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Archive for the ‘Government intervention’ Category

Regulatory policy has been one of the bright spots of the Trump Administration (along with tax policy).

But it’s not a perfect record.

In a column for Townhall, Steve Sherman describes how the Labor Department launched a regulatory attack against Oracle in the final days of the Obama Administration.

President Obama was not a good president, but he was really good at issuing midnight regulations… Obama’s army of left-wing lawyers were also busy writing up last minute lawsuits… President Obama’s administration went after the tech companies Palantir, Google, then Oracle by alleging discrimination using statistics gathered as part of routine audits of these government contractors. In all of these suits, no actual evidence of discrimination was presented, merely statistics gathered that claimed to prove discrimination. This type of evidence would be tossed out in a real court, but with these suits, they were handled administratively and internally at the Department of Labor. …Oracle was so outraged by continued harassment that they fought back and sued the federal government for violating the Constitution’s separation of powers arguing that the lawsuits statutory authority.

So why am I criticizing the Trump Administration for regulatory harassment that was launched under Obama?

For the simple reason that some of Trump’s appointees have allowed the assault to continue, as former Congressman Bob Barr explained for the Daily Caller.

The Trump administration has performed admirably in reducing the regulatory red tape that has strangled American businesses… But for reasons not entirely clear, the Department of Labor has lagged behind other agencies in this regard. One clear example is the way the department’s Office of Federal Contract Compliance Programs (OFCCP) has continued unnecessary and counterproductive Obama-era litigation against tech companies… In a 2017 study, the U.S. Chamber of Commerce…set forth in extensive detail that the OFCCP in recent years had become enamored of faulty, statistics-based challenges to companies engaged in federal contracts… A number of lawsuits reflecting this abusive approach to regulatory enforcement were filed against large tech companies in the waning months of the Obama administration. …the Department of Labor sued…, just two days before President Trump was sworn in, Oracle. …the Labor Department instead has become…a regulatory bully searching for ways to punish companies. …Hopefully, …Donald Trump and Eugene Scalia…will step in and make sure that the small but powerful agency…gets on board the administration’s drive to actually reduce federal regulatory burdens

The Washington Post has some details on the dispute between Oracle and the federal government.

…the Labor Department…alleges Oracle, the database management company founded by billionaire Larry Ellison, paid some women as much as 20 percent less than their male peers, or $37,000, in 2016. The lawsuit was filed by the department’s Office of Federal Contract Compliance Programs, which audits companies with government contracts worth more than $100 million a year. …The hearing in San Francisco has broad significance for the tech industry because the allegations against Oracle are similar to the department’s claims that other tech giants, including Google and Palantir, exercised systemic bias against minority and female employees in hiring, pay or promotion. …Oracle’s lawyer argued that the Labor Department’s expert witness compared employees based on broad job titles and failed to take into account that a software developer who worked on Oracle’s product PeopleSoft is valued differently in the market than developers who work on the artificial intelligence of machine learning. …The department claims Oracle’s college recruiting program hired 500 graduates between 2013 and 2016 for product development roles at its Redwood Shores, Calif., headquarters, 90 percent of whom were Asian. During the same period, Oracle only hired six black people through the recruitment program. …The agency argues that pay disparities stem from Oracle’s practice of…relying on prior salaries to set their pay at Oracle.

The key thing to understand is that the federal government is unable to find any victims of actual discrimination.

As the Wall street Journal opines, bureaucrats are relying on statistical differences.

Protecting the constitutional separation of powers is back in political fashion as more businesses challenge abuses of administrative agencies. One case worth watching is Oracle’s lawsuit arguing that the Labor Department has usurped the federal judiciary and other executive agencies. Labor’s Office of Federal Contract Compliance Programs (OFCCP) filed a discrimination complaint against Oracle in the waning days of the Obama Administration. During a routine audit, the OFCCP in 2014 conducted a statistical analysis of Oracle’s workforce. And what do you know? The agency says it discovered disparities based on race and sex that it claimed were prima facie evidence of discrimination. …In sum, the agency said Oracle discriminated against every class of worker in one way or another. It demanded that Oracle lose current and forgo future federal contracts plus pay up to $400 million in restitution to its alleged victims. Yet its case all but collapsed at an administrative trial this month. The Labor office presented no evidence of intentional discrimination or even witnesses who claimed as much. …Oracle is suing the OFCCP for violating the Administrative Procedure Act and separation of powers. …the agency investigates, prosecutes, tries and punishes businesses even though it has no legislative authority to do so.

I’ll close by citing Thomas Sowell’s column for Jewish World Review on how “disparate impact” is basically a scam.

“Disparate impact” statistics have for decades been used, in many different contexts, to claim that discrimination was the reason why different groups are not equally represented as employees or in desirable positions… The implicit assumption is that such statistics about particular outcomes would normally reflect the percentage of people in the population. But, no matter how plausible this might seem on the surface, it is seldom found in real life… Blacks are far more statistically “over-represented” among basketball stars in the NBA… Hispanics are similarly far more “over-represented” among baseball stars than in the general population. Asian Americans are likewise far more “over-represented” among students at leading engineering schools like M.I.T. and Cal Tech than in the population as a whole. None of this is peculiar to the United States. You can find innumerable examples of such group disparities in countries around the world and throughout recorded history.

Sowell isn’t just theorizing.

He wrote a thoroughly researched book on exactly this issue.

The bottom line is that groups – on average – sometimes have different interests and aptitudes.

Walter Williams observed about ten years ago that, “Not every choice based on race represents racism and if you think so, you risk misidentifying and confusing human behavior.”

