New York City’s Grim Fiscal Outlook

Back in 2020, I warned that then-Mayor Bill de Blasio was setting the stage for fiscal crisis.

During his eight years in office, he violated fiscal policy’s golden rule by increasing the burden of government spending at three times the rate of inflation.

And all that spending requires lots of taxes, which helps to explain why residents were escaping New York City even before the pandemic.

But the pandemic accelerated the exodus, and that is turning a bad fiscal situation into a terrible fiscal situation for the new Mayor, Eric Adams.

Reporting for the New York Times, Nicole Hong and Matthew Haag write about how rich people (and their tax revenue) have been escaping New York City.

…roughly 300,000 New York City residents left during the early part of the pandemic… Now, new data from the Internal Revenue Service shows that the residents who moved to other states by the time they filed their 2019 taxes collectively reported $21 billion in total income, substantially more than those who departed in any prior year on record. …a potential loss that could have long-term effects on a city that relies heavily on its wealthiest residents to support schools, law enforcement and other public services. …The top 1 percent of earners, who make more than $804,000 a year, contributed 41 percent of the city’s personal income taxes in 2019. …The exodus to Florida was especially robust, and not just for the retiree crowd. …The pandemic accelerated the relocation of several New York-based financial firms to new offices or headquarters in Florida. …The Manhattan residents who moved to Palm Beach County had an average income of $728,351, IRS data showed.

So why are people leaving the City?

Some of it was temporary, caused by the pandemic.

But it’s very likely that most high-income emigrants won’t return. Why? Because New York City has bad governance. Everything from big problems like crummy schools to small problems like regulatory overkill.

So why pay lots of taxes when you get very little in return?

In a column last year for the New York Post, Nicole Gelinas warned about job losses in the financial industry.

…the city’s financial-industry jobs (not including real estate) were down 5 percent, to 338,800, compared with pre-COVID August 2019. Commercial-banking jobs are down 7 percent, to 67,300. Investment-related jobs are also down 7 percent, to 177,600. If we weren’t distracted by huge, double-digit percentage losses in other parts of the city’s economy, like arts and entertainment, these would be big numbers. …Some of this job destruction is a gain for other states. In Florida, financial jobs…are up 6 percent since August 2019, to 422,000. …yet another small investment firm, ARK, said it would close its New York headquarters and move…, with most of its dozens of workers going. …We used to fret about what happened when Wall Street crashed; now, we should fret that we have these woes when Wall Street hasn’t crashed.

When jobs are lost, that’s bad news for politicians because they miss out on tax revenue. And that’s true if jobs simply disappear and it’s true if the jobs move to low-tax states like Florida.

And it’s a big problem because Mayor Adams inherited a big mess. Simply stated, revenues are running away at the same time that spending is going up.

Emma Fitzsimmons wrote for the New York Times that the former Mayor’s legacy is a bloated city budget, which is connected to an ever-expanding bureaucracy.

Bill de Blasio will be remembered for many things…But one central element of his administration has received less attention: his passion for spending money. Under Mr. de Blasio, the city’s budget has soared to a record $102.8 billion, and the city work force rose to more than 325,000 employees, its highest level ever. His final budget, more than $25 billion higher than his first budget in 2014… Mr. de Blasio’s spending spree could create problems for Mr. Adams… The city work force…quickly began to rise…after Mr. de Blasio took office — pleasing the city’s municipal unions, some of which were major donors to the mayor’s political endeavors. …The increases to the city work force will create long-term costs for the city for health care, pensions and retiree benefits.

I can say “I told you so” because I warned that de Blasio was bad news when he was running for office in 2013.

Now the chickens are coming home to roost.

P.S. Just as many states compete to be the worst, the same is true for cities. Yes, New York City is a mess, but is it better or worse than places such as Chicago, Seattle, Minneapolis, Detroit, and San Francisco?

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Europe’s Soon-to-Implode Welfare States

What’s the most depressing chart in the world?

If you believe in limited government and you’re looking back in time, this example or this example are good candidates.

But if we’re looking into the future, this chart from a new study by the European Central Bank is very sobering.

And it’s a depressing chart because it doesn’t matter whether you believe in big government or small government. That’s because this chart shows a dramatic shift in population demographics.

Simply stated, Europe’s welfare states are in deep trouble because over time there will be fewer and fewer workers to pay taxes and more and more old people expecting benefits.

Here’s what the ECB experts, Katalin Bodnár and Carolin Nerlich, wrote about their findings.

The euro area, like many other advanced economies, has entered an era of drastic demographic change. …Declining birth rates and rising life expectancy are causing the number of pensioners to increase relative to workers. In the next one and a half decades, this trend will be amplified as the sizeable baby boom generation enters retirement and the cohort of workers shrinks. …The old-age dependency ratio is projected to reach almost 54% by 2070… If left unaddressed, population ageing will pose a burden on public finances in the euro area, given the relatively strong role of publicly financed pension and health care systems. Debt sustainability challenges might arise from mounting ageing-related public spending, which will be particularly a concern in high debt countries.

That last sentence in the above excerpt should win a prize for understatement of the year.

Many of Europe’s welfare states already are on the verge of crisis. And as demographics change over time (findings replicated in the European Commission’s Ageing Report), they will go from bad to worse.

Here’s a breakdown of how the “age dependency ratio” will change in various nations.

By the way, if you look at the right side of Chart 4, you’ll see Japan’s horrible numbers as well as a worrisome trend for the United States.

Most people focus on how demographic change will lead to more debt.

I think it’s more important to focus on the underlying problem of government spending.

This next chart combines both. The vertical axis shows the increase in age-related government spending while the horizontal axis shows debt levels.

The bottom line is that countries in the top-right quadrant are in deep trouble. Especially in the long run (though Italy could go belly-up very soon).

The ECB report does suggest ways to address this looming crisis.

To safeguard against the adverse economic and fiscal consequences of population ageing, there is a need to build-up fiscal buffers during good economic times, to improve the quality of public finance and to implement growth-enhancing structural reforms. …Further pension reforms are needed that encourage workers to postpone their retirement.

Don’t hold your breath waiting for any of these things to happen. Building up “fiscal buffers” means running surpluses today to offset deficits tomorrow. But European nations are running big deficits because of excessive spending today, so there will be no maneuvering room in the future.

P.S. Here’s some comedy (and more comedy) about Europe’s fiscal mess.

P.P.S. It is possible to reduce large debt burdens, so long as governments simply restrain spending.

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Biden’s Anemic Jobs Market

I’ve long argued that it’s generally better to focus on employment rather than unemployment when assessing the health of the job market, and I had a chance to pontificate on that topic for Labor Relations Radio.

Sadly, labor force participation numbers weren’t good under Obama and they improved only marginally under Trump.

And, as you might expect, the numbers are not good under Biden.

Courtesy of the Bureau of Labor Statistics, here is the data on the labor force participation rate.

As you can see, the numbers were declining for much of this century, but then began to improve before falling off a cliff because of the pandemic.

For purposes of today’s column, it’s rather troubling that the labor market has not bounced back to where it was before coronavirus wreaked so much havoc.

The Employment-Population Ratio, also from the Bureau of Labor Statistics, tells a similar story.

There was a big drop at the end of the Bush years and start of the Obama years, followed by a gradual recovery that was short-circuited by the pandemic.

Sadly, we have not come close to recouping those losses.

By the way, there are some folks on the left who recognize this problem.

Andrew Yang recently tweeted about the drop in labor force participation.

And he had a follow-up tweet pointing out that every one-percentage-point drop in labor force participation translates into 2.5 million fewer people being employed.

Is he right?

Well, let’s look at another chart from the Bureau of Labor Statistics.

As you can see, total employment today (158.4 million people) is not even back to where it was before the pandemic (158.9 million people).

And we would need a couple of million more jobs simply to get back on the pre-pandemic trendline.

To be fair, I don’t think Biden is fully responsible for the sub-par numbers. We probably would not be back to the pre-pandemic trendline even if we had good policy from Washington.

That being said, Biden is making a bad situation worse. His so-called stimulus was a net-job destroyer.

I’m sure additional red tape also is hindering job growth. Moreover, the threat of higher taxes surely isn’t helping.

The bottom line is that we need more people working, but that probably won’t happen unless we get government out of the way.

P.S. If you want technical definitions, here’s how the BLS defines the above terms.

• The labor force participation rate. This measure is the number of people in the labor force as a percentage of the civilian noninstitutional population 16 years old and over. In other words, it is the percentage of the population that is either working or actively seeking work.
• The employment-population ratio. This measure is the number of employed as a percentage of the civilian noninstitutional population 16 years old and over. In other words, it is the percentage of the population that is currently working.

P.S. If you want a humorous take on labor economics, I recommend this Wizard-of-Id parody, as well as this Chuck Asay cartoon and this Robert Gorrell cartoon.

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School Choice on the March…Again

I thought passage of statewide school choice last year in West Virginia was something to celebrate.

And it was, especially since other states also expanded educational freedom for families.

But there’s even better news from Arizona, where the legislature just enacted, and the governor just signed, the nation’s most comprehensive system of school choice.

Parents will get vouchers of about $7,000 for each school-age child, to be used at the schools that are best for their children.

This is a victory for parents. And a victory for taxpayers.

The Goldwater Institute in Phoenix played a big role in this victory. Here’s their description of the now-universal Empowerment Scholarship Accounts.

In a major victory for families weary of a one-size-fits-all approach to education, the Arizona Legislature today passed a groundbreaking bill which ensures all Arizona families can access school choice. …ESAs, which Goldwater pioneered in Arizona more than a decade ago, put money that would otherwise go toward a given child’s public education into an account that parents can use to customize their child’s education experience to best meet their unique needs. …Families would receive over $6,500 per year per child for private school, homeschooling, ‘learning pods,’ tutoring, or any other kinds of educational service that would best fit their students’ needs.

