The Unfortunate Demise of Disney’s Private Governance

Libertarians have a knee-jerk desire to shrink the footprint of government, even advocating for unconventional ideas such as private roads, private mail delivery, private pensions, private money, and private air traffic control. And, as captured by this Reason video, we also like the idea of private cities.

Heck, some libertarians think everything can be privatized.

For today’s column, however, let’s focus on the controversy discussed in the video.

I wrote about this issue twice last year. In the first column, I defended Disney’s privatized governance system (the “Reedy Creek Improvement District”).

As explained in the video, the company had every incentive to operate and maintain its theme park in a safe and efficient manner. The goal was to make money by giving customers the best experience at the best price (a mindset that doesn’t seem to exist when governments are in charge).

In the second column, though, I acknowledged that Disney’s privatized governance system could be considered cronyism because other businesses – including other theme parks – did not get the same treatment.

But I pointed out that there was a simple solution, which was that “private governance could be and should be a tick-the-box exercise. Any and all companies that meet transparent criteria should be allowed to choose a self-governance approach.”

But my preferred approach did not prevail.

Governor Ron DeSantis of Florida has a column in the Wall Street Journal celebrating the demise of Disney’s private governance.

On Monday, I signed the law ending the Walt Disney Co.’s self-governing status over 43 square miles in central Florida… Disney no longer has its own government. …Disney’s special arrangement, which dates to 1967, was an indefensible example of corporate welfare. It provided the company with favorable tax treatment… It exempted Disney from Florida’s building and fire-prevention codes. …For decades, GOP elected officials have campaigned on free-market principles but governed as corporatists—supporting subsidies, tax breaks and legislative carve-outs to confer special benefits on entrenched corporate interests. But policies that benefit corporate America don’t necessarily serve the interests of America’s people and economy.

I fully agree with DeSantis on the downsides of cronyism.

It’s nauseating (and economically harmful) when big business gets in bed with big governance.

I just wish he had picked the tick-the-box strategy for getting rid of favoritism.

Let’s close by looking at something else from Reason. Last July, Scott Shackford defended Disney’s private governance.

DeSantis and Florida’s Republican-controlled legislature took aim at the Reedy Creek Improvement District (RCID), which state lawmakers established in 1967 to give Disney substantial autonomy within the nearly 40 square miles it owns in Orange and Osceola counties. The special district allows Disney to control zoning, construction, infrastructure, emergency services, and taxation to pay for all of it. …While DeSantis and other Florida Republicans seem to view the RCID as an undeserved privilege, it freed Orange and Osceola counties, along with their taxpayers, from responsibility for Disney’s massive park. For instance, Disney pays the Orange County Sheriff’s Office millions of dollars each year for policing services.

It would be nice if this approach had been made universal.

P.S. As explained in the video, DeSantis and other Republicans decided to go after Disney because the company opposed a bill that restricted whether young children could be exposed to issues involving sexual orientation. My defense of Disney’s private governance has nothing to do with that topic (which should be addressed by having school choice so that parents can decide what’s best for their kids).

P.P.S. For those interested in privatized local governance, there are interesting examples in Mexico, South Africa, and Nigeria.

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Chicago’s Downward Spiral

It’s not easy to identify America’s worst-governed city. You can make a case for jurisdictions such as San Francisco, Detroit, New York City, Minneapolis, or Seattle.

For what it’s worth, there is statistical research from last decade showing places like New York and Los Angeles are among the worst of the worst, but I wonder if Chicago actually deserves top billing

There are many reasons to criticize the Windy City. Crime is rampant, taxes are excessive, and schools are terrible.

And, to make matters worse, Chicago is in America’s worst-governed state (at least based on my poll, which is not scientific but is probably accurate).

I already wrote once about bad public policy in Chicago. Today’s column is going to show that things are getting even worse.

I’ve written about how taxpayers are fleeing poorly governed states. Well, they’re also fleeing poorly governed cities. And the AP reports that Chicago is a popular place for companies…to leave.

The Chicago area saw an exodus of corporate headquarters in 2022, including investment firm Citadel, which moved to Miami along with its billionaire founder, Ken Griffin; Caterpillar, which relocated from north suburban Deerfield to Irving, Texas; and aerospace giant Boeing, which moved to Arlington, Virginia, after more than 20 years in the West Loop. The most recent high-profile departure was announced in November, when Lake Forest-based auto parts manufacturer Tenneco said it was shifting its headquarters to Michigan. …vacancy rates in the central business district rose to 19.6%, while the Chicago metro ticked up to 21.8%… Meanwhile, Citadel principals and employees generated billions of dollars in tax revenue for the city and state over the past decade, according to the firm, money that has also headed south.

And why are businesses escaping?

As Adam Schuster explained last October in National Review, the city’s economic management is getting worse.

Can anything be done to save the financial future of one of America’s largest and best cities? …Let’s go through the numbers. The business community is right that a property-tax increase is unnecessary considering the $3.5 billion in pandemic-related federal aid. ..The property-tax hike could be prevented by using just 2.5 percent of Chicago’s $1.9 billion in American Rescue Plan funding. But instead of using the aid to prevent tax hikes that would impede Chicago’s economic recovery, the city has proposed to use those billions to create new programs. The mayor’s proposed budget increases spending by roughly $1.2 billion… Unfortunately, that spending is propped up by one-time federal aid that expires by 2024 — meaning many programs will have to be…financed with significant tax hikes within just two years. And about those pensions: Pension costs will consume more than $2.3 billion of the city’s budget, or 21.4 percent of its own source revenue, excluding state and federal grants. That’s more than a $967 million increase in pension spending since Lightfoot became mayor and $461 million more than last year alone.

In other words, the city is trying to raise taxes today while also making decisions (especially regarding unfunded pensions) that will almost surely mean additional tax increases in the future.

No wonder people and business are fleeing the state and the city.

P.S. To make matters worse, Chicago still has major problems with corruption.

P.P.S. My long-run fear is that politicians in DC will provide bailouts for profligate cities and states.

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Traffic Cameras and Greedy Government

Local politicians can be just as greedy and callous as state politicians and national politicians.

Even if it means mistreating poor people.

Perhaps the best evidence for the preceding sentence is the way that traffic cameras are used to generate revenue.

Indeed, local politicians use cameras as a way of grabbing more money even if the net result is more traffic accidents!.

Let’s start with a report in Reason earlier this year. Written by Julian Verdon, it documents how government greed is the main motive for speed cameras.

Pete Buttigieg’s new National Roadway Safety Strategy (NRSS) promotes speed cameras nationwide… But research shows that speed cameras are subject to error and actually end up serving as a means to generate government revenue. …In Chicago, where speed cameras are abundant, the camera program improperly gave out over $2.4 million in fines from 2013 to 2015. Using a random sample analysis, the Chicago Tribune estimated the number of bad tickets to be somewhere around 110,000. …In Washington, D.C., a 2014 report from the D.C. Office of Inspector General found that ticket writers made arbitrary decisions when a camera captured more than one vehicle, and they didn’t know which one was speeding. …Unsurprisingly, the misuse of speed cameras has also become a massive source of revenue for local government.

These are all good points, but they overlook the bigger issue, which is that the cameras usually are placed on streets where speed limits are set at absurdly low levels.

At the risk of stating the obvious, that’s a scam to grab money.

I’m more sympathetic to cameras that catch people running red lights since that behavior can endanger others.

But it seems governments are incapable of doing the right thing for the right reason. Such cameras are designed to maximize revenue for politicians by shortening yellow lights – even even that that approach causes more crashes.

It’s also worth noting that the companies that set up traffic cameras frequently bribe local politicians.

As one might expect, Chicago is the epicenter of sleaze, as reported by Scott Shackford for Reason.

Illinois State Sen. Emil Jones III (D-Chicago) was indicted in September on federal charges of bribery and lying to the FBI. He’s accused of accepting $5,000 and the promise of a job for an associate from a person connected to SafeSpeed, a red-light camera company. …At this point, we should not be surprised at accusations of corruption and bribery concerning the extremely active revenue-generating cameras in the Chicago area. …Mayor Lori Lightfoot even arranged to have the cameras hit cars traveling just six miles per hour over the speed limit to help boost the city’s revenue. …In 2016, a former Chicago official was sentenced to 10 years in federal prison for taking $2 million in bribes from a different red light camera company…four other local officials who have faced charges in the past for misconduct connected to SafeSpeed’s work in the Chicago suburbs. …Oakbrook Terrace’s former mayor, Tony Ragucci,…pleaded guilty in May to pocketing close to $90,000 in exchange for allowing SafeSpeed to operate red-light cameras in the town. …”We all know it’s about money. Revenue. Legal or illegal. That’s why these cameras are there,” Oak Brook Village Trustee Mike Manzo said.

We all know traffic cameras are about revenue rather than safety, but it’s good that Mr. Manzo confirms our suspicions.

That’s why you should watch this video to see why Jay Beeber is a hero.

And it’s why we should cheer this anonymous hero as well.

Since I’m handing out plaudits, the people of Arizona also deserve applause, along with Houston’s voters.

P.S. There are even some good people in other countries.

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Everything You Need to Know about Federal Handouts for State and Local Governments

Ideally, the federal government should be limited to the functions specified by the Founders in Article 1, Section 8, of the Constitution.

If we are to have any hope of getting back to that system, it may require two practical steps.

1. If Washington is operating a program, the first step may be to replace it with block grants and let state and local governments decide how to spend the money.
2. If Washington is providing block grants, the second step may be to phase out that funding and let state and local governments figure out if they want to pick up the cost.

To elaborate, programs that are both funded by Washington and operated by Washington not only suffer from waste (common to all government activities), but also produce the inefficiency and stagnation common to a one-size-fits-all approach.

This is why welfare reform under Bill Clinton was a good idea.

Taxpayers saved some money because the block grant was capped. But the best outcome was that states then could use their flexibility to innovate and find approaches that actually helped poor people by encouraging employment and reducing dependency.

In an ideal world, however, there should not be block grants. State and local governments should decide not only how to operate welfare programs, but also how to finance them.

To understand the problems associated with block grants, let’s look at a new study published by the National Bureau of Economic Research. Authored by Jeffrey Clemens, Philip G. Hoxie & Stan Veuger, it finds that pandemic grants were grotesquely inefficient.

