People Are Voting with Their Feet Against Statism

How do we know people don’t like taxes?

• They tend to reject candidates who support higher taxes, as George H.W. Bush and other politicians have learned.
• Then tend to vote against higher taxes when given an opportunity (though they sometimes will vote to tax other people)
• They tend to migrate from high-tax jurisdictions to low-tax jurisdictions for direct and indirect reasons.

Today, we’re going to elaborate on the final reason.

Let’s start with this chart from one of the daily missives from the Committee to Unleash Prosperity. As you can see, it’s not just people that move. It’s their money as well.

The bottom line is that the two states – California and New York – with ultra-high tax rates are losing the most taxable income.

Let’s call this the revenge of the Laffer Curve because it shows us that high tax rates can backfire.

Jon Miltimore addressed this topic in a new column for the Foundation for Economic Education.

Here are some of the highlights, starting with some data on how some poorly governed cities are losing residents.

Three of the top five metros that saw sharp declines between July 1, 2020, and July 1, 2021 were in California. Leading the way was the Los Angeles-Long Beach metropolitan area, which lost 176,000 residents, a 1.3 percent drop. Next was the San Francisco-Oakland-Berkeley metro, which saw a decline of 116,000 residents (2.5 percent decline), followed by San Jose-Sunnyvale-Santa Clara, which shed some 43,000 residents (2.2 percent drop). …The New York-Newark-New Jersey metropolitan area saw a decline of 328,000 residents, the highest in the nation in raw numbers. The Chicago area, meanwhile, saw a decline of some 92,000 residents.

Here’s a chart from his article.

I’m definitely not surprised to see New York, San Francisco, and Chicago on the list. After all those cities have crummy governments.

The other two cities, by contrast, just have the misfortune of being in a poorly governed state.

Jon explains a big reason why this domestic migration is taking place.

…the reasons people choose to migrate tend to be complex and varied… However, we can see the US flight from its largest metropolitan is part of a bigger trend. North American Van Lines (NAVL), a trucking company based in Indiana, puts out an annual report that tracks migration patterns in the United States. The states with the most inbound migration in 2021 were South Carolina, Idaho, Tennessee, North Carolina, and Florida. The leading outbound states were Illinois, California, New Jersey, Michigan, and New York. The pattern here is clear. Americans are fleeing highly-regulated, highly taxed states. They are flocking to freer states. …We heard a great deal about “the Great Reset” during the pandemic. …It may be that “the reset” involves Americans abandoning high-tax, high-regulatory cities and states for freer ones.

To be sure, there are factors other than taxation. And there are factors other than government policy (people really like California’s wonderful climate, for instance, but they will escape when policy becomes unbearable).

The bottom line is that people are slowly but surely voting with their feet against statism. They are choosing red states over blue states. There’s a lesson for Joe Biden, though he’s probably not listening.

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Tweeting the Obvious: The Department of Education Has a Failing Grade

I’ve already shared a “Tweet of the Year” for 2022, as well the “Most Enjoyable Tweet” of the year.

I’m going to call this the “Most Obvious Revelation Tweet” since it reaches a should-have-been-immediately-clear conclusion that the Department of Education is a net negative for the United States.

I’ve already provided my two cents on why the Department of Education should be eliminated.

So let’s look at what others have said.

In a column for National Review, Charles Cooke says it’s time for the bureaucracy to be retired.

In our constitutional order, education is the preserve of the states, and it ought to be the preserve of the states — not only because educational institutions work best when they are close to their benefactors and beneficiaries, but because education is power and because the centralization of power presents enticements that are beyond any human being’s ability to resist. …We have now seen the failure of nationalized education policy under presidents of both parties: George W. Bush’s “No Child Left Behind” was a signature of his campaign in 2000 and his pre-9/11 presidency and has been largely abandoned, as has Common Core, which started life as a “conservative” idea but was quickly sucked into the maw under President Obama. The problem, as so often, is the system itself.

And here’s some of what Neil McCluskey wrote back in 2020.

Department of Education…was basically a payoff to the National Education Association, the nation’s largest teachers union, for their 1976 support of Jimmy Carter’s presidential candidacy. …What we have gotten… One thing we do know is that total, inflation‐​adjusted federal education spending, including K‑12 programs and college student aid, has risen greatly since 1980, from $115 billion to $296 billion. Meanwhile, national test scores for 17‐​year‐​olds have been basically flat… Federal education meddling, especially since the advent of the Department of Education, has been of questionable value at best, and a high‐​dollar, bureaucratic failure at worst.

Needless to say, I agree with both of them. The current system is bad for America’s kids.

If you’re wondering why I have that view, just click here, here, here, here, and here.

By the way, it’s not just that the Department of Education has been a failure for K-12 kids. It’s also been bad news for college students.

Here are some excerpts from a 2015 column that Richard Vedder wrote for the Foundation for Economic Education.

He observes that higher education was a success story before the Department of Education was created.

The 30 years between 1950 and 1980 were the Golden Age of American higher education. The proportion of adult Americans with college degrees nearly tripled, going from 6 to 17 percent. Enrollments quintupled, going from 2.3 to 12.1 million. …This was the era in which higher education went from serving the elite and mostly well-to-do to serving many individuals from modest economic circumstance. …During this period, however, the federal role was quite modest. …College costs remained remarkably stable. Tuition fees typically rose only about one percent a year, adjusting for inflation. At the same time, high economic growth (real GDP was rising nearly four percent annually) led to incomes rising even faster, so in most years the tuition to income ratio fell. In other words, college was becoming a smaller financial burden for families.

But things took a wrong turn after a new federal bureaucracy was created. Here are some of the reasons Prof. Vedder has identified.

First, of course, education costs have soared. Tuition fees rose more than three percent a year in inflation-adjusted terms, far faster than people’s incomes. …rising federal student financial aid programs are the primary factor in this phenomenon. …Second, if anything, college has become more elitist and less accessible to low income students. The proportion of recent graduates who are from the bottom quartile of the income distribution has declined since 1970 or 1980. …Third, there has been a shocking decline in academic standards. Grade inflation is rampant. …Fourth, accreditation of colleges, overseen by the Department of Education, is expensive and ineffective. …Fifth, the federal aid programs and “college for all” propaganda promoted by the Department have led to a large proportion (probably over 40 percent) of recent graduates being underemployed… Sixth, the Department is guilty of regulatory excesses and bureaucratic blunders. …the form required of applicants for federal student aid (FAFSA) is byzantine in its complexity.

For what it’s worth, I think Rich’s first item deserves some sort of special emphasis. Maybe a couple of exclamation points to drive home the point that higher education is absurdly over-priced today precisely because of government intervention to supposedly make it more affordable.

Now politicians are reacting to this mess by urging even more subsidies. Which will simply make the problem worse. Lather, rinse, repeat.

P.S. Here’s a bit of humor to compensate for the depressing news in today’s column.

My other examples of education-themed humor can be found here, here, here, and here.

P.P.S. Biden wants to reward failure with a 21 percent increase in the Department of Education’s budget.

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The Worst Part of Biden’s New Budget?

Since the economy suffers when tax rates go up and the burden of government spending increases, there obviously are plenty of awful features in President Biden’s newly released budget.

If I had to select a worst feature, though, I’d be tempted to pick the proposed spending hikes that Biden is seeking for some of Washington’s most-wasteful bureaucracies.

Here’s a chart from a story in today’s Washington Post (based on Table S-8 in the budget), which summarizes how much additional “discretionary spending” Biden is seeking.

Why am I upset about these proposed spending increases?

From a big-picture economic perspective, it’s bad fiscal policy to allow the burden of government spending to grow faster than the private sector.

And since Biden is projecting that real GDP will grown by 2.8 percent next year and inflation will be 2.1 percent during the same period (see Table S-9 of the budget), he obviously wants all these bureaucracies to enjoy big increases (unlike families, who are losing ground compared to inflation).

But I’m also irked from a targeted fiscal perspective. That’s because Biden wants giant spending increases for bureaucracies that should not even exist.

Here’s what I’ve written about some of them.

• Get rid of the Department of Housing and Urban Development.
• Shut down the Department of Agriculture.
• Eliminate the Department of Transportation.
• Abolish the Department of Education.
• Pull the plug on the Department of Energy.
• Phase out the Department of Veterans Affairs.

By the way, “worst feature” is not the same as most economically damaging feature.

There are two other parts of Biden’s budget that definitely will cause more harm.

• Many of the same tax increases he was pushing last year, plus Elizabeth Warren’s “billionaire’s tax” that will force people to pay tax on unrealized capital gains.
• Many of the redistribution programs he was pushing last year as part of his plan to expand the size and scope of entitlements and increase the burden of the welfare state.

These tax increases and entitlement expansions will do considerably more damage than the discretionary spending increases excerpted above.

But it’s still an outrage that Biden is shoveling more money at some of Washington’s most wasteful and counterproductive bureaucracies.

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Blame the Federal Reserve

The good thing about being a policy-driven libertarian is that I don’t feel any need to engage in political spin.

I can praise Democrats who do good things and praise Republicans who do good things. And also criticize members of either party (sadly, that’s a more common task).

It also means I don’t believe in blaming politicians for things that are not their fault. For example, NBC just released a poll showing that Joe Biden has low marks for economic policy.

Some of that is appropriate (his fiscal policy is atrocious, to cite one reason), but I think the answers to this question show that the president is getting a bum rap on one issue.

Why am I letting Biden off the hook about monetary policy?

For the simple reason that the Federal Reserve (the “Fed”) deserves the blame. The central bank’s inflationary policies are the reason that prices are rising.

One can claim that Joe Biden is partly to blame because he recently re-nominated Jay Powell, the current Chairman of the Fed. But, if that’s the case, then Donald Trump also is partly to blame – or even more to blame – because he nominated Powell in the first place.

Moreover, as illustrated by this chart, the Fed’s mistake that led to rising prices occurred in early 2020.

Simply stated, the Fed pumped lots of liquidity into the system. That set the stage for today’s price increases (as Milton Friedman told us, there’s always a lag between decisions about monetary policy and changes in prices).

If you look closely, you’ll notice that this massive monetary intervention began nearly one year before Biden took office.

Given his support for Keynesian fiscal policy, I suspect Biden also believes in Keynesian monetary policy. As such, we presumably would have had the same policy if Biden had been elected in 2016.

