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Archive for the ‘Government intervention’ Category

When I assess President Trump’s economic policy, I generally give the highest grade to his tax policy.

But as I pointed out in this interview from last year, there’s also been some progress on regulatory policy, even if only in that the avalanche of red tape we were getting under Bush and Obama has abated.

But perhaps I need to be even more positive about the Trump Administration.

For instance, I shared a graph last year that showed a dramatic improvement (i.e., a reduction) in the pace of regulations under Trump.

For all intents and purposes, this means the private sector has had more “breathing room” to prosper. Which means more opportunity for jobs, growth, investment, and entrepreneurship.

To what extent can we quantify the benefits?

Writing for the Washington Post, Trump’s former regulatory czar said the administration has lowered the cost of red tape, which is a big change from what happened during the Obama years.

Over the past two years, federal agencies have reduced regulatory costs by $23 billion and eliminated hundreds of burdensome regulations, creating opportunities for economic growth and development. This represents a fundamental change in the direction of the administrative state, which, with few exceptions, has remained unchecked for decades. The Obama administration imposed more than $245 billion in regulatory costs on American businesses and families during its first two years. The benefits of deregulation are felt far and wide, from lower consumer prices to more jobs and, in the long run, improvements to quality of life from access to innovative products and services. …When reviewing regulations, we start with a simple question: What is the problem this regulation is trying to fix? Unless otherwise required by law, we move forward only when we can identify a serious problem or market failure that would be best addressed by federal regulation. These bipartisan principles were articulated by President Ronald Reagan and reaffirmed by President Bill Clinton, who recognized that “the private sector and private markets are the best engine for economic growth.”

But how does this translate into benefits for the American people?

Let’s look at some new research from the Council of Economic Advisers, which estimates the added growth and the impact of that growth on household income.

Before 2017, the regulatory norm was the perennial addition of new regulations.Between 2001 and 2016, the Federal government added an average of 53 economically significant regulations each year. During the Trump Administration, the average has been only 4… Even if no old regulations were removed, freezing costly regulation would allow real incomes to grow more than they did in the past, when regulations were perennially added… The amount of extra income from a regulatory freeze depends on (1) the length of time that the freeze lasts and (2) the average annual cost of the new regulations that would have been added along the previous growth path. …In other words, by the fifth year of a regulatory freeze, real incomes would be 0.8 percent (about $1,200 per household in the fifth year) above the previous growth path. …As shown by the red line in figure 3, removing costly regulations allows for even more growth than freezing them. As explained above, the effect, relative to a regulatory freeze, of removing 20 costly Federal regulations has been to increase real incomes by 1.3 percent. In total, this is 2.1 percent more income—about $3,100 per household per year—relative to the previous growth path.

Here’s the chart showing the benefits of both less regulation and deregulation.

The chart makes the change in growth seem dramatic, but the underlying assumptions aren’t overly aggressive.

What you’re seeing echoes my oft-made point that even modest improvements in growth lead to meaningful income gains over time.

P.S. My role isn’t to be pro-Trump or anti-Trump. Instead, I praise what’s good and criticize what’s bad. While Trump gets a good grade on taxes and an upgraded positive grade on regulation, don’t forget that he gets a bad grade on trade, a poor grade on spending, and a falling grade on monetary policy.

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A couple of years ago, I praised federalism in part because state and local governments would be less likely to adopt bad policy (such as higher minimum wages) if they understood that jobs and investment could simply migrate to jurisdictions that didn’t adopt bad policy.

But “less likely” isn’t the same as “never.” Some state and local politicians can’t resist the temptation to raise taxes, even though that means workers “vote with their feetfor places with lower tax burdens.

And some state and local politicians continue to mandate higher minimum wages (see here, here, here, and here), even though that means workers have fewer job opportunities.

Today, we’re going to look at some fresh evidence from Emeryville, California.

The local newspaper has an impressively detailed look at what’s happened to the town’s labor market.