We use an instrumental-variables estimator reliant on variation in congressional representation to analyze the effects of federal aid to state and local governments across all four major pieces of COVID-19 response legislation. Through September 2021, we estimate that the federal government allocated $855,000 for each state or local government job-year preserved. Our baseline confidence interval allows us to rule out estimates of less than $433,000. Our estimates of effects on aggregate income and output are centered on zero and imply modest if any spillover effects onto the broader economy.

Needless to say, it’s absurd to spend $433,000-$855,000 to save a job that pays an average of $100,000. Or less.

On net, that’s going to reduce total employment when you count the private-sector jobs that are foregone because politicians are diverting so much money from the economy’s productive sector.

And if you want to know how much money was diverted specifically for state and local governments, Figure 3 shows both Trump’s pandemic boondoggle in 2020 and Biden’s pandemic boondoggle in 2021.

In a column for the Foundation for Economic Education, Peter Jacobsen discusses the new study.

The authors find that federal aid to state and local governments to save jobs was incredibly ineffective. In fact, this program was even more inefficient than the notoriously inefficient Paycheck Protection Program (PPP). …The PPP was estimated to have cost somewhere from $169,000 to $258,000 per job each year. This program to save state and local government jobs cost in the range of $433,000 to $855,000 per job each year. This is as much as 5x more waste! …So how did the government spend more than $800,000 per job to save jobs which normally pay five figures? …a business engaging in an ineffective and wasteful policy like this would make a loss on each worker and go out of business. …government is particularly prone to generating these wasteful jobs. …Without a mechanism like profit and loss to evaluate the value of alternative options, we are left with a policy which spends nearly a million dollars to preserve a single job with a salary less than one tenth of that.

I’ll conclude with the should-be-obvious observation that politicians don’t actually care about net job creation. They care about buying votes with other people’s money.

So the state and local bureaucrats who directly benefited (by keeping their over-compensated jobs) presumably will remember and reward the politicians who supported for the boondoggles.

P.S. The rest of us also should care – and oppose spendthrift politicians, but most of us don’t pay enough attention to recognize the “unseen.”

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New York City’s Grim Fiscal Outlook

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

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

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

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

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

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

So why are people leaving the City?

Some of it was temporary, caused by the pandemic.

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

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

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

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

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

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

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

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

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

Now the chickens are coming home to roost.

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

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Americans Voting with their Feet against Statism

Federalism is very desirable because it allows different parts of the country to make different decisions, and this helps to teach us about what works. And what doesn’t.

It also means Americans can “vote with their feet” by migrating across local borders and state borders.

This happens a lot, as illustrated by this map from the Census Bureau.

While this map is fascinating, it also can be deceiving because some counties have very few people and others have millions of people.

It appears that internal migration might be a wash for states such as California and New York, for instance, since parts of both states are both green and purple.

If you look at a state-level migration map, however, you’ll find that both states lost population.

Why? Because big losses in some heavily populated cities (circled in red above) easily outweighed population gains in rural counties.

So why are people leaving some places? Are there lessons to be learned?

One obvious takeaway is that Americans are fleeing states governed by the left, as Kerry McDonald explains for the Foundation for Economic Education.

US Census Bureau data released in December showed that restrictive states such as California, Illinois, New York, and Massachusetts lost population between July 2020 and July 2021, while states with less-restrictive virus policies like Texas, Arizona, and Florida gained population during that time. …Fight or flight is a tough choice for families, but at least it’s a choice that Americans can enjoy thanks to federalism and the ability to vote with our feet.

And Americans are fleeing localities governed by the left, as Michael Barone explains in the Washington Examiner.

…the biggest losses, in both population and percentage loss, came in four of the nation’s six largest metropolitan areas: San Francisco/San Jose (-2.6 percent), New York (-1.8 percent), Chicago (-1.1 percent) and Los Angeles/Riverside (-0.8 percent). Each of the first three, in just 15 months from April 2020 to July 2021, lost a population that equaled 20 percent of their total population gain in the 20 years between 2000 and 2020. …it’s also noteworthy, and probably more permanent, that people with modest educations and incomes have fled far beyond the exurbs. …the nation’s population growth and its economic dynamism had been concentrated disproportionately in the exurbs, which typically have reasonable tax rates and development-friendly regulations. …the self-harm that liberal and progressive politicians have inflicted…voters even in New York, Chicago, Los Angeles, and San Francisco are recoiling.

The moral of the story is that voters sometimes make the mistake of voting for tax-and-spend politicians, but at least they have enough sense to then escape the places being harmed by statist policies.

P.S. Switzerland in the gold standard for federalism in the world, but Canada also deserves favorable attention. And I recently learned that there’s real federalism in Spain.

P.P.S. Sadly, federalism has declined in the United States.

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Disney, Private Governance, Special Districts, and Cronyism

Earlier this month, I defended Disney’s self-governance status.

I wasn’t motivated by the company’s position on Florida education legislation (my view is that all sorts of controversial education issues can and should be solved by having school choice).

Instead, I viewed Reedy Creek (Disney’s “Independent Special District”) as a good example of private governance.

And if you believe that the private sector produces better results, this seems like a no-brainer.

So does this mean these enclaves are a good idea?

There’s not a clear-cut answer. In a column for the Wall Street Journal, Judge Glock of the Cicero Institute is concerned that special districts often are a way of expanding government rather than curtailing it.

Reedy Creek is only one example of the proliferation of powerful “special districts,” shadowy local governments that exercise ever-greater control over taxation and spending. Florida alone has 1,800 such districts. According to the U.S. Census, there are more than 38,000 of them across the country—double the number of cities. …They are means to escape citizen limitations on government power and should be brought under the control of regular voters and local governments again. …After the tax revolt in the 1970s, special districts became a convenient way for government to escape new limitations on taxes. Over the past four decades, states have created more than 8,000 local governments. Ninety-six percent of these have been special districts. …Special districts are an increasing burden to taxpayers. They intentionally keep their accounting obscure, but…we know California districts alone spend $76 billion. In Nassau County, N.Y., 140 different special districts cost the average homeowner $1,000 a year in property taxes.

This sounds awful. And I’m sure it is awful.

But it’s not a description of Disney.

Professor David Henderson, an emeritus professor at the Naval Postgraduate School, shares my perspective about letting the company govern itself. Here’s some of what he wrote on this controversy.

 Walt Disney Corporation has a special status in Florida that allows it to avoid many regulations and some taxes and fees. …No one that I have found addressing the issue claims that Disney uses this freedom badly… Care to bet which roads are better: roads in the Reedy Creek District or roads in surrounding counties? I’ll take the bet. The explicit argument that Florida Republican legislators and Florida governor Ron DeSantis make is that Disney receives special treatment. They’re right. …But what if that special treatment works to produce good results?

And Disney does produce good results.

But there’s one more issue to address, which is whether it’s fair for Disney to have self-governance when other companies don’t have the same right.

Universal Studios competes with Disney in the same area and presumably doesn’t have self-governing status.

This isn’t fair. We don’t want politicians awarding special status to one company over another. That’s cronyism.

Fortunately, Professor Henderson gave us the answer.

…there are two ways to get rid of special privileges. The way the Florida Republicans don’t seem to have considered is to make them less special by giving people in other counties the same flexibility.

Indeed, private governance could be and should be a tick-the-box exercise. Any and all companies that meet transparent criteria should be allowed to choose a self-governance approach.

Keep in mind, however, that allowing companies to govern themselves is different from special districts that expand the powers of politicians and bureaucrats to govern others.

In other words, special districts can be good or bad depending on the purpose.

P.S. There are also examples of self-governance in Mexico, South Africa, and Nigeria.

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Defending Disney’s Self-Rule

Like any practical libertarian, I prefer decentralization (Switzerland is a great role model). My default view is that it is better for things such as roads and schools to be handled at the local level.

But I’m also an impractical libertarian. I fantasize about privatizing things (including roads and schools) that most people think can only be handled by government.

It’s why I’ve written favorably about Liberland. And I’ve also lauded examples of private local governance in some unexpected places.

• Mexico
• South Africa
• Nigeria

By the way, we also have examples of private local governance in the United States.

Such as Disney World in Florida.

To elaborate, Disney struck a deal with Florida lawmakers back in the 1960s. The company agreed to invest billions of dollars and create tens of thousands of jobs and the state agreed to let Disney govern itself.

That approach has worked very well. But it’s now at risk because state lawmakers are upset that the company opposed a bill to limit discussion of certain sexual topics for kids in kindergarten through the 3rd grade.

Those lawmakers are so angry that they want to undo a successful example of private governance.

I’m not the only one who is worried about this development. Charles Cooke of National Review is not impressed by the state’s attack on the company’s self-governance.

Governor Ron DeSantis issued a proclamation instructing a special session of the Florida legislature to review whether Walt Disney World’s 50-year-old “independent special district” status should be rescinded now that the Walt Disney Company has had the temerity to annoy the Republican Party. …There is no need for the Republican Party of Florida to salt the earth… Presented with this objection, advocates of further retribution tend to switch gears and contend that…Disney’s special status, granted before 1968, was probably due for “reconsideration” anyway. …Florida has 1,844 special districts, of which 1,288 are, like Walt Disney World, “independent.” The Villages — where Governor DeSantis made his announcement about the review of Walt Disney World’s status — is “independent,” as are Orlando International Airport and the Daytona International Speedway. …Walt Disney World is deeply rooted in Florida’s soil, as a result of agreements the Florida legislature made with it in good faith. To poison that soil over a temporary spat would be absurd.

Scott Shackford also argues in favor of Disney’s legal status. Here’s some of his Reason column.

The Reedy Creek Improvement District, established in 1967, grants Disney the legal authority over and responsibility for 25,000 acres of land in Orange and Osceola counties. This includes planning and zoning authorities, as well as the responsibility to provide police, fire, and utilities in the area. …It’s a bit simplistic to think that giving Walt Disney World Resort the power of self-rule is some sort of gift or privilege. That the park, given self-governance, has managed to maintain itself as a generally safe and stable environment that people flock to from across the world is a pretty good indication that the company knows what it’s doing. Any contention that DeSantis is eliminating some sort of “special treatment” for Disney comes with it the perhaps mistaken assumption that the two counties suddenly in charge of all of this infrastructure will somehow make the park better and not worse. In reality, putting Disney parks at the mercy of two different counties with different laws will be a huge mess for everybody involved.

