Defend Vaping, Save Lives

Competent and honest people in the world of public policy understand that decisions have costs and benefits.

Simply stated, there is no such thing as a free lunch, though politicians like to pretend otherwise (to cite an especially absurd example, the Biden Administration is actually claiming that a multi-trillion dollar expansion of the welfare state has “zero cost”).

One of the more perverse examples of free-lunch thinking is the campaign in Washington against the use of electronic cigarettes (usually referred to as vaping).

Rational and sensible people understand that vaping has big benefits (regular cigarettes are a far more dangerous way of enjoying nicotine), while also recognizing potential costs (some people who would not become smokers might choose to vape).

Sadly, both politicians and bureaucrats myopically fixate on the potential costs while paying little or no attention to the tangible benefits.

Regarding politicians, Alan Viard of the American Enterprise Institute criticizes Democrats in the House of Representatives for pushing a tax on vaping.

The proposal would apply the federal tobacco tax to e-cigarettes for the first time. (The tobacco tax rate would also be doubled). Under the proposal, e-cigarettes would be taxed based on their nicotine content. Linking the tax to nicotine is misplaced… As Satel has commented, “The virtue of vaping is that it uncouples deadly smoke from nicotine, which, contrary to common impression, has no appreciable role in causing cancer.” …e-cigarettes offer a life-saving alternative to cigarettes, enabling smokers to more easily quit their deadly habit. …two academic research studies…found that e-cigarette taxes have increased cigarette smoking. Another recent study, which was funded by the National Institutes of Health, similarly found that “higher e-cigarette tax rates increase traditional cigarette use.” …Taxes should reduce smoking, not increase it. E-cigarette taxes pose a threat to public health.

Regarding bureaucrats, Jacob Sullum explains for Reason that the notoriously incompetent Food and Drug Administration is strangling the e-cigarette industry with red tape.

Electronic cigarettes, which deliver nicotine without tobacco or combustion, are the most important harm-reducing alternative to smoking ever developed, one that could prevent millions of premature deaths in the United States alone. Yet bureaucrats and politicians seem determined to negate that historic opportunity through regulations and taxes that threaten to cripple the industry. …the Food and Drug Administration (FDA)…says…every vaping device and nicotine liquid sold in the U.S. is “marketed unlawfully” and “subject to enforcement action at the FDA’s discretion.” …it is not enough for a manufacturer to show its products are far less hazardous than conventional cigarettes. Nor is it enough to show that nontobacco flavors are enormously popular among former smokers, because the FDA might still conclude, however implausibly, that the risk of underage consumption outweighs the welfare of smokers interested in making the potentially lifesaving switch to vaping. …The folly of the obsession with preventing underage vaping was apparent in San Francisco, where a ban on flavored ENDS seems to have boosted smoking by teenagers and young adults.

By the way, this is a global issue.

As you might predict, the notoriously incompetent World Health Organization is on the wrong side.

In a column for CapX, Mark Oates explains how that bureaucracy needs to be slapped down.

The World Health Organisation has once again defied scientific advice by baldly stating that ‘E-cigarettes are not proven cessation aids’. The WHO’s stance flies in the face of all the available evidence. …with around 7 million people dying every year due to smoking-related illnesses, getting policy right in this area could have a huge impact. …we appear to be fighting a losing battle against an international consensus to over-regulate or even ban vaping products which are proven to be the most successful and popular quitting aids available.

And some nations are imposing anti-science policies.

In a column for the Sydney Morning Herald, Alex Wodak and Colin Mendelsohn explain that Australia is about to make a big mistake.

Every year, 21,000 Australians die prematurely from smoking cigarettes. That is more deaths than from alcohol, plus prescription drugs, plus illicit drugs, plus road crash deaths, plus HIV, plus suicide. Governments have moral and health obligations to reduce smoking-related deaths by adopting policies that minimise the harm caused by the inhalation of tobacco smoke. …Currently Australians can import nicotine liquid for vaping from overseas or purchase it from a small number of participating pharmacies… From October 1, importation of nicotine liquid will be closely monitored by the Australian Border Force. …the problem is that in Australia, nicotine for vaping is treated as a medicine regulated by the Therapeutic Goods Administration, or TGA. The TGA includes nicotine liquid for vaping in the Poisons Standard while explicitly excluding cigarettes. The net effect is that a much less dangerous way of consuming nicotine is highly restricted while cigarettes, responsible for the deaths of up to two of every three long-term smokers, are readily available from 20,000 outlets.

I’ll close by reiterating that vaping should be defended because it saves lives.

From a cost-benefit perspective, people who want nicotine definitely should vape rather than smoke.

But I also can’t resist making a liberty argument.

Even if vaping was dangerous, it should still be legal. Adults should be free to make choices about the risks they incur.

That means they should be allowed to engage in all sorts of risky behaviors, such as parachuting, eating unhealthy food, hang gliding, smoking, and scuba diving.

And they also should be free to engage in not-so-risky behaviors, such as vaping.

P.S. The vaping tax is a blatant violation of Biden’s promise not to impose taxes on people making less than $400,000 per year, though I imagine nobody is surprised that he was lying (a bipartisan problem in Washington).

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Biden’s Budget: Affordable Isn’t Sensible

A couple of days ago, I shared the most-recent data about “actual individual consumption” in nations that are part of the Organization for Economic Cooperation and Development.

My goal was to emphasize my oft-stated point about people in the United States enjoying higher living standards – in large part because European nations are saddled with a bigger fiscal burden of government.

President Biden, however, wants to make the United States more like Europe.

• More taxes
• More spending

What’s happening this week in Congress may determine whether he succeeds.

Since I’m policy wonk rather than a political pundit, I don’t pretend to have any great insight on matters such as vote counting.

But I feel compelled to warn that adoption of Biden’s plan would have a negative economic impact.

And I’m not the only one raising alarm bells.

Professor Greg Mankiw of Harvard opined for the New York Times about Biden’s fiscal plan. He starts be noting that Biden’s plan is affordable.

President Biden and many congressional Democrats aim to expand the size and scope of government substantially. …People of all ages are in line to get something… If there is a common theme, it is that when you need a helping hand, the government will be there for you. …Western European nations have more generous social safety nets than the United States. The Biden plan takes a big step in that direction. Can the United States afford to embrace a larger welfare state? From a narrow budgetary standpoint, the answer is yes.

But affordable is not the same as sensible.

He points out that a bigger government will mean a smaller economy.

The costs of an expanded welfare state…extend beyond those reported in the budget. There are also broader economic effects. Arthur Okun, the former economic adviser to President Lyndon Johnson, addressed this timeless issue in his 1975 book, “Equality and Efficiency: The Big Tradeoff.” …As policymakers attempt to rectify the market’s outcome by equalizing the slices, the pie tends to shrink. …Which brings us back to Western Europe. Compared with the United States, G.D.P. per person in 2019 was 14 percent lower in Germany, 24 percent lower in France and 26 percent lower in the United Kingdom. …In other words, most European nations use that leaky bucket more than the United States does and experience greater leakage, resulting in lower incomes. By aiming for more compassionate economies, they have created less prosperous ones.

And less prosperous economies mean lower living standards, as honest folks on the left (such as Okun) openly admit.

That’s bad news for everyone, including lower-income people who theoretically are supposed to benefit from the various new and expanded redistribution programs in Biden’s fiscal plan.

Yes, they may get money from government in their pockets in the short run, but even a small reduction in economic growth will lead to larger income losses in the long run.

The bottom line is that the American experiment has been successful. Why put it at risk by copying nations that aren’t as successful.

After all, you don’t want to “catch up” to countries that are lagging.

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Biden’s Economic Alchemy: $3.5 Trillion = Zero

Last week, I wrote about a new study which estimates that Biden’s fiscal agenda of bigger government and higher taxes would reduce economic output by about $3 trillion over the next decade.

Perhaps more relevant, that foregone economic growth would translate into more than $10,000 of lost compensation per job. And a lifetime drop in living standards of more than 4 percent for younger people.

And these numbers are based on research by the Congressional Budget Office, which is hardly a bastion of libertarian analysis.

The Biden White House has a different perspective.

How different? Well, the President actually claims that expanding the burden of government won’t cost anything.

I’m not joking. Here are some excerpts from an article in the Washington Post by Seung Min Kim and Tony Romm.

President Biden promised Friday that his sweeping domestic agenda package will cost “nothing” because Democrats will pay for it through tax hikes on the wealthy and corporations… The remarks were an attempt by Biden to assuage some of the cost concerns pointedly expressed by the moderate Democrats about the size of the legislation… The total spending outlined in the plan is $3.5 trillion… “It is zero price tag on the debt we’re paying. We’re going to pay for everything we spend,” Biden said in remarks from the State Dining Room at the White House.

Biden’s strange analysis has generated some amusing responses.

For instance, Gerard Baker opined in the Wall Street Journal about Biden’s magical approach.

…this is a novel way of estimating the cost of something. That eye-wateringly expensive dinner you had last week didn’t really cost you anything because you paid for it. …You could have used the money to invest in your children’s college fund. You could have paid off some of your credit card bill, the debt on which has quadrupled in the last year. But you chose instead to blow it on a few morsels of raw fish and a couple of bottles of 1982 Château Lafite Rothschild. Don’t worry, It didn’t cost you anything.

Biden and his team definitely deserve to be mocked for their silly argument.

For all intents and purposes, they want us to believe that there’s no downside if you combine anti-growth spending increases with anti-growth tax increases – so long as there’s no increase in red ink.

But there’s actually a fiscal theory that sort of supports what the White House is saying.

• Capital (saving and investment) is a key driver of productivity and long-run growth.
• Budget deficits divert capital from the economy’s productive sector to government.
• Budget deficits raise interest rates, reducing incentives for investment.
• Therefore, budget deficits are bad for prosperity.

For what it’s worth, all four of those statements are correct.

But the theory is nonetheless wrong because it elevates one variable – fiscal balance – while ignoring other variables that have a much bigger impact on economic performance.

For instance, the Congressional Budget Office at one point embraced this approach – even though it led to absurd implications such as growth being maximized with tax rates of 100 percent.

For further background, here’s a table I prepared back in 2012.

The White House today is basically embracing the IMF’s “austerity” argument that deficits/surpluses are the variable that has the biggest impact on growth.

P.S. Folks on the left must get whiplash because some days they embrace the Keynesian argument that deficits are good for growth and other days they argue that a big expansion of government will have zero cost because there is no increase in the deficit.

P.P.S. The folks on the right who focus solely on tax cuts also are guilty of elevating one variable while ignoring others (humorously depicted in this cartoon strip).

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Swiss Voters Reject Bidenomics

Biden wants lots of class-warfare tax increases to fund a big increase in the welfare state.

That would be bad news for the economy, but his acolytes claim that voters favor the president’s approach.

Maybe that’s true in the United States, but it’s definitely not the case in Switzerland. By a landslide margin, Swiss voters have rejected a plan to impose higher tax rates on capital.

It’s nice to see that every single canton rejected the class-warfare initiative.

In an article for Swissinfo.ch, Urs Geiser summarizes the results.

