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Archive for the ‘Election’ Category

There’s an entire field of economics called “public choice” that analyzes the (largely perverse) incentive structures of politicians and bureaucrats.

But is economic analysis also helpful to understand voting and elections?

In the past, I’ve suggested that political betting markets are a useful place to start since “you are seeing estimates based on people defending their views with cold, hard cash.”

In his Bloomberg column, Professor Tyler Cowen takes a more rigorous look at the potential insights of political betting markets.

Prediction markets…are a quick way to get an overview of the state of the campaign. President Donald Trump is currently at about 0.40 to be re-elected… Under normal assumptions about the uncertainty of future economic growth, the markets rate Trump’s chances of winning at 40%. …it is a useful corrective to the argument that Trump is toast — or, alternatively, that he is a shoo-in.  The market incorporates the relevant uncertainties in both directions. (Interestingly, Trump’s re-election odds have stayed pretty steady over the last week or so of negative news.) In many cases, prediction markets…“see through” the day-to-day volatility that may buffet the polls but not affect the final outcome. …Prediction markets…also made me think that a possible Hillary Clinton candidacy…is perhaps an undercovered story. …It is not a valid criticism of prediction markets to say that they didn’t predict Trump, say, or Brexit. The purpose of prediction markets is not to foresee particular upsets. They can, however, tell you in advance what would be an upset — much like probability theory can tell you that getting three heads in a row is unlikely but is of no help in predicting exactly when it will happen.

There are also people who build models that predict elections based largely on economic factors.

The Washington Post just published a very interesting review of how three of these models show Trump comfortably winning.

President Trump is on a fast track to an easy reelection. That’s the conclusion reached by economic forecasters… Moody’s Analytics projects the president will win handily next year if the economy doesn’t badly stumble — and in fact, rack up a greater margin in the electoral college than the 304-to-227 victory he secured against Hillary Clinton in 2016. …The finding jibes with those of other forecasting models that rely on measures of the economy’s strength to predict which major party’s candidate will win the White House next. Oxford Economics sees Trump winning 55 percent of the popular vote next year barring a “significant downturn” in the economy. …by the reckoning of the firm’s model, three key economic indicators — unemployment, inflation and real disposable income growth — all favor Trump’s reelection. They outweigh a “negative exhaustion factor” with Trump that dents his support in the projection. …Another model, assembled by Trend Macrolytics, accurately predicts every presidential victor back to 1952 by focusing on the effects of the economy and incumbency on the electoral college, according to Donald Luskin, the firm’s chief investment officer. It projects Trump will win reelection next year with 354 electoral votes — a margin that seems staggering on its face.

Here’s the Moody’s electoral map, which doubtlessly will cause sleepless nights for the anti-Trump crowd.

Wow, not only do they show Trump winning every state he won in 2016, but they show him picking up New Hampshire, Virginia, and Minnesota.

So which approach is more accurate, betting markets of election models?

Given my inaccurate 2016 predictions, I’m probably not the right person to ask.

I’ll simply observe that both approaches have erred in the past.

And if you believe in guilt by association, some of the people who put together political prediction models also put together deeply flawed Keynesian economic models.

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I’m in Sydney, Australia, but not because I’m confirming that this country will be my escape option if (when?) the United States suffers a Greek-style fiscal collapse.

Instead, I’m Down Under for the annual Friedman Conference.

This gives me an excuse to write about Australia, especially since national elections just took place this past weekend. Interestingly, the incumbent, right-of-center government retained power in an upset, winning 77 or 78 seats (out of a possible 151).

Here’s the breakdown.

The folks at Slate lean to the left, so their article is understandably riddled with anguish.

Australia’s dysfunctional, unpopular, conservative government…held onto power for a third term in Saturday’s national election. This happened despite the fact that most analysts expected it to lose a large number of seats; despite being (seemingly) out of step with the nation’s emerging consensus on climate change.. A Labor Party win had been anticipated for three years, with the opposition winning every single poll of the last term. …Expected swings against the coalition in several regions of the country didn’t materialize, while there was a crucial 4 percent swing against Labor in the state of Queensland (alternately described as Australia’s Alabama or Florida). …Progressive Australians are—to understate things—“hurting,”…(only they’re threatening to move to New Zealand instead of Canada). …Labor’s environmental stance, while not actually all that bold, hurt it in coal-friendly Queensland and among voters worried about the costs of acting on climate change… Progressive Australians are reeling because any lingering illusions that we were a “fair” nation have been shattered. Whatever Labor’s political shortcomings, Australians in general voted against a detailed platform that aimed to seriously address climate change, raise wages, increase cancer funding, make child care free or significantly cheaper, close tax loopholes for corporations and the wealthy, fund the arts, fund the underfunded public broadcaster… Instead, they voted for … not much of anything (other than some tax cuts).