By the way, my defense of Disney’s legal structure does not mean I agree with the company’s political posturing. To the extent that we have to have government schools, I don’t see any problem with focusing on teaching small children the basic of reading and math, while leaving human sexuality for later ages.

In an ideal world, of course, we would have widespread school choice and the teaching of various subjects would be governed by market demand.

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Schools, Libraries, and Censorship

In my libertarian fantasy world, schools and libraries would be private institutions, which means market forces would determine which books would be available.

This would mean plenty of diversity.

Private schools in rural Oklahoma presumably would opt for content that reflects traditional values, for example, while private libraries in San Francisco would be more likely to feature salacious content.

But there also would be entrepreneurs who would cater to the needs and interests of left-wingers in Oklahoma and right-wingers in San Francisco.

The bottom line is that there’s no need for a one-sized-fits-all approach if a market is allowed to operate.

All that sounds nice, but my libertarian fantasy world doesn’t exist (even though it already has an anthem).

In the real world, we have government schools and government libraries. So what should the rules be for which books get selected?

As you might imagine this gets very contentious.

Valerie Strauss and Lindsey Bever have a story in the Washington Post about a battle in Florida over what math books to use.

Florida said it has rejected a pile of math textbooks submitted by publishers in part because they “contained prohibited subjects,” including critical race theory. The Florida Department of Education announced…41 percent of the submitted textbooks were rejected — most of them in elementary school. …“It seems that some publishers attempted to slap a coat of paint on an old house built on the foundation of Common Core, and indoctrinating concepts like race essentialism, especially, bizarrely, for elementary school students,” Florida Gov. Ron DeSantis (R) was quoted as saying in the announcement.

And a report by Annie Gowen in the Washington Post examines the fight over which books should be in public libraries.

…a growing number of communities across America where conservatives have mounted challenges to books and other content related to race, sex, gender and other subjects they deem inappropriate. A movement that started in schools has rapidly expanded to public libraries, accounting for 37 percent of book challenges last year, according to the American Library Association. …Gov. Greg Abbott (R) jumped into the fray, calling for an investigation of “pornography” in school libraries. …challengers are being assisted by growing national networks such as the parental rights group Moms for Liberty or spurred on by conservative public policy organizations like Heritage Action for America, the ALA has said.

For what it’s worth, I don’t think libertarians have a dog in this fight.

We viscerally oppose government-mandated censorship, of course, but that’s not what is being debated.

The fight is not over which books to ban. It’s about which books to buy.

And since schools and libraries obviously don’t have the ability to purchase every book ever written, somebody will need the authority to choose.

1. Should local librarians and local principals have that authority?
2. Should local and state elected officials have that authority?
3. Should politicians and bureaucrats in D.C. have that authority?

The worst outcome is allowing the crowd in Washington to have any power. That leads to one-size-fits-all and it is a recipe for endless conflict.

Moreover, the federal government has a terrible track record, especially with regards to education. And I can’t imagine the folks in D.C. would do any better if they got involved with libraries.

So we are left with options #1 and #2.

But that’s somewhat misleading because local politicians already have a lot of power over which principals and librarians get hired. They may delegate that authority, to be sure, but they have the ultimate power.

Indeed, the two stories cited above are about citizens pushing elected officials to make certain choices.

That’s democracy in action, for better or worse.

P.S. Libertarians favor democracy, but we very much want to limit the size and scope of government. In other words, for everything other than genuine “public goods,” we prefer markets over majoritarianism.

P.P.S. I don’t want to ban any book, but I definitely would be happy if fewer schools and libraries chose to buy Howard Zinn’s inaccurate book on American history.

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The Compensation Advantage of State and Local Bureaucrats

My main objection to government employees is that they work for bureaucracies that should not exist (especially the ones in Washington).

That being said, I also don’t like how bureaucrats are overpaid compared to workers in the productive sector of the economy.

How much are they overpaid? The Committee to Unleash Prosperity has a daily newsletter, and here’s a chart from yesterday’s edition that compares compensation levels for private-sector employees and state and local bureaucrats.

Just in case you are wondering whether these numbers are accurate, you can go this website from the Bureau of Labor Statistics, scroll down to the “Pay and Benefits” section, and then click on “Data Finder” for “Employer Costs for Employee Compensation.”

You will then find that average hourly costs (including benefits) for state and local government workers are about $55, compared to about $38 for workers in the economy’s productive sector.

Government employee unions and other defenders of the status quo often will argue that such numbers are comparing apples and oranges because bureaucrats tend to be older and working in fields that require greater skills.

Those are legitimate arguments (indeed, similar to the arguments that debunk the idea of a gender pay gap).

But a legitimate argument is not the same as a compelling argument. The Department of Labor’s data on voluntary quit rates definitely suggests that bureaucrats (both federal and state/local) have a big compensation advantage over workers in the private sector.

If you want a concrete example of how government workers receive windfalls, Adam Andrzejewski opined last year about lifeguards in Southern California. Here’s some of what he wrote for the Wall Street Journal.

Being a lifeguard isn’t easy, but in Los Angeles it can be lucrative. Auditors at OpenTheBooks.com found 82 county lifeguards earning at least $200,000 including benefits and seven making between $300,000 and $392,000. Thirty-one lifeguards made between $50,000 and $131,000 in overtime alone. After 30 years of service, they can retire as young as 55 on 79% of their pay. The Los Angeles County Lifeguard Association makes all this possible. …By comparison, the top-paid public lifeguard in Florida made $118,000, including benefits—though the pay goes further in the Sunshine State, which has no income tax. Even in New York City, the top-paid lifeguard made only $168,000. Think of the Los Angeles Country Lifeguard Association as the teachers union of “Baywatch.”

Sounds like they all belong in the Bureaucrat Hall of Fame.

P.S. Click here to learn why state and local governments sign contracts providing absurd levels of pay and benefits.

P.P.S. Workers in the private sector work more hours, so annual pay gaps are not as large as hourly pay gaps.

P.P.P.S. Putting lifeguards to shame, one state employee in California raked in more than $800,000 in one year.

P.P.P.P.S. Adding insult to injury, the lavish retirement benefits of state and local bureaucrats often are dramatically underfunded.

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The Party of the Rich Is Pushing a Tax Cut for Rich People

There’s a political party in the United States – the Democrats – that represents rich people and it is trying very hard to cut taxes for those rich people.

Since I don’t resent rich people (indeed, I applaud them if they earn their money honestly), I generally want lower taxes for upper-income taxpayers. But I don’t want special tax breaks for rich people. Instead, I want to cut their taxes in ways that promote greater national prosperity so that I’ll benefit as well.

• Lower top income tax rates.
• Lower tax rates on capital gains.
• Lower tax rates on dividends.
• Lower death taxes.

Sadly, those aren’t the options the Democrats are choosing.

They are putting all their energy into a dramatic expansion of the state and local tax deduction. This is the tax break that rich people get when they use state and local tax payments to reduce the amount of taxable income they report to the IRS.

It was curtailed as part of the 2017 tax law and now Democrats want to expand it.

The restored tax break would be available to everyone, they say, but let’s look at who really benefits.

The Committee for a Responsible Federal Budget is a middle-of-the-road group, and it points out that more only 2.5 percent of the tax cut would go to people making less than $100K per year.

The Tax Policy Center is a left-of-center organization and it also points out that expanding the deduction for state and local taxes means a windfall for the rich.

Here’s TPC’s chart showing that almost all the gains go to those in the top quintile.

While Democrats in Congress are pushing this big tax cut for the rich, some folks on the left are not very happy about what’s happening.

I often disagree with Catherine Rampell of the Washington Post, but she makes some excellent points in her recent column on the SALT deduction.

Wrong. A disaster. Obscene. These are among the ways liberal budget wonks have described Democrats’ determination to give a huge windfall to the rich by repealing the cap on state and local tax (SALT) deductions. …Households making $1 million or more a year would receive roughly half the benefit of this policy, according to estimates from the Tax Policy Center. About 70 percent of the benefit would go to households making at least $500,000. …Nearly every millionaire (93 percent)…would get a tax cut, with an average size of $48,000. …As a result, the top 5 percent of households would still likely see their taxes go down on net, after accounting for all tax provisions in the budget bill.

The New York Times made similar points about Democrats in an editorial earlier this year.

…the party is flirting with a major change in tax policy that would allow the wealthiest Americans to pay lower taxes. …Proponents of an unlimited SALT deduction say they are seeking to help middle-class taxpayers. If so, they should go back to the drawing board. The top 20 percent of American households, ranked by income, would receive 96 percent of the benefits of the change… The primary beneficiaries would be an even smaller group of the very wealthiest Americans. The 1 percent of households with the highest incomes would receive 54 percent of the benefit, on average paying about $36,000 less per year in federal income taxes.

Honest folks on the left aren’t just upset that congressional Democrats are pushing a big tax cut for rich people.

They’re also upset that this big tax cut is crowding out some other priorities for the left – such as additional spending.

This tweet from Jason Furman (a former top economist for Obama) captures this sentiment.

The bottom line is that the most important constituency for many elected Democrats is not poor people.

It’s rich people and the politicians at the state and local level who represent those rich people.

I’ll close by observing that I don’t want more spending and I also don’t want a special tax break that subsidizes bad policy by state and local politicians, so I’m  obviously not in full agreement with Mr. Furman.

So the best result is for Biden’s entire agenda to implode. That would be a win for American taxpayers, a win for the American economy, and a win for long-suffering residents of blue states.

P.S. Yes, resentment against success motivates many people on the left, but elected Democrats are not the same as left-wing activists.

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A Big (and Deserved?) Tax Increase for Washington, D.C.

I wrote last month about an encouraging wave of tax cuts at the state level.

I’m particularly impressed by the tax-cutting plan in Arizona, which cleverly reversed a class-warfare scheme designed to enrich teacher unions.

Indeed, I’m a big fan of federalism in large part because good fiscal policy is more likely when state and local governments are forced to compete for jobs and investment.

People can “vote with their feet” by moving from high-tax jurisdictions to low-tax jurisdictions, and politicians are less likely to misbehave when they realize taxpayers can escape.

But “less likely to misbehave” is not the same as “won’t misbehave.”

