Joe Biden (Accidentally) Channels Ronald Reagan

I have long argued that lower levels of government spending are good for prosperity.

This is why I have praised presidents who actually cut spending (such as Harding and Coolidge) and also lauded presidents who restrained spending (such as Reagan and Clinton).

Is it time to add Joe Biden to this list?

The obvious answer is no. After all, he wanted a $5 trillion a expansion of the welfare state in his first budget. And many of the bills in his first two years (such as the fake stimulus and the misnamed Inflation Reduction Act) increased the burden of spending.

However, I was very surprised that Biden recently made comments that could have been delivered by Reagan.

As reported in the New York Times by Jim Tankersley, Biden asserted that a big spending cut was pro-growth.

Mr. Biden expressed confidence earlier this month that any deal would not spark an economic downturn. That was in part because growth persisted over the past two years even as pandemic aid spending expired and total federal spending fell from elevated Covid levels… Asked at a news conference at the Group of 7 summit in Japan this month if spending cuts in a budget deal would cause a recession, Mr. Biden replied: “I know they won’t. I know they won’t. Matter of fact, the fact that we were able to cut government spending by $1.7 trillion, that didn’t cause a recession. That caused growth.”

For what it’s worth, I agree with Biden that a $1.7 trillion spending cut is pro-growth.

But don’t get too excited. Biden’s remarks probably show that he is easily confused, not that he suddenly understands the economics of fiscal policy.

• According to numbers from his own Office of Management and Budget, there has not been a $1.7 trillion spending cut.
• Spending did drop by about $550 billion between fiscal years 2021 and 2022 as pandemic-related spending wound down.
• Biden presumably was talking about red ink, which did decline by about $1.8 trillion between fiscal years 2020 and 2022.

In other words, he didn’t understand what he was saying and he didn’t mean what he said. Biden’s endorsement of big spending cuts is akin to Obama’s statement that 20 percent for government is too much.

P.S. The main focus of the New York Times article was to address the silly concern among Keynesians that potential spending restraint in the debt-limit deal might hurt the economy. It would have been nice if the reporter actually talked to someone on the pro-market side of that debate.

P.P.S. The big challenge for Keynesians is real-world evidence.

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The Biden-Trump Plan for Middle-Class Tax Increases

What do Joe Biden and Donald Trump have in common?

Speaking earlier this year to the Mackinac Center in Michigan, I warned they both implicitly favor massive tax increases on ordinary households.

If you don’t want to spend two minutes watching the video, I explained that the burden of government spending is going to dramatically increase over the next several decades because of demographic change and poorly designed entitlement programs.

This means we will have to make a choice: Either reform entitlements or acquiesce to massive future tax increases.

And because Biden and Trump oppose entitlement reform, that means that they favor tax increases.

Moreover, since there are not nearly enough rich people to finance big government, this means Biden and Trump favor massive tax increases on lower-income and middle-class households.

To be fair, there are alternatives other than entitlement reform or big tax increases.

For instance, politicians could endlessly issue more debt. That might work, at least until the fiscal house of cards collapses.

Another possibility, at least with regards to Social Security, is to do nothing.

How is this an alternative? Well, David McIntosh, President of the Club for Growth, explained last month in the Wall Street Journal that the Biden-Trump position on Social Security could be a recipe for automatic benefit cuts.

Joe Biden and Donald Trump agree on one thing. “I guarantee you I will protect Social Security and Medicare without any change. Guaranteed,” Mr. Biden said in March. Mr. Trump has said: “I will do everything within my power not to touch Social Security, to leave it the way it is.” …The Biden-Trump position may sound like a pledge to protect Social Security, but it isn’t. …the Old Age and Survivors Insurance Trust Fund…will be able to issue payments to retirees only until 2034. …once the trust fund reserve is depleted, beneficiary payouts will be limited to whatever funds come in from Social Security payroll taxes. …Thus consequences of leaving Social Security “without any changes,” as promised by Biden-Trump, are dire. Ten years from now, benefit cuts of 23% will be triggered if there is no change to Social Security…the Biden-Trump strategy has been to play “beat the clock,” leaving their successors to deal with the crisis. Candidates with a record of entitlement reform like Messrs. Pence and DeSantis would do well to point out that doing nothing is the worst Social Security cut.

Technically, McIntosh is 100 percent correct. Under current law, there will be automatic benefit cuts once there no longer are any IOUs in the Social Security Trust Fund.

In reality, future politicians almost surely will change the law to continue full payments. Which is why I feel confident in stating that our real choice is between genuine entitlement reform and massive tax increases.

P.S. My collection of “honest leftists” includes many who openly admit that giant tax increases will be needed if there is no entitlement reform.

P.P.S. The agreement between Biden and Trump on entitlements should not be a surprise. They also agree on many other issues, such as nationalized infrastructure, industrial policy, government spending, and trade protectionism.

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Social Security’s $60 Trillion-Plus Problem

The 2023 Social Security Trustees Report was released yesterday, and just like I did last year (and the year before, and the year before that, etc), let’s look at the fiscal status of the retirement program.

There is a lot of data in the Report. But the most important set of numbers can be found in Table VI.G9.

As you can see from this chart, these numbers show the amount of revenue coming into the program each year, adjusted for inflation, as well as the amount of yearly spending. Both are rising rapidly.

Since the orange line (spending) is climbing faster than the blue line (revenue), the obvious takeaway is that Social Security has a deficit.

But that would be an understatement.

As you can see from the second chart, the cumulative deficit over the next 77 years is more than $60 trillion.

You’ll notice, of course, that I added a bit of editorializing to both charts.

That’s because it is reprehensible that Joe Biden and Donald Trump are opposed to reforms that would modernize the program.

They won’t admit it, but their approach necessarily and unavoidably means huge tax increases on lower-income and middle-class households.

P.S. If you are not Biden or Trump and want to do what’s best for America, I suggest learning about reforms in Australia, Chile, Switzerland, Hong Kong, Netherlands, the Faroe Islands, Denmark, Israel, and Sweden.

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Prosperity and Taxation: What Can We Learn from the 1960s?

Back in 2010, I shared a comparison of Obama and JFK on tax policy. For an update, here’s a comparison of Biden’s class-warfare agenda with JFK’s supply-side agenda.

I’m sharing this video for two reasons.

The first reason is that it shows that some Democrats in the past were very sensible about tax policy.

The second reason is that it gives me a good excuse to discuss what we can learn from tax policy in the 1960s, thus adding to our collection.

• Tax Lessons from the 1920s
• Tax Lessons from the 1930s
• Tax Lessons from the 1950s
• Tax Lessons from the 1980s

I’ll start with the caveat that tax policy does not necessarily overlap with 10-year periods. But we can learn by examining significant tax policy changes that occurred (or, in the case of the 1950s, did not occur) during various eras.

For the 1960s, the key change was the Revenue Act of 1964, generally known as the Kennedy tax cuts (proposed by President Kennedy in 1963 and then adopted in 1964 after his assassination).

Here’s what Kennedy proposed, as explained by the JFK library.

Declaring that the absence of recession is not tantamount to economic growth, the president proposed in 1963 to cut income taxes from a range of 20-91% to 14-65% He also proposed a cut in the corporate tax rate from 52% to 47%. …arguing that “a rising tide lifts all boats” and that strong economic growth would not continue without lower taxes.

And here’s what was enacted, as summarized by Wikipedia.

The act cut federal income taxes by approximately twenty percent across the board, and the top federal income tax rate fell from 91 percent to 70 percent. The act also reduced the corporate tax from 52 percent to 48 percent and created a minimum standard deduction.

The good news is that the Kennedy tax cuts were the right kind of tax cuts. Marginal tax rates were reduced on work, saving, investment, and entrepreneurship.

The bad news is that the top tax rate was still confiscatory, though 70 percent obviously was not as bad as 91 percent. And a 48 percent corporate rate was not much of an improvement compared to 52 percent.

That being said, moving in the right direction produced good outcomes.

People often talk about the booming economy in the 1960s. And there is some evidence to support that view since inflation-adjusted economic output grew rapidly as the tax cuts were implemented – by 6.5 percent in 1965 and 6.5 percent in 1966.

But I’m cautious about drawing sweeping conclusions from short-run data, especially since we know many other policies also have an impact on economic performance.

So let’s focus instead on some tax-related variables. Here’s a chart that I shared back in 2015, showing that upper-income taxpayers paid more when tax rates were reduced (the same thing happened in the 1980s).