Voters in Switzerland have rejected a proposal to introduce a tax on gains from dividends, shares and rents. The left-wing people’s initiative targeted the wealthiest group in the country. Final results show 64.9% of voters and all of the country’s 26 cantons dismissing the proposed constitutional reform, in some cases with up to 77% of the vote. …The Young Socialists who had launched the proposal admitted defeat, accusing the political right and the business community of “scare mongering”… The Young Socialists, supported by the Social Democrats, the Greens and the trade unions had hoped to increase tax on capital revenue by a factor of 1.5 compared with regular income tax. …Opponents argued approval of the initiative would jeopardise Switzerland’s prosperity and damage the sector of small and medium-sized companies, often described as the backbone of the country’s economy.

For what it’s worth, I’m not surprised that the Swiss rejected the proposal. Though I was pleasantly surprised by the margin.

Though perhaps I should have been more confident. After all, the Swiss have a good track record when asked to vote on fiscal and economic topics.

• In 2001, the people of Switzerland voted by a 5-1 margin in favor of a spending cap.
• In 2010, nearly 60 percent of the electorate rejected a class-warfare income tax proposal.
• In 2014, Swiss voters overwhelmingly killed a minimum-wage mandate.
• Also in 2014, the voters of Switzerland rejected single-payer healthcare by a landslide margin.
• And in 2015, more than 70 percent of voters rejected a federal death tax.
• In 2016, there was a landslide vote against a scheme to provide universal basic income.

Though not every referendum produces the correct result. In 2018, Swiss voters rejected an opportunity to get rid of most of the taxes imposed by the central government.

P.S. Professor Garett Jones wrote a book, 10% Less Democracy, that makes a persuasive case about limiting the powers of ordinary voters (given my anti-majoritarian biases, I was bound to be sympathetic).

This implies that direct democracy is a bad idea. And when you look at some of the initiatives approved in places such as California and Oregon, Garett’s thesis makes a lot of sense. But the Swiss seem to be the exception that proves the rule.

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The Big Takeaway from a Look at Comparative Living Standards

A very persuasive argument against Biden’s fiscal agenda is that it makes no sense to copy the fiscal policies of European welfare states.

Indeed, I routinely share this column from January, which looks at three different measures of comparative prosperity – all of which show the United States is way ahead of nations on the other side of the Atlantic Ocean.

One of the three data sources is this comparison of “actual individual consumption” (AIC) in the member nations of the Organization for Economic Cooperation and Development.

We now have updated AIC numbers. Here’s a look at the OECD’s latest data. As you can see, people in the United States enjoy levels of consumption 50 percent above the average for developed nations.

The U.S. is even way ahead of oil-rich Norway and the tax havens of Luxembourg and Switzerland.

By the way, if you look at the OECD’s technical definition, AIC includes “government expenditure on individual consumption goods and services,” so the gap between the United States and other nations is not a statistical quirk based on whether government is (or is not) paying for things.

P.S. I can’t resist a couple of closing observations. If you click on the OECD’s link for AIC, you’ll notice that there are seven years of data, thus showing which nations are moving in the right direction or wrong direction (relative to other OECD countries).

• Eastern European nations tend to have the largest increases, as one might expect based on convergence theory (these nations fell way behind because of communist mismanagement). But the biggest increase was enjoyed by Lithuania, which also is very highly ranked for economic liberty. Not a coincidence.
• Nations that suffered noticeable declines include Japan (no surprise), along with Italy and Greece (even less of a surprise).

The moral of the story is that smaller government is part of the recipe for greater prosperity, even if that’s not the approach preferred by vote-buying politicians.

P.P.S. Click here is you want an estimate of how much economic damage would be caused by Biden’s fiscal agenda.

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Communism Humor

Time to augment our collection of communism humor.

But instead of random satire about communism, which is my usual approach, there’s a theme for today’s collection.

We’re going to mock fuzzy-headed youngsters who are drawn to this totalitarian ideology.

Our first item is for the leftists who imagine they’ll be part of the ruling class after a Marxist revolution, only to find out they’ll be part of the 99 percent who endure lives of toil and oppression.

Since young people have a poor grasp of history, our second item is a cliff-notes version of real-world communism.

Next, we have a communist in his parents’ basement, figuring out how to remake society.

Last but not least, they say curiosity killed the cat.

Well, my favorite item from today’s collection is this youngster feeling drawn to an evil ideology.

To be fair, more young people are drawn to socialism than communism

But the shortcut definition of communism is that it’s socialism accompanied by dictatorship, so we’re simply talking about degrees of coercion.

P.S. There are two videos (here and here) indicating that college kids reject socialism when they’re presented with a real-world choice (and there are two satiric versions – here and here – about how that choice operates).

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Measuring the Economic Damage of the Biden Fiscal Plan

More than 12 years ago, I shared this video containing lots of data and research on the negative relationship between government spending and economic performance.

Since then, I’ve share numerous additional studies showing that bigger government dampens growth, mostly from scholars in academia.

Now it’s time for me to directly contribute to this debate.

In a study just published by the Club for Growth Foundation, co-authored with Robert O’Quinn (former Chief Economist at the Department of Labor), we estimated the likely economic impact of President Biden’s so-called Build Back Better plan to expand the welfare state.

Here are our main findings.

What’s especially noteworthy about our study is that we based our analysis on research published earlier this year by the Congressional Budget Office. In other words, a very establishment source.

And here are some excerpts from what we wrote.

President Biden has proposed to increase the burden of federal spending substantially over the next 10 years, diverting nearly $5.5 trillion from the private sector to the government… Most, but not all, of this new spending would be financed with higher tax rates on work, saving, investment, and entrepreneurship. …Based on scholarly academic research, including new findings from the nonpartisan Congressional Budget Office, Biden’s tax-and-spend agenda contained in his reconciliation bill will accelerate America’s fiscal decline and undermine economic performance. …the Biden’s reconciliation bill, which increases the spending burden by 1.9 percent of GDP, will reduce the economy’s growth rate by about 0.2 percent each year. That…translates into more than $3 trillion less national income over the next decade. And the nation’s economic output will be $613 billion lower in 2031 compared to what it would be in the absence of President Biden’s fiscal agenda. …The cumulative loss of employee income over the next 10 years will exceed $1.6 trillion. Some of that will be in the form of lower wages and some of that will be a consequence of lost jobs. On average, each worker in a nonfarm job will lose $10,391 in total compensation.

These results shouldn’t be a surprise.

Biden’s fiscal agenda would made the United States more like Europe and the economic data unambiguously demonstrate that Europeans suffer from significantly lower living standards.

P.S. I especially like the CBO study because it shows the amount of damage caused by more spending varies based on how the outlays are financed.

As this chart illustrates, class-warfare taxation is the worst way of financing a bigger burden of government.

P.P.S. The good news is that Biden probably won’t be able to convince Congress to approve all of his proposals for new spending and higher tax rates. The bad news is even approving half of the Biden’s plan would cause considerable damage to American prosperity and competitiveness.

P.P.P.S. For policy wonks, there are two main types of research involving the economic impact of government spending. For those focusing on short-run economic results, there’s a debate about Keynesian economics – whether more government spending can artificially generate some growth, particularly if the outlays are financed with debt.

I’m skeptical of the Keynesian argument, but it’s not relevant for today’s column, which focuses on how government spending impacts long-run economic results. And when looking at long-run data, most of the research suggests that government is too big. Indeed, it’s worth noting that there’s even research supporting my view from generally left-leaning international bureaucracies such as the World Bank, the International Monetary Fund, the Organization for Economic Cooperation and Development, and the European Central Bank.

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Economic Backsliding by China, Part II

Two years ago, I wrote that China needed to choose between “Statism and Stagnation or Reform and Prosperity.”

Sadly, as I noted last month in Part I of this series, it seems that President Xi is opting for the former.

Which is unfortunate since China needs a lot more growth to get anywhere near U.S. levels of prosperity.

Yet that’s not very likely when the United States is ranked #6 and China is ranked #116 for economic liberty.

For what it’s worth, China’s score is likely to drop in future years rather than rise, and I’m certainly not the only one to notice that China has economic problems.

Writing for the Atlantic, David Frum looks at the country’s shaky economic outlook.

China’s economic, financial, technological, and military strength is hugely exaggerated by crude and inaccurate statistics. Meanwhile, U.S. advantages are persistently underestimated. The claim that China will “overtake” the U.S. in any meaningful way is polemical and wrong… China misallocates capital on a massive scale. More than a fifth of China’s housing stock is empty—the detritus of a frenzied construction boom that built too many apartments in the wrong places. China overcapitalizes at home because Chinese investors are prohibited from doing what they most want to do: get their money out of China. …More than one-third of the richest Chinese would emigrate if they could, according to research by one of the country’s leading wealth-management firms.

David mentioned “inaccurate statistics,” which is a big problem in China.

But I also worry about bubble statistics, which is an issue the Wall Street Journal editorialized about earlier this year.

…credit has exploded, with total public and private debt expected to exceed 270% of GDP in 2020, up 30 points in one year. Most of that has gone to state-owned firms and exporters. Smaller, more productive private companies that serve the domestic market report credit shortages. This undermines long-term growth… Unless China can unlock and expand its productive private economy, it will never be able to manage the burden of the debt Beijing has created.. China’s unbalanced recovery represents an enormous lost opportunity for the Chinese people.

David Ignatius of the Washington Post opines on President Xi’s embrace of bad policy.

President Xi Jinping has moved down a Maoist path this year toward tighter state control of the economy — including “self-criticism” sessions for Chinese business and political leaders whose crime, it seems, was being too successful. Xi’s leftward turn represents a major change… The result is a severe squeeze on what Xi views as “undisciplined” entrepreneurs. …Xi’s crackdown has rocked the Chinese economy. The top six technology stocks have lost more than $1.1 trillion in value over the past six months… Xi is animated by what he has called his “China Dream,” of a nation of unparalleled wealth and power — and also the egalitarian ideals of socialism.

In a column for the Wall Street Journal, Dennis Kwok and Johnny Patterson warn that private investors should not trust the Chinese government.

Beijing’s crackdown on private businesses has wiped out hundreds of billions of dollars in market value in the past two months. Under the policies of “advancement of the state, and retreat of private enterprises” and “common prosperity,” the state’s tightening of control will increase. …Beijing assails “foreign forces” for seeking to curb China’s rise as a great nation. That refrain is constantly pushed by state media… Investors and shareholders of Wall Street firms must understand that there has been a paradigm shift in Mr. Xi’s China. Long gone are the days of pragmatism. What the Chinese state wants, the Chinese state gets.

In an article for the Atlantic, Michael Schuman explains how China’s heavy subsidies for electric cars haven’t produced vehicles that can compete with Tesla and other western  vehicles.

Do Chinese state programs actually work? …bureaucrats have never stopped meddling with markets. State direction, state money, and state enterprises remain core features of the Chinese economic model. President Xi Jinping has even reversed the trend toward greater economic freedom, notably with a hefty dose of state-led programs aimed at accelerating the progress of specific sectors. …China’s industrial program has resulted in a lot of production, but only questionable competitiveness. Even Beijing’s spendthrift bureaucrats seem to have awoken to that—sort of. They’ve been rolling back direct subsidies to carmakers, with an eye on eliminating them.