Since I’m a wonk, I’m much more interested in the policy implications rather than the political machinations.

The good news is that Labor’s defeat means Australia will be spared some costly tax increases and some expensive green intervention.

But it’s unclear whether there will be many pro-growth reforms.

The right-of-center Liberal-National Coalition has promised some tax relief, but I don’t know if it will be supply-side rate reductions or merely the distribution of favors using the tax code.

For what it’s worth, Australia needs to lower its top tax rate on households, which is nearly 50 percent. European-type tax rates are always a bad idea, and they are especially senseless for a country that has to compete with Hong Kong and Singapore.

It would also be nice if the newly reelected government chooses to fix some of the housing policies that have made Australian cities very unfriendly to families.

Joel Kotkin explains why this is a problem in an article for City Journal.

Few places on earth are better suited for middle-class prosperity than Australia. From early in its history, …the vast, resource-rich country has provided an ideal environment for upward mobility… Over the last decade, though, Australia’s luck has changed… Despite being highly dependent on resource sales to China—largely coal, gas, oil, and iron ore—Australia has embraced green domestic politics more associated with Manhattan liberals or Silicon Valley oligarchs than the prototypical unpretentious Aussie… Historically, the Australian Labor Party, like its counterpart in Britain, was a party of the working class. …These views seem almost quaint today, particularly for a Labor Party increasingly dominated by those operating outside the tangible economy, as part of the professional class—media, finance, public service—and concentrated in the largely family-free urban cores. …Australia’s commitment to renewable energy dwarfs that of even the most committed green-leaning countries. Per capita, Australia has installed roughly five times as many renewable-energy installations as the E.U., the U.S., or China, and even two-and-a-half times more than climate-obsessed Germany. …The most pernicious assault on Australia’s middle class comes from regulation of land and expenditures to promote urban density. …In Australia, only 0.3 percent of the country is urban. As in major cities in Great Britain, Australia, the U.S., and Canada, “smart growth” has helped turn Australia’s once-affordable cities into some of the world’s costliest. …Sydney’s planning regulations, according to a Reserve Bank study, add 55 percent to the price of a home. In Perth, Melbourne, and Brisbane, the impact exceeds $100,000 per house. Australian cities once filled with family-friendly neighborhoods are becoming dominated by dense apartments. …Today, many Australians face an uncharacteristically bleak future. Urged to settle where the planners and pundits prefer, they’re stuck in places both unaffordable and inhospitable, as part of a needless governmental drive to make life there more like that of the more congested, socially riven metropoles of Britain.

For all intents and purposes, I want Australian lawmakers to rekindle their reformist zeal.

If you look at the historical data from Economic Freedom of the World, you can see that Australia enjoyed a big jump in economic liberty between 1975-2000.

Basically climbing from 6 to 8 on a 0-10 scale.

Sadly, there hasn’t been much reform this century. That being said, Australia’s era of liberalization last century is still paying dividends. The country is routinely ranked in the top-10 for economic liberty.

Interestingly, many of the changes between 1975-2000 happened when the Labor Party was led by reformers such as Bob Hawke and Paul Keating.

Mr. Hawke, incidentally, just passed away. His obituary in the New York Times acknowledges that he liberalized the economy.

Bob Hawke, Australia’s hugely popular prime minister from 1983 to 1991, who presided over wrenching changes that integrated his nation into the global economy…, died on Thursday… Rising to power as a trade union leader, Mr. Hawke led his center-left Australian Labor Party to four consecutive election victories in a tenure of nearly nine years, in which Australia emerged dramatically from relative isolation… Confronting chronic strikes, soaring inflation, high unemployment and trade deficits, Mr. Hawke revolutionized the economy. He cut protective tariffs, privatized state-owned industries…reined in powerful unions… “We are now living in a tough, new competitive world in which we have got to make it on our own merits,” Mr. Hawke told The New York Times in 1985.