That chart was taken from a report I wrote way back in 1996.

And here’s another chart from the same publication. This one shows that lower tax rates were associated with rising revenues. Especially as the changes were being implemented.

By the way, this does not mean that the tax cut was self-financing.

The core lesson of the Laffer Curve is not that tax cuts “pay for themselves.” That only happens in rare circumstances.

Instead, the lesson is that lower tax rates encourage more productive behavior, which means more taxable income. It then becomes an empirical question of how much of the revenue lost from lower rates is offset by the revenue gained from more taxable income.

And, in the 1960s, we know there was a big Laffer Curve response from upper-income taxpayers. Why? Because they have considerable control over the timing, level, and composition of this income.

Which brings us to the final lesson, which is that class-warfare tax policy was a bad idea in the 1960s and it is still a very bad idea today.

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The Case Against Biden’s Class-Warfare Tax Policy, Part VI

Last week, I wrote about Biden’s proposed budget, focusing on the aggregate increase in the fiscal burden.

Today, let’s take a closer look at his class-warfare tax proposals. Consider this Part VI in a series (Parts I-V can be found here, here, here, here, and here), and we’ll use data from the folks at the Tax Foundation.

We’ll start with this map, which shows each state’s top marginal tax rate on household income if Biden’s budget is enacted.

The main takeaway is that five state would have combined top tax rates of greater than 50 percent if Biden is successful in pushing the top federal rate from 37 percent to 39.6 percent.

At the risk of understatement, that’s not a recipe for robust entrepreneurship.

While it is a very bad idea to have high marginal tax rates, it’s also important to look at whether the government is taxing some types of income more than one time.

That’s already a pervasive problem.

Yet the Tax Foundation shows that Biden wants to make the problem worse. Much worse.

His proposed increase in the corporate tax rate is awful, but his proposal to nearly double the tax burden on capital gains is incomprehensibly foolish.

I guess we should be happy that Biden didn’t propose to also increase the 40 percent rate imposed by the death tax.

But that’s not much solace considering what Biden would do to American competitiveness. Here’s our final visual for today.

As you can see, the president wants to make the US slightly worse than average for personal income taxes, significantly worse than average for the corporate income tax, and absurdly worse than average for taxes on capital gains and dividends.

I’ll close by observing that some of my leftist friends defend these taxes since they target the “evil rich.”

I have a moral disagreement with their view that people should be punished simply because they are successful investors, entrepreneurs, or business owners.

But the bigger problem is that they don’t understand economics. Academic research shows that ordinary workers benefit when top tax rates are low, and there’s even more evidence that workers are hurt when there is punitive double taxation on saving and investment.

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The Most Important Thing to Understand about Biden’s New Budget

President Biden has released his 2024 budget, which mostly recycles the tax-and-spend proposals that he failed to achieve as part of his original “Build Back Better” plan.

It is not easy figuring out his worst policy.

• Is it one of the proposed tax increases, such as the higher corporate tax rate or the increased burden of the death tax?
• Is it one of the expansions of the welfare state, such as the per-child handouts that would gut Bill Clinton’s welfare reform?

I could probably write dozens of columns (as I did the past two years) about the many bad policies that Biden is pushing.

For today, though, let’s focus on the aggregate numbers.

We’ll start with the fact that Biden’s budget violates the Golden Rule of fiscal policy. He wants the burden of government spending over the next 10 years to increase at twice the rate of inflation (based on Table S-1 and S-9 of his budget)

If you want raw numbers, Biden wants the spending burden to rise from about $6.4 trillion this year to $10 trillion-plus in 2033.

On the revenue side, he wants the tax burden to jump from $4.8 trillion this year to nearly $8 trillion in 2033.

To be fair, spending and taxes automatically increase every year, thanks to inflation, demographic change, and previously enacted legislation.

You can see those “baseline” numbers in Table S-3 of Biden’s budget.

So if we want to see the net effect of what Biden is proposing, we should compared the “baseline” data to his budget numbers.

And when we do that, we find that he wants an additional $1.85 trillion of spending over the next 10 years. Even more shocking, he wants an additional $4.85 trillion of tax revenue.

I’ll close with a couple of observations.

First, Biden has a giant gimmick in his budget. If you look at the details for his proposed per-child handout (Table S-6 of his budget, bottom of page 142), you’ll notice that he’s only proposing the policy for one year.

Why? Because it is enormously expensive, with an annual cost of more than $250 billion.

Yet we know the White House and congressional Democrats want this policy to be permanent. So if we extended the cost of the per-child handout for the full 10 years, the amount of new spending in Biden’s budget would be much closer to the level of new taxes in his budget.

Second, Biden’s budget shows why supporters of good fiscal policy should not focus on deficits. A myopic fixation on red ink allows a big spender like Biden to claim the moral high ground because his proposed tax increase is even bigger than his proposed spending increase.

The variable that matters is the overall burden of government spending. And the goal should be reducing that burden, regardless of whether it is financed with taxes, borrowing, or printing money.

P.S. At the risk of stating the obvious, Biden’s tax-and-spend agenda would cause considerable economic damage.

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Biden and Trump Should Learn from Sweden’s Social Security Reform

Some American politicians, such as Joe Biden and Donald Trump, are very much opposed to dealing with Social Security, even though the current system has a massive $56 trillion cash-flow deficit.

For all intents and purposes, both the current president and his predecessor want to kick the can down the road, which surely is a recipe for massive future tax increases and may cause drastic changes to promised benefits.

Given their advanced ages, they probably won’t be around next decade when the you-know-what hits the fan.

But the rest of us will have to deal with a terrible situation thanks to their selfish approach.

Other nations are more fortunate, with leaders who put the national interest above personal political ambition.

Johan Norberg has a new column in the Wall Street Journal about how Swedish lawmakers adopted personal retirement accounts and undertook other reforms to strengthen their pension system.

President Biden refuses to consider any reforms, and so do many Republicans. But that won’t save the program; it’ll doom it. …Sweden faced the same problem in the early 1990s. The old pay-as-you-go pension system had promised too much. With fewer births and longer lives, projections showed the system would be insolvent a decade later. …Its politicians chose not to deceive the voters. …In 1994 the Social Democrats agreed with the four center-right parties to create an entirely new system based on the principle that pensions should correspond to what the beneficiary pays into the system—a system in which the contribution, not the benefits, is defined. …Sweden introduced partial privatization of the kind the American left derides as a Republican plot… The Swedish government withholds roughly 2.3% of wages and puts it into individual pension accounts. Workers are allowed to choose up to five different funds in which to invest this money…the average Swede has made an impressive average return of roughly 10% a year since its inception in 1995, despite the dot-com crash, the financial crisis and the pandemic. …Sweden’s pension system was recently described as the world’s best by the insurance group Allianz, based on a combination of sustainability and adequacy.

Back in 2018, I wrote about Sweden’s pension reforms, and I cited a study I co-authored back in 2000 for the Heritage Foundation.

Readers who want to learn more about the details of the Swedish system should read those publications.

For purposes of today’s column, though, let’s zoom out and see how Sweden’s system compares to other nations.

We’ll start by looking at a report by Mercer and the Chartered Financial Analyst Institute, which compared retirement systems in 43 developed countries. You can click here to view the full report and full rankings, but let’s focus on the United States and Sweden.

As you can see, Sweden beats America in every category, including a giant lead for integrity.

It’s also worth noting that Sweden is above average in every category while the United States is below average in two of the three categories.

Based on the Mercer/CFA report, we know Sweden’s system is good for workers.

But what about taxpayers?

Here’s a table showing the fiscal burden of old-age programs in European nations, taken from a report by the International Monetary Fund.

As you can see for both the present and the future, Swedish taxpayers face one of the lowest burdens, with old-age spending consuming significantly less than 10 percent of economic output.

I’ll close with a couple of very important observations about the international data.

• Sweden is not the top nation in the Mercer/CFA report. It trails Australia, Denmark, Iceland, Israel, Netherlands, and Norway – all of which have systems that are fully or partly based on mandatory private savings.
• Sweden does have the lowest spending burden in the IMF. The Baltic nations all do better – and all of those countries have systems that are partly based on mandatory private savings.

It’s almost as if there’s a lesson to be learned, even if Biden and Trump want to bury their heads in the sand.

P.S. Here’s my short video making the case for personal retirement accounts.

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Journalistic Malpractice at the New York Times?

