of a quandary that will soon be dominating the public conversation in many states: how to pay for retirement promises to public employees without entering a fiscal death spiral. …shoddy accounting allowed generations of politicians all over the country to curry favor with public-sector workers by offering them ever-fatter pension packages, gaining immediate benefit while deferring the political cost of paying for all those benefits until much later. Later is now arriving. …Chicago has been losing lower- and middle-class residents for years, in part because of its heavily regressive tax burden. And when Chicago and Illinois both start raising the rates on upper earners — as they will have to, and soon — they run the risk that those people ,too, will start trickling away, either to smaller cities without the burdensome pension-legacy costs.
Megan McArdle pointed out that Chicago is a mess because of “public choice” – i.e., politicians make short-sighted and irresponsible decisions in order to maximize votes and power.
Throw in a recession sometime in the next couple of years, and Chicago is going to be in a full-blown crisis. …it’s the fault of generations of politicians before them who promised an ever-richer array of benefits to government workers. Particularly, they liked to raise the retirement benefits. …The whole point of giving workers pension benefits instead of cash was that you didn’t have to pay for them; you could promise the benefits now and gather up the votes that the grateful workers tossed at your feet, all without costing current taxpayers a single dime. …Future taxpayers mostly weren’t voting in 1982 municipal elections. …Chicagoans, welcome to “later.” The municipal pensions only have about 25 percent of the assets they’ll need to cover projected benefits, a shortfall of roughly $28 billion. …If you use a more cautious method, you come up with a shortfall of more than $40 billion. …Moody’s Investors Service rates the city’s general obligation debt as junk bonds. …Chicago is now approaching the point where the growth of its obligations will outpace the growth of any possible revenue stream it might use to cover them. It’s a few steps from there to municipal bankruptcy.
Unsurprisingly, Chicago’s relatively new mayor wants to keep the scam going.
As reported by the Chicago Tribune, she wants to extract more money from taxpayers.
Chicago Mayor Lori Lightfoot…said there’s “no question” residents will need to pay more in taxes or fees to plug a looming city budget shortfall… “There’s no question we’re going to have to come to the taxpayers and ask for additional revenue.” …Lightfoot did not specify what sort of revenue she expects to raise — whether it would come in the form of new taxes, a property tax hike or increased fees. …referring to her campaign promise to seek cuts before asking taxpayers for more money, Lightfoot added, “I meant what I said on the course of the campaign: We have a lot of hard choices we’re going to have to make regarding city finances.”
Like previous mayors, she’s buying votes with other people’s money.
The Wall Street Journalopined last year about her surrender to the teacher unions (a Chicago tradition, as illustrated by the adjacent cartoon by Lisa Benson).
Except it wasn’t really a surrender since she was already on their side (as perfectly captured by this Ramirez cartoon).
So the net result is a combination of bad fiscal policy and bad education policy.
Chicago Mayor Lori Lightfoot and the Chicago Teachers Union on Thursday struck an agreement to end an 11-day strike, and by the looks of it the union was bargaining with itself. The mayor is touting the new contract as the most generous in Chicago history, and she’s right. …The new contract includes a 16% raise over five years (not including raises based on longevity), a three-year freeze on health insurance premiums, lower copays, …and more than 450 new social workers and nurses. …you can bet it will be expensive. Last week the mayor proposed a slew of tax increases including levies on ride-hailing services and restaurant meals. This week her staff suggested that property taxes may have to increase . . . again. Michelle Obama the other day complained that white people were leaving the city to escape minorities who are moving in. No, they’re fleeing Chicago’s high taxes and lousy schools—and so are minorities.
This story from Reason is a powerful (and nauseating) example of how a money-hungry city is making life miserable for ordinary people.
Chicago police pulled Spencer Byrd over for a broken turn signal. Byrd says his signal wasn’t broken, but that detail would soon be the least of his worries. …Byrd was giving a client, a man he says he had never met before, a ride… Police pulled both of them out of the car and searched them. Byrd was clean, but in his passenger’s pocket was a bag of heroin… Police released Byrd after a short stint in an interrogation room without charging him with a crime. But when Byrd went to retrieve his car, he found out the Chicago Police Department had seized and impounded it. …The program impounds cars when the owner beats a criminal case or isn’t charged with a crime in the first place. It impounds cars even when the owner isn’t even driving, like when a child is borrowing a parent’s car. …Byrd calls his car his “livelihood,” and he has been fighting for close to two years now to recover it. He says he has $3,500-worth of tools locked in the trunk, and he can’t retrieve them. …Like tens of thousands of other Chicagoans, Byrd was a victim of years of the city’s fiscal negligence. …to try and nickel-and-dime…out of these massive budget gaps. …The result is a uniquely punitive impound system, in which Chicago profits off restricting the ability of its residents to drive.
Amazingly, Chicago’s politicians want to dig an even deeper hole.
The Wall Street Journal has a new editorial examining a scheme to borrow even more money in hopes of keeping the gravy train rolling.
Chicago has been seeking to take advantage of historically low interest rates by refinancing debt—even as its credit rating has deteriorated amid swelling budget deficits and pension payments. …In 2017 state and city politicians contrived a shell scheme to lower the city’s borrowing costs. The city essentially sold off sales-tax revenue that it receives from the state to a corporation specially created to pay creditors. …Voila, Chicago’s financial magicians spun junk into gold. …Chicago’s budget woes are mounting, and financial alchemists are diluting the claims of existing creditors. If the city were to renege on its $8 billion in GO debt, those bondholders would surely demand a slice of the sales-tax revenue now pledged to other creditors. This is what happened in Puerto Rico. …Chicago’s population has declined for each of the past four years, and taxpayers are getting tapped out. On top of a $50 million increase in property taxes this year, Mayor Lori Lightfoot has imposed a new “congestion” fee on Uber and taxi rides, doubled the tax on restaurant meals, and raised a special personal property tax on computer cloud software. Yet a recession would probably blow a gigantic hole in its budget and could cause its pension funds to run dry. Does anyone think that city politicians wouldn’t prioritize public workers over bondholders?
So when will this house of cards collapse?
I have no idea. There’s a famous quote from the late economist Rudiger Dornbusch, who observed that, “In economics, things take longer to happen than you think they will, and then they happen faster than you thought they could.”
The people buying bonds from Chicago are betting that the collapse won’t happen in the near future.
But that was the same mentality of the people who bought Greek bonds in, say, 2005.
I’m hoping some of their proposals are simply election-year pandering, that they really don’t believe in statism, and that they would be reasonable if they got to the White House.people say Madoff was the biggest? Wrong. Social Security is, far and away,” Bloomberg said in a January 2009 appearance… “We are giving monies out with the next guy’s money coming in and at the end of — when the music stops — it’s just not gonna be enough chairs for everybody,” Bloomberg said. …Bloomberg’s past comments are at odds with the mainstream positions within the Democratic Party. …During other radio appearances, Bloomberg called for passing Simpson-Bowles, the deficit cutting plan named after former Wyoming Republican Sen. Alan Simpson and former Clinton White House chief of staff Erskine Bowles.
meaning that the system is only made possible by having new people enter the scheme to finance promises made to people who joined earlier.
P.S. Social Security technically isn’t a Ponzi scheme. That’s because people have the freedom to reject a con artist peddling a pyramid scam. With Social Security, by contrast, participants are legally required to be part of the scheme.
International Liberty 