I’m glad to see that homeschooling is on a level playing field.

Here’s some media coverage from KAWC.

Arizona Republican lawmakers late Friday gave final approval to the most comprehensive system of vouchers of taxpayer funds for private and parochial schools in the nation. The 16-10 Senate vote came as proponents said parents want more choice for their children. …The solution that Republicans say HB 2853 offers is to allow each of the 1.1 million students in Arizona public schools to get a voucher they can use to attend a private or parochial school. …Sen. Paul Boyer, R-Glendale, said the nature of providing resources to parents to make education choices necessarily makes them more involved in their child’s education as they have the resources to choose a school. “Remember: this is for whatever the parent thinks is best for their kid,” he said. “And, for the life of me, I still can’t fathom why anybody would oppose that.”

Sen. Boyer is right. There are no good arguments against school choice.

This is a very simple issue. Government schools are failing. They’ve received more money and more money, yet they keep producing dismal results.

You can blame the natural inefficiency of monopolies. You can blame teacher unions. Heck, you can blame sunspots or space aliens for all I care.

What matters is giving ordinary families an opportunity to get better education for their kids (the same choice that rich – and hypocritical – leftists like to utilize).

Thanks to lawmakers in Arizona, more American families will now have this opportunity.

P.S. It’s uplifting to see very successful school choice systems operate in nations such as Canada, Sweden, Chile, and the Netherlands.

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Shareholders Over Stakeholders, Part II

In Part I, I warned that “stakeholder capitalism” is not just empty virtue signaling. Some advocates are using the concept to promote a statist agenda.

For Part II, let’s start with this video.

The main message of the video is that ethical profits are good for shareholders, but also good for everyone else (the supposed stakeholders).

By contrast, companies that don’t prioritize profits wind up hurting workers and consumers, not just the company’s owners (i.e., shareholders).

Let’s dig deeper into this topic.

Stakeholder theory reflects the more interventionist approach of continental Europe’s “civil law” while the shareholder approach is more consistent with the “common law” approach of the Anglosphere (the United Kingdom and many of its former colonies, including the United States).

That’s a key observation in Samuel Gregg’s column for Law & Liberty, which reviews a book by Professor Nadia E. Nedzel.

…stakeholder theory reinforces continental European rule through law inclinations and vice-versa, not least because of shared hard-communitarian foundations. …Such goals undermine the ability of corporations to produce prosperity. An emphasis on stability and maintaining levels of employment, for instance, exacts a cost in terms of organizational dynamism, not least by discouraging risk-taking and entrepreneurship. …Without such adjustments, however, a business will become complacent and uncompetitive. Eventually it will disappear, along with all the jobs once provided by the business. Likewise, if boards of directors are not focused on delivering shareholder value because profit is considered only one of many company objectives, a decline in earnings is sure to follow. …To the extent that stakeholder theory draws upon hard-communitarian principles which it shares with continental European rule through law models, it risks undermining already fragile commitments to rule of law in America and elsewhere. That’s just one more reason to shore up the priority of shareholder interests throughout corporate America. These priorities help explain the weaker economic performance of many corporations in civil law jurisdictions compared to those businesses located primarily in the Anglo-American sphere.

Allison Schrager of he Manhattan Institute wrote for the City Journal that Biden is on the wrong side and that his mistake, along with others, is failing to understand that so-called stakeholders benefit when companies are profitable.

…one thing that stood out was Biden’s vow to “put an end to the era of shareholder capitalism.” …disdain for the notion that a corporation’s primary objective is to maximize value for its shareholders has united the disparate likes of Elizabeth Warren and Bernie Sanders and the Davos/Larry Fink crowd. It’s no surprise that Joe Biden is against it, too. …Maximizing shareholder value…does not create conflicts between different stakeholders, because economic success is not zero-sum. …long-term success requires happy and loyal employees, a healthy relationship with the community, and a thriving environment.

In a column for the Wall Street Journal, Lucian A. Bebchuk and Roberto Tallarita shared their research showing that CEOs who pontificate about stakeholders don’t actually change their behavior.

…we dug deeper, investigating an array of corporate documents for the 136 public U.S. companies whose CEOs signed the statement. …we found evidence that the signatory CEOs didn’t intend to make any significant changes to how they do business. …We’ve identified almost 100 signatory companies that updated their corporate governance guidelines by the end of 2020. We found that the companies that made updates generally didn’t add any language that elevates the status of stakeholders, and most of them reaffirmed governance principles supporting shareholder primacy. …We also found that about 85% of the signatory companies didn’t even mention joining the “historic” statement in their proxy statements sent to shareholders the following year. Among the 19 companies that did mention it, none indicated that joining the statement would cause any changes to how they treat stakeholders.

Speaking of insincere hypocrites, that’s a good description of the Davos crowd. Matthew Lesh of the Adam Smith Institute wrote about their trendy support for stakeholders in a column for CapX.

…the man behind the World Economic Forum has declared that Covid warrants a ‘Great Reset’. With tedious predictability, Klaus Schwab’s bogeymen are the twin menaces of “neoliberal ideology” and “free market fundamentalism”. …he’s also calling for a “stakeholder model of corporate capitalism”… But it’s an idea based on a false dichotomy. A business that fails to return a profit to its shareholders cannot do anything for its other stakeholders, such as providing useful products to customers, paying its staff, procuring from suppliers… Delivering for shareholders is ultimately indivisible from benefiting your other ‘stakeholders’ because you can’t do one without the other. …Shivaram Rajgopal of Columbia Business School has found that top European companies who brandish their social and environmental credentials do no better in these criteria than American companies. But the European firms are much worse at ensuring good corporate governance. For example, worker representation on Germany’s supervisory boards has often meant worker representatives teaming up with managers to push against new technology and methods. In the longer run, this undermines returns to shareholders, but also means poorer products for customers, lower salaries for employees.

The bottom line is that there are lots of misguided attacks against capitalism, but none of the criticisms change the fact that free enterprise is the only system to ever deliver mass prosperity to ordinary people.

And that’s true even if big companies don’t support the system that enabled their very existence (perhaps because they fear they will got knocked from their perch by the the forces of “creative destruction“).

P.S. Just like yesterday, I can’t resist adding this postscript about the left-leaning executive who thought he was rejecting Milton Friedman, but actually did exactly as Friedman recommended.

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Shareholders Over Stakeholders, Part I

My warm and fuzzy feelings for “capitalism” turn sour when someone promotes a modified version such as “common-good capitalism.”

Why? Because I worry such terms imply a Trojan Horse for statism. And that’s definitely the case with so-called “stakeholder capitalism.”

As you can see, my core argument is that stakeholder capitalism is just another way of saying cronyism. And if I was being lazy, I would simply point out that Elizabeth Warren is a big proponent of the idea. That, by itself, should convince every thinking person that it’s a bad idea.

But I’m not going to be lazy. I’m going to cite some experts to show why stakeholder capitalism is bad news.

But first, I mentioned Milton Friedman’s famous quote in the above video clip.

Here’s the full quote, and notice that he explicitly says companies should follow rules – both legal and ethical – as they pursue profits.

Friedman was advocating what is sometimes referred to as “shareholder capitalism,” which is the notion that a company should strive to earn honest profits for its owners.

So what, then is stakeholder capitalism? In a column for the Wall Street Journal, Professor Alexander William Salter warns us that it is an invitation for intervention.

…beneath the lofty rhetoric, stakeholder capitalism is mostly a front for irresponsible corporatism. …Stakeholder capitalism is used as a way to obfuscate what counts as success in business. By focusing less on profits and more on vague social values, “enlightened” executives will find it easier to avoid accountability even as they squander business resources. While trying to make business about “social justice” is always concerning, the contemporary conjunction of stakeholder theory and woke capitalism makes for an especially dangerous and accountability-thwarting combination. …profits are an elegant and parsimonious way of promoting efficiency within a business as well as society at large. Stakeholder capitalism ruptures this process. When other goals compete with the mandate to maximize returns, the feedback loop created by profits gets weaker.

Writing for the Washington Post, George Will has a similarly scathing assessment.

…everyone who values economic dynamism, and the freedom that enables this, should recoil from the toxic noun “stakeholder.” …Stakeholder capitalism violates fiduciary laws that require those entrusted with investors’ money to employ it “solely in the interest of” and “for the exclusive purpose of providing benefits to” the investors. …In a dynamic society, resources are efficiently disposed by corporate managements whose primary duty, which other corporate activities do not compromise, is to maximize shareholder value… Self-proclaimed stakeholders, parasitic off others’ labor and accumulation, assert that everything is their business.

In a column for the Wall Street Journal, Phil Gramm and Mike Solon point out that today’s stakeholder capitalism is very similar to feudalism, which was a pre-industrial form of socialism.

…because of the misery Marxism has imposed, the world has a living memory and therefore some natural immunity to a system in which government takes the commanding heights of the economy. No such immunity exists to the older and therefore more dangerous socialism of the pre-Enlightenment world. In the communal world of the Dark Ages, the worker owed fealty to crown, church, guild and village. Those “stakeholders” extracted a share of the product of the sweat of the worker’s brow and the fruits of his thrift. …The 18th-century Enlightenment liberated…people to…own the fruits of their own labor and thrift. …These Enlightenment ideas spawned the Industrial Revolution and gave birth to the modern world… Remarkably, amid the recorded successes of capitalism and failures of socialism rooted in Marxism, pre-enlightenment socialism is re-emerging in the name of stakeholder capitalism. …the biggest losers in stakeholder capitalism are workers, whose wages will be cannibalized.

Amen. The only economic system to ever produce mass prosperity for workers is capitalism (or, if you prefer, free enterprise or classical liberalism).

And the pursuit of profit is what generates efficiency, which is economic jargon for higher living standards. And that’s good for rich people and poor people.