I don’t like Joe Biden’s economic policies, though that’s hardly a surprise since I haven’t liked the policies of any president this century (I’ve referred to Bush, Obama, and Trump as the “three stooges of big government“).

Other people have a more sympathetic perspective on the President’s performance.

David Leonhardt of the New York Times wrote an analysis of Joe Biden’s economic record and he lists two failures.

1. Inflation
2. Failure to get approval of the so-called Build Back Better plan

And he lists three supposed successes.

1. Economic recovery
2. Infrastructure and tech subsidies
3. Green subsidies

I disagree with much of Leonhardt’s analysis. For instance, his section on inflation does not mention the Federal Reserve. That’s sort of like writing about World War II and not mentioning Germany (other journalists have made the same mistake).

Moreover, I also think the failure of Build Back Better was good for the nation. And also good for Biden’s political prospects since it is less likely the economy will be sluggish as we approach the 2024 election.

Switching to the so-called successes, I don’t think the passage of the boondoggle infrastructure bill will have a positive effect. The same is true for the handouts to the semiconductor industry or the green lobby.

But I want to focus mostly on what Leonhardt wrote about the economy.

His main contention is that Biden is a success because the unemployment rate is low. Yet that overlooks the fact that labor force participation is weak, so I don’t view that as a Biden “success” (and I have been raising this concern since way before Biden took office).

But a far bigger problem with Leonhardt’s analysis about the economy is that he wrote nothing about living standards. I don’t know if that was a deliberate omission, but almost everything his readers should have learned is captured by this chart from the Department of Labor.

In the interest of full disclosure, I highlighted the “0.0” line in orange because I wanted to emphasize that inflation-adjusted worker compensation has been negative for the entirety of the Biden presidency.

By the way, it would be perfectly reasonable for a Biden defender to point out that worker compensation was already dropping when he took office. And it also would be reasonable for a Biden defender (or even a Trump defender) to blame that drop on the pandemic.

A Biden defender also could claim that the trend in recent months has been positive and that we might actually see rising living standards in the future.

However, those caveats don’t change the fact the Leonhardt’s article fails to mention the economic data that arguably matters most to people. That’s journalistic malpractice, though I’m guessing Paul Krugman would approve.

P.S. Leonhardt’s failure to mention living standards is not the worst example of journalistic malpractice at the New York Times. That award goes to the three reporters who wrote a big story about Venezuela’s economic failure and never once mentioned socialism.

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The Case Against Biden’s Class-Warfare Tax Policy, Part V

In 2020 and 2021, I wrote a four-part series (here, here, here, and here) about Biden’s class-warfare tax agenda.

And I also wrote a series of columns about some of his worst ideas.

• Biden wants America to have the developed world’s highest capital gains tax rate.
• Biden wants America to have the developed world’s highest tax burden on business investment.
• Biden wants America to have the developed world’s highest personal income tax rates.

He even proposed taxes that don’t exist anywhere else in the world.

The main purpose of those columns was to explain why it would be economically harmful to impose punitive tax rates on productive behaviors such as work, saving, investment, and entrepreneurship.

Unsurprisingly, Biden still wants all these tax increases, even though Democrats lost control of the House of Representatives.

Today, let’s look at his awful proposal to tax unrealized capital gains (an idea so absurd that no other nation has enacted this destructive levy).

Eric Boehm’s article in Reason debunks Biden’s proposal (the president calls it a billionaire’s tax).

Say what you will about the Biden administration’s approach to tax-the-rich populism: It’s creative. …Taxpayers with net wealth above $100 million would have to pay a minimum effective tax rate of 20 percent on an expanded measure of income that adds unrealized capital gains to more conventional sources of income, like wages, business income, and investment income. …By raising the effective tax rate on capital gains, the proposal would reduce U.S. saving, discourage entrepreneurship, and decrease economic output. …An annual tax on paper gains would be conspicuously complex. The largest administrative problems relate to valuing non-tradable assets like privately held businesses and taxing illiquid taxpayers with large gains on paper but little cash on hand to pay a minimum tax bill. …Given these problems, it’s unsurprising the idea hasn’t caught on around the world.

And the Wall Street Journal has an editorial about this class-warfare scheme.

After the November midterm election, President Biden was asked what he would change in his last two years. “Nothing,” he said, and…he proved it by reproposing…enormous tax increases that he couldn’t get through even a Democratic Congress. Start with a reprise of his “billionaire minimum tax.” …For starters, it isn’t a billionaire tax and it isn’t an income tax. It would apply to households worth more than $100 million in accumulated assets, and its target is wealth. …if your assets rise in value during a year, you will pay taxes on that increase even if you realized no actual gains through a sale. …If your assets fell in value, you would not be able to deduct the full loss from your overall income. Heads the government wins, tails you lose.

The bottom line is that the capital gains tax is an awful levy.

But rather than abolishing the tax to boost American competitiveness, Biden has latched on to an idea to make a bad tax even worse.

And that’s in addition to his other proposals to make the capital gains tax more burdensome!

P.S. I guess we shouldn’t be surprised at bad ideas since the president is infamous for economically illiterate tax tweets.

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Joe Biden Supports Massive Tax Increases on Middle-Class Americans

I wrote a two-part series (here and here) about Donald Trump supporting massive middle-class tax increases.

Trump does not admit that is his policy, of course, but that is an unavoidable outcome since he opposes entitlement reform.

In the interest of fairness and bipartisanship, I should explain that Joe Biden also favors huge tax increases on ordinary people.

Like Trump, he does not admit this is his agenda. But, once again, that will be the unavoidable result since he also is against entitlement reform.

But this does not mean Trump and Biden are exactly the same on fiscal policy (like they are on trade policy).

Biden has proposed two additional policies to expand the size and scope (and economic damage) of the federal government.

1. Expanding entitlement programs, including per-child handouts.
2. Class-warfare tax increases, targeting upper-income taxpayers.

Just in case someone thinks I am unfairly characterizing Biden’s policies, let’s look at some excerpts from a report by Jim Tankersley of the New York Times.

There were no economic pivots in President Biden’s first State of the Union address to a Republican House. He did not pare back his push to raise taxes on high earners or to spend big on new government programs. …The president renewed his calls for trillions of dollars of new federal programs, including for child care and community college… He did not name a single federal spending program he was willing to cut. …It was a no-quarter recommitment to a campaign theme…centered on expanding government…he called for raising taxes on corporations and the wealthy… His proposals included an expanded tax on stock buybacks and what would effectively be a sort of wealth tax on billionaires.

Let’s conclude by considering whether it is possible for Biden to impose sufficiently large taxes on rich people so that there would be no need for big middle-class tax increases.

For that to be the case, Biden’s class warfare tax increases would have to raise enough money to achieve two objectives.

• Collect enough money to finance the built-in expansions of current entitlement programs caused by demographic change.
• Collect enough money to finance his proposals for trillions of dollars of spending on new entitlement programs.

The answer is no. Not even close.

Even if you took all of Biden’s taxes and then added some other class-warfare proposals, that would not be enough to finance built-in spending for the next 10 years.

And that means no revenue to finance Biden’s proposals for additional spending.

Not to mention the built-in spending caused by demographic changes over the next 30 years.

The bottom line is that there are not enough rich people to finance big government.

All of which brings me back to where I started, namely that there will be giant tax increases on lower-income and middle-class households if we don’t figure out a way to restrain and reform entitlements.

P.S. In addition to Trump and Biden, the so-called national conservatives also support huge tax increases on American workers.

P.P.S. Even if there were more rich people, higher class-warfare taxes to finance bigger government would be a big mistake, as acknowledged even by generally left-leaning international bureaucracies such as the World Bank, the International Monetary Fund, the Organization for Economic Cooperation and Development, and the European Central Bank.

P.P.P.S. Biden and other folks on the left sometimes are very open about tax increases on ordinary people, though they have different terms for those tax hikes – such as carbon fees and import barriers.

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Best and Worst News of 2022

Continuing a tradition that began back in 2013, let’s look at the best and worst developments of the past year.

Since I try to be optimistic (notwithstanding forces and evidence to the contrary), let’s start with the good news.

I’ll start by mentioning that we will now have gridlock in Washington. That’s probably a positive development, but I’ll explore that issue tomorrow as part of my “Hopes and Fears” column for 2023.

For today, let’s focus on three concrete developments from 2022 that unambiguously are positive.