And there’s no evidence that Oracle even made decisions based on race to begin with.

So the bureaucrats at the Department of Labor are using bad methodology to harass and extort a company.

Left-leaning administrations have a track record of pushing bad policies on their way out of office, so I’m not surprised the Obama Administration launched the attack on Oracle. But I am surprised that the Trump Administration has allowed the legal assault against the company to continue.

P.S. While I normally don’t think the federal government should have any power to interfere with regards to market outcomes for hiring, pay, promotion, and association, it’s legitimate for Uncle Sam to put conditions on companies that bid on federal contracts. I just wish they would fight actual examples of bias, not mere statistical differences.

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Just as the sun rises in the east and sets in the west, there are some consistent patterns with government.

Politicians, for instance, will enact a policy that distorts the economy and causes damage (with regards to trade, bailouts, guns, health, whatever). And they’ll then point to the damage and assert that even more intervention is needed.

I call this Mitchell’s Law, though I certainly don’t claim to be the first to observe this distressing tendency.

Today, we’re going to examine a classic example of this phenomenon by looking at how politicians are distorting the housing market with supply restrictions that produce higher costs, and then compounding their mistake with subsidies and price controls.

Edward Pinto of the American Enterprise Institute offers some economic analysis.

Recently there has been a flurry of legislative proposals to add yet more housing subsidies to the housing sector, already one of the most heavily subsidized. …These are the most recent in a long history of ill-conceived policies that increase housing demand but do nothing about supply. The result: higher home prices and rents, particularly for low-income and minority households, the very ones these initiatives profess to help. …layers of subsidies combined with federal, state, and local regulations act to drive up costs while simultaneously constraining supply. …For example, Los Angeles has a median home price that is 8.8 times median income, up from 4.2 times in 1979. And median rent in LA is 49% of the median income, up from 32% in 1979. These results are largely driven by (i) easy access to credit which drive demand and prices ever higher, (ii) local land use restrictions and regulations that constrain new supply and drive building costs higher, and (iii) housing subsidies that make it even more difficult for market rate housing to compete. …Market-based solutions are the only way to bring home prices and rents back in line with median incomes and improve accessibility.

While there are plenty of bad housing policies in Washington (Fannie Mae and Freddie Mac, Department of Housing and Urban Development, mortgage-interest deduction, etc), much of the problem is caused by state and local governments.

Kevin Williamson of National Review cites a regulation in Dallas to show that government intervention causes problems.

…smaller secondary residences built on the lots of other houses..have long been a go-to source of cheap housing in college towns and other places with substantial itinerant populations of temporarily penniless young people. …Dallas…prohibited the building and rental of these residences in the 1970s on the theory that this would help to improve the living conditions on the south side of town… To the great surprise of nobody except politicians and their creatures, prohibiting the construction and rental of affordable housing did not do much to help poor people in Dallas connect with affordable housing. …The politicians have decided that there is an affordable-housing crisis in America. They should know: They created it. …Why? Because people who own homes have more political power than people who might want to buy one at some point in the future.

The Wall Street Journal opined today about the inane anti-housing policies in the Beaver State.

Politicians bemoan the lack of affordable housing, but their policies often create the problem. Look no further than Oregon… Oregon’s population grew by nearly 400,000 between 2010 and 2019. But the state added a mere 37 housing permits for every 100 new residents… Oregon’s land-use rules have been dysfunctional for decades. …strict limits on urban expansion…urban growth boundaries… Rising housing prices are the inevitable result of this government-imposed scarcity. …Portland has enforced an “inclusionary zoning” requirement on new residential buildings with 20 or more units. The city now compels many landlords to rent up to a fifth of new units at below-market rates. …Permits for 20-plus-unit residential buildings plummeted 64% in 25 months after inclusionary zoning took effect, while applications to build smaller multi-family structures spiked… The rest of Oregon is following Portland’s bad example with more price controls. Last year it became the first state to impose universal rent control.

To show the impact of regulatory restrictions, the invaluable Mark Perry of the American Enterprise Institute has a must-read comparison of Los Angeles with two Texas cities.

Adjusting for population, there are about 600 homeless people per 1 million population in Houston and Dallas, but nearly five times as many in LA at 2,707. The comparisons…highlight the simple economic logic that if you restrict the supply of new housing units (especially multifamily homes, duplexes, and large apartment buildings) in states like California with onerous building, land use, and zoning regulations, those restrictions are guaranteed to result in higher housing costs, higher apartment rents, and ultimately a greater homeless population. …The increasing rents, escalating home prices, and growing homelessness problem in California cities like LA are a direct result of local and state restrictions that artificially constrict the supply of new housing units. The solution is therefore simple, but politically unpopular and probably not politically feasible: California should increase its supply of housing by reducing its onerous restrictions on building new housing units.

Here’s his accompanying table. Notice how Dallas and Houston are much more affordable than Los Angeles.

And there’s less homelessness as well, in large part because housing is cheaper.

Kevin Williamson wrote in National Review about the anti-housing policies of New York’s governor.

