Best and Worst News of 2021

Per tradition (2020, 2019, 2018, etc), we highlight the best and worst developments of the year on December 31.

The choices are based on whether a particular policy increases or decreases individual liberty, either in a big way or a symbolic way.

Interestingly, the coronavirus pandemic doesn’t show up on either the good list or bad list.

Why? Because governments continue to make things worse, but not in ways that are significantly new or different.

With that in mind, let’s look at what happened in 2021, starting with the good news.

The Death of (the horribly misnamed) Build Back Better – President Biden somehow decided a very narrow victory over a very unpopular incumbent meant that he had a mandate for a radical expansion of the welfare state, accompanied by a plethora of class-warfare tax increases. Fortunately, Congress did not approve Biden’s growth-sapping plan.

School Choice Advances – Led by a sweeping plan to empower parents in West Virginia, there were many encouraging victories this year for school choice. And as teacher unions continue to mishandle the pandemic, there’s hope for continued progress next year.

Arizona Tax Reform – Several states lowered tax rates in 2021, but what happened in Arizona deserves special attention. Lawmakers reversed the outcome of a class-warfare referendum, meaning the state’s top tax rate on households will be 4.5 percent rather than 8 percent.

Speaking of referendum results, if we had an “honorable mention” or “runner-up” category, I would list three results from  2021

• Swiss voters rejected class-warfare tax increases.
• Voters in the state of Washington gave a big thumbs down to a proposed capital gains tax.
• Voters in Louisiana voted for lower tax rates.

Now let’s look at the three worst policy developments of 2021.

Biden’s Fake Stimulus and Infrastructure Boondoggle – Even though the so-called Build Back Better plan failed to advance, President Biden was able to significantly increase the burden of government spending with a supposed stimulus plan early in the year, followed by a grab-bag of special-interest handouts as part of “infrastructure” legislation later in the year.

Chile Elects a Hard-Core Leftist President – Much to my dismay, Chilean voters opted for a hard-core leftist president who wants to dismantle the nation’s very successful private social security system. The most economically successful nation in Latin America is now in danger of becoming another Argentina. Or worse.

Global Tax Cartel – While Biden’s proposal for a higher corporate tax rate in the United States did not succeed, he seems to have successfully paved the way for a global tax cartel that will require all nations to have a corporate tax rate of at least 15 percent. This is a victory for politicians over workers, consumers, and shareholders. And it creates a very dangerous precedent.

Let’s also have an honorable mention for bad news.

One positive development during the Trump years was the unwinding of regulations that forced Americans to use crummy, low-flow showerheads.

Well, that victory was short-lived, as captured by this headline from a Reason article.

For what it’s worth, I suspect this bit of bad news will be followed by some bad news on a related issue.

P.S. I thought about including inflation as one of the bad things that happened in 2021, but I think that’s the results of years of misguided monetary policy. Politicians from both parties seem perfectly happy with Keynesian policy from the Federal Reserve.

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According to the Human Freedom Index, Switzerland Is the Most Libertarian-Oriented Nation

A new edition of the Human Freedom Index has been released. When you combine measures of personal freedom and economic freedom, the “sensible nation” of Switzerland is at the top of the rankings.

I don’t know if this means we should view Switzerland as the world’s most libertarian nation (or perhaps the world’s least statist nation), but it’s obviously good to lead this list.

And it’s not surprising that New Zealand is next, though many people are probably shocked to see Denmark in third place (it has very bad fiscal policy, but otherwise is a very laissez-faire nation).

The United States is #15, which is good but not great.

Here are a few passages from the report’s executive summary.

The Human Freedom Index (HFI) presents a broad measure of human freedom, understood as the absence of coercive constraint. This seventh annual index uses 82 distinct indicators of personal and economic freedom… The HFI covers 165 jurisdictions for 2019, the most recent year for which sufficient data are available. …fully 83 percent of the global population lives in jurisdictions that have seen a fall in human freedom since 2008. That includes decreases in overall freedom in the 10 most populous countries in the world. Only 17 percent of the global population lives in countries that have seen increases in freedom over the same time period. …Jurisdictions in the top quartile of freedom enjoy a significantly higher average per capita income ($48,748) than those in other quartiles; the average per capita income in the least free quartile is $11,259. The HFI also finds a strong relationship between human freedom and democracy

If you want to know the world’s worst nations, here are the bottom 10.

Venezuela is normally the worst of the worst, but in this case Syria wins the Booby Prize.

Let’s now give some extra attention to Hong Kong.

The report notes that there’s been a very unfortunate decline in human freedom in Hong Kong, mostly because of an erosion of personal freedom.

And Hong Kong’s score is expected to drop even further in future editions.

Freedom has suffered a precipitous decline in Hong Kong. The territory was once one of the freest places in the world, but the Chinese Communist Party’s (CCP) escalating violations of Hong Kong’s traditional liberties has caused its ranking in our index to fall from 4th place in 2008—when the first globally comprehensive data appeared—to 30th place in 2019, the most recent year in our report… Our survey does not yet capture the suppression of 2020 and 2021, including the CCP’s imposition of a draconian security law that enabled its aggressive takeover of Hong Kong.

Thanks to the recent election, I expect we will see a similar discussion of Chile’s decline in future editions.

Here’s a final observation that should be highlighted.

Because the report relies on hard data (which often takes a year or two to be finalized and reported), this year’s HFI is based on 2019 data.

And that means we won’t see the effect of pandemic-related restrictions, which generally were adopted in early 2020, until next year’s version.

…this year’s report does not capture the effects of the coronavirus pandemic on freedom.

P.S. Here’s what I wrote about the previous edition of the Human Freedom Index. And if you want to dig into the archives, I also wrote about the publication in 2016 and 2018.

P.P.S. For what it’s worth, I still think Australia might have the best long-run outlook for human freedom.

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The Best and Worst States for Tax Policy

Yesterday’s column included a map showing which states gained and lost the most population over the past year.

I speculated that some of America’s internal migration was driven by differences in tax policy.

So it’s appropriate today that I share this map from the Tax Foundation’s annual State Business Tax Climate Index, showing Wyoming, South Dakota, Alaska, and Florida with the best scores and Connecticut, California, New York, and New Jersey with the worst scores.

Comparing today’s map with yesterday’s map, I immediately noticed that two states losing a lot of people – New York and California – also are states that have very bad tax systems.

And if you examine other states, you’ll confirm that there’s a relationship between tax policy and people “voting with their feet.”

Does that mean taxes are the only thing that matters? Of course not.

But as Janelle Cammenga and Jared Walczak explain in their report, they definitely have an effect on where money gets invested and where jobs get created.

Taxation is inevitable, but the specifics of a state’s tax structure matter greatly. The measure of total taxes paid is relevant, but other elements of a state tax system can also enhance or harm the competitiveness of a state’s business environment. …all types of businesses, small and large, tending to locate where they have the greatest competitive advantage. The evidence shows that states with the best tax systems will be the most competitive at attracting new businesses and most effective at generating economic and employment growth. …State lawmakers are right to be concerned about how their states rank in the global competition for jobs and capital, but they need to be more concerned with companies moving from Detroit, Michigan, to Dayton, Ohio, than from Detroit to New Delhi, India. …Tax competition is an unpleasant reality for state revenue and budget officials, but it is an effective restraint on state and local taxes.

One of the more interesting parts of the report is that you get to see where states rank when considering different types of taxes.

Here’s Table 1, which has the overall ranking in the first column, followed by the rankings for the main revenue sources for states.

If you read the report’s methodology, you’ll notice that there are different weights.

The worst tax (assuming a state wants a competitive system) is the personal income tax, followed by the sales tax and corporate income tax.

No state ranks in the top 10 for all five categories, though Florida, North Carolina, and Utah have relatively good scores across the board.

P.S. One important caveat is that the report does not list energy severance taxes, which are major sources of revenue for states such as Alaska and Wyoming. To be sure, those taxes that largely are borne by out-of-state consumers, so there’s a reason for the omission. Nonetheless, those taxes enable excessive government spending, which is why I think South Dakota and Florida actually have the nation’s best fiscal systems.

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Americans Are “Voting with their Feet” against High Taxes

I’ve written many times about how Americans are moving from high-tax states to low-tax states.

Now we have even more evidence because the Census Bureau has issued its annual report on state population changes, along with this accompanying map.

You don’t need to be an expert in map reading to see that California, Illinois, and New York are losing people at the fastest rate (orange states).

Likewise, the states gaining population at the fastest rate (purple states) include Texas.

This chart from the Wall Street Journal shows the biggest changes, as measured by the number of people moving in and out.

To be sure, taxes are not the only factor that drive internal migration.

But it’s also clear that people tend to move to lower-tax states, either because they overtly want to keep more of their money, or because they are attracted to the job opportunities that tend to be more plentiful where taxes are lower.

As you might expect, the coverage from Fox News highlights the fact that people are leaving blue states and moving to red states.

Between 2020 and 2021, the country has seen the lowest population growth since its founding, at only a 0.1% increase, but the biggest declines have occurred in Washington, D.C., and Democrat-led states, according to a report Tuesday by the Census Bureau. …New York with a 1.6% decline, Illinois with a 0.9% decline, and Hawaii and California that both saw a 0.7% decline. Meanwhile, the states that saw the biggest increase in population growth were Republican-run states, starting with Idaho at a 2.9% increase, followed by Utah with 1.7%, Montana with 1.7%, Arizona with 1.4% and South Carolina with 1.2%. …Florida and Texas, each saw a population growth of 1%.

Citing a different report, he Wall Street Journal opined a few days ago about the implications of migration for Illinois.

The Land of Lincoln is one of only three states, including West Virginia and Mississippi, to have lost population since 2010. But its population over age 55 has grown as Baby Boomers have aged. …Illinois is losing young people while Florida is gaining them. State development specialist Zach Kennedy notes that “the U.S. population actually grew in the prime working age, young adult age cohorts, 25 to 29, 30 to 34 and 35 to 39 year olds.” Illinois was among the few states to see a decline in these age cohorts. …“Only New Jersey lost more college-aged individuals out of state who never returned,” Mr. Kennedy says. Hmmm. What do the two have in common? …a shrinking population of prime-age working people and children means a smaller tax base will have to support growing retirement liabilities. Folks who stick around will have to pay higher and higher taxes. …each Illinois household on average is on the hook for $110,000 in government-worker retirement debt, up from $90,000 in 2019. …The per-household pension burdens in Iowa and Wisconsin were $3,500 and $3,200, respectively. Both states have gained young people. State and local government in Illinois is run by public-worker unions, and people are fleeing the economic and fiscal consequences.

The most important sentence in the preceding excerpt points out that “Folks who stick around will have to pay higher and higher taxes.”