States cutting tax rates and enacting tax reform – Since I’m a long-time advocate for better tax policy, I’m very pleased that more states are moving in the right direction. I especially like that the flat tax club is expanding. I’m also amused that a bad thing (massive handouts from Washington) backfired on the left (because many states decided to cut taxes rather than squander the money on new spending).

Chileans vote against a statist constitution – There was horrible news in 2021 when Chileans voted a hard-core leftist into the presidency. But we got very good news this year when the same voters overwhelmingly rejected a proposed constitution that would have dramatically expanded the power of government.

More families have school choice – Just like last year, we can celebrate that there was more progress on education this year. In 2021, West Virginia led the way. In 2022, Arizona was the best example. And we’ll discuss tomorrow why there are reasons to be optimistic about 2023.

Now let’s shift to the bad news of 2022.

I thought about listing inflation, which definitely caused a lot of economic damage this year. But the bad monetary policy actually occurred in 2020 and 2021 when central bankers overreacted to the pandemic.

So I’m going to write instead about bad things that specifically happened in 2022.

Biden semi-successfully expands the burden of government – The president was able to push through several bad proposals, such as the so-called Inflation Reduction Act and some cronyist subsidies for the tech industry. Nothing nearly as bad as his original “build back better” scheme, but nonetheless steps in the wrong direction.

The collapse of small-government conservatism in the United Kingdom – Just as today’s Republicans have deviated from Reaganism, the Conservatives in the United Kingdom have deviated from Thatcherism. Except even worse. Republicans in the USA acquiesce to higher spending. Tories in the UK acquiesce to higher spending and higher taxes.

Massachusetts voters opt for class warfare – Starting tomorrow, Massachusetts no longer will have a flat tax of 5 percent. That’s because voters narrowly approved a class-warfare based referendum to replace the flat tax with a new “progressive” system with a top rate of 9 percent. Though bad news for the state’s economy will be offset by good news for moving companies.

P.S. I almost forget to mention that the best thing about 2022 occurred on January 10 when the Georgia Bulldogs defeated Alabama to win the national championship of college football.

P.P.S. While 2022 was a mixed bag, history buffs may be interested in knowing that it was the 100th anniversary of a big tax rate reduction (top rate lowered from 73 percent to 58 percent) implemented in 1922 during the under-appreciated presidency of Warren Harding.

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Understanding Biden and Red Ink

I don’t worry much about budget deficits. Simply stated, it is far more important to focus on the overall burden of government spending.

To be sure, it is not a good idea to have too much debt-financed spending. But it’s also not a good idea to have too much tax-financed spending. Or too much spending financed by printing money.

Other people, however, do fixate on budget deficits. And I get drawn into those debates.

For instance, I wrote back in July that Biden was spouting nonsense when he claimed credit for a lower 2022 deficit. But some people may have been skeptical since I cited numbers from Brian Riedl and he works at the right-of-Center Manhattan Institute.

So let’s revisit this issue by citing some data from the middle-of-the-road Committee for a Responsible Federal Budget (CRFB). They crunched the numbers and estimated the impact, between 2021 and 2031, of policies that Biden has implemented since becoming president.

The net result: $4.8 trillion of additional debt.

By the way, this is in addition to all the debt that will be incurred because of policies that already existed when Biden took office.

If you want to keep score, the Congressional Budget Office projects additional debt of more than $15 trillion over the 2021-2031 period, so Biden is approximately responsible for about 30 percent of the additional red ink.

Some readers may be wondering how Biden’s 10-year numbers are so bad when the deficit actually declined in 2022.

But we need to look at the impact of policies that already existed at the end of 2021 compared to policies that Biden implemented in 2022.

As I explained back in May, the 2022 deficit was dropping simply because of all the temporary pandemic spending. To be more specific, Trump and Biden used the coronavirus as an excuse to add several trillion dollars of spending in 2020 and 2021.

That one-time orgy of spending largely ended in 2021, so that makes the 2022 numbers seem good by comparison.

Sort of like an alcoholic looking responsible for “only” doing 7 shots of vodka on Monday after doing 15 shots of vodka every day over the weekend.

If that’s not your favorite type of analogy, here’s another chart from the CRFB showing the real reason for the lower 2022 deficit.

I’ll close by reminding everyone that the real problem is not the additional $4.8 trillion of debt Biden has created.

That’s merely the symptom.

The ever-rising burden of government spending is America’s real challenge.

P.S. If you want to watch videos that address the growth-maximizing size of government, click here, here, here, here, and here.

P.P.S. Surprisingly, the case for smaller government is bolstered by research from generally left-leaning international bureaucracies such as the OECD, World Bank, ECB, and IMF.

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Biden’s Very Bad Trumpian Trade Policy

At the start of 2021, shortly before Biden was inaugurated, I expressed hope that he would reverse Trump’s self-destructive protectionism.

Alas, I’ve been disappointed.

On trade issues, Biden has been just about as bad as his predecessor, (he’s also been as bad as Trump with regards to spending, but that’s a topic for another day).

The Wall Street Journal editorialized last month about this unfortunate similarity. Here are some of the highlights…or lowlights would be a better term since the net result of protectionism is to hurt taxpayers and consumer.

President Biden has rolled back some of Donald Trump’s destructive tariffs, but not enough, and they’re still doing economic harm. New analyses of Mr. Trump’s Section 232 steel and aluminum tariffs show how consumers and manufacturers are still paying for the border taxes that benefit only a few companies. A study by Harbor Aluminum for the Beer Institute finds that the 10% tariff on imported aluminum cost U.S. beverage manufacturers $1.7 billion from March 2018 through August 2022. About 93% of the $1.7 billion has been pocketed by domestic aluminum producers and smelters in the U.S. and Canada. …By raising the cost of production, tariffs constrain manufacturers, who cut jobs and pass costs to consumers. …Repealing the Trump Section 232 tariffs could reduce prices at the margin. The longer they stay in place the more they deserve to be called the Biden-Trump tariffs.

Since the above column mentioned the Section 232 tariffs, this would be an opportune moment to cite the Tax Foundation’s research on the topic.

…economists have reached…negative conclusions regarding the impacts of the recent Section 232 tariffs on the economy. Lydia Cox and Kadee Russ, using an estimate derived from a Federal Reserve Board paper, calculated that the Section 232 tariffs reduced manufacturing employment by about 75,000 jobs. Kyle Handley and other economists looked at the impacts of the import tariffs on export growth in the U.S. and found that companies exposed to the Section 232 tariffs experienced reduced export growth. This occurred because the cost of their inputs rose due to the tariffs, which hindered firms’ ability to increase their exports. For each 1 percent increase in the tariffs on steel and aluminum, export growth fell by 0.11 percent. …The aluminum tariffs in particular have disproportionately harmed certain industries. …Ford and General Motors estimated that the tariffs cost them about $1 billion each the first year they were in effect—roughly $700 per vehicle produced.

And here’s the Tax Foundation’s estimate of how the economy would benefit if these taxes on trade were repealed.

Since I’ve been criticizing Biden for being a protectionist, I’ll close by speculating whether Republicans have learned from Trump’s protectionist mistakes.

Here are some excerpts from a column in the Wall Street Journal by former Congressman Jeb Hensarling.

Numerous studies have shown that almost all the costs of tariffs initiated under the Trump administration were paid by American consumers and businesses. …According to the American Action Forum, Mr. Trump’s tariffs combined have increased consumer costs by approximately $51 billion a year. …Republicans love to talk about “draining the swamp” in Washington. But the tariffs imposed by the Trump administration empowered hundreds of bureaucrats at the Commerce Department and the Office of the U.S. Trade Representative to grant waivers under what can at best be described as an opaque process with discretionary standards. …A schedule of tariffs doesn’t drain the swamp. It fills it with well-connected lawyers and lobbyists who know how to work the system.

The bottom line is that protectionism does not work if Republicans do it, and protectionism does not work if Democrats do it.

Both parties should have learned from Hoover’s horrible mistake.

P.S. A big problem is that politicians genuinely don’t understand that a “trade deficit” is automatically and necessarily offset by a capital surplus. Helping them to understand this fact is key to renewing support for free trade.

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Is Biden a Socialist?

As explained in my three-part series (here, here, and here), socialism is a poisonous ideology. With poisonous results.

It is morally corrupt, elevating government over the individual and the family.

And it is economically nonsensical since it punishes success and subsidizes sloth.

But not every leftist is a socialist (and you can argue that not every socialist is a leftist).

So how should we classify Joe Biden?

