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Archive for October, 2021

Two days ago, I shared the most morally reprehensible tweet of the year.

Today, we’re going to share a tweet that also is painful to read, but in this case only our friends on the left will be discomforted.

I’ve opined about Chile’s success and Venezuela’s failure on multiple occasions, but here’s the great José Piñera with an especially powerful comparison of the two nations.

I’ve had dozens and dozens of conversations with friends on the left about Chile and Venezuela and they have no response other than to sputter “Pinochet was a dictator!”

That’s true, I tell them, but please respond to my question about what we can learn when we compare Chile’s successful experience with economic liberty and Venezuela’s awful experience with statism.

At which point they bring up Pinochet again and refuse to deal with the actual data.

Speaking of data, since embedding a chart in a tweet sometimes doesn’t lead to the most user-friendly presentation, I went to the Our World in Data website to create my own version of Jose’s chart.

This type of chart looks at “relative changes” in per-capita economic output, so all nations start at the same place and we then examine which ones grew the fastest.

Or, in the case of Venezuela, which ones declined (and the ones, such as Argentina, that performed poorly).

Here’s another version of the chart, but this one gets rid of all the other nations so we can more easily compare Chile and Venezuela. As José Piñera wrote in his tweet, this is “extraordinary.”

Because Venezuela has a lot of oil, the nation’s economy does face exaggerated ups and downs as energy prices fluctuate.

But it’s easy to see a trend of economic stagnation (the nation’s energy industry was nationalized and is now collapsing, so that will augment Venezuela’s misery).

Our final version of the chat adds the average performance for the world and the average performance for Latin America. As you can see, Chile is still the best performer and Venezuela is still at the bottom.

I’ll close with two final observations.

But perhaps José Piñera‘s preferred candidate, José Antonio Kast Rist, will win this year’s election and save Chile from going in the wrong direction.

P.S. Venezuela used to be much richer than Chile, so it makes sense that Chile began to converge. But now the two countries are part of the anti-convergence club because Chile is now richer and continuing to grow much faster.

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Let’s look today at one of main arguments for Biden’s tax-and-spend agenda.

A column in the New York Times, authored by Spencer Bokat-Lindell, suggests that the United States needs to increase government spending on child care to “shrink the gap” with other nations.

The main evidence for this proposition is a chart showing the United States at the bottom.

The obvious goal is to convince readers that the United States is doing something wrong.

And that comes across in the text of the article.

If you’re active on social media there’s a decent chance you came across this chart…about how much less the U.S. government spends on young children’s care than other rich countries. The infrastructure and family plan that President Biden proposed and that’s now being negotiated in Congress is an attempt to shrink the gap through four key policies: a federal paid family and medical leave program, an extension of the child tax credit (in the form of a monthly payment) that debuted this year, subsidized day care, and universal pre-K.

But why is it bad to be at the bottom of this list when all the nations above the U.S. have lower living standards?

I’ve repeatedly made the point that we don’t want to “catch up” to nations that have lower levels of prosperity.

But maybe this isn’t just about living standards.

The article also suggests that childcare subsidies are needed to avert demographic decline.

…Why does the United States have such an exceptional approach to family and child care benefits…? European and Latin American countries began enacting these policies…the end of World War II accelerated the process, particularly in Europe… “Part of it had to do with fears of demographic decline…the need to recover from those years and to ensure that there was a strong work force going forward,” Siegel told the BBC.

For what it’s worth, I agree that demographic decline is a major issue.

Falling birth rates and increased life expectancy are a very worrisome combination for government budgets.

Which leads to the hypothesis that childcare subsidies can help deal with this problem by enabling higher levels of fertility.

That’s theoretically possible, I’ll admit, but we certainly don’t see it in the data. Here’s the chart from the New York Times, which I’ve augmented by showing fertility rates.

As you can see, the United States has a higher fertility rate than almost every other nation on the list, which certainly suggests that childcare subsidies are not an effective way of encouraging more babies.

Moreover, U.S. fertility of 1.71 is higher than the OECD average of 1.61.

And when you compare the United States to peer nations (“OECD rich nations” and “EU-15 nations”), the fertility gap is even larger, 1.71 to 1.52.

One moral of the story is that government handouts are not an effective way of increasing fertility.

And the other moral of the story is that it’s not a good idea to copy nations that are economically weaker.

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I periodically highlight tweets that deserve attention because they say something important, often in a clever and succinct fashion.

Today, we’re going to look at a tweet that belongs in a terrible category.

Let’s call this tweet, from some guy named Carl Beijer, the Most Morally Reprehensible Tweet of the year.

Imagine being so in love with this evil ideology that you’re willing to overlook 100 million murders?

And what sort of person celebrates food lines because they supposedly fostered a “sense of community”? I wonder if he also thinks that this joyous communal solidarity extended to the people who starved to death because of communism?

At the very least, Mr. Beijer belongs in my collection of commie apologists.

 Just as with those who try to defend of justify Nazism, those who try to defend and justify Marxism deserve nothing but scorn from all decent people.

P.S. This is why I wrote a few days ago that Biden’s nominee for Comptroller of the Currency should be rejected.

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Biden’s tax-and-spend budget plan is based on dishonesty, and I’m just talking about his preposterous claim that a massive expansion of government has “zero cost.”

  • On the outlay side of the fiscal ledger, he’s actually proposing to increase the nation’s already-excessive spending burden by more than $5 trillion over the next ten years, not $3.5 trillion.
  • Based on dishonest estimates of the “tax gap,” he claims that a massive expansion of IRS staff will allow enough new audits to generate hundreds of billions of extra revenue in the next decade.
  • Most shocking, Biden’s budget even tries to mislead people by classifying some expanded welfare payments as tax cuts, simply because the IRS is the bureaucracy redistributing the money.

Today, let’s review another example of Biden’s dodgy approach to budgeting.

If you look at page 53 of his budget, you’ll see that the White House claims it can generate nearly $463 billion of tax revenue by having banks automatically share account information with the IRS.

Which bank accounts?

Well, almost all of them. The original proposal would give the IRS automatic access to accounts with as little as $600 of annual turnover.

That number is apparently going to increase, but even a limit of $10,000 would let the IRS snoop on almost every American’s private financial affairs.

At the risk of understatement, the proposal has generated a lot of pushback.

National Review editorialized against the scheme.

…the House reconciliation bill would let the Internal Revenue Service peer into the bank account of virtually every American. …Here’s the proposition: You permanently sacrifice your financial privacy, and the Democrats get a small step closer to funding their agenda. …Treasury secretary Janet Yellen claims the IRS will overcome perennial bureaucratic incompetence and track down “opaque income streams that disproportionately accrue to the top.” …If it’s high earners we’re worried about, why spy on everyone? …The administration is seriously arguing for a new oversight regime that would gather data on nearly every American on the off chance that a billionaire opens several thousand bank accounts. …this move on bank accounts would represent a new, jaw-dropping level of federal intrusiveness and is a power no government should have. Biden officials from Yellen on down have had trouble defending it — because it is literally indefensible.