The bottom line is that I’m not surprised when politicians support so-called stakeholder capitalism. After all, the crowd in Washington likes to have more power.

Based on what I said at the end of the above video, I’m disappointed – but not surprised – when big businesses (such as the Business Roundtable or Larry Fink of Blackrock) embrace the idea. After all, “creative destruction” is not so appealing when you’re already as the top.

P.S. I was very amused by the left-leaning CEO who criticized Friedman, but then did exactly as Friedman recommended.

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Illinois and Fiscal Suicide, Part II

Yesterday’s column discussed Caterpillar’s decision to move its headquarters from high-tax Illinois to low-tax Texas.

Today, we have more bad news for the Prairie State.

A major investment fund, Citadel, also has decided to leave Illinois.

Is the company moving to a different high-tax state, perhaps California or New York? Maybe Connecticut or New Jersey?

Nope. Citadel is going to Florida, a state famous for having no income tax.

The Wall Street Journal opined this morning about Citadel’s move.

The first step to recovery is supposed to be admitting you have a problem. But Illinois Gov. J.B. Pritzker still won’t, even after billionaire Ken Griffin on Thursday said he’s moving his Citadel hedge fund and securities trading firm to Miami from Chicago. …Meantime, Democrats in Springfield continue to threaten businesses and citizens with higher taxes… It’s no wonder so many companies and people are leaving, and mostly to low-tax states. …In 2020, $2.4 billion in net adjusted gross income moved to Florida from Illinois, about $298,000 per tax filer. …Mr. Griffin has spent tens of millions of his personal fortune trying to rescue Illinois from bad progressive governance. Maybe he figures it’s time to cut his losses.

Other (former) Illinois residents cut their losses last decade.

Scott Shackford of Reason shared grim data at the end of 2020 about the ongoing exodus from Illinois.

For the seventh year in a row, census figures show residents moving out of Illinois in significant numbers. …Perhaps demanding that your excessively taxed residents give the government even more money is not the best way to keep those residents in your state… Over the course of the last decade, Illinois lost more than a quarter-million people…not even California…has seen Illinois’ population loss. …Government leaders have responded not with better fiscal management (the state’s powerful unions blocked pension reforms), but with more taxes and fees, even as residents leave.

The bottom line is that Illinois is currently losing people and businesses.

Just as it lost people and businesses last decade.

And you can see from this map that taxpayers also were fleeing the state earlier this century.

I’m guessing the state’s hypocritical governor probably thinks this is a good thing because the people who left probably didn’t vote for tax-and-spend politicians.

But that’s a very short-sighted viewpoint.

After all, parasites need a healthy host. If you’re a flea or a tick, it’s bad news if you’re on a dog that dies.

As Michael Barone noted many years ago, that’s a lesson that Illinois politicians haven’t learned.

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Illinois and Fiscal Suicide, Part I

I wrote a couple of days ago about California’s grim future.

But now I’ll share some good news. No matter how bad California gets, the Golden State probably won’t have to worry about people and businesses fleeing to Illinois.

That’s because the Prairie State is an even bigger mess. If California is committing “slow motion suicide,” Illinois is opting for the quickest-possible fiscal demise.

Politicians in Springfield (the Illinois capital) have a love affair with higher taxes. A very passionate love affair.

But the state’s productive people have a different point of view. More and more of them have been escaping.

And they are now being joined by the state’s most-famous company, as Matt Paprocki of the Illinois Policy Institute explains in a column for the Washington Post.

When Boeing announced last month that it was moving its headquarters from Chicago to Arlington, Va., it sent shudders through the Illinois business community and state capital. But last week, when the heavy-equipment manufacturer Caterpillar said it was moving its headquarters to Texas, it felt more like a bulldozer ramming into the news. …If you’re an Illinois business owner or resident, as I am, the economics of staying are tough and the enticements to move away are many. …According to the U.S. Census Bureau, last year the state had the third-largest loss of residents due to domestic migration in the nation (-122,460), trailing only California and New York.

It’s easy to understand why people and businesses are leaving.

In 2017, Illinois lawmakers raised the personal income tax rate to 4.95 percent, from 3.75 percent, and hiked the corporate rate to 7 percent, from 5.25 percent. When J.B. Pritzker took office as governor in 2019, he passed another 24 tax and fee hikes costing taxpayers over $5 billion. …With 278,475 regulatory restrictions and requirements — double the national average — Illinois has the third most heavily regulated environment in the country. …Illinois owes over $139 billion in state pension debt as of last year, and local governments owe about $75 billion, which is the primary driver for Illinois’ spiraling property taxes, second-highest in the nation.

Mr. Paprocki offers all sorts of suggestions for reform, including a spending cap.

But the chances of pro-growth reform are effectively zero. The governor is a hard-core leftist (as well as a hypocrite) and the state legislature is controlled by government employee unions.

So if you’re hoping for a TABOR-style spending cap, there’s little reason to be optimistic.

And if you’re hoping for reforms that will improve the state’s “least friendly” tax climate, don’t hold your breath.

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Deconstructing Biden’s Corporate Tax Cartel, Part III

As part of my continuing efforts to derail Biden’s global minimum tax on businesses (here’s Part I and Part II), I explain the downsides of the president’s plan in this clip from a recent interview.

If you don’t want to spend three minutes to watch the above video, my views are summarized by this excerpt from an interview with the BBC.

Simply stated, politicians want to grab more money from businesses.

But let’s not forget that taxes on companies are actually paid by workers, consumers, and shareholders.

We do have some good news. Hungary is stopping, at least temporarily, the European Union from embracing its version of a minimum tax.

In a column for the Wall Street Journal, a member of that nation’s parliament explains his government’s position.

Adopting the European Commission’s minimum-tax directive now would be a profound mistake. …The EU directive, proposed by the European Commission in December 2021, aims to introduce a 15% minimum tax rate, effective Jan. 1, 2023…the current proposal would increase the tax burden on European manufacturers, which drive economic growth. The directive would need to be unanimously agreed by 27 EU member states to take effect. Hungary can’t support a proposal that would hurt the weakened European economy… Adopting the directive would hit Central European economies the hardest by damaging their favorable tax systems, a key competitive advantage over their Western European counterparts. …Hungary’s ability to set its own fiscal policies in this crisis is indispensable. To protect our competitiveness and sovereignty, the Hungarian National Assembly passed a resolution prohibiting the government from agreeing to implement a global minimum tax.

Let’s be thankful that Hungary said no.

But I’m still very worried, for two reasons.

• First, the column focuses on why it would be a very bad idea to impose a global tax cartel during the current period of economic turmoil. That’s true, but it implies that it might be acceptable to impose a global minimum tax at some other point. That’s definitely not the case.
• Second, it’s bad news that other nations – such as Ireland, Estonia, and Luxembourg – didn’t side with Hungary (Ireland’s capitulation is particularly disappointing).

Since we’re discussing the merits (or lack thereof) of a global minimum tax, let’s look at what others have written about the idea.

Aharon Friedman and Joshua Rauh opined against the concept of a global minimum corporate tax in an article for Fox News.

…the administration is conspiring at the OECD to stifle tax competition across the globe by effectively requiring all countries to impose similarly high tax rates. …teaming up with the OECD to be the world’s tax policeman would be disastrous for many reasons. …a global minimum tax would have to feature very detailed rules over every aspect of taxation, from cost recovery, losses, and interest deductibility, to tax incentives such as R&D and what kinds of businesses must be subject to the tax in the first place. The scheme would shift enormous power to the OECD Secretariat, which would start to look like the world’s IRS Commissioner. This would also be a backdoor through which to further strip tax lawmaking from Congress and place it in the hands of Treasury and its foreign counterparts. …The Biden administration is trying force countries across the world to adopt its own preference for high taxes on corporate income regardless of the effect on employment and wages.

The Wall Street Journal editorialized against this scheme last year.

Ignore the back-slapping about revenues and “fairness.” This deal is bad news for economies recovering from the pandemic, and especially the U.S. …Officials and progressive activists say they’re halting a global “race to the bottom” on corporate taxes. We’re glad they finally concede that tax rates matter to decisions about investment and job creation, since the left has denied this for decades. But the real action has been on tax policy competition, which has been instrumental to economic growth, innovation and job creation since the 1980s. The OECD plan will throttle that competition. That’s because, while the G-7 agreement focuses on the headline rate for the new minimum tax, the OECD plan comes with reams of harmonized fine print… Suppressing tax competition is the main reason the Biden Administration broke with Washington’s long, bipartisan tradition of opposing a global minimum tax. …American workers, consumers and shareholders will pay the price.

Writing for CapX, Kai Weiss warns that a global minimum tax is a cartel to benefit governments with uncompetitive tax systems.

…there’s a real danger that these proposals will damage the prosperity of competitiveness of the world’s major economies, while trampling on nation states’ freedom and sovereignty. …The likes of France and Germany have long taken umbrage that smaller member states like Ireland and Luxembourg have used low corporate tax rates… Rather than reconsider their own counterproductive policies, the EU’s two biggest economies have simply decided to try forcing everyone else to play by their rules. …It’s hard to avoid the conclusion that this is another bout of protectionism from countries such as Germany, France, and Italy which have long pursued counter-productive, draconian tax policies. The big difference now is that they have a willing ally in the shape of Joe Biden. …there’s a word for this kind of behaviour. If businesses were following such a strategy instead of governments “we would call this a cartel”.

Last year, Thomas Duesterberg wrote critically about the implications for national sovereignty in a column for the Wall Street Journal.