Some of the inflated expenses associated with life in New York can be avoided… But you have to live somewhere. As in the Bay Area, Washington, and other Democrat-dominated cities, housing is the real killer in New York City and environs. …Like most U.S. cities advertising themselves as “progressive,” New York has a lot of political leaders who talk about affordable housing and a lot of political policies that keep affordable housing — and many other kinds of housing — from being built. This is not accidental: People who already own property typically have a lot more political influence than people in the first-time home-buyer market. …At the behest of moneyed environmental interests, Cuomo has stood athwart the building of practically any new conventional energy infrastructure, including pipelines for clean-burning natural gas. …Much of New York’s gas comes from Pennsylvania and West Virginia, but there isn’t enough carrying capacity to get it to New York. And New York has plenty of gas of its own, too, but New Yorkers can’t use it — thanks again to Cuomo, who has banned modern gas-extraction techniques in the state, again at the behest of the anti-energy ideologues who enjoy an outsized financial footprint in the Democratic party.

In addition to zoning laws and other land-use restrictions, the government also makes construction more expensive, as explained in a report in the Wall Street Journal.

The average cost for home builders to comply with regulations for new home construction has increased by nearly 30% over the last five years, according to new research from the National Association of Home Builders. Regulatory costs such as local impact fees, storm-water discharge permits and new construction codes, which have risen at roughly the same rate as the average price for new homes, make it increasingly difficult for builders to pursue affordable single-family construction projects… The cost of regulation imposed during the land development and construction process on average represented $84,671 of the cost of the average new single-family home in March. That is up from $65,224 in 2011, the last time the home-building industry group conducted a similar survey on regulatory costs. …A study this week from housing research firm Zelman & Associates found that local infrastructure “impact fees” have increased by 45% on average since 2005 in 37 key home building markets across the country, to about $21,000 per home.

Here’s a sobering graphic from the article.

All this regulation is bad for macroeconomic performance.

A recent study by two economists finds that land-use restrictions result in substantial misallocation of labor, causing a non-trivial reduction in economic output and family income.

The increase in spatial wage dispersion is driven at least in part by cities like New York, San Francisco, and San Jose, which…adopted land use restrictions that significantly constrained the amount of new housing that can be built. As described by Glaeser (2014), since the 1960s coastal US cities have gone through a property rights revolution that has significantly reduced the elasticity of housing supply… Instead of increasing local employment, productivity growth in housing-constrained cities primarily pushes up housing prices and nominal wages. The resulting misallocation of workers lowers aggregate output and welfare of workers in all US cities. This paper measures the aggregate productivity costs of local housing constraints… We use data from 220 metropolitan areas in the United States from 1964 to 2009… we calculate that increasing housing supply in New York, San Jose, and San Francisco by relaxing land use restrictions to the level of the median US city would increase the growth rate of aggregate output by 36.3 percent. In this scenario, US GDP in 2009 would be 3.7 percent higher, which translates into an additional $3,685 in average annual earnings. …We conclude that local land use regulations that restrict housing supply in dynamic labor markets have important externalities on the rest of the country. Incumbent homeowners in high productivity cities have a private incentive to restrict housing supply. …this lowers income and welfare of all US workers.

So how can this problem be fixed?

In a column for the Foundation for Economic Education, Cathy Reisenwitz explains that state and local politicians need to remove barriers.

America is in the middle of a housing crisis. The cause is simple: we’re not building housing fast enough to keep up with jobs. While the number of U.S. households grew by 11.2 million between 2005 and 2015, we only added about 9.9 million new housing units. …this isn’t a problem Washington can fix. That’s because this problem, and its solution, lies in cities and towns across the country. …Cities across the country make it impossible to build enough housing to meet demand by blocking, restricting, and delaying housing developments. …Even in areas where you can technically build multi-unit homes, other land-use restrictions make it all-but-impossible. These exclusionary land use practices include height restrictions, setback requirements, parking minimums, community review, aesthetic considerations, and minimum lot sizes. …A recent statistical analysis…showed that in 44 out of 50 states, the more land-use regulations on the books, the more homes cost. Reducing land use regulations is the right move for getting Americans out of poverty and into work.

Let’s close with some good news.

Salim Furth has a new article for City Journal, and he argues that all the evidence is actually changing minds and leading to some deregulation.

Last year, Democratic- and Republican-led states and municipalities passed legislation addressing housing affordability, a hopeful sign that housing deregulation is beginning to attract bipartisan support… Encouragingly, Arkansas and Texas have squelched such requirements through bipartisan state legislation. Arkansas has restored autonomy to homeowners on virtually all building-design choices, from color to roof pitch, while Texas has purged local restrictions on building materials. …North Carolina and Texas…passed legislation requires cities and counties to issue project approvals within a few weeks. In Texas, a developer can now move forward with construction if a municipality takes more than 30 days to review a completed application. North Carolina now imposes a 15-business-day limit for building permits involving one- and two-family dwellings. …State legislators will likely continue to address housing-supply restrictions in the years ahead. …The battle over rent control and inclusionary zoning could intensify as well, as it already has in California and Oregon. …policymakers in blue and red states alike should consider how current regulations restrict housing supply and drive up prices.

The bottom line is that housing across the nation will be much more affordable if state and local governments let markets operate.

Here’s a map showing estimates of land-use restrictions in major metropolitan areas. The goal for the nation should be more green and less red.

Incidentally, Fairfax, VA, is part of the D.C. area, so that red spot indicates that my home’s value is being subsidized (as are the homes of Washington’s parasite class).

But since I believe in a just society, I hope my part of the map becomes green, even if it means my home becomes less valuable (folks on the left are willing to hurt the poor so long as they also hurt the rich, whereas I’m willing to sacrifice myself so long as unjust favoritism for others also vanishes).

 

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When I want to explain that excessive government shortens lifespans, I’m going to have a new and powerful argument thanks to the Trump  Administration’s misguided efforts to restrict vaping.

The issue is very simple.