Notwithstanding the negative consequences, some jurisdictions are contemplating tax increases.

• A continuing campaign to reverse the flat tax in Massachusetts
• More class-warfare tax policy by New York’s greedy politicians
• California politicians consider adding a wealth tax on residents

There’s also a plan for a class-warfare tax increase in Washington, DC.

I’m not referring to President Biden’s destructive tax plan (which you can read about here, here, here, and here). Instead, today’s column will focus on the tax increase being considered by the city’s local government.

Here are some excerpt from a report in the Washington Post.

An increasingly left-leaning D.C. Council voted…to raise income taxes on wealthy residents — a victory for advocates seeking tens of millions of dollars to spend…, but a puzzlement to others who saw no need for a tax increase in a year the city is flush with federal grant money. …the 2022 budget…includes generous spending on a long list of programs, mostly funded by the federal grants as well as other sources of local revenue. …The authors of the tax increase proposal…say that wealthy residents who were not financially hurt by the pandemic can afford to pay more.

To see which taxpayers are being penalized, here’s an excerpt from the Tax Foundation’s report on the proposed tax hike.

Interestingly, despite its left-leaning orientation, the Washington Post editorialized against the tax hike.

The council is now intent on ramming through a tax increase on wealthy residents that is driven more by ideology than any need for revenue or sound fiscal strategy. …as opponents of the tax increase pointed out, the District is flush with cash — about $3.2 billion in federal payments and grants, with next year’s local revenue projected to be $162 million more than pre-pandemic times. The proposed $17.5 billion budget already reflects a growth in spending of 3.9 percent over the historically high spending in the current year. …the council’s slapdash approach could have troubling consequences. The District’s tax rates on income and commercial property are already the highest in the region. …states such as Illinois should serve as a cautionary tale: Its high taxes have driven residents and businesses to other states. It’s not hard to imagine that someone making over $1 million — 0.7 percent of D.C. taxpayers, who pay 23.1 percent of the city’s income taxes — might find it more worthwhile to live in Arlington and pay one-third as much in taxes. What then happens…?

This is a remarkable editorial.

Indeed, it sounds like I could have been the author.

• It highlights excessive growth of government.
• It highlights how the rich pay the lion’s share of tax.
• It highlights tax migration across borders.
• It highlights jurisdictional tax competition.

The difference between me and the Washington Post, though, is that I’m intellectually consistent.

Unlike the editors of that newspaper, I apply the same arguments when analyzing national tax policy as well.

P.S. While the D.C. Council’s plan is very bad tax policy, part of me will be amused if it gets enacted. That’s because Washington is filled with lobbyists, bureaucrats, contractors, and other insiders who get undeserved riches because they have their snouts buried in the federal trough.

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What Happens When Politicians Get too Greedy?

I’ve been asked why I periodically mock politicians. The simple answer is that they often deserve our scorn.

It’s not that they’re evil or bad people, but their incentive structure generally leads them to make shallow, short-run, and self-serving decisions.

Such as setting tax rates so high that they even backfire on politicians (i.e., by discouraging economic activity and thus producing less revenue).

It looks like we may have a new example of this phenomenon.

In an article for the Las Vegas Review-Journal, Richard Velotta reports on Chicago’s bungled attempt to attract a big-name casino.

If everything had gone according to plan, we would all be buzzing this week about which company would have the best opportunity to build a casino resort in Chicago. But it hasn’t gone according to plan. …companies have stated that they won’t be bidding. Four of the largest Strip operators — MGM Resorts International, Las Vegas Sands Corp., Wynn Resorts Ltd. and Caesars Entertainment Inc. — have indicated they have no plans to bid on Chicago. …The biggest issue for Las Vegas operators looking at Chicago is the tax rate Illinois would impose on gross gaming revenue from the Chicago resort — 40 percent. By comparison, the maximum rate in Nevada is 6.75 percent.

I guess we shouldn’t be surprised that Illinois politicians would over-tax something.

But I’m amazed they thought they could impose a tax six times higher than the one in Nevada without any negative consequences.

No wonder the big-name casinos aren’t submitting bids. After all, their job is to generate revenue for shareholders, not loot for politicians.

Though there is a silver lining to this dark cloud.

As mentioned in the story, Illinois politicians apparently did realize it wouldn’t work to have a tax rate more than ten times higher than the one in Nevada.

At one time, Illinois floated a tax rate of around 70 percent, but gaming companies persuaded the Illinois Legislature to modify that.

How generous of Illinois politicians to forgo a 70 percent tax rate!

Reminds me of the former French president who “mercifully” chose to limit personal taxes to 80 percent of household income.

P.S. There is a compelling case that Chicago is America’s most poorly governed city. But that’s hard to decide because there’s strong competition from places such as New York, Seattle, Minneapolis, Detroit, and San Francisco.

P.P.S. In this case, though, it’s a state law that is causing the problem. So we should ask whether Illinois is America’s most poorly governed state. There’s certainly evidence for that claim, but New York, California, and New Jersey also would be in the running.

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California Politicians Help Workers…into the Unemployment Line

Over the years, I’ve shared many amusing memes and cartoons about minimum wage laws.

But this one, based on a skit from The Eric Andre Show, may be the best of all.

Not because it’s making a different point than the others, but because what has just happened in Southern California.

Local politicians in a couple of cities recently mandated higher wages (labeled “hero pay”) for workers in grocery stores.

The immediate consequences of that legislation provide a clear-cut example of why it is so foolish for politicians to mandate levels of pay that make it unprofitable to operate a business.

Let’s look at a couple of news reports.

We’ll start with a story from the local CBS affiliate in Los Angeles. Here are some excerpts.

Kroger is closing three more of its stores in Los Angeles after the city passed a “hero pay” ordinance mandating a $5 pay bump for grocery and pharmacy workers. …“It’s never our desire to close a store, but when you factor in the increased costs of…an extra pay mandate that will cost nearly $20 million over the next 120 days, it becomes impossible to operate these three stores,” Kroger said in a statement.

The same thing is happening in nearby Long Beach.

Ralphs and Food 4 Less recently announced that they will be closing two…stores in Long Beach after Mayor Robert Garcia approved a city ordinance that would impose a $4 “hero pay” salary boost… “As a result of the City of Long Beach’s decision to pass an ordinance mandating Extra Pay for grocery workers, we have made the difficult decision to permanently close long-struggling store locations in Long Beach,” said a company spokesperson. …The permanent closures will happen on April 17 for long-struggling locations and will impact nearly 200 employees between the two locations.

What happened in Los Angeles and Long Beach is obviously a lesson in economics.

But it’s also a lesson in politics.

I’m guessing that most of the local politicians knew that they would be throwing many people into the unemployment line when they mandated “hero pay,” but they simply didn’t care.

What mattered to them is that they got headlines for “caring” when they enacted the legislation. They don’t care about the unintended (but very predictable) consequences.

Which is yet another reason we should have a very low opinion of politicians.

P.S. If you want more memes and cartoons about the minimum wage, click here, here, here, here, and here.

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Who Should Pay When Government Fails?

Early last decade, a former Prime Minister of Iceland was brought before a special tribunal to determine whether he was legally responsible for his nation’s 2008 economic downturn.

As you might imagine, I had mixed emotions about that story.

On one hand, I don’t like politicians and I viscerally like the idea of holding them accountable for bad outcomes.

On the other hand, I believe in the rule of law and it’s absurd to bring charges against someone when no law has actually been broken. Moreover, tossing politicians in jail because we don’t like their policies is the kind of thing you might find is some backwater banana republic.

And, to add some humor to this analysis, it would contribute to prison overcrowding if we did things such as jailing Bush for TARP, Obama for the failed stimulus, and Trump for his bungled protectionism.

But it’s time to look at this issue from a serious perspective because a former governor in Michigan, as reported by the Detroit Free Press, is going to be dragged into court because of contaminated water in the state’s 7th-largest city.

Michigan Attorney General Dana Nessel filed two charges of willful neglect of duty against former Gov. Rick Snyder on Wednesday, a day before her office is set to announce new details in the Flint water crisis investigation. …Each charge Snyder faces is a misdemeanor punishable by up to a year in prison or a fine of $1,000 or less. …a misdemeanor conviction could allow a judge to issue a significant restitution order against Snyder, a multi-millionaire who made a fortune in computers and venture capital before he was elected Michigan governor in 2010.

You may be wondering why the Attorney General is targeting a former governor for the flawed operation of a city water system. Shouldn’t local officials be held accountable?

But there is a connection. Local politicians had spent the city into a fiscal crisis and the state appointed managers to clean up the mess.

Snyder…was governor when state-appointed managers in Flint switched the city’s water to the Flint River in 2014 as a cost-saving step while a pipeline was being built to Lake Huron. The water, however, was not treated to reduce corrosion — a disastrous decision affirmed by state regulators that caused lead to leach from old pipes and poison the distribution system used by nearly 100,000 residents.

So does this mean the former governor committed some sort of crime?

I guess we’ll find out if there’s a trial, but it certainly seems like partisan politics may be the real reason for the charges.

David Griem, a Detroit criminal defense attorney and former federal and state prosecutor, said he believes politics are a significant factor in the case. …“I can’t think of a good reason for this other than vendetta and politics. I challenge anyone to come up with a reason that makes sense other than closed-door politics…”

The bottom line, as I explained back in 2016 when writing about mess in Flint, is that you blur responsibility and accountability when multiple layers of government are involved in anything.

Which is why we need genuine federalism.

Decentralization is good for many reasons, including the fact that it’s much harder to deflect blame when something bad happens at the local level.

More specifically, nobody should be responsible for Flint’s water system other than the people from that city. If they screw up (as they did) by voting for venal politicians who funneled too much of the city’s money to a cossetted group of bureaucrats (a common problem), that’s their fault and they then need to deal with the consequences.

Sadly, we’re moving in the wrong direction in the United States, with Washington playing an ever-greater role in things that should be handled by state and local governments.

Let’s conclude by returning to the topic of whether politicians should face legal consequences for bad policy.

I’m very tempted to support anything that makes life harder for that oleaginous group of people. But the tort system (going to court and suing for damages) is actually a preferable way of addressing accidental damage to people.