Representatives from the Mills College Lokey School presented data from its recent ‘business conditions’ survey to our City Council on Tuesday. The study confirmed what restaurant owners warned when the ordinance was hastily passed in 2015. They are struggling, rapidly raising menu prices and increasingly looking to leave. …It’s getting harder to find small food service businesses that were around in 2015 when the MWO was passed. Emeryville institution Bucci’s, Commonwealth, Farley’s, Scarlet City … all gone. In fact, nearly all the brick & mortar businesses that comprised the short-lived Little City Emeryville small business advocacy group have moved, folded or sold. …The survey also identified that “the restaurant industry is clearly struggling.” Specifically, small, independent, non-franchise establishments are having the most difficulty.

Here’s some of the survey data on the negative effect.

Here’s some specific information on how restaurants have been adversely impacted.

…nearly all the new businesses that have opened have embraced the counter service model that requires fewer employees. Paradita Eatery, whose original plan was for a full service sit-down restaurant, cited Emeryville’s wage ordinance specifically for ‘pivoting’ to a counter service model. Counter service models require fewer employees to offset higher labor costs. …The only full service restaurant that has opened since the Minimum Wage was passed was 612One Asian Fusion which folded after just two years in business.

One of the reasons for the economic damage is that Emeryville has gone further and faster in the wrong direction.

The local law is more onerous than the state law and more onerous than other nearby communities.

But it’s not just workers who are suffering.

Consumers are adversely impacted as well.

One commenter, who identified herself as a resident, questioned why the survey did not include consumer data noting her dining frequency was altered by the drastic price increases she’s observed. …She noted that she used to frequent her local Doyle Street Cafe 2-3 times per month but last year went only twice. …Once franchise owner noted that the price increases they’ve been forced to pass along have ironically had the biggest impact on vulnerable communities that are more price-sensitive. “Our largest decrease in guests are folks over 50. Obviously our elderly, disabled, and folks on fixed incomes are unable increase their income to compensate for the price increases.”

Let’s close with a new video from Johan Norberg, which looks at the impact of minimum wage increases in San Diego.

P.S. If local communities are allowed to mandate minimum wages higher than the state level or federal, shouldn’t they also have the freedom to allow minimum wages that are lower than the state level or federal level?

P.P.S. A number of European nations have no mandated minimum wage. As explained in this video, that’s an approach we should copy.

P.P.P.S. If you want some minimum-wage themed humor, you can enjoy cartoons herehereherehere, and here.

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While I constantly criticize the statist policies that are imposed in California, I can understand why people want to live there.

There’s plenty of sunshine, a temperate climate, low humidity, and nice scenery.

I even realize that lots of people like San Francisco, even though it’s too chilly and too urban (and too officious and too regulatory) for my tastes.

And too expensive. Not just for me. For almost everyone.

In a column for the Washington Post, Karen Heller opines that San Francisco faces some serious problems. Here are some excerpts from her piece.

In a time of scarce consensus, everyone agrees that something has rotted in San Francisco. Conservatives have long loathed it as the axis of liberal politics and political correctness, but now progressives are carping, too. They mourn it for what has been lost, a city that long welcomed everyone and has been altered by an earthquake of wealth. …Real estate is the nation’s costliest. …a median $1.6 million for a single-family home and $3,700 monthly rent for a one-bedroom apartment. …In the shadow of such wealth, San Francisco grapples with a very visible homeless crisis of 7,500 residents, some shooting up in the parks and defecating on the sidewalks, which a 2018 United Nations report deemed “a violation of multiple human rights.” Last year, new Mayor London Breed assigned a five-person crew, dubbed the “poop patrol,” to clean streets and alleys of human feces. …“Our rich are richer. Our homeless are more desperate. Our hipsters are more pretentious,” says Solnit, who once wrote that “San Francisco is now a cruel place and a divided one.” …San Francisco has…the lowest percentage of children, 13.4 percent, of any major American city, and is home to about as many dogs as humans under the age of 18. …the African American population has withered to 5.5 percent compared to 13.4 percent a half century ago.