Some people want nicotine. If vaping products are not available, they will opt for cigarettes, which are vastly more dangerous.

The Wall Street Journal recently opined on the issue, echoing the point I made about how the Trump policy will open the door for higher-risk black-market products.

The Food and Drug Administration on Thursday announced a ban on flavored e-cigarettes…don’t think this will…make teens stop vaping. …it’s not clear how much good the FDA ban will do. It is already illegal for teens under age 18 to buy e-cigarettes, but that hasn’t stopped them. …One risk of the FDA’s flavor ban is more teens might buy e-cigarettes on the black market that are less safe. Illegal products are the main culprits in the recent cases of vaping-related lung illness.

Here’s some of what Jacob Sullum wrote on this topic.

In a wake-up call for people who claim to be concerned about smoking-related disease and death, five prominent public health scholars warn that the “tremendous” harm-reducing potential of e-cigarettes could be nullified by panicky political responses to underage consumption and vaping-related lung injuries. …”There is solid scientific evidence that vaping nicotine is much safer than smoking,” the authors note, while “evidence from multiple strong observational studies and randomized trials suggests that vaping nicotine is more appealing and more effective than [nicotine replacement therapy, such as patches and gum,] at displacing smoking.” …that displacement is not limited to adults. Fairchild and her co-authors point out that “population youth smoking rates dropped much faster in the years vaping surged the most (2013–2019) than in prior years, reaching record lows during that same period, which suggests that nicotine vape use may be replacing smoking more than promoting it.” E-cigarette prohibitionists may think they are acting “out of an abundance of caution,” but the policies they advocate look downright reckless when you consider the ongoing death toll from cigarette smoking.

In the interview, I mentioned that the United Kingdom has a far more sensible approach.

Matt Ridley wrote a piece for the Wall Street Journal about his country’s policy.

Nicotine itself is far less harmful to smokers than the other chemicals created during combustion. Heavyweight studies confirm that there are much lower levels of dangerous chemicals in e-cigarette vapor than in smoke and fewer biomarkers of harm in the bodies of vapers than smokers. …In both the U.K. and the U.S. the rapid growth in vaping has coincided with rapid reductions in smoking rates, especially among young people. Yet there is a stark contrast between the two countries in how vaping has been treated by public health authorities… Many British smokers have switched entirely to vaping, encouraged by the government, whose official position is that vaping is 95% safer than smoking, an assertion now backed by early studies of disease incidence. The organizations that have signed a statement saying that vaping is significantly less harmful than smoking include Public Health England, the Association of Directors of Public Health, the Royal College of Physicians and the Royal Society for Public Health. …The argument for harm reduction is not one that comes easily to some public-health advocates, because it means promoting behaviors that may still be harmful, just less so than the alternative. Vaping doesn’t have to prove entirely safe for it to save lives, given that it mostly replaces smoking.

Brad Polumbo adds some details in a column for the Washington Examiner.

America’s war on vaping is in full swing. But when you consider the positive approach taken in the United Kingdom, the foolishness of this new conflict is laid bare. …Vaping is much healthier than smoking traditional cigarettes. E-cigarettes do contain nicotine, but nicotine was never really the problem with traditional cigarettes in the first place — it’s essentially similar to caffeine. Rather, the enormous public health problem posed by cigarettes is due to the cancer-causing chemicals they contain, such as tar, for example. Vaping products do not contain similar chemicals, making them much, much less likely to cause cancer. …If the government is to do anything to address vaping, it should be to promote it as an alternative to smoking. This is what the U.K.’s government has done, to massive success. …A sober analysis reveals that we are doing exactly the opposite of everything we should be doing. We are putting up more barriers and restrictions on vaping, and instead, we should embrace the U.K.’s approach.

Let’s shift from international policy to state policy.

In another column for Reason, Jacob Sullum explains that awful politicians in Massachusetts want to combine two bad policies – vape bans and asset forfeiture.

Massachusetts has “the worst civil forfeiture laws in the country.” It looks like state legislators are about to outdo themselves. The Massachusetts House of Representatives…approved a bill that would ban flavored e-cigarettes, impose a 75 percent excise tax on “electronic nicotine delivery systems” (including e-liquids as well as devices), and authorize forfeiture of cars driven by vapers caught with “untaxed” products. …The bill also says a police officer who “discovers an untaxed electronic nicotine delivery system in the possession of a person who is not a licensed or commissioner-authorized electronic nicotine delivery system distributor” may seize both the product and the “receptacle” in which it is found, “including, but not limited to, a motor vehicle, boat or airplane in which the electronic nicotine delivery systems are contained or transported.” …Massachusetts is poised to deprive vapers of the harm-reducing products they used to quit smoking, then steal their cars if they dare to defy that unjust and irrational edict.

Needless to say, two negatives don’t make a positive.

Let’s close with this chart, which (in a logical world) should put an end to the debate.

Yes, it would be nice if nobody used any sort of dangerous product. But in the real world, where we face tradeoffs, I’d much prefer that people get nicotine from vaping.

P.S. And people should have the freedom to make choices that involve risk. Libertarianism is about treating people like adults.

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As I discuss in this recent interview, a higher minimum wage is a terrible idea if we care about facts and evidence (and also want to help poor people).

In the interview, I mentioned that minimum wage mandates aren’t good news for workers who lose their jobs.

One of them, Simone Barron, wrote in the Wall Street Journal about her unfortunate experience after the minimum wage was increased in Seattle.