That’s a big part of how we encourage safe and sound behavior in the private sector. Though I’ll be the first to admit it won’t work as well when dealing with government mistakes because taxpayers (rather than bureaucrats and politicians) bear the burden when there are successful lawsuits.

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State and Local Governments Should Not Get a Bailout – either from Congress or the Federal Reserve

For years, public finance experts have been warning about fiscally irresponsibility by state and local governments.

Many of those governments have been spending too much money and making overly expensive promises to interest groups such as government employees. Combined with the fact that these jurisdictions are driving away taxpayers, this leaves them vulnerable to potential crisis if the economy falters.

Which, of course, is exactly what happened with the coronavirus.

As is so often the case, Washington responded in an imprudent manner. As part of multi-trillion dollar emergency legislation (the CARES Act), Congress directly funneled hundreds of billions of dollars to state and local governments.

That legislation also gave the nation’s central bank, the Federal Reserve, the authority to steer money to those same governments.

Notwithstanding all this generosity, state and local politicians are now asking for even more money. In part, this is a fight over the provisions of a potential new “stimulus” bill from Congress.

But it’s also a battle over the fate of the Federal Reserve’s ability to interfere with the allocation of capital by directing money to state and local governments.

In a report for the New York Times, Jeanna Smialek and Alan Rappeport explain what’s happening.

A political fight is brewing over whether to extend critical programs that the Federal Reserve rolled out to help keep credit flowing to…municipalities amid the pandemic-induced recession. …Those programs expire on Dec. 31, and it is unclear whether the Trump administration will agree to extend them. The Federal Reserve chair, Jerome H. Powell, and Treasury secretary, Steven Mnuchin, must together decide whether they will continue the programs — including one that buys state and local bonds, another purchasing corporate debt and another that makes loans to small and medium-size businesses. …Mnuchin…has signaled that he would favor ending the one that buys municipal bonds. And he is under growing pressure from Republicans to allow all five of the Treasury-backed programs to sunset. …The financial terms for buying state and local debt…are not generous enough to compete in a market functioning well… Their main purpose has been to reassure investors that the central bank is there as a last-ditch option if conditions worsen.

However, economic conditions have dramatically improved since the coronavirus first hit, so there’s no longer any argument that financial markets are dealing with crisis conditions.

But that doesn’t seem to matter to politicians who want to subsidize bad fiscal policy at the state and local level.

Some Democrats had begun eyeing the municipal program as a backup option in the event that state and local government relief proved hard to pass through Congress. While the program’s terms are unattractive now, they could in theory be sweetened under a Biden administration Treasury Department. …If a coronavirus vaccine is rolled out in the coming weeks, the Treasury Department may be less inclined to extend the programs. Mr. Trump could also block a reauthorization by pressuring Mr. Mnuchin, leaving Mr. Biden with fewer economic stimulus tools at his disposal. …state and local governments are facing budget shortfalls, albeit smaller ones than some had initially projected.

Nick Timiraos reports on the issue for the Wall Street Journal.

Divisions over their future are being amplified by partisan gridlock in Congress over whether to provide more economic stimulus. Democrats, looking ahead to President-elect Joe Biden’s inauguration in January, see the programs as a potential tool to deliver more aid if Congress doesn’t act, while some Republicans are worried about relying on central bank lending powers as a substitute for congressional spending decisions. …A decision not to renew the programs…could also deprive some…governments of access to low-cost credit if market conditions worsen. …If the Trump administration decides not to extend the programs, Mr. Biden’s Treasury Department could determine whether to reactivate them in some fashion after the new administration takes office Jan. 20.

The bottom line is that a Biden Administration likely will be able to give states and localities a bailout, even if Congress doesn’t approve a new “stimulus,” and even if the Trump Administration doesn’t extend the Federal Reserve’s authority. But at least the incoming Biden people would have to jump through a few hoops.

Which is very unfortunate since it will reward the jurisdictions that behaved recklessly. A classic example of “moral hazard.”

I’ll close with this critical bit of data from Chris Edwards. As you can see, state and local governments actually have profited from the coronavirus since they got far more money from the CARES Act than they lost because of diminished tax revenue.

P.S. For what it’s worth, the Federal Reserve has always had the ability to steer money to state and local governments, both as part of normal monetary policy operation and because of its vast emergency powers. The good news is that it has not gone down that path.

And the best way to make sure it doesn’t go down that path in the future is to eliminate or restrict such powers. Private markets, which reflect the preferences of consumers, should determine the allocation of capital. We don’t want to copy the mistakes of China and have government making those choices.

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Government Failure in Minneapolis

One might think that the most poorly governed city is a place such as San Francisco, Detroit, New York City, and Chicago.

Or Seattle, if we just count recent history.

But let’s not overlook Minneapolis. I wrote two months ago about that city’s hostility to capitalism, but the problems go well beyond run-of-the-mill government greed.

An article in the Star Tribune reveals that the city not only failed to protect property when riots broke out, it then demanded owners of business pre-pay taxes before giving them a permit to clean up the damage caused by government failure.

In Minneapolis, on a desolate lot where Don Blyly’s bookstore stood before being destroyed in the May riots, two men finish their cigarettes and then walk through a dangerous landscape filled with slippery debris and sharp objects. The city won’t let Blyly haul away his wreckage without a permit… Minneapolis requires owners to prepay the second half of their 2020 property taxes in order to obtain a demolition permit. …“Minneapolis has not been particularly friendly toward business for some time,” said Blyly, who prepaid $8,847 in taxes last week but still hasn’t received his demolition permit. …On average, the owners of properties destroyed or significantly damaged owe $25,000 in taxes for the second half of 2020, which come due in October, according to a Star Tribune review of county property records. “When it first hit my desk, I was flabbergasted that this was a requirement,” said developer David Wellington, whose family owns several properties that were destroyed in the riots.

This isn’t adding insult to injury. It’s adding injury to injury.

To make matters worse, the Star Tribune also reported that business owners aren’t allowed to protect themselves by installing metal shutters.

After looters crashed through his floor-to-ceiling windows and stole $1 million worth of booze in May, Chicago-Lake Liquors owner John Wolf wanted to protect himself from a repeat occurrence. Like property owners throughout the world, he wanted to install security shutters on the outside of his building. The investment would not only prevent rioters from entering his store, it would protect his windows — which cost $50,000 to replace. But Wolf ran into a big obstacle: The city of Minneapolis has barred security shutters on building exteriors since 2004. …In a report justifying the rule change, Minneapolis officials argued that external shutters “cause visual blight” and create the impression that an area is “unsafe” and “troublesome.” But in the wake of the riots, when police failed to prevent widespread looting and damage to more than 1,500 businesses in the Twin Cities, property owners said they can no longer count on the city to protect their property. …”I have never felt so vulnerable,” said Brandow, whose shop is two blocks from another car-repair business that was destroyed in the May riots.

The bottom line is that businesses can’t rely on government to protect property, and the government then makes it hard for them to protect themselves.

Give the mistreatment by city politicians, one might expect some businesses to simply give up.

And, according to a report by WCCO, that’s beginning to happen.

Even before…destruction and looting, a number of downtown businesses had been re-thinking their future in the city. WCCO spoke with some of them…about the damage they endured and their futures moving forward. One of those businesses is Dahl Medical Supply, located at 12th and Nicollet. They’ve been downtown for about 12 years. “You feel so hopeless and helpless…,” Lisa Steffes said. That helpless feeling grew throughout Wednesday night, as Steffes watched surveillance video of looters ransacking her store. …other businesses could soon close their doors for good. Chad Laux has run Greenway Chiropractic at 811 LaSalle for 17 years. …Laux says downtown crime has made things worse. “We’ve lost six people in this building already,” Laux said.

To be sure, Minneapolis isn’t at a tipping point. At least not yet.

Minneapolis does rank in the bottom half of Dean Stansel’s U.S. Metropolitan Area Economic Freedom Index, but it’s not in the bottom 10.

As such, there hasn’t been the steady and significant exodus of taxpayers that plagues Chicago, Los Angeles, and New York City.

But all the more reason why a city should be concerned about starting down that path.

Once a city gets a bad reputation, it’s hard to reverse.

P.S. My favorite city is zero-income-tax Monaco. I’m not sure what American city would be at the top of my list, but you’ll notice on the map that most of the cities attracting residents are in states with no income tax.

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New York City’s Spending Problem

New York is in trouble from bad economic policy, especially excessive taxing and spending.

This is one of the reasons why there’s been a steady exodus of taxpayers from the Empire State.

The problem is especially acute for New York City, which has been suffering from Mayor Bill De Blasio’s hard-left governance.

To be sure, not all of the city’s problems are self-inflicted. The 2017 tax reform removed the IRS loophole for state and local tax payments, which means people living in places such as NYC no longer can artificially lower their tax liabilities. And the coronavirus hasn’t helped, either, particularly since Governor Cuomo bungled the state’s response.

The net result of bad policy and bad luck is that New York City has serious economic problems. And this leads, as one might expect, to serious fiscal problems.

What’s surprising, however, is that the normally left-leaning New York Times actually wrote an editorial pointing out that fiscal restraint is the only rational response.

New York is facing…a budget hole of more than $5 billion… Mayor Bill de Blasio has asked the State Legislature to give him the authority to borrow… But borrowing to meet operating expenses is especially hazardous. Cities that do so over and over again are at greater risk of the kind of bankruptcy faced by New York in the late 1970s and Detroit in 2013. …Before Mr. de Blasio adds billions to the city’s debt sheet…he needs to find savings. …The city’s budget grew under Mr. de Blasio, to $92 billion last year from about $73 billion in 2014, his first year in office. Complicating matters, the mayor has hired tens of thousands of employees over his tenure, adding significantly to the city’s pension and retirement obligations. …the mayor will have to be creative, make unpopular decisions and demand serious cost-saving measures… One way to begin is with a far stricter hiring freeze. …The mayor will need to do something he has rarely been able to: ask the labor unions to share in the sacrifice. …There are other cuts to be made.

Wow, this may be the first sensible editorial from the New York Times since it called for abolishing the minimum wage in 1987.*

Mayor De Blasio, needless to say, doesn’t want any form of spending restraint. Depending on the day, he either wants to tax-and-spend or borrow-and-spend.

Both of those approaches are misguided.

Kristin Tate explained in a column for the Hill that the middle class suffers most when class-warfare politicians such as De Blasio impose policies that penalize the private sector.