In other words, Biden would have been just like Trump. At least on this issue.

But none of that changes the fact that Biden’s actions since becoming president have very little to do with today’s price increases.

Let’s close with a few additional observations about the aforementioned polling results.

• The folks at NBC deserve some criticism for failing to give people the option of choosing the Federal Reserve’s monetary policy. I’m guessing this was because of ignorance rather than bias.
• The people who blamed “corporations increasing prices” obviously didn’t pay attention in their economics classes. Rising prices are a symptom of inflation, not the cause.
• The people who blamed Putin for inflation are even more ignorant. At the risk of stating the obvious, a Russian invasion in February of 2022 obviously wasn’t responsible for rising prices in 2021.

P.S. The inflation-recession cycle caused by bad monetary policy could be avoided if the Fed was constrained by some simple rules.

P.P.S. Or maybe, just maybe, we should reconsider the role of central banks.

P.P.P.S. For what it’s worth, very few politicians have the intelligence and fortitude to support good monetary policy.

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Communism Humor

Our last compilation of anti-communism humor was back in January, so it’s time to expand our collection.

For our first item, let’s celebrate Marx’s inability to understand basic economics (which helps to explain why jurisdictions that cling to Marxist socialism are among the world’s most impoverished places).

Our second example of satire takes advantage of the historical link between communism and empty stomachs.

If you want to know how the guy in the next-to-last item from this column was raised, I assume this was the book his mother read to him at bedtime.

For our fourth item, I definitely think this tweet hits the target.

Though its not completely accurate since Marxist bosses enjoy lavish meals. Ordinary people are the ones who suffer.

As usual, I save the best for last. Our fifth item mocks how many leftists are motivated by hate and envy.

Since several items in today’s column dinged communism for its inability to produce enough food, I’ll close by drawing people’s attention to this very funny example of cultural appropriation.

P.S. If you wonder whether you might be a communist, take this quiz (I’m embarrassed to admit that I got 6 percent).

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Taxes, Morality, and Math

The economics of taxation is simple. The more you tax of something, the less you get of it.

In some cases, such as taxing tobacco, people sometimes argue this is a good result. In other cases, such as taxing work, entrepreneurship, and investment, it seems crazy.

The morality of taxation, by contrast, is more challenging. At least for me.

I’m not an anarcho-capitalist, so I can’t unilaterally declare that all taxes are evil and unjustified. And I’m definitely not a statist who thinks all of our incomes belong to the government.

At the risk of oversimplifying matters, I agree with Calvin Coolidge.

Taxes that are used to finance genuine “public goods” are justifiable. Taxes used to finance the schemes of vote-buying politicians are immoral.

Regarding morality, there’s another issue that’s worth discussing.

Consider this story from Governing.

Across the country, states that are flush with cash are cutting taxes on income, sales and Social Security benefits. …But good times never last forever. Some fiscal experts are worried that states are setting themselves up for a fall. …“I see this as a temporary increase in revenues that we’re likely going to see dry up in the next year or two,” says Kim Rueben, director of the State and Local Finance Initiative at the Urban-Brookings Tax Policy Center.

What’s galling about the story is that the focus is on whether governments can do without extra revenue.

But what about taxpayers? You know, the people who have to earn and produce before politicians can seize and squander?

That’s why I very much appreciate a recent column in the Washington Post by former Indiana Governor Mitch Daniels.

A newspaper account early this year reported on pending legislation that would “slash billions of dollars worth of taxes” in my home state of Indiana. The article was more interesting for its word choices than for its content. Twice, it stated that the proposal would “cost the state” money. Twice, it warned that the state would “lose out” on large sums. …The article simply showed the implicit biases now thoroughly ingrained across what these days is referred to as the corporate press. …property in a free society belongs not to the state but to its people, and it should be expropriated by the state only for truly necessary purposes, in truly necessary amounts. It’s more than just a matter of money, because every act of taxation imposes a diminution of freedom.

Kudos to Daniels for channeling Coolidge.

The bottom line is that taxes diminish freedom. Politicians should never take our money unless proposed spending is for the general welfare – as defined by the Founding Fathers and as authorized by the Constitution.

Now that we’ve discussed the economics of taxation and the morality of taxation, here’s a final observation about the math of taxation.

Tax cuts are not a “cost” to government, they’re a “savings” to taxpayers. This is why provisions in the tax code that allow taxpayers to keep more of their money should not be referred to as “tax expenditures.” Even if they are bad policy.

P.S. By modern political standards, Mitch Daniels is on the right side. But that doesn’t mean he is a poster boy for libertarianism. At one point, he flirted with the notion of a value-added tax, so I was happy when he decided against a presidential race. He also presided over irresponsible spending increases when he was head of the Office of Management and Budget for President George W. Bush.

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A Secret Weapon to Deploy Against Russia

One can be against war with Russia, against Ukrainian membership in NATO, and even be skeptical about NATO’s continued existence, but still cheer for Ukraine as it defends itself from Putin’s aggression.

There are even some peaceful steps that the western nations can take to punish the Russian government.

I’ve already written about sanctions against Russia’s oligarchs.

Today, let’s consider how immigration policy can be used to penalize Russia.

We’ll start with the observation that Russia is demographically declining. This is true for many nations, but Russia is in especially bad shape.

As you can see, Russia’s population pyramid has turned into a population cylinder.

The combination of falling birthrates and increasing life expectancy is very damaging to any nation with a tax-and-transfer welfare state.

Working age population will be less than 60% of total population at year 2051. Total population reaches its peak in 1993 at 148,373,584. The elderly population will account for 25.24% of Russian Federation’s population in 2100, population aging is serious.

So how can the countries such as the United States take advantage of Russia’s grim Demographics?

Simple, just invite lots of young, educated Russians to emigrate.

To some extent, this already is happening, as Gian Volpicelli explained in an article for Wired.

Confronted with the likelihood of crippling sanctions, a plummeting ruble, and a country turning aggressively inwards, Aleks made it to the airport with his wife and hopped on a plane to Georgia, where he has some relatives. He was among the first Russian technology workers to make a run for neighboring countries at the outset of the Ukrainian war, but he soon realized he would by no means be the last. Over the past few weeks, throngs of fellow Russian techies have joined him… According to RAEK, a Russian technology trade group, between 50,000 and 70,000 tech workers have already fled Russia, and 70,000 to 100,000 more could leave in April.

As you might expect, the Russian government is trying to discourage emigration.

Here are excerpts from an article in the Washington Post by Joseph Menn.

Russian officials are trying to stem the brain drain, dropping the tax on tech company profit to zero, offering reduced-rate mortgages for their employees, and pledging that information workers will not be conscripted before age 27, according to Borenius, a Finnish law firm. That promise backfired among some workers who have grown so distrustful of government that they feared it meant they would be drafted, said a Russian-born principal at a global investment firm that extracted its few Moscow employees.

The United States easily can counter Russia’s efforts.

James Freeman of the Wall Street Journal wants to allow lots of Ukrainians into America, but also dissident Russians.

…the president and the vice president…are missing out on a huge opportunity to do good in the world and to do well for the United States. …the United States is still only willing to accept a tiny fraction of those fleeing the war zone. …With the region now in flames, not all of the potential new Americans are ready to come here. …Private firms in various countries are already on the hunt for talent. And the available talent eager to live in peace includes Russians… Wharton finance professor Nikolai Roussanov has been noting the brain drain from Vladimir Putin’s Russia.

Heck, we don’t need to limit the invitation to dissidents. We can open the door to economic refugees as well.

There presumably are millions of young and ambitious Russians who would eagerly grab the opportunity to escape Putin’s dirigiste economy.

After all,Russia ranks a lowly #100 in the most recent edition of Economic Freedom of the World. and does even worse (#113) in the most recent edition of the Index of Economic Freedom.

And every young person who leaves would exacerbate Russia’s demographic imbalance.

By the way, this isn’t merely an issue of foreign policy.

It’s quite likely that an influx of Russians would be good for America’s economy.

Russian-Americans are not included in this chart, but I would be very surprised if they were not among America’s high-earning immigrant communities.

I realize that immigration is a divisive issue in the United States. But I assume that opposition is much lower for populations that are likely to earn high incomes and create jobs rather than rely on government handouts.

So it would be a win-win situation. The emigrating Russians would have a chance to become wealth-creators in America (win #1) and the Russian government would lose productive members of its population (win #2).

Actually, it would be a win-win-win situation since America’s economy would benefit from a more vibrant private sector (win #3).

P.S. To ensure that win #3 actually happens, it would be nice to keep Russian immigrants from getting ensnared in America’s dependency-creating refugee system.

P.P.S. Ukraine also suffers from bad economic policy. If Russia ultimately succeeds in taking over the country, the U.S. should welcome escaping migrants, especially if they are young and educated. One would have to imagine that they would have an anti-socialist mindset, much like Cubans and Venezuelans who also have escaped to the United States.

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The Compensation Advantage of State and Local Bureaucrats

My main objection to government employees is that they work for bureaucracies that should not exist (especially the ones in Washington).

That being said, I also don’t like how bureaucrats are overpaid compared to workers in the productive sector of the economy.

How much are they overpaid? The Committee to Unleash Prosperity has a daily newsletter, and here’s a chart from yesterday’s edition that compares compensation levels for private-sector employees and state and local bureaucrats.

Just in case you are wondering whether these numbers are accurate, you can go this website from the Bureau of Labor Statistics, scroll down to the “Pay and Benefits” section, and then click on “Data Finder” for “Employer Costs for Employee Compensation.”

You will then find that average hourly costs (including benefits) for state and local government workers are about $55, compared to about $38 for workers in the economy’s productive sector.

Government employee unions and other defenders of the status quo often will argue that such numbers are comparing apples and oranges because bureaucrats tend to be older and working in fields that require greater skills.

Those are legitimate arguments (indeed, similar to the arguments that debunk the idea of a gender pay gap).

But a legitimate argument is not the same as a compelling argument. The Department of Labor’s data on voluntary quit rates definitely suggests that bureaucrats (both federal and state/local) have a big compensation advantage over workers in the private sector.

If you want a concrete example of how government workers receive windfalls, Adam Andrzejewski opined last year about lifeguards in Southern California. Here’s some of what he wrote for the Wall Street Journal.