This city’s minimum wage is rising to $16.39 an hour on Jan. 1. Instead of receiving a bigger paycheck, I’m left without any pay at all… That’s because the restaurant where I’ve worked for six years is closing as a consequence of the city’s harmful minimum-wage experiment. …When rent is too high, labor costs too much, and customers don’t want to pay $40 for a roast-chicken entree, the only way for many operators to ease the pain is to close. So now, after six years working at Mr. Douglas’s restaurant Tanakasan, I need to find a new work home. My first thought was to go back to Sitka & Spruce, a restaurant where I had once worked. …As it turns out, I can’t return to Sitka & Spruce. Its James Beard Award-winning owner, Matt Dillon, is closing Sitka after 14 years, defeated by the one-two punch of rising rents and labor costs. …I often hear people in Seattle lament that it’s becoming “more corporate.” The truth is that the city has made it nearly impossible for many small businesses to survive. …I’ve started applying for other open positions around town. I landed an interview at a restaurant called Super Bueno, owned by another established chef, Ethan Stowell. Before I could even confirm the interview, Mr. Stowell announced that he will close down Super Bueno at the end of the year.

Just in case you’re tempted to dismiss Ms. Barron’s story as a mere anecdote, let’s now look at some broader evidence.

There’s a new study from the National Bureau of Economic Research that measures the impact of minimum wage mandates. The results are not encouraging.

Using intertemporal variation in whether a state’s minimum wage is bound by the federal rate and credit-score data for approximately 15.2 million establishments for the period 1989–2013, we find that increases in the federal minimum wage worsen the financial health of small businesses in the affected states. Small, young, labor-intensive, minimum-wage sensitive establishments located in the states bound to the federal minimum wage and those located in competitive and low-income areas experience higher financial stress. Increases in the minimum wage also lead to lower bank credit, higher loan defaults, lower employment, a lower entry and a higher exit rate for small businesses. …Our results document some potential costs of a one-size-fits-all nationwide minimum wage, and we highlight how it can have an adverse effect on the financial health of some small businesses.

But not everybody cares about evidence.

The New York Times just opined in favor of the Bernie Sanders approach on the topic.

Over the past five years, a wave of increases in state and local minimum-wage standards has pushed the average effective minimum wage in the United States to the highest level on record. The average worker must be paid at least $11.80 an hour… Millions of workers are being left behind because 21 states still use the federal standard, $7.25 an hour… House Democrats passed legislation in July that would gradually increase the federal standard, to $15 an hour in 2025…the legislation also would require automatic adjustments in the minimum wage to keep pace with wage growth in the broader economy. …For most companies, the bill is relatively small, and it can be defrayed by giving less money to shareholders, or by raising prices. …The American economy is generating plenty of jobs; the problem is in the paychecks. The solution is a $15 federal minimum wage.

Interestingly, the editorial actually acknowledged that a one-size-fits-all $15 mandate would backfire.

It is possible that a national $15 standard would produce the kinds of damage critics have long predicted; the Congressional Budget Office puts the potential increase in unemployment…3.7 million people… Workers may be most vulnerable in areas where prevailing wages are relatively low. In California, for example, the minimum wage for large employers (more than 25 workers) will rise to $13 an hour on Wednesday. That is unlikely to cause problems in San Francisco — but the new minimum is quite close to the median hourly wage of $15.23 in the Visalia metropolitan area in the Central Valley. The federal minimum would apply to metropolitan areas like Daphne, Ala., and Sumter, S.C., where the median worker earned less than $15 an hour in 2018. One simple corrective, proposed by Senator Michael Bennet of Colorado, would be to include exemptions from the $15 standard for low-wage metropolitan areas and rural areas.

In other words, the NYT endorsed a $15 federal minimum wage, and then concluded by admitting it would be very bad if there actually was a $15 federal minimum wage.

This is why I prefer this editorial from the New York Times.

…there’s a virtual consensus among economists that the minimum wage is an idea whose time has passed. Raising the minimum wage by a substantial amount would price working poor people out of the job market. …An increase in the minimum wage…would increase employers’ incentives to evade the law, expanding the underground economy. More important, it would increase unemployment: Raise the legal minimum price of labor above the productivity of the least skilled workers and fewer will be hired. …Those at greatest risk from a higher minimum would be young, poor workers, who already face formidable barriers to getting and keeping jobs. …The idea of using a minimum wage to overcome poverty is old, honorable – and fundamentally flawed. It’s time to put this hoary debate behind us, and find a better way to improve the lives of people who work very hard for very little.

Sadly, that editorial was from 1987, back when the newspaper had a more rational perspective.

In those days, the New York Times also favored the flat tax.

Today, the publication is almost a parody of “woke” emotion since many reporters and editors push a statist agenda, presumably because (their perceptions of) good intentions matter more than good results.

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In order to protect against “Goldfish Government,” it’s very important to make sure that the powers of government are constrained by national borders.

This is the reason why I’m a passionate defender of tax competition and fiscal sovereignty (even if it means being subjected to slurs, attacks, and imprisonment!).

And it’s why I oppose extraterritorial tax laws such as FATCA.

The fight against extraterritoriality isn’t limited to fiscal issues. It’s also become a big problem in the area of financial regulation.

In a new study for the Center for Freedom and Prosperity, Bruce Zagaris addresses the over-use of sanctions and how they produce undesirable unintended consequences.