Finance giant JPMorgan is…slowly relocating many of its operations and jobs to lower tax locations in Ohio, Texas, and Delaware. The Lone Star State currently hosts 25,000 of its employees, and Texas will likely surpass the New York portion in coming years. The resulting move will harm the middle earners of New York far more than that of the wealthy… The exodus is part of a trend sweeping traditionally Democratic states over the last several years. …A whopping 1,800 businesses left California in 2016 alone, while manufacturing firm Honeywell moved its headquarters from New Jersey to greener pastures in North Carolina. …the primary losers in this formula are middle class workers. Between the loss of jobs and revenue, these states and cities press even harder on millions of middle income taxpayers to make up the difference. …Many of the Democrats…who are in charge of the blue state economic models…love to preach that their proposals will make the economy fairer by targeting the most productive members of their states and cities. However, the encompassing butterfly effect spells bad news for people like you and me. Every time you vote for a proposition or a candidate promising a repeat of bad policy, just remember that it will ultimately be the middle class that will pay the largest share.

My contribution to this discussion is to point out that New York City’s fiscal problems are the entirely predictable result of politicians spending too much money over an extended period of time.

In other words, they violated my Golden Rule.

Indeed, the burden of government spending has climbed more than three times faster than inflation during De Blasio’s time in office.

If this story sounds familiar, that’s because excessive spending is the cause of every fiscal crisis (as I’ve noted when writing about Cyprus, Alaska, Ireland, Alberta, Greece, Puerto Rico, California, etc).

My final observation is that New York City’s current $5 billion budget shortfall would be a budget surplus of more than $6 billion if De Blasio and the other politicians had adopted a spending cap back in 2015 and limited budget increases to 2 percent annually.

*The New York Times also endorsed the flat tax in 1982, so there have been rare outbursts of common sense.

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Minneapolis vs. Capitalism

I recently speculated whether Seattle should be considered the worst-governed city in the country.

Though there’s lots of competition for that honor from places like San Francisco, Detroit, New York City, and Chicago. And John Stossel makes a compelling case for Minneapolis in this new video.

As I’ve previously noted, statist policies are never a good idea, but they’re especially foolish when adopted by local or state governments.

Why? Because it’s relatively easy for productive people to escape bad policy by moving across borders.

And that happens. A lot.

Yet the folks in Minnesota – at least if the anti-capitalism comments in the video are any indication – must not care whether the geese with the golden eggs fly away.

To learn more, let’s take a look at the Washington Post story referenced in the Stossel video.

Authored by Tracy Jan, it looks at all the big-government policies imposed by local and state government.

The Twin Cities…and…progressive policies… Taxes, for decades, have been redistributed from wealthy suburbs to poorer communities to combat inequality — an effort bolstered in recent years by raising state income taxes on the rich. The result: more money for schools, affordable housing and social services in lower-income neighborhoods. …Minnesota’s progressive reputation was cemented nearly five decades ago… Gov. Wendell Anderson…worked with the Republican-controlled legislature to pass…a redistributive tax policy introduced in 1971 that required wealthy communities in the Twin Cities region to share their commercial property tax revenue with the poorest areas. Income and sales tax revenue from rich suburbs across the state also was shared with less-affluent cities and rural communities to fund schools, police and housing. …It would be the beginning of a suite of policies that over subsequent decades increased investments in housing, schools and small businesses in disadvantaged communities. …more state aid poured into poor communities in 2013, when then-Gov. Mark Dayton raised taxes on the wealthiest Minnesotans. The Democrat…campaigned to “Tax the Rich!” — saying everyone should pay their “fair share” to keep society “functional.” The income tax rate, already fairly high for top income earners compared with other states, increased from 7.85 percent to 9.85 percent for individuals making more than $150,000.

I fully agree with Stossel that the story’s headline is hopelessly biased, though that’s usually the fault of editors rather than reporters.

But let’s set that aside and focus on the details in the report.

What conclusions are warranted? The reporter can’t resist making a silly assertion that growth isn’t part of the solution (she’s obviously not familiar with Census Bureau data).

Those enduring disparities…highlight the flawed premise…that economic prosperity is a remedy for racial inequality.

Though she does acknowledge that the mess in Minneapolis poses a challenge for the left’s argument that big government is the answer.

…progressive policies ha[ve] not translated into economic equality. Instead, the wealth gap between Minneapolis’s largely white population and the city’s black residents has deepened, producing some of the nation’s widest racial disparities in income, employment and homeownership. …The shortcomings have given rise to an urgent debate about where Minneapolis went wrong and what measures would bring better results. …The typical black family in the Twin Cities earned $39,851 in 2017, lower than the median income for African Americans nationally… A quarter of black households lived in poverty, five times the poverty rate for white households. …the outcome for black residents in Minneapolis and St. Paul…undercuts the liberal argument that spending on progressive policies can create systemic change. …Black residents…are worse off today by some measures than they were 20 and 30 years ago, even as the fortunes of their white counterparts held steady or improved, according to census data. …Despite a slew of programs to help first-time home buyers, only a quarter of black residents in the Twin Cities own their homes…much lower than the national black homeownership rate of 42 percent.

I’ll make four points in response to this story.

First, there is no substitute for growth, and – as Stossel observed in the video, but as Ms. Tan doesn’t seem to appreciate – we shouldn’t care if some groups get rich faster than other groups.

Second, stronger growth not only explains why average living standards in the United States are higher than in other nations, but also why the average low-income person in America does better than the average middle class person in many other countries.

Third, the only effective and successful way to achieve long-run growth is with free markets and small government, but Minnesota doesn’t fare well in rankings of economic liberty (see here, here, and here) and Minneapolis scores poorly when cities are ranked.

Fourth, the redistribution programs from both local and state governments doubtlessly have trapped many poor residents in dependency, especially since there are high implicit marginal tax rates if they seek self-sufficiency and financial independence.

The bottom line is that Minneapolis has poor governance, as does the entire state of Minnesota, but the politicians will have to try harder to achieve worst-in-nation status.

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Seattle: A Doomed-to-Fail Socialist Experiment

Not all bad city governments are alike. In places like Chicago, local politicians generally impose bad policy because they’re buying votes (especially the votes of bureaucrats), not because they’re motivated by ideology.

But as you can see from this video, some Seattle politicians are genuinely crazy.

And those crazy local lawmakers are very serious about their class-warfare tax agenda.

The Wall Street Journal recently opined on the proposed tax hike in Seattle.

Seattle’s…City Council has decided this is the perfect moment to slap businesses with a large new tax on employment. …Recall that in 2018 Seattle passed a $47 million annual “head tax,” only to repeal it after a furious public realized it penalized job creation. No matter, the socialists who dominate the City Council passed a new iteration this week that’s more than four times bigger and punishes employers for paying good wages. Beginning next year, some 800 businesses with a payroll over $7 million will pay a tax of between 0.7% and 2.4% on all salaries over $150,000. …Councilwoman Teresa Mosqueda says the tax will create a “more robust and resilient economy,” but how taxing job creation accomplishes that is a mystery. The tax will stifle economic upward mobility, since employers will have an incentive not to raise pay above $150,000. …the new tax has veto-proof support on the City Council, which passed it 7-2.

What’s especially absurd, as explained by Brad Polumbo in a column for the Foundation for Economic Education, is that Seattle’s politicians want to exempt government bureaucrats from the tax.

…the tax could seriously hurt the economy… “As the region enters a deep recession and faces near-record job losses, the city council will be sending tax bills to companies across multiple sectors that have their doors closed and have been forced to layoff employees,” the business organization Downtown Seattle Association said… in an infuriating but sadly typical twist, the Seattle City Council exempted all government employees from their new tax. That’s right: The supposedly benevolent socialist city officials who thrust this upon their constituents made sure to carve out a giant exception for their peers on the taxpayer dime. …the city council’s new tax is…imposed on working people by politicians who made sure to spare the government class from sharing any of the burden.

By the way, this is a repeat fight.

Seattle lawmakers tried to impose a similar tax back in 2018 but were thwarted by opposition from private-sector workers and businesses (it’s also unclear whether such a tax would survive a legal challenge since the state’s constitution bars taxes on income).

If the tax ultimately is approved and implemented, it’s easy to predict the consequences. Businesses and workers will migrate to surrounding communities without the tax.

Not all of them, of course, but enough to make a difference. And that difference will get bigger with the passage of time.

What Ms. Mosqueda and Ms. Sawant don’t understand is that this cartoon only partially explain why socialism doesn’t work.

To be fully accurate, it also needs a door called “Escape” for the geese that fly away with their golden eggs.

I realize this is a perverse thought, but part of me wants this tax hike to be implemented just so we’ll have some powerful new evidence about why statism is a bad idea.

P.S. The proposed tax hike is just one reason why investors, entrepreneurs and business owners should be leery about creating jobs in Seattle. There’s also the big increase in the minimum wage and the recent (failed) experiment in autonomous socialism.

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From San Francisco, another Great Moment in Local Government

Some people say that California is the worst-governed state (I would probably choose Illinois or New Jersey, but it’s a close race).

And if you wanted to pick the worst-governed place in California, San Francisco might be at the top of the list.

The city manages to combine horrible zoning laws with insufferable red tape (there have been efforts to ban everything from Happy Meals to…umm…foreskins).

Most disturbing of all, San Francisco now has a major problem with public defecation (not that the sewer system is anything to brag about).

In an article for City Journal, Erica Sandberg explores the latest bit of upside-down governance from The City by the Bay.

San Francisco is surreptitiously placing homeless people in luxury hotels by designating them as emergency front-line workers, a term that the broader community understands to mean doctors, nurses, and similar professionals. …the city has evoked emergency-disaster law to keep the information private. Officials refuse to notify the public about what is happening in their community and are blocking the press by withholding the list of hotels and preventing reporters from entering the properties. …obfuscation is ultimately futile. Security guards standing outside hotel entrances, where they had never been before, are clear indicators that something is amiss. An uptick in crime, drug activity, and vagrancy around the hotels is another clue.

This sounds crazy, but it gets even worse.