While Ms. Heller does a good job of describing how San Fran has become a city that’s unaffordable for anyone who’s not a rich, single, hipster, she doesn’t explain why that’s the case.

Though she does quote one resident who says it’s the fault of the free market.

“This is unregulated capitalism, unbridled capitalism, capitalism run amok. There are no guardrails,” says Salesforce founder and chairman Marc Benioff, a fourth-generation San Franciscan who in a TV interview branded his city “a train wreck.”

Is Mr. Benioff right? Has San Francisco become Hong Kong on the Bay?

Interestingly, Farhad Manjoo also wrote about the city.

But his column for the New York Times puts the blame on his fellow leftists.

…look at San Francisco… One of every 11,600 residents is a billionaire, and the annual household income necessary to buy a median-priced home now tops $320,000. Yet the streets there are a plague of garbage and needles and feces… At every level of government, our representatives, nearly all of them Democrats, prove inadequate and unresponsive to the challenges at hand. …Creating dense, economically and socially diverse urban environments ought to be a paramount goal of progressivism. …Urban areas are the most environmentally friendly way we know of housing lots of people. We can’t solve the climate crisis without vastly improving public transportation and increasing urban density. …Yet where progressives argue for openness and inclusion as a cudgel against President Trump, they abandon it on Nob Hill and in Beverly Hills.

And he argues that the solution is…gasp…capitalism!

More specifically, he says government-imposed zoning must be curtailed so the market can provide more housing.

…California lawmakers used a sketchy parliamentary maneuver to knife Senate Bill 50, an ambitious effort to undo restrictive local zoning rules and increase the supply of housing. …because the largest American cities are populated and run by Democrats — many in states under complete Democratic control — this sort of nakedly exclusionary urban restrictionism is a particular shame of the left. …This explains the opposition to SB 50, which aimed to address the housing shortage in a very straightforward way: by building more housing. The bill would have erased single-family zoning in populous areas near transit locations. …wealthy progressive Democrats are…keeping housing scarce and inaccessible…to keep people out. “We’re saying we welcome immigration, we welcome refugees, we welcome outsiders — but you’ve got to have a $2 million entrance fee to live here, otherwise you can use this part of a sidewalk for a tent,” said Brian Hanlon, president of the pro-density group California Yimby.

This is very remarkable analysis, especially since it comes from someone who is so far to the left that he actually proposed to criminalize billionaires.

By the way, I’m obviously not a fan of zoning laws, but it’s easy to understand why some people defend them.

In part, they like the fact that such laws artificially increase the value of their property. And I’m sure some of them are genuinely fond of their neighborhoods and don’t want things to change.

And I’ll even admit they have a point when they argue that changing zoning laws is a bit like breach of contract. After all, people move into a neighborhood under a certain set of rules and regulations.

But my sympathy has very narrow limits. And if you want to understand why, watch this video from the folks at Reason.

The bottom line is that the mess in San Francisco is a teachable moment. It’s helping folks on the left understand that government regulations impose very real costs.

And the fact that Farhad Manjoo is on the right side (at least on this one issue) means a teachable moment actually became a learnable moment.

P.S. San Francisco also has onerous rent control laws. So local officials not only make it difficult to build housing, they also make it difficult to make a profit on housing that’s already there. That means big windfalls for a few insiders, but scarce housing for everyone else.

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I’m not a big fan of so-called anti-money laundering (AML) requirements.

And things are getting worse because these laws and rules increasingly are part of a Byzantine web of extraterritorial mandates – meaning nations trying to impose their laws on things that happen outside their borders.

Bruce Zagaris, a lawyer with special expertise in international legal issues, just wrote a study on this issue for the Center for Freedom and Prosperity Foundation.

Here’s how he frames the issue.