As reported by Alex Gangitano for the Hill, the president asserted that only “idiots” thought he was a socialist.

President Biden on Saturday said people holding signs calling him a socialist were idiots…he said in remarks at Jones Elementary in Joliet, Ill…“I love those signs when I came in — socialism. Give me a break, what idiots,” the president added. …The Illinois stop is another on a list of typically blue strongholds the president is visiting in the days before Election Day on Tuesday. He also traveled to New Mexico and California this week and will make stops in New York on Sunday and Maryland on Monday.

If you read the entire article, at no point does Biden explain why the signs were wrong. Or idiotic. Instead, he did his usual political routine, attacking Republicans for wanting to make changes to Social Security and Medicare (I wish!).

Since Biden dodged the issue, let’s look at whether the critics are right.

Is the president a socialist?

The answer depends on who is answering. For economists, socialism has a very specific definition. It does not simply mean big government.

Socialists are people who want government ownership, central planning, and price controls. Sort of like Cuba, North Korea, or the former Soviet Union.

At the risk of sounding like a softie, I don’t think Biden qualifies if we use this strict definition. Just like I didn’t think Obama was a genuine socialist when I addressed accusations against him back in 2010.

Though maybe it’s fair to say Biden leans in that direction.

• He wants the government to own and control things, like the postal service and the Social Security system. But so do most Republicans.
• He likes industrial policy so that government can tilt the playing field in favor of political contributors. But so do many Republicans.
• He likes price controls, at least indirectly, for items such as prescription drugs. But so do some Republicans.

I’ll close by acknowledging that many people – including self-described democratic socialists – don’t use the technical definition of socialist.

Indeed, most people probably think socialism is just a way of describing a system with high tax rates and lots of redistribution. Sort of like Sweden or Denmark.

I think they’re wrong, but Biden definitely would qualify as a socialist based on that casual definition.

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Astounding Example of White House Chutzpah

While Donald Trump issued some inanely illiterate tweets to promote protectionism, Joe Biden has made a fool of himself with tweets on a wider range of issues.

• Jaw-dropping economic illiteracy about gas prices.
• Using make-believe numbers to promote class warfare.
• Adding to the debt while claiming to do the opposite.
• Once again using make-believe numbers on taxation.

The easy response to all this nonsense is to jump on the Biden-is-a-befuddled-old-man bandwagon.

That may be good for a few laughs, and I’m a big fan of political humor (even when it targets my side).

But the more accurate assessment is that Biden is a politician and he’s doing what comes naturally to politicians – which is to spin, lie, dissemble, and prevaricate.

And if you think I’m being too critical, we have a new tweet from the White House that breaks all records for chutzpah.

I don’t know what’s most galling about this tweet.

• Is it that the White House is taking credit for Social Security’s automatic COLAs (cost of living adjustments) even though that’s been part of the law for 50 years?
• Is is that the White House is trying to make it seem like good news that we’ve had very high inflation, which is the only reason why the COLAs are so large?

In either case, the only thing Biden actually did was to preside over a period of rising prices (which, in the interest of fairness, is mostly not his fault).

I’ll close with the observation that I would be happy if politicians basically did nothing other than make false claims of “leadership.” It’s when they start enacting new laws that things usually get worse (and that’s definitely been true during the Biden years).

P.S. We’ve also seen brassy tweets from the campaign arm for Democratic members of the House of Representatives.

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Understanding Inflation and the Federal Reserve

Today’s column is about inflation and I want to start by recycling this clip from an interview back in April.

The main message is that the Federal Reserve deserves the blame for inflation.

America’s central bank created dramatically expanded its balance sheet starting in early 2020. This meant lots of extra liquidity sloshing around the economy and that inevitably led to rising prices.

As Milton Friedman explained, inflation is “always and everywhere on monetary phenomenon.”

So why am I regurgitating this type of analysis? Because someone sent me a PolitiFact article from April that supposedly does a “fact check” on the claim that Biden’s spending contributed to inflation.

What shocked me is that the article never mentions the Federal Reserve or monetary policy. I’m not joking.

We decided to look at how much of an impact Biden’s spending had on prices. …some economists, including Larry Summers, a top official under President Barack Obama, warned that the bill would lead to inflation. Fiscal conservatives joined in the warning. …How much of this can be put at Biden’s feet? Some, but not all of it, experts say. …The post-COVID-19 inflation story is more complicated than just federal spending. Other forces, including changes in the labor market, rising global energy and commodity prices, supply chain dysfunction and the war in Ukraine have all contributed to higher prices. …Russia’s attack on Ukraine disrupted a world economy that was still sorting itself out after COVID. Sanctions aimed at cutting Russia’s energy revenues sent oil and gas prices soaring. The war’s crippling hit on Ukraine’s agricultural sector, combined with sanctions (Russia is a major wheat producer), has raised the prices of basic goods like wheat and sunflower oil. …none of the experts we reached, liberal and conservative, said Biden’s actions were responsible for all of the inflation. Past government spending, COVID’s disruptions to labor markets, energy prices and supply-chains also played significant roles. Most recently, the war in Ukraine has made a challenging situation worse.

This is nonsense. At the risk of being boring and wonky, the factors mentioned in the article are important, but they will only change relative prices in the absence of bad monetary policy.

In other words, energy prices may increase, but that will be offset by declines in other prices. Unless, of course, the central bank is creating too much liquidity, thus enabling an increase in the overall price level.

I’ll close with a caveat. Bad monetary policy sometimes will cause rising asset prices (a bubble) rather than rising consumer prices. Both outcomes are examples of inflation, but only the latter shows up when the government releases monthly data on the consumer price index.

That being said, is it possible that some of Biden’s (and Trump’s) spending policies led to more price inflation rather than more asset inflation?

Yes, but that’s merely shifting the deck chairs on the monetary Titanic. And it doesn’t change the fact that it is gross economic malpractice for PolitiFact to write about inflation without mentioning the Federal Reserve or monetary policy.

P.S. Here’s a humorous video about the Federal Reserve and here’s a serious tutorial video about the Federal Reserve.

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Assessing the Biden Economy

According to polling data, President Biden is not getting good grades for economic policy.

Part of that is because of inflation, though I’ve repeatedly pointed out that the blame belongs with the Federal Reserve rather than Biden. And the big mistake from the Fed took place before Biden even took office.

Unfortunately, the President is not trying to make things better. His appointments to the Fed suggest he doesn’t understand the need for good monetary policy.

And all of his major legislative initiatives (the so-called stimulus, the misnamed Inflation Reduction Act, the pork-filled infrastructure legislation, and the cronyist handouts to the semiconductor industry) have increased the size and scope of government.

For what it’s worth, I think Biden’s big challenge – both politically and economically – is that Americans are losing ground. Simply stated, prices are increasing faster than incomes.

But that isn’t stopping the Administration from trying to turn a sow’s ear into a silk purse.

Alan Rappeport of the New York Times reported a few days ago that the Biden’s Treasury Secretary, Janet Yellen, is claiming that Bdenomics is a big success.

…the Biden administration is pivoting to recast its stewardship of the U.S. economy as a singular achievement. …The case was reinforced on Thursday by Treasury Secretary Janet L. Yellen… Ms. Yellen said the legislation that Mr. Biden signed this year to promote infrastructure investment, expand the domestic semiconductor industry and support the transition to electric vehicles represented what she called “modern supply-side economics.” …After months of being on the defensive in the face of criticism from Republicans who say Democrats fueled inflation by overstimulating the economy, the Biden administration is fully embracing the fruits of initiatives such as the $1.9 trillion American Rescue Plan of 2021.

The editors at the Wall Street Journal are not impressed.

Janet Yellen…tenure as Treasury Secretary hasn’t enhanced her reputation. …the White House is rolling her out in election season to portray the U.S. economy as a Valhalla of growth, fairness and optimism. …If you’re in a green business the White House likes, you’re in clover. If not, you’ll endure the costs of more regulation and taxes. In the Biden era, big government and big business are in political business together. …Ms. Yellen’s whoppers, …including a claim that “the causes of inflation are largely global.” …U.S. inflation has been substantially home-grown. …The Federal Reserve kept the money spigots open for too long, in part to finance the borrowing needed for all of the spending. …Ms. Yellen is also at pains to stress how much fairer the economy is since Mr. Biden took office… She fails to mention that the U.S. economy contracted by about 1% of GDP in the first six months of this year, even as real wages were falling. Real average hourly earnings declined 3% over the 12 months through July, and average weekly earnings by 3.6%. They’ve fallen 4.2% since Mr. Biden took office.