In other words, industrial policy is backfiring on China.

The former Prime Minister of Australia, Kevin Rudd, opined for the Wall Street Journal about China’s resurgent statism

In recent months Beijing killed the country’s $120 billion private tutoring sector and slapped hefty fines on tech firms Tencent and Alibaba. Chinese executives have been summoned to the capitol to “self-rectify their misconduct” and billionaires have begun donating to charitable causes in what President Xi Jinping calls “tertiary income redistribution.” China’s top six technology stocks have lost more than $1.1 trillion in value in the past six months… Mr. Xi is executing an economic pivot to the party and the state… Demographics is also driving Chinese economic policy to the left. The May 2021 census revealed birthrates had fallen sharply to 1.3—lower than in Japan and the U.S. China is aging fast. The working-age population peaked in 2011… While the politics of his pivot to the state may make sense internally, if Chinese growth begins to stall Mr. Xi may discover he had the underlying economics very wrong.

That final sentence is key.

Free enterprise is only tried-and-true recipe for economic prosperity. Chinese leaders are wrong to think they can get faster growth with more intervention.

Simply stated, China appears to be moving further left on this spectrum when it desperately needs to move to the right.

The bottom line is that I’m not optimistic about the future of China.

The country needs a Reagan-style agenda (the approach used by Singapore, Hong Kong, and Taiwan) to achieve genuine convergence.

P.S. Amazingly, both the IMF and OECD are encouraging more statism in China.

P.P.S. I used to be hopeful about China. During the 1950s, 1960s, and 1970s, China was horrifically impoverished because of socialist policies. According to the Maddison database, the country was actually poorer under communism than it was 1,000 years ago. But there was then a bit of economic liberalization starting in 1979, which generated very positive results. As a result, there was a significant increase in living standards and a huge reduction in poverty. But that progress has ground to a halt.

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Economic Freedom and Income Mobility

Writing last week about the new edition of Economic Freedom of the World, I largely focused on the jurisdictions that got high scores (Hong Kong, Singapore, and New Zealand) and countries that got low scores (Venezuela in last place, of course).

But I also included a chart showing that higher levels of economic liberty are correlated with higher levels of income.

That’s hardly a surprise for anyone who’s compared North Korea and South Korea. Or West Germany and East Germany.

But what about income mobility? Do free markets give low-income people an opportunity to climb the economic ladder?

Some new research from Vincent Geloso of George Mason University and James Dean of West Virginia University answers that question.

Here’s the abstract from their study.

Economic freedom is robustly associated with income growth, but does this association extend to the poorest in a society? In this paper, we employ Canada’s longitudinal cohorts of income mobility between 1982 and 2018 to answer this question. We find that economic freedom, as measured by the Fraser Institute’s Economic Freedom of North America (EFNA) index, is positively associated with multiple measures of income mobility for people in the lowest income deciles, including a) absolute income gain; b) the percentage of people with rising income; and c) average decile mobility. For the overall population, economic freedom has weaker effects.

And here’s the part of the study that I found most interesting.

We learn that labor market freedom is most important.

When focusing on the bottom decile’s average decile mobility (see table 5), we must note this variable only measures upward decile mobility, as those in the poorest decile cannot move down a decile and the upper decile can only move down or stay put. As a result, the effect of economic freedom is likely somewhat understated because of these mathematical boundaries. Nevertheless, we see that greater economic freedom increases the lowest decile’s upward decile mobility. In essence, higher amounts of economic freedom improve the relative gains of those at the bottom of the distribution, allowing them to move to higher deciles. Here, again, we see that the labor market freedom component is key for the nation’s poorest, such that an additional point of labor market freedom allows those beginning in the poorest decile to move up an additional 0.145 deciles… To put that number into perspective, using the differences in economic freedom between Quebec and Alberta (i.e. the lowest and highest economic freedom units in our data) is again useful. The greater labor market freedom of Alberta entails that the poorest Albertans have 0.44 extra deciles of mobility on average than the poorest Quebeckers.

Wonky readers may enjoy the aforementioned Table 5.

The bottom line is that free markets and limited government are the recipe to help poor people climb the economic ladder, not class warfare and redistribution (as I explained here, here, here, and here).

It’s much better to focus on how to make poor people rich rather than trying to make rich people poor.

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Americans Are Getting Richer, but the Relevant Question is “How Quickly?”

Our friends on the left believe (or at least claim to believe) that the United States is an unfair nation because the rich get richer and the poor get poorer.

More specifically, they assert that the economy is a fixed pie and that when people like Bill Gates and Jeff Bezos become rich, then there is less prosperity for everyone else.

This is grotesquely inaccurate, as I explained earlier this year.

We have a great opportunity to revisit this issue because the Census Bureau just released its annual report on Income and Poverty in the United States. I went to Table A2 and created this chart to show how inflation-adjusted income has increased over time for the average household.

In other words, families are earning more, no matter how we measure the average (“median” is the household in the middle and “mean” is the average of all households).

By the way, when you break down the data by quintiles, as I did back in 2018, you find that a big overlap in the economic well-being of all income groups.

Simply stated, we rise and fall together based on the health of the overall economy. That’s true for the poor, true for the rich, and true for the middle class.

Which is why growth is so important, especially for the least fortunate.

But it’s not simply about growth. It’s also about people’s decisions.

Mark Perry, an invaluable scholar at the American Enterprise Institute, crunched the data from the Census Bureau’s report and here are some of his key findings.

On average, there are five times more income earners per household in the top income quintile households (2.0) than earners per household in the lowest-income households (0.40). …the average number of earners per household increases for each higher income quintile, demonstrating that one of the main factors in explaining differences in income among US households is the number of earners per household. …More than six out of every ten American households (64.7%) in the bottom fifth of households by income had no earners in 2020. …more evidence of the strong relationship between average household income and income earners per household. …the key demographic factors that explain differences in household income are not fixed over our lifetimes and are largely under our control (e.g., staying in school and graduating from high school and college, getting and staying married, working full-time, etc.), which means that individuals and households are not destined to remain in a single-member, low-income quintile forever.

The bottom line is that income is correlated with work, which is hardly a surprise.

But it also is correlated with other choices such as marriage and graduation, as the great Walter Williams sagely observed.

Let’s wrap up looking at some additional data from Mark Perry.

Our left-leaning friends routinely assert that the middle class is shrinking.

It turns out that they’re right, but not because people are becoming poor.

Instead, more and more households are earning above $100,000.

The moral of the story is that free enterprise delivers great results, assuming that politicians don’t smother it with excessive taxes, spending, regulation, and intervention.

And if we want faster growth, we need smaller government.

P.S. We can learn a very important lesson about the effect of big government by comparing living standards in the United States and other developed nations.

P.P.S. For those who want to learn more about income mobility, I strongly recommend this video from Russ Roberts.

P.P.P.S. This data on global income also shows that the economy is not a fixed pie.

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The Negative Relationship between Welfare and Work

Ten days ago, I shared some data and evidence illustrating how redistribution programs result in high implicit tax rates and thus discourage low-income people from climbing the economic ladder.

Simply stated, why work harder or work more when an additional dollar of income only leads to a net benefit of 10 cents or 20 cents? Or why work harder or work more when you can actually wind up being worse off?

Or why work at all if the governments provides enough goodies?

But don’t ask such questions if you’re in the same room as Helaine Olen of the Washington Post. She is very upset that some people think welfare payments discourage work.

It’s a dangerous myth, this idea that government help causes some people to just loaf off. It’s also untrue. Reminder: Before the pandemic, most working-age people receiving benefits like food stamps worked. They just didn’t earn enough money. …the temporary child tax credit signed into law this year by President Biden demonstrates the opposite. It is an extraordinary success. Almost 90 percent of families with children under age 18 are eligible to receive a monthly check from the federal government through the end of the year. …Many other developed nations offer almost all residents a child allowance of some sort.

If you read the entire column, you’ll notice that she provides very little evidence, particularly considering her very bold assertion that a negative link between redistribution and labor supply is “a dangerous myth.”

Yet we know from the experience of welfare reform in the 1990s that work requirements did boost labor supply.

And don’t forget about the very recent evidence that turbo-charged unemployment benefits encouraged more joblessness.

We also have evidence from overseas showing that there’s a negative relationship between handouts and idleness.

Including research from the Netherlands and the Nordic nations such as Denmark. And the same is true in Canada. And the United Kingdom.

Ms. Olen seems primarily motivated by her support for permanent per-child handouts, as President Biden has proposed.

And she wants us to believe that everyone will continue to work, even if they can get $3000-plus for each kid, along with all the other goodies that are provided by Uncle Sam (often topped up by state governments).

For what it’s worth, I think she admits her real agenda toward the end of her column.

…an argument can be made that the children of the irresponsible deserve more support from us, not less. Children can’t push their parents to get with the work-and-education program. As a result, you’re not “helping” children if you insist on financially punishing their parents for not making an “effort.” …human infrastructure matters too.

In other words, Ms. Olen seems to share Rep. Ocasio-Cortez’s view that money should be given to people “unwilling to work.”

Which is how some of our friends actually view the world. They think there is a right to other people’s money. Which is why they support big handouts, including so-called basic income.

The bottom line is that Biden’s per-child handouts and other expansions of the welfare state clearly would make work less attractive for some people.

Not all people, of course, because it takes time to erode societal capital.

But why would we want a society where a growing number of people think it’s okay to live off of others?

P.S. There is scholarly research that redistribution programs lure older people out of the workforce.

P.P.S. There is also scholarly research showing redistribution programs discourage households from building wealth.

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Reagan, Biden, and the Facts on Government Spending

With regards to fiscal policy, part of my mission is to proselytize in favor of lower tax rates and a smaller burden of government spending.

But another goal is simply to make sure people understand basic facts about the budget.

For instance, how many people know that Republican presidents (notwithstanding their rhetoric) generally increase spending at a faster rate than Democrats?

Not many.

And ever fewer people know that Republican presidents even increase domestic spending (discretionary outlays plus entitlements) faster than Democrats.

The only exception to this rule is Ronald Reagan.

Which explains why folks on the left don’t like him, which is a perfectly reasonable reaction from their perspective.

But what’s not reasonable is the way some of them butcher facts in pursuit a big-government agenda.

For instance, Paul Waldman of the Washington Post has a column claiming that Joe Biden is finally, after 40 years, ending the Reagan revolution.

…the old-school plutocrats who have long controlled the party’s policy agenda…are getting very frightened of the reconciliation bill Democrats are negotiating. …The reconciliation bill really does represent an undoing of Reaganism. …The bill would reverse what Ronald Reagan wrought on government spending… Reagan famously said that “government is not the solution to our problem; government is the problem.” His great achievement was to make that the default assumption of public debate, the paradigm under which the country would operate for decades. It held sway even during periods of Democratic rule. Bill Clinton embraced the Reagan paradigm… the Democratic reconciliation bill is most revolutionary. It would reinforce the safety net — largely temporary programs such as unemployment insurance and food stamps, meant to help when you experience a crisis — but it would also create a new system of social infrastructure… All of which would go far beyond what was in place before Reagan. …it really is a threat to the legacy of Reaganism.