And that will encourage even more of them to leave, which leads to even-further pressure for higher taxes on the chumps who remain.

Needless to say, that won’t end well, for Illinois or other blue states. Either they go bankrupt or future politicians do a big blue-state bailout.

P.S. This helps to explain why curtailing the federal tax code’s subsidy for excessive state and local tax burdens was so important.

P.P.S. This is also why federalism is both good politics and good policy.

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Gimmicky Public Policy from Japan

It’s hard to be optimistic about Japan’s economic future, in large part because the burden of government is expanding thanks to an aging population and a tax-and-transfer entitlement system.

Maintaining that approach is a recipe for ever-higher taxes (especially since Japan already has record levels of debt).

And Japanese politicians definitely have been grabbing more money, enabled to a considerable extent by a money-grabbing value-added tax.

To make matters worse, the country’s economy has not enjoyed much growth ever since a bubble burst about thirty years ago.

Sadly, the current prime minister, Fumio Kishida, doesn’t seem to have any sensible ideas for his country.

Instead, as reported by Ben Dooley and Hisako Ueno in the New York Times, he’s latched on to a very silly proposal.

Japan’s prime minister…wants…to…Give…employees a substantial raise. The reasoning is simple. Wage growth has been stagnant for decades in Japan, the wealth gap is widening and the quickest fix is nudging people…to pay their employees more. Higher wages, the thinking goes, will jump-start consumer spending and lift Japan’s sputtering economy. …the prime minister is calling on employers to increase pay as much as 4 percent in 2022. Companies that comply will be allowed to increase their overall corporate tax deductions by up to 40 percent. …Mr. Kishida said…Increasing pay “is not a cost,” he added. “It’s an investment in the future.”

Kishida’s scheme is a bizarre mix of industrial policy and Keynesian economics.

He wants a special loophole in the tax code, but only if companies jump through certain hoops.

All based on the flawed notion that consumer spending drives the economy (it’s actually the economy that drives consumer spending).

Unsurprisingly, the private sector isn’t very impressed by the prime minister’s approach.

Business groups, union leaders and others have questioned the feasibility… That businesses would resist increasing wages even when essentially paid to do so shows just how intractable the problem is. Years of weak growth…have left companies little room to raise prices. …The reaction to the wage proposal is an inauspicious sign for Mr. Kishida, who took office two months ago promising to…put Japan’s economy back on track through a “new capitalism.”

Kishida’s “new capitalism” sounds even worse than some of the gimmicky ideas that have been pushed on the right in the United States (reform conservatism, common-good capitalism, nationalist conservatism, and compassionate conservatism).

From an economic perspective, he needs to learn that sustained higher wages are only possible if there’s more productivity, which translates into more income for both companies and workers.

And that’s not a description of what we find in Japan.

…there is the issue of unprofitability. For nearly a decade, a majority of Japanese businesses have been unprofitable — around 65 percent in 2019, the lowest figure since 2010. They have been kept afloat by cheap money underwritten by the Bank of Japan, but no profits mean no corporate tax liability, so those businesses would not be eligible for Mr. Kishida’s incentives.

The bottom line is that Japan’s political elite has been marching steadily in the wrong direction, and they never seem to learn from previous mistakes.

The government has long tried to find something, anything, to stimulate the economy and push up prices. It has pumped money into financial markets and made borrowing nearly free. But it’s been to little avail…the Japanese government has turned to even larger amounts of stimulus, showering consumers with cash handouts and companies with zero-interest loans. …In 2013, Prime Minister Shinzo Abe introduced a similar plan, with little success. Today, average wages remain stuck at around $2,800 a month, about the same level as two decades ago.

P.S. Part of the problem is that Japanese politicians may be listening to terrible advice from left-leaning bureaucracies such as the International Monetary Fund and Organization for Economic Cooperation and Development.

P.P.S. Here’s another example of a foolish gimmick by Japanese politicians.

P.P.P.S. And let’s not forget that Japan may win a prize for the strangest example of regulation.

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Celebrating the Death of the Evil Empire

There are not many advantages to being old, but I feel lucky to have been alive to see the collapse of the Berlin Wall and the dissolution of the Soviet Union.

We should celebrate this victory over evil every day.

But especially on December 26, which is the 30th anniversary of the Soviet Union’s downfall (the Soviet flag was replaced by the Russian flag on Christmas, but the USSR wasn’t formally dissolved until the following day).

In a column for the American Institute for Economic Research, Doug Bandow writes joyfully about the end of the Soviet Union.

…the Union of Soviet Socialist Republics, which Reagan accurately labeled the Evil Empire…assuredly was evil. …the Evil Empire’s death wasn’t the miracle that occurred three decades ago. The Soviet Union’s peaceful death was. …Reagan was vital. He recognized the USSR as a national Humpty Dumpty, ready for its great fall. Contra the widespread assumption among foreign policy specialists that communism was likely to be with us for years, even decades, Reagan saw weakness, economic, to be sure, but also moral and spiritual. …Gorbachev…kept Red Army troops in their barracks in the breakthrough year of 1989, when the East European “satellites” slipped their orbits. …Poland and Hungary began the cascade. Czechoslovakia and Bulgaria followed more slowly. Most dramatically, the Berlin Wall fell on November 9, 1989, after East Germany’s leadership refused to commit mass murder and mow down protestors. …The Soviet Union staggered along for two more years. The regime increasingly failed to manage the economy. …Three decades ago this month the Evil Empire—created by Vladimir Ilyich Lenin, empowered by Joseph Stalin, dessicated by Leonid Brezhnev, and buried by Mikhail Gorbachev—ended. Disappeared. Collapsed. Vanished. Disintegrated. Failed. And all the misguided intellectuals, venal apparatchiks, and murderous ideologues could not put it back together again. …good people can, and sometimes do, win.

The point about the “moral and economic” weakness of the Soviet Union is probably not sufficiently appreciated.

Reagan pointed out (often using humor) that communism was a moral abomination, not some sort of legitimate competing system (I’d be rich today if I had a dollar for every time some supposed expert asserted that we needed to find a middle ground with communism).

It’s probably not possible to measure the extent to which foundational criticism played a role in the collapse of the Soviet Union, but these excerpts from James Pethokoukis seem very relevant.

December will mark the 30th anniversary of the dissolution of the Soviet Union. …One of the best brief analytical accounts of Soviet Union’s demise is by AEI scholar Leon Aron — a 2011 piece in Foreign Policy, “Everything You Think You Know About the Collapse of the Soviet Union Is Wrong.” …To Aron, the sudden demise of the Soviet Empire is ultimately a story of moral renaissance, an “intellectual and moral quest for self-respect and pride that, beginning with a merciless moral scrutiny of the country’s past and present, within a few short years hollowed out the mighty Soviet state, deprived it of legitimacy, and turned it into a burned-out shell that crumbled… The long-run decline and demise of the Soviet Union is also, of course, a story of the economic failure of socialism and central planning.

While Reagan deserves considerable credit, he wasn’t the only leader to help push the Soviet Union into the dustbin of history.

In an article for Reason, Stephanie Slade discusses the role of Pope John Paul II.

In 1979, less than a year after ascending to the Catholic Church’s highest office, Pope John Paul II returned to his home country, then under communist rule. He disembarked at the airport, knelt, and kissed the Polish ground. That moment was arguably the beginning of the end of the Soviet Union. …While celebrating Mass at Warsaw’s Victory Square, John Paul…said, “that there can be no just Europe without the independence of Poland marked on its map!” It was an astonishing political rebuke to the Soviets, who following World War II had installed communist governments across Eastern Europe that were “independent” in name only. …As the labor organizer and future Polish president Lech Wałęsa put it, John Paul’s pilgrimage “awakened in us, the Poles, the hope for change….I have no doubt that without the pope’s words, without his presence, the birth of Solidarity would not have been possible.” …In 1987, Pope John Paul II made his third pilgrimage to Poland. Independent unions were still outlawed at the time, but that did not stop supporters from hoisting Solidarity banners during a papal Mass attended by some 800,000 people. That same week, Reagan, during a speech at the Brandenburg Gate, intoned: “Mr. Gorbachev, tear down this wall!” Two years later, the Berlin Wall would indeed come down. We often think of that as the first domino to fall in Eastern Europe. But in fact, it occurred a few months after Poland held its first semi-free parliamentary elections. Solidarity claimed 99 percent of the open seats. …The events of the period were a triumph for individual liberty.

I’ve pointed out how a grocery store in Texas also helped bring about the end of the Soviet Union.

A TV show about the same state may have played a role as well. Here are some excerpts from a report in the U.K.-based Sun.

Classic soap Dallas brought down communism in the Soviet Union, Eurythmics star Dave Stewart has claimed. …And the claim comes from an impeccable source — a conversation the songwriter had with former Soviet leader Mikhail Gorbachev in the 1990s. Dave, 68, said: “What ­Gorbachev was saying — it was Dallas, the TV show. …“Somebody managed to get a VHS to work and broadcast it to part of Russia and they thought, ‘Hang on, that’s how people live in America’. “He said that had more effect, that half an hour, than anything else.” …watching such shows was banned behind the Iron Curtain.

For what it’s worth, I don’t think grocery stories and TV shows were quite as important as Reagan and the Pope.

But I think such factors helped to erode the confidence of the communist elite (the bosses who were much more likely to be exposed to the superior economic outcomes in capitalist nations).

Let’s close with a final observation about the failures of the American policy elite.

I’ve previously opined on the glaring inability of some academic economists to understand the inherent flaws of communism. Well, a recent column by George Will contains these amazing observations about a similar blindness by supposed experts inside the U.S. government.

In 1992, Sen. Daniel Patrick Moynihan (D-N.Y.) remembered a warning by CIA Director Allen Dulles (who would become a Washington casualty of the Bay of Pigs) in 1959 that the Soviet Union’s economy was humming so efficiently that by 1970 the gap between the Soviet and U.S. economies would be dangerously narrow. But, then, the 1957 Gaither Commission projected that the Soviet gross domestic product would surpass the U.S. GDP in 1993. (The sclerotic Soviet Union did not live that long.) Moynihan noted that in 1987 the CIA reported that East Germany’s per capita GDP was higher than West Germany’s, an assessment that “any taxi driver in Berlin” could have refuted.

I don’t like majoritarianism, but passages like this are why I’m also not a fan of rule by self-styled experts. But that’s a topic for another day.

The moral of today’s column is that communism was an evil failure.

As epitomized by the Soviet Union, it was an economic failure and a humanitarian failure.

P.S. If you want to learn more about the economic performance of East Germany and West Germany, you can click here.