Writing for the Hill, Thomas Hoenig and Brian Knight of the Mercatus Center pour cold water on the idea of expanding IRS snooping.

…the Biden administration is proposing requiring banks to report individual account transaction flows above $600 to the Internal Revenue Service (IRS). …a significant intrusion of consumer privacy. It’s also cumbersome, unlikely to achieve whatever legitimate goal the administration may have… the breadth of intrusion into the citizenry’s personal accounts is excessive and unwise. …Such a rule would also likely limit people’s access to banks. …Increasing compliance costs for banks will likely lead them to increase minimum balance requirements and fees to keep accounts economically viable, which could in turn force more people outside the banking system.

Here are excerpts from a Wall Street Journal editorial, which expresses similar concerns.

On your next trip to the ATM, imagine that Uncle Sam is looking over your shoulder. As if your annual tax filing wasn’t invasive enough, the Biden Administration would like a look at your checking account. …Ms. Yellen says the reporting will help to catch wealthy tax dodgers. …Casting a wide net over personal finances is a longstanding aim for Democrats and the political left. …the bigger threat of giving the IRS access to the details of your bank account is that politicians will eventually find a way to control how you save and spend your own money. This is a bad idea that deserves to die. …A group of 41 industry groups recently warned congressional leaders that the plan “is not remotely targeted” to detect major tax avoidance. …Twenty-three state treasurers and auditors signed a letter last month opposing the plan, calling it “one of the largest infringements of data privacy in our nation’s history.”

And let’s not forget that the IRS has shown that it is untrustworthy.

The bureaucracy repeatedly has leaked information and used its power to advance the leftist policy agenda.

All of which probably helps to explain why polling data shows overwhelming opposition to this Orwellian scheme.

Let’s close by debunking the White House claim that more IRS snooping on bank accounts will collect more revenue from the rich.

Simply stated, rich people are very clever about legal tax avoidance. They do things like invest in tax-free municipal bonds (which is not good for the economy, but it’s a very effective way of escaping tax).

Or they rely on building wealth with investments, since only the most crazy leftists (like Elizabeth Warren) would support taxes on unrealized capital gains.

So who would be targeted if Congress approves this plan to let the IRS snoop on bank accounts?

Primarily owners of small businesses. The IRS basically adopts the view that all entrepreneurs under report cash income and deduct personal expenses on their business tax returns.

Some of that actually happens, of course, but the best way to improve compliance is lower tax rates, not a massive expansion of the surveillance state.

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Some of my left-leaning friends (as well as some non-friends) think Nordic nations such as Sweden are shining examples of successful socialism.

They’re wrong.

Not only are they wrong, but those nations actually are case studies of how big welfare states cause damage to national prosperity (as well as case studies of how unwinding big government is a way to regain competitiveness).

Countries such as Sweden also teach a very important lesson about taxation.

John Gustavsson, a doctoral student in economics from Sweden, explains for the Daily Dispatch what’s happening in his country.

He starts out by noting that Sweden doesn’t disproportionately screw the rich.

If Europe can have universal health care, pre-K, and all the other welfare state goodies, why can’t America? We could if we just taxed the millionaires and billionaires, the argument goes. Speaking as a Swedish citizen, I can tell you it is not quite that simple. …Sweden doesn’t really tax the millionaires and billionaires—it taxes the poor. In Sweden, it is possible to avoid virtually all capital gains taxes through an investment savings account, which obviously mostly benefits the rich. What about wealth taxes? The Nordic countries have long since moved past them: Denmark abolished its wealth tax in 1997, Finland in 2005, and Sweden In 2007. It’s not about ideological opposition to taxing the rich.  It’s that the wealth tax was completely counterproductive and caused capital to flee these countries.

By the way, it’s also worth noting that Sweden’s corporate tax rate is just 20.6 percent, which is lower than America’s rate (even if the Trump tax reform somehow survives the Biden era).

So how, then, does the Swedish collect a lot of revenue?

Simple. Mr. Gustavsson points out that ordinary people get pillaged, particularly those with low levels of income.

…the big difference between the U.S. and Sweden, taxation-wise, is how the poor are taxed. Americans who make less than $12,000 per year pay no federal income taxes.  Many who make more than that still end up paying a net zero in taxes once deductions are accounted for. In Sweden, the equivalent is about $2,300. On any money you make above that threshold, you pay a tax rate of about 30 percent, plus payroll taxes. What about deductions? In the US, the average tax refund last year was $2,707. In Sweden, it was $821. On top of this, Sweden has a national sales tax of 25 percent on almost everything you buy. As the poor spend a greater share of their income, this tax disproportionally hurts them. The kind of taxes that the poor are forced to pay in the Nordic countries would be completely unacceptable to the majority of the American public. …Welfare states simply cannot be built on the backs of only the rich. We learned that the hard way, and you will too.

Amen.

I’ve made this same point, over and over again.

And some honest leftists (see here, here, here, here, here, here, and here) admit that their agenda requires big tax hikes on lower-income and middle class people.

Simply stated, there are not enough rich people to finance big government.

So if we copy Sweden, be prepared to empty your wallets and purses.

P.S. Sweden is a good case study for the benefits of Social Security privatization and the Laffer Curve.

P.P.S. There’s fascinating research contemplating whether migration to America changed Sweden’s ideological orientation.

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A regular theme of these columns is that the economy is not a fixed pie. If Person A becomes rich, that doesn’t mean less income for Persons B and C.

Indeed, the evidence is very strong that successful entrepreneurs only capture a tiny fraction of the wealth they create.

And there’s also lots of data showing how average incomes can rise over time and how all segments of society tend to rise together.

My reason for revisiting this topic is a story in the Economist about the possibility of an “grossly uneven” recovery, as illustrated by this chart.

My knee-jerk reaction to this chart is that nobody should pay attention to economic forecasters for the simple reason that they have a terrible track record.

And IMF economists seems to be among the worst of the worst when they make predictions.

This may be because economists at the IMF have a mistaken Keynesian view of the economy.

Or it may simply reflect the fact that it’s basically impossible to make such predictions (if any economists actually had that ability, they would be billionaires).

But today’s topic isn’t the foibles of the economics profession.

Instead, I want to focus on this issue of whether rich countries should be blamed for being richer than poor countries.

Here’s some of what the Economist wrote.

Over the longer term, the economic recovery is projected to remain grossly uneven. That, the fund argues, reflects…variations in fiscal largesse. In 2020 rich and poor countries alike loosened the purse-strings to protect households and businesses from the impact of lockdowns. This year fiscal support in the rich world is projected to remain broadly as generous as it was last year, allowing time for the private sector to get back on its feet (and, some economists would argue, even leading to some overheating in America). Emerging markets, by contrast, have shrunk their budget deficits (adjusted for the economic cycle, and before interest payments). The result will be a two-speed global economy. Output in the rich world is expected to return to its pre-pandemic trend by next year, and then to rise slightly above it. For the rest of the world, however, gdp is expected to remain well below trend at least until 2025.