The Department of Public Health manages the controversial free alcohol, cigarette, and cannabis program for homeless people placed in the hotels. …A public-records investigation into the matter has revealed that, as of June 16, DPH approved $3,795.98 to buy the homeless guests vodka and beer (cigarettes have been scrapped). …concerned inside sources report destroyed rooms and rampant illegal drug use. In one hotel, guests are given needle kits and are advised to call the front desk before shooting up. …The hotels were pressured into accepting the homeless guests, though they were also eager for the chance to recoup some revenue lost to the Covid-19 lockdowns. …The city-sponsored guests also receive personal grooming, sanitary, and cleaning supplies, three delivered meals, and laundry service for clothes and linens.

Free hotel room, along with free food and laundry service? And booze and pot?

Who knew being homeless was such a good racket!

Since I’m a fiscal wonk, this is the part that captured my attention.

Rooms are rented at close to $200 per night, totaling $6,000 a month—nearly double the cost of a private one-bedroom apartment in San Francisco.

Though I shouldn’t be surprised by such profligacy. The state government’s “success story” was spending “billions of dollars” to cause homelessness to “dip by 1 percent.”

And San Francisco’s government had a different program for the homeless that cost about $700 per night. So maybe the new approach described in above article is a fiscal bargain.

By the way, it appears that taxpayers across the country are contributing to this insane policy.

Hotel owners consented to the arrangements fully aware of the potential pitfalls, having been assured that FEMA dollars would cover at least some of the damages incurred.

Good ol’ FEMA. Always ready, willing, and able to foolishly spend taxpayer money.

P.S. While San Francisco is a bit of a mess, folks in other cities (such as Seattle, Chicago, New York City, Detroit, etc) can make a legitimate claim that they have the nation’s worst local government.

P.P.S. When he crunched all the numbers, Dean Stansel of Southern Methodist University found that the Riverside-San Bernardino-Ontario metropolitan statistical area in California had the worst policy in the country (San Francisco was #38 out of the 55 MSAs with at least 1 million residents).

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America’s Next Crisis: Unfunded Pensions for State and Local Bureaucrats

I’m a long-time critic of the Federal Reserve, Fannie Mae, and Freddie Mac, but I had no idea they would produce something as bad as the 2008 financial meltdown. It’s not easy to predict the timing and severity of a crisis.

Unless we’re talking about the ticking time bomb described in this video.

In theory, of course, state politicians and their local counterparts are supposed to set aside enough money to pay the lavish future benefits they promise their bureaucrats.

Far too often, however, that doesn’t happen. And that means the governments (to be more accurate, their taxpayers) have a big “unfunded liability.”

This racket is a good deal for the bureaucrats – who get lots of pay now and lots of promised benefits in the future. And it’s a good deal for the state and local politicians who get votes and campaign contributions from the bureaucrats.

But, as explained in a new report from the American Legislative Exchange Council, it is a fiscal disaster that is going to explode at some point in the not-too-distant future.

Unfunded state pension liabilities total $4.9 trillion or $15,080 for every man, woman and child in the United States. State governments are often obligated, by contract and state constitutional law, to make these pension payments regardless of economic conditions. As these pension payments continue to grow, revenue that would have gone to essential services like public safety and education, or tax relief, goes to paying off these liabilities instead. …Most state pension plans are structured as defined-benefit plans. Under a defined-benefit plan, an employee receives a fixed payout at retirement based on the employee’s final average salary, the number of years worked and a benefit multiplier.

There are several ways to measure the degree to which a state has dug a big hole by promising big goodies to bureaucrats.

Figure 2 shows per-capita unfunded liabilities on a state-by-state basis. Tennessee is in the best shape, followed by Indiana and Wisconsin (thanks in part to former Governor Scott Walker). Alaska has the biggest fiscal hole, along with Illinois (no surprise) and Connecticut (no surprise).

It’s important to recognize, though, that some states have more income than others.

So in addition to a per-capita estimate of pension liabilities, here’s a map showing the burden as a share of each state’s economic output. Once again, Tennessee, Indiana (the #22 is a misprint), and Wisconsin rank the highest. Alaska stays at the bottom, joined by Mississippi and New Mexico.

Let’s also give credit and blame to states that are the top 10 and bottom 10 on each map.

In addition to Tennessee, Indiana, and Wisconsin, good states include Utah, Nebraska, South Dakota and Texas (honorable mention to Florida, which just missed).

Bad states are led by Alaska, with Nevada, New Mexico, Mississippi, Illinois, and Ohio also being governed by particularly short-sighted politicians.

So what’s the solution for the bad states? The ALEC report gives the answer.

Ultimately, one of the best ways to solve the pension crisis is to change the way pension plans are structured. Changing from the current defined-benefit system toward a defined-contribution system for new employees will improve the health of state pension plans by giving employees full control over their retirement savings.

By the way, it’s worth noting that blue states may have a bigger problem than red states, but this is a bipartisan mess.

In a recent column in the Wall Street Journal, Steve Malanga says there is plenty of blame to share.

The crisis in state pension systems is a result of decades of fiscal mismanagement. The problem, however, goes well beyond deeply indebted Illinois and New Jersey. Many state and municipal retirement funds have been on an unrelenting downward trajectory… This fiscal nightmare stems in part from politicians’ habit of increasing employee benefits while markets are booming, thereby squandering fund surpluses. …Politicians have consistently neglected to contribute to these systems even during good budgetary times, preferring to fund more popular programs. …Meanwhile, elected officials and pension administrators have endorsed overly optimistic economic assumptions that made their systems look affordable.

Let’s close today’s grim column with another way of measuring the problem.

Here’s a map from the Tax Foundation that shows how much money is set aside in pension programs compared to the level of benefits that bureaucrats are promised.

Looking at the data from this angle, Kentucky has the biggest hole, followed by New Jersey, Illinois (the only state to be in the bottom 10 on all three maps), and Connecticut, while the good states are led by Wisconsin, South Dakota, and Tennessee.

The bottom line is that some states have a very grim future, which is why even Warren Buffett is advising investors and entrepreneurs to steer clear of doing business in those places.

P.S. Unfortunately, you can’t avoid the massive unfunded liabilities of Social Security, Medicare, and Medicaid by moving across state lines.

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Voluntary Socialism and the Dubious Viability of CHAZ

Like most libertarians, I support decentralization and federalism. Under the right circumstances, I’m even sympathetic to the idea of secession (hooray for Brexit!).

This is why I have no problem with a community based on voluntary socialism. History tells us that approach doesn’t work (largely for the reasons captured in this cartoon), but people should be free to try over and over again.

Which brings us to “CHAZ.”

For those who haven’t been following the news, protestors in Seattle (motivated in part by legitimate concerns about police misbehavior) have seized control of a neighborhood and declared it to be the “Capital Hill Autonomous Zone.”

Some people see CHAZ as an example of self-government based on a strange mix of libertarian impulses (pro-gun, for example) and leftist impulses (anti-cop, for example).

The Washington Post has a rather sympathetic report about the group, written by Gregory Scruggs.

For the past several days, Ochoa, 28, has been serving as an unarmed volunteer “sentinel,” or guard, in the protest zone. Ochoa, a self-described leftist libertarian recently furloughed from the Seattle International Film Festival, and other volunteers have been serving four-hour shifts to help to keep the peace. …Core to the zone is a vision of a self-governed community with no formal policing. Instead, volunteers, many of them avowed police abolitionists, have begun to organize their own safety force. …Volunteers say this work is a way to highlight what a city without police might look like. “We have a chance to really build something here, so I have a vested interest in defending that as a part of my community,” said Ochoa, who lives in the city’s Capitol Hill neighborhood. …Markinson describes himself as an anti-fascist, anti-racist community defense advocate. He is a gun owner… Markinson views Seattle’s ongoing experiment as part of a lineage of anarchist neighborhoods… a sentinel who gave his name as James Madison stood at the southern barricade with an AR-15 draped over his chest, as he has done on other nights. …“There are a few of us who are armed.” …a hand-painted sign approaching the barricades offers watchwords: “In a world without cops we must never again become the cops ourselves.”

If nothing else, CHAZ is anti-authority, at least if traditional city government is the definition of authority.

But is it a viable system?

Robert Tracinski, in an article for the Bulwark, discusses potential problems.

…the Capitol Hill Autonomous Zone, endearingly nicknamed CHAZ…is the product of anti-police protests in Seattle that led the mayor to order the abandonment of one of the city’s downtown police precincts, ceding a six-block area of Seattle’s downtown to the protesters, who have turned it into a kind of anarcho-socialist utopia, with free food, free music, no cops, and lots of peace and love, man. …CHAZ certainly set a record for socialist utopias when it comes to running out of food. Within the first day, they were already sending out the alarm: “The homeless people we invited took away all the food at the Capitol Hill Autonomous Zone. We need more food to keep the area operational…” I’ve checked to see whether this is parody, and as far as I can tell, it’s not. …Another area where they are well ahead of schedule for a socialist utopia is in putting up walls and establishing checkpoints with internal passports. …This leads us to the big question about the “autonomous zone”: Whose “autonomy” is it? Certainly, it’s not the autonomy of the people who actually live there, who did not invite the protesters and never had the opportunity to vote on whether they wanted to reject the protection of the Seattle PD and establish new protectors. …With leadership seemingly up for grabs, CHAZ is the scene of sporadic petty scuffles, which activists are asking people not to film because it might make them look bad. Yes, well, I’m sure the Minneapolis PD felt the same way. …My favorite description of CHAZ is from a Seattle Times article which says it has “mostly been peaceful.” That’s a favorite bit of journalistic spin. “Mostly peaceful” is how you describe something that’s violent when you don’t want the reader to draw that conclusion.

Tracinski certainly is correct that existing property owners haven’t consented to the new system.

And he’s probably correct in that the new form of authority in CHAZ may be even more arbitrary and unfair than the old system (time will tell).

But he only scratches the surface of the issue that is of greatest interest to me, which is whether CHAZ has a viable economic system.

Ideally, local businesses will be free to operate and to transact with the outside world. And if there are no taxes and nobody to enforce red tape, we might almost see an example of anarcho-capitalism.

For what it’s worth, I’m guessing Seattle bureaucrats intend to retroactively collect taxes and take other steps to make sure there is no long-run reduction in the burden of government for CHAZians.

What about in the short run? In a column for Spectator USA, Ben Sixsmith suggests that authorities should adopt a hands-off attitude and let CHAZ sink or swim.