P.P.S. If you want other examples of how communist economics led to terrible outcomes, you can also compare Czechoslovakia to nations in Western Europe, as well as Cuba vs Chile and North Korea vs South Korea.

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Merry Libertarian Christmas

Very few people are interested in substantive policy analysis on Christmas, so the tradition here is to share some Santa-related libertarian-themed humor.

• 2020: The Ghost of Socialism Past.
• 2019: Santa the Lawbreaker.
• 2018: Christmas videos from Reason.
• 2017: How about an Ayn Rand vs Karl Marx Christmas?
• 2016: A Christmas battle between libertarians and socialists?
• 2015: Or how about Ted Cruz vs Karl Marx on Christmas?
• 2014: Is Santa Claus liberal or conservative?
• 2013: An Obama Christmas, again.
• 2012: An Obama Christmas.
• 2011: Santa in legal trouble.
• 2010: Santa dealing with regulatory hassles.
• 2009: Christmas that celebrates political correctness.

This year, we have two more additions.

First, we have another example of a rogue, law-breaking Santa.

Next, we have every libertarian’s Christmas list.

I tend to be more specific with my Christmas requests.

And sometimes those wishes are granted, but only in a very narrow sense.

P.S. Here’s one of the best-ever Christmas-themed jokes.

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The Economics of Scrooge

Since it’s Christmas Eve, let’s use this opportunity for a holiday-themed economics lesson.

I did a version of this back in 2012 by sharing a remake of Christmas songs. This year, we’re going to look at A Christmas Carol by Charles Dickens.

Let’s start with an analysis of the story from Jacqueline Isaacs.

Many communist and socialist leaders have looked to Dickens as a champion for their cause. Even Karl Marx was a self-professed fan. …many have labeled Dickens a socialist and have used his ever-popular seasonal classic A Christmas Carol, as a condemnation of capitalism and consumerism. …I would challenge anyone…to notice the decidedly non-socialist themes Dickens presents. …First, Dickens never condemns capitalism, decries the success of business owners, nor denounces the trading by which they amassed their wealth. …When the character has gone through his revelatory experience and come out a better man, he does not then become poor. Instead, the new Scrooge uses his wealth to help those around him. …Secondly, Dickens seems to go out of his way to point out the inadequacies of government anti-poverty programs. …If the government takes over the responsibility of caring for the poor, then we will all be Scrooges. …Lastly, Dickens takes a relatively narrow view of community. The New Ebenezer did not set forth to save all of England, but he took care of those needy people whom he encountered every day. …Socialism and communism take very large views of community. They require large numbers of people to participate in the system so that the more productive members of society can fully support the less productive.

Senator Phil Gramm and a former aide, Mike Solon, pointed out in the Wall Street Journal last year that Scrooge may have been an unhappy miser, but his frugality generated benefits for everyone else.

Scrooge is a distilled caricature of a businessman in the Victorian era: a rich, obsessive wealth hoarder. …It does not appear that Dickens seriously considered the possibility that Scrooge and Marley’s business contributed to the common welfare of mankind. Like Scrooge, Marley created and accumulated wealth, leaving it to Scrooge, who continued to invest and accumulate. When Dickens has Scrooge’s nephew say his uncle’s wealth “is of no use to him” because he doesn’t spend it, it is made clear that Dickens never considered who Scrooge’s wealth was useful to. …For all Dickens knew or could envision, the only hope for the poor was charity. Yet unknown to him and his contemporaries, a revolution was beginning at the moment “A Christmas Carol” was published. The Market Revolution, funded by the thrift of Britain’s Scrooges, was already enriching mankind. …the period from 1840-1900 to have been the beginning of a golden age for workers. Wages, stagnant for more than 600 years, exploded during the Victorian era—rising from less than $567 a year in 1840 to $1,216 in 1900 (expressed in 1970 dollars). Life expectancy rose by 20%. Literacy rates soared. …Who then benefited from the accumulated wealth of Scrooge and Marley? First Britain and then all mankind. Since Scrooge and Marley never consumed the wealth they created, its use was a gift to all. It funded the factories and railroads, the tools and jobs that fed and clothed millions of British subjects and then billions around the world. Their unspent wealth was of no use to them, but it was of sublime use to humanity.

Gary North then explains how the thrift of rich people is good for the rest of us, as well as how free enterprise translates self interest into the common interest.

Dickens was living in the second generation after the Industrial Revolution began. Sometime around 1780, an economic revolution like no other in history had begun. It was marked by compound economic growth… The driving force of this revolution was specialization — specialization funded by capital, itself the product of thrift, by double-entry bookkeeping, and by attention to detail. In short, it was men like Ebenezer Scrooge who were the architects of capitalism. …The spread of capital is the basis for men’s increased productivity. The spread of the bookkeeper’s mindset is the basis of net retained earnings, which in turn finance additional capital. Taking care of business reduces poverty as nothing else in man’s history ever has. …without Scrooge and men like him, who are devoted to the details of their businesses, the shops of London would not be filled with cornucopias — at Christmas or all year round. …The heart of capitalism is service to the consumer. In serving the consumer, the producer must pay attention to what the consumer wants, at what price, when, and where. But the same is true of the producers’ attitude toward his employees. They, too, must be served… The free market does not make men good. It does encourage them to serve the consumer. It forces losses on them if they are less efficient in their service than their competitors. The free market society is not a dog-eat-dog world. It is dog-serve-master world. The consumer is the master.

Jerry Bowyer then puts Dickens’ work in context, noting that it could be viewed as a debunking of Malthus.

Thomas Malthus. Malthus’ ideas were still current in British intellectual life at the time A Christmas Carol was written. …What was Dickens really doing when he wrote A Christmas Carol? Answer: He was weighing in on one of the central economic debates of his time… Malthus famously argued that in a world in which economies grew arithmetically and population grew geometrically, mass want would be inevitable. …Jean Baptiste Say…argued on the other hand…that the gains from global population growth, spread over vast expanses of trading, trigger gains from a division of labor which exceed those ever thought possible before the rise of the market order. …If Scrooge has modern counterparts, they’re more likely to be found among those sad, self-sterilizing minimizers of carbon footprints than in the circles of supply-side entrepreneurs. …The debate between Say and Malthus, between Scrooge and the Ghosts, continues to this day. Is the market economy a source of abundance or shortage? Is each new little boy or a girl mostly mouth, or mostly mind? Is it a Say/(Julian) Simon/Forbes/Wanniski/Gilder world, or is it a Keynes/Ehrlich/Krugman/Gore world?

In other words, three cheers for capitalism.

P.S. Another famous character this time of year is George Bailey, the lead character in Frank Capra’s classic, It’s a Wonderful Life.

In a 2019 column for the Wall Street Journal, Gramm and Solon highlight the film’s main economic lesson.

The film’s antagonist is the banker Henry Potter (Lionel Barrymore), who epitomizes the Democrats’ caricature of unredeemable capitalism. Peter Bailey (Samuel Hinds) defends capitalism in an often overlooked dialogue when he asks his son George (Jimmy Stewart) to join his building-and-loan business. …George…wants no part of “this business of nickels and dimes and spending all your life trying to figure out how to save 3 cents on a length of pipe.” His father, being older and wiser, responds: “I feel that in a small way we are doing something important. Satisfying a fundamental urge. It’s deep in the race for a man to want his own roof and walls and fireplace, and we’re helping him get those things in our shabby little office.” By squeezing nickels and dimes, the Baileys made limited resources and labor go further, producing “dozens of the prettiest little homes you ever saw, 90% owned by suckers who used to pay rent” to old Potter. …Peter Bailey’s insight reflects a vision originating in the Enlightenment, which set people free to promote their interest, and in the process, through Adam Smith’s invisible hand, promote the interests of mankind. …Capitalism alone respects life’s greatest gift: the freedom to choose how you live your life, where you discover meaning, and what you sacrifice for.

P.P.S. If you still need to do some last-minute shopping, here’s a gift for your left-wing friends, another for your right-wing friends, and a lot of options for your libertarian friends.

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(Pathetic) Politician of the Year

Senator Elizabeth Warren is a particularly noxious politician.

It’s not just that she’s a doctrinaire leftist on a wide range of issues (class warfare, corporate governance, government spending, business taxation, cronyism, wealth taxation, Social Security, IRS funding, etc).

She’s also a fraud, having falsely claimed Indian ancestry to get hired and promoted at law schools.

And she’s a hypocrite as well, opposing school choice while utilizing private education for her offspring.

Not to mention supporting higher taxes, but then failing to participate in a Massachusetts program that enables people to voluntarily pay extra.

In other words, a political hack with no redeeming qualities.

So I was greatly amused to see that Elon Musk has responded to some her demagoguery with some very clever Twitter responses.

For those unfamiliar with the term, a “Karen” is an intrusive, annoying, and officious woman who likes to control other people’s lives.

But, as you can see, she tried to pick on someone who doesn’t feel any need to kowtow to a politician.

By the way, I’m not sharing this because I’m a knee-jerk advocate for Musk.

Yes, he’s obviously a great entrepreneur, but I don’t like the fact that he’s also benefited from some cronyism.

But let’s get back to satire.

The Babylon Bee had some fun with the Musk-Warren feud.

In a heated exchange on Twitter, a powerful white man viciously attacked Elizabeth Warren—a noble Cherokee squaw and Senator from Massachusetts. “This violent verbal attack on me was literally a hate crime,” said Warren… “The white man continues to oppress my people by resisting the government’s efforts to tax them into oblivion and waste all their money on spending bills that we write to pay off our campaign donors. This basically makes him a freeloader.” The white attacker—named Elon Musk—simply responded with cruel memes showing Elizabeth Warren wearing eagle feathers and war paint to mock her proud heritage.

And since we’re sharing humor from Babylon Bee, this story from 2019 also pokes fun at her penchant for mis-characterizing her background.

Elizabeth Warren has begun sharing stories illustrating the hardship and discrimination she’s faced. Recently, she revealed a particularly tough time back in the early ’70s when she lost a teaching job because her fake mustache had fallen off, revealing she was, in fact, a woman… “It was tough for a woman back then,” Warren said at a campaign stop. “You had to wear fake facial hair and talk in a deep voice, or people would fire you.” …Warren says things have improved for women since, but they could still be better. To help the situation, she announced a plan to fund R&D for an adhesive that will easily keep mustaches in place all day.

Let’s conclude with this very amusing meme that tells you everything you need to know about the winner of the feud.

P.S. I have some Warren humor in the archives, including this extension of her class warfare philosophy and this collection of memes about her ancestry fraud.

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(Reprehensible) Politician of the Year

I’ve written before that Connecticut should change its motto from the Nutmeg State to the Taxnut State.