Treasury Secretary Janet Yellen has a grand idea: a global tax regime. …Together with the Biden administration’s plan to raise the U.S. corporate tax rate to 28% and eliminate preferences, it would return the U.S. to its pre-2017 status as a high-tax jurisdiction, discouraging domestic capital investment and production. More insidious, it would cede authority over taxation, one of the pillars of democratic governance… This approach would transfer significant national sovereignty over corporate taxation, key to overall economic policy, to some yet-to-be-defined international regime under the guidance of the OECD… The Biden team should understand the road it is heading down. …Ceding corporate-taxation authority to an undefined international authority that will inevitably be controlled by an unelected technocratic elite would erode Madisonian principles even further. It would move America closer to the EU model of governance.

Needless to say, the EU model of governance (centralization, harmonization, and bureaucratization) is not a good idea.

I’m not optimistic, but my fingers are crossed that this awful idea of a global minimum tax will fall apart.

If the politicians prevail, the rest of us will lose. We’ll have a system that produces ever-higher tax burdens.

P.S. If you want to understand the case for tax competition, click here, here, and here.

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Opponents of School Choice Don’t Have Good Arguments

It was back in 2010 when I first shared a video about school choice. We’ve enjoyed a lot of progress since then, which is producing a backlash from teacher unions and their lackeys.

In this new video, Corey DeAngelis debunks their arguments.

The “3 big lies” mentioned in Corey’s video are 1) school choice defunds governments schools, 2) school choice is unaccountable, and 3) school choice violates separation of church and state.

When I discuss this issue with my left-leaning friends, they usually trot out the third argument. They say it is wrong, or perhaps even unconstitutional. to give families tax-funded vouchers that can be used at religious schools.

I then ask them whether they want to get rid of grants and loans for college students who attend religious schools such as BYU, Baylor, and Boston College?

Needless to say, I’ve never received an intelligent answer to that question.

To be fair, that’s not their only argument. They also claim that the solution to bad government schools is more money from taxpayers.

Corey didn’t address that myth in his video, but I’ve explained – over and over again – that we’ve tried that approach. At the risk of understatement, it doesn’t work.

School choice, by contrast, produces good results.

Even in some unexpected places. In a column for the Foundation for Economic Education, Laura Williams describes how school choice has successfully operated in Vermont’s “tuition towns” for a long time.

Too small and sparsely populated to support a traditional public school, these towns distribute government education funds to parents, who choose the educational experience that is best suited to their family’s needs. …Ninety-three Vermont towns (36 percent of its 255 municipalities) have no government-run school at all. …In these towns, the funds local governments expect to spend per pupil are instead given directly to the parents of school-age children. This method gives lower- and middle-income parents the same superpower wealthy families have always had: school choice. …A variety of schools has arisen to compete for these tuition dollars. A spectrum from centuries-old academies to innovative, adaptive, and experimental programs… Eligibility for tuition vouchers actually increased home values in towns that closed their public schools. Outsiders were eager to move to these areas… Because parents, not bureaucrats or federal formulas, determine how funds are allocated, schools are under high economic pressure to impress parents⁠—that is, to serve students best… Having watched these models develop nearby, two more Vermont towns voted in 2013 to close their government-run schools and become “tuition towns” instead. …Wealthy parents will always have school choice. They have the power to choose the best opportunity and the best fit for their individual child. Tuition towns—where all parents direct their child’s share of public education spending—give that power to every family.

Amen.

The concluding sentences are very important. School choice is a way of giving families with modest incomes the same opportunities that have always existed for rich families (including the families of hypocritical politicians).

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

P.P.S. Since I’m a fiscal economist, I can’t resist mentioning that school choice is not only good for students, but for taxpayers as well.

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California’s Grim Future

I’ve been warning for many years that California is committing “slow-motion suicide.” I discussed the not-so-golden future of the Golden State as part of a longer interview with Chile’s Axel Kaiser.

If you don’t want to spend a couple of minutes to watch the interview, the key takeaway is that California has lots of natural advantages, but the state is suffering from too much government.

Both fiscal policy and regulatory policy are a nightmare, and the net result is that people and business are now leaving the state.

I wrote about the state’s problems back in January, and I also addressed the link with California’s bad policy in columns in 2016 and 2020.

So instead of regurgitating some of my thoughts, let’s use today’s column to see what others have written.

For instance, Joel Kotkin wrote a very depressing assessment of California for Real Clear Investigations.

…most Californians, according to recent surveys, see things differently. They point to rising poverty and inequality, believe the state is in recession and that it is headed in the wrong direction. …Reality may well be worse… In a new report for Chapman University, my colleagues and I find California in a state of existential crisis, losing both its middle-aged and middle class, while its poor population faces dimming prospects. …Worse than just a case of progressive policies creating regressive outcomes, it appears California is descending into something resembling modern-day feudalism… California also suffers the widest gap between middle- and upper-middle-income earners of any state. …California lags all peer competitors – Texas, Arizona, Tennessee, Nevada, Washington and Colorado – in creating high wage jobs in fields like business and professional services… California’s “renewable energy” push has generated high energy prices and the nation’s least-reliable power grid… The state now ranks 49th in homeownership rate… California ranked 49th in the performance of poor, largely minority, students. …since 2000, California has lost 2.6 million net domestic migrants… In 2020, California accounted for 28 percent of all net domestic outmigration in the nation.

In a column for the Washington Examiner, Cole Lauterbach shares some of the findings from a new study published by the Hoover Institution.

A report studying business headquarter migration says California’s businesses are moving their centers of operations at a much higher rate in 2021 compared to previous years. …The authors use several different sources to track business migration out of the state, finding the number of companies who either announce or file that they’re in another state has risen sharply… The authors stress that the numbers are likely understated since smaller companies aren’t required to disclose a move. In their research, the authors found “high tax rates, punitive regulations, high labor costs, high utility and energy costs, and declining quality of life for many Californians which reflects the cost of living and housing affordability,” as reasons for the moves. …The most common destinations for states leaving California are Texas, Arizona and Nevada.

Notice, by the way, that Texas and Nevada have no income tax and Arizona has a low-rate flat tax.

But let’s keep the focus on California’s overall problems.

Conor Friedersdorf, in an article for the Atlantic, offers a grim assessment of the Golden State.

This place inspires awe. If I close my eyes I can see silhouettes of Joshua trees against a desert sunrise; seals playing in La Jolla’s craggy coves of sun-spangled, emerald seawater; fog rolling over the rugged Sonoma County coast at sunset into primeval groves of redwoods that John Steinbeck called “ambassadors from another time.” …Yet I fear for California’s future. …the state’s leaders and residents shut the door on economic opportunity… Indeed, blue America’s model faces its most consequential stress test… the Institute for Justice, a public-interest law firm, released a report on barriers to work that disproportionately affect the middle and working classes. “California is the most broadly and onerously licensed state,” the report found, and is also “the worst licensing environment for workers in lower-income occupations.” …a survey of 383 CEOs by Chief Executive magazine, which weighed regulations and tax policy above all other metrics, ranked California the worst state for business, and Forbes ranked it among the worst for its high business costs and stifling regulatory environment.

Speaking of regulatory environment, California’s screwy approach to marijuana legalization/taxation tells you everything you need to know about the state.

P.S. If you want to laugh about California’s plight, click here, here, here, here, here, here, and here.

P.P.S. My seven-part series comparing Texas and California appeared in March 2010, February 2013, April 2013, October 2018, June 2019, December 2020, and February 2021.

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The Horrid Consequences of Rent Control

As John Stossel discusses in this new video, few economic policies are as insanely foolish as rent control.

As you saw in the video, supporters of rent control tend to be the cranks and crazies, such as Bernie Sanders and Alexandria Ocasio-Cortez.

The vast majority of economists, by contrast, recognize that such policies undermine incentives to provide and maintain rental housing.

Who is going to invest in a new apartment complex, after all, if politicians impose laws that ensure it will be a money-losing project?

The video highlights what has recently happened in Minnesota.

I wrote about that mistake last year. Christian Britschgi of Reason also looked at what happened. Here are some excerpts from his column.

Another housing development in St. Paul, Minnesota, is on hold… The reason? St. Paul’s newly-passed rent control ordinance, which Alatus’ principals say is making their once-eager investors skittish about doing business in the city. …the policy has developed a rock bottom reputation among economists over the past few decades. They almost uniformly argued that capping rents deterred developers from building new homes, and discouraged landlords from taking care of the ones that already exist. The inevitable result is less, and less well-maintained, housing. …Rent control is always going to disincentivize housing construction.

I recommend reading the entire article, since it also discusses the pernicious impact of zoning laws.

Since we’re on the topic of rent control, here’s the abstract of a study published by the American Economic Review in 2019. Because the policy discourages construction of new units, Rebecca Diamond, Time McQuade, and Franklin Qian found rent control actually increases rents in the long run.

Using a 1994 law change, we exploit quasi-experimental variation in the assignment of rent control in San Francisco to study its impacts on tenants and landlords. Leveraging new data tracking individuals’ migration, we find rent control limits renters’ mobility by 20 percent and lowers displacement from San Francisco. Landlords treated by rent control reduce rental housing supplies by 15 percent by selling to owner-occupants and redeveloping buildings. Thus, while rent control prevents displacement of incumbent renters in the short run, the lost rental housing supply likely drove up market rents in the long run, ultimately undermining the goals of the law.

Rent control is bad for both landlords and renters.

But renters generally don’t understand the topic, which is why many of them support demagogic politicians pushing the policy.

The bottom line is that rent control is a form of price control. And we have centuries and centuries of evidence that such policies produce shortages and other forms of economic damage.

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Socialism Humor

It’s been almost six months since I last mocked the poisonous ideology of socialism.

So let’s rectify that oversight with five new items for our collection.

Our first item shows where “Soviet Barbie” lives, followed by the fancy abode of a self-annointed socialist leader.

Next, we have a bus driver warning about a reality check (basically the same message as this great tweet).

Our third item compares a defining characteristic of capitalism (mutually beneficial voluntary exchange) and a defining feature of socialism (envy).

Our next item shows how a socialist ignores real-world evidence while focusing on a never-achieved fantasy.