The widespread use of economic sanctions constitutes one of the paradoxes of contemporary American foreign policy. Although sanctions are often criticized, even derided, they are simultaneously and quickly becoming the policy mechanism of choice for the United States. The U.S. has economic sanctions against dozens of countries. Even though the success rate of sanctions is unimpressive, sanctions are so popular that they are being introduced by many states and municipalities. …In a global economy, unilateral sanctions tend to impose greater costs on U.S. businesses than on the target, which can usually find substitute sources of supply and financing. …As the U.S. is increasingly resorting to unilateral sanctions, they are inadvertently mobilizing a club of countries and international organizations, including U.S. allies, to develop ways to circumvent U.S. sanctions. …Sanctions are criticized due to their lack of effectiveness, adverse humanitarian effects, and adverse public health effects. Sanctions foment criminalization both during and after the sanctions as a way to circumvent sanctions. Sanctions also result in unintended negative effects on neighbor countries… The excessive use of economic sanctions, especially when U.S. allies oppose them and become targets, produces diplomatic tension, and damages the U.S.’s economy and reputation abroad. The growing number of countries in the club of targets has caused countries to develop innovative means to circumvent the use of the dollar.

I’ve previously written about how the dollar’s role as the world’s reserve currency could be threatened by extraterritoriality, so I fully agree with the concerns in Bruce’s study.

Interestingly, even the U.S. Treasury Secretary acknowledges that there is a problem.

The issue also has been featured on the op-ed page of the Wall Street Journal.

Sahil Mahtani of Investec Asset Management opined that excessive sanctioning by Obama and Trump creates risks for the dollar.

Will the U.S. dollar soon lose its status as the world’s pre-eminent currency? …Developments in foreign-exchange markets during the past 18 months point toward dedollarization. …The increasing use of economic sanctions under Presidents Obama and Trump is the immediate cause of dedollarization. …the change in posture among the trans-Atlantic democracies is noteworthy. …the emergence of a genuinely multipolar world means the coming market cycle is likely to be different. The U.S. dollar may finally be knocked off its pedestal.

Other experts also have warned about how sanctions can backfire on the American economy.

 

The Economist also has highlighted how promiscuous use of sanctions is both wrong and could backfire against America.

The United States…has increasingly punished foreign firms for misconduct that happens outside America. Scores of banks have paid tens of billions of dollars in fines. In the past 12 months several multinationals, including Glencore and ZTE, have been put through the legal wringer. …America has taken it upon itself to become the business world’s policeman, judge and jury. …as the full extent of extraterritorial legal activity has become clearer, so have three glaring problems. …Facing little scrutiny, prosecutors have applied ever more expansive interpretations of what counts as the sort of link to America that makes an alleged crime punishable there; indirect contact with foreign banks with branches in America, or using Gmail, now seems to be enough. …Second, the punishments can be disproportionate. In 2014 BNP Paribas, a French bank, was hit with a sanctions-related fine of $8.9bn, enough to threaten its stability. …Third, America’s legal actions can often become intertwined with its commercial interests. …American banks have picked up business from European rivals left punch-drunk by fines. Sometimes American firms are in the line of fire—Goldman Sachs is being investigated by the DOJ for its role in the 1MDB scandal in Malaysia. But many foreign executives suspect that American firms get special treatment and are wilier about navigating the rules. …escalating use of extraterritorial legal actions will ultimately backfire. It will discourage foreign firms from tapping American capital markets. It will encourage China and Europe to promote their currencies as rivals to the dollar… Far from expressing geopolitical might, America’s legal overreach would then end up diminishing American power.

To be sure, not every issue should be decided solely on the basis of economics. More GDP is good, but not at the cost of sacrificing honor and dignity.

Some nations might be so evil that sanctions are justified.

But policy makers should be fully aware that there are costs when sanctions are imposed.

Those costs include foregone trade, which would be bad for American consumers, workers, and businesses.

Most important, those costs could mean the dollar gets weakened or dethroned as the world’s reserve currency and the U.S. loses its “exorbitant privilege.”

And that could mean less investment in America, which translates into fewer jobs and lower wages.

P.S. The study by Bruce Zagaris is the third in a series on why extraterritoriality is a bad idea. The first study focused on extraterritorial taxation. The second study analyzed extraterritorial financial regulation.

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In pure socialist systems, governments own and operate companies (the “means of production“). Such an approach also requires central planning and price controls.

But you don’t need socialism to have government-controlled companies. There are plenty of “state-owned enterprises” that exist in supposedly market-oriented nations.

Including in the United States. The federal government, for instance, owns and operates the air traffic control system and the postal service, to cite two big examples.

So what happens when politicians are de facto shareholders?

Today, thanks to some new research from the Asian Development Bank Institute, we’re going to look at the economic consequences of such firms.

Throughout history, and especially since the end of World War II, state-owned enterprises (SOEs) have been created in much of the world… Although private companies play a dominant role in market-based societies, enterprises with government ownership are still key players in the global economy, making their performance important for economic growth and competitiveness… Thus, scholars and policymakers around the world have been left with a task of reassessing the efficiency of state ownership. …In this paper, we aim to investigate whether certain ownership types consistently show superior economic performance relative to others when controlling for other economic factors. …we aim to fill in this gap and report further empirical evidence on the relative efficiency of public and private companies.

According to the study, state-run companies play a very large role in some countries.

The authors consider some of the theoretical reasons why state-run firms might not be very efficient, including “public choice.”