And if you want an example, consider that Democrats in one town ran for reelection (successfully!) using the slogan “Lowest tax increase in 10 years.”

Maybe there’s something in the water that produces terrible politicians. Consider, for instance, this bit of state-worship from one of the state’s Senators, Chris Murphy.

That’s a despicable sentiment, but Sen. Murphy may actually be decent and rational compared to Connecticut’s other Senator.

Richard Blumenthal actually took part in an event with the Communist Party. I’m not joking. Click on Phil Kerpen’s tweet.

Some highlights of Democratic Senator Richard Blumenthal and his introducer at the Connecticut People’s World Committee, an affiliate of Communist Party USA. pic.twitter.com/w5CvV7tGzy

— Phil Kerpen (@kerpen) December 15, 2021

At the risk of understatement, this is disgusting. Communism is responsible for 100 million deaths and mass impoverishment of hundreds of millions more.

It spawned one of the world’s most evil nations, the Soviet Union, and it continues to produce misery today in barbaric regimes such as North Korea and Cuba.

I’m not the only one to be nauseated. Writing for the Washington Examiner, Quin Hillyer explains why Blumenthal’s participation should be viewed as unacceptable.

Democratic Sen. Richard Blumenthal of Connecticut spoke at a Dec. 11 awards ceremony for the Connecticut affiliate of Communist Party USA. …Blumenthal pronounced himself “really excited and honored to be with you today” while presenting the group’s chosen award winners with special certificates of recognition… Throughout the event, including in the introduction of Blumenthal himself just 60 seconds before the senator took the microphone, the two co-hosts repeatedly celebrated their Communist Party affiliation and urged listeners to join the Communist Party. …In any rational, morally decent media world, this would be a big scandal. …This is not some warm-and-fuzzy, well-intentioned (even if slightly impractical) affiliation. The Communist Party USA repeatedly tried to subvert constitutional democracy and spy on the U.S. government while deliberately and regularly colluding with the Soviet Union. …There is absolutely no moral difference between consorting with a Communist Party affiliate and consorting with a white supremacist or neo-Nazi one. The record of international communist cruelty is indisputable, with its 100 million deaths far exceeding (in number) the genocidal effects of Nazism. …There is nothing remotely defensible in Blumenthal’s enthusiastic participation in the event. His actions were morally depraved.

Amen.

In the past, my “Politician of the Year” award has been somewhat satirical. I’ve highlighted politicians who are mostly guilty of stereotypical sins.

• Special privileges.
• Entitlement mentality.
• Impressive corruption.
• Uncharacteristic honesty.
• Taxpayer-funded vanity.

Senator Blumenthal belongs in a special category, one that merits disgust and disdain.

P.S. It’s quite likely that the Senator was a victim of bad staff work. Some aide or campaign flunky probably booked the event and didn’t conduct the 5 minutes of background work that would have been needed to find the red flags (no pun intended). That being said, he should have walked out of the event when the women who preceded him (and introduced him!) was pimping for the Communist Party.

He gave aid and comfort to an evil, repugnant, and despicable ideology.

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Chile Election Week, Part VI: Wrecking the Constitution?

Now that a socialist has been elected (with open support from the Communist Party), what comes next for Chile?

Lots of bad policy, for sure, but Axel Kaiser warns that the left also wants to replace the country’s pro-liberty constitution.

Axel, who is President of Fundación para El Progreso and also a Senior Fellow for the Atlas Center for Latin America, just scratches the surface in this short video. He told me that there are many other desirable provisions, including school choice.

So it shouldn’t be surprising that the left in Chile is so determined to replace it with a document that empowers politicians.

I wrote about this issue last year, citing experts (including folks on the left) who all agreed that giving politicians new powers over the economy was the clear purpose of a new constitution.

This is basically a fight about whether to replace rights with entitlements (or, in the language of philosophers, whether to replace “negative rights” with “positive rights”).

By the way, there’s research showing that a society based on liberties is the best way of generating the prosperity needed for higher living standards (i.e., the access to goods and service that proponents of positive rights claim to support).

And, earlier this year, I showed how that works conceptually.

But you don’t need empirical research or theoretical analysis. Just open your eyes and look around the world. The nations based on socialism and so-called positive rights have produced economic misery and deprivation.

By contrast, there’s a much better track record – especially for ordinary people – in countries where government plays a smaller role.

It’s tragic that Chilean voters chose the redistribution approach in Sunday’s election. If they opt for a new constitution next year, the nation will be doomed.

P.S. By the way, here are some excerpts from today’s Wall Street Journal‘s editorial about the election.

Latin America, or much of it, is moving to the populist left, and Chile became the latest example by electing socialist Gabriel Boric… He’s the most leftist politician to win in Chile since Salvador Allende in the 1970s. His major theme was reducing economic inequality, which he proposes to do through state power. Mr. Boric wants to raise taxes, eliminate the country’s highly successful private pension system and increase government spending and regulation. He supports the constituent assembly now rewriting the constitution, and his goal is to give government more control over just about everything. …Foreign investors and Chileans with money and property are nervous. From the end of 2019—when the left launched riots demanding a new social contract—until August 2021, Chile’s central bank says some $50 billion (15% of Chilean GDP) fled the country. About half was investment capital and half from businesses and households. …on Monday the Chilean peso fell 2% against the U.S. dollar while the broader stock market plunged 10%. …The world is watching closely to see if the new president will…take Chile in the direction of such failing Latin states as Argentina or Peru, or worse.

Amen.

The best case scenario is that Chile is copying Argentina. The worst case is that it is copying Venezuela.

P.P.S. There was a president in the United States who wanted to remake society on the basis of “positive rights.” Fortunately, he did not succeed.

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Chile Election Week, Part V: Another “Leftist Savior”

I warned a few days ago that Gabirel Boric would be bad news if he won Chile’s presidential election. Well, he won, and now we’re going to find out whether he will repeal the policies that made the country successful.

He definitely seems to be another “leftist savior,” as described in this video.

At best, Chile has elected someone as bad as Kirchner in Argentina.

The worst-case scenario is that Boric will be an utter disaster, like Chavez or Maduro from Venezuela.

If you want more details about the election results, Las Últimas Noticias put together this helpful graphic.

I had predicted a 54-46 Boric victory, but these results are even worse.

But what’s really depressing is that Latin America – and the world – is going to lose a role model.

Chile was already declining because of the soft leftism of two recent presidents, Michelle Bachelet and Sebastián Piñera, and it seems almost certain that this degeneration will accelerate as Boric pushes a hard-left agenda.

I’m especially worried about damage to the nation’s system of personal retirement accounts.

I’ll close with a personal observation that people sometimes challenge me to point out successful libertarian nations.

I have traditionally responded by stating that there’s no such thing as a pure libertarian country, but that we have some great success stories if we focus on comparative policy.

Sadly, I can’t really use Hong Kong as an example any more, and now it looks like I’ll have to drop Chile off my list. So my fingers are crossed that nothing bad happens to Switzerland, Estonia, New Zealand, or Singapore!

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Chile Election Week, Part IV: What’s at Stake in Today’s Vote?

Greetings from Santiago. Chileans vote today for a new president and there’s a risk that a Venezuelan-style leftist, Gabriel Boric, will prevail.

And that puts at risk the economic progress described in this video.

The video has a good discussion of Chile’s very successful system of private pensions (which will be in danger if Boric wins).

But it also points out how free trade helped create the prosperity of modern Chile.

And that narrative is confirmed by looking at Chile’s score from the Fraser Institute’s Economic Freedom of the World.

I’m always happy to sing the praises of free trade and condemn protectionism, but let’s keep the focus on today’s election in Chile and why it matters.

That’s why this tweet tells you everything you need to know.

Notice how Chile began to prosper after it began to shift to free markets around 1980 and notice how Venezuela began to fall after it shifted to statism starting around 2000.

Chile and Venezuela. Two countries with very different economic trajectories in recent decades. This animation shows per capita income from 1970 to 2017. Source: https://t.co/XzW3Xhtig4 pic.twitter.com/EWGhMIAMKB

— Simon Kuestenmacher (@simongerman600) February 26, 2020

Notwithstanding all this evidence, Boric is favored to win today’s election. Which would be a vote for national economic suicide – perhaps akin to the British people voting for the pro-nationalization Labour Party after World War II (described in this video, for those interested).

I hope I’m wrong, both about the results of the election and the potential changes to economic policy if Boric prevails.

P.S. If you’ve enjoyed my Chilean election coverage, I did the same thing a couple of years ago in the United Kingdom (see here, here, here, here, and here).

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Chile Election Week, Part III: Death Knell for the Private Pension System?

One reason I’m interested in Chile’s election is that the leftist candidate, Gabriel Boric, wants to eviscerate the nation’s successful private pension system.

Bettina Horst of Libertad Y Desarrollo gave me her analysis.

As an economist and Executive Director of the nation’s pro-market think tank, Ms. Horst understands that Chile’s system has helped workers by giving them real ownership of real assets.

And that’s much better than “pay-as-you-go” systems, like we have in the United States.

Chile’s private retirement accounts have enabled workers to build nest eggs, and the system has also provided a valuable source of capital for the nation’s economy.

So why would Chile’s voters consider a candidate like Boric, who wants to wreck that system?

We’ll find out Sunday night after the votes are counted, but a Boric victory would indicate that Chile’s workers decided to trust the free-lunch promises of a politician.

In a column earlier this year for the Wall Street Journal, another Chilean weighed in on this issue.

Axel Kaiser of the Atlas Research Network wrote that the left has a (long-standing) ideological agenda.

In 1981 Chile became the first country to privatize social security, ending the pay-as-you-go system that had been in place since 1924 and had collapsed. Now Chile’s left wants to resurrect it. …Last year a group of senators even introduced a bill to nationalize the pension funds, as Argentina did in 2008. An expropriation of workers’ savings looks increasingly likely, as the radical left dominates Chile’s recently elected constitutional convention. “The destruction of the AFP system is under way,” a far-left lawmaker recently said. …The attack on the AFP system is all about ideology and power. …Its destruction has long been a goal of the radical left. With the AFP out of the picture, politicians will recover the power they once had over retirees.

That’s Mr. Kaiser’s political analysis.

His column also includes some analysis of the economic benefits of the private system.