As you can see from the excerpt, the IMF is wedded to the Keynesian view that government spending supposedly is good for growth – notwithstanding all the real-world evidence to the contrary.

But I’m more interested in the two points that aren’t mentioned, both of which revolve around the strong link between economic liberty and national prosperity.

  • First, rich countries tend to be rich because they have (or had) good economic policy.
  • Second, poor countries fail to converge because they tend to have bad economic policy.

For what it’s worth, the IMF’s failure to grasp these two points may help to explain why the bureaucracy advises poor countries to make bad choices.

The bottom line is that the global economy is not a fixed pie. If there are “grossly uneven” growth rates in the world, the reason is that some nations don’t follow the prudent recipe for prosperity.

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I will be very happy if politicians reject Biden’s tax-and-spend agenda because they realize it will undermine U.S. competitiveness and reduce American prosperity.

But I’ll be pleased if they simply reject his budget because they’re scared of voters.

And that may be the stronger factor. Gallup released new data on how Americans view big government, and my friends on the left won’t be happy.

For what it’s worth, I wish 80 percent of respondents preferred less government, but I’ll accept 50 percent.

Especially since only 19 percent want more government.

And here’s some related data on whether people want government to do more or do less.

Once again, 52 percent is far too low.

But at least we don’t have the bad results from last year.

Interestingly, independents have turned sharply against big government.

These results are grabbing attention in Washington.

In some cases, people are happy, as illustrated by this column by Tarren Bragdon for National Review.

Manchin is taking stands that enjoy broad public support. …he’s advocating policies that align with the views of a clear majority of Americans. Manchin is a man of the mainstream — not just the West Virginia mainstream, but the national mainstream. …Gallup’s 2021 research shows that more than three-quarters of Americans are concerned about federal spending and deficits, with about half worried “a great deal.” A spring Ipsos poll found that three out of four Americans think too much national debt will hurt the economy. …an April CivicScience poll, a stunning 87 percent of American adults expressed concerns about rising inflation. …Morning Consult found this week that only 35 percent of voters want the child tax credit made permanent, while 52 percent want it to expire.

In other cases, people are unhappy, as shown by this column by Catherine Rampell for the Washington Post.

Inconvenient but true: Americans want government to do less. Not more. Democrats cannot afford to just hand-wave this problem away. …the nation was again grappling with trying circumstances when this poll was conducted last year. …the public demanded more from the government. If there are no atheists in a foxhole, there are fewer libertarians in a pandemic. Fast-forward to today. Gallup conducted this poll again a month ago — and found that the share saying government should do more to solve problems has fallen back down to earth. …This is likely to present a problem for the Democratic Party, which is trying to pass a cradle-to-grave expansion of the welfare state.

Here’s Ms. Rampell’s repackaging of some of the polling data, which is helpful since it shows the big drop in support for statism by independents.

The bottom line is that I’m not a big fan of basing public policy on opinion polls.

But I also try to be practical. Biden fiscal agenda would be very bad for the United States.

It makes no sense to copy Europe’s welfare states when living standards on the other side of the ocean are significantly lower than they are in America.

So if politicians vote against higher taxes and more spending because of public opinion, I won’t complain (even though I wish they made sensible decisions because they read International Liberty).

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Biden’s Pro-Communist Nominee

As explained in this video by Dennis Prager, communism is an evil ideology that has led to the murder of more than 100 million people and the enslavement of hundreds of millions more.

All decent people should not only reject communism, but also ostracize anybody who offers support or sympathy for communism.

We are (or should be) nauseated by anybody who expresses sympathy for Nazism, and we should have the same approach for those who express any support for its sister ideology of communism.

I raise this topic because the Biden Administration wants a Marxist sympathizer, Saule Omarova, to be the Comptroller of the Currency.

The Wall Street Journal has an editorial about this woman, who arguably is Biden’s worst nominee for any position.

President Biden checked off another progressive identity box last week by nominating Saule Omarova as Comptroller of the Currency. …The Cornell University law school professor’s radical ideas might make even Bernie Sanders blush. She graduated from Moscow State University in 1989 on the Lenin Personal Academic Scholarship. Thirty years later, she still believes the Soviet economic system was superior, and that U.S. banking should be remade in the Gosbank’s image. …”Say what you will about old USSR, there was no gender pay gap there. Market doesn’t always ‘know best,’” she tweeted in 2019. …Ms. Omarova thinks asset prices, pay scales, capital and credit should be dictated by the federal government. …As they like to say at the modern university, from each according to her ability to each according to her needs. …Ms. Omarova believes capital and credit should be directed by an unaccountable bureaucracy and intelligentsia. She has recommended a “National Investment Authority”…. Democratic Senators have rubber-stamped all but a few of Mr. Biden’s nominees, but Ms. Omarova is the wrong nominee for the wrong industry in the wrong country in the wrong century.

It’s not just the pro-market folks at the Wall Street Journal who have are warning about the impropriety of nominating a radical leftist to an important position.

In a column for the Washington Post, Charles Lane writes about Ms. Omarova’s bizarre views.

Omarova’s left-wing views on banking, and on the Fed’s economic powers, are…radical. Centrist Democratic senators could — and should — use this nomination to demonstrate the limits of their party’s progressive drift. …Omarova…concludes that we might as well resurrect Gosplan. …She proposes that the Fed, not banks, should take deposits from the public, then leverage them by “dramatically augmenting the flow of credit into the coordinated nationwide construction of public infrastructure that enables and facilitates structurally balanced, socially inclusive and sustainable economic growth.” In short, the Fed would replace private commercial banking. …Omarova…refers to her plan as a way to “democratize money.” A more plausible view is that…it would destroy the economy in the name of saving it.

To be sure, Ms. Omarova is an unacceptable nominee for her support for hard-core socialist policies such as central planning and government control of credit.

But I also think she should be rejected for reasons of human decency.

We wouldn’t approve nominees who expressed support for Nazism, even if they tried to sanitize their views by pointing to policies such as Hitler’s autobahns or environmentalism.

The same moral standard should apply to people who express any type of support for the similarly evil ideology of communism.

Simply stated, communism and anything connected to it should be beyond the pale.

P.S. This is why I’ve condemned senior bureaucrats at the European Commission, the Baltimore Symphony, and Mercedes.

P.P.S. I’m proud to say that I totally failed the are-you-a-communist quiz.

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Reducing the corporate tax rate from 35 percent to 21 percent was the crown jewel of Trump’s 2017 Tax Cut and Jobs Act (TCJA).

  • It was good for workers since a lower rate means more investment, which translates to increased productivity and higher wages.
  • And it was good for U.S. competitiveness since the United States corporate tax rate no longer was the highest in the developed world.

Some critics downplayed those benefits and warned that a lower corporate tax rate would deprive the government of too much revenue.

Since I don’t want politicians to have more money, that was not a persuasive argument. Moreover, I argued during the debate in 2017 that a lower corporate tax rate would generate “revenue feedback.”

In other words, there would be a “Laffer Curve” effect as corporations responded to a lower tax rate by earning and reporting more income.