Some of what Waldman wrote is correct.

Reagan did point out that “government is the problem.”

And we did get a bit of Reagan-style spending restraint under Bill Clinton (though one can certainly argue that the post-1994 GOP Congress deserves some or all of the credit).

But he is wildly wrong in his main point about a dominant Reagan-inspired paradigm on government spending.

Let’s go to the Historical Tables of the Budget, published by the Office of Management and Budget.

Here’s a chart based on Table 8.2, which shows total domestic spending (column E + column H) in inflation-adjusted dollars. As you can see, outlays have exploded in the post-Reagan years (and I included both 2019 and 2020 data to show that it’s not just the coronavirus-related spending increases from last year).

Now let’s look at Table 8.4, which allows us to show domestic spending (also column E + column H) as a share of economic output.

We see that the burden of such outlays declined significantly under Reagan. Sadly, all that progress evaporated (and then some) by 2019.

The bottom line is that Biden does have a big-government agenda.

But that’s not exactly a new paradigm. Every other president in the post-Reagan era has sided with government over taxpayers.

I miss the Gipper.

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Two (Humorous) Images to Understand Biden’s Fiscal Policy

Yesterday’s column was a completely serious look at five graphs and tables that show why Biden’s tax plan is misguided.

Today, we’re going to make the same point with satire. And we’ll only need two images.

First, here’s a look at what happens when politicians create never-ending handouts financed by ever-higher taxes on an ever-smaller group of rich taxpayers.

In the past, I’ve referred to this as “Greece-ification” and Biden’s fiscal plan definitely qualifies.

It’s also a different way of looking at the second cartoon from this depiction of how a welfare state evolves over time.

This Chuck Asay cartoon makes the same point.

Second, here’s a cartoon that nicely captures why I think Biden’s agenda will erode the nation’s societal capital.

The same theme as this excellent cartoon.

While amusing, there’s a very serious point to be made. Politicians already have created a system that rewards people for doing nothing while punishing them for creating wealth.

Those policies hinder American prosperity (as honest folks on the left acknowledge), but we can survive with slower growth. What really worries me is that we may eventually reach a tipping point of too many people riding in the wagon (and out-voting the people who pull the wagon).

Simply stated, we don’t want America to become another Greece.

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Five Visuals to Understand the Biden-Pelosi Tax Plan

The Biden Administration’s approach to tax policy is awful, as documented here, here, here, and here.

We’ve now reached the stage where bad ideas are being turned into legislation. Today’s analysis looks at what the House Ways & Means Committee (the one in charge of tax policy) has unveiled. Let’s call this the Biden-Pelosi plan.

And we’re going to use some great research from the Tax Foundation to provide a visual summary of what’s happening.

We’ll start with a very depressing look at the decline in American competitiveness if the proposal becomes law (the good news is that we’ll still be ahead of Greece!).

Next, let’s look at the Tax Foundation’s map of capital gains tax rates if the plan is approved.

Unsurprisingly, this form of double taxation will be especially severe in California.

Our third visual is good news (at least relatively speaking).

Biden wanted the U.S. to have the developed world’s highest corporate tax rate. But the plan from the House of Representatives would “only” put America in third place.

Here’s another map, in this case looking at tax rates on non-corporate businesses (small businesses and other entities that get taxed by the 1040 form).

This is not good news for America’s entrepreneurs. Especially the ones unfortunate enough to do business in New York.

Last but not least, here’s the Tax Foundation’s estimate of what will happen to the economy if the Biden-Pelosi tax plan is imposed on the nation.

There are two things to understand about these depressing growth numbers.

• First, small differences in growth rates produce very large consequences when you look 20 years or 30 years into the future. Indeed, this explains why Americans enjoy much higher living standards than Europeans (and also why Democrats are making a big economic mistake to copy European fiscal policy).
• Second, the Tax Foundation estimated the economic impact of the Biden-Pelosi tax plan. But don’t forget that the economy also will be negatively impacted by a bigger burden of government spending. So the aggregate economic damage will be significantly larger when looking at overall fiscal policy.

One final point. In part because of the weaker economy (i.e., a Laffer Curve effect), the Tax Foundation also estimated that the Biden-Pelosi tax plan will generate only $804 billion over the next 10 years.

P.S. Here’s some background for those who are not political wonks. Biden proposed a budget with his preferred set of tax increases and spending increases. But, in America’s political system (based on separation of powers), both the House and Senate get to decide what they like and don’t like. And even though the Democrats control both chambers of Congress, they are not obligated to rubber stamp what Biden proposed. The House will have a plan, the Senate will have a plan, and they’ll ultimately have to agree on a joint proposal (with White House involvement, of course). The same process took place when Republicans did their tax bill in 2017.

P.P.S. It’s unclear whether the Senate will make things better or worse. The Chairman of the Senate Finance Committee, Ron Wyden, has some very bad ideas about capital gains taxation and politicians such as Elizabeth Warren are big proponents of a wealth tax.

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Political Alchemy, Part II: Turning Spending Increases into Tax Cuts

More than 10 years ago, I wrote about President Obama’s disingenuous strategy of pretending that spending increases were tax cuts.

Politicians in Washington have come up with something far more impressive than turning lead into gold or water into wine. Using self-serving budget rules, they can increase the burden of government spending and say they are cutting taxes instead. This bit of legerdemain is made possible…by adopting or expanding refundable tax credits. But in this case, “refundable” does not mean the government is returning money to taxpayers. Instead, it means that money is being redistributed to people who do not earn enough to be subject to the income tax. This is hardly a trivial issue. …the amount of income redistribution being laundered through the tax code is now so large that the bottom 40 percent of the population has a negative “effective” income tax rate.

Indeed, the IRS is now the biggest redistribution agency in the world, in charge of giving away a massive amount of money.

Far more than is spent on traditional welfare (what used to be called aid to families with dependent children and was reclassified as temporary aid to needy families), as illustrated by the chart.

The so-called earned income tax credit is the biggest redistribution program, though there’s also a large amount of spending on child credits.

And the cost of the so-called child credits is going to explode if President Biden’s plan for per-child handouts is approved.

Matt Weidinger of the American Enterprise Institute opined on Biden’s version of political alchemy.

Democrats are fond of saying their massive $3.5 trillion spending bill includes significant “tax cuts.” They are referring to the effects of continuing the expanded child tax credit… President Biden said it was “one of the largest-ever single tax cuts for families with children.” …The facts say otherwise. …Such payments to those who do not owe federal income taxes are known as “refundable” credits, or in budget terms “outlays” — the same as benefits provided under welfare, Medicaid, food stamps, and similar spending programs. The outlay portions of these tax credits are not “tax cuts” for the simple reason that the payments exceed any taxes the recipient owed in the first place. Put another way, it is impossible to “cut taxes” if you do not owe taxes.

And here’s the relevant table from the Joint Committee on Taxation.

By the way, note how the spending estimates decline after 2025.

This is a budget gimmick. To make Biden’s expansion of the welfare state seem less extravagant, supporters designed the proposal so the expanded per-child handouts disappear in 2026.

But they openly argue that they will be extended because of the assumption that many Americans will get hooked on “free” money from Washington.

P.S. I’m not a fan of child credits, even for families that pay taxes. Simply stated, there are other types of tax cuts that will do a much better job of boosting after-tax family income.

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New Economic Freedom Rankings: Treading Water in the U.S., Falling in Canada, and Worrisome News for Chile

The Fraser Institute in Canada has released its latest edition of Economic Freedom of the World, an index that measure and ranks nations based on whether they follow pro-growth policy.

Based on the latest available data on key indicators such as taxes, spending, regulation, trade policy, rule of law, and monetary policy, here are the top-20 nations.

You may be wondering how Hong Kong is still ranked #1.

In this summary of the findings, the authors explain that EFW is based on 2019 data. In other words, before Beijing cracked down. This means Hong Kong will probably not be the most-free jurisdiction when future editions are released.

The most recent comprehensive data available are from 2019. Hong Kong remains in the top position. The apparent increased insecurity of property rights and the weakening of the rule of law caused by the interventions of the Chinese government during 2020 and 2021 will likely have a negative impact on Hong Kong’s score, especially in Area 2, Legal System and Property Rights, going forward. Singapore, once again, comes in second. The next highest scoring nations are New Zealand, Switzerland, Georgia, United States, Ireland, Lithuania, Australia, and Denmark.

The United States was #6 in last year’s edition and it remains at #6 this year.

There are some other notable changes. The country of Georgia jumped to #5 while Australia dropped to #9.

Perhaps the most discouraging development is that Chile dropped to #29, a very disappointing result (and perhaps a harbinger of further decline in the nation that used to be known as the Latin Tiger).

And it’s also bad news that Canada has deteriorated over the past five years, dropping from #6 to #14.

The good news is that the world, on average, is slowly but surely moving in the right direction. Not as rapidly as it did during the era of the “Washington Consensus,” but progress nonetheless.

By the way, the progress is almost entirely a consequence of better policy in developing nations, especially the countries that escaped the tyranny of Soviet communism.

Policy has drifted in the wrong direction, by contrast, in the United States and Western Europe.

Indeed, the United States currently would be ranked #3 if it still enjoyed the level of economic liberty that existed in 2000.

In other words, the Bush–Obama–Trump years have been somewhat disappointing.

Let’s look at another chart from the report. I’ve previously pointed out that there’s a strong relationship between economic freedom and national prosperity.

Well, here’s some additional evidence.

Let’s close by considering some of the nations represented by the red bar in the above chart.

You probably won’t be surprised to learn that Venezuela is once again ranked last. Though it is noteworthy that its score dropped from 3.31 to 2.83. I guess Maduro and the other socialists in Venezuela have a motto, “when you’re in a hole, keep digging.”

Argentina isn’t quite as bad as Venezuela, but I also think it’s remarkable that its score dropped from 5.88 to 5.50. That’s a big drop from a nation that already has a bad score.

Given these developments (as well as what’s happening in Chile), it’s not easy to be optimistic about Latin America.

P.S. There isn’t enough reliable data to rank Cuba and North Korea, so it’s quite likely that Venezuela doesn’t actually have the world’s most-oppressive economic policies.

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Biden and Pelosi’s Tax Plan Will Penalize Success

When I discuss class-warfare tax policy, I want people to understand deadweight loss, which is the term for the economic output that is lost when high tax rates discourage work, saving, investment, and entrepreneurship.

And I especially want them to understand that the economic damage grows exponentially as tax rates increase (in other words, going from a 30 percent tax rate to a 40 percent tax rate is a lot more damaging than going from a 10 percent tax rate to a 20 percent tax rate).

But all of this analysis requires a firm grasp of supply-and-demand curves. And most people never learned basic microeconomics, or they forgot the day after they took their exam for Economics 101.

So when I give speeches about the economics of tax policy, I generally forgo technical analysis and instead appeal to common sense.

Part of that often includes showing an image of a “philoso-raptor” pondering whether the principle that applies to tobacco taxation also applies to taxes on work.

Almost everyone gets the point, especially when I point out that politicians explicitly say they want higher taxes on cigarettes because they want less smoking.