The state-run pension system was plagued by corruption and rent-seeking… Pension privatization reversed this perverse dynamic. Instead of taxing active workers to pay pensioners through the bureaucracy, the new system, created by former Labor Minister José Piñera, established that 10% of the employee’s salary is transferred automatically to an account under his name at one of the Administradoras de Fondos de Pensiones, or AFP. These private pension funds compete to attract workers and invest their pensions for a fee. …By subsequently relying on workers’ own savings to fund their pensions instead of taxing younger workers, privatization of social security ended dependency across generations. …Average pensions are also 41% higher in the AFP system than in the old one, according to the Libertad y Desarrollo research center, even as workers contribute a smaller fraction of their salaries. Between 1981 and 2019, the savings accumulated in workers’ accounts at the AFP reached $218 billion, or around three-quarters of GDP. About 70% of these funds weren’t contributions made by workers but profits generated for them by AFP investments. This accumulation of capital contributed an extra 0.5% of GDP a year to economic growth between 1981 and 2001.

As mentioned in the column, Jose Pinera created Chile’s system of personal retirement accounts.

You can click here to see him describing the case for private accounts, both in Chile and the United States.

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Chile Election Week, Part II: The Threat of Boricnomics

I explained a few days ago that Sunday’s presidential runoff in Chile should be viewed as the most important election of 2021.

This is because the left’s candidate, Gabriel Boric, wants to turn Chile into Venezuela, as I mention in this radio interview with Ross Kaminsky.

For some reason, you only hear my voice during this Zoom discussion, which means I don’t even have a face good enough for radio.

But let’s set aside that technical glitch and focus on Mr. Boric’s agenda.

Here’s a flyer that a campaign worker gave me as I was walking around Santiago yesterday.

It’s in Spanish, but one of my Chilean friends translated. Here are Boric’s economic proposals.

• Government-run health care (not a good idea).
• Repealing the private pension system (not a good idea).
• 40-hour work week (not a good idea).
• Higher minimum wage (not a good idea).
• Industrial policy (not a good idea).

There was one attractive proposal. He’s proposing to cut the pay of politicians. But that will yield trivial savings if it happens and the odds of it actually happening are laughably small.

Also, he says he wants to fight crime, which is good (in theory).

His worst idea, though, is not on this flyer. If you go to his website, you’ll find this passage in his economic plan (as translated by Google): “The tax reform will collect on the order of 8% of GDP under the regime.”

He is not overly specific on how he will collect so much additional money, but the website mentions higher income taxes, green taxes, and the imposition of a wealth tax.

All of which sounds like a recipe to drive entrepreneurs and investors (and/or their money) out of the country.

To understand the radical nature of his plan, tax revenues in Chile currently grab about 21 percent of the country’s economic output according to the OECD – so Boric is advocating a 38-percent increase.

By comparison, Biden’s tax plan in the U.S. is awful, but he’s “only” proposing a 4-percent increase in the tax burden (about 1 percent of GDP).

P.S. Since Ross and I were comparing Argentina and Chile, here’s a chart I put together using the Maddison database.

P.S. Given that Chile’s free-market reforms have been especially beneficial to poor people (see here, here, here, and here), I wonder if they understand how Boric’s election would threaten their upward mobility.

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Net Neutrality and a Lesson about Regulation

If you’re a policy wonk, you’ll enjoy this history of how government regulation has hindered the development of telecommunications technology.

I want to focus on the part of the video, beginning about 30:00, which discusses “net neutrality.” The interview with Professor Hazlett took place in 2017, at a time when there was lots of fighting over this issue.

The pro-regulation crowd claimed that net neutrality was needed to protect consumers from slow and expensive service. And they made all sorts of ridiculous claims about the Trump Administration’s plans to get rid of the Obama-era regulation.

At the time, this tweet from the Democratic members of the U.S. Senate got a lot of attention.

So what actually happened after net neutrality was repealed?

I suppose the first question to answer is:

Did..

…the…

…Internet…

…slow…

…to…

…a…

…crawl?

Not exactly. Robby Soave gives us the details in a column for Reason. He starts with some background information.

Exactly four years ago, the Federal Communications Commission (FCC) repealed the internet regulation known as net neutrality, which had forced internet service providers (ISPs) to treat all content identically in terms of download and streaming speeds, for instance. Since the popular policy had come into existence during the Obama administration, and was gutted during President Donald Trump’s term, its demise was treated as the end of the internet as we know it by panic-stricken #resistance liberals. …The term net neutrality was coined by law professor Tim Wu in 2006; his big idea was that the government needed the power to restrict ISPs’ ability to offer different levels of service to different customers. …Wu cautioned that without rules requiring internet service providers to treat all traffic and content equally, the internet as we had come to know it would cease to exist.”

And here are the results.

Today, the internet is still here, and still functioning properly. Expectations that ISPs would practice widespread and improper discrimination did not pan out. On the contrary, the internet is better and faster for basically everybody than it was when net neutrality ended—in fact, it’s better and faster than at any point in the past. …Foes of net neutrality were clearly correct that the internet didn’t need the government to save it, and absent federal direction and regulation, everything is fine.

The moral of the story is that we experienced a major test of regulation vs. deregulation. And we’ve learned that the advocates of red tape were wildly wrong and the supporters of free enterprise were exactly right.

That’s a lesson we can apply to all sorts of other issues involving government intervention (housing subsidies, financial markets, fisheries, organ transplants, labor markets, etc, etc).

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The Two Most Important Things to Understand about Biden’s Budget

The fight over President Biden’s budget, the so-called Build Back Better plan, has revolved around very important issues.

• The adverse impact of expanding the welfare state, particularly the per-child handouts.
• The anti-growth effect of higher tax rates on work, entrepreneurship, saving, and investment.

For today’s column, let’s zoom out and look at two charts that highlight the big issue that should be getting more attention.

First, here’s a comparison of projected inflation with baseline spending (the current spending outlook) and Biden’s budget – all based on economic and fiscal estimates from the Congressional Budget Office.

As you can see, spending was growing far too fast even without Biden’s budget. And if Biden’s budget is enacted, the spending burden will rise more than twice the rate of inflation.

Now let’s look at a chart that illustrates why Biden’s spending spree is just a small part of the problem.

To be sure, it’s not good that the President is exacerbating America’s fiscal problems, but you can see that he’s simply adding a few more straws to the camel’s back.

You’ll also notice that I included both the amount of spending that technically is in Biden’s budget plan (the orange part), as well as CBO’s estimate of the additional spending (the gray part) that will happen if the budget gimmicks are removed.

The bottom line is that America’s fiscal problem is too much government spending.

And that spending burden is getting worse over time because spending is growing faster than the private sector, violating the Golden Rule, which is bad news for jobs and growth.

Making the problem worse, as Biden proposes, will further hurt American prosperity.

P.S. Biden’s plan will increase the deficit, which also is not good, but keep in mind that tax-financed spending is no better than debt-financed spending. In either case, you wind up with the same bad result.

P.P.S. This column has two serious visuals to help understand Biden’s fiscal policy. If you prefer satire, here are two other images.

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The Most Important Election of 2021

If you want visual proof of Chile’s “improbable success,” this chart tells you everything you need to know.

Thanks to free-market reforms in the 1980s and 1990s, growth exploded, Chile became the Latin Tiger and poverty plummeted.

It’s remarkable how quickly per-capita GDP has increased compared to the average of other major Latin American economies (Argentina, Bolivia, Brazil, Colombia, Ecuador, Mexico, Peru, Paraguay, Uruguay, and Venezuela).

Some folks on the left (including editors at the New York Times) bizarrely think Chile’s “neoliberal experiment” has been a failure. Given their upside-down perspective, they probably think Venezuela is a smashing success.

But today’s column is not about what’s happened in the past. It’s about what may happen in the future because of an upcoming presidential election.

Let’s start with this article from the Economist, which expressed concern back in November that the first round of the presidential election would lead to a stark ideological choice between the hard left and hard right.

…stable Chile disappeared two years ago, in an explosion of massive and sometimes violent protests…In a vote for the constitutional convention in May (in which only 43% turned out), support surged for the hard left while drying up for mainstream parties. As a result, the convention has become a theatre of wokeness, with calls to wage war against pivotal industries…, alongside…for a bigger role for the state in pensions, health care and green regulation. …pessimists fear a Utopian list of unaffordable rights and anti-capitalism. …Gabriel Boric, the candidate of the hard left, has seemed poised to win the presidential election. A former student leader, …some of his allies…include the Communist Party… Mr Boric wants to expand tax revenues by 8% of gdp over six to eight years (impossible, say many economists) and review trade agreements in order to engage in industrial policy. …That is why support has grown for José Antonio Kast of the hard right. …Whereas Mr Boric promises the most left-wing government since the chaotic Socialist-Communist administration of Salvador Allende, Mr Kast offers the most right-wing one since the dictatorship of General Augusto Pinochet.

Sure enough, the November election put Boric and Kast in a runoff, which is scheduled for December 19.

I don’t know if it would be accurate to say this is akin to a hypothetical Rand Paul-Bernie Sanders contest, but a report in the Wall Street Journal suggests that are very big economic implications.

After years of protests and political upheaval that seemed certain to shift Chile’s politics sharply to the left, voters in the first round of a presidential election largely backed candidates who support the country’s free-market economy… More than half of the ballots in the Sunday vote went to three right-wing candidates who support the market economy, led by first-place finisher José Antonio Kast with 28% of the vote. Gabriel Boric, the leftist candidate who backs dismantling a private pension system and creating a state-run lithium company, finished second with 26% of the votes… “People didn’t buy the idea that Chile needs to dismantle the market-friendly model, they just want a stronger social safety net,” said Patricio Navia, a Chilean political scientist at New York University. …The future of Chile’s once-lauded economic model that bolstered foreign trade and slashed poverty over the last three decades has been in doubt since mass protests erupted two years ago… Mr. Kast, a 55-year-old former lawmaker…, says he is a democrat who is offering Chileans economic prosperity and freedom.

By the way, the presidential election isn’t the only big thing that’s about to happen in Chile.

The article also acknowledges something I wrote about last year, which is the possibility of a new constitution based on entitlements rather than liberties (i.e., positive rights vs negative rights).

The election is being held as a special assembly made up of mainly leftist delegates is writing a new constitution, which could weaken investor protections and expand social rights. The constitution is expected to be finished next year when it will be put to a referendum.

A Washington Post column published yesterday by Professor Michael Albertus summarizes what’s at stake.

Chile’s presidential runoff election on Dec. 19 is the country’s most important election since its return to democracy in 1990. …Chile’s election pits José Antonio Kast, a bombastic far-right politician whom many liken to Donald Trump and Jair Bolsonaro, against Gabriel Boric, a far-left lawmaker and former student organizer. …The stakes couldn’t be higher. Chile’s ongoing constitutional convention is poised to propose next year the biggest overhaul to the country’s political system since the Pinochet dictatorship.

Prof. Albertus points out that the election isn’t just about economics.

There are big fights about immigration, law and order, abortion, and indigenous rights.

For those of us who care a lot about prosperity, Mary Anastasia O’Grady of the Wall Street Journal opined two days ago on the implications of Chile’s upcoming choice.