From the introduction of anti-money laundering laws in 1986, the United States government has led international efforts to prevent and prosecute money laundering…the U.S.’s unilateralism in the financial enforcement arena has alienated smaller jurisdictions and led to a substantial increase of costs for cross-border transactions. This article examines the trade-offs of the U.S.’s unilateral approach and argues for a rebalancing of the expanding financial enforcement regime. …under the “territorial” theory of extraterritorial jurisdiction, the U.S. has proactively asserted that it has the right to regulate criminal acts occurring outside the U.S. as long as they produce effects within the United States. …A criminal statute which Congress intends to have extraterritorial application may reach a defendant who has never even entered the U.S. if s/he participated in a conspiracy in which a co-conspirator’s activities occurred within the U.S.

In part, this is a problem of the United States trying to dictate policy in other nations.

But what goes around, comes around. As Bruce explains,the European Commission is trying to coerce American territories into changing their policies.

On February 13, 2019, the European Commission blacklisted 23 jurisdictions for their weak regulation of AML/CTF policy, increasing the level of oversight that European banks would have to overcome in conducting business with said jurisdictions. The list included four U.S. territories – Puerto Rico, Guam, American Samoa, and the Virgin Islands… The U.S. Treasury Department immediately and swiftly condemned the blacklist, noting that it had “significant concerns about the substance of the list and the flawed process by which it was developed.” The Treasury further stated that it did not expect U.S. financial firms to pay any heed to the blacklist.

All this cross-border bullying would be bad news even if the underlying laws were reasonable.

But Bruce concludes by explaining that this is not the case.

The result of over-aggressive application of extraterritorial jurisdiction by the U.S. and the EU for anti-money laundering and prosecution of financial institutions and officials, together with the use of informal organizations, such as FATF, to establish new AML/CFT standards, has led to increasing exclusion of countries (called de-risking) and other depositors, especially in small jurisdictions. It has also led to substantial increase of costs for cross-border transactions, as financial institutions must increase AML due diligence, including Know Your Customer, Customer Due Diligence, and the requirement to report suspicious transactions, as well as be subject to prosecution and regulatory enforcement actions. National laws and international standards should have a cost-effect requirement, especially as they continually impose new requirements on the private sector and impede normal commerce and privacy.

All this extraterritoriality has economic implications.

Richard Rahn, in a column for the Washington Times, opines about the CF&P report.

…rarely do government leaders fully think through the effects of their actions — extraterritorial application of law being a prime example. …Noted legal scholar Bruce Zagaris, who specializes in international financial crime, has written a new paper for the Center for Freedom and Prosperity Foundation… the United States has proactively asserted it “has the right to regulate criminal acts by non-U.S. citizens occurring outside the U.S., as long as they produce effects in the U.S.” As can easily be seen, such a definition is a never-ending slippery-slope, which is causing great conflicts among governments. As a result of the increasingly expansive view of U.S. courts to take cases and enforce judgments extraterritorially, courts and legislatures in other countries are also asserting extraterritorial enforcement authority.

Richard explains why this is bad news for those who care about economic growth.

…It is difficult enough for businesses and individuals in any one jurisdiction to understand all the laws and regulations that apply to them, but once governments begin to extend their laws and regulations to foreign jurisdictions, the global financial and legal system begins to melt down. Laws and regulations are often in conflict, so those who are engaged in multiple legal jurisdictions are increasingly at risk — which causes them to rationally de-risk by withdrawing investment from those entities least able to defend themselves. The result is slower world growth and job creation. …Clear global rules need to be established as to when extraterritorial application of laws is justified and not justified. Issues like dual criminality in tax, anti-money laundering and terrorist finance need to be addressed to bring some rationality and fairness to the system. And finally, procedures need to be established so that any jurisdiction can challenge a rule that does not meet a reasonable cost-benefit test.

I’ll close by making two points.

First, politicians and bureaucrats claim that laws and regulations against money laundering are designed to fight crime. Don’t believe them. Money laundering is mostly a problem in “onshore” nations. The real motive is to undermine financial privacy so governments can track – and tax – capital around the world.

Second, American politicians and bureaucrats are playing with fire. The more we try to bully other nations to enforce our bad tax laws, the greater the risk that other governments no longer will use the dollar as a reserve currency. That would be costly to the U.S. economy.

P.S. Senator Rand Paul is one of the few heroes on this issue.