Based on the latest fiscal data from the Congressional Budget Office (CBO), I was right.

Corporate tax revenues for the 2021 fiscal year (which ended on September 30) were $370 billion. As shown in this chart, that’s only slightly below CBO’s estimate back in 2017 of how much revenue would be collected – $383 billion – if the rate stayed at 35 percent.

The chart also shows CBO’s 2018 estimate of what revenues would be in 2021 with a 21 percent rate (and if you want more data, the Joint Committee on Taxation estimated that the Trump tax reform would reduce corporate revenues in 2021 by $131 billion).

This leads me to ask two questions.

  1. Is this a slam-dunk argument for the Laffer Curve?
  2. Did the lower corporate tax revenue generate so much revenue feedback that it was almost self-financing?

The answer to the first question almost certainly is “yes” but “don’t exaggerate” is probably the prudent response to the second question.

Here are a few reasons to be cautious about making bold assertions.

  • CBO’s pre-TCJA estimate in 2017 may have been wrong for reasons that have nothing to do with the tax rate.
  • CBO’s post-TCJA estimate in 2018 may have been wrong for reasons that have nothing to do with the tax rate.
  • The surge of 2021 revenues may have been a one-time blip that will disappear or fade in the next few years.
  • The coronoavirus pandemic, or the policy response from Washington, may be distorting the numbers.

These are all legitimate caveats, so presumably it would be an exaggeration to simply look at the above chart and claim Trump’s reduction in the corporate tax rate almost “paid for itself.”

But we can look at the chart and state that there was a lot of revenue feedback, which shows that the lower corporate tax rate did produce good economic results.

Perhaps most important, we now have more evidence that Biden’s plan to increase the corporate tax rate is very misguided. Yes, it’s possible that the President’s plan may generate a bit of additional tax revenue, but at a very steep cost for workers, consumers, and shareholders.

P.S. If you want an example of tax cut that was self-financing, check out the IRS data on how much the rich paid before and after the Reagan tax cuts.

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I freely admit that I don’t like President Biden’s fiscal agenda in part because of my libertarianism. Simply stated, I’m instinctively skeptical when someone wants to expand government.

But I’m also an economist who believes in cost-benefit analysis. Moreover, I recognize that there are “public goods” that the private sector can’t – or isn’t allowed to – provide.

So I’m a big believer in looking at evidence to see if a proposed expansion of government makes sense.

As such, if we review the economic performance of nations that have already adopted Biden-type policies – such as Western Europe’s welfare states, that should tell us whether those policies are a good idea for the United States.

Well, if that kind of evidence matters, the answer surely is negative.

The Wall Street Journal editorialized on this topic a few days ago and reached a similar conclusion.

Here are some key excerpts.

“To oppose these investments is to be complicit in America’s decline,” Mr. Biden said Tuesday, adding that “other countries are speeding up and America is falling behind.” …You have to admire the audacity of pitching higher taxes and more social welfare as the path to national revival, especially when the global evidence is the opposite. The result of Mr. Biden’s expanded entitlements is likely to be reduced incentives to work and invest, slower economic growth, lower living standards.

The editorial is filled with hard data on the sub-par performance of various European nations.

That’s the lesson from Europe’s cradle-to-grave welfare states… European jobless rates tend to be much higher than in the U.S., especially for the young. In 2019 labor participation was 62.6% in the U.S. versus 49.7% in Italy, 55% in France, 57.7% in Spain, 59.3% in Portugal and 61.3% in Germany. …U.S. GDP growth still averaged 2.3% from 2010 to 2019, surpassing Italy (0.27%), Portugal (0.86%), Spain (1.07%), France (1.42%) and Germany (1.97%). …Mr. Biden’s plan would empower the government, pile burdens on the private economy, and erode upward mobility by encouraging people not to work. That’s the real recipe for decline.

And let’s not forget that scholarly research also shows that bigger government leads to economic weakness.

P.S. the WSJ editorial also made a very important point that European-style welfare expansions necessarily require huge tax increases on lower-income and middle-class households.

Europe’s little-discussed secret is that its cradle-to-grave welfare states are financed by the middle class via value-added and payroll taxes. The combined employer-employee social security tax rate is 36% in Spain, 40% in Italy and 65% in France. Value-added taxes in most European economies are around 20%. There simply aren’t enough rich to finance their entitlements.

For what it’s worth, Biden wants people to believe that all his new entitlement expansions can be financed with class-warfare taxes on upper-income households.

Even Paul Krugman admits that is preposterously false.

P.P.S. What’s especially revealing is that European nations have been falling further behind the United States, making them members of the “Anti-Convergence Club.”

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I’m not a fan of the International Monetary Fund (IMF).

Since I work mostly on fiscal issues, I don’t like the fact that the bureaucracy is an avid cheerleader for ever-higher taxes (which is disgustingly hypocritical since IMF employees get lavish, tax-free salaries).

But the biggest problem with the IMF is that it promotes “moral hazard.” More specifically, it provides bailouts for irresponsible governments and for those who foolishly lend to those governments.

The net result is that bad behavior is rewarded, which is a recipe for more bad behavior.

All of which explains why some nations (and their foolish lenders) have received dozens of bailouts.

Oh, and let’s not forget that these endless bailouts also lead to a misallocation of capital, thus reducing global growth.

In an article for the New York Times, Patricia Cohen reports on discussions to expand the IMF’s powers.

Once narrowly viewed as a financial watchdog and a first responder to countries in financial crises, the I.M.F. has more recently helped manage two of the biggest risks to the worldwide economy: the extreme inequality and climate change. …long-held beliefs like the single-minded focus on how much an economy grows, without regard to problems like inequality and environmental damage, are widely considered outdated. And the preferred cocktail for helping debt-ridden nations that was popular in the 1990s and early 2000s — austerity, privatization of government services and deregulation — has lost favor in many circles as punitive and often counterproductive.

There’s a lot to dislike about the above excerpts.

Starting with the article’s title, since it would be more accurate to say that the IMF’s bailout policies encourage fires.

Multiple fires.

Looking at the text, the part about “extreme inequality” is nonsensical, both because the IMF hasn’t done anything to “manage” the issue, other than to advocate for class-warfare taxes.

Moreover, there’s no support for the empty assertion that inequality is a “risk” to the world economy (sensible people point out that the real problem is poverty, not inequality).

Ms. Cohen also asserts that the “preferred cocktail” of  pro-market policies (known as the Washington Consensus) has “lost favor,” which certainly is accurate.

But she offers another empty – and inaccurate – assertion by writing that it was “counterproductive.”

Here are some additional excerpts.

The debate about the role of the I.M.F. was bubbling before the appointment of Ms. Georgieva… But she has embraced an expanded role for the agency. …she stepped up her predecessors’ attention to the widening inequality and made climate change a priority, calling for an end to all fossil fuel subsidies, for a tax on carbon and for significant investment in green technology. …Sustainable debt replaced austerity as the catchword. …The I.M.F. opposed the hard line taken by some Wall Street creditors in 2020 toward Argentina, emphasizing instead the need to protect “society’s most vulnerable” and to forgive debt that exceeds a country’s ability to repay.