Being a lifeguard isn’t easy, but in Los Angeles it can be lucrative. Auditors at OpenTheBooks.com found 82 county lifeguards earning at least $200,000 including benefits and seven making between $300,000 and $392,000. Thirty-one lifeguards made between $50,000 and $131,000 in overtime alone. After 30 years of service, they can retire as young as 55 on 79% of their pay. The Los Angeles County Lifeguard Association makes all this possible. …By comparison, the top-paid public lifeguard in Florida made $118,000, including benefits—though the pay goes further in the Sunshine State, which has no income tax. Even in New York City, the top-paid lifeguard made only $168,000. Think of the Los Angeles Country Lifeguard Association as the teachers union of “Baywatch.”

Sounds like they all belong in the Bureaucrat Hall of Fame.

P.S. Click here to learn why state and local governments sign contracts providing absurd levels of pay and benefits.

P.P.S. Workers in the private sector work more hours, so annual pay gaps are not as large as hourly pay gaps.

P.P.P.S. Putting lifeguards to shame, one state employee in California raked in more than $800,000 in one year.

P.P.P.P.S. Adding insult to injury, the lavish retirement benefits of state and local bureaucrats often are dramatically underfunded.

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The Case Against Higher Taxes

I’ve identified seven reasons to oppose tax increases, but explain in this interview that the biggest reason is that it would be a mistake to give politicians more money to finance an ever-larger burden of government spending.

I had two goals when responding this question (part of a longer interview).

First, I wanted to help viewers understand that America’s fiscal problem is too much government spending and that red ink is simply a symptom of that problem.

Over the years, I’ve concocted all sorts of visuals to make this point. Like this one.

And this one.

And this one.

Second, I wanted viewers to understand that higher taxes will simply make a bad situation even worse.

From my perspective, the biggest problem with tax increases is that they will enable a bigger burden of government spending.

But even the folks who fixate on red ink should adopt a no-tax increase position.

Why? Because politicians who want big tax increases want even bigger spending increases.

Joe Biden is pushing for a massive tax increase, for instance, but his proposed spending increase is far larger.

We also have decades of evidence from Europe. There’s been a huge increase in the tax burden in Western Europe since the 1960s (largely enabled by the enactment of value-added taxes).

Did that massive increase in revenue lead to less red ink?

Nope, just the opposite, as I showed in both 2012 and 2016.

If you don’t agree with me on this issue, maybe you should heed the words of these four former presidents.

P.S. Some people warn that endlessly increasing debt is a recipe for an eventual crisis. They’re probably right. Which is why it is important to oppose tax-increase deals that wind up saddling us with more red ink. Besides, the long-run damage of tax-financed spending is very similar to the long-run damage of debt-financed spending.

P.P.S. As I mention in the interview, the only real solution is spending restraint. And a spending cap is the best way of enforcing that approach.

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Nancy Pelosi’s Perpetual Motion Machine

The “bad penny” of Keynesian economics (based on the “broken window fallacy“) has returned, as I discussed in an interview last week.

While I’m not a fan of Keynesianism, I tried to give a fair description of the theory.

I pointed out that supporters think government spending can “prime the pump” of the economy. Give people money, and they will spend it, and the merchants who receive that money will spend it, which then leads to further spending. And so on and so on.

In reality, this is the fiscal version of a perpetual motion machine.

I explained in the interview that Keynesian economics has never worked in the real world. It didn’t work for Hoover or FDR. It didn’t work for Japan. It didn’t work for Obama.

If I had more time, I also would have explained the theory’s underlying deficiency – which is that government can’t put money into the economy without first taking money out of the economy (a part of the equation that some Keynesians apparently don’t understand).

Who are these people who don’t understand basic economics?

One of them is the Speaker of the House of Representatives, Nancy Pelosi. Here are excerpts from a story posted by MSN.

House Speaker Nancy Pelosi, D-Calif., argued…that increased U.S. government spending on domestic social programs would help decrease the national debt and bring down inflation at home. …”So when we’re having this discussion, it’s important to dispel some of those who say, well it’s the government spending – no, it isn’t,” she continued. “The government spending is doing the exact reverse, reducing the national debt. It is not inflationary.” …Biden made similar comments during a Democratic retreat in Philadelphia on Friday.

Just in case some of you may be thinking Speaker Pelosi is being misquoted, you can watch videos of her making the statement, either on Twitter or YouTube.

I’ll close by bending over backwards to (sort of) rationalize her statement.

If you listen closely to her full remarks, it’s possible that she may be mixing up arguments about Keynesianism potentially stimulating the economy in the short run and Biden’s budget plan potentially reducing debt in the long run.

She would be wrong about both short-run policy and long-run policy, in my humble opinion, but at least she wouldn’t be crazy wrong.

P.S. It’s not uncommon for politicians to misspeak rather than deliberately lie. For instance, Trump was wrong five years ago when he claimed the U.S. had the world’s highest taxes, but I think he was being sloppy rather than dishonest. And the same may be true for Pelosi .

P.P.S. As I noted in the interview, Pelosi has a track record of making foolish statements based on Keynesian theory.

P.P.P.S. Not to be pedantic, but I don’t think government spending increases are inflationary. The better argument is to say that reckless fiscal policy may encourage the Federal Reserve to enact inflationary monetary policy.

P.P.P.P.S. Since today’s column is about Keynesian economics, click here, here, and here for some amusing cartoons. Here’s some clever mockery of Keynesianism. And here’s the famous video showing the Keynes v. Hayek rap contest, followed by the equally enjoyable sequel, which features a boxing match between Keynes and Hayek. And even though it’s not the right time of year, here’s the satirical commercial for Keynesian Christmas carols.

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In the United States, Where are Middle Class Taxpayers Treated the Best…and the Worst?

I regularly share reports that measure how states rank for economic policy.

• Economic Freedom of North America
• Freedom in the 50 States
• State Business Tax Climate Index
• State income taxes
• State sales taxes
• State budgetary burdens

Now we can augment this collection.

A website called Money Geek has issued a report, authored by Jeff Ostrowski, which ranks states that are most friendly and least friendly to a hypothetical middle-class family.

This map has the details. The best states (led by Wyoming, Nevada, and Alaska) are dark blue, while the worst states (led by Illinois, Connecticut, and New Jersey) are dark grey.

Here are some of the main findings, including the fact that people “vote with their feet” by moving to low-tax states.

Illinois has the highest tax burden in the U.S., with an estimated tax amount of $13,894 for the hypothetical family. Wyoming only imposes approximately $3,279 for the same family, making it the top state in terms of tax-friendliness. 4 out of 5 of the most tax-friendly states saw population growth at or above the national average (Wyoming, Nevada, Florida and Tennessee). Illinois and Connecticut received a grade of E for being the least tax-friendly states in the nation. Illinois experienced a population decline, while Connecticut’s population grew by just 0.1% — lower than the national average of 0.2%.

Interesting results. First and foremost, we have more evidence that Illinois is a basket case.

And it has a governor who wants to make a bad situation even worse.

I also think it’s worth noting that all the best states have no income tax.

The reports has lots of interesting data, but it doesn’t tell us everything we should know.

Before I explain why the numbers should be taken with a grain of salt, read the report’s methodology.

To calculate the least and most tax-friendly states, we researched income, sales and property tax rates by state. Using expenditure and income data from the Bureau of Labor Statistics’ Consumer Expenditure Survey, we constructed a hypothetical family with one dependent, gross income of $82,852, and a home worth $349,400 (the median new home price at the time we conducted our research). We then estimated the state taxes this hypothetical family would pay in each state. We ranked the states based on…the size of the tax payment.

There’s nothing wrong with this methodology, assuming the goal is simply to measure the tax burden on a particular type of household.

But if the goal is to rank tax systems, there are three reasons why the report is incomplete or misleading.

First, it is not a measure of how tax systems affect economic performance. The most bizarre results in the report is that California, with a very punitive, class-warfare tax system, ranks above Texas, which has no income tax.

Why is this misleading? Because it’s important not only to measure how much of a family’s income is grabbed by government, but also whether a government has policies that make it more difficult to earn money in the first place.

In other words, there’s a reason that taxpayers and businesses are moving from California to Texas, notwithstanding the results from Money Geek.

Second, it doesn’t tell us anything about whether states are providing good services in exchange for the taxes that are being collected.

In an ideal world, states would use tax revenues to finance genuine “public goods.” In reality, taxes often are used to funnel undeserved money to powerful constituencies such as state and local bureaucrats.

And it’s worth noting that there are big differences in how states perform on basic functions such as education, infrastructure, and crime control (and the same is true for cities).

Third, it is not adjusted for the cost of living in different states. A family in Nebraska with a $350,000 house and about $83,000 of income obviously lives much better than a similar family in New Jersey. Why? Because money goes much farther in states with a lower cost of living.

This map from the Tax Foundation shows that red and orange states can be much more expensive than green and blue states.

P.S. If you want a ranking of economic liberty for metropolitan areas, click here.

P.P.S. Click here if you want a ranking of states based on occupational licensing (a form of employment protectionism).

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The Feel-Good Story of 2022

Two years ago, I rhetorically asked whether the movement for gun control was dead.

But, given how states have been expanding civil liberties for gun owners, perhaps I should have asked about the vitality of the movement for gun rights.

For instance, check out this map of states that no longer require a permit for concealed carry.

The map is taken from a report in the Washington Post by Kim Bellware.

Here are some excerpts from this feel-good story.

On Monday, Ohio became the 23rd state to enact a law eliminating permits as a requirement for concealed carry. The Buckeye State closely followed Alabama, where Gov. Kay Ivey signed a similar law on March 10. The back-to-back wins for gun-rights advocates who want to see fewer restrictions on the Second Amendment signal how partisan divides and relentless activism at the state level are significantly reshaping the landscape around gun possession. …Seventeen of the 23 states that allow permitless carry passed their laws in the past seven years. By contrast, concealed carry wasn’t even legal in every state until 2013, when Illinois lifted its longtime ban decades after most other states. …experts expect more laws easing gun restrictions to pass. Already, bills to allow permitless carry are active in Indiana and Florida.

Proponents of permitless carry make very sensible arguments.