And if you (correctly) believe that higher taxes on tobacco lead to less smoking, then you also should understand that higher taxes on work will discourage productive behavior.

Unfortunately, these common-sense observations don’t have much impact on politicians in Washington. Joe Biden and Democrats in Congress are pushing a huge package of punitive tax increases.

Should they succeed, all taxpayers will suffer. But some will suffer more than others. In an article for CNBC, Robert Frank documents what Biden’s tax increase will mean for residents of high-tax states.

Top earners in New York City could face a combined city, state and federal income tax rate of 61.2%, according to plans being proposed by Democrats in the House of Representatives. The plans being proposed include a 3% surtax on taxpayers earning more than $5 million a year. The plans also call for raising the top marginal income tax rate to 39.6% from the current 37%. The plans preserve the 3.8% net investment income tax, and extend it to certain pass-through companies. The result is a top marginal federal income tax rate of 46.4%. …In New York City, the combined top marginal state and city tax rate is 14.8%. So New York City taxpayers…would face a combined city, state and federal marginal rate of 61.2% under the House plan. …the highest in nearly 40 years. Top earning Californians would face a combined marginal rate of 59.7%, while those in New Jersey would face a combined rate of 57.2%.

You don’t have to be a wild-eyed “supply-sider” to recognize that Biden’s tax plan will hurt prosperity.

After all, investors, entrepreneurs, business owners, and other successful taxpayers will have much less incentive to earn and report income when they only get to keep about 40 cents out of every $1 they earn.

Folks on the left claim that punitive tax rates are necessary for “fairness,” yet the United States already has the developed world’s most “progressive” tax system.

I’ll close with the observation that the punitive tax rates being considered will generate less revenue than projected.

Why? Because households and businesses will have big incentives to use clever lawyers and accountants to protect their income.

Looking for loopholes is a waste of time when rates are low, but it’s a very profitable use of time and energy when rates are high.

P.S. Tax rates were dramatically lowered in the United States during the Reagan years, a policy that boosted the economy and led to more revenues from the rich. Biden now wants to run that experiment in reverse, so don’t expect positive results.

P.P.S. Though if folks on the left are primarily motivated by envy, then presumably they don’t care about real-world outcomes.

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Vaccine Mandates, Property Rights, and Libertarianism

Just like I’ve never had (until recently) any reason to define capitalism, I also have never felt any need to define libertarianism.

Some people use the non-aggression principle, but that strikes me as more of a statement about how we should behave.

What if we’re trying to define the rules for libertarian governance?

In that case, my definition is very much based on property rights. What’s mine is mine and what’s yours is yours, and we both have the right to engage (or to not engage) in voluntary exchange.

I realize that’s not the most elegant or comprehensive statement of principles, but I think it provides a useful framework for the debate over vaccine mandates.

Regarding that issue, I’m glad that private companies had the expertise and opportunity to develop vaccines against the coronavirus, and I got vaccinated as soon as possible.

That being said, I definitely don’t think government should force anyone to make that choice.

But I also think that people who opt against vaccination should accept the non-governmental consequences.

Here’s some of what I wrote about this topic back in April.

What if private businesses decide that customers are only allowed if they prove they’ve been vaccinated? From a libertarian perspective, guided by core principles such as property rights and freedom of association, that should be totally acceptable. And that’s true even if we think the owners of the businesses are making silly choices. After all, it’s their property.

The Dispatch has an article on this controversy.

Written by Andrew Egger, it starts by pointing out that there’s a political fight in South Dakota because a private company has announced that all employees must be vaccinated.

South Dakota’s largest employer is Sanford Health, a hospital and health care system that employs nearly 10,000 people in the eastern half of the state. On July 22, Sanford, which operates in both Dakotas and Minnesota, announced it would begin requiring all its employees to get vaccinated for COVID by November 1. Within weeks, two Republican members of the state House, Reps. Jon Hansen and Scott Odenbach, had introduced legislation punching back. The COVID-19 Vaccine Freedom of Conscience Act would give South Dakotans “the right to be exempt from any COVID-19 vaccination mandate, requirement, obligation, or demand on the basis that receiving a COVID-19 vaccination violates his or her conscience.” …By the end of August, state House Speaker Spencer Gosch had come aboard the mandate ban effort as well. …The only problem: Noem doesn’t support the legislation.

Why is Governor Kristi Noem against the legislation?

For a very libertarian reason. She doesn’t think the government has the right to tell a private company how to operate.

…the laissez-faire approach that made Noem a conservative folk hero in last year’s fights has gotten her crosswise with her fellow Republicans on the issue of vaccine mandate bans. “Frankly, I don’t think businesses should be mandating that their employees should be vaccinated,” she said in a video posted to Twitter last week. “And if they do mandate vaccines to their employees, they should be making religious and other exemptions available to them. But I don’t have the authority as governor to tell them what to do.”

Amen.

If you believe in private property, the owners of a business should have the right to decide whom they employ and whom they do business with.

Just as consumers can choose where to shop and workers can choose to leave jobs they don’t like.

Here’s a final excerpt from the article.

“Nobody is stopping you from making that decision [not to get vaccinated], but you don’t have a right to a particular job,” Noem spokesman Ian Fury told The Dispatch. “The business owner has the right to his business. You do not have a right to an individual job, because you don’t own that business.” …Philosophically, that puts Noem firmly in the camp of free-market Republicans past: largely content to preside passively over a state economy in which companies are free to set their own standards of conduct and employees are free to work for companies that share their values—and quit jobs if they don’t.

The bottom line is that libertarians (and small-government conservatives) should not be upset about private companies making private decisions.

Instead, we should get irked when politicians try to mandate those decisions.

In a column for the Washington Examiner, Quin Hillyer condemns Joe Biden’s recent declaration that companies either must require vaccination or conduct constant testing.

President Joe Biden’s decision to require large private employers to ensure their workers are vaccinated or tested for the coronavirus is problematic not just in terms of the Constitution, statutes, and liberty interests, but it is also highly impractical. …This is crazy. If the onus is on the businesses, what are businesses to do if employees refuse to comply? Fire them all? …This rule is a recipe for lawsuits. Will businesses be caught in a bind — penalized for unvaccinated workers but also charged with unfair labor practices if they evade the mandate by reducing payrolls below 100? …If massive new testing is required as a mere screening method, even for those feeling perfectly healthy, how will medical personnel keep up? Who will keep administrative tabs on all this? And if businesses are required to provide time off for workers to get tested, how will their own efficiency and productivity suffer?

Given the fact that Biden is a career politician with no experience in the private sector, I guess we shouldn’t be surprised by this White House proposal.

After all this is an Administration that thinks copying the failed fiscal policies of Greece, France, and Italy is how you “build back better.”

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Great Moments in Foreign Government

Time to update our series on “great moments in foreign government.”

We’ll start with Jersey. I wrote a few years ago about the (relatively) good tax laws in that British dependent territory off the coast of France.

But there are two ways those laws could be improved. First, officials could abolish its income tax because a zero income tax is better than a flat tax.

And with tax policy heading in the wrong direction in the United Kingdom, that would further enhance Jersey’s competitive advantage.

Sadly, the island’s lawmakers haven’t opted for that choice.

But they did approve a second reform. As reported by the New York Times, Jersey has joined the 20th century.

Lawmakers on the island of Jersey have approved scrapping a decades-old law that prevented married women from talking to the tax authorities without the permission of their husband or filing taxes under their own names… a popular tax haven, …its financial laws have not always kept up with the times: Under its current tax law, introduced in 1928, only the husband in a heterosexual marriage can pay taxes, with his wife’s earnings considered part of his income. …Things became a bit more modern in 2013, when a box appeared on income tax forms that husbands could tick rather than giving written permission. When civil unions and same-sex marriages became legal on the island, the law allowed the older partner to take the role of “husband” and the younger “wife.” …Under the proposal backed by a majority of lawmakers on Tuesday, taxpayers would be considered as individuals. …Legislation to bring in the changes will be drafted later this year and should come into effect in 2021.

Next, we’ll visit Indonesia, where the guy who drafted a law actually got some first-hand experience with how the law is implemented. The Daily Mail has the amusing details.

An Indonesian man working for an organisation which helped draft strict religious laws ordering adulterers to be flogged has himself been whipped after he was caught having an affair with a married woman. Mukhlis, who is a member of the Aceh Ulema Council and only goes under one name like many Indonesians, was beaten 28 times with a rattan cane in the provincial capital of Banda Aceh on Thursday. Mukhlis grimaced and flinched during the punishment, before his married companion was brought to the stage and flogged some 23 times.

Now let’s travel to Switzerland, which is a sensible country (at least by standards of the modern world) with all sorts of admirable policies.

But, as reported by the Economist, that nation’s politicians have some weird ideas. Such as a strategic coffee reserve.

The 15 big Swiss coffee retailers, roasters and importers, such as Nestlé, are required by law to store heaps of raw coffee. Together, these mandated coffee reserves amount to about 15,000 tonnes—enough for three months’ consumption. The government finances the storage costs through a levy on imports of coffee. All 15 companies are in favour of maintaining the coffee reserve—as long as they are paid for it. IG Kaffee, a lobby group, asks why the government wants to scrap a stockpile that has served Switzerland so well.

Not as strange as Germany’s coffee tax or Japan’s coffee enemas, but still rather odd.

Last but not least, the Venezuelan government is well known for economic mismanagement.

But BBC reports that it also should be known for military incompetence.

A Venezuelan navy coastal patrol boat sank in the Caribbean after allegedly ramming a cruise ship that it had ordered to change direction. …The incident took place near La Tortuga Island, a Venezuelan federal dependency, on 30 March.Columbia Cruise Services, which operates the Resolute, said the cruise ship had been carrying out routine engine maintenance in international waters…shortly after midnight, the Naiguata radioed the Resolute, questioning its intentions, and ordered the captain to follow it to a port on Isla Margarita, to the east. “While the master was in contact with the head office, gunshots were fired and, shortly thereafter, the navy vessel approached the starboard side at speed… and purposely collided with the RCGS Resolute,” it added. “The navy vessel continued to ram the starboard bow in an apparent attempt to turn the ship’s head towards Venezuelan territorial waters.” …the patrol boat began taking on water.

The moral of all these stories is that governments piss away money in very interesting and novel ways.

But while these stories are somewhat entertaining, they also confirm that it’s never a good idea to give politicians more money when they’ve repeatedly shown that they squander the revenues they already have.

P.S. Here are my posts about “great moments in local government” and “great moments in state government.”

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Bureaucrat Humor

My all-time favorite example of bureaucracy humor is this Spanish-language video (with English subtitles!).

But this clip from Yes Minister also captures how bureaucracies operate.

And if you want another reason why bureaucrats don’t like initiative, this cartoon provides the answer.

Our third item shows that you need the correct angle to understand the life of bureaucrats (sort of like these six images).

Our next item shows featherbedding in action.

Never hire one person when you can make it a three-person job (or a lot more if you’re in California).

My final (and favorite) item is this cartoon strip. I don’t know if it’s a parody (like this one) or real, but it does show how bureaucratic pay scales operate.