P.P.S. Click here for a good summary article on why laws should be limited by borders.

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What’s the biggest problem with the Federal Reserve?

The obvious answer is that the Central Bank is susceptible to Keynesian monetary policy, which results in a harmful boom-bust cycle.

For instance, the Fed’s artificially low interest rates last decade played a key role (along with deeply misguided Fannie Mae-Freddie Mac subsidies) is causing the 2008 crisis.

And let’s not forget the Fed’s role in the Great Depression.

Today, though, let’s focus on a narrower topic.

As Norbert Michel explains for the Heritage Foundation, the central bank is trying to expand its power in the financial system.

…one of the “potential actions” the Fed Board is considering is to develop its very own real-time settlement system. This approach makes many private sector actors anxious because no private company wants to compete with the feds. …Since its inception, the Fed has been heavily involved in the U.S. payments system. And one can easily argue that the system has lagged behind precisely because the Fed has been too involved. …The Fed also effectively took over the check-clearing business even though the economic case for such a move was highly suspect. Private firms were doing fine. In fact, there is a long history of the Fed usurping the private market.

Here are some details on the Fed’s most-recent power grab.

…the government is once again angling to take over a function that private firms are already providing. The Clearinghouse, a private association owned by 25 large banks, launched its own system—Real-Time Payments (RTP)—in November 2017. …the private sector is better than the government at providing more goods and services to more people. In the private sector, competitive forces and the need to satisfy customers create constant pressure to innovate and improve. Government entities are wholly insulated from these pressures. The government should not provide a good or service unless there is some sort of clear market failure, where the private sector has failed to provide it. This type of failure clearly does not exist in the payments industry.

Norbert is right. Competition is the way to get better outcomes for consumers.

As such, it’s rather absurd to think a government-operated monopoly will produce good results (look, for instance, at its cronyist behavior during the financial crisis).

Now let’s zoom out and consider the big picture.

Richard Rahn has a column in the Washington Times that raises questions about the Fed’s role in a modern economy.

Is there a need for the Fed? …The Fed has an extensive history of policy mistakes, (too long to even summarize here). The problem has been the assumption that the Fed had better information and tools than it had. At times, it was expected to “lean against the wind” as if it had information not available to the market — or smarter people. In Hayekian terms, it suffered from “the pretense of knowledge.” At this point, it may be beyond fixing. Several very knowledgeable economists who have held high-level positions at the Fed, including regional bank presidents, have begun discussions about setting up a new commission to rethink the whole idea of a Fed and its activities. The structure that now exists is a jerry-built concoction that has been assembled in bits and pieces for more than a century — and increasingly appears to be past its expiration date.

I’ve written about the need to clip the Fed’s wings, but Richard’s column suggests even bolder action is needed.

Larry White and John Stossel also have questioned the role and power of the Federal Reserve.

In any event, one thing that should be clear is that the Fed hasn’t used its existing powers either wisely or effectively.

Thomas Sowell is right. Don’t reward a bureaucracy’s poor performance by giving it even more power.

P.S. Here’s a video I narrated on the Fed and central banking.

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I have this quaint notion that the Constitution guarantees economic liberty by limiting the power of Washington. Needless to say, parental leave is not one of the enumerated powers in Article 1, Section 8.

Sadly, many people (include the Chief Justice of the Supreme Court) don’t share my view.

So let’s set aside that objection and focus on the policy implications of a new entitlement program.

I’ve already explained why the federal government shouldn’t have a policy on parental leave, but the topic isn’t going away so let’s look at the issue again.

The first thing to realize is that the fight over “parental leave” involves several competing options.

Here are the four alternatives.

  1. A “conservative” plan to allow new parents to finance time off by tapping into the bankrupt Social Security system.
  2. A plan from the left to make parental leave an entitlement financed by payroll taxes.
  3. A plan from the left to mandate that employers provide paid leave.
  4. The libertarian notion that it’s none of the government’s business.

Let’s address Option #1.

Writing for National Review, Alexandra DeSanctis argues for an expansion of government’s role.