…the grass-roots Buckeye Firearms Association. Executive Director Dean Rieck…argued that licensing laws end up stopping only law-abiding citizens from fully exercising their Second Amendment rights, since lawbreakers won’t submit to restrictions whether they exist or not. …Jake Pelletier, who owns Raven Firearms Training in New Hampshire with his wife, Crystal, offered a comparison…in states that make training a hard-and-fast requirement of concealed carry: “I’ve heard it put that it’s like saying you can exercise your right to free speech as long as you take a communications course.’”

By contrast, the reporter apparently couldn’t find anybody with a compelling argument from the pro-gun control side.

Why do I say that? Because this is the only “evidence” from the left cited in the story.

Researchers have sparred for years over the question of whether easing gun restrictions lessens crime or fuels it. A 2021 analysis by The Washington Post’s Fact Checker found states with looser concealed-carry laws had a higher homicide rate on average during a recent five-year period than the eight states with stricter permit laws.

This type of analysis is nonsensical.

Honest experts don’t simply look at murder rates in two different groups of states. After all, it is quite possible that certain states decided to approve permitless carry because citizens were worried about high murder rates.

Social scientists with integrity would use a different approach.

For instance, they might look at states that made changes (either pro-gun control or pro-gun rights) and then compare murder rates in the years before and after (while also considering whether other factors might play a role).

Though I give the reporter credit. She cited the research, but at least she also acknowledges that it does not prove anything.

…the role looser laws played in higher crime rates — if any — was unclear.

Let’s close by reverting to the main issue for today, which is celebrating the fact that 2nd Amendment freedoms are expanding in the United States.

This is, in part, a victory for common sense.

But I also think that more of our friends on the left are waking up on this issue.

• In 2012, I shared some important observations from Jeffrey Goldberg, a left-leaning writer for The Atlantic. In his column, he basically admitted his side was wrong about gun control.
• Then, in 2013, I wrote about a column by Justin Cronin in the New York Times. He self-identified as a liberal, but explained how real-world events have led him to become a supporter of private gun ownership.
• In 2015, I shared a column by Jamelle Bouie in Slate, who addressed the left’s fixation on trying to ban so-called assault weapons and explains that such policies are meaningless.
• More recently, in 2017, Leah Libresco wrote in the Washington Post that advocates of gun control are driven by emotion rather empirical research and evidence.
• In 2019, Alex Kingsbury acknowledged the futility of gun control in a column for the New York Times.
• Most recently, Danielle King wrote last year for the Washington Post that it makes sense for blacks to become gun owners.

P.S. For those who want to enjoy gun control-themed humor, click here.

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Taxes, Abortion, and Extraterritoriality

I’m a big fan of tax competition.

Why? Because if they’re not constrained by the fear that taxpayers can escape, I worry that short-sighted politicians (i.e., “stationary bandits“), will over-tax and over-spend.

And that can lead to Greek-like fiscal and economic chaos, which I’ve referred to as “goldfish government.”

Now let’s consider a wonky aspect of this debate. In order for tax competition to be an effective constraint on the greed of politicians, taxpayers need an ability to actually benefit from better tax policy in other jurisdictions.

In some cases, they achieve that goal by moving their bodies (“voting with their feet“). In other cases, they achieve that goal by moving their businesses (companies relocating to low-tax jurisdictions).

And in some cases, they achieve that goal by moving their money – which is why so-called tax havens traditionally played a beneficial role in the world economy.

These jurisdictions had very strong human-rights laws with regard to financial privacy and – equally important – they did not view it as their responsibility or obligation to help enforce the bad tax policies of high-tax governments.

All of which explains why those high-tax governments were so determined to destroy financial privacy as part of their broader fight to replace tax competition with tax harmonization.

In part, this was a fight over fiscal policy. High-tax governments wanted the ability to track money around the world so they could impose extra layers of tax on income that is saved and invested.

But this was also a fight about legal principles, especially the concept of “dual criminality” – which is the idea that governments only help each other enforce laws where there is mutual agreement about what’s legal and illegal.

Which is why people liked putting their money in places like Switzerland and the Cayman Islands.

The tax havens not only had strong human rights laws regarding privacy, but they also had various types of tax laws (no income taxes, territorial tax systems, no tax bias against saving and investment) that were incompatible with the onerous tax policies in most nations.

The net result was that high-tax governments couldn’t track and tax the money. And this made me happy because politicians from those nations instead faced pressure to lower tax rates.

But I’m not happy any more. Sadly, the big nations of the world have largely prevailed in their anti-tax competition campaign. At least with regards to financial privacy.

Even the Swiss agreed to weaken their human rights policies so high-tax nations could impose extraterritorial tax enforcement, notwithstanding the absence of dual criminality (in this case, Goliath beat David).

This was bad news. No longer constrained by the principle of dual criminality, politicians now feel more empowered to boost tax rates.

As you might imagine, my leftist friends usually dismiss my concerns. But I’m guessing they will change their tune about extraterritoriality after reading this column in the New York Times.

The authors (David S. Cohen, Greer Donley and Rachel Rebouché) are very worried that some states want to impose their abortion laws outside their borders. Here are some excerpts.

Some states will go beyond banning abortion within their borders. They will try to impose their policy preferences on other states, in an attempt to stop their citizens from getting abortions anywhere at all. …it will be up to abortion-supportive states to determine the future of abortion law and access. …All states have statutes that require their civil and criminal courts to assist in another state’s depositions, subpoenas and legal processes. Abortion-supportive states could amend these laws; such states could prohibit their courts from cooperating with out-of-state civil and criminal cases that stem from abortions that took place legally within their borders. To further protect abortion providers, states could block their law enforcement agencies from cooperating with out-of-state investigations related to the provision of otherwise lawful abortions. And they could change their extradition laws to refuse to extradite abortion providers… States where abortion remains legal can instruct their medical boards and in-state malpractice insurance companies to abstain from taking any adverse action against providers who give out-of-state patients abortions that are legal in the provider’s state.

In a world where people are intellectually honest, they will have consistent views on dual criminality, regardless of the underlying laws.

I strongly suspect, however, that most of my left-leaning friends will now embrace the principle of dual criminality as a constraint on extraterritoriality while still thinking it is good that low-tax jurisdictions have been coerced into acting as vassal tax collectors for high-tax governments.

Heck, some of my right-wing friends also will be hypocrites. They will support fiscal sovereignty but embrace extraterritoriality for abortion laws.

The bottom line – regardless of how we feel about tax policy or abortion policy – is that the power of governments should be constrained by borders.

If you don’t like the tax laws of Jurisdiction A or the abortion laws of Jurisdiction B, work to change those laws by devoting your time, energy, and money to an issue campaign. That’s the right approach, especially when compared to trying to achieve the same goals by using the laws of Jurisdiction C or Jurisdiction D.

P.S. The battle over the taxation of online sales was really a fight over whether businesses in some states could be forced into enforcing the tax laws of other states.

P.P.S. As a result of my efforts to protect tax havens, I’ve been subjected to slurs, attacks, and even potential imprisonment.

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In a Tweet, Everything You Need to Know about Living Standards in the United States and Europe

When debating big issues such as the size and scope of government, I like to think that facts matter. Maybe I’m being naive, but people should look at evidence before deciding whether to make government bigger or smaller.

And with Biden proposing a big expansion in the size of the welfare state, this is why I regularly compare the economic performance of the United States and various European nations.

After all, if we’re going to make America more like Europe, shouldn’t we try to understand what that might mean for the well being of the citizenry?

With this in mind, I want to share this tweet (based on this data) from Stefan Schubert at the London School of Economics.

The obvious takeaway is that the average person in the United States enjoys much higher living standards (more than 50 percent higher) than the average person in the European Union.

Even more astounding, the United States even has a big 20-percent advantage of the wealthy tax haven of Luxembourg.

By the way, the above data may understate the gap if you make apples-to-apples comparisons.

Nima Sanandaji compared the economic output of Scandinavians who emigrated to the United States with Scandinavians who stayed home.

He found even bigger gaps, one example of which is the data about Swedes in this chart.

Let’s look at one more bit of data.

Another way of illustrating the gap is see how European nations no longer are converging with the United States (and may actually be diverging).

The only good news for Europeans (if we’re grading on a curve) is that there’s been a decline in both the relative and absolute levels of economic freedom in the United States during the 21st century.

If that continues, the U.S. may “catch up” to Europe at some point in the future. Joe Biden certainly is working for that outcome.

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Harding vs. FDR

I’ve written about President Warren Harding’s under-appreciated economic policies.

He restored economic prosperity in the 1920s by slashing tax rates and reducing the burden of government spending.

I’ve also written many times about how President Franklin Roosevelt’s economic policies in the 1930s were misguided.

And that’s being charitable. For all intents and purposes, he doubled down on the bad policies of Herbert Hoover. As a result, what should have been a typical recession wound up becoming the Great Depression.

But I’ve never directly compared Harding and FDR.

Ryan Walters, who teaches history to students at Collins College, has undertaken that task. In a piece for the Foundation for Economic Education, he explains how Harding and Roosevelt took opposite paths when facing similar situations.

Both men came into office with an economy in tatters and both men instituted ambitious agendas to correct the respective downturns. Yet their policies were the polar opposite of one another and, as a result, had the opposite effect. In short, Harding used laissez faire-style capitalism and the economy boomed; FDR intervened and things went from bad to worse. …Unlike FDR, who was no better than a “C” student in economics at Harvard, Harding understood that the old method of laissez faire was the best prescription for a sick economy.

Here’s some of what he wrote about Harding’s successful policies.

America in 1920, the year Harding was elected, fell into a serious economic slide called by some “the forgotten depression.” …The depression lasted about 18 months, from January 1920 to July 1921. During that time, the conditions for average Americans steadily deteriorated. Industrial production fell by a third, stocks dropped nearly 50 percent, corporate profits were down more than 90 percent. Unemployment rose from 4 percent to 12, putting nearly 5 million Americans out of work. …Harding campaigned on exactly what he wanted to do for the economy – retrenchment. He would slash taxes, cut government spending, and roll back the progressive tide. …Under Harding and his successor, Calvin Coolidge, and with the leadership of Andrew Mellon at Treasury, taxes were slashed from more than 70 percent to 25 percent. Government spending was cut in half. Regulations were reduced. The result was an economic boom. Growth averaged 7 percent per year, unemployment fell to less than 2 percent, and revenue to the government increased, generating a budget surplus every year, enough to reduce the national debt by a third. Wages rose for every class of American worker.