Quite funny, though not for taxpayers.

P.S. If you want more, we have a joke about an Indian training for a government job, a slide show on how bureaucracies operate, a cartoon strip on bureaucratic incentives, a story on what would happen if Noah tried to build an Ark today, a top-10 list of ways to tell if you work for the government, a new element discovered inside the bureaucracy, and a letter to the bureaucracy from someone renewing a passport.

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High Implicit Tax Rates Trap Poor People in the Quicksand of Government Dependency

The welfare state and the so-called war on poverty has been very bad news for taxpayers.

But it’s also very bad news for poor people, in part because various redistribution programs can lure them out of the productive economy and into total dependency on government (and this will become an even bigger problem if Biden’s per-child handouts are approved).

But it’s also bad news because redistribution programs can result in very high implicit tax rates for low-income people who try to improve their lives by climbing the economic ladder.

I shared an example back in 2012, which showed how a single mother in Pennsylvania would be worse off with $57,000 of income instead of $29,000.

In other words, she would be dealing with a de facto marginal tax rate of more than 100 percent.

If you want to understand how this happens, Professors Craig Richardson and Richard McKenzie wrote about this topic in an article for The Library of Economics and Liberty.

…by expanding public assistance programs, the President’s plan will unavoidably impose a higher, hidden tax rate—known as an “implicit marginal income tax rate” (which we shorten to implicit tax rate)—on low-wage workers who receive welfare benefits. Those workers will pay an implicit tax rate because many welfare benefits are reduced as earnings rise. Ironically, the poorest Americans often pay implicit tax rates that are far higher than the IRS’s explicit marginal income-tax rates imposed on the country’s highest income earners. …Consider a household that receives benefits from only two welfare programs, with one tapering off at 20 cents for each added dollar earned and another tapering off at 40 cents for each added dollar earned. Those cuts create an implicit tax rate of 60 percent, which means the worker has only 40 cents in additional spendable income for each added dollar earned. This implicit tax rate can be expected to affect work incentives in much the same way that a federal income tax rate does.

The authors cite a real-world example.

…consider a real-life, low-income single mother of two children in Forsyth County, North Carolina earning $10 an hour in a full-time job, which means she has a monthly earned income of $1,600 (or $19,200 annually). Suppose the single mother receives monthly benefits from five welfare programs: $425 in food stamps, $1,471 in subsidized childcare, $370 in housing subsidies, $180 in WIC benefits, and $493 in an earned income tax credit (EITC). Her monthly welfare benefits will total $2,939 (or $35,271 a year). Now, suppose the single mother takes a new job paying $15 an hour, a 50 percent increase. Her monthly earned income will rise by $800 to $2,400 (with her annual income rising to $28,800 a year, an annual earnings increase of $9,600). However, she will face decreases in four out of her five monthly benefit streams, with each benefit reduction based on the same $800-increase in earnings (a problem known among welfare researchers as the “cumulative stacked effect”). The single mother will lose $231 in food stamps, $80 in childcare benefits, $216 in housing benefits, and $166 in EITC. Her total decrease in monthly benefits will reach $694 (which means her annual benefit total will drop by $8,328).4 Her implicit tax rate on her added monthly earnings of $800 is 87 percent—more than two times the highest explicit marginal tax rate proposed for the rich. …In addition, the single mother will be required to pay an added $185 a month in federal and state income taxes on her added earned monthly income of $800, which is an explicit tax rate of 23 percent. Adding the 87 percent implicit tax rate to the 23 percent explicit tax rate leads to an overall tax rate of 110 percent. Her raise has left her $79 per month poorer in lost wages and benefits—surely a strong disincentive for her to take the higher paying job.

Here’s a table showing those results.

If you want more evidence, check out Chart 7 from this column and Figure 8 from this column.

And the same problem exists in other nations as well.

P.S. Obamacare may have lured as many as 2 million people into full dependency.

P.P.S. I already mentioned how Biden’s per-child handouts could lure many more into full dependency, but “basic income” could be far worse.

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To Which Hypothetical Political Party Do You Belong?

Whether they are based on 10 questions or 144 questions, I can’t resist taking quizzes that supposedly identify one’s political or economic philosophy.

The good news, according to various quizzes, is that I’m 92 percent minarchist and only 6 percent communist.

And, based on the quiz I shared most recently, I’m a “minimalist” who is “in favor of smaller government.”

I certainly won’t argue with those results.

For today’s column, we’re going to look at a quiz on hypothetical political parties that Lee Drutman put together for yesterday’s New York Times. You can click here to take it.

Here are my results.

Given the various alternatives, I’m not surprised that I’m part of the “Growth and Opportunity Party.”

But I don’t like this description of this group.

The Growth and Opportunity Party is the socially moderate, pro-business wing of the Republican Party. It is the heir to the old moderate “Rockefeller Republican,” the East Coast wing of the G.O.P. Its potential leaders include Larry Hogan, Charlie Baker, Mitt Romney, John Kasich and Michael Bloomberg. Based on data from the Democracy Fund’s VOTER survey, this party would be the best fit for about 14 percent of the electorate.

My objections are partly historical (I was a “Reaganite” in my youth rather than a big-government “Rockefeller Republican”) and partly based on the politicians listed as political leaders.

I don’t know enough about Larry Hogan and Charlie Baker to have an opinion, but Mitt Romney, John Kasich, and Michael Bloomberg are definitely proponents of bigger government.

I’ll close by grousing about a couple of the questions.

For instance, should you “agree” or “disagree” with this question? I definitely want to decrease the scope of police work if that means less enforcement of victimless crimes such as drugs, gambling, and prostitution, but I don’t want to decrease the scope of police work in fighting genuine crime.

I also wasn’t sure how to answer this next question. Does it mean creating more opportunities to come to the United States, especially for people that are unlikely to become dependent on government handouts? Or does it mean allowing limitless illegal border crossing?

Because the wording was not very clear, I basically punted on these two question.

P.S. For what it’s worth, I think the two best quizzes are the “definitive political orientation test” and the “libertarian purity test.”

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Thomas Sowell, Cost-Benefit Analysis, and the Limits of Regulation

Thomas Sowell is a great economist, but his expertise extends to other fields of study. Everything from history to education.

But he’s also famous for being a great communicator, with dozens of well-known quotes.

I use one of them on my rotating banner because it succinctly summarizes why the left has to rely on emotional appeals rather than rigorous evidence.

For purposes of today’s column, I want to cite one of his other quotes, this one dealing with the fact that tradeoffs are an inevitable reality.

Simply stated, if you want more of one thing, you have to accept less of another thing.

And this has important implications for regulatory policy – especially about the value of cost-benefit analysis.

Let’s look at two examples.

First, here’s the abstract from a study by Jordan Nickerson from MIT and David Solomon from Boston College.

Since 1977, U.S. states have passed laws steadily raising the age for which a child must ride in a car safety seat. These laws significantly raise the cost of having a third child, as many regular–sized cars cannot fit three child seats in the back. Using census data and state–year variation in laws, we estimate that when women have two children of ages requiring mandated car seats,they have a lower annual probability of giving birth by 0.73 percentage points. Consistent with a causal channel, this effect is limited to third child births, is concentrated in households with access to a car, and is larger when a male is present (when both front seats are likely to be occupied). We estimate that these laws prevented only 57 car crash fatalities of children nationwide in 2017. Simultaneously, they led to a permanent reduction of approximately 8,000 births in the same year, and 145,000 fewer births since 1980, with 90% of this decline being since 2000.

This raises all sorts of challenging questions, such as what’s the value of a life saved compared to the value of lives that might have existed (a philosopher might have a different answer than an actuary at the Social Security Administration!).

And let’s not forget that you seemingly could save more lives if there were mandatory 5-mph speed limits, but that policy also has tradeoffs that could produce more deaths elsewhere.

For what it’s worth, I think parents should get to decide whether they need a car seat for a 7-year old (and thus have more children), but I’m not going to pretend there are no negative consequences.

Let’s look at another example.

In a post for Marginal Revolution, Prof. Alex Tabarrok of George Mason University points out that you can save lives in India by selling cars with abysmally low safety ratings.

These cars are very inexpensive. A Renault Kwid, for example, can be had for under $4000. In the Indian market these cars are competing against motorcycles. Only 6 percent of Indian households own a car but 47% own a motorcycle. Overall, there are more than five times as many motorcycles as cars in India. Motorcycles are also much more dangerous than cars. …The GNCAP worries that some Indian cars don’t have airbags but forgets that no Indian motorcycles have airbags. Even a zero-star car is much safer than a motorcycle. Air bags cost about $200-$400…and are not terribly effective. (Levitt and Porter, for example, calculated that air bags saved 550 lives in 1997 compared to 15,000 lives saved by seatbelts.) At $250, airbags would increase the cost of a $5,000 car by 5%. A higher price for automobiles would reduce the number of relatively safe automobiles and increase the number of relatively dangerous motorcycles and thus an air bag requirement could result in more traffic fatalities.

Unlike the issue of car seats for kids, there’s no moral ambiguity on this topic.

Indians should be allowed to buy “unsafe” cars because there will be far fewer fatalities and serious injuries.

By the way, cost-benefit analysis is not a panacea. Benjamin Zycher of the American Enterprise Institute wrote a few years ago that such analysis can be counterproductive if you have a biased and ideologically driven bureaucracy such as the Environmental Protection Agency.

But even halfway competent and fair cost-benefit analysis would be very helpful in the world of public policy.

• It would tell us that it makes no sense to raise tax rates to the point where governments collect little or no revenue.
• It would tell us that the negative effects of drug prohibition are likely greater than the negative effects of legalization.
• It would tell us anti-money laundering policies are far more likely to hurt poor people rather than to catch criminals.

Then again, politicians and bureaucrats probably have incentives to not produce that kind of information..

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Boris Johnson Is the U.K.’s “Tax Collector for the Welfare State”

The great Margaret Thatcher famously observed that the problem with socialism is that governments eventually “run out of other people’s money.”

But they can do a lot of damage before they reach that point.

We know from U.S. experience that Republicans can be very profligate. Well, the same problem exists with the Conservative Party on the other side of the Atlantic Ocean.

I wrote earlier this year that Boris Johnson was letting the burden of government spending increase much faster than needed to keep pace with inflation.

And when politicians spend too much money, it’s almost inevitable that they will then try to grab more money from taxpayers.

And that’s exactly what the Prime Minister is proposing, as reported by Stephen Castle for the New York Times.

Mr. Johnson is widely expected to break his vow not to increase taxes when he announces a plan to bolster the nation’s social care services… Even before the announcement, the blistering dissent from members of his own Conservative Party has underscored the problems that lie ahead for a government that has ramped up borrowing during the pandemic yet faces huge pressure to spend… Britain’s creaking National Health Service, which was already strained before the pandemic, now has a massive backlog of routine treatment and operations that had to be postponed. On Monday the government announced a cash injection of £5.4 billion, or $7.4 billion, to help deal with that issue. …His proposals are likely to cap the amount any British citizen pays for social care over their lifetime. That would prevent many from having to sell their homes to pay for care, but would also mean investing more public money, mainly through raising taxes.