Joni Ernst of Iowa and Mike Lee of Utah recently introduced the Child Rearing and Development Leave Empowerment (CRADLE) Act, the latest conservative effort to develop a paid-leave policy that enables parents to stay home with their newborns. …It would amend the Social Security Act to allow parents to take up to three months off from work by drawing on their retirement benefits early in exchange for delaying their benefits after retiring.

You can read my concerns about this approach in this column from last March, so I don’t want to reinvent the wheel.

But Ms. DeSanctis makes some new arguments that cry out for rebuttal.

Starting with the notion that we should be ashamed that we’re not copying Europe’s decrepit welfare states.

The United States is the only country in the Organization for Economic Cooperation and Development (OECD) — an intergovernmental economic alliance of 36 member countries — that doesn’t have a national paid-leave program.

Wow, I never expected to see this type of argument in National Review. William F. Buckley must be spinning in his grave.

Heck, I made that argument a punchline in my recent collection of anti-Bernie Sanders satire.

She also wants to water down the definition of conservatism so that it means whatever is convenient for certain politicians.

The conservative argument against the proposal is intriguing as a matter of principle, but it is worth noting that the Republican politicians offering these paid-family-leave bills in recent years are also some of the most conservative policymakers in the Senate. …This new proposal is an effort not to expand the government but to protect and cultivate family life, which ought to be the chief goal of any country that cares about its future. …as the Right grapples with populist arguments for greater government prioritization of the needs of working-class Americans negatively affected by globalization, conservatives should embrace efforts to incentivize family growth and offer parents more flexibility in caring for their newborns.

I’m also less than impressed by her argument that Congress should “cultivate family life.”

Indeed, it’s precisely because strong families are good that Washington shouldn’t be involved.

Which is why I prefer what Rachel Greszler wrote for the Heritage Foundation. Here are some excerpts.

…a new national entitlement…could expand as other federal entitlements have, potentially costing hundreds of billions of dollars per year. …the role for the federal government is to remain neutral with regard to parents’ decisions to stay home or work outside the home. The government can, however, make it easier and less costly for workers to take family leave by reducing marginal tax rates so that workers have larger paychecks, supporting, instead of impeding, flexible work arrangements between employees and employers, and cutting costly regulations so that businesses can afford to provide paid leave.

And I definitely like articles that make the principled case against more government.

For instance, here are excerpts from a column by Veronique de Rugy.

Even if we pretend that it doesn’t change the size of government because the increased spending in the beginning will perfectly offset a few decades later with delayed benefit payments and increases in revenue (i.e., parents delay retirement and hence continue to send taxes to Uncle Sam), the plan increases the scope of the government immediately. You can’t wish away the fact that it drags the government into an area where it played no role before.

And George Leef, writing for Forbes, has similar concerns.

The notion that the government should help cover the costs of having a child springs naturally from the “progressive” mindset that government should be there to provide in case anyone needs (or merely prefers) assistance. It also dovetails with the liberal political mentality that many votes are to be won by giving people stuff. …But the big problem with this idea is not the dollars and cents one. Rather, it is the way it perpetuates and spreads the idea that the purpose of the federal government is to provide for our needs. …Kindly old Uncle Sam will be there to help when you need it. …This is the sort of thing Thomas Jefferson had in mind when he warned against ‘wasting the labors of the people under the pretense of taking care of them.’

What about other ways to address the issue?

Regarding Option #2 (an entitlement funded by payroll taxes), Vanessa Brown Calder’s article in National Review is must-reading on the issue.

…government-supported paid leave is costly. Paid-leave proposals such as the FAMILY Act would result in new payroll taxes on all current workers, whether or not they intend to use benefits. …realistic assumptions based on the national use of the federal unpaid FMLA program…suggest the FAMILY Act would result in costs of around $450 per year in taxes for the average worker. …the program is likely to expand, as similar programs have in other OECD countries. For example, the average length of paid maternity, parental, and home-care leave available to mothers in OECD-30 countries in 1970 was 17.2 weeks. In 2016 that number had tripled, to an average of 52.5 weeks, or over a year in benefits. Large expansions of programs are accompanied by large expansions in program costs. For example, Norway expanded leave from 18 to 35 weeks between 1987 and 1992, which nearly doubled the cost to taxpayers from $12,354 to $24,022 per eligible birth.