And here’s what happened under FDR.

Basically the opposite path, with horrible consequences.

FDR certainly inherited a bad economy, like Harding, yet he made it worse, not better, prolonging it for nearly a decade. With the stock market crash in October 1929, the American economy slid into a steep recession, which Herbert Hoover…proceeded to make worse by intervening with activist government policies – increased spending, reversing the Harding-Coolidge tax cuts, and imposing the Smoot-Hawley tariff. …once in office FDR set in motion a massive government economic intervention called the New Deal. …under FDR taxes were tripled and new taxes, like Social Security, were added, taking more money out of the pockets of ordinary Americans and businesses alike. Between 1933 and 1936, FDR’s first term, government expenditures rose by more than 83 percent. Federal debt skyrocketed by 73 percent. In all, spending shot up from $4.5 billion in 1933 to $9.4 billion in 1940. …The results were disastrous. …Unemployment under Roosevelt averaged a little more than 17 percent and never fell below 14 percent at any time. And, to make matters worse, there was a second crash in 1937. From August 1937 to March 1938, the stock market fell 50 percent.

At the risk of understatement, amen, amen, and amen.

Sadly, very few people understand this economic history.

This is mostly because they get spoon fed inaccurate information in their history classes and now think that laissez-faire capitalism somehow failed in the 1930s.

And they know nothing about what happened under Harding.

P.S. What happened in the 1920s and 1930s also is very instructive when thinking about the growth-vs-equality debate.

P.P.S. Shifting back to people not learning history (or learning bad history), it would be helpful if there was more understanding of how supporters of Keynesian economics were completely wrong about what happened after World War II.

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Very Little Sympathy for Russian Oligarchs

I enjoy defending rich people. In part, that’s because I appreciate how rich entrepreneurs make life better for me and everybody else.

But I also defend rich people because of my deep disdain for the policy agenda of empty-suit politicians and envy-wracked demagogues.

If we want outcomes that are better for society and the economy, I’m 100-percent confident that Jeff Bezos and Elon Musk can spend their wealth better than the hacks and clowns in Washington.

But what if rich people get money from government cronyism? What if they became wealthy because of special favors from politicians?

Greg Ip of the Wall Street Journal wrote about this issue a couple of years ago and included this chart showing that cronyism is a small problem in the United States but a big problem in Russia.

Here’s some of what Mr. Ip wrote about Russia’s cronyism.

How a billionaire earns his or her fortune matters, of course. Some are “rent seekers,” meaning they skim off the productive efforts of others via corruption, royal prerogative or control of some valuable market or resource. That’s why Russia is an outlier in Ms. Freund’s research: lots of oligarchs, with not much economic benefit to show for it.

Since he wrote that article well before Russia’s invasion of Ukraine, he wasn’t focused on the geopolitical considerations that are dominating the discussion today.

So now let’s look at a very recent report from the U.K.-based Economist. Here are some key excerpts.

…the sanctions levied at Russian oligarchs have intensified scrutiny on the origins of tycoons’ wealth. …Rent-seeking entrepreneurs tend to use their relationships with the state to maximise profits. …Our index uses 25 years of data from Forbes’s annual stock-take of the world’s billionaires. …We have classified the main source of each billionaire’s wealth into crony and non-crony sectors. …Russia’s crony economy sticks out like a blinged-up Muscovite… Some 70% of the 120 Russian billionaires, who together hold 80% of its billionaire wealth, fall within our crony-capitalist definition. Wealth equivalent to 28% of Russia’s gdp in 2021 came from crony sectors, up from 18% in 2016.

The bottom line is that Russia’s “oligarchs” are not like the self-made billionaires that we’re fortunate to have in the United States.

Here’s the accompanying chart from the article. Russia does stand out…in a very bad way. If the numbers are accurate, getting in bed with politicians is the way to get rich.

Now that we’ve established that Russian billionaires generally don’t earn their money, this leads us to the more challenging issue of whether nations such as the United States should freeze and/or expropriate the wealth of the oligarchs in response to Putin’s invasion of Ukraine?

Since I’m not a lawyer or an expert on foreign and defense issues, I don’t pretend to know the best approach. I want Putin and his cronies to suffer, but I also have some qualms about the current approach.

• Is the “rule of law” being overlooked and “due process” getting trampled in the rush to go after the assets of wealthy Russians, some of whom may have emigrated because of their opposition to Putin?
• Are people being targeted simply because of their Russian ethnicity, just as an awful president targeted Americans of Japanese descent during World War II?
• If getting rich through cronyism is a sufficient pretext to confiscate wealth, does that mean it’s okay to seize the assets of ethanol producers and stockholders of Fannie Mae and Freddie Mac?

P.S. For what it’s worth, my gut instinct is that cronyism is a much bigger problem in China’s economy that we see in the data from the WSJ and the Economist.

P.P.S. Click here to learn more about “rent seeking.”

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Tax Policy, Tax Reform, and State Competitiveness

I wrote two months ago about Iowa lawmakers voting for a simple and fair flat tax.

I explained how this reform would make the state more competitive, but I want to build upon that argument with some of the Tax Foundation’s data.

Starting with this map from the State Business Tax Climate Index, which shows Iowa in 38th place for individual income taxes.

That low ranking is where the state’s tax code was as of July 1, 2021, so it obviously doesn’t reflect the reforms enacted earlier this year.

So where will the state rank with the new flat tax?

The Tax Foundation crunched the data and shows the state will jump to #15 in the rankings.

The above table shows that the jump is even more impressive when you factor in some modest pro-growth changes that took place a few years ago.

What a huge improvement over just a few years. The only state that may beat Iowa for fastest and biggest increase in tax competitiveness is North Carolina, which jumped 30 spots in just one year.

P.S. Politicians in New York must be upset that there’s no way for them to drop lower than #50. But at least they can take comfort in the fact that they are worse than California.

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Spending Caps and Speed Limits, Part I

Two days ago, I explained that spending caps are better than anti-deficit rules. In this clip from the same panel discussion, I talk about how a spending cap should be designed.

The key design issue is how fast spending should increase.

For libertarians and Reaganite conservatives, the goal is to shrink the burden of government. This means a cap that fulfills my Golden Rule of having government grow slower than the private sector.

So if long-run nominal GDP is projected to grow by, say, 5 percent per year, the cap might allow government to grow 2 percent or 3 percent annually.

That’s somewhat like the TABOR rule in Colorado, which limits government to grow no faster than inflation plus population.

For more moderate types, the goal might be to maintain the status quo.

In other words, don’t attempt to shrink government, but also don’t allow government to expand.

Perhaps that would mean a spending cap tied to nominal personal income growth, which might mean allowing spending to grow 4 percent or 5 percent each year.

That sound anemic, but it is definitely better than nothing since it would force lawmakers to somehow prevent the huge future spending increases that will be caused by America’s poorly designed entitlement programs.

But then there’s the issue of how a spending cap gets enforced.

I was cited in a 2020 article about this challenge in Hawaii.

Hawaii’s existing cap is too easily ignored by lawmakers. …So what would a “spending cap with teeth” look like? Mitchell said there are many types of spending caps that could be adopted. Hawaii added a spending cap to its Constitution in 1978, but it was essentially arbitrary due to an escape clause that allows the Legislature to override the cap with a two-thirds vote. “That escape clause, especially in a state where one party dominates the government, basically means that your spending cap isn’t very effective at all,” said Mitchell. So what would be better? Mitchell is especially fond of the spending cap that Colorado voters adopted in 1992, which Colorado’s Department of the Treasury estimated in 2019 had returned more than $2 billion to state taxpayers since it was implemented. Called the Taxpayer’s Bill of Rights Amendment, it pegs state spending to population growth plus inflation. Colorado’s legislature can still propose a budget that exceeds the spending cap, but “the politicians have to go to the voters and ask for permission, and the voters in almost all cases say no.”

The bottom line is that spending caps are like speed limits in a school zone.

With small children present, the best speed limit might be 20 miles per hour.

By contrast, a speed limit of 45 miles per hour seems unwise. Then again, it would be better than nothing.

And we can’t forget that any speed limit won’t be worth much if there’s no enforcement.

I’ll close by sharing this table, which shows various nations that got very good results with multi-year periods of spending restraint (government growing, on average, by less than 2 percent annually).

P.S. The advantage of a numerical spending cap (such as limiting spending increases to no more than 2 percent annually) is that politicians would have a big incentive to keep inflation under control (meaning Biden’s economic team would not have allowed him to make vapid remarks about inflation during his state of the union address).

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Big Government and Big Corruption

When the Center for Freedom and Prosperity released this video back in 2009, we wanted people to understand the link between big government and big corruption.

Simply stated, unethical people are naturally drawn to politics and unethical interest groups naturally seek to obtain unearned wealth (a process known as “rent seeking“).

• This is true for tax policy.
• And I mean very true for tax policy.
• This is true for trade policy.
• This is true for bailout policy.
• This is true for regulatory policy.
• This is true for spending policy.
• This is true for health policy.
• This is true for business policy.
• And it’s true for environment policy.

The obvious takeaway is that making government bigger is going to mean that these unsavory groups will have even greater ability to engage in corruption.

None of this is a surprise to libertarian-oriented people. And it’s definitely not a surprise to the Washington insiders who benefit from this racket.

But it’s always a surprise when left-leaning journalistic outfits accidentally stumble on the truth. As evinced by excerpts from this story from Jonathan O’Connell and Anu Narayanswamy in the Washington Post.

President Biden’s domestic…drew unprecedented attention from Washington lobbyists and special interest groups last year. The lobbying industry had a record year in 2021, taking in $3.7 billion in revenue as companies, associations and other organizations pressed Congress and the Biden administration over trillions of dollars in new pandemic spending and rules… The jump in 2021, when lobbying spending was about 6 percent higher than 2020, came as the government’s pandemic interventions and record expenditure took center stage, including an additional $1.9 trillion in pandemic relief and a $1.2 trillion infrastructure package.

Needless to say, the explosion of lobbying is a predictable response to politicians having an additional $3 trillion-plus of other people’s money to distribute to their political supporters.

Not to mention the massive expansion of regulation and red tape, some general and some because of the pandemic.