So what do the actual conservatives in the Conservative Party think about Johnson’s proposal for more taxes and more spending?

They are not happy.

Perhaps the biggest danger for Mr. Johnson is the hostility of fiscal conservatives on the right of his party, who object to any tax being increased, including one senior cabinet minister, Jacob Rees-Mogg. …Mr. Sunak is also anxious to reign in spending, a view that is popular with the right wing of the Conservative Party. “He believes there is a moral and political premium on not raising taxes, not raising spending and getting borrowing under control,” said Professor Bale, who added this was “partly because he knows that this where the beating heart of the Conservative parliamentary party lies.”

Here are some more details about teh fight inside the Conservative Party, as reported by Edward Malnick of the U.K.-based Telegraph.

Senior Conservatives were threatening open warfare over Boris Johnson and Rishi Sunak’s planned tax increase… Ministers, government aides and backbenchers lined up to denounce a planned National Insurance rise which was privately described by senior figures as “idiotic”, with one Cabinet member declaring the proposal “morally, economically and politically wrong”. …Steve Baker, the former Brexit minister, said: “Of all the ways to break manifesto tax pledges to fund the NHS and social care, raising NIC must be the worst. In this time of crisis, we need a zero-based review of what the state does and how it is funded.” …Sir Iain Duncan Smith, the former Tory leader, feared that if Mr Johnson pushed ahead with the move the Conservatives would end up presiding over “the biggest tax rises since Clement Attlee”. …Another Tory MP suggested the Chancellor was concerned about Britain becoming a continental-style economy with unsustainable public spending and state intervention.

So how do Johnson’s allies respond?

With the same language one might have expected from Jeremy Corbyn, the hard-core statist who used to lead the Labor Party.

A government source said: “The NHS needs more money. By the time of the next election there could be 13 million people on waiting lists if we don’t act.”

In other words, the more government fails, the more money it should get (which also could be a description of Joe Biden’s fiscal policy).

P.S. What I wrote earlier this year is worth repeating.

Because of my strong support for Brexit, I was very happy that Boris Johnson won a landslide victory in late 2019. And he then delivered an acceptable version of Brexit, so that worked out well. However, it definitely doesn’t look like he will fulfill my hopes of being a post-Brexit, 21st century version of Margaret Thatcher.

The bottom line is that I wanted an independent United Kingdom to become Singapore on the Thames. Instead, Johnson seems to want his country to be Paris on the Thames.

P.P.S. I never thought I would miss the fiscal policy of two moderate former Prime Ministers, David Cameron and Theresa May.

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America’s Labor Laws Are (Relatively Speaking) Great for Workers

In my fantasy country of Libertaria, there is no Department of Labor, no regulation of employment contracts between consenting adults, and no favoritism for either labor or management.

In the real world, the relevant question is the degree of regulation and intervention. Especially compared to other nations, which is why the the Employment Flexibility Index is a useful measuring stick.

The Employment Flexibility Index is a quantitative comparison of regulatory policies on employment regulation in EU and OECD countries. …Higher values of the Employment Flexibility Index reflect more flexible labor regulations.

The good news, for American workers and American companies, is that the United States has the second-best system among developed nations, trailing only Denmark (another reason why pro-market people should appreciate that Scandinavian nation).

It’s hardly a surprise that France is in last place, notwithstanding President Macron’s attempt to push policy in the right direction.

It’s worth noting that the United States has much less regulation of labor markets than the average European nation. Which may help to explain why American living standards are so much higher.

Let’s review some academic research on the issue of employment regulation.

In an article for the Harvard Journal of Law & Public Policy, Professor Gail Heriot of the University of San Diego Law School explains how regulations discourage job creation and also may encourage discrimination.

… there’s a demographic out there that we ought to be worrying about, it is young people, the perennial newcomers to the economy. Well-meaning employment laws primarily benefit those who already have jobs, often at the expense of those who do not. …For low-skilled young people trying to get their first jobs, the most immediate threat may be the steep minimum wage hikes adopted recently in various cities.…young people even with great educational credentials are unknown quantities to employers and, hence, risky to hire, especially in a legal environment in which employee terminations can lead to costly legal disputes. …he best way for employers to avoid being wrongly accused of a Title VII violation is to avoid hiring someone who could turn out to be litigious if things do not work out. That creates a perverse incentive to avoid hiring the first African American or the first woman in a particular business or department. …A law that was intended to end discrimination in hiring, thus, ends up encouraging it instead.

In a Cambridge University working paper, Maarten de Ridder and Damjan Pfajfar found that wage rigidities, which are driven in part by red tape, are correlated with greater levels of economic damage when there is an adverse policy shock.

We find considerable variation in downward nominal wage rigidities across states and over time. Our estimates of nominal rigidities are positively related to state minimum wages, unionization,union bargaining power, and the size of services and government in employment and negatively to labor mobility. …We therefore focus on nominal wage rigidities when assessing the transmission of policy shocks. We find that states with greater downward nominal wage rigidities experience larger and more persistent increases in unemployment and declines in output after monetary policy shocks. …Similar results also hold for exogenous changes in taxes… States with higher nominal rigidities experience larger increases in unemployment and declines in output after a tax increase compared to states that are more flexible. We further show that institutional factors that could drive wage rigidities—like minimum wages and right-to-work-legislation—have a similar effect. States with a higher minimum to median wage ratio and those without right-to-work legislation experience larger and more persistent effects of monetary and tax policy shocks. Combined, these results firmly corroborate the hypothesis that resistance to wage cuts deepens policy shocks.

And in an article for Regulation, Warren Meyer explains that red tape and intervention is particularly bad news for unskilled workers.

The government makes it too difficult, in far too many ways, to try to make a living employing unskilled workers. …In the 1950s, 1960s, and 1970s, there was a wave of successful large businesses built on unskilled labor (e.g., ServiceMaster, Walmart, McDonalds). Today, investment capital and innovation attention is all going to companies that create large revenues per employee with workers who have college educations and advanced skills. …the mass of government labor regulation is making it harder and harder to create profitable business models that employ unskilled labor. For those without the interest or ability to get a college degree, the avoidance of the unskilled by employers is undermining those workers’ bridge to future success

Let’s close by looking at a chart from a 2018 presentation by Martin Agerup.

He shows that red tape doesn’t even provide meaningful job security for those who are already employed.

The bottom line is that so-called employment protection legislation is very bad news for those who are looking for jobs while offering no measurable benefit for those who have jobs (especially if we compare living standards across nations).

If we want more jobs, the best prescription is less government.

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Libertarian Humor

I shared some libertarian humor just two weeks ago, but readers have been sending me a lot of amusing items.

So let’s do another update to our collection.

We’ll start with a look at what happens to people who decide to become hard-core libertarians.

By the way, what happened to Sarah Connor also happened to Kurt Russell.

Next we have a Venn Diagram that tells you how to identify libertarians (and if you want to determine the specific kind of libertarian, here’s a guide to all 24 versions).

Though there are easier ways to identify libertarians.

Like this helpful hint for Facebook.

Next, libertarians pride themselves in being skeptical of all activities of government, including the parts that conservatives usually like.

Which is why border collies apparently are part of the movement.

Last but not least, here’s my favorite item from today’s collection. The Libertarian Dork strikes again!

Nobody can say we’re not dedicated!

P.S. Previous iterations of the Libertarian Dork can be viewed here, here, here, here, and here.

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Can the Irish (Once Again) Save Civilization?

How the Irish Saved Civilization was a bestselling book in the mid-1990s.

Today, we’re going to consider an updated version, focusing on whether Ireland can save the world economy from Joe Biden’s plan for a global tax cartel.

This should be a slam-dunk issue. Ireland transformed itself from “The Sick Man of Europe” to the “Celtic Tiger” in part by adopting a 12.5 percent corporate tax rate.

How much of a tiger? Look at this data comparing per-capita gross domestic product in Ireland and France.

For what it’s worth, the Maddison data on gross domestic product makes Ireland look richer than it actually is (a result driven by largely by all the corporate activity).

So I also used World Bank data on gross national income to create a chart that tells a similar story, but with numbers that presumably are a closer match to actual economic conditions.

The bottom line is that Ireland’s policy on corporate taxation has been a success.

But that success has produced envy. High-tax nations such as France are big supporters of Joe Biden’s scheme to force all jurisdictions to have a corporate tax rate of at least 15 percent.

And that minimum rate inevitably will increase if politicians are able to create a cartel (indeed, some nations already are pushing for the rate to be 25 percent or above).

That’s the bad news.

The good news is that Ireland (as well as other nations such as Hungary and Estonia) presumably can block Biden’s tax cartel by using their “national veto” and preventing the European Union from being a participant.

But that means standing up to pressure.

For instance, the Associated Press recently reported on how France is trying to cajole Ireland into joining the cartel.

Emmanuel Macron was in Dublin for a one-day visit on Thursday, his first trip to Ireland since entering office. The State is facing calls from the French government to sign up to global tax reform. The country is one of only a handful of nations not to agree to a major Organisation for Economic Co-operation and Development (OECD) agreement on tax, which is backed by more than 130 countries worldwide, as well as the EU. …At a press conference in Dublin on Thursday, Mr Macron denied that he was putting pressure on the State on the issue. “This is for you to lead. This is not for France to put pressure. But I think the OECD framework works in the context,” Mr Macron said. “It makes sense in terms of co-operation. It makes sense in terms of the EU. …He said that the Irish economy had achieved “tremendous results” in recent decades and acknowledged that a low corporate tax base had been a crucial part of that success. “What you have managed to do in past decades is unique,” Mr Macron said. But he said that things had to change.

Saul Zimet and Dan Sanchez, writing for the Foundation for Economic Education, explained why Ireland should defends its fiscal sovereignty.

132 countries, including the twenty most powerful economies in the world, have all agreed to institute a minimum global corporate tax of 15 percent. …But, one hold-out is threatening to spoil the scheme. …Ireland has long had a 12.5 percent corporate tax… And this relatively low tax rate has drawn Facebook, Apple, Google, Pfizer, and many other corporate giants to set up regional headquarters or manufacturing hubs there instead of in countries with higher tax rates. …the flow of corporate wealth and opportunity into Ireland has resulted in enormous GDP growth and job growth for the nation in recent decades… Lower corporate taxes mean a bigger capital stock which means new jobs, higher wages, and more goods and services. That is why Ireland’s low corporate taxes have not just been good for multinational corporations, but for Irish workers, consumers, and entrepreneurs. …Jurisdictional competition, like market competition, is a good thing. It places a check on how tyrannical a government can be… So kudos to Ireland for bravely refusing to join what amounts to a 132-government tax cartel. By standing up for itself, it stood up for us all.

In a column for the Wall Street Journal, former Congressman Mick Mulvaney also opined in favor of Ireland.