A group of anarchists and leftists collected in Capitol Hill, known for its hipster and LGBT scenes, they have barricaded themselves into a small area and established an anarchic intentional community… Seattle’s aspiring revolutionaries had only just announced the creation of CHAZ, as a place in which progressives can live free of corporate consumerism and police violence, when a local rapper-cum-warlord named Raz Simone began stalking the place with an armed militia. …I believe that the state and federal authorities should leave them alone. If people are being raped and killed in CHAZ then the officials will have to get involved, of course, but otherwise they should be left to their own devices. …for radical leftists to establish their own territory is, frankly, refreshing. For years they have been insisting that the culture, communities, education, religious beliefs et cetera of their fellow citizens be transformed in accordance with their own idiosyncratic ideas. Everyone has had to conform with their progressive beliefs. The CHAZers? They aren’t trying to reshape America. They are trying to build a place of their own. How is that not preferable? …Of course, I think CHAZ will be an embarrassing failure. I suspect it will collapse in a heap of shortages, grievances and recriminations… If it all collapses of its own accord, then a lot of radical progressives are going to have a tough, useful lesson in the value of civilized institutions.

In other words, let’s allow CHAZ to be a test case.

If it adopts a bunch of leftist policies (which seems likely), then we’ll almost surely see another example of socialism failing, even when it’s voluntary.

Though I’m crossing my fingers that the CHAZians adopt a libertarian approach to economics.

Given that Seattle has a very left-leaning government, we then might finally get an example to disprove Jacob Leddy.

Sadly, I don’t think that will happen. The city’s crazy politicians will be more than happy to tolerate CHAZ if it’s a socialist experiment, but they’ll send in the cops if it morphs into a libertarian experiment.

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Poor People and Minorities Are Victimized by “Predatory Cities”

One week ago, I wrote about how the welfare state creates high implicit marginal tax rates, thus making it difficult for low-income people to climb out of poverty and dependence.

But that’s not the only way that poor people are victimized by big government.

Another very serious problem is the way local and state governments impose a plethora of fees, fines and charges that can wreck the lives of the less fortunate.

In a column for the New York Times, Professor Bernadette Atahuene of the Chicago-Kent College of Law opines on the problem of greedy local governments.

I coined the term “predatory cities” to describe urban areas where public officials systematically take property from residents and transfer it to public coffers… Ferguson, Mo., is one well-known predatory city. As a 2015 Department of Justice report showed, the police in Ferguson systematically targeted African-Americans and subjected them to excessive fines and fees. …local courts issued arrest warrants for unpaid fines and fees… Minor offenses, like parking infractions, resulted in jail time… The Ferguson Police Department and courts prioritized revenue raising over public safety, transforming Ferguson into a predatory city.

Professor Atahuene cites the pernicious policies of New Orleans and Washington, D.C. (and note that asset forfeiture is one of the problems).

New Orleans is another. …Orleans Parish Criminal District Court’s primary source of funding was the fines and fees it collected. This created a structural incentive for judges to aggressively and erroneously pursue payment from those with no ability to pay, turning New Orleans into a predatory city. Washington, D.C., is yet another predatory city. While civil asset forfeiture laws allow the police to seize property that they suspect was involved in a crime, in Washington, D.C., property owners had to post bonds of up to $2,500 in order to challenge the seizure. If the owner could not raise money in time, the D.C. Police Department sold the property, and the money went into its annual budget. In a two-year period, the Police Department made $4.8 million in profit by seizing money from over 8,500 people as well as seizing 339 vehicles.

Every decent human being should get upset about the grotesque way that politicians are mistreating their residents.

Especially since poor people are being disproportionately victimized.

By the way, it appears that Professor Atahuene is not a libertarian. She wants Congress to approve a big bailout, based on the theory that state and local politicians will be less likely to engage in what I’ve called “rapacious revenue-raising tactics” if they get big buckets of money from Uncle Sam.

Needless to say, I think that would be a mistake.

But I don’t think someone needs to agree with me on everything, or even most things, if we can periodically find common ground on proposals that would improve the lives of people (not just on the need to curtail greedy local governments, but also on issues such as over-criminalization and police unions).

P.S. I wonder if there would be fewer petty fines, fees, and charges if they were levied on the ability to pay, thus making higher-income people more sensitive to the problem?

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Seattle Suicide

What’s the most poorly governed city in the United States?

• San Francisco, where there are “poop patrols“?
• Chicago, which is spending itself into oblivion?
• New York City, home of America’s worst mayor?

Those are all good options, but Seattle may deserve this award. Following municipal elections last November, the City Council is controlled by hard-left members who want to impose the local version of “democratic socialism.”

In a National Review article from February, Christopher Rufo describes their agenda.

Seattle has effectively become the nation’s laboratory for socialist policies. Since the beginning of the year, the socialist faction on the Seattle City Council has proposed a range of policies on taxes, housing, homelessness, and criminal justice that put into practice the national democratic-socialist agenda. In the most recent session, socialist councilwoman Kshama Sawant and her allies have proposed massive new taxes on corporations, unprecedented regulations on landlords (including rent control and a ban on “winter evictions”), the mandated construction of homeless encampments, and the gradual dismantling of the criminal justice system, beginning with the end of cash bail. …In order to consolidate their newfound power, the progressive-socialists have begun to manipulate the democratic process in their own favor: first, by providing all Seattle voters with $100 in taxpayer-funded “democracy vouchers,” which are easily collected by unions, activists, and socialist groups; and second, by implementing a ban on corporate spending in local elections… the progressive-socialists are no longer interested in gaining reasonable concessions; they intend to overthrow capitalism itself.

The Wall Street Journal opined this week on the latest development in Seattle’s suicidal approach.

The economy is on life support, but that isn’t stopping the Seattle City Council from trying to soak employers with a new tax on hiring. …The proposal is a reprise of the council’s 2018 tax on each new hire that was repealed amid public opposition. The new proposal “is 10 times larger than the 2018 version, and it’s also in an economy that’s about 1,000 times worse,” says James Sido of the Downtown Seattle Association…a 1.3% payroll tax on most Seattle businesses with $7 million or more in payroll. …Businesses would be assessed based on the prior year’s payroll, but revenue has cratered this year amid the pandemic. …businesses on the margin that have been forced to lay off or furlough employees may not bring them back if it means crossing that $7 million payroll threshold. The tax would discourage smaller companies from growing in Seattle. …Seattle is the hardest hit city in the U.S., with unemployment rising 105.92% between January and March. Only a socialist would think now is the time to further punish job creation.

Good points.

Though I would add that it’s never a good time to raise taxes and punish job creation.

Here’s what the greedy members of the City Council don’t understand (or pretend not to understand):

It’s complicated and difficult to move out of a country.

It’s a potentially expensive hassle to move out of a state.

It’s relatively easy to move out of a city.

And that’s why Seattle’s experiment with socialism is bound to fail.

If the socialists on the City Council impose this tax, there inevitably will be an out-migration of entrepreneurs and businesses to surrounding suburbs. That will be bad for ordinary people in the city (a point that workers in the economy’s productive sector already understand).

And when that happens, I wonder if they’ll learn that it is possible to run out of other people’s money?

P.S. Seattle’s politicians already have destroyed jobs and ruined businesses with a big increase in the minimum wage.

P.P.S. The constitution of the state of Washington prohibits an income tax, so there’s an ongoing debate whether Seattle’s tax grab – if enacted – would survive a court challenge.

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Coronavirus Thuggery

I’m a big fan of federalism. After all, compared to what happens when Washington screws up, there’s a lot less damage if a state or city imposes a bad law.

Moreover, it’s relatively easy to move across a border if a state or city is doing something foolish. Leaving the country, by contrast, is a much bigger step (and a lot harder if you have some money).

That being said, politicians outside of Washington deserve plenty of scorn (to show that Washington has no monopoly on venality and incompetence, I periodically share columns that highlight “Great Moments in State Government” and “Great Moments in Local Government“).

And the coronavirus crisis is giving us plenty of new evidence.

Writing for the Federalist, John Daniel Davidson takes aim at control-freak politicians.

…some mayors and governors…think they have unlimited and arbitrary power over their fellow citizens, that they can order them to do or not do just about anything under the guise of protecting public health. We’ve now witnessed local and state governments issue decrees about what people can and cannot buy in stores, arrest parents playing with their children in public parks, yank people off public buses at random, remove basketball rims along with private property, ticket churchgoers… The most egregious example of this outpouring of authoritarianism was an attempt by Louisville, Kentucky, Mayor Greg Fischer to ban drive-in church services on Easter. …he also threatened arrest and criminal penalties for anyone who dared violate his order, and in an Orwellian twist, invited people to snitch on their fellow citizens. …this didn’t just happen in Louisville. Two churches in Greenville, Mississippi, that were holding drive-in services for Holy Week said police showed up and ordered churchgoers to leave or face a $500 fine. …the targeting of churches, while undoubtedly the most offensive overreach by state and local governments, is hardly the only instance of government gone wild. In Michigan, Gov. Gretchen Whitmer has taken it upon herself to declare what items are and are not “essential,” dictating to grocery stores what they can and cannot sell… Among the nonessential, and therefore banned, items are fruit and vegetable plants and seeds. …(Lottery tickets, on the other hand, are still permitted.)

There’s so much outrageous material in this article that it’s almost impossible to focus on one item.

I’ll simply note that it is entirely predictable – but totally disgusting – that Governor Whitmer in Michigan has exempted sales of lottery tickets from her lockdown order. I guess risk is okay if it’s for the purpose of getting more revenue by screwing poor people.

Since we’re on the topic of Governor Whitmer and Michigan, this tweet indicates that it’s okay to put infants in danger. After all, they don’t line the pockets of government by purchasing lottery tickets.

Per order from @GovWhitmer, people in Michigan are now banned from purchasing a new baby car seat in stores.

This is dangerous and this order needs clarification immediately. #migov #mileg pic.twitter.com/hlWNab6OTY

— Tori Sachs (@Tori_Sachs) April 11, 2020

Let’s look at more examples of nanny-state authoritarianism.

David Harsanyi’s column in National Review is appropriately scathing.

Free people act out of self-preservation, but they shouldn’t be coerced to act through the authoritarian whims of the state. Yet this is exactly what’s happening. …politicians act as if a health crisis gives them license to lord over the most private activities of America people