As usual, I’ve saved the best for last.

This one reminds me of the story the New York Times wrote in 2020, which focused on Venezuela’s decrepit economy but somehow never mentioned socialism.

Our friends on the left apparently want people to believe that socialism produces horrible results because of mysterious outside factors. Just bad coincidences, or something like that.

But since there’s never been a successful socialist economy (even voluntary socialist societies collapse), maybe it is time they realize they’ve been supporting a failed ideology.

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A Solution to the Public Opinion Paradox?

Politicians mostly care about getting reelected and wielding power, so they pay attention to polls because they want to know what to say.

As a libertarian, I pay attention to polling data because I want to understand where the public has sensible views and where the public has silly views.

And if public opinion is misguided, it tells me to do more work.

But I also follow public opinion research because it is helpful to find out what words and phrases are best to use.

• People are more supportive of getting rid of the “death tax” than the are of getting rid of the “estate tax.”
• People are more supportive of an economic system of  “free enterprise” than they are of “capitalism.”
• People are more supportive of “personal retirement accounts” than they are of “Social Security privatization.”

As a policy wonk, I find it strange that people will like or dislike a policy simply because different words are used.

But I pay attention because I want to figure out the most effective way of advancing economic liberty.

I’m providing all this background because the folks at the Pew Research Center have some new polling data on how Americans view government.

Some of the results are very encouraging, such as the very low level of trust in Washington.

But there’s a somewhat depressing paradox.

Most people have a low opinion of the federal government, but they still want Washington to play a big role.

As is often the case, I wonder whether voters are being asked well-designed questions.

For instance, one of the above examples is that people want a federal government that “effectively” handles threats to public health.

Perhaps it would have been more interesting and illuminating, however, if Pew had asked people whether the CDC and FDA actually are effective? Give their wretched incompetence during the pandemic, I would hope the poll would have found different results.

Likewise, most Americans wants to federal government to help people out of poverty. But what does that actually mean?

Bernie Sanders presumably would answer yes because he wants higher taxes and more redistribution, while I might answer yes because I want lower taxes and smaller government.

But I’m digressing. They key issue I want to address is the paradox of people having disdain for the federal government while still supporting government involvement.

And this brings me to this polling data about most people thinking Washington is involved in areas that should be left to state governments.

Indeed, the Pew report shows that the federal government is viewed most unfavorably and local governments get the best grades.

To me, this suggests that a “federalism” agenda could be popular.

And I frequently make the case for decentralization (on a wide range of issues, such as Medicaid, the pandemic, food stamps, infrastructure, etc).

To be sure, federalism is not a slam-dunk. After all, Pew shows that most Americans can’t identify a single area where their state governments do a good job.

I’ll close by observing that Switzerland is the gold standard for federalism, and that nation is very successful.

Heck, there’s even IMF research showing decentralization produces better results.

So what’s the key takeaway?

Well, federalism has declined in the United States and we are getting worse results. But perhaps a restoration campaign would be politically successful. After all, welfare reform was popular in the 1990s. Why not expand the idea?

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Will the Real Oil Profiteer Please Stand Up?

At the risk of understatement, big government has a dismal track record of imposing higher costs on the private sector, both directly and indirectly.

Which is why this cartoon definitely belongs in my mock-government collection (along with this one and this one).

Simply stated, free markets produce efficiency and lower costs while government produces inefficiency and higher costs.

So it was particularly galling that President Biden is engaging in demagoguery against oil companies. Peter Baker and Clifford Krauss of the New York Times report on a letter that he sent to some of their CEOs.

President Biden chastised some of the largest oil companies for profiteering off surging energy prices and “worsening that pain” for consumers… With the average price of gas in the United States topping $5 a gallon for the first time, Mr. Biden pointed the finger at energy firms in a letter to seven top executives… “At a time of war, refinery profit margins well above normal being passed directly onto American families are not acceptable,” Mr. Biden said in the letter.

The trade association for the oil industry got the chance to respond and noted that the federal government is hindering energy development.

Mike Sommers, president of the American Petroleum Institute, countered that the administration shared the blame for higher energy prices and called for approval of new drilling leases and approval of “critical energy infrastructure” like pipelines.

I’m sure the Biden Administration has not been helpful, but I want to make a bigger point.

If the President wants to know who “profiteers” from the energy industry, he should look in the mirror.

Courtesy of Wikipedia, here’s a chart of federal gas taxes over time.

But Uncle Sam is not the biggest profiteer.

Almost every state government grabs even more every time we fill up. Here’s a map from the Tax Foundation.

Let’s close by acknowledging that the official position of both the Democratic Party and the International Monetary Fund is that higher energy prices are a good thing.

P.S. From the archives, here’s some gallows humor about energy prices.

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Sloppy Economics from the New York Times

Some of my Republican friends get irked when I point out that President Biden should not be blamed for surging prices.

As I explained in March, we should instead blame the Federal Reserve for inflation.

Moreover, the Fed’s big mistake started in early 2020 when the central bank dramatically expanded its balance sheet (see chart). And that error took place well before Joe Biden entered the White House.

Unfortunately, instead of pointing a finger of blame at the Fed, some of our friends on the left have decided to assert that inflation is caused by greedy companies.

A recent New York Times column by German Lopez addressed this claim.

The good news is that Mr. Lopez’s column pours cold water on the “greedflation” theory.

The bad news is that the column completely overlooks the role of the Federal Reserve.

As prices have increased faster than at any other point in four decades, lawmakers have scrambled for explanations. In recent months, some Democrats have landed on a new culprit: price gouging. …”greedflation.” For Democrats, it is a convenient explanation as inflation turns voters against President Biden. …And it lets them recast inflation as the fault of monopolistic corporations — which progressives have long railed against. …there are other, more widely accepted explanations… Covid disrupted supply chains globally. Russia’s invasion of Ukraine caused another wave of disruptions, particularly in food and energy. The stimulus bills left people with a lot of extra cash, and many Americans spent it. That prompted too much demand for too little supply, so prices increased.

Just in case you suspect I’m not being fair, the words “federal reserve” or “central bank” do not appear in the article. Anywhere.

Needless to say, writing a column about rising price levels without mentioning the Fed is like writing the history of World War II and not mentioning Germany.

Why did the reporter make this mistake? If I had to guess, he probably noticed there was a debate inside the Democratic Party between the “crazy left” and the “rational left.” So he wrote about that conflict without noting (or perhaps even realizing) that there are other points of view.

Such as the late, great Milton Friedman.

P.S. For those who want more background, the crazy left are economic illiterates such as Robert Reich, Bernie Sanders, and Elizabeth Warren (and some guy named Lindsay Owens, who was cited in the article).

The rational left are people like Larry Summers, Bill Clinton, and Arthur Okun (and Jason Furman, who also was cited in the article).

I disagree with folks who are part of rational left, but at least they are tethered to reality.

P.P.S. Biden did not cause inflation, but (unlike a former president) he does not seem to understand how to solve the problem.

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The Optimum Level of Government Spending

Echoing remarks earlier this month to a group in Nigeria, I spoke today about fiscal economics to the 2022 Africa Liberty Camp in Entebbe, Uganda.

During the Q&A session, I was asked to specify the ideal amount of government spending. I addressed that issue in an April interview while visiting Spain.

You’ll notice that I didn’t give a specific number in the above video. Just like I didn’t give a specific number to the audience in Uganda.

That’s because there is not an exact answer. The only thing we can definitively state is that government in most nations should be far smaller than it is today.

This is illustrated by the “Rahn Curve,” which I discussed both in the interview and in my speech today.

What is the Rahn Curve? Here’s some of what I wrote back in 2015.

…it shows the non-linear relationship between the size of government and economic performance. Simply stated, some government spending presumably enables growth by creating the conditions (such as rule of law and property rights) for commerce. But as politicians learn to buy votes and enhance their power by engaging in redistribution, then government spending is associated with weaker economic performance because of perverse incentives and widespread misallocation of resources.

And here’s a visual depiction of the Rahn Curve. The upward-sloping part of the curve shows that spending on genuine public goods is associated with more prosperity. But once government budgets exceed a certain level, additional spending means weaker economic performance.

In the above graph, I show that growth is maximized when government consumes about 15 percent-20 percent of economic output.

But I actually think prosperity would be maximized if government was a smaller burden, perhaps about 5 percent-10 percent of GDP.

In 2017, I explained the appropriate role of government in a libertarian society. My analysis was based on my “minarchist” views, which imply government only spends money for national defense and rule of law.

By contrast, my anarcho-capitalist friends would say we don’t need any government.

Meanwhile, moderate libertarians (or conservative Republicans) might be amenable to having state and local governments play a role in education and infrastructure.

The bottom line is that I think growth would be maximized if government consumes – at most – 10 percent of economic output (which was the size of government in the 1800s when the Western world became rich).

But I will be happy with any progress (particularly since government is projected to become an even bigger burden if left on autopilot).

If you want to watch more videos related to the Rahn curve, there are many options.

• The video I narrated explaining the basics of the Rahn Curve, which was produced by the Center for Freedom and Prosperity.
• A video from the Fraser Institute in Canada that reviews the evidence about the growth-maximizing size of government.
• A video from the Centre for Policy Studies in the United Kingdom that explores the relationship between prosperity and the size of the public sector.
• Even a video on the Rahn Curve from a critic who seems to think that I’m a closeted apologist for big government.
• And a video from the Institute for Market Economics that shows how there will be more growth with smaller government.

P.S. Here’s my response to a critic from the left.

P.P.S. Interestingly, some normally left-leaning international bureaucracies have acknowledged you get more prosperity with smaller government. Check out the analysis from the IMF, ECB, World Bank, and OECD.

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Government-Run Dating Apps Would Be a Recipe for Lifelong Celibacy

For those who read these columns on my website, you presumably have noticed that I have a rotating banner at the top of the page.