What worries me is that this expansion will be permanent.

Thousands of companies and organizations appeared to hire lobbyists for the first time during the pandemic, as more than 3,700 companies and other groups that spent no money lobbying the government in 2019 paid lobbyists last year. ..,Among the new entrants are dozens of health-care, technology, tourism and recreation companies, including individual museums, theaters and entertainment firms. …Some of those groups may have hired lobbyists as a temporary measure initially but decided to increase their spending as the pandemic continued, said Dan Auble, an OpenSecrets senior researcher. …“I think it’s likely there are some people who came to Washington a couple of years ago and have stuck around, or industries that realized the benefits they could accrue by having an active presence in Washington.”

I’m somewhat nauseated by “the benefits they could accrue by having an active presence in Washington.”

That phrase is like thieves discussing the benefits they could accrue by having an active presence near ATMs.

But notice that I didn’t write that I was totally nauseated. That’s because lobbying is not inherently unethical. There are groups that feel compelled to hire lobbyists merely because they want to protect themselves from being hurt by high tax rates, pointless red tape, and misguided trade rules.

They simply want to be left alone.

Wouldn’t it be nice if we lived in a society where good people didn’t have to worry about predatory politicians (and a world where bad people didn’t have the ability to steal from others by using government?

P.S. Here’s a good video about how Washington gets fat and happy from corruption. And here’s an amusing video about “Kronies.”

P.P.S. I’ve been accused of corruption and I wasn’t upset. That’s because I realize I’m different than most everyone else in Washington.

P.P.P.S. One of the messages in the above video is that you can’t control corruption merely by passing more laws dealing with issues such as campaign finance.

P.P.P.P.S. At the risk of stating the obvious, corruption in Washington is a bipartisan problem.

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Lessons from the Failure of Europe’s Maastricht Criteria

As part of a panel discussion with the Texas Public Policy Foundation, I explained (with a frozen look) why spending caps (such as Switzerland’s “debt brake“) are better than balanced budget requirements.

This is a topic I’ve written about many times, noting that even left-leaning international bureaucracies like the IMF and OECD have reached the same conclusion.

For today’s discussion, I want to focus on a wonky but important observation. I mentioned in the presentation that the European Union’s “Maastricht Criteria” – which focus on controlling red ink – have not worked.

Those interested can click here for further background on these rules, but the key thing to understand is that eurozone nations agreed back in 1992 to limit deficits to 3 percent of economic output and to limit debt to 60 percent of GDP.

Has this approach worked?

Here’s the data, from a 2019 European Parliament report, on government debt for eurozone nations. Incidentally, the euro currency officially began in 2002, though nations were supposed to comply with the Maastricht Criteria starting back in 1993.

As you can see, debt has increased in most European nations. In may cases, debt is more than twice as high as the supposed maximum specified in the Maastricht Criteria.

And these are the “good” numbers. I deliberately chose data from a few years ago to make clear that the failure to comply with the Maastricht Criteria has nothing to do with the coronavirus pandemic.

In other words, debt in Europe is now far worse.

What went wrong? Why did anti-red ink rules produce more red ink?

A big part of the answer is that politicians use anti-deficit and anti-debt rules as an excuse to raise taxes (which is what happened during Europe’s prior debt crisis).

And we know that tax increases generally backfire, both because they undermine economic growth and because they give politicians leeway to spend even more money.

By contrast, spending restraint has a very good track record of reducing red ink.

P.S. To learn more about Switzerland’s spending cap, click here. To learn more about Colorado’s spending cap, click here.

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The Economics of War, Part II: Trade Restrictions Make a Nation Weaker

Way back in 2010, I explained that Paul Krugman was wrong to think that wars were good for the economy.

Indeed, he was more wrong than usual. The additional spending for the military isn’t “stimulus,” so his usual Keynesian argument was misguided.

Moreover, he didn’t seem to understand that wars also destroy existing wealth.

Today we are going to look at how war can teach us another economic lesson.

The United States and other major nations have responded to Russia’s assault on Ukraine by imposing trade restrictions with Russia.

If protectionists are correct, these steps (effectively imposing an extreme Russian version of Biden’s “buy America” policy) should strengthen Putin.

Yet that’s obviously not the purpose of the sanctions.

Instead, officials from western nations understand that these trade barriers will weaken Russia’s economy.

By the way, this isn’t the only example of nations using trade restrictions to hurt their enemies.

The U.S. trade embargo with Cuba is a prominent example, and there are also restrictions on trade with Venezuela.

Why? Because limiting trade is bad for a nation’s economy.

Moreover, during the Vietnam War, the United States mined North Vietnam’s harbors.

Why? Because limiting trade is bad for a nation’s economy.

And don’t forget the British navy’s blockade against France during the Napoleonic wars.

Why? Because limiting trade is bad for a nation’s economy.

So why, then, do politicians like Donald Trump and Joe Biden support imposing the same policies on the United States?

P.S. Imposing sanctions on Russia is not good for the U.S. economy (or the European economies, the Japanese economy, etc), but such policies are strategically sensible if the damage on the Russian economy is much greater.

P.P.S. There is now discussion about kicking Russia out of the World Trade Organization. Once again, the purpose would be to hurt Russia’s economy. Which should raise uncomfortable questions for people who think the United States would benefit by choosing to give up membership.

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The Libertarian Paradise of…South Africa?

You can find examples of libertarianism in some very unexpected places.

• Mexico
• Nigeria
• Somalia
• Germany
• Argentina

What’s particularly interesting are the examples of how private governance is evolving in developing nations.

These are real-world example of “anarcho-capitalism” and they exist for the simple reason is that governments have utterly failed to provide core “public goods” such as crime control.

Now we have a new case study. The U.K.-based Economist reports on the development of a “private parallel state” in South Africa.

Situated in the north of Johannesburg, Steyn City has shops, a school, generators, a petrol station, golf, 50km of biking trails, fishing dams, 24-hour security and a dinosaur-themed playground. There is even a helipad; but residents need never leave. …estates like Steyn City, which account for nearly one in five property transfers (a proxy for sales)…represent a broader demand: for a sanctuary in a country where the state cannot seem to curb crime or provide decent services. And it is not just the rich who are fending for themselves. So, increasingly, is everyone else.

Incidentally, we have similar “estates” in the United States, such as The Villages in Florida and other private communities and residential developments.

But let’s focus on South Africa and why people are opting for private alternatives to government.

The article notes that a growing number of citizens are choosing private schools (akin to what’s happening in India).

Since 1997 the number of pupils in private schools has tripled, from 236,000 to 703,000… The increase is not happening in the most expensive schools, which are, in fact, becoming easier to get into, because so many well-heeled South Africans are emigrating. “The growth is in the low-to-mid range of the market,” says Lebogang Montjane, the head of the Independent Schools Association. …Private fees are priced to be affordable for the black middle class. Spark costs 28,050 rand ($1,800) a year for primary school.

There is also a section on private health care.

But the part about public safety is even more remarkable.

Security is the clearest case of where private companies are replacing the state. In 1997 there were roughly as many police officers (110,000) as active security guards (115,000). Since then officer numbers have increased by 31% (to 144,000) but the number of private guards has ballooned by 383% (to 557,000). Gun-carrying watchmen and ubiquitous surveillance cameras that feed footage to security firms’ operation rooms are everyday sights in suburbs and high-walled estates. …the sense that the state cannot protect citizens—underlined dramatically last year when the country saw the worst civil unrest since apartheid—is widely felt.

Here’s the bottom line.

Some South Africans emigrate to escape failing public services. But most cannot leave, or do not want to. Instead, argues Gwen Ngwenya of the opposition Democratic Alliance, they slip across an imaginary border, migrating, as it were, into the arms of “the private parallel state”.

The obvious takeaway is that the failing parts of government should be eliminated and, in tandem, the tax burden should be reduced so that it’s easier for citizens to pay for the private alternatives that actually work.

But that’s a very unlikely outcome.

Why? Because government programs in developing nations generally exist to provide patronage to friends and supporters of the politicians.

• The purpose of government schools is to provide over-paid patronage jobs to teachers, not to educate children.
• The purpose of government health care is to provide over-paid patronage jobs to providers, not to cure sick people.
• The purpose of government security is to provide over-paid patronage jobs to cops, not to fight against crime.

So long as this corrupt system works for politicians, there’s no reason to expect changes.

P.S. At some point, South Africa will go bankrupt. In theory, this should lead to long-overdue changes. In practice, it will mean a bailout from the International Monetary Fund, which temporarily will prop up the current system of corruption and waste.

P.P.S. South Africa will be bankrupt sooner rather than later if it takes advice from the OECD.

P.P.P.S. This comparison of South Africa, Botswana, and Zimbabwe is very revealing.

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The Failure of Bidenomics, Part VI

Having addressed Biden’s track record on subsidies, inflation, protectionism, household income, and fiscal policy, let’s finish our series by reviewing the president’s record on regulatory issues.

The first place to start is the Federal Register, which is Uncle Sam’s official site for new rules.

Though it gives us conflicting information. The number of pages (a crude measure of regulatory zeal, as I noted a few years ago) actually decreased during Biden’s first year. But only compared to Trump’s last year.

To understand what’s really going on, let’s look at the Forbes article from which the above table was taken.

Clyde Wayne Crews of the Competitive Enterprise Institute sifts through the data and concludes that Biden is a fan of expanded red tape.

The Federal Register is the daily depository of rules and regulations produced by hundreds of federal departments and agencies. …Under Biden, the regulatory establishment has its Hall Pass back, and it shows. The Federal Register page count ended the year with 74,532 pages. …The 2020 count under Trump was far higher, at 86,356. There had been “only” 61,308 pages back in Trump’s first year of 2017, which had been the lowest count in a quarter-century… Trump’s first year represented a 35 percent drop… But Trump’s final year made him number two… How come? Well, …removing rules that ought not have been written in the first place still requires writing new rules to do it. …So, paradoxically, any concerted Trump moves on “one-in, two-out” in service of deregulating and removing that which came decades before required fattening the Register to some extent. …Despite Biden’s lower Federal Register page count, we’re nonetheless back in the mode of not just unapologetically but combatively fattening the Federal Register. …several hundred of Trumps rules had been deemed “deregulatory” for purposes of his one-in, two-out program… Biden’s revivalist counts are embedded with no such purpose… Trump definitely left a mark. Biden is working on erasing it.