The last thing the world needs is “an expanded role” for the IMF.

It’s especially troubling to read that the bureaucrats want dodgy governments to have more leeway to spend money (that’s the real meaning of “sustainable debt”).

And if the folks at the IMF are actually concerned about “society’s most vulnerable” in poorly run nations such as Argentina, they would be demanding that the country copy the very successful poverty-reducing policies in neighboring Chile.

Needless to say, that’s not what’s happening.

The article does acknowledge that not everyone is happy with the IMF’s statist agenda.

Some stakeholders…object to what’s perceived as a progressive tilt. …Ms. Georgieva’s activist climate agenda has…run afoul of Republicans in Congress… So has her advocacy for a minimum global corporate tax.

It would be nice, though, if Ms. Cohen had made the article more balanced by quoting some of the critics.

The bottom line, as I wrote last year, is that the world would be better off if the IMF was eliminated.

Simply stated, we don’t need an international bureaucracy that actually argues it’s okay to hurt the poor so long as the rich are hurt by a greater amount.

P.S. The political leadership of the IMF is hopelessly bad, as is the bureaucracy’s policy agenda. That being said, there are many good economists who work at the IMF and they often produce high-quality research (see here, here, here, here, here, here, here, here, here, and here). Sadly, their sensible analyses doesn’t seem to have any impact on the decisions of the organization’s top bureaucrats.

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President Biden’s fiscal agenda of higher taxes and bigger government is not a recipe for prosperity.

How much will it hurt the economy?

Last month, I shared the results of a new study I wrote with Robert O’Quinn for the Club for Growth Foundation.

We based our results on a wide range of economic research, especially a scholarly study from the Congressional Budget Office, and found a big drop in economic output, employment and labor income.

Most troubling was the estimate of a long-run drop in living standards, which would be especially bad news for young people.

Today, I want to share some different estimates of the potential impact of Biden’s agenda.

A study for the Texas Public Policy Foundation, authored by  E. J. Antoni, Vance Ginn, and Stephen Moore, found even higher levels of economic damage. Here are some main excerpts.

President Biden and congressional Democrats seek to spend another $6.2 trillion over the next decade, spread across at least two bills that comprise their “Build Back Better” plan. This plan includes heavy taxing, spending, and debt, which contributes to reducing growth rates for GDP, employment, income, and capital stock.  Compared to baseline growth over the next decade, this plan will result in estimated dynamic economic effects of 5.3 million fewer jobs, $3.7 trillion less in GDP, $1.2 trillion less in income, and $4.5 trillion in new debt. …There are many regulatory changes and transfer payments in current legislation whose effects have not been included in this paper but are worth mentioning in closing since they will have many of the same effects as the tax increases discussed in this paper. Extending or expanding the enhanced Child Tax Credit, Earned Income Tax Credit, Child and Dependent Care Tax Credit, and more, disincentivizes working, reducing incomes, investment, and GDP. Just the changes to these three tax credits alone are expected to cause a loss of 15,000 jobs… Permanently expanding the health insurance premium tax credits would similarly have a negative effect… Regulatory changes subsidizing so-called green energy while increasing tax and regulatory burdens on fossil fuels also result in a less efficient allocation of resources.

If we focus on gross domestic product (GDP), the TPPF estimates a drop in output of $3.7 trillion, which is higher than my study, which showed a drop of about $3 trillion.

Part of the difference is that TPPF looked at the impact of both the so-callled infrastructure spending package and Biden’s so-called Build Back Better plan, while the study for the Club for Growth Foundation only looked at the impact of the latter.

So it makes sense that TPPF would find more aggregate damage.

And part of the difference is that economists rarely agree on anything because there are so many variables and different experts will assign different weights to those variables.

So the purpose of sharing these numbers is not to pretend that any particular study perfectly estimates the effect of Biden’s agenda, but rather to simply get a sense of the likely magnitude of the economic damage.

Speaking of economic damage, here’s a table from the TPPF showing state-by-state job losses.

I’ll close by noting that you can also use common sense to get an idea of what will happen if Biden’s agenda is approved.

He wants to make the United States more like Western Europe’s welfare states, so all we have to do is compare U.S. living standards and economic performance to what’s happening on the other side of the Atlantic Ocean.

And when you do that, the clear takeaway is that it’s crazy to “catch up” to nations that are actually way behind.

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Communism Humor

I’ve been recently receiving lots of good material for our collection of communism humor.

I shared items in both August and September, and now we have a new batch for October.

The first bit of satire shows that it’s better to be victimized by capitalism than communism.

The second item in our collection is a further reminder that you have to choose whether you want full socialism or a full stomach.

Our next item is almost identical to one that I shared back in March, except mountain lions have been replaced by Canadian geese.

Next we have a big of humor involving two of history’s biggest mass murderers, Stalin and Lenin.

And here’s my favorite item, which will appeal to history buffs who remember that Hitler and Stalin agreed to carve up Poland.

A nice reminder that totalitarianism is reprehensible, regardless of the flavor.

Statist ideologies are the opposite of libertarianism.

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Having been in Washington for close to 40 years, I’ve seen lots of budget dishonesty, but nothing compares to Joe Biden’s claim that his profligate budget proposals have zero cost.

According to the official numbers, that’s a $3.5 trillion lie.

In reality, as I noted in July, it’s much bigger.

Let’s investigate this issue. I’ll start by noting that I have mixed feelings about the Committee for a Responsible Federal Budget (CRFB). They think controlling red ink should be the main focus of fiscal policy, whereas I think controlling spending should be the top goal.

That being said, CRFB’s staff have a well-deserved reputation for being thorough and careful when producing fiscal analysis.

So it’s worth noting that the group estimates that the Biden’s fiscal agenda would actually cost between $5 trillion and $5.5 trillion over 10 years, much higher than the “official” estimate of $3.5 trillion.

Here are some of the bottom-line numbers from their report.

That’s a truncated version of their table. If you want to see all the gory details, click here.

You’ll also be able to read the group’s analysis, including these key excerpts.

While the actual cost of this new legislation will ultimately depend heavily on details that have yet to be revealed, we estimate the policies under consideration could cost between $5 trillion and $5.5 trillion over a decade, assuming they are made permanent. In order to fit these proposals within a $3.5 trillion budget target, lawmakers apparently intend to have some policies expire before the end of the ten-year budget window, using this oft-criticized budget gimmick to hide their true cost. …To fit $5 trillion to $5.5 trillion…into a $3.5 trillion budget, background documents to reporters explain that “the duration of each program’s enactment will be determined based on scoring and Committee input.”  In other words, tax credits and spending programs will be set to expire at some point before the end of the decade, in the hope that future lawmakers will extend these programs. …This budget gimmick…would obscure the true cost of the legislation

The Wall Street Journal opined about Biden’s gimmickry.