One of the options is a quote from Milton Friedman about the blundering inefficiency of Washington.

Though I believe in fairness. I also have periodic columns about the incompetence of local governments, state governments, and foreign governments.

The bottom line is that if someone thinks government is the answer, I definitely think they’ve asked the wrong question.

But that doesn’t stop some people from a knee-jerk belief in bigger government. In an article for the Jacobin, Nick French wants the government to take over dating apps.

I’m not joking. Here is some of what he wrote.

…the longer I use these dating apps, the stranger the whole experience feels. …what matters to the app owners is not getting their users good dates. What matters is that they can make money off of us. …We could consciously uncouple our dating lives from the tyranny of the profit motive, though — with publicly owned apps that will democratize how we meet people online. …companies profiting from user data handsomely without compensating users smacks of exploitation. After all, if it’s my app use that generates data and therefore profits for the company, aren’t I entitled to a share of that value I created? …it does seem strange that questions about the implications of dating for social justice should be left in the hands of Silicon Valley MBAs — whose ultimate motivation, of course, is to turn a profit. Questions about how to deal with bias or prejudice in dating apps would be far better off as a matter for public, democratic deliberation.

For what it’s worth, profit-seeking companies have an incentive to give customers what they want.

Based on the performance of bureaucracies such as the Postal Service, I suspect we’ll all live celibate and lonely lives if the government takes over apps like Tinder and Bumble.

And that would be the case regardless of whether we have government-run dating apps (socialism) or government-controlled dating apps (fascism).

Mr. French seems open to either approach.

What might that look like? It doesn’t necessarily mean establishing a government-run National Dating Service or taking Tinder under state control. …but what exactly this “platform socialism” looks like will differ from platform to platform. …Users could collectively deliberate about the possible impacts of different choices, from the perspectives of social justice as well as users’ individual well-being. …the state would have an important role to play: in providing public funding for the development of cooperatively owned dating apps.

By the way, some governments already try to play matchmaker.

…some countries are already paying to set up their own dating services. The Singaporean government’s Ministry of Social and Family Development has a webpage devoted to helping the uncoupled find partners; it advertises a government-run online dating portal, officially accredited dating agencies, and a “Partnership Fund”

I’m usually a fan of Singaporean economic policy, but obviously I don’t think governments have the ability to boost marriage and fertility (but at least they don’t go overboard like Hungary).

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Jimmy Carter and Joe Biden

Even though I recently praised him for his support of transportation deregulation, Jimmy Carter is widely considered to be a failed, one-term president.

Most people think his reelection prospects were doomed because of high inflation.

I suspect, however, that he was most hurt by falling levels of real income. And when I write “real income,” I’m referring to income after adjusting for inflation.

If you peruse the historical data from Table A-2 in the Census Bureau’s most recent report on income and poverty, you’ll notice that median household income (in 2020 dollars) dropped by nearly $2,000 between 1978 and 1980.

In other words, Carter may have survived double-digit inflation if incomes rose even faster than prices.

But that’s not what happened. Instead, we got rising prices and falling real income. This “stagflation” is probably the reason Ronald Reagan was elected, and the rest is history.

Moreover, history may be repeating itself.

Here’s a recent story from the Washington Post. I’ve excerpted the key passages, but all you really need to do is read the headline.

…the World Bank warned… Not since the 1970s — when twin oil shocks sapped growth and lifted prices, giving rise to the malady known as “stagflation” — has the global economy faced such a challenge. …“The risk from stagflation is considerable…,” said David Malpass, president of the multilateral development institution in Washington… Investors also could take a beating from a repeat of ‘70s-style stagflation. The S&P 500 stock index, already down more than 13 percent this year, could lose an additional 20 percent or more, according to a recent client note from Bank of America.

The World Bank mostly focused on the risks for the global economy.

But we are already suffering from stagflation in the United States, according to the Bureau of Labor Statistics.

Simply stated, 2021 was a terrible year for household incomes and the first half of 2022 has been even worse.

And I strongly suspect this is why Joe Biden has terrible poll numbers.

Ironically, The big uptick in inflation isn’t even Joe Biden’s fault. The Federal Reserve deserves the blame, mostly for what it did in 2020 before Biden became president.

That being said, Biden reappointed Jerome Powell, the Chairman of the Fed’s Board of Governors. By rewarding Powell’s failure, Biden is now in no position to deflect blame.

P.S. Rising prices and falling income under Jimmy Carter gave us Ronald Reagan, so bad policy indirectly led to a good outcome. As of now, it’s unclear if there’s a new version of Reagan to rescue us from today’s version of stagflation.

P.P.S. For readers who are not old enough to have experienced America’s national rejuvenation under Reagan, you can click here, here, and here to see “the Gipper” in action.

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Market-Driven Growth and the Asian Tigers

I’m currently in Tanzania as part of a speaking tour in Africa. My remarks today largely repeated the message I gave to an audience last week in Nigeria.

So I won’t bother sharing anything from my presentation. Instead, I want to highlight some numbers from a presentation by Professor Ken Schoolland.

He shared some data showing how the “Asian Tigers” grew far faster than major Latin American nations between 1950 and 2000.

These are very impressive examples of convergence (as the Asian Tigers caught up with Latin America) followed by divergence (as the Tigers then continued to grow much faster).

I’ll be adding this data to my “anti-convergence club.”

But I also noticed that Professor Schoolland was sharing some old data from 1995.

So I went to the Maddison website and created some new charts based on the latest-available data.

As you can see, the Latin American nations were richer in 1950, but they have not enjoyed fast growth in the past 70 years.

By contrast, the Asian Tigers have enjoyed spectacular growth since 1950.

So not only are these nations much more prosperous than nations in Latin America, in most cases they have even surpassed European countries and Singapore is now richer than the United States.

Since I’m writing about the success of the Asian Tigers, let’s address the myth that they became rich because of industrial policy.

Sam Gregg of the Acton Institute examined this controversy in an article for Law & Liberty.

…what about some of the East Asian Tiger countries? Aren’t they proof that, when devised and implemented by wise governments guided by even cleverer experts, industrial policy can work? …There is, however, a wealth of evidence indicating that these policies produced similarly pedestrian outcomes in these countries. As for the Tigers, what primarily took them from the status of economic backwaters to first-world economies was economic liberalization and especially trade openness… Even the most devoted industrial policy advocates hesitate to present two of the Tigers, Singapore and Hong Kong, as industrial policy successes. They do nevertheless regard South Korea and Taiwan’s postwar histories as demonstrating why industrial policy should play a major role.

Gregg takes a close look at what actually happened in South Korea.

Beginning in 1954 and until about 1963, Korea’s government focused upon import-substitution industrialization policies… however,…economic growth in Korea only began taking off between 1963 and 1973 following a decisive shift towards export-orientated development and trade openness. …Industrial policy assumed a larger place in Korea’s economy in the mid-1970s. …Korea’s turn towards industrial policy in this period does not appear to have produced spectacular results. Economic growth during this period—whether in terms of GDP, trade, employment, manufacturing output, or exports in goods and services—was actually lower than what had been realized in the 1960s. …These results may help explain why Korea’s drift towards industrial policy was reversed, beginning in the late-1970s. …The overall result was a return to high growth throughout Korea’s economy.

And here’s his analysis of what happened in Taiwan.

…the Kuomintang government adopted an import-substitution approach to trade characterized by high tariffs and import quotas. The Taiwan Production Board oversaw the extensive use of industrial policy, especially through preferential loan-treatment… In the mid-1950s, key Taiwanese officials and their American advisors recognized that Taiwan could not keep going down this path. Hence in the late-1950s, decisions were made that re-orientated Taiwan’s economy towards competition and trade openness by, among other things, liberalizing imports and foreign investment rules as well as beginning a process of steadily removing export controls and gradually giving more and more exporters what amounted to a free trade status. As in Korea’s case, growth in Taiwan took off. …the general direction of Taiwan’s economy from 1958 onwards was away from industrial policy and tariffs and towards increasing integration into global markets. Like Korea, Taiwan underwent a limited return to interventionist policies in the mid-1970s, but, again, like Korea, this did not last.

The bottom line is that South Korea and Taiwan are not as rich as Hong Kong and Singapore and one reason they are lagging is that their governments tried to pick winners and losers.

But both those nations largely have abandoned industrial policy, so at least they recognized their mistakes.

P.S. A big issue at the conference is whether the “China Model” should be emulated. I shared some data showing why that would be a big mistake.

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The Case against Gun Control

Two weeks ago, I shared my response to the awful school shooting in Texas. The topic of gun control came up once again in a new episode of the Square Circle.

Regarding my comments, it’s no surprise that I have a new reason to dislike Justin Trudeau. He’s a typical, empty-suit, posturing politician.

But the more relevant point from the discussion is that there has been a huge increase in gun ownership in the United States in recent decades. And that increase in gun ownership has coincided with a big drop in violent crime.

You could argue that crime has dropped because more law-abiding people are now armed.

There certainly is a case to be made for that point of view. But as I said in the discussion, I think demographics deserve most of the credit.

You’ll also notice that part of the discussion revolved around Australia’s so-called gun buyback.

I’m certainly not an expert on that topic, but I think we can safely conclude it was a failure since writers for both the New York Times and the Washington Post admit it hasn’t been successful (and the same is true for New Zealand).

Here’s the bottom line: criminals will get guns no matter how much gun control politicians impose on a nation (just like people got booze during prohibition and they get illegal drugs today).

So the only effect of buybacks, bans, and other anti-gun policies is that bad guys will be better-armed than their victims.

Call me crazy, but that doesn’t seem like a good idea.

Especially since we can’t trust the police to protect us when things go sideways.

P.S. Watch this video from Reason to see why gun control is impossible in the United States.

P.P.S. One of my cats, Itchy, made a cameo appearance during the interview.