The stakes are high in Chile’s Dec. 19 runoff presidential election pitting the free-market former Congressman José Antonio Kast against socialist Congressman Gabriel Boric. The country has been trending left for years. But Mr. Kast’s surprise first-place finish in the election’s first round—with 28% of the vote—and the center-right’s strong showing in legislative elections suggests that Chileans are reconsidering national suicide. …If the vote goes left, Chileans can expect policy geared toward greater redistribution of the existing wealth-and-income pie—higher taxes, nationalization of pensions, populism, etc. If the vote goes right, there will be a chance to restore the fast growth of the 1990s by deepening the liberal economic agenda. …there’s something much bigger at stake. That is the survival of the democratic institutions protecting the pluralism, property rights and public order that have made Chile one of Latin America’s richest countries. Mr. Boric is backed by a coalition—Approved Dignity—heavily influenced by the Communist Party and other hard-left groups. …If Mr. Boric wins the runoff, you can bet they will demand their pound of flesh.

Ms. O’Grady’s column notes that Chile’s free-market reforms dramatically reduced poverty (for more details, see here, here, and here).

The market economy has been enormously successful in Chile. The share of Chileans living in poverty fell to 8.6% in 2017 from 68.5% in 1990, according to official data. Extreme poverty over the same period dropped to 2.3% from 48.8%. It’s a development record that few countries in the world have achieved.

Last but not least, she makes a very important point that Chile’s recent performance has not been very impressive.

…the clamor for change isn’t irrational. According to Chilean economist and investor José Luis Daza, …In the five years before the pandemic in 2020, the country grew at an average annual rate of 1.9%, less than half that of the world economy. “After 2000,” he told me in a phone interview from Santiago last week, “there has been zero productivity growth. In fact, it has been marginally negative.” …It was in the midst of this economic malaise in October 2019 that extreme-left militants burst onto the scene in Santiago. …Mr. Daza recently put his work in New York on hold to join Mr. Kast’s economic advisory team with a focus on growth.

I’m not surprised. There has not been any meaningful pro-growth reform this century. Indeed, the opposite is true. Policy has actually drifted in the wrong direction.

But if Boric wins this weekend, a drift in the wrong direction could become a tidal wave, washing away the Chilean Miracle.

The last thing Latin America needs is another Venezuela. Milton Friedman will be rolling over in his grave.

P.S. I’m especially concerned that a victory for the left could lead to the repeal of some of Chile’s best policies, including social security personal accounts and nationwide school choice.

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School Choice: A Win-Win for Students and Taxpayers

I wrote two days ago about how the Supreme Court will be ruling in the next few months on a very important school-choice case, involving whether state and local governments should be allowed to discriminate against religious schools.

As part of that column, I mentioned that “government school systems cost a lot of money and do a bad job.”

Some readers emailed me and expressed disbelief. The common message was that private schools surely had to be more expensive.

There are some very costly private schools, to be sure, but the data clearly show that government schools, on average, consume a lot more money.

I want to build on this message today by calling everyone’s attention to a great report by Martin F. Lueken of edChoice.

Here are some of the key findings from the executive summary.

This study estimates the combined net fiscal effects of each educational choice program on state and local taxpayers… Through FY 2018, the 40 educational choice programs under study generated an estimated $12.4 billion to $28.3 billion in cumulative net fiscal savings for state and local taxpayers. This range represents $3,300 to $7,500 per student participant. …Educational choice programs generated between $1.80 to $2.85 in estimated fiscal savings, on average, for each dollar spent on the programs. These savings result from many of the students who exercised choice who would have been enrolled in a public school if these choice programs did not exist—and enrolled in public schools at a much larger taxpayer cost.

The report is packed with lots of data, including state-by-state estimates of how different choice programs save money.

But if you’re going to digest one set of numbers, Figure 4 tells you just about everything you need to know.

And remember, when you look at these cost comparisons, that private schools produce better outcomes, as measured by student achievement.

P.S. Here’s a must-see chart showing how more and more money for the government school monopoly has produced zero benefit.

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Statism Government in Pictures

Big government is not good news, assuming you value liberty and prosperity.

But at least it’s good for a few laughs, as we saw in January, twice in May, and July. So let’s squeeze in a few more examples before the year ends.

Our first item today is for people who like being misled.

On a related note, we have a way for pathologists to identify those people after they’re dead.

Now let’s shift from pathologists to historians.

Ah, yes, the slippery slope.

Our fourth item is a visual depiction of Mitchell’s Law.

Per tradition, I’ve saved the best for last.

It’s not just the lettering on the door, it’s also the door not going down to the floor and the upside-down “Watch your step” sign.

Yes, this is satire, but you’ll see it’s not that far from the truth if you peruse my “Great Moments” columns.

Remember, if government is the answer, you’ve asked a very strange question.

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Another Case Study Comparing the Private Sector and Government

I periodically look at issues (social security, education, infrastructure, TSA, etc) to compare the private sector and the public sector.

This new video from John Stossel gives us another example.

The video reminds us that incentives matter.

Normally, the private sector does a better job then government because of competition. More specifically, profit-seeking companies fight for our dollars by offering goods and services based on quality and/or price.

But even when competition isn’t a big factor – such as the operation of a park, we can see how the private sector produces superior outcomes.

The surrounding businesses benefit if there is a clean and safe park. So when they actually got the authority to run the park, they put in place effective policies.

People in government are not opposed to clean and safe parks, of course, but they often make decisions on the basis of political factors (rewarding certain contractors, providing patronage jobs, etc).

The net result is that government involvement is a bad recipe for higher costs and poor performance (click here for another example from New York City).

P.S. The superiority of the private sector is a big reason to reject industrial policy. As shown in this video, we get better results when businesses focus on attracting customers, not attracting subsidies.

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Educational Choice, the Supreme Court, and a Level Playing Field for Religious Schools

The case for school choice is very straightforward.

• Monopoly government school systems cost a lot of money and do a bad job. The interests of the education bureaucracy rank higher than the educational needs of kids. Poor families are especially disadvantaged.
• School choice puts parents in charge. Lots of evidence, including from overseas, shows choice improves educational outcomes. And private schools cost less, so taxpayers also win.

The good news is that there was a lot of pro-choice reform in 2021.

West Virginia adopted a statewide system that is based on parental choice. And many other states expanded choice-based programs.

But 2022 may be a good year as well. That’s because the Supreme Court is considering whether to strike down state laws that restrict choice by discriminating against religious schools.

Michael Bindas of the Institute for Justice and Walter Womack of the Southern Christian Leadership Conference make the case for a level playing field in a column for the New York Times.

In 2002, the Supreme Court held that the Constitution allows school choice programs to include schools that provide religious instruction, so long as the voucher program also offers secular options. The question now before the court is whether a state may nevertheless exclude schools that provide religious instruction. The case, Carson v. Makin, …concerns Maine’s tuition assistance program. In that large and sparsely populated state, over half of the school districts have no public high schools. If a student lives in such a district, and it does not contract with another high school to educate its students, then the district must pay tuition for the student to attend the school of her or his parents’ choice. …But one type of school is off limits: a school that provides religious instruction. That may seem unconstitutional, and we argue that it is. Only last year, the Supreme Court, citing the free exercise clause of the Constitution, held that states cannot bar students in a school choice program from selecting religious schools when it allows them to choose other private schools. …The outcome will be enormously consequential for families in public schools that are failing them and will go a long way toward determining whether the most disadvantaged families can exercise the same control over the education of their children as wealthier citizens.

The Wall Street Journal editorialized on this issue earlier this week.

Maine has one of the country’s oldest educational choice systems, a tuition program for students who live in areas that don’t run schools of their own. Instead these families get to pick a school, and public funds go toward enrollment. Religious schools are excluded, however, and on Wednesday the Supreme Court will hear from parents who have closely read the First Amendment. …Maine argues it isn’t denying funds based on the religious “status” of any school… The state claims, rather, that it is merely refusing to allocate money for a “religious use,” specifically, “an education designed to proselytize and inculcate children with a particular faith.” In practice, this distinction between “status” and “use” falls apart. Think about it: Maine is happy to fund tuition at an evangelical school, as long as nothing evangelical is taught. Hmmm. …A state can’t subsidize tuition only for private schools with government-approved values, and trying to define the product as “secular education” gives away the game. …America’s Founders knew what they were doing when they wrote the First Amendment to protect religious “free exercise.”

What does the other side say?

Rachel Laser, head of Americans United for Separation of Church and State, doesn’t want religious schools to be treated equally under school choice programs.

Here’s some of her column in the Washington Post.

…two sets of parents in Maine claim that the Constitution’s promise of religious freedom actually requires the state to fund religious education at private schools with taxpayer dollars — as a substitute for public education. This interpretation flips the meaning of religious freedom on its head and threatens both true religious freedom and public education. …The problem here is even bigger than public funds paying for praying, as wrong as that is. Unlike public schools, private religious schools often do not honor civil rights protections, especially for LGBTQ people, women, students with disabilities, religious minorities and the nonreligious. …If the court were to agree with the parents, it would also be rejecting the will of three-quarters of the states, which long ago enacted clauses in their state constitutions and passed statutes specifically prohibiting public funding of religious education. …It is up to parents and religious communities to educate their children in their faith. Publicly funded schools should never serve that purpose.

These arguments are not persuasive.

The fact that many state constitutions include so-called Blaine amendments actually undermines her argument since those provisions were motivated by a desire to discriminate against parochial schools that provided education to Catholic immigrants.

And it’s definitely not clear why school choice shouldn’t include religious schools that follow religious teachings, unless she also wants to argue that student grants and loans shouldn’t go to students at Notre Dame, Brigham Young, Liberty, and other religiously affiliated colleges.

The good news is that Ms. Laser’s arguments don’t seem to be winning. Based on this report from yesterday’s Washington Post, authored by Robert Barnes, there are reasons to believe the Justices will make the right decision.

Conservatives on the Supreme Court seemed…critical of a Maine tuition program that does not allow public funds to go to schools that promote religious instruction. The case involves an unusual program in a small state that affects only a few thousand students. But it could have greater implications… The oral argument went on for nearly two hours and featured an array of hypotheticals. …But the session ended as most suspected it would, with the three liberal justices expressing support for Maine and the six conservatives skeptical that it protected religious parents from unconstitutional discrimination.

I can’t resist sharing this additional excerpt about President Biden deciding to side with teacher unions instead of students.

The Justice Department switched its position in the case after President Biden was inaugurated and now supports Maine.

But let’s not dwell on Biden’s hackery (especially since that’s a common affliction on the left).

Instead, let’s close with some uplifting thoughts about what might happen if we get a good decision from the Supreme Court when decisions are announced next year.