Agency theory…states that in a corporation, managers (or agents) may follow a personal agenda rather than work on behalf of, and for the interest of, the principals who own the corporation. Within a SOE, in particular, …the managers of SOEs are those who are appointed by the government…and seek firm-specific rents, such as high pay, fringe benefits, and low effort levels. Unlike their peers who operate in private-owned enterprises and may face the risk of replacement and dismissal due to their firms’ low performance…, the chief executive officers (CEOs) of SOEs are put under little financial constraint, and their compensation is not necessarily linked to firm performance… Public choice theory…also provides a cornerstone conceptual framework on which SOEs’ underperformance can be explained. This framework assumes that…special interests affect…governments’ own objectives.

They put together a dataset of more than 25,000 companies, both government and private, and then looked at key performance metrics.

Not surprisingly, government-run firms are not very efficient compared to their private counterparts.

…we find significant evidence that SOEs are outperformed by their POEs counterparts. The findings are consistent over both simple univariate comparisons and multivariate regressions. Government firms appear to be less profitable than POEs. They are also more dependent on debt and financial support from outside sources rather than equity. Hence, we provide support for the view that public firms are less efficient than private firms… The cross-sectional comparisons also show that government firms tend to be more labor intensive and have higher labor costs than non-government ones. …The differences in profitability appear to be economically important. The average return on assets for private firms is 8.010, almost twice that for SOEs. …SOEs have a higher liabilities-to-assets ratio, meaning that they tend to rely more on debt than shareholder funds. … state-owned companies…generate smaller sales volumes and have a higher cost per one employee. In other words, firms owned by private sectors are more labor efficient than government ones. …our findings suggest that privatization could be considered as a driver for firm efficiency.

For those that like perusing quantitative results, here are the results of their statistical regressions.

I’ve highlighted the key difference.

As already noted, government-run firms accumulate more debt.

This is presumably because investors assume that government-run companies won’t default.

Not because they don’t lose money, but rather because the political pressures that led to their creation also will prevent their demise.

SOEs can enjoy a “soft” budget constraint since they are backed by the government for their funding… They have the advantage of borrowing funds at a lower rate rather than accessing the equity market to raise capital… Thus, the discipline that capital markets impose on state-held firms and the threat of financial distress for them is less important than their private counterparts. …it is worth noting that such “soft” budget constraints, to a certain extent, could also be a source of inefficiency in government firms.

In other words, the growth-enhancing process of “creative destruction” is blocked when governments are in charge of companies.

For what it’s worth, this is a big problem in nations such as China.

Though we also saw a version of this in the United States, with the big bailouts of Fannie Mae and Freddie Mac, both of which are government-sponsored enterprises (private ownership, but created by government and controlled by government).

And there are many other examples of bad results when the federal government has intervened in the business world.

The bottom line is that government should not be owning, operating, controlling, or directing private companies. These forms of intervention inevitably produce inefficiency, subsidies, cronyism, corruption, and waste.

And it means that people like you and me wind up with less income and lower living standards because politicians are misallocating labor and capital.

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I’m a big fan of Marco Rubio. The Florida Senator has been very good on some big issues and on some small issues. And he’s willing to fight important philosophical battles.

No politician is perfect (for instance, Rubio defends sugar subsidies), so I’ve always judged them by whether – on net – they’re on the side of more freedom or more statism.

Which is the ideal framework for today’s column.

Earlier this month, Rubio wrote a column for National Review asserting it is time for “common-good capitalism.”

Pope Leo XIII wrote that the ultimate goal for any society should be to “make men better” by providing people the opportunity to attain the dignity that comes from hard work, ownership, and raising a family. …What makes this society possible is the rights of both workers and businesses, but also their obligations to each other. …In the economy Pope Leo described, workers and businesses are not competitors for their share of limited resources, but partners in an effort that strengthens the entire nation. …This…doesn’t describe the economy we actually have today. Large corporations have become vehicles for shareholders and banks to assert claims to cash flows, rather than engines of productive innovation. Over the past 40 years, the financial sector’s share of corporate profits increased from about 10 to nearly 30 percent. The share of profits sent to shareholders increased by 300 percent. This occurred while investment of those profits back into the companies’ workers — and future — dropped 20 percent. …This is what it looks like when, as Pope Francis warned, “finance overwhelms the real economy.” …Diagnosing the problem is something we should be able to achieve… Ultimately, deciding what the government should do about it must be the core question of our politics. …What we need to do is restore common-good capitalism. …our nation does not exist to serve the interests of the market; the market exists to serve our nation.

Some of this rhetoric rubs me the wrong way (and citing an economic illiterate like Pope Francis is appalling), but what really matters is whether Rubio is proposing more power for government or less power for government.

That’s hard to say because he doesn’t offer much in terms of policy.

Though I’m not overly impressed by the handful of ideas that were mentioned.

I don’t pretend to know anything about rare-earth minerals, but it’s laughable to think the Small Business Administration is a wellspring of innovation, and there’s plenty of evidence that paid parental leave is bad policy (child tax credits aren’t bad, but there are other tax policies that are far better for families).

On the other hand, Rubio also has been making the case for “full expensing,” which is a very good policy.

Since we don’t have any additional details, I don’t know whether his new agenda is a net plus or a net negative.

Kevin Williamson of National Review, by contrast, is definitely not a fan of Rubio’s approach. Here’s some of what he wrote last week.