P.P.P.S. Always remember that gun control has a very unsavory history in the United States.

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Biden Wants America to be #1…in a Bad Way

Based on research from the Congressional Budget Office, I’ve shared estimates of the potential economic damage from the fiscal plan Joe Biden unveiled last year.

But now he has a new budget. So what if we simply focus on the tax portion of that plan and ignore all the new spending?

The Tax Foundation has crunched the numbers from Biden’s tax agenda and has published some very sobering numbers about this latest version of the President’s class-warfare proposals.

What caught my attention was this chart showing the United States (light-blue bars) already is out of whack with major competitors and trading partners (green bars) – and Joe Biden wants to make a bad situation much worse (red bars).

And when I write “out of whack,” that’s not an idle statement.

it turns out that the United States would have the highest income tax rates in the world.

Higher than Greece. Higher than France. Higher than Italy. Here are some of the grim details.

…the tax increases in the Build Back Better Act (BBBA)…would raise revenues by $4 trillion on a gross basis over the next decade. The Biden tax increases in the budget and BBBA would come at the cost of economic growth, harming investment incentives and productive capacity… The budget proposes several new tax increases on high-income individuals and businesses, which combined with the BBBA would give the U.S. the highest top tax rates on individual and corporate income in the developed world… Taxing capital gains at ordinary income tax rates would bring the combined top marginal rate in the U.S. to 48.9 percent, up from 29.2 percent under current law and well-above the OECD average of 18.9 percent. …Raising the corporate income tax rate to 28 percent would once again bring the U.S. near the top of the OECD at a combined rate of 32.3 percent, versus 25.8 percent under current law and an OECD average (excluding the U.S.) of 22.8 percent.

The good news, relatively speaking, is that the United States would not have the highest aggregate tax burden (taxes as a share of economic output).

And the U.S. would not have the highest tax burden on consumption (no value-added tax in America, fortunately).

But with all of Biden’s new spending (along with the built-in expansions of government that already have been legislated), it may just be a matter of time before the U.S. copies those features of Europe’s stagnant welfare states.

The net result is lower living standards for the American people. The only open question is how far we drop.

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Best Political News of 2022

When I shared the best and worst news of 2021, I expressed happiness about how school choice is spreading across the nation.

But it’s not spreading as fast as it should because some establishment Republican state legislators would rather kowtow to teacher unions rather than promote better educational opportunities for the kids in their districts.

But parents are beginning to notice.

In a closely watched primary contest yesterday in Iowa, the Republican Chairmen of the House Education Committee (and a lackey of the teacher unions) was being challenged by a supporter of school choice.

Needless to say, it’s very difficult to defeat an incumbent politician. But, as Corey DeAngelis shared in a tweet, the challenger prevailed in a stunning outcome.

And if you peruse the press release from the American Federation for Children, that was just one of many victories in the Hawkeye State.

Indeed, it’s just one of many victories in primaries across the country.

Corey wrote an article last week for National Review, co-authored by Jason Bedrick, that analyzed primary results in other states this year.

They start with some good news.

DeSantis made school choice a centerpiece of his campaign, and voters rewarded him. In a race decided by fewer than 40,000 votes, his unusually high level of support among black women (18 percent, or about 100,000 votes), who chose him over an anti–school choice black Democrat, Andrew Gillum, proved decisive. …Republicans began wrapping themselves in the mantle of parental rights and school choice, but the fulfillment of their promises has been mixed. States such as West Virginia and New Hampshire enacted bold new education-choice policies in 2021, while Florida, Indiana, and more than a dozen other states expanded existing choice policies.

They then share some bad news.

Nevertheless, choice initiatives stalled this year in Georgia, Idaho, Iowa, Oklahoma, and Utah, with some Republicans casting the deciding votes.

But they close with the best news of all.

In recent primaries, GOP voters threw their support to candidates who supported choice, even if it meant tossing out otherwise conservative incumbents. …Representative Phil Stephenson, an incumbent backed by the teachers’ union, lost to school-choice supporter Stan Kitzman, who secured 58 percent of the vote despite spending less than half of what his opponent spent… Likewise, school-choice champions Ellen Troxclair and Carrie Isaac both defeated candidates who were endorsed by the Texas affiliate of Randi Weingarten’s American Federation of Teachers. In all, eleven of 14 Texas House of Representatives candidates endorsed by the pro-school choice Texas Federation for Children PAC won their primary runoffs. …in Kentucky, an incumbent known to be the leading opposition to school choice in the Republican caucus, Representative Ed Massey, suffered a devastating primary defeat by school-choice champion Steve Rawlings, who garnered 69 percent of the vote despite being significantly outspent. Candidates endorsed by American Federation for Children Action Fund and its affiliates won their primaries or advanced to runoffs in 38 of 48 races in Texas, Arkansas, Idaho, Georgia, and Nebraska so far this year.

Actually, the best news of all is not what happens in elections. Instead, the best news is when legislation is approved that expands school choice. Like we saw last year in West Virginia and other states.

I’ll close with some political analysis.

I’m a big fan of the no-tax-pledge organized by Americans for Tax Reform.

Why? Because it is a way of targeting politicians who are sympathetic to tax increases.

Signing the pledge does not guarantee that a candidate is good (they can vote for debt-financed spending without violating the pledge).

But a candidate who does not sign the pledge almost certainly is bad. And voters now have a way of identifying – and rejecting – those politicians.

We need something similar for school choice. Maybe that’s a pledge. Maye it’s simply endorsements by the American Federation for Children.

All that matters is that politicians learn that there are negative consequences if they side with teacher unions instead of children.

P.S. Politicians who oppose school choice often are reprehensible hypocrites, as noted by Democratic state senator Justin Wayne of Nebraska.

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The Case for Economic Growth

As far as I’m concerned, the huge reductions in global poverty in recent decades are the only evidence we need about the benefits of economic growth.

This chart I shared in 2014 shows that output doubles much faster when annual economic growth goes from low levels (1 percent or 2 percent) to high levels (4 percent or above).

I call this the miracle of compounding.

Needless to say, I also argue that nations experience high levels of growth with the right policies and the right perspective.

But not everyone thinks policy makers should focus on getting more economic growth. Some of them (the “Okunites“) are willing to sacrifice some prosperity to achieve more equality, while others dislike growth because of the environment.

In a column for the Foundation for Economic Education, Saul Zimet points out that the people who downplay growth are no friends of the poor.

Economic degrowth is terrible for almost everyone, but it endangers the poor most of all. Therefore, it is remarkable that the problems with degrowth are appreciated least by those who claim to be most focused on the interests of the lower classes. …Socialist political commentator Ian Kochinski, who goes by the pseudonym Vaush, has said that, “One of the unfortunate truths of being a socialist is you have to accept that your nation will not get to enjoy the skyrocket GDP growth that capitalist nations get to enjoy. There is going to be a sacrifice of some economic efficiency, to the benefit of hopefully making life better for everybody.” Some growth critics go even further than to question the importance of growth as a policy target. …Naomi Klein calls economic growth “reckless and dirty” and advocates a policy of “radical and immediate degrowth”.

Zimet explains how this agenda is bad news for those on the lower rungs of the economic ladder.

… those brought out of extreme poverty, which have mostly been in places like China and India, were largely not helped by massive social programs but by a growing global market for their labor. …George Mason University economist Tyler Cowen explains…that, “In the medium to long term, even small changes in growth rates have significant consequences for living standards. An economy that grows at one percent doubles its average income approximately every 70 years, whereas an economy that grows at three percent doubles its average income about every 23 years—which, over time, makes a big difference in people’s lives.”

Professor Glenn Hubbard, an economist at Columbia University, makes the case for growth in an article for National Review.

A slightly higher rate of economic growth, sustained over time, can make the difference between a big increase in living standards and relative stagnation. …Nobel Prize–winning economist Robert Lucas famously observed that once economists think of long-term growth, it is hard to think of anything else. A pro-growth policy agenda is a good idea because growth is a good idea. …Higher output can come from growth in inputs such as labor and capital, but what determines their growth? Today’s economists highlight population growth and society’s willingness to work, save, and invest. Still more important is growth in productivity, or the efficiency with which inputs are used to produce goods and services. …McCloskey, an economic historian, has similarly identified the continuous, large-scale, voluntary, and unfocused search for betterment as the source of new ideas that can produce economic growth. She sees this “innovism” as primarily a cultural force, preferring the term to the more familiar “capitalism,” and connects innovism to economic liberalism.

Prof. Hubbard notes that economic growth requires creative destruction, but also acknowledges that this process causes pain.

And that politicians often respond to pain with bad ideas.

Forces that propel growth invariably leave a wake of economic disruption for people in many places… A serious discussion of pro-growth policy must account for that disruption. …growth is messy. It can push some individuals, firms, and even industries off well-worn and comfortable paths. …A gentle industrial policy devised by social scientists who are worried about jobs is not the answer. It results in state tinkering for special interests…it risks a vicious cycle: A little bit of tinkering becomes a lot of tinkering.

Instead of industrial policy, Hubbard suggests a couple of policies, most notably a better system of community colleges.

That would be a good outcome, of course.

From a big-picture perspective, though, I think net job creation is the best way to mitigate the political downsides of creative destruction.

It is not good news if 15 million jobs are destroyed in a particular year (especially for the people and communities that are directly harmed).

But if more than 15 million jobs are created the same year, that surely makes it easier for people to find new opportunities.

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Communism Humor

I shared some anti-communism satire in January and March, so it’s time for some new material.

We’ll start with this look at how people can be victimized by both communism and capitalism…though you may notice that the levels of victimization are not exactly similar.

This next meme is a bit of an exaggeration since there are plenty of private charities in capitalist societies and starvation only occurs sporadically in communist societies.

But the core point is correct.

I also don’t think our third item is correct given the overwhelmingly leftist orientation of academic historians.