The premise behind the minimum global corporate tax is simple: Most governments around the world are looking to raise money. But they don’t like taxing the middle class, as this tends to result in lost elections, and there aren’t enough rich people to soak to raise the necessary funds. That means that governments have started to look to corporations as piggy banks they can raid. …the Irish…rode a 12.5% corporate tax rate to an economic boom that has left many other European countries green with envy. …The Irish know what should be obvious to everyone: Their OECD partners can’t raise their corporate rates unless low-tax Ireland agrees to give up one of its largest competitive advantages in the global marketplace. …if you are losing a competition, there are two ways you can respond. One is to get better. The other is to prevent the competition from happening. …Ireland is on the front line of that battle today. Should it lose, the fight will be coming to our shores soon.

Mulvaney’s point about competition is spot on.

Joe Biden wants to raise the federal corporate tax rate from 21 percent to 28 percent, a policy that would give the United States (once again) the developed world’s most punitive system.

I don’t know if Biden is cognizant of the consequences, but his Treasury Secretary clearly understands that this means the United States will lose the battle for jobs and investment.

Which explains why the Biden Administration wants “to prevent the competition from happening.”

Let’s hope Ireland holds firm and says no to Biden’s anti-growth tax cartel.

P.S. For what it’s worth, Ireland failed to block the E.U.’s Lisbon Treaty back in 2009.

P.P.S. The current president of Ireland almost surely is on the wrong side, but fortunately he has very little power in the Irish system.

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Should Advocates of Economic Liberty Prefer Hungary or Denmark?

I’m a big believer in focusing on results rather than reputation or rhetoric. For instance, many Republican politicians talk a good game about spending restraint. But when you crunch the numbers, it turns out that they often increase spending even faster than Democrats.

What’s true about politicians (the gap between reputation and reality) can also be true about countries.

Folks on the left seem to think Denmark is a big-government paradise, while many people on the right now think Hungary is a beacon of freedom.

But if you look at the data from the latest edition of Economic Freedom of the World, it turns out the Denmark (#11) ranks much higher for economic liberty than Hungary (#53).

Veronique de Rugy of the Mercatus Center wrote an interesting article for Reason about the strange way that some Americans have decided to embrace the two nations.

Yet she explains Denmark is hardly a socialist role model.

Sen. Bernie Sanders (I–Vt.) on the left and Fox News host Tucker Carlson on the right…have recently pointed to pet foreign countries as exemplars of what America should strive to be. Yet Sanders and Carlson are each misled by a superficial understanding of what these countries are really about. …Let’s look more closely at Denmark: Yes, the country has some big government policies… That said, not only is Denmark more economically free than it is socialist, but the country has also spent the last 30 years running away from the socialism that Sanders wants the United States to run toward.

And she notes that Hungary is hardly a hotbed of laissez-faire policy.

Orban…has created a patronage economy where licenses and aid are handed to businesses that are friendly to his administration. He even passed a law that gives the state considerable control over churches and other religious institutions. …these policies…could backfire spectacularly on these conservatives. Once the limits on state power are gone, if the progressive left truly gets into power, it will have a much easier time implementing the very agenda that these conservatives fear the most. …I wonder what we are to make of these conservatives who have become the biggest cheerleaders for many progressive spending programs.

Since Veronique mentioned government spending, I decided to peruse the IMF’s World Economic Outlook Database to see whether Hungary’s right-leaning government has adopted right-leaning spending policies during Viktor Orban’s time in power.

Compared to Denmark, the answer is no. As you can see from the chart, nominal spending has increased four times faster in Hungary.

By the way, inflation was higher in Hungary during the period, but a comparison based on inflation-adjusted numbers would make Denmark’s performance look even better since there was almost no “real” growth in the burden of spending last decade (yes, Denmark has followed my Golden Rule).

For what it’s worth, the goal of today’s column is not to denigrate Hungary, which has some very attractive policies (such as a 9 percent corporate tax rate).

And I also like that Hungary resists the pro-centralization, pro-harmonization ideology of the European Union (I especially hope that Hungary will block the EU from embracing Biden’s awful proposal for a global corporate minimum tax).

That being said, I’m not going to laud Hungary as a role model when it should be (and could be) doing a much better job of limiting the size and scope of government.

Let’s close by also seeing how Denmark compares to Hungary in the latest edition of the Heritage Foundation’s Index of Economic Freedom. As you can see, Denmark (#10) does much better than Hungary (#55).

P.S. Supporters can argue, with some merit, that it’s not completely fair to compare Denmark and Hungary because the latter is still hamstrung by having to overcome decades of communist tyranny. But it’s worth noting that other nations that emerged from Soviet enslavement, such as Georgia and the Baltic countries, have managed to achieve much higher levels of economic freedom.

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The Odious and Abusive Practice of Civil Asset Forfeiture

When people ask me why I’m a libertarian, I rarely mention high taxes and wasteful spending. Nor do I make philosophical arguments about the non-aggression principle. And it’s also unlikely that I’ll cite Ayn Rand.

Instead, I point out that all decent human beings should be libertarian because unconstrained government has the power to abuse people and wreck their lives.

Consider “civil asset forfeiture,” as described in this video.

When I read about some of the real-world cases involving asset forfeiture, it gets my blood boiling.

No wonder I’ve described it as “Venezuelan-style thuggery” and written that the practice is “disgusting, nauseating, reprehensible, and despicable.”

And, if that doesn’t get my point across, I have used other phrases to characterize asset forfeiture.

• “Morally offensive“
• “Egregious scam“
• “Stealing by government“

Let’s look at two odious examples of asset forfeiture that took place this year.

First, the Wall Street Journal editorialized earlier this year about a case in California, in which the FBI decided that it had the right to steal assets from safe deposit boxes simply because the financial institution was charged with crimes.

…the FBI raided U.S. Private Vaults in Beverly Hills in March, it did so after the business had been indicted for conspiring to launder money, sell drugs and other crimes. But the FBI also took control of $86 million in cash and valuables it found in the safe deposit boxes of people who haven’t been accused of a crime. Some of these folks have sued… The Institute for Justice is representing seven plaintiffs in this case. Their argument is that they have done nothing wrong and should not have to go through the cumbersome civil forfeiture process to prove that their cash, jewelry or precious metals are legitimately theirs. …the Fifth Amendment guarantees the right to due process before property can be taken. …The FBI forfeiture list on the contents of the seized boxes reports 14 that each held more than $1 million. Perhaps some of this comes from illegal sources, but the mere possession of cash is not proof of guilt. If the FBI and U.S. Attorney have proof of wrongdoing, bring it on. But the burden for depriving an American of property is on the government to prove guilt, not on the targeted to prove innocence.

Amen, America’s Founders gave us a Constitution to protect against this kind of abuse.

Second, we have a report from yesterday’s Washington Post about how cops stole $87,000 from a veteran.

Stephen Lara…was on his way to visit his daughters in Northern California…he had “a lot” of cash in his car. As he stood on the side of the road, police searched the vehicle, pulling nearly $87,000 in a zip-top bag from Lara’s trunk and insisting a drug-sniffing dog had detected something on the cash. Police found no drugs, and Lara, 39, was charged with no crime. But police left with his money… “I left there confused. I left there angry,” Lara said in an interview with The Washington Post. “And I could not believe that I had just been literally robbed on the side of the road by people with badges and guns.” It was only after Lara got a lawyer, sued and talked with The Washington Post about his ordeal that the government said it would return his money.

The article cites some of the critics, including the freedom fighters at the Institute for Justice.

…the case shows how the federal government abuses its asset forfeiture authority, by requiring those whose property is taken to prove their innocence to get it back. …“This is an inherently abusive power that state and local law enforcement should not have,” said Wesley Hottot, a lawyer representing Lara with the Institute for Justice, which advocates against civil asset forfeiture. “What we see almost exclusively are people like Stephen who — perhaps had quirky banking practices — but they’re not guilty of any crime. And yet, in the nation’s airports, on the nation’s roads, they’re treated by police as though a large amount of cash by itself is criminal. And that power is too dangerous to give every police officer on the street.” …Former U.S. attorney Joyce Vance said…“You can’t just take people’s stuff because you happen to find them with cash,” Vance said. “We still live in a country where people are innocent until they’re proven guilty.”

By the way, this is an issue where the Obama Administration moved policy in the right direction.

Attorney General Eric Holder curtailed use of the practice in the Obama administration, but Attorney General Jeff Sessions restored it under President Donald Trump. Though Attorney General Merrick Garland has rolled back many Trump-era changes at the Justice Department, he has not taken action on asset forfeiture.

By contrast, there’s nothing positive to say about what happened under the Trump Administration.

If you want to understand how bad Trump was on this issue, watch this video.

I’ll close with a bit of good news.

Several states have curtailed the abuse of civil asset forfeiture.

Even more promising, there are hopeful signs that the Supreme Court may rule that the practice is unconstitutional.

P.S. Just like intrusive and ineffective money-laundering laws, wretched asset forfeiture laws are largely the result of the foolish War on Drugs. One bad policy generates another bad policy. Lather, rinse, repeat.

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The Real (and Growing) Problem with Social Security

In an ideal world, Americans would have personal retirement accounts, just like workers in Australia, Sweden, Chile, Hong Kong, Israel, Switzerland, and a few dozen other nations.

But we’re not in that ideal world. We are forced to participate in a Ponzi Scheme known as Social Security.

By the way, that’s not necessarily a disparaging description. A Ponzi Scheme can work if there are always enough new people in the system to pay off the old people.

But because of demographic changes (increasing lifespans and decreasing birthrates), that’s not what we have in the United States.

And this is why Social Security faces serious long-run problems.

How serious? The Social Security Administration finally released the annual Trustees Report. This document has a wealth of data on the program’s financial condition, and Table VI.G9 is where the rubber meets the road.

As you can see from this chart, there will be an ever-increasing burden of Social Security taxes and spending over the next 75 years. And these numbers are adjusted for inflation!

The good news (relatively speaking) is that the economy also will be growing over the next 75 years, both in nominal terms and inflation-adjusted terms.

The bad news is that spending on Social Security will grow at a faster rate, so the program will consume a larger share of the economy’s output.

And because Social Security spending is growing faster than the economy (and also faster than tax revenue), this next chart shows there is going to be more and more red ink in the future. Once again, you’re looking at inflation-adjusted data.

As indicated by the chart’s title, the cumulative shortfall over the next 75 years is nearly $48 trillion. That’s a lot of money, even by Washington standards.

And with each passing year, the problem seems to worsen. The 75-year shortfall was $44.7 trillion according to the 2020 report and $42.1 trillion according to the 2019 report.

I’ll conclude by observing that today’s column focuses on the big-picture fiscal problems with Social Security.

But let’s not forget the program’s second crisis, which is the fact that Americans are deprived of the ability to enjoy much higher levels of retirement income.

Certain groups are particularly harmed by this aspect of the current program, including minorities, women, older workers, and low-income workers.

P.S. Our friends on the left argue that the program’s fiscal problems (the first crisis) can be solved with tax increases. Perhaps that is true, but it will mean a weaker economy and it will exacerbate the second crisis by forcing workers to pay more to get less.

P.P.S. I once made a $16 trillion dollar mistake on national TV when discussing Social Security’s shaky finances.

P.P.P.S. Much of the news coverage about the Trustees Report has focused on the year the Social Security Trust Fund supposedly runs out of money. But this is sloppy journalism since the Trust Fund has nothing but IOUs (as illustrated by this joke).

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