I’m irked, though, that the article doesn’t mention that Hawke (in power from 1983-91) began Australia’s system of personal retirement accounts.

That excellent reform, which was expanded by the Keating government (in power from 1991-96), is paying big dividends to Australia.

Indeed, let’s wrap up today’s column with some excerpts from a laudatory article in the Economist.

The last time Australia suffered a recession, the Soviet Union still existed and the worldwide web did not. …No other rich country has ever managed to grow so steadily for so long. …Public debt amounts to just 41% of GDP—one of the lowest levels in the rich world. That, in turn, is a function not just of Australia’s enviable record in terms of growth, but also of a history of shrewd policymaking. Nearly 30 years ago, the government of the day overhauled the pension system. Since then workers have been obliged to save for their retirement through private investment funds.

It’s noteworthy that the system of personal accounts, known as superannuation, manages to attract praise from unlikely quarters.

And it is one of the reasons for the country’s success. Here’s an accompanying chart showing that Australia has enjoyed more growth, higher wages, and less debt than other major nations.

Is Australian policy perfect? Of course not.

But does the data from Australia show that better policy leads to better results? Definitely.

P.S. The Aussies also reaped big benefits by unilaterally reducing trade barriers (it would be nice if a certain person residing at 1600 Pennsylvania Avenue learned from that experience).

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We had an election yesterday in the United States (or, as Mencken sagely observed, an advance auction of stolen goods). Here are five things to keep in mind about the results.

First, the GOP did better than most people (including me) expected.

This tweet captures the zeitgeist of last night.

The Senate results were especially disappointing for the Democrats. It does appear the Kavanaugh fight worked out very well for Republicans.

Second, better-than-expected election news for the GOP does not imply better-than-expected news for public policy. Given Trump’s semi-big-government populism, I fear this tweet is right about the increased risk of a counterproductive infrastructure package and a job-destroying increase in the minimum wage.

For what it’s worth, I think we’ll also get even more pork-filled appropriations spending. In other words, busting the spending caps after already busting the spending caps.

The only thing that might save taxpayers is that Democrats in the House may be so fixated on investigating and persecuting Trump that it poisons the well in terms of cooperating on legislation.

Fingers crossed for gridlock!

Third, there was mixed news when looking at the nation’s most important ballot initiatives.

On the plus side, Colorado voters rejected an effort to replace the flat tax with a discriminatory system (in order to waste even more money on government schools), California voters sensibly stopped the spread of rent control, Washington voters rejected a carbon tax, Florida voters expanded supermajority requirements for tax increases, and voters in several states legalized marijuana.

On the minus side, voters in four states opted to expand the bankrupt Medicaid program, Arizona voters sided with teacher unions over children and said no to expanded school choice, and voters in two states increased the minimum wage.

Fourth, Illinois is about to accelerate in the wrong direction. Based on what happened last night, it’s quite likely that the state’s flat tax will be replaced by a class-warfare-based system. In other words, the one bright spot in a dark fiscal climate will be extinguished.

This will accelerate the out-migration of investors, entrepreneurs, and businesses, which is not good news for a state that is perceived to be most likely to suffer a fiscal collapse. It’s just a matter of time before the Land of Lincoln becomes the land of bankruptcy.

Interesting, deep-blue Connecticut voters elected a Republican governor. Given the state’s horrific status, I suspect this won’t make a difference.

Fifth, Obama was a non-factor. Democrats lost almost every race where he campaigned.

Though I should point out that he deserves credit for trying to have an impact in close races. Many top-level politicians, looking to have a good “batting average,” only offer help to campaigns that are likely to prevail.

That being said, this adds to my hypothesis that Obama was basically an inconsequential president.

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If you look at my election predictions from 2010, 2012, 2014, and 2016, you’ll see that my occasional insights are matched by some big misses. So I don’t think I offer any special insight.

But since readers seem to enjoy these biennial predictions, I’ll once again go out on a limb. The bottom line is that my Democratic friends will be happy.

Since so many Democratic seats are up, it will be a big defeat if Republicans stay at 51 seats in the Senate. And the loss of more than 45 seats in the House is approaching bloodbath territory.