Meanwhile, the latest inflation data has not strengthened Biden’s case.

Jim Tankersley of the New York Times wrote about the issue yesterday.

Hotter-than-expected inflation in August was unwelcome news for President Biden, who has sought to defuse Republican attacks over rising prices in the run-up to November’s midterm elections. …Mr. Biden has claimed progress in the fight against inflation, including with the signing last month of an energy, health care and tax bill that Democrats called the Inflation Reduction Act. …But polls continue to show inflation is hurting Mr. Biden and his party… Mr. Biden threw a belated celebration at the White House on Tuesday to mark his signing of the Inflation Reduction Act. …But the country’s economic reality remains more muddled, as the inflation report underscored. Food prices are continuing to spike, straining lower-income families in particular. …Most importantly — and perhaps most damaging for Mr. Biden and Democrats — Americans’ wages have struggled to keep pace with fast-rising prices, an uncomfortable truth for a president who promised to make real wage gains a centerpiece of his economic program.

Let’s close with this chart, which shows what has happened to inflation-adjusted weekly earnings since Biden took office.

Yes, there was one recent month with good data, but that doesn’t seem like a big cause for celebration.

P.S. Paul Krugman’s defense of Bidenomics is just as weak as Janet Yellen’s (and his criticisms of good presidents are equally weak).

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Krugman’s Anemic Defense of Bidenomics

Over the past few months, I’ve written a 7-part series on Bidenomics, reviewing the president’s record on issues such as subsidies, inflation, protectionism, household income, fiscal policy, red tape, and employment.

Regarding the last item, a big problem is that the share of the population with jobs (measured by either the labor-force participation rate or the employment-population ratio) has not recovered.

It hasn’t recovered to where it was before the pandemic and it hasn’t recovered to where it was before Obama took office.

That’s bad news. Our economy’s output (and our national income) depends on the quantity and quality of both labor and capital.

This does not reflect well on Biden.

But not everyone agrees. Paul Krugman has leapt to the President’s defense. He even claims that American workers are enjoying a “Biden boom.”

President Biden has presided over a huge employment boom… Bidenomics has been good for American workers, whether they know it or not. …Haven’t they seen the purchasing power of their wages fall, thanks to inflation? The answer is yes, but. …that decline was entirely caused by rising prices for food and energy, which have a lot to do with global forces and little, if anything, to do with U.S. policy… If you want to assess the impacts of Bidenomics on wages, you should probably compare wages with prices excluding food and energy. And on that basis, real wages have basically been flat since Biden took office. …So, yes, the Biden boom has been good for workers.

The most shocking part of the column is that Krugman never addresses the problem of missing workers.

I’m not joking. You can read his entire article and you won’t find anything about the labor-force participation rate or the employment-population ratio.

He does mention the number of people working and wants us to believe those numbers are a cause for celebration, but even he felt the need to acknowledge that, “the job gains under Biden probably reflected a natural recovery from lockdowns.”

And I think it’s worth noting that we have 4 million fewer jobs than Biden claimed we would have if his so-called stimulus scheme was approved.

In other words, the president’s policies almost certainly have hindered the natural recovery that should have occurred.

Now let’s tackle the issue of inflation-adjusted wages for the people who do have jobs.

Krugman claims that workers have enjoyed a “boom” because “real wages have basically been flat.”

But even that claim is only possible if you ignore what’s happened to prices for food and energy.

Call me crazy, but this is the economic equivalent of “Other than that, Mrs. Lincoln, how was the play?”

The bottom line if that inflation-adjusted wages have been falling during Biden’s tenure.

I’ll conclude by noting that Krugman could have written a column blaming the Fed for the weak employment data. That would have been legitimate.

And he could have written a column arguing that Trump had the same big-spending policies when he was in office. That also would have been legitimate.

Instead, he wrote a column that may be even more of a joke than his “exploding cigar” about Estonia.

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The Failure of Bidenomics, Part VII

Let’s revisit the issues of Bidenomics.

Previous editions of this series have focused on Biden’s dismal record with regards to subsidies, inflation, protectionism, household income, fiscal policy, and red tape.

The assessment has not been positive, which shouldn’t be very surprising since Biden is basically a slow-motion version of Bernie Sanders.

Today, we’re going to look at Biden’s record on jobs…and that’s not going to improve the assessment.

The problem is employment rather than unemployment.

In a column for the Wall Street Journal, Nicholas Eberstadt writes about the millions of Americans who have disappeared from the labor force.

Never has work been so readily available in modern America; never have so many been uninterested in taking it. …For every unemployed person in the U.S. today, there are nearly two open jobs, and the labor shortage affects every region of the country. …Why the bizarre imbalance between the demand for work and the supply of it? One critical piece of the puzzle was the policy response to the pandemic. …Washington pulled out all the monetary and fiscal stops….created disincentives for work as never before. …In 2020 and 2021, a windfall of more than $2.5 trillion in extra savings was bestowed by Washington on private households through borrowed public funds. …With pre-Covid rates of workforce participation, almost three million more men and women would be in our labor force today.

To be fair, bad pandemic policies began with Trump.

But Biden promised changes yet has delivered more of the same.

Why does this matter?

It’s not just a numbers issue. When people drop out of the labor force, that translates into a weakening of America’s societal capital.

Mr. Eberstadt explains.

The signs that growing numbers of citizens are ambivalent about working shouldn’t be ignored. Success through work, no matter one’s station, is a key to self-esteem, independence and belonging. A can-do, pro-work ethos has served our nation well. America’s future will depend in no small part on how—and whether—her people choose to work.

Thanks to a stronger work ethic and spirit of self reliance, the United States historically has had an advantage over other nations.

But it’s increasingly difficult to feel optimistic about the long-run outlook for America’s societal capital.

Ironically, Joe Biden seemed to understand this in the not-too-distant past.

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Student Loan Humor

There are many serious objections to Biden’s unilateral student loan bailout (I included a poll with six potential answers in this column).

And I’m sure I’ll write more serious columns about the issue, whether focused on the specific problem of the bailout or the broader issue of how student loans enable colleges to increase tuition (the third-party payer problem).

Today, though, let’s enjoy some gallows humor.

We’ll start with some satire directed at the people who think others should pay for their mistakes.

Here’s another meme with the same message.

Next, we have a couple well-to-do college graduates explaining the benefits of the bailout to someone who only finished high school.

As you might expect, the satirists at Babylon Bee have weighed in.

One local plumbing contractor, Sam Caughorn, is really looking forward to paying the tab on his neighbor’s $89,000 gender studies degree. “Listen, I’m just a plumber,” he said. “I didn’t go to college, but I work hard and support my family. I don’t know about all that high-falutin gender stuff they teach in college, but I’m sure it must be important since it’s so expensive! Happy to help out another person in need.” According to studies, there are millions of white girls working at coffee shops across the country while struggling under the crushing student debt they acquired by irresponsibly obtaining college degrees that gave them no marketable job skills. …Local gender studies major Amber White is looking forward to having all her debt forgiven, thanks in part to the contributions of plumbers like Sam Caughorn. “I’m so thankful for the generosity of our Democrat leaders!” she said. “They really look out for the little folx. Also, down with capitalism and white men!”

One of my oft-repeated jokes is that I’m a lesbian trapped in a man’s body.

Well, here’s a bailout version of that sophomoric humor.

But why stop with mortgage? Surely other types of debt deserve forgiveness?

There are many villains connected to this issue, most notably callow politicians such as Biden.

But colleges and universities must be thanking their lucky stars that so few people are focusing on their role.

As is my tradition, I’ve saved the best for last.

Here’s an updated look at the oft-used equality-equity meme.

I’ll close with one serious point.

As a general principle, redistribution is economically harmful since it penalizes work and subsidizes idleness.

But it becomes disgusting and morally offensive when it takes money from the less fortunate and gives it to those with more wealth and income. And that’s the net effect of Biden’s student loan bailout.

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Biden’s Student Loan Scheme: The Party of the Rich Redistributes Money Upwards

As a general rule, some of the worst people are attracted to the wold of politics.

As such, we should never be surprised when politicians push bad policy.

But there are bad ideas…and there are really bad ideas.

At the risk of understatement, Biden’s proposed scheme to “forgive” a big chunk of student debt is spectacularly misguided.