Democrats are grasping for ways to finance their cradle-to-grave welfare state, with the left demanding what they claim is $3.5 trillion over 10 years. The truth is that even that gargantuan number hides the real cost of their plans. The bills moving through committees are full of delayed starts, phony phase-outs, and cost shifting to states designed to fit $3.5 trillion into a 10-year budget window… Start with the child allowance… Democrats have hidden the real cost by extending the allowance only through 2025. Even if Republicans gain control of Congress and the White House in 2024, Democrats and their media allies will bludgeon them to extend the payments… Democrats are using a different time shift to disguise the cost of their Medicare expansion…delaying the phase-in of the much more expensive dental benefit to 2028. This “saves” $420 billion over 10 years, but the costs explode after that. …the new universal child-care entitlement…gives $90 billion to the states—but only from 2022 to 2027. …The bottom line: $3.5 trillion is merely the first installment of a bill that would put government at the commanding heights of family life and the economy for decades to come. Tax increases will follow as far as the eye can see.

Regarding the final sentence of the above excerpt, the tax increases in Biden’s budget are merely an appetizer.

Ultimately, a European-sized welfare state requires European-style taxes on lower-income and middle-class households.

In other words, a value-added tax, along with higher payroll taxes, higher energy taxes, and higher income tax rates on ordinary workers (with this unfortunate Spaniard being a tragic example).

But we do have a tiny bit of good news.

A small handful of Democrats are resisting Biden’s budget, which means the package presumably will have to shrink in order to get sufficient votes.

But this good news may be fake news if Biden and his allies in Congress simply expand the use of dishonest accounting.

Brian Riedl of the Manhattan Institute documents some of this likely dishonesty in a column for the New York Post.

How does Congress cut a $3.5 trillion spending bill down to $1.5 trillion? By using gimmicks to hide its true cost. …Progressives have been abusing these gimmicks from the start. They began with a reconciliation proposal that would cost nearly $5 trillion over the decade. Then, in order to cut the bill’s “official” cost closer to $4 trillion, the bill’s authors included a December 2025 expiration of the $130 billion annual expansion of the child tax credit… Of course, no one believes that Congress will actually allow the child tax credit to be reduced at the end of 2025… Democrats purposely selected for “expiration” a popular middle-class benefit that they know even a future Republican Congress or president would not dare take away from voters. …expensive child care subsidies, family leave, and “free” community college benefits may also have their full cost hidden with fake expiration dates early into the 10-year scoring window. Lawmakers fully expect to extend these policies later, ultimately raising the cost of the total reconciliation bill closer to the $3.5 trillion target (or even higher). …Progressives are also discussing delaying the proposed new Medicare dental benefits until 2028, which legitimately saves money within the 10-year scoring window but also hides a larger long-term cost.

I realize that it’s not a big revelation to write that politicians are dishonest (Washington, after all, is a “wretched hive of scum and villainy“).

And I also realize that that the main problem with Biden’s plan is the economic damage it will cause, not the reliance on phony accounting.

But truth should matter a little bit, even in a town where lying about fiscal policy is a form of art.

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There are many reasons to reject Joe Biden’s proposal for higher corporate tax rates, and I listed many of them when I narrated this nine-minute video.

This two-minute video from the Tax Foundation has a similar message.

The main message is that workers, consumers, and shareholders are the ones who actually pay when suffer when politicians impose higher taxes on business.

And the damage grows over time because higher corporate tax rates reduce investment, which inevitably leads to lower wages.

By the way, while a low tax rate is very important, there are many other policy choices that determine the overall damage of business taxation.

This is just a partial list. There are other policies – such as alternative minimum taxation, book income, loopholes, and extenders – that also can increase the damage of the corporate taxation.

The bottom line is that we know the sensible approach to business taxation, but the Biden Administration is motivated instead by class warfare and grabbing revenue.

P.S. For more information on corporate taxation and wages, click here, here, here, here, and here.

P.P.S. For more information on corporate tax rates and corporate tax revenue, click here, here, here, and here.

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Don Boudreaux, Deirdre McCloskey, and Dan Hannan have all explained how capitalism enabled mass prosperity after endless stagnation and poverty.

There’s a similar message in this video from Kite & Key Media. The most relevant parts start at 2:30, though I recommend watching the entire video.

But if you don’t have time to watch any of the video, here are four of the key points.

  1. We are much richer, on average, than we were 50 years ago. This is a point I made both in June and September, and it’s worth adding that the all income groups tend to rise together.
  2. There was almost no growth for much of world history, a dismal reality that is beyond the comprehension of politicians such as Congresswoman Ayanna Pressley.
  3. Technological progress enabled by capitalism not only ended mass poverty, but it also brings many luxuries within reach of lower-income and middle-class people.
  4. As shown by basket cases such as Venezuela, Lebanon, and North Korea, bad policy can wreck economic progress.

Regarding point #4, my only complaint with the video is that some viewers might conclude that economic growth will be automatic so long as politicians don’t make catastrophic Venezuelan-style policy mistakes.

It would have been nice to point out that, yes, the worst-possible set of policies produces the worst-possible economic damage, but also to explain that a modest amount of statism can hurt growth by a modest amount and a lot of statism can hurt growth by a significant amount.

In other words, there’s a spectrum of possible policy outcomes (I’ve also referred to this as the “socialism slide“) and it’s best to get as close to laissez-faire capitalism as possible.

Remember, even small differences in economic growth lead to big differences in long-run living standards. And the “size of the pie” is a good predictor of whether a nation enjoys broadly shared prosperity.

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Remember the supposedly breathtaking revelations from the “Panama Papers” back in 2016?

We were told those stolen documents were an indictment against so-called tax havens, but the real lesson was that politicians and other government insiders are very prone to corruption.

Well, it’s happened again. Thieves stole millions of documents (the “Pandora Papers”) from various firms around the world that specialize in cross-border investment.

Some journalists want us to believe that these documents are scandalous, but I poured cold water on this hysteria in an interview with the BBC.

If you don’t want to listen to me pontificate for about five minutes, here are the main points from the interview.

  • International investment is a good thing (much like international trade) and it necessarily requires the use of “offshore” entities such as companies, funds, and bank accounts.
  • Politicians don’t like cross-border investment because economic activity tends to migrate to places with lower tax rate, and this puts downward pressure on tax rates.
  • There is no evidence that people in the private sector use “offshore” entities in ways that are disproportionately dodgy.
  • By contrast, there is considerable evidence that politicians use “offshore” in ways that are disproportionately dodgy.
  • More than 99 percent of people engage in legal tax avoidance and that’s a good thing because it keeps money out of the hands of profligate politicians.
  • People should not have to share their private financial affairs, such as bank accounts and investment holdings, with the general public.

It’s not worth a separate bullet point, but my favorite part of the interview is when I noted the grotesque hypocrisy of the International Monetary Fund, which pimps for higher taxes all around the world, yet its employees get tax-free salaries.

The bottom line is that tax competition and so-called tax havens should be applauded rather than persecuted.

We should instead be condemning the “tax hells” of the world. Those are the jurisdictions that cause economic misery.