This outcome is why I advised my GOP friends that it might have been better to lose the 2016 presidential election.

Now let’s consider the potential economic implications, which is what I care about.

The first-order effect is that we’ll have gridlock and that’s not a bad outcome as far as I’m concerned. Simply stated, that means less legislation, which presumably means less mischief from Washington.

But not all gridlock is created equal. Here’s a chart published a couple of days ago by the Washington Post. I’ve highlighted in green relative stock market performance when there’s good gridlock with a Republican Congress and not-so-good gridlock with a Democratic Congress.

I don’t think S&P performance is the best indicator of prosperity, and the “sample size” produced by American elections it rather small, so I caution against over-interpreting this data.

That being said, I’ve crunched budget numbers and revealed that Republican presidents generally allow more spending than Democrats. The only exception to this rule is Ronald Reagan.

Unfortunately, as I warned the day after the 2016 election, Trump is no Reagan. As such, I wouldn’t be surprised if the net result (assuming my predictions are remotely accurate) is that the already-excessive growth of spending becomes an even bigger problem.

P.S. There are some very important ballot initiatives that will be decided today.

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Brazil appears to be a tragic example of what happens when societal capital erodes (or never gets established in the first place) and too many people in the country see government as a vehicle for redistribution.

That environment leads to statist policies.

Which presumably helps to explain why Brazil is ranked #144 in Economic Freedom of the World. That’s not as low as some of its neighbors, such as last-place Venezuela (#162) or close-to-last Argentina (#160), but it’s still miserable. The country definitely deserves to be in the “Least Free” group.

Today’s question is whether Brazil also belongs in the “give up hope” group. In other words, has the country passed a “tipping point” of big government?

I’ve previously speculated whether the United States eventually may reach that point, and I definitely think it’s a relevant issue for states like Illinois and nations such as Greece.

A few weeks ago, I would have put Brazil in the same category. But the nation just elected Jair Bolsonaro, a right-populist who promises to shake things up when he takes power.

Mauricio Bento of Brazil’s Instituto Mercado Popular explains that Bolsonaro won in part because of a weak economy.

Most of the coverage from international media has been simplistic and is mostly repeating cliches, such as calling him the “Brazilian Trump”…you might have read about how “terrible” Bolsonaro is, and you might be wondering how he managed to win by such a wide margin. …In the last four years, Brazil has been in a deep economic crisis, suffering from double-digit unemployment rates and a lack of confidence that a recovery is coming.

And in part because his opponent, Fernando Haddad, wanted to undo a handful of recent pro-growth reforms and make Brazil more like Venezuela.

Michel Temer…passed some important reforms, such as the spending cap amendment and the labor law reform… Haddad sought to repeal Temer’s reforms and increase government spending and taxes. This made many business owners and investors support Bolsonaro.

Since I am a big fan of the spending cap that was approved in late 2016, I’m glad that Haddad didn’t win.

But should anybody be happy that Bolsonaro won? I don’t know the answer to that question, but it looks like Brazil is about to have a very good Finance Minister.

The UK-based Financial Times has an encouraging report.

For Brazil’s new finance minister Paulo Guedes, the government of far-right president-elect Jair Bolsonaro could represent a “Pinochet” moment for Latin America’s largest economy.  Mr Bolsonaro, who won elections last Sunday, ending almost 15 years of leftwing rule, will take over a moribund economy burdened by a bloated public sector when he assumes office on January 1. …The Chilean dictator’s solution was a dose of Milton Friedman-style free market economics from University of Chicago-trained academics. Mr Bolsonaro is considering the same medicine in the form of Mr Guedes, who has a doctorate from Chicago… For supporters of Mr Bolsonaro, the 69-year-old Mr Guedes’ uncompromisingly free market view of the world is the only answer. “Liberals know how to do it,” Mr Guedes once said.

Since pro-market reforms turned Chile into the “Latin Tiger,” let’s hope Guedes is serious.

He definitely has a pro-growth agenda.

Mr Guedes — who first considered joining Mr Bolsonaro’s campaign only last year — has repeatedly said his priority is to end Brazil’s 7 per cent fiscal deficit through privatisations of the country’s 147 state-owned enterprises. ..Mr Guedes’ other plans include a radical simplification of Brazil’s tax system, one of the world’s most convoluted, and reforming the country’s costly pension system, which is threatening to overwhelm the budget.