Senator Rubio…joins the ranks of those who propose to reinvent capitalism — “common-good capitalism,” he calls it. …Senator Rubio, working from remarks originally delivered in a speech at Catholic University, references a series of popes — Leo XIII, mostly, but also Benedict and Francis — to describe (whether the senator understands this or not) the familiar moral basis of fascist economic thinking… I write this as a fellow Catholic: God defend us from these backward, primitive-minded Catholic social reformers. …power is what is at issue. Men such as Senator Rubio desire for themselves the power to overrule markets — to limit trade and property rights, enterprise and exchange — in the service of what Senator Rubio describes as the “common good.” The problems with that are…Senator Rubio does not know what the common good is and has no way of knowing. …What we need from men in government is not the quasi-metaphysical project of reinventing capitalism in the name of the “common good.” …This is not a brief for anarchism. …We need stability and predictability from a government that secures our liberty and our property in the least obtrusive way that can be managed.

And he followed up two days later with another critical column, even equating Rubio’s agenda to Elizabeth Warren’s loony proposal.

From Senator Marco Rubio and his “common-good capitalism” to Senator Elizabeth Warren and her “accountable capitalism,” politicians right and left who want politicians to have more power over private economic decisions assume a dilemma in which something called “capitalism” must be balanced against or made subordinate to something called the “common good.” This is the great forgetful stupidity of our time. …Capitalism, meaning security in one’s own property and in the right to work and to trade, is the common good… What is contemplated by Senator Rubio and Senator Warren — along with a few batty adherents of the primitive nonidea known in Catholic circles as “integralism” and everywhere else more forthrightly as “totalitarianism” — is to invert the purpose of the U.S. government. …We’re supposed to give up our property rights so that these two and their ilk can use corporate welfare to fortify their own political interests? …The “stakeholder” thesis put forward by Rubio and Warren would strip shareholders of control of their own property and use that property in the service of interests of other parties, who are not its rightful owners. …the great prosperity currently enjoyed by North Americans and Western Europeans — and, increasingly, by the rest of the world — is a product…of capitalism… It wasn’t magic. It wasn’t the cleverness of Senator Rubio or Senator Warren. It wasn’t the big ideas of Pope Francis, to the modest extent that he has any economic ideas worth identifying as such.

Oren Cass argues that Williamson is both unfair and wrong about Rubio.

Williamson believes that Rubio wants to “be . . . the bandit, taking control of other people’s property”; “strip shareholders of control of their own property,” which “is robbery”; “redefine away the property rights of millions of Americans”; “limit . . . property rights”; and “run Apple or Facebook or Ford.” …I’ve read the Rubio speech carefully and can find none of this. …Rubio’s project is to explore the vast gray expanse between the white of liberty and the black of property theft. …This is the terrain on which many of American history’s great public deliberations have unfolded, yielding policies from Hamilton’s Report on Manufactures to the “internal improvements” of the early 1800s, the tariff debates between McKinley and Bryan, Teddy Roosevelt’s trust-busting, Franklin Roosevelt’s New Deal, Kennedy’s space race, and Reagan’s import quotas. Property theft all of it, at gunpoint no less, if I understand Williamson correctly. …Someone will have to make a value judgment as to what “goods” are in fact “good” and thus worthy of providing publicly.

Cass is right that there’s a lot of space between pure capitalism and awful statism. I’ve made the same point.

But it does worry me that he favorably cites a bunch of historical policy mistakes, such as protectionism, antitrust laws, and the New Deal.

Jonah Goldberg makes the should-be-obvious point that the United States is hardly a laissez-faire paradise.

For as long as I can remember, people on the left have complained about “unfettered capitalism.” …Senator Bernie Sanders said earlier this year that “we have to talk about democratic socialism as an alternative to unfettered capitalism.” …Recently, the concern with capitalism’s unfetteredness has become bipartisan. Senators Josh Hawley and Marco Rubio have taken up the cause in a series of speeches and policy proposals. Conservative intellectuals such as Patrick Deneen and Yoram Hazony have taken dead aim at unrestrained capitalism. J. D. Vance, the author of Hillbilly Elegy, and Tucker Carlson of Fox News have suggested that economic policy is run by . . . libertarians. My response to this dismaying development is: What on earth are these people talking about? …If you think there are no restraints on the market or on economic activity, why on earth do we have the Department of Labor, HHS, HUD, FDA, EPA, OSHA, or IRS? The United States has one of the most progressive tax systems in the world (i.e., the share of taxes paid by the rich versus everyone else). If you take into account all social-welfare spending, we spend more on entitlements than plenty of rich countries. Now, if you think we don’t spend, regulate, or tax enough, fine. Make your case. If you think we should spend and tax differently, I’m right there with you. But the notion that the United States is a libertarian fantasyland is itself a fantasy.

Amen.

And this brings me to my modest contribution to this discussion.

I’ve already admitted that Rubio hasn’t provided enough details to assess whether he wants more liberty or more statism.

That being said, I’m skeptical of “common-good capitalism” in the same way I’m suspicious about “nationalist conservatism” and “reform conservatism” (and we know for a fact that “kinder-and-gentler conservatism” and “compassionate conservatism” meant more statism).

So here’s my challenge to Rubio and Cass (as well as everyone else who proposes an alternative to Reagan-style small-government conservatism). Please specifically identify how much government you want. Yes, there is a “vast gray expanse” between pure laissez-faire and pure statism, as Cass noted. But he didn’t say where in that expanse he wants America to be.

To help people respond to this challenge, here’s a chart, based on the data from Economic Freedom of the World. In that “vast gray expanse” between pure capitalism and pure statism, should policy makers try to shift America in the direction of Hong Kong? Or in the direction of Sweden, or even Greece?

The bottom line is that we need to climb the scale (i.e., have more overall economic liberty) if we want more prosperity.

That’s what will help facilitate all the things, such as good jobs and strong communities, that Senator Rubio wants for America.

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