Maybe I’m overly optimistic, but I think we’re getting close to a tipping point. As more and more states and communities shift to choice, we will have more and more evidence that it’s a win-win for both families and taxpayers.

Which will lead to more choice programs, which will produce more helpful data.

Lather, rinse, repeat. No wonder the (hypocritical) teacher unions are so desperate to stop progress.

P.S. There’s strong evidence for school choice from nations such as Sweden, Chile, and the Netherlands.

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Counter-Tweet of the Year: Crushing the Inequality Narrative

I have a four-part series (here, here, here, and here) that explains why it’s much better to focus on fighting poverty rather than fretting about inequality.

I also think that our friends on the left who fixate on inequality are mostly motivated by an ideological desire for bigger government (or an ideological desire to hurt the rich).

Helping the less fortunate seems to be – at best – a secondary concern for them.

But let’s not worry about deciphering their real motives and instead look at why their approach is misguided.

Here’s a tweet from Gabriel Zucman, who (along with Thomas Piketty) is one of the most widely cited crusaders for class-warfare policy.

He is upset that the richest people in the world earn a lot more than the poorest people, and he obviously wants people to view these numbers as scandalous (and, with a reference to colonialism, maybe even subliminally racist).

If the economy was a fixed pie, maybe there would be something scandalous in Zucman’s data, but that’s not the case.

What we’re really seeing in these numbers is that some nations in the 1800s got much richer thanks to capitalism, and that meant their citizens enjoyed much higher levels of income.

But what about the rest of the world, you may ask?

This brings us to the counter-tweet of the year for 2021. Scott Winship of the American Enterprise Institute responded to Zucman and called attention to a statistic that deserves far more attention.

As far as I’m concerned, every decent and good person should celebrate the information in Swinship’s chart and view the information in Zucman’s chart as irrelevant.

Or, maybe those numbers are relevant, but only in that they tell us that some low-income countries still have lots of room to grow.

But I suspect Zucman would not be in favor of the good policies that would be needed to help poor nations converge with rich ones.

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The Size of Government and State Capacity

If we want more prosperity, what’s the ideal size of government? Anarcho-capitalists would say it shouldn’t exist at all, while some hard-core leftists want something like North Korea, where the state is everything.

The rest of us want something between those extremes, but that still leaves plenty of room for disagreement.

I think limited government is the recipe for economic dynamism, which is why I’m a big fan of the  U.S. Constitution, which was designed to limit the powers of Washington.

Others believe that government should be bigger, in some cases much bigger, with international bureaucracies often advocating this view.

There are even some libertarians who believe that more government spending can lead to economic growth by boosting “state capacity.”

What is state capacity, in case you’re wondering? It’s the notion that the private economy is more likely to flourish if government is sufficiently large that it can competently fulfill certain functions.

Writing for Econlib, Professor Bryan Caplan explains one of the problems with the literature on state capacity.

In the last few years, social scientists have started heavily appealing to “state capacity” to explain the wealth of nations.  Why do some countries prosper?  Because they have great state capacity.  Why do others flounder?  Because they have crummy state capacity.  What do floundering countries need to do in order to prosper?  Build state capacity, naturally. …Weak and question-begging empirics aside, the whole literature is conceptually confused. …the coronavirus crisis plainly shows that Western democracies have overwhelming state capacity. …What’s going wrong?  Simple: Despite fantastic state capacity, the U.S. government has absurd state priorities!  Instead of squandering trillions on poorly-targeted relief, the U.S. government could have spent a few hundred billion on testing and vaccine research.  Better yet, it could have offered hundreds of billions in prizes for progress in these areas – prizes open to anyone on Earth to win. So why didn’t this happen?  Simple: Because the people in charge in virtually every country are irresponsible, disorganized, innumerate, impulsive, and emotional.

Professor Caplan points out that supporters of bigger government don’t have a coherent response to this problem.

I don’t think I’ve ever heard a fan of state capacity research acknowledge this obvious point, much less try to fairly adjudicate it. …I’m tempted to say that appeals to state capacity are tautological, but even the tautologies are half-baked.

If you want an example of how proponents go awry, check out a new study on this topic from Brink Lindsey of the Niskanen Center.

It certainly seems like he wants readers to blindly accept the notion that bigger government means competent government means more prosperity.

The concept of state capacity – “the ability of a state to collect taxes, enforce law and order, and provide public goods” – was developed by political scientists, economic historians, and development economists to illuminate the strong institutional contrast that parallels the economic contrast between rich and poor countries. Rich countries are all distinguished by having large, strong, and relatively capable states; poor countries, by contrast, are generally characterized by weak and frequently ineffective states.

This is a remarkable anti-empirical excerpt. Let’s look at two reason why Lindsey’s argument doesn’t hold water.

First and most important, it ignores the fact that today’s rich countries in the North American and Western Europe got rich – and achieved high levels of state capacity – when they had very small governments (and no redistribution programs) back in the 1800s and early 1900s.

This is a very inconvenient fact for who argue bigger government is needed to boost state capacity.

Second, it also ignores the fact that there are countries today with very high levels of state capacity and very modest-sized governments. Consider, for example, the “Asian Tigers” of Singapore, Hong Kong, and Taiwan. These jurisdictions rank very highly for public goods, yet the burden of government is very small by modern standards.

This is a very inconvenient fact for those who argue bigger government is needed to boost state capacity.

Here’s the bottom line: Does anyone actually believe more government spending will make Washington more competent and effective?

For instance, is there any reason to think Biden’s tax-and-spend policies will improve the federal government’s performance?

Or let’s shift to the developing world, places that don’t do a good job providing actual “public goods.”

These are place that would benefit from (properly defined) state capacity, but who thinks bigger government will lead to better government in Honduras? Or Pakistan? Or Malawi?

Simply stated, it is highly unlikely that bigger government leads to more competent government. Indeed, all the evidence points in the other direction (with the pandemic response being a painful example of how bloated governments do a bad job of responding to genuine problems).

Which is why I developed the Seventh Theorem of Government.

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Foreign Aid, Corruption, and Big Government

Given my libertarian sensibilities, I would probably object to foreign aid programs even if they worked.

But I don’t have to deal with that potential quandary because we have ample evidence that you don’t get prosperity by giving money to politicians in poor countries.

Indeed, such policies arguably exacerbate poverty by enabling bad policies such as a bigger burden of government spending.

And when government gets bigger, that creates more opportunities for corruption (the same problem exists in developed nations).

Yet the crowd in Washington seem willfully blind to these problems.

For instance, in a column for today’s Washington Post, Treasury Secretary Janet Yellen and USAID Administrator Samantha Powers opine on the topic of global corruption and never even acknowledge that more government enables more corruption.

Around the world, in countries as varied as Russia, Venezuela and China, the wealthy and the well-connected launder their assets through complex networks of shell companies or transactions involving art, real estate and, occasionally, cryptocurrencies. …what links all corrupt acts is that they take resources from citizens, undermine public trust and — ultimately — threaten the progress of those who fight for democracy. …Autocrats use public wealth to maintain their grip on power, while in democracies, corruption rots free societies from within. …Moving forward, the U.S. government will require many U.S. and foreign companies to report their true owners to the Treasury and to update us when they change hands. We’re also working toward new reporting requirements for real estate transactions and will be enlisting other nations to address these issues. …the United States will deepen and expand support for those fighting kleptocrats and bad actors through a new anti-corruption response fund. …we’ve seen politicians win landslide victories by running on anti-corruption platforms. We want to support their reforms.

Rather than deal with the underlying problem of excessive government, Yellen and Powers focus on the symptom of politicians with stolen loot.

They specifically want readers to think politicians in the developing world won’t steal as much if there’s more red tape that makes it hard for them to invest their loot in the United States.

But since existing laws and regulations against money laundering have been an expensive failure, their proposals seem like a triumph of hope over experience.

If they really wanted to help poor people in the developing world, they would junk the current approach and instead use foreign aid as a reward for good policy (as measured by getting higher scores in the Economic Freedom of the World index).

But they are pursuing the opposite approach.

Mary Anastasia O’Grady of the Wall Street Journal is not impressed by how USAID has been leveraging foreign aid to promote bigger government.

Here are some excerpts from her column on how the bureaucracy is using its supposed anticorruption project as a tool to help the left take power in Guatemala.

Some Americans think of foreign aid as nothing more than money down the drain. If only. U.S. government spending in Latin America is being used by an activist bureaucracy to promote its leftist agenda. If it succeeds, U.S. taxpayers will end up subsidizing instability and economic misery. A U.S. Agency for International Development “anticorruption” forum last week is the latest example. Featured participants included former Guatemalan Attorney General Thelma Aldana and former Guatemalan prosecutor Juan Francisco Sandoval. Both are living in the U.S. and have warrants for their arrests for alleged corruption pending at home. …Rep. Norma Torres (D., Calif.), a champion of the Guatemalan left, was also a panelist at the USAID event, which brings us to the forum’s common denominator: a political agenda…to clear a path for Guatemala’s Jacobins. …Your tax dollars at work.

P.S. During the era of the “Washington Consensus,” there were people in the foreign aid establishment who understood that free markets and limited government were the only effective way of helping poor nations. Today, by contrast, international organizations openly push for bigger government.

This video show why groups such as the IMF and OECD are wildly wrong.

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The Economics of Tax-Financed Spending vs. Debt-Financed Spending

Regarding fiscal policy, almost everyone’s attention is focused on Biden’s growth-sapping plan to increase the burden of taxes and spending.

People are right to be concerned. If the President’s plan is approved, the already-grim fiscal outlook for United States will get even worse.

This battle will be decided in next 12 months, hopefully with a defeat for Biden’s dependency agenda.

Regardless of how that fight is resolved, though, we’re eventually going to get to a point where sensible people are back in charge. And when that happens, we’ll have to figure out how to restore the nation’s finances.

That requires figuring out the appropriate goal. Here are two options:

• Keeping taxes low.
• Controlling debt.

These are both worthy objectives.

But, as a logic teacher might say, they are necessary but not sufficient conditions.

Here’s a chart showing how a policy of low taxes (the orange line) presumably enables faster growth, but also creates the risk of an eventual economic crisis if nothing is done to control spending and debt climbs too high (think Greece).

By contrast, the chart also shows that it’s theoretically possible to avoid an economic crisis with higher taxes (the blue line), but it means less growth on a year-to-year basis.

The moral of the story is that the economy winds up in the same place with either tax-financed spending or debt-financed spending.

Which is why we should consider a third goal.

• Limiting spending.

The economic benefits of this approach are illustrated in this second chart. We enjoy faster year-to-year growth. And, because spending restraint is the best way of controlling debt, the risk of a Greek-style economic crisis is averted.