Sounds like Guedes has the right ideas. Assuming Bolsonaro does what is right for his country (such as much-needed pension reform), Guedes could be the Jose Pinera of Brazil.

Here’s a chart from Economic Freedom of the World. It shows how economic liberalization produced a dramatic increase in freedom between 1975 and 1995. Chile is now ranked #15 for economic liberty. Brazil, by contrast, has slowly lost ground since a period of pro-market reform between 1985 and 2000.

I’ll close with a video that was released before the recent Brazilian election.

It’s directed to mushy-headed young people in America, but it neatly summarizes how Brazil go in trouble.

A great video. I especially appreciate the indirect endorsement of my Golden Rule. The criticisms of former President Lula also are spot on, though I once expressed perverse admiration for him.

In any event, let’s hope President-Elect Bolsonaro give Mr. Guedes free rein to bring economic liberty to Brazil.

P.S. Bolsonaro is good on gun rights, so that’s a positive sign.

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The mid-term elections take place on Tuesday and the crowd in DC is focused on who will control the House and Senate. I’ll make my (sometimes dubious, sometimes accurate) congressional predictions next Monday.

The goal today is to call attention to the key initiatives and referendums that also will occur next week.

As a matter of logic, I can’t really argue with the notion that voting is a waste of time. Nonetheless, I hope the right people in certain states will be illogical.

As far as I’m concerned, the most important contest is in Colorado, where voters are being asked to replace the state’s flat tax with a discriminatory system of graduated rates. Here’s how CNBC describes the awful proposal.

Amendment 73 would break up its current flat tax of 4.63 percent, adding four new individual income tax brackets. Taxpayers earning less than $150,000 would see no change; at $150,001, a new rate of 5 percent would kick in, with a new top rate of 8.25 percent on taxable income over $500,000. The measure also includes a boost in the corporate income rate (from 4.63 percent to 6 percent).

Since I’m a fan of the flat tax (combined with TABOR, it helps to explain the state’s prosperity), I obviously hope voters reject this self-destructive scheme to turn Colorado into California.

The second-most important referendum is probably the battle over school choice in Arizona. Here’s how Reason characterizes that battle.

…since we’ve grown accustomed to the idea that governments should mug us in order to fund an army of loyal employees and their fumbling attempts to hammer knowledge into our kids’ heads, attempts to provide widely accessible alternatives to government schooling inevitably involve diverting some of those stolen funds. And diverting those funds requires political battles against entrenched allies of the state monopoly—such as that playing out in Arizona over an effort to expand a school voucher program. …Last year, lawmakers voted to expand eligibility for the empowerment scholarship accounts program to all students, with participation capped at around 30,000 kids. But opponents of school choice won a battle to put the program’s expansion on the ballot as Proposition 305. …As of last week, polling on Proposition 305 conducted by Suffolk University and the Arizona Republic shows a plurality of Arizona voters (41 percent) supporting expansion of the program, with 32 percent opposed and 27 percent undecided.

The third-most important referendum is actually four different measures. There are proposals to expand Medicaid in Idaho, Montana, Nebraska, and Utah.

The Wall Street Journal editorializes about these dangerous initiatives.

One of the worst deals in state spending is coming to a red state near you, and that’s expanding Medicaid to adult men above the poverty line. …Expansion extends the benefit to prime-age adults without children up to 138% of the poverty line. The feds pay more than 90% of the cost for the new beneficiaries… Every state that has expanded Medicaid has blown the budget by spending more money on more people. The cost overruns are more than double on average. …Medicaid is already the fastest growing line item in nearly every state in the country. …The idea that the feds will continue to pick up 90% of the tab forever is fantasy. The GOP has vowed to equalize the funding formula and make states pay closer to 30% to 50% like they do for traditional Medicaid. States shouldn’t assume that Democrats will be more merciful when they want to pay for something else and stick more of the Medicaid bill on states.

The fourth-most important measure to watch is a referendum for a big carbon tax in the state of Washington. The Wall Street Journal opined about this revenue grab.