Since we’re on this topic, let’s also enjoy some excerpts from an article in Reason by Steven Greenhut.

Leftists are thrilled by the Biden administration’s plan to stamp out the bogeyman of tax havens—low-tax jurisdictions where corporations and other investors can keep their money away from the prying hands of the government. …Let’s dispense with the outrage about tax havens. There is nothing wrong with companies and individuals that shelter their earnings from governments, which are like organized mobs that can never seize enough revenue. …If you believe that tax havens are immoral, then you should not claim any deductions on your tax bill. President Joe Biden apparently thinks it’s wrong for corporations to locate their headquarters in low-tax Bermuda, Ireland, and Switzerland, yet why does his home of Delaware house so many U.S. corporate headquarters? …Tax havens provide pressure on big-spending governments to limit tax rates, and lower tax rates boost economic activity, create jobs, and incentivize investors to invest more. …Those who oppose tax havens simply want the government to take more money and have more power.

I’ll close by noting that many Nobel Prize-winning economists defend tax competition as a necessary check on the greed of the political class.

P.S. As you can see from this tweet, not everyone appreciated my BBC interview.

P.P.S. There was also a manufactured controversy involving stolen documents back in 2013.

P.P.P. S. My work on this issue has been…umm…interesting, resulting in everything from a front-page attack by the Washington Post to the possibility of getting tossed in a Mexican jail.

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There are lots of reasons (here are five of them) to dislike the version of the Biden tax hike that was approved by the tax-writing committee in the House of Representatives.

From an economic perspective, it is bad for prosperity to penalize work, saving, investment, and productivity.

So why, then, do politicians pursue such policies?

Part of the answer is spite, but I think the biggest reason is they simply want more money to spend.

And if the economy suffers, they don’t worry about that collateral damage so long as their primary objective – getting more money to buy more votes – is achieved.

But the rest of us should care, and a new report from the Tax Foundation offers a helpful way of showing why pro-tax politicians are misguided.

Here’s a table showing that the economy will lose almost $3 of output for every $1 that politicians can use for vote buying.

I added my commentary (in red) to the table.

My takeaway is that it is reprehensible for politicians to cause nearly $3 of foregone prosperity so that they can spend another $1.

Garrett Watson, author of the report, uses more sedate language to describes the findings.

Using Tax Foundation’s General Equilibrium Model, we estimate that the Ways and Means tax plan would reduce long-run GDP by 0.98 percent, which in today’s dollars amounts to about $332 billion of lost output annually. We estimate the plan would in the long run raise about $152 billion annually in new tax revenue, conventionally estimated in today’s dollars, meaning for every $1 in revenue raised, economic output would fall by $2.18. When the model accounts for the smaller economy, it estimates that the plan’s dynamic effects would reduce expected new tax collections to about $112 billion annually over the long run (also in today’s dollars), meaning for every $1 in revenue raised, economic output would fall by $2.96.

This is excellent analysis.

But I think it’s important to specify that political cost-benefit analysis (from the perspective of politicians) is not the same as economic cost-benefit analysis.

From an economic perspective, the foregone economic growth is a cost and the additional tax revenue for politicians also is a cost.

And I’ve augmented the table (again, in red) to show that the additional spending is yet another cost.

In other words, politicians are the main winners from Biden’s tax hike, and some of the interest groups getting additional handouts also might be winners (though I’ve previously pointed out that many of them wind up being losers as well in the long run).

P.S. The Tax Foundation model only measures the economic damage of higher taxes. If you also measure the harmful impact of more spending, the estimates of foregone economic output are much bigger.

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Economists of all types agree with “convergence theory,” which is the notion that poor countries should grow faster than rich countries.

Though they are usually wise enough to also say “ceteris parisbus,” which means the theory applies if other variables are similar (the translation from Latin is “other things equal”).

I’m very interested in this theory because we can learn a lot when we look at nations that don’t have “equal” policies.

And the biggest lesson is that you have divergence rather than convergence if one nation follows good policies and the other one embraces statism.

Take a look, for instance, at what’s happened to per-capita economic output (GDP) since 1950 in Taiwan and Cuba.

The obvious takeaway from these numbers from the Maddison database is that Taiwan has enjoyed spectacular growth while Cuba has suffered decades of stagnation.

If this was a boxing match between capitalism and socialism, the refs would have stopped the fight several decades ago.

By the way, some folks on the left claim that Cuba’s economic misery is a result of the U.S. trade embargo.

In a column for the Foundation for Economic Education, Emmanuel Rincón explains the real reason why these two jurisdictions are so wildly divergent.

…the Communist Party of Cuba has blamed the United States for Cuba’s misery and poverty, alluding to the “blockade” that the U.S. maintains against Cuba. However, …the rest of the world can trade freely with the island. …Taiwan’s economy is one of the most important in the world, with a poverty rate of 0.7%, as opposed to Cuba, which has one of the most depressed economies on the planet and 90% of its population living in poverty. What is the difference between the two islands? The economic and political model they applied in their nations. …Taiwan has the sixth freest economy according to the Index of Economic Freedom… While Taiwan took off with a capitalist model, Cuba remained anchored in the old revolutionary dogmas of Fidel Castro… With popular slogans such as redistribution of wealth, supposed aid to the poor, and socialism, Fidel Castro began to expropriate land and private companies to be managed by the state…today the GDP of the Caribbean island is five times less than that of Taiwan, and 90% of its population lives in poverty, while in the Asian island only 0.7% of its population is poor. It is definitely not the fault of the “blockade”, but of socialism.

To be sure, Cuba would be slightly less poor if there was unfettered trade with the United States, so maybe Taiwan would only be four and one-half times richer rather than five times richer in the absence of an embargo.

The moral of the story is that there’s no substitute for free markets and small government.

P.S. Though I appreciate the fact that our friends on the left are willing to extol the virtues of free trade, at least in this rare instance.

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Unless my memory is more faulty than usual, I don’t think I’ve written a single favorable article about any of Joe Biden’s policies. Which isn’t a surprise considering his knee-jerk embrace of higher taxes and bigger government.

But it’s now time to praise the President.

Why?

Because his administration is taking some long-overdue steps to reduce the damaging impact of federal flood insurance.

Darryl Fears and Lori Rozsa explain what’s happening in an article for the Washington Post.

…8 million Americans…moved to counties along the U.S. coast between 2000 and 2017, lured by the sun, the sea and heavily subsidized government flood insurance that made the cost of protecting their homes much less expensive, despite the risk of living in a flood zone near a vast body of water. …the Federal Emergency Management Agency will incorporate climate risk into the cost of flood insurance for the first time, dramatically increasing the price for some new home buyers. Next April, most current policyholders will see their premiums go up and continue to rise by 18 percent per year for the next 20 years. …wealthy customers with high-value homes will see their costs skyrocket by as much as $14,400 for one year. About 3,200 property owners — mostly in Florida, Texas, New Jersey and New York — fall in that category. …Homeowners in inland states such as Iowa, Missouri and Nebraska, where creeks, streams and rivers overflow during heavy rains, will also see price increases in their government-backed flood insurance. …“It is now going to say if you’re in a risky place, you’re going to get charged more for it, and other people aren’t footing the bill,” VinZant said. …As of last year, the National Flood Insurance Program (NFIP) run by FEMA was $20 billion in debt from massive payouts to customers.