The challenge is identifying why it’s wrong. There are so many possible answers.

Let’s review some of the ways this is bad for the United States (you get to make your choice in a poll at the end of the column).

• Redistributes from poor to rich
• Subsidizes irresponsibility and penalizes responsibility
• Abuse of power
• More red ink
• Higher tuition price
• Awful precedent

To help determine which answer is best, let’s review some recent analysis.

National Review editorialized on the topic. Here are some of the highlights.

Biden’s student-loan plan will cost about $2,000 per taxpayer. …Biden is effectively telling all the people who didn’t go to college, those who went to college but didn’t borrow money, and those who went to college and already paid off their loans that they are suckers. …Federal student loans are already issued on very favorable terms. …The order caps those eligible for loan forgiveness at $125,000 in individual income, which is approximately double the median household income and hardly excludes anyone. …the president has…abused emergency powers to pursue a reckless and senseless policy.

In her Washington Post column, Megan McArdle savages the president’s giveaway.

…the Biden administration announced that it would forgive up to $10,000 in student loan debt (up to $20,000 for Pell Grant recipients)… How many ways can a single policy be bad? This one could cost the federal government somewhere between $400 billion and $600 billion, completely unpaid for. Its legality is at best an abuse of the law to address the “national emergency” of upcoming midterm elections. …an extremely regressive policy, heaping benefits on the most affluent demographics, while leaving everyone else to pay the cost through some combination of higher taxes, lower benefits, or higher inflation and interest rates. Worst of all: What do Democrats do for an encore? …This first action will beget demands for a second and a third. …like trying to quit smoking by switching to unfiltered cigarettes. 

Honest folks on the left are equally upset about Biden’s reverse redistribution.

President Obama’s former top economic aide, Jason Furman, didn’t mince his words.

Pouring roughly half trillion dollars of gasoline on the inflationary fire that is already burning is reckless. Doing it while going well beyond one campaign promise ($10K of student loan relief) and breaking another (all proposals paid for) is even worse.

— Jason Furman (@jasonfurman) August 24, 2022

And the editors at the left-of-center Washington Post were equally scathing.

The unemployment rate for people with bachelor’s degrees and higher is just 2 percent. It’s hard to make the case that college graduates are…facing an unprecedented crisis. …canceling student loan debt is regressive. It takes money from the broader tax base, mostly made up of workers who did not go to college, to subsidize the education debt of people with valuable degrees. …Mr. Biden’s plan is also expensive — and likely inflationary. …Mr. Biden’s student loan decision will…provide a windfall for those who don’t need it — with American taxpayers footing the bill.

From a libertarian perspective, Elizabeth Nolan Brown of Reason denounced Biden’s scheme.

Biden’s basis for saying that the executive branch has the right to simply declare student loans forgiven is both egregious in its own right and troubling for the future of executive power plays. …The program amounts to a massive subsidy for middle-class Americans, as opposed to benefiting the most economically downtrodden or financially strapped. …the program “consumes resources that could be better used helping those who did not, for whatever reason, have a chance to attend college,” as economist Larry Summers put it …there are many people for whom avoiding student loan debt or paying it off promptly meant making all sorts of sacrifices. Biden’s loan forgiveness program says to them that this thrift, practicality, etc. may have been for nought.

By the way, Larry Summers was Bill Clinton’s Treasury Secretary and also head of Obama’s National Economic Council, so hardly a libertarian fellow traveler.

Here’s more of his analysis.

Student loan debt relief is spending that raises demand and increases inflation. It consumes resources that could be better used helping those who did not, for whatever reason, have the chance to attend college. It will also tend to be inflationary by raising tuitions.

— Lawrence H. Summers (@LHSummers) August 22, 2022

Returning to libertarian commentary, Brad Polumbo of the Foundation for Economic Education adds his two cents.

…forcing taxpayers to pay down the roughly $1.5 trillion in government-held student debt is not a “progressive” policy by any stretch. …just one in three American adults over age 25 actually has a bachelor’s degree. …college graduates typically make 85 percent more than those with only a high school diploma and earn roughly $1 million more over a lifetime. So any government policy that forces taxpayers to pay off loans held by a relatively well-off slice of society is actually regressive… Economists Sylvain Catherine and Constantine Yannelis crunched the numbers to conclude that full student debt cancellation would be a “highly regressive policy” and award $192 billion to the top 20 percent of income earners, yet just $29 billion to the bottom 20 percent. …other research from left-leaning institutions like the Urban Institute has reached the same conclusion. So, we’re left with the simple fact that one of the Democratic Party’s top agenda items is a taxpayer-financed handout to the wealthy. 

Charles Cooke of National Review also is not impressed.

Congress has passed no rules that allow down-on-their-luck presidents to throw money at people for political gain. As of yet, Congress has given no instruction that if the president’s friends might like a little more cash, he can raid the Treasury to give it to them. Certainly, Congress has set up a loan program. But the deal there is rather simple, all told: First you borrow, and then you pay back what you borrowed. There is no mention of “forgiveness” days or of “help” or of rolling Chekhovian jubilees, and by pretending otherwise, President Biden is making a mockery of his oath to uphold the Constitution. …This isn’t a reform. It’s not even pretending to be reform. It’s a contemptuous, abusive, unbelievably expensive shot in the dark… Joe Biden and his party prefer college students to you, and they think that those students ought to be rewarded for that by being handed enormous gobs of your money. Electricians, store managers, deli workers, landscapers, waitresses, mechanics, entrepreneurs? Screw ’em.

Robby Soave of Reason also is disgusted.

Biden’s debt forgiveness plan will do nothing—absolutely nothing—to fundamentally change the incentive system that created the doom spiral in the first place. Degree-seekers will continue to borrow large amounts of money to buy useless educations; indeed, they might feel even more encouraged to do so now that this precedent has been set. Meanwhile, colleges and universities will have even less incentive to lower costs. …Forgiving student loan debt exacerbates this problem since it encourages more reckless borrowing. …It is a slap in the face to everyone who either paid down their college debt or made different educational choices to avoid accruing it. …Biden…simply engaged in a vast transfer of wealth, taking hard-earned money from those who did not fall prey to the federal government’s scam and awarding it to those who did.

So what’s the bottom line?

One obvious takeaway is that the party of the rich has provided another giveaway to their rich constituents. Think of it as the bailout version of the state-and-local tax deduction.

But I think this message might be the real moral of the story.

P.S. At the risk of influencing the poll, Biden’s student loan bailout will give colleges and universities the leeway to further increase tuition, but you need bad monetary policy to get a sustained increase in the overall price level.

P.P.S. Cast your vote.

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Big Government, Biden, and Big Corruption: Part II

Yesterday’s column explained that lobbyists are big winners when the size and scope of government increases.

• For instance, a bigger budget means special interests hire lobbyists to obtain ever-larger slices of pork.
• Moreover, added red tape means lobbyists get more clients seeking to manipulate the regulatory process.

And Biden’s grossly misnamed Inflation Reduction Act will make both of those problems worse, enabling more corruption.

But there’s a third problem to consider. Biden’s agenda also calls for a massive expansion of special tax privileges.

From a libertarian perspective, I like when the law allows people to keep more of their money.

As an economist, however, I don’t like when people are lured into make inefficient choices simply because of a convoluted tax system.

And, as a decent human being, I despise a process that enriches lobbyists, politicians, and other insiders. This corrupt process is succinctly captured in this flowchart put together by my former colleague Chris Edwards.

Chris’ main point is that we should be reforming and simplifying the tax code rather than dramatically expanding the budget of a corrupt Internal Revenue Service.

You can’t argue with that goal (assuming you want what’s best for the nation). Even folks on the left should agree.

The bottom line is that a complicated and convoluted tax code is great for lobbyists and a boon for corruption.

P.S. If you want to know the world’s most surprising loophole, click here.

P.P.S. Assuming loopholes are properly defined, the ideal policy is to eliminate them in tandem with enactment of lower tax rates.

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Big Government, Biden, and Big Corruption: Part I

Since I went to the archives for a video yesterday, let’s do the same thing today. Here’s my 2009 video about the close link between the size of government and the level of corruption.

I’m recycling this video because President Biden and his allies in Congress are poised to enact a revised version of the “Build Back Better” plan to expand the burden of government.

The legislation has all sorts of awful provisions, such as shoveling more money at a corrupt IRS, hurting jobs with higher taxes on “book income,” price controls on prescription drugs, and green-energy pork.