Incidentally, I don’t think regulatory experts from the left would disagree with the above assessment.

For instance, Brookings has a regulatory tracker that monitors what’s been happening since Biden took office and you will not find any evidence that the current administration is interested in limiting or reducing red tape.

Let’s wrap up by looking at a specific example of Biden’s regulatory excess. It’s about domestic energy production, which is a very timely issue given what is happening in Ukraine.

Ben Cahill of the Center for Strategic and International Studies summarized some of what Biden did to hinder America’s ability to produce energy.

President Joe Biden has followed through on a campaign pledge by introducing a moratorium on new oil and gas leasing on federal lands and waters. With nearly 25 percent of U.S. oil and gas production coming from federal lands, the policy shift may have significant implications for future investment and production. …This pause will not affect existing operations or permits for existing leases, and private lands will not be affected. …A more permanent leasing ban would have a significant impact, although visible offshore production declines may not materialize for up to 10 years, given the typical timeframe for planning, exploration, appraisal, and development. Onshore production declines could conceivably show up faster.

As you can see, the main damage is to future energy production rather than current energy production.

Needless to say, the same is true about the Biden Administration’s limitations on energy exploration and development in Alaska.

And don’t forget about pipelines (and geopolitics!), as mentioned in this column by Kevin Williamson for National Review.

The Biden administration already is reaching out to Caracas, where officials describe the initial conversation as “cordial” and “respectful.” I’ll bet it is. And Maduro’s isn’t the only tyrannical tuchus that requires kissing: President Joe Biden is said to be planning a personal trip to Riyadh to beg Crown Prince Mohammed bin Salman to ramp up Saudi production. …Right about now, President Biden must be wishing he had an extra pipeline to Canada. The thought has occurred to Alberta premier Jason Kenney, who observes about Keystone XL: “If President Biden had not vetoed that project, it would be done later this year — 840,000 barrels of democratic energy that could have displaced the 600,000 plus barrels of Russian conflict oil that’s filled with the blood of Ukrainians.” …We could spare ourselves some of these calculations by maximizing our own output — not only of crude oil and natural gas but also of refined-petroleum products. That would also mean building the necessary pipeline infrastructure and reforming our antiquated maritime regulations to enable the transportation of those fuels.

The bottom line is that the Biden Administration wants more regulation and red tape.

That has adverse consequences for economic dynamism and growth.

Especially when bureaucrats at the regulatory agencies ignore cost-benefit analysis (or put their thumbs on the scale to get a result that matches their ideological preferences).

And, in the case of energy, regulatory policy can have significant geopolitical implications as well.

P.S. You can click here to learn something about Obama’s record on the issue, and click here to learn a bit about Trump’s track record as well.

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The Failure of Bidenomics, Part V

Our series on the failure of Bidenomics has touched on four topics.

• Biden’s subsidy agenda will lead to higher prices and economic inefficiency.
• Biden’s inflation policy is mocked even by senior Democratic economists.
• Biden’s so-called Buy America policy hurts taxpayers and means fewer jobs.
• Biden’s statist agenda means families lose as prices rise faster than income.

For our fifth edition, let’s turn our attention to the president’s misguided fiscal policy.

This means analyzing three pieces of legislation.

First, his so-called stimulus was approved last year, adding $1.9 trillion to the nation’s fiscal burden. The president and his team claimed it would lead to four million additional jobs, but the net result was a drop in employment compared to the White House’s own projections.

Second, his costly infrastructure plan also was approved last year, though only a small fraction of new spending was actually for roads and bridges (and even that spending should be handled by state and local governments).

Third, his “Build Back Better” proposal dramatically would expand the burden of government spending – by $5 trillion over the next decade! Along with a plethora of economy-sapping tax increases.

Regarding the third item, the president so far has not been able to convince all Democratic senators to support the scheme. And with the Senate evenly split between the two parties, Biden needs all of their votes to get his plan approved.

With any luck, that will never happen.

So what is the plan wrong? Along with several hundred other economists, I signed on to this letter explaining why Biden’s massive expansion of the welfare state would be bad news for the country.

The most important part of the statement is that bigger government would “reduce the number of people working, badly misallocate capital, and hobble economic growth.”

Based on research from the Congressional Budget Office, the damage would be enormous, reducing worker compensation by $1.6 trillion over the next ten years.

What about the other issues mentioned in the statement, such as debt and inflation?

It’s not good that debt goes up, of course, but that’s a symptom of the bigger problem, which is government consuming a greater share of the nation’s output.

Also, at the risk of being annoyingly pedantic, I don’t actually think Biden’s budget would increase inflation. That only happens if the Federal Reserve adopts bad monetary policy.

That being said, central banks are more likely to adopt bad monetary policy when politicians are following bad fiscal policy. So the core assertion is correct.

P.S. I don’t know whether to characterize this as absurd, pathetic, addled, or dishonest, but Joe Biden actually claimed his budget plan has zero cost.

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The Failure of Bidenomics, Part IV

As part of my ongoing efforts to show that free enterprise produces better results than statism, I often use data on per-capita economic output – especially when comparing nations over long periods of time.

And I’ll sometimes build upon those numbers by comparing consumption levels in different nations.

But what if we’re looking at one country rather than several nations?

In the case of the United States, it is useful to peruse data on GDP and consumption, but I’m also a big fan of using the Census Bureau’s data on inflation-adjusted median household income (though even this data isn’t perfect because household sizes are declining over time).

These numbers allow us to gauge, over multi-year periods, whether government policies are making life better for average families. Or whether they are producing stagnation.

But what if we don’t have several years of data?

That’s a very relevant question since we’re in the midst of my series on Bidenomics.

The president has only been in office for a little over one year, so we don’t even have medium-run data, much less long-run data. Moreover, I’m always cautious about using data for just one month, one quarter, or one year. After all, you don’t know if something is a real trend, or just a statistical blip.

That being said, if we want to give a preliminary grade to Biden’s economic performance, the best data would be inflation-adjusted earnings.

On this basis, Joe Biden is doing a bad job. Here’s Chart 1 from the Bureau of Labor Statistics’ report on what happened to hourly earnings in 2021, adjusted for inflation.

At the risk of stating the obvious, it’s not good news if most of the bars are in negative territory. I’ve also highlighted (in red) the key takeaways for the year.

Sophisticated observers will point out that hourly earnings are only one piece of the compensation puzzle.

So I then went to the Bureau of Labor Statistics’ report that also includes fringe benefits.

And if you look at Chart 4, which measures compensation after adjusting for inflation, you’ll notice very depressing data for 2021.

Now that we’ve looked at some grim data, let’s contemplate whether Joe Biden deserves blame.

The answer is probably yes, but I’ll share five caveats.

• First, it’s just one year of data, so always be wary of statistical blips (maybe inflation is just transitory).
• Second, only a few Biden policies have actually been enacted (though I’m not a fan of his biggest achievement).
• Third, those policies may not have been in place long enough to have a meaningful effect on the economy.
• Fourth, keep in mind that the pandemic scrambled economic data (though perhaps in a way that should have meant a boom in 2021).
• Fifth, bad news in 2021 could merely be a continuation of a preexisting trend, in which case Trump maybe deserves blame.

Regarding the final point, notice in Chart 4 that the data was heading south at the end of 2020, when Trump was still in the White House.

Was that merely a statistical blip? If not, were the numbers bad because of something Trump did, or were they related to the pandemic? Or perhaps the bad numbers at the end of 2020 were related to investors and entrepreneurs fearing a future Biden agenda?

The bottom line is that we should ignore partisan labels and instead focus on policy. If government is becoming a bigger burden, then we can expect slower growth.

As such, it is very reasonable to think that 2021’s bad data is – at least in part – a consequence of Biden’s dirigiste policy agenda.

P.S. If he is able to resuscitate his so-called Build Back Better plan, expect more bad data in 2022.

P.P.S. For previous columns in this series, click here, here, and here.

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The OECD’s Preposterous Fiscal Advice for Mexico

I’ve been writing a series of columns about the failure of Bidenomics (see here, here, and here), but let’s switch gears today and focus on some remarkably bad behavior by the bureaucrats at the Organization for Economic Cooperation and Development (OECD).

Regular readers know that I’m not a big fan of this Paris-based international bureaucracy. Yes, there are some economists at the OECD who do solid research, but the organization routinely advocates for higher taxes and bigger government, often by using dishonest data.

But even I was surprised to receive this email from the OECD, which explicitly urged a giant tax increase on the relatively impoverished people of Mexico.

And “giant” is not a throwaway adjective.

Joe Biden wants a massive tax increase for the United States, but his proposal to increases tax revenue by 1.3 percent of GDP makes him seem like a rabid libertarian compared to the OECD’s plan to increase taxes by nearly three times as much in Mexico.

What’s especially amazing is that the OECD is urging this huge tax increase in a report that supposedly shares “recommendations for improving medium-term growth prospects.”

While I’m shocked by the size of the OECD’s proposed tax increase, I’m not surprised that the bureaucrats are claiming that higher taxes and bigger government are good for growth.

They’ve done it before and I’m sure they’ll do it again.

In China. In Africa. Everywhere.

So at least they are consistent, albeit in a very bad way.

I’ll close by noting that Mexico actually is in desperate need of “recommendations for improving medium-term growth prospects.”

But if you peruse the data for Mexico in the most-recent edition of the Fraser Institute’s Economic Freedom of the World, you’ll see that the country’s economy is being hampered by bad scores for rule of law, monetary policy, trade, and regulation.

So it’s baffling that the OECD’s bureaucrats somehow decided to focus on pushing for bad fiscal policy.

P.S. For those who want more information, you can click here to access the OECD’s report, along with other accompanying materials.

P.P.S. Incidentally, OECD bureaucrats are exempt from paying tax on the very lavish salaries they receive.

P.P.P.S. Adding insult to injury, American taxpayers finance the largest share of the OECD’s budget.

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The Failure of Bidenomics, Part III

In Part I of this series, I pointed out that Biden’s plethora of proposed handouts and subsidies would lead to higher prices and more inefficiency. And in Part II, I explained that his discussion of inflation was embarrassingly inaccurate.