Imposing taxes to finance that much new spending isn’t very popular, even in left-wing states.

For instance, the New York Times reports that politicians in California want to impose a paid-leave mandate, but they are having a hard time figuring out how to make the numbers work.

The United States has long been the only industrialized country not to offer paid leave to new parents. Instead of waiting for the federal government, the incoming governor of California intends to change that… What’s unclear is how California would pay for it. The proposal, which the governor-elect, Gavin Newsom, is expected to include with his budget after he is sworn in on Monday, would be the most generous state policy in the nation, at a time when federal paid leave proposals have stalled. Yet it does not include a plan to finance it… California’s existing paid leave program is financed by a 1 percent payroll tax. Increasing that tax would require the approval of two-thirds of the Legislature, not assured despite Democratic control.

Interestingly, folks on the left are making the same argument that Ms. DeSanctis used in National Review.

“…we’re falling behind our economic competitors,” said Heather Boushey, the executive director of the Washington Center for Equitable Growth, who advised Hillary Clinton on economic issues during her 2016 presidential campaign.

I’ll merely add that “we’re falling behind” only in the race to impose more government.

We’re way ahead in the race for more prosperity.

I also found this passage to be laughable.

California has a history of fervent opposition to taxes. Democrats now have supermajorities in both the Senate and the House, but many of them have embraced fiscally conservative policies.

You almost have to assume that the reporter who wrote this piece never visited the state.

California has the nation’s most onerous state income tax. And it ranks very low in measures of fiscal policy.

Yes, there is a supermajority requirement to raise taxes, but politicians in Sacramento have been very successful in overcoming that barrier.

Let’s shift to Option #3 (mandating the employers provide leave).

Vanessa Brown Calder authored a comprehensive study on parental leave last year. She included a section on how this approach would harm female workers.

Economist Lawrence Summers studied the effects of mandating government benefits and concluded that women’s wages would be reduced to reflect the cost. Summers states that “if wages could freely adjust, these differences in expected costs would be offset by differences in wages.” If not, “there will be efficiency consequences as employers seek to hire workers with lower benefit costs.” …Economist Jonathan Gruber studied maternity-benefit mandates in Illinois, New York, and New Jersey, and his findings “consistently suggest” women’s wages were reduced to reflect the cost of benefits. The estimated reduction in wages was around 100 percent of the cost of benefits. Government-mandated leave has similar effects internationally. A study of 16 European countries over a period of around 20 years found that “parental leave is associated … with reductions in [women’s] relative wages at extended durations.” Other researchers have noted that “work-family policies … have also contributed to … lower wage-levels for women relative to men.”

This data is especially noteworthy since there is additional evidence that women get hurt when government intervenes on their behalf.

To conclude, let’s look at how her research supports Option #4 (no interference from Washington).

Here are her main findings.

…ample data show that the private market provides paid leave at rates about 30 to 50 percentage points higher than proponents claim. Private paid leave provision has grown three- or fourfold over 50 years and continues to grow. This trend indicates industry is responsive to employee demands. …Government intervention is also unlikely to correct gender or labor-market inequality in ways proponents desire. For example, families may respond to the policy by increasing women’s household work contributions relative to men’s. Redistributive effects of government intervention are likely to harm workers.

This chart shows how markets are naturally responsive when government doesn’t intervene.

And this chart from her study shows that women do better in the United States than in other nations.

In other words, benign neglect is the policy that produces the best outcomes.

Sadly, this is one of the many issues where the Trump Administration is on the wrong side.

The bottom line is that Option #4 is the only choice that is good for freedom, good for women, and good for the economy.

Option #1 is not as bad as Options #2 and #3, but it is still a step in the wrong direction (as I noted last year, supporters “are proposing to do the wrong thing in the best possible way”).