But today’s column will focus on process rather than policy.

To be more specific, I want to emphasize the video’s message about bigger government leading to more corruption.

And I’m going to cite an unexpected source – a left-leaning news outlet – to make my point.

In an article for the Washington Post, Yeganeh Torbati and Jeff Stein share various examples of how Biden’s misnamed Inflation Reduction Act is fattening bank accounts of lobbyists.

As Democrats hurry to finalize $739 billion climate, health-care and tax legislation…, business lobbyists and issue advocates are…using television and newspaper ads and personal outreach to try to sway Democrats to their side before the Senate votes. Much of the fiercest lobbying has focused on the bill’s health-care provisions. …The bill also provides hundreds of billions…to fight climate change… The Zero Emission Transportation Association…is asking senators to consider extending the deadlines by a year or more… Small businesses successfully stripped higher taxes on pass-through entities, while bigger firms succeeded in keeping the corporate rate at 21 percent.

The story focuses on the battle over the legislation, so allow me to add two points.

• First, fighting over what is in the package is just the tip of the iceberg. Assuming the bill becomes law, there will then be countless opportunities for lobbyists to get rich by manipulating the regulations that will define how the law is implemented, as well as yearly opportunities for lobbyists to cash in by influencing how money is spent.
• Second, not all lobbyists are bad. If a group of people hire lobbyists to get money or favors from the government, that is obviously immoral. But if a group of people hire lobbyists in hopes of protecting themselves (i.e., they don’t want to be taxed or burdened with more red tape), that is completely legitimate.

I’ll close by reiterating a point in the video.

Whether lobbyists are on the right side or wrong side, the ideal scenario is to shrink government. For instance, a simple and fair flat tax would radically reduce the incentive for influence-peddling.

Getting rid of various needless departments (Education, Transportation, Agriculture, Energy, Housing and Urban Development, etc) also would diminish opportunities for graft and sleaze.

P.S. If you want some lobbyist-themed humor, click here and here.

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The Depressing Reincarnation of Build Back Better

One of the best things about 2021 was the fact that Congress did not approve Joe Biden’s economically debilitating plan to raise taxes and expand the welfare state.

His so-called Build Back Better plan was a very bad mix of class-warfare tax policy and redistributionist spending policy.

But one of the worst things about 2022 may be the reincarnation of a slimmed-down version of Biden’s plan.

Simply stated, the “slimmed-down version” of a terrible piece of legislation is bad news – even if it is possible to envision something even worse.

The Wall Street Journal‘s editorial on the package illustrates why it is bad news that Senator Joe Manchin is trying to rescue Biden’s statist agenda.

As the economy slouches near recession, Majority Leader Chuck Schumer and West Virginia Sen. Joe Manchin…unveiled a tax-and-spending deal that they call the Inflation Reduction Act. Is their aim to reduce inflation by chilling business investment and the economy? …A more accurate name would be the Business Investment Reduction and Distortion Act since that will be the result of its $433 billion in climate and healthcare spending, and $615 billion in new taxes and drug price-control “savings.”

The editorial highlights four terrible provisions.

First, there’s a big tax hike on American companies, with the biggest tax hike on firms that make new investments.

…the 15% minimum tax on corporate book income…will slam businesses whose taxable income is lower than the profits on their financial statements owing to the likes of investment expensing.

For all intents and purposes, politicians would be creating a second type of corporate income tax.

Heavy compliance costs for the business community, of course, but the rest of us probably care more about the estimated loss of 218,000 jobs according to the National Association of Manufacturers.

Second, there are corrupt “green energy” provisions that will degrade America’s energy efficiency and security.

…the bill’s $369 billion in climate spending, most of which is corporate welfare. …All of this will steer private investment into green energy at the cost of reduced investment in fossil fuels. Wind and solar subsidies are already creating distortions in power markets that make the electric grid less reliable and energy more expensive. The expansion of subsidies will compound these problems.

If you want to know why this is bad, just remember Solyndra.

Third, the legislation imposes back-door price controls on the pharmaceutical industry.

The bill will require the Health and Human Services Secretary to “negotiate” Medicare prices—i.e., impose price controls—for dozens of drugs. But the $288 billion in putative savings are fanciful. Manufacturers will hedge potential future losses by launching drugs at higher prices. …The bill will also discourage investment in innovative treatments that could reduce future healthcare spending.

For those of us who value the development of new drugs to fight problems like cancer and Alzheimer’s, this is very bad news.

Fourth, a very corrupt internal revenue service is rewarded for its bad behavior.

Speculative revenue of $124 billion will also come from an $80 billion boost for the IRS. Most of this will finance more audits. The rich can afford more tax lawyers, but middle and upper-middle class Americans will be inclined to settle IRS claims, however meritless, lest they spend even more to defend themselves.

P.S. I can’t resist sharing one final bit of information.

If you peruse the Joint Committee on Taxation’s analysis of the bill, you’ll find that Joe Biden is breaking his promise not to raise taxes on people making less than $400,000 per year.

Not that anyone should be shocked. I have repeatedly explained that the big spenders need to pillage lower-income and middle-class household if they want to finance bigger government.

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Biden’s Main Economic (Political) Problem

There has been plenty of bad economic news for Joe Biden, most notably rising levels of inflation.

He also is being criticized for his tax-and-spend fiscal agenda. And mocked for his assertions about red ink.

But I think his main problem is this chart, courtesy of the Atlantic‘s Derek Thompson, which shows that prices are rising faster than earnings for the average American

The bottom line is that people don’t like inflation, but they probably would not be nearly as upset if their income was rising at least as quickly as prices.

But that’s not happening. And this means the average family is enduring a pay cut, when measured in actual purchasing power.

I shared a version of these numbers back in March as part of a six-part series on Biden’s economic mistakes (the other five columns can be found here, here, here, here, and here).

That data also shows that inflation is rising faster than earnings. And that’s true even if fringe benefits are included.

What’s ironic about this data is that Joe Biden doesn’t deserve blame for the outbreak of inflation. Today’s rising prices are a consequence of mistakes by the Federal Reserve that took place before Biden was in the White House.

Though Biden’s subsequent appointments to the Fed suggest he either does not understand the problem of inflation or doesn’t care. So it’s not as if he deserves much sympathy.

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Biden’s Deficit Malarkey

Back in May, I pointed out that it is absurd for Joe Biden to claim credit for lower deficits. This Reason video elaborates, noting that red ink is (temporarily) falling solely because the orgy of pandemic spending is ending.

Serious budget people, regardless of their ideology, know this is true.

Almost everything Biden has done since taking office has expanded the burden of government.

For instance, he pushed through a so-called stimulus scheme, followed by a boondoggle-filled infrastructure plan.

Both of which are captured in this chart from Brian Riedl.

By the way, it would be better if the chart focused on how the spending burden has increased. After all, deficits should be viewed as the symptom. The real disease is excessive government.

That being said, either type of chart would look far worse if Biden had been able to convince Congress to approve $trillions of additional spending as part of his “build back better” proposal.

One final point is that Biden also has added to the fiscal burden of government with the pen-and-phone approach.

The Congressional Budget Office estimates that Biden has added $532 billion of extra spending via executive orders and other unilateral decisions.

P.S. I have no doubt Trump and many other politicians of both parties also would be taking credit for falling deficits if they were in Biden’s position. After all, politicians are probably the least ethical people in the nation. And Washington brings out the worst of the worst.

P.P.S. There is a risk that a slimmed-down version of Biden’s “build back better” plan is being resuscitated. That would be bad news for the economy. Not as bad as the original version, to be sure, but it’s crazy to enact anti-growth proposals with the economy teetering on the edge of recession (especially since some of the specific provisions are so misguided).

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Biden’s Anemic Jobs Market

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

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

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

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

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

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

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

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

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

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

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

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

Is he right?

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

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

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

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

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

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

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

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

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

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

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Deconstructing Biden’s Corporate Tax Cartel, Part III

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

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

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

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

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

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

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

Let’s be thankful that Hungary said no.

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

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

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

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

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

The Wall Street Journal editorialized against this scheme last year.

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

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

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

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

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

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

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

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

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

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Will the Real Oil Profiteer Please Stand Up?

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

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

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

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

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

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

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

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

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

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

But Uncle Sam is not the biggest profiteer.

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

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

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

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Sloppy Economics from the New York Times

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

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

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

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

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

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

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

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

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

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

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

Such as the late, great Milton Friedman.

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

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

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

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

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