Now for some caveats.

I made a handful of assumptions in the above charts.

• The economy grows 2.0 percent annually for the next 31 years with tax-financed spending
• The economy grows 2.5 percent annually with debt-financed spending, but suffers a 10 percent decline in Year 31.
• The economy grows 3.0 percent annually for the next 31 years with smaller government (thus enabling low taxes and less debt).

Anyone can create their own spreadsheet and make different assumptions.

That being said, there’s a lot of evidence that higher tax burdens hinder growth, that ever-rising debt burdens can lead to crisis, and that less government spending produces stronger growth.

So feel free to make your own assumptions about the strength of these effects, but let’s never lose sight of the fact that spending restraint should be the main goal for post-Biden fiscal policy.

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The Best President in Recent History

Since I view Ronald Reagan as an honorary libertarian, I was very happy back in 2013 to see that he won a landslide victory over Barack Obama in a hypothetical poll.

This meant that voters either were old enough to personally experience the benefits of Reaganomics, or they managed to learn some history (in spite of a biased education establishment).

Well, now I have another reason to be happy. According to a new poll shared by Paul Bedard of the Washington Examiner, nearly 70 percent of respondents have a favorable impression of Reagan, easily the best result for all recent presidents.

Reagan also is disliked by the smallest percentage of respondents, a fact that almost surely irks some of my Reagan-hating friends.

And definitely irks Paul Krugman.

My two cents for today is that the current fight between Trumpism and establishment Republicanism is merely stylistic. If you crunch the numbers, you’ll see that both camps are big spenders.

I much prefer Reaganism.

Let’s wrap up with this cartoon strip that captures my sentiments.

P.S. Here’s an amusing story from Reagan about socialism (h/t: Don Boudreaux).

Not quite as good as this video, and it’s not even good enough to get added to this collection of Reagan videos, but it is a good description of why socialism is a failure.

P.S. There was one other president in the 20th century who deserves praise and applause.

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Should We Celebrate Joe Biden’s Economic “Achievements”?

I’m not a fan of Joe Biden’s economic policy, particularly his tax-and-spend agenda.

I also don’t approve when the Biden Administration uses phony numbers and phony arguments.

But what’s really baffling is the use of accurate numbers to make dumb arguments.

What do I mean by that? Well, here’s a tweet from the Democratic Congressional Campaign Committee celebrating a 2¢-per-gallon reduction in gas prices over a two-week period.

There’s only one problem with this tidbit of data.

If you look at what’s happened to gas prices during Biden’s time in office, the recent 2¢ reduction is swamped by $1 increase over the past year.

Thanks, @JoeBiden. Gas costs over $1/gallon more today than it did a year ago. https://t.co/xa4yeCy0B6 pic.twitter.com/38z3EVnrjB

— Sean Davis (@seanmdav) December 2, 2021

So how and why did the White House screw up?

Tim Carney of the Washington Examiner wrote about this strange episode.

The Democratic Congressional Campaign Committee has just produced and tweeted the worst chart of 2021. It is a line graph of gas prices with three data points covering a two-week time span. The absurd dishonesty comes when you look at the y-axis. Each horizontal line represents half of a cent. …Gas prices have nearly doubled over the past 18 months, and Biden’s allies are holding a parade for a less-than-1% drop over two weeks. Thanks, Joe Biden! …So, how did this horrible chart happen? It seems someone at the DCCC took seriously a joke made by liberal blogger Matt Yglesias. …Ron Klain, White House chief of staff (presumably not understanding the tweet was a joke), liked the tweet before the DCCC put it out sincerely.

This is the political equivalent of leading with your chin.

And it’s not the only example.

Here’s a retweet from the White House Chief of Staff, Ronald Klain, celebrating a very tiny improvement in the labor force participation rate.

In this case, there’s nothing disingenuous about the chart. We actually get to see several years of data.

But does this small uptick in the labor force participation rate actually mean that “America is back at work”?

Call me crazy, but it seems that the main takeaway from the chart is that the country is still way short of getting back to pre-pandemic levels of employment.

Which raises the obvious question of whether Biden’s redistribution agenda is making it easier for people to live off the government rather than be part of the workforce.

P.S. My criticisms of Biden are not driven by partisanship. I’m also not a fan when Republicans enact bad policy.

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Updated Estimate: The Economic Effect of Biden’s Fiscal Agenda

Earlier this year, extrapolating from a study by the nonpartisan Congressional Budget Office, Robert O’Quinn (former Chief Economist at the Department of Labor) and I authored a study on the economic impact of Biden’s fiscal plan.

The results are not pretty.

Lost jobs, lost wages, lower living standards, and lost competitiveness.

But those estimates were based on the parameters of Biden’s economic plan in the summer.

His agenda has since been modified, which raises the question of how the current proposal would affect economic performance.

In a piece for Canada’s Fraser Institute (publishers of Economic Freedom of the World and Economic Freedom of North America), Robert and I updated our numbers and explained the implications of Biden’s tax-and-spend agenda.

According to independent experts at the Committee for a Responsible Federal Budget, the actual cost of the president’s policies is closer to $4.9 trillion. Some of this new spending will be financed with red ink, but President Biden also has embraced higher tax rates on work, saving, investment and entrepreneurship. Indeed, if his plan were enacted, the United States would have both the highest corporate tax rate and the highest capital gains tax rate in the developed world. …But how much would the economy be hurt? There are groups such as the Tax Foundation that do excellent work measuring the adverse effects of higher tax rates. But it’s also important to measure the harmful impact of a bigger welfare state. …Based on that CBO study, and using the CBO fiscal and economic baselines, we calculated the following unpalatable outcomes if Build Back Better bill (pushed by the president and Democrats in Congress) becomes law and growth is reduced by 2/10ths of 1 per cent per year.

And here are the results.

The good news is that the latest version of Biden’s plan doesn’t do quite as much damage as what was being discussed earlier this year.

The bad news is that our economy will be much weaker (and our results are in line with other estimates, including those done before the election and since the election).

Not that we should be surprised. If the United States becomes more like Europe, we’ll be more likely so suffer from European-style anemia.

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The IMF, Special Drawing Rights, and Expanding the Burden of Government

At the risk of understatement, I’m not a fan of the International Monetary Fund.

My main objection is that the bureaucracy’s various policies – especially bailouts – make it easier for irresponsible politicians to expand the burden of government spending and increase deficits and debt.

Needless to say, that approach doesn’t work. The best evidence is that many governments wind up in a never-ending cycle of tax-spend-debt-crisis-bailout, followed by further rounds of tax-spend-debt-crisis-bailout.

Moreover, the net effect of these policies is to divert capital from the economy’s productive sector. So it’s the economic equivalent of a lose-lose policy.

When criticizing the IMF, I usually focus on how the bureaucrats relentlessly urge higher taxes. Indeed, I often complain about how the bailouts are provided only if countries agree to raise taxes (another lose-lose situation).

Today, though, I want to write about another bad IMF policy. Earlier this year, the bureaucrats (with support from the Biden Administration) allocated $650 billion of new Special Drawing Rights (SDRs) – sort of a version of IMF-created money.

You can learn about SDRs by clicking here and here, so I won’t bore people with a description of how they work.

For purposes of our discussion, what matters is that the IMF uses SDRs to enable more government spending.

And that’s not a recipe for prosperity, either for national economies or the global economy.

Earlier this year, Mary Anastasia O’Grady of the Wall Street Journal highlighted how SDRs are rewarding very dodgy governments in Latin America.

Nicaraguan dictator Daniel Ortega is jailing, killing and disappearing his political opponents. …At the International Monetary Fund, he’s a valued member. So too are the governments of socialist, deadbeat Argentina and of El Salvador, which every day slips further into arbitrary, authoritarian rule. These are some of the bad actors in the Western Hemisphere who received more “special drawing rights” from the IMF on Aug. 23 as part of a new $650 billion general allocation. …SDRs are created out of thin air but can be converted, on demand, into hard currency. …Treasury Secretary Janet Yellen, who led the charge for this new round of SDRs, claims the transaction is cost-free… In fact, the conversion of SDRs to dollars is a subsidized, perpetual loan. For poor countries the subsidy is above 90% of the loan value. …There was a time when large multilateral handouts were conditioned on attempts at good governance. Those days are gone.

In a column last month for the Wall Street Journal, D.J. Nordquist and Dan Katz also analyzed the impact of the IMF’s policy.

…the International Monetary Fund announced in August a new general allocation of special drawing rights equivalent to $650 billion. …All IMF members, even rogue nations, receive them, so Iran got some $5 billion and Belarus $1 billion. …The allocation added more than $17 billion to Russia’s record-high reserves…the IMF and other proponents justified the SDR allocation on grounds that its benefits outweighed the harms… But because of the IMF shareholding formula… Only 3% of the general allocation flowed to low-income countries. …the IMF publicly indicated it would collaborate with the World Bank and other international financial institutions to ensure that SDRs were put to productive uses… Unfortunately, the IMF appears to have fallen into a classic trap of international organizations: acting based on aspirations rather than binding agreements. …Public confidence in international financial institutions has been understandably shaken as a result of corruption investigations into the IMF’s emergency pandemic-relief loans, theft of World Bank assistance by elite government officials, and serious questions regarding inappropriate Chinese influence at the World Bank, the World Health Organization, and elsewhere.

I’ll close by noting that SDRs are a great deal for politicians and bureaucrats. They get more spending, all of which seems free. And since almost nobody understands how this racket works, there’s near-zero democratic accountability.

P.S. Shifting gears, here’s are some excerpts from an article on the IMF’s website. It has nothing to do with the SDR issue, but it is a window into the the IMF’s statist mindset. The bureaucracy is lauding an economist, Mariana Mazzucato, who argues for industrial policy.

Mazzucato has been stirring the pot in economics and public policy for nearly a decade. Her main message is that governments around the world need to seize their power to lead innovation for the betterment of humanity. …Government is for setting big goals, defining the missions necessary for achieving them, encouraging and investing in innovation, and governing the process so that the public benefits. …She made the case for rethinking the role of government in her 2013 book, The Entrepreneurial State: Debunking Public vs. Private Sector Myths. …“State capacity has really been hollowed out because of the narrow way that we think about the state,” she says. …That’s particularly evident in the United Kingdom and the United States, where political leaders defunded public health and devalued government itself, eroding public trust and government’s capacity to respond to crises, she says. …Mazzucato urged “citizens’ dividends” and government equity stakes in businesses linked to government funding.

As illustrated by this video, letting politicians distort the economy is a recipe for stagnation and corruption.

P.P.S. 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 policy decisions of the organization’s top bureaucrats.

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