In today’s column, we’re going to analyze his strident support for protectionist “Buy America” provisions, which drive up costs for taxpayers by making it harder for foreign firms to compete for government contracts and thus give American firms the ability to charge higher prices.

How much of a burden are these policies? How much more are taxpayers having to pay because governments can’t opt for the lowest qualified bidder?

According to research shared by the Peterson Institute for International Economics (PIIE), American taxpayers lose $94 billion per year.

The good news (if we have a very generous definition of “good”) is that procurement protectionism “only” pushes up costs in the United States by 5.6 percent.

Our dirigiste friends in the European Union suffer much more. Their procurement protectionism results in average markups of 17.6 percent, costing European taxpayers a staggering $471 billion.

But taxpayers are not the only losers.

In a 2017 study for PIIE, Gary Hufbauer and Euijin Jung explain that nations also lose exports because of procurement protectionism.

Buy American provisions are often enacted because politicians associate the patriotic slogan with the creation of domestic jobs. In fact, these laws are counterproductive: They are costly for taxpayers, they curtail exports, and they lose more jobs than they create. “Buy American” was bad policy in 1930 and does even more harm today. …Buy American dulls competition for everything that federal, state, and local governments purchase. Consequently, taxpayers pay inflated prices for new infrastructure, the latest information technology, and routine maintenance of subways, bridges, and airports. …Quantification is difficult, but the major federal Buy American laws probably equate to tariff equivalent barriers of at least 25 percent on federal purchases. State laws vary in scope and protective degree, but on average they probably entail at least 10 percent tariff equivalent barriers. …When Buy American policies are championed at home they are emulated abroad—in the form of Buy European, Buy Mexican, Buy Japanese, and other local content laws and policies. Consequently, US goods and services face severe barriers in foreign procurement markets. …US exports could expand by $189 billion annually if OECD countries all repealed their existing local content laws.

The Heritage Foundation’s Tori Smith authored a report when Trump was pushing his version of procurement protectionism. Here’s some of what she wrote.

Domestic content requirements, like those found in the Buy American Act, the Berry Amendment, and various other laws, result in additional regulatory burdens for producers, and increase costs for American taxpayers. All for little or no gain: The policies are unlikely to stimulate job growth in target industries. …Existing laws and provisions regarding domestic content requirements…are extremely onerous and complicated burdens. They have three main effects: (1) creating additional regulatory hurdles for producers; (2) costing American taxpayers more than they would otherwise pay for government projects; and (3) they are unlikely to yield job growth in target industries like the steel sector.

Here are the most important passages from her report.

…to eliminate all existing domestic content requirements….would create hundreds of thousands of American jobs across the country and contribute billions of dollars to U.S. gross domestic product.

And this chart shows how various states would benefit if there was open competition for government procurement.

I’ll close with three additional points.

First, it’s disappointing that Biden is continuing Trump’s protectionist policies. It’s even more disappointing that he wants to expand upon them. This is one area where people thought Biden might move policy in the right direction.

For some historical perspective on the failure of the Trump-Biden approach, the National Taxpayers Union helpfully shared the views of Harry Truman and Dwight Eisenhower.

Second, some national security experts make a very reasonable argument that the Pentagon should not make itself dependent on purchases from nations such as China.

But this is at most an argument for “Buy from Allied Nations,” not an argument for “Buy America.”

Third, Biden is perversely consistent. Everything he is doing will increase costs for taxpayers and consumers in order to bestow undeserved benefits on special-interest groups.

P.S. The argument for competition in the market for government procurement is the same as the general argument for free trade. And since we’re on the topic of trade, remember that dollars sent overseas as part of a procurement contract will come back to the United States, either to purchase American exports or as part of investment in the U.S. economy.

P.P.S. None of this changes the fact that the public sector should be much smaller. In a libertarian society, there would be far lower levels of government procurement.

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The Failure of Bidenomics, Part II

Yesterday’s column explained that Biden’s proposals to expand the welfare state were bad news, in part because government subsidies often lead to inefficiency and higher prices.

That’s not a smart strategy when inflation already is at 40-year highs.

President Biden did address the topic of rising prices during his speech, but his approach was so incoherent that even Larry Summers (Treasury Secretary for Bill Clinton and head of the National Economic Council for Barack Obama) felt compelled to share some critical tweets.

This is remarkable. I’ve spent the past three decades fighting against some of Summers’ bad ideas on fiscal policy (he was a big supporter of the OECD’s anti-tax competition project, for instance).

But now we’re sort of on the same side (at least on a few issues) because Biden has embraced a reckless Bernie Sanders-type agenda of budget profligacy, class-warfare taxes, regulatory excess, and crass protectionism that is too extreme for sane people on the left.

Along with a head-in-the-sand view of monetary policy.

In a column for Canada’s Fraser Institute, Robert O’Quinn and I addressed Biden’s strange comments on inflation.

Here’s some of what we wrote on that topic.

After a disastrous first year pursuing an agenda that became increasingly unpopular, President Biden had an opportunity to reset his administration in a centrist direction as part of his first State of the Union Address. But he didn’t. On every domestic issue, he catered to the Democratic Party’s hardcore left-wing activists… Inflation, as Nobel laureate Milton Friedman observed, is always and everywhere a monetary phenomenon. …In his speech, Biden ignored the true cause of inflation. Instead, he offered a grab bag of statist ideas such as aggressive antitrust enforcement, price controls on prescription drugs, and tax credits for energy conservation and green energy—policies that, whatever their merits, have little or nothing to do with inflation.

Our basic message is that Biden ignored the real cause of inflation (bad monetary policy by the Federal Reserve) and instead came up with ideas (either bad or irrelevant) to addresses the symptom(s) of inflation.

We also noted that Biden’s nominees to the Federal Reserve are underwhelming.

Moreover, he has been pushing three controversial nominees to the Federal Reserve Board—Sarah Bloom Raskin, Lisa Cook and Philip Jefferson—who lack monetary expertise and are generally regarded as inflation doves. Raskin’s primary “qualification” is her support for using the Fed’s regulatory powers to divert credit away from oil and natural gas production. Cook and Jefferson have primarily written about poverty and race, which are outside of the Fed’s legislative mandate.

What we need is a president – like Ronald Reagan – who understands that the inflation genie needs to be put back in the bottle and thus pushes the Federal Reserve in the right direction.

Instead, we have a president who thinks it’s a place where left-leaning activists should get patronage appointments.

P.S. If you have the time and interest, here’s an 40-minute video explaining the Federal Reserve’s track record of bad monetary policy.

P.P.S. If you’re constrained for time, I recommend this five-minute video on alternatives to the Federal Reserve and this six-minute video on how people can protect themselves from bad monetary policy.

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The Failure of Bidenomics, Part I

Joe Biden’s economic policy has been a disaster.

• He’s bad on the issues where Trump was bad (spending and trade).
• He’s bad on the issues where Trump was good (most notably, taxes).
• And he’s bad on the issues where Trump had a mixed record (regulation).

Based on his track record as a long-time Senator, none of this is a surprise. According to vote ratings from the Club for Growth and National Taxpayers Union, Biden was to the left of even Crazy Bernie.

Unfortunately, a bad president (anyone remember Nixon?) can do a lot more damage than a bad senator.

Today is Part I of a series of columns analyzing Biden’s failure.

We’ll start with his so-called Build Back Better plan. Joe Biden didn’t explicitly mention “BBB” is his State of the Union address, but he did promote almost all of the specific policies that are in that plan.

And he even made the preposterous argument that some of those policies would help bring inflation under control.

I’ve repeatedly explained why the president’s plan for a bigger welfare state is bad news, but this tweet from Americans for Prosperity’s Akash Chougule does a great job of debunking Biden’s argument in a very succinct fashion.

You may recognize the chart. As I pointed out last year, it shows that prices rise rapidly in areas where government subsidies distort the market.

In areas where the free market operates, by contrast, prices actually tend to decline.

I’ll close with the observation that Biden’s Build Back Better is a clunky amalgamation of new and expanded entitlements. His per-child handout is the most expensive, and it’s especially pernicious because it would undo the success of Bill Clinton (and Newt Gingrich’s) welfare reform.

But if there was a prize for the most economic damage per dollar spent, Biden’s scheme for government-dictated childcare would be the worst of the worst since he subsidizes demand while also restricting supply. If it gets approved, the chart may need a new vertical axis because Biden will screw up the market for childcare even more than the government has screwed up the markets for health care and higher education.

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Understanding Jobs, Trade, and Creative Destruction

I’ve previously explained that “creative destruction” is the best and worst part of capitalism. This new video has more details.

I have three goals with this video.

First, I explain that trade destroys jobs. But protectionists won’t be happy with my message because I point out that all trade destroys jobs – whether we are looking at trade inside a country or trade that crosses national borders.

To be more specific, jobs are destroyed because of changes in trade that are caused by innovation. And I cite several examples.

• The invention and adoption of the light bulb destroying jobs in the candle-making industry.
• The invention and adoption of the automobile destroying jobs in the horse-and-buggy industry.
• The invention and adoption of the personal computer destroying jobs in the typewriter industry.

Second, I explain that this creative destruction boosts our living standards. Americans are far more prosperous today than we were 50 years ago or 100 years ago.

And I specifically point out in the video that this is true even for the descendants of candle makers, blacksmiths, and typewriter makers.

Third, I share data from the Bureau of Labor Statistics about massive annual job losses in the private sector that occurred in 2017 and 2018, but I also pointed out that an ever larger amount of new jobs were created in those two years.

For today, I’m going to update those numbers by also showing what happened in 2019. As you can see from the chart, the United States lost more than 85 million jobs during those three years (the orange bars), but those losses were fortunately offset by a gain of nearly 91 million private-sector jobs (the blue bars).

There’s also data for 2020 and part of 2021, and those numbers tell an unhappy story because we still haven’t recovered from pandemic-related job losses (notwithstanding President Biden’s false claims in his State of the Union speech last night).

The moral of the story is that major job losses are an unavoidable feature of a modern economy. And that’s true regardless of the level of cross-border trade.

Which is why policymakers should focus on making sure we have sensible policies (low tax rates, efficient markets, spending restraint, open trade, etc) that allow high levels of new job creation in the United States.

P.S. Creative destruction also means that some companies disappear and are replaced by new ones.

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