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During my early years in public policy, back in the late 1980s, I repeatedly crossed swords with people who argued that Washington should have more power over the economy so that the United States could compete with Japan, which supposedly was an economic juggernaut because of “industrial policy” directed by wise and far-sighted bureaucrats at the Ministry of International Trade and Industry.

Given Japan’s subsequent multi-decade slump, it certainly seems like I was right to warn against giving American politicians the power to pick winners and losers.

But not everybody learned from that experience. In the words of Yogi Berra, “It’s deja vu all over again,” only this time we’re supposed to be terrified because the Chinese government wants to subsidize and promote certain industries as part of “Made in China 2025”.

At the risk of understatement, I’m not scared.

Yes, China has enjoyed some impressive growth since it partially liberalized its economy in the late 1900s, but it will remain far behind the United States unless – as I recently explained on CNBC – there is a new wave of free-market reforms.

Needless to say, a government initiative to favor certain industries is hardly a step in that direction.

Some Chinese policy makers even realize that it’s counterproductive to give that kind of power to politicians and bureaucrats.

Here are some excerpts from a report in the South China Morning Post.

“Made in China 2025” has been a waste of taxpayers’ money, China’s former finance minister Lou Jiwei has said…“[Made in China] 2025 has been a lot of talking but very little was done,” Lou, chairman of the National Council for Social Security Fund, said on Wednesday… “those industries are not predictable and the government should not have thought it had the ability to predict what is not foreseeable.” …“The negative effect of [the plan] is to have wasted taxpayers’ money.” He suggested the market should have played a greater role in developing the industries that MIC2025 was designed to push. “The [resources] should have been allocated by the market; the government should give the market a decisive role,” Lou said. “Why has the government pushed so hard on this strategy? [Hi-tech industry prospects] can all change in a few years, it is too unforeseeable.”

Sounds like Mr. Lou learned from Obama’s Solyndra fiasco that cronyism doesn’t work.

But some of his colleagues still need to be educated.

Made in China 2025 (MIC2025) strategy, Beijing’s blueprint for tech supremacy. …Since the plan’s launch in 2015, the government has poured money into MIC2025 to try to turn a number of domestic industries – including artificial intelligence, pharmaceuticals and electric vehicles – into global leaders by 2025. …Lou said: “It [the strategy] should not have been done that way anyway. I was against it from the start, I did not agree very much with it.

I hope senior government officials change their minds about this harmful exercise in central planning.

Not because I’m afraid it will work, but rather because I like China and I want the country to prosper. The partial reforms from last century produced great results for China, including huge reductions in poverty.

Additional reforms could lead to mass prosperity. But that won’t happen if the Chinese government tries to control the allocation of resources.

Let’s close with a big-picture look at central planning and industrial policy, starting with the common-sense observation that there are degrees of intervention.

Here’s my back-of-the-envelope perspective. We have examples of nations, such as the Soviet Union, where the government had near-total control over the allocation of labor and capital. And I suppose Hong Kong would be the closest example of a laissez-faire jurisdiction. And then there’s everything in between.

I’ve already shared two great videos on government planning versus the market. I strongly recommend this Prager University video, narrated by Professor Burton Folsom, on the failure of government-dictated investment. And also this video narrated by Professor Russ Roberts, which shows how a decentralized market efficiently provides a bounty to consumers.

Here’s a third, which celebrates the work of the late Don Lavoie, one of my professors when I studied at George Mason University.

By the way, there is a terrible flaw in the video. The photo that appears at 1:38 shows select faculty and students in 1987. Why is that a flaw? For the simple reason that I was part of the photo but got cropped out in the video.

P.S. Some people worry that China’s industrial policy will have a negative spillover effect on the United States because American companies will lose market share to the subsidized Chinese companies. That’s a legitimate concern and American officials should use the World Trade Organization to counter mercantilist policies.

P.P.S. To my dismay, some people don’t want China to become a rich nation. I assume those people are hoping China follows the advice of the OECD and IMF.

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