Two years ago nearly 60% of Washington voters rejected a ballot initiative to impose a “revenue neutral” carbon tax. Green groups opposed the referendum because it wouldn’t generate money for environmental largess. …Liberals have now fixed what they thought was the fatal flaw of the first referendum—namely, revenue neutrality. This year’s initiative would impose a $15 per ton carbon “fee” that would increase by $2 per year. …the $2.3 billion in revenue it is projected to generate over the next five years would mostly be earmarked for “clean air and energy” programs… But revenues are fungible, and the carbon tax proceeds would invariably finance government spending in other areas. …The tax would raise gas prices by 13 cents a gallon in 2020 and 59 cents a gallon by 2035. Washington currently has the third highest gas prices in the country after Hawaii and California… National Economic Research Associates estimates that the tax would cost Washington households on average $440 in 2020 and would reduce state economic growth by 0.4% over the next two years. …liberals care more about increasing tax revenue to spend than they do about reducing emissions.

This is exactly why I warn against a national carbon tax. No matter what proponents say, it will wind up being an excuse to finance even more wasteful spending.

Last but not least, our fifth-most important ballot initiative is from California, which has a very misguided referendum that would allow more rent control in the state. Michael Tanner has an appropriate description of this scheme in National Review.

But the prize for perhaps the worst ballot idea goes — naturally — to California, which will vote on whether to allow local communities to impose rent control. Approval can be guaranteed to benefit the wealthy and middle class while reducing the availability of rental housing for the poor. It’s almost as if the measure’s supporters had never glimpsed an economics textbook.

For what it’s worth, one of the state’s Senators, Kamala Harris, has a national plan to wreck housing markets.

Here are some additional initiatives on taxes which merit a brief mention, particularly since they may have an impact on competitiveness.

  • Arizona has an initiative to prevent politicians from imposing any new sales taxes on services.
  • There’s a measure to increase tobacco taxes in South Dakota.
  • In California, there’s a referendum to repeal a recent hike in the gas tax and to require future increases to be approved by voters.
  • There’s also an initiative in the Golden State to boost the sales tax to finance more transportation spending.
  • In Florida, where there’s an initiative to require a two-thirds vote of the legislature to increase revenue.
  • Oregon voters will choose whether to impose a requirement that three-fifths of the legislature vote for indirect revenue increases.
  • North Carolina voters will decide whether to lower the maximum-allowable tax rate from 10 percent to 7 percent.

From a libertarian perspective, I’ll also be paying attention to a measure to restrict gun rights in the state of Washington, as well as an initiative to legalize marijuana in Michigan.

There are initiatives to increase the minimum wage in Arkansas (to $11.00 per hour) and Missouri (to $12.00 per hour). If they are approved, the consequences will be both negative and predictable.

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Time for some political humor.

Though some may consider this tragedy rather than comedy since the theme will be the potential contest between Donald Trump and Elizabeth Warren in 2020.

But some people are happy about the possible match-up. For instance, both likely candidates are a gold mine for satirists.

We’ll start with Elizabeth “Soul Woman” Warren, She claimed Indian ancestry to give herself an advantage when seeking university jobs, but this produced enough mockery that she felt compelled to get a DNA test.

Which led to some brutal mockery (h/t: Powerline blog). Here’s the one that got the most laughs from me.

Maybe Nike can replace Colin Kaepernick?

Here’s another amusing image.

Let’s look at three additional choices.

If a tiny share of DNA is enough to claim Indian status, then the AFLAC duck gets to be a bald eagle.

And if Warren picks Crazy Bernie as her running mate, they already have a campaign poster.

But before we get to 2020, we have this year’s midterm elections. Trump is dragging down GOP candidates, but Democrats also have some liabilities.

Now let’s turn our attention to Trump.

A friend sent me a great site for Putin/Trump memes. Here’s the one that earned the biggest chuckle from me.

And this one also is amusingly brutal.

And I can’t resist sharing this option as well.

For those of you who like Trump because of his “recreational choices,” you may want to jump ship to someone with better qualifications.

Last but not least, here’s a look back at our dismal choice from 2016.

 

Reminds me of the meme about libertarians.

Given the choice between Trump and Hillary, it is kind of amazing that Gary Johnson did so poorly. Though the Onion has a theory about why that happened.

Makes you wonder how they will bungle (what presumably will be) an equally good opportunity in 2020.

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