But it is nonetheless amusing because there is a strong link between supporting communism and ignoring history.

For our fourth item, here’s a new version of the Santa-to-Marx evolution.

As usual, I’ve saved the best for last.

Modern-day communists almost surely imagine themselves as party bosses in a Marxist society.

But as shown in the fourth item in this post and the first item in this post, that is a silly fantasy.

With the exception of a tiny elite, everyone is communist societies is little better than a slave to the state.

P.S. I will never cease to be embarrassed that I scored 6% in a are-you-a-communist quiz. In my defense, some of the questions are poorly worded.

P.P.S. Here’s the entire collection of communism and socialism humor.

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The Ideal Fiscal Policy for Poor Nations

As part of a conference organized by the Face of Liberty International in Nigeria, I reviewed real–world evidence to explain the recipe needed for poor nations to become rich nations. With an emphasis on fiscal policy, of course.

I think much of what I said is common sense backed by hard data.

Indeed, the evidence is so clear that I put together a never-answered-question challenge back in 2020 (which built upon an earlier version from 2014).

Why is it “never-answered”?

Because my left-leaning friends have never been able to provide an example, either now or at some point in the past, of a poor nation becoming a rich nation by imposing higher taxes and a bigger burden of government spending.

Yet supposed experts in economic development for decades have pushed foreign aid in failed efforts turn poor countries into rich countries.

More recently (and even more preposterously), international bureaucracies like the OECD, UN, and IMF have been arguing that higher taxes and bigger government are needed to promote economic development.

For all intents and purposes, my argument is based on the fact that western nations became rich in the 1800s and early 1900s when they had very low taxes and very small governments.

And if you don’t have 20 minutes to watch the above video, the most important charts come from a column I wrote back in 2018.

The first chart shows that there was a stunning reduction in poverty in western nations over a 100-year time period.

And the second chart shows that this near-miraculous improvement occurred before those nations had welfare states or any other forms of redistribution spending.

P.S. Rule of law (rather than arbitrary rule by kings, chiefs, emperors, and dictators) is a necessary prerequisite for growth. And weak rule of law is an even bigger challenge in the developing world than bad advice from international bureaucracies.

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The Feel-Good Map of 2022

I’ve already shared the “feel-good story” for 2022, so today I’m going to share this year’s feel-good map.

Courtesy of the Tax Foundation, here are the states that have lowered personal income tax rates and/or corporate income tax rates in 2021 and 2022. I’ve previously written about these reforms (both this year and last year), but more and more states and lowering tax burdens, giving us a new reason to write about this topic.

The map is actually even better than it looks because there are several states that don’t have any income taxes, so it’s impossible for them to lower rates. I’ve labelled them with a red zero.

And when you add together the states with no income tax with the states that are reducing income tax rates, more than half of them are either at the right destination (zero) or moving in that direction.

That’s very good news.

And here’s more good news from the Tax Foundation. The flat tax club is expanding.

I prefer the states with no income taxes, but low-rate flat taxes are the next best approach.

P.S. According to the Tax Foundation, New York and Washington, D.C. have moved in the wrong direction. Both increased income tax burdens in 2021. No wonder people are moving away.

P.P.S. If I had to pick the states with the best reforms, I think Iowa and Arizona belong at the top of the list.

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Social Security’s Ever-Closer Fiscal Crisis

As part of my recent appearance on The Square Circle (we discussed Uvalde police, gun control, and Ukraine), I said that the new Social Security numbers were the under-reported story of the week.

For more details, I was referring to the latest Trustees Report, published yesterday by the Social Security Administration.

Most people, when that annual report is released, focus on when the Social Security Trust Fund runs out of money. But since the Trust Fund only contains IOUs, I view that as a largely irrelevant number.

Instead, I immediately look at Table VI.G9, which shows how much revenue is being collected and how much money is being spent every year.

Here is that data displayed in a chart. The left side shows actual fiscal numbers from 1970 to 2021 while the right side shows the projections between 2022 and 2100.

As you can see in the chart, revenues going into the system (the blue line) are growing rapidly.

But you also can see that Social Security spending (the orange line) is expanding even faster.

And when spending grows faster than revenue, one consequences is more red ink.

This next chart shows that annual deficits between now and 2100 will total $56 trillion.

At the risk of understatement, these two charts should be very sobering. Especially since they only show the taxes, spending, and red ink for Social Security.

If we also add the fiscal aggregates for other entitlement programs, it would be abundantly clear why we face a “crisis” and a “train wreck.”

So how do we solve this mess. I’ve written about the needed reforms for Medicare and Medicaid, so let’s focus today on Social Security.

The ideal approach is to take the current pay-as-you-go entitlement and turn it into a system of personal retirement accounts.

Many nations around the world have adopted this approach, most notably Chile and Australia.

But as I noted two years ago, there will be a big “transition” challenge if the United States decides to modernize.

P.S. I mentioned “public choice” at the end of that clip. You can click here to learn more about the economic analysis of political choices.

P.P.S. I mentioned that Chile and Australia have created personal retirement accounts. You can also learn about reforms in Switzerland, Hong Kong, Netherlands, the Faroe Islands, Denmark, Israel, and Sweden.

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Lower Taxes on Capital = More Prosperity

Good tax policy should strive to solve the three major problems that plague today’s income tax.

1. Punitive tax rates on productive behavior.
2. Double taxation of saving and investment
3. Corrupt, complex, and inefficient loopholes.

Today, let’s focus on the second item. If the goal is to minimize the economic damage of taxation, both labor and capital should be taxed at the lowest-possible rate.

But, as illustrated by the chart, the internal revenue code imposes widespread “double taxation” on income that is saved and invested.

Actually, it’s more than double taxation. Between the capital gains tax, corporate income tax, double tax on dividends, and death tax, there are multiple layers of tax on income from saving and investment.

So even if statutory tax rates are low, effective tax rates can be very high when you consider how the IRS gets several bites at the apple.

This is why good tax reform plans eliminate the tax bias against capital.

But we don’t want the perfect to be the enemy of the good. Simply lowering tax rates on capital also would be a step in the right direction.

And such an approach would produce meaningful economic benefits, as explained in a new Federal Reserve study by Saroj Bhattarai, Jae Won Lee, Woong Yong Park, and Choongryul Yang.

…capital tax cuts, as expected, have expansionary long-run aggregate effects on the economy. For instance, with a permanent reduction of the capital tax rate from 35% to 21%, output in the new steady state, compared to the initial steady state, is greater by 4.24%… A reduction in the capital tax rate leads to a decrease in the rental rate of capital, raising demand for capital by firms. This stimulates investment and capital accumulation. A larger amount of capital stock, in turn, makes workers more productive, raising wages and hours. Finally, given the increase in the factors of production, output expands.

This is all good news.

But our left-leaning friends might not be happy because some people get richer faster than other people get richer.

This aggregate expansion however, is coupled with worsening…inequality in our model. For instance, skilled wages increase by 4.66% while unskilled wages increases by only 0.56%, driven by capital-skill complementarity.

For what it is worth, I agree with Margaret Thatcher about adopting policies that help all groups enjoy higher living standards.

Here’s a chart for wonky readers. It shows how quickly the economy grows depending on how lower capital taxes are offset.

 

And here’s some of the explanatory text.

The main takeaway if that you get the most growth when you also lower the burden of redistribution spending.

The three financing schemes under consideration…produce different effects on aggregate output because each scheme influences workers’ labor supply decisions differently. …lump-sum transfer cuts…boosts unskilled hours and in turn, contributes to greater aggregate output… In comparison, a rise in the labor or consumption tax rate decreases the effective wage rate (as is well-understood) and additionally, weakens the wealth effect for the unskilled household. These two mechanisms work together to generate a smaller aggregate expansion under the distortionary tax adjustments. …we show that the capital tax cut has different welfare implications for each type of household depending on time horizon and policy adjustments. …The tax reform benefits the skilled households the most when transfers adjust, whereas the unskilled households prefer distortionary financing to avoid a significant reduction in transfer incomes.

The secondary takeaway from this research is that it would be bad for the economy (and bad for both rich people and poor people) if Joe Biden’s class-warfare tax policy was enacted.

But if you read this, this, this, and this, you already knew that.

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The Three Stooges of Big Government

The 21st century has been bad news for America’s taxpayers. Every president (George W. Bush, Barack Obama, Donald Trump, and Joe Biden) has been a big spender.

We obviously can’t give Biden a final grade since he has at least two more years in office (though his performance so far has been dismal – and his so-called Build Back Better is an ongoing threat to fiscal sanity).

But there is comprehensive data allowing us to assess Biden’s three predecessors. Brian Riedl of the Manhattan Institute has a new report that shows what happened to red ink under Bush, Obama, and Trump.

He measures what happened to 10-year deficit projections based on both legislated changes (what laws were enacted during time in office) and changes in economic and technical assumptions (largely driven by unanticipated changes in the economy).

As I’ve repeatedly written, I don’t think we should focus on red ink. What really matters is the burden of government spending.

So I’ve taken Brian’s rigorous analysis and highlighted what happened to government spending during the Bush, Obama, and Trump administrations.

We’ll start with George W. Bush, who approved laws adding almost $4.3 trillion to America’s spending burden.

Then we have Barack Obama, who added $1.4 trillion to America’s spending burden.

Then we have Donald Trump, who added $6 trillion to America’s spending burden.

Here are some final observations about the numbers.

• Yes, Republicans often are bigger spenders than Democrats – a pattern going all the way back to Nixon.
• Bush was a big spender even if you don’t count the big post-9/11 increases in defense spending.
• Trump was a big spender even if you don’t count the explosion of pandemic-related spending.
• Obama was a big spender, and would have been far worse if Republicans did not win control of Congress.

The bottom line is that I wish we could return to the spending restraint that America enjoyed during the final two decades of the 20th century.

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