And here’s some of what the Wall Street Journal reported, in an article by Arian Campo-Flores.

Chris Dailey and his wife are building a new home in coastal St. Petersburg, Fla., that will sit 7 feet above the flood level expected during a major storm. So he was stunned to learn that under the federal flood insurance program’s revamped pricing, his annual premium is slated to soar to $4,986 from $441. …he plans to go through with the project, which is about a block and a half from a canal that leads to Tampa Bay, but worries about the ability to sell it in the future. The National Flood Insurance Program—the main provider of flood coverage in the U.S., with more than five million policies—is rolling out an overhauled pricing method starting Friday in an effort to reflect more accurately the flood risk that individual properties face. …Under the new system, dubbed “Risk Rating 2.0,” some policyholders in especially vulnerable areas will face big premium increases while others in less-exposed spots will see smaller increases or even decreases. …Developers may rethink where they build, and coastal real-estate markets could take a hit. “There is no greater risk-communication tool than a pricing signal,” said Roy Wright, president of the Insurance Institute for Business and Home Safety… Some members of Congress, mainly from coastal states, are urging a delay in implementing the new rating system. Senators including Chuck Schumer (D., N.Y.) and John Kennedy (R., La.) wrote a letter last week to the FEMA administrator expressing concern about sharp premium increases.

The most important sentence in the above excerpt was Roy Wright’s observation about the role of prices.

Subsidies distort prices, causing inefficient and foolish choices – such as building homes that are prone to flood damage.

In a free market, by contrast, prices force people to internalize costs and benefits.

Indeed, in an article for Reason, Ronald Bailey points out that private insurers use prices to – gasp – reflect actual risk.

“Insurers cherry-pick homes, leave flooded ones for the Feds,” runs a very odd headline over at E&E News. The article goes on to explain, “Taxpayers could be forced to spend billions of dollars to bail out the federal government’s flood program as private-sector insurers begin covering homes with little risk of flooding while clustering peril-prone properties in the indebted public program.” Well, yes. …The E&E News article strangely claims that “an increased number of people with flood coverage could help reduce flood damage by making homeowners more aware of their risk.” Of course that’s right, but not being able to purchase any flood insurance at all would be a much more effective and compelling way to make homeowners aware of their risks. …Instead of decrying private insurers for sensibly refusing to cover houses located in high-risk flood zones, the E&E News article should instead have been arguing for ending the government’s National Flood Insurance Program altogether.

Let’s close by looking at how Canada handles this issue.

In a 2019 article for the New York Times, Christopher Flavelle explains that Canada recognized years ago that it doesn’t make sense to subsidize homeowners who make risky decisions.

Unlike the United States, which will repeatedly help pay for people to rebuild in place, Canada has responded to the escalating costs…by limiting aid after disasters, and even telling people to leave their homes. …In 2015, Canada made it harder for lower levels of government to get federal money after disasters. The next year, British Columbia said flood victims who had chosen not to buy private flood insurance would be ineligible for government aid. This year the federal government went further still, warning that homeowners nationwide would eventually be on their own. If people deliberately rebuild in danger zones, at some point “they are going to have to assume their own responsibility for the cost burden,” Public Security Minister Ralph Goodale told reporters in April. “You can’t repeatedly go back to the taxpayer and say, ‘Oh, it happened again.’” …Quebec also limited disaster aid, and not just inside the special zone. After this spring’s flooding, the province said it would set an upper threshold for assistance at $100,000 over the lifetime of the house. After that, homeowners face a choice: They can sell to the government, which will pay no more than $250,000, regardless of market value. Or they can get money to rebuild one last time — but in doing so, they forfeit any future financial assistance.

Two cheers for the Canadians. They’ve been more rational than policy makers in the United States (the ones at FEMA, at least in the past, have been especially incompetent).

But not three cheers. In a column for the Wall Street Journal, Professor Walter Block explains how our neighbors to the north are still imperfect.

The best policy is…laissez-faire capitalism. Treat people as adults—allow them to take whatever flooding risks they choose, but on their own nickel. They should be free to build wherever they want, and to indemnify themselves against risk by buying insurance on the open market. But they should not receive a dime of taxpayers’ money for rebuilding.

Amen. Get the government out of the insurance business.

Capitalism is almost always the right answer.

P.S. If you don’t believe in miracles, you probably will after learning that even Bernie Sanders is semi-sensible on this issue.

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When asked to list the worst presidents of the 20th century, Woodrow Wilson, Franklin Roosevelt, and Richard Nixon belong on the list.

But this Reason video with Amity Shlaes shows why Lyndon Johnson also is among the worst of the worst.

 

You should watch every second of the video, but if you don’t have 33 minutes to spare, here’s a helpful summary.

Johnson declared war on poverty, jacked up federal spending on education, and pushed massive new entitlement programs, including Medicare and Medicaid, which promised to deliver high-quality, low-cost health care to the nation’s elderly and poor. …But did the Great Society achieve its goals of eradicating poverty, sheltering the homeless, and helping all citizens participate more fully in the American Dream? In Great Society: A New History, Amity Shlaes argues that Lyndon Johnson’s bold makeover of the government was a massive failure.

Massive failure may be an understatement.

LBJ’s two big entitlement programs, Medicare and Medicaid, are the biggest reason why America will suffer a future fiscal crisis.

And his so-called War on Poverty was a disaster for both taxpayers and poor people.

How much of a disaster?

Let’s augment Amity’s analysis with these excerpts from Jason Riley’s column in the Wall Street Journal.

Entitlement programs were dramatically expanded in the 1960s in the service of a war on poverty, yet poverty fell at a slower rate after the Great Society initiatives were implemented, and overall dependency on the government for food, shelter and other basic necessities increased. …Liberals pitch these social programs in the name of helping underprivileged minority groups and reducing inequality, but the lesson of the 1960s is that government relief can put in place incentives that have the opposite effect. Between 1940 and 1960 the percentage of black families living in poverty declined by 40 points… No welfare program has ever come close to replicating that rate of black advancement… Moreover, what we experienced in the wake of the Great Society interventions was slower progress or outright retrogression. Black labor-force participation rates fell, black unemployment rates rose, and the black nuclear family disintegrated. In 1960 fewer than 25% of black children were being raised by a single mother; within four decades, it was more than half. …The welfare state is often discussed in relation to its effect on racial and ethnic minorities, yet crime, single parenting and drug abuse also increased among poor whites in the aftermath of the Great Society. When the government indulges and subsidizes counterproductive behavior, we tend to get more of it.

What’s depressing is that Biden wants to replicate LBJ’s mistakes. His new entitlements will mean slower growth and more dependency.

P.S. Amity Shlaes also has done great work to highlight the achievements of one of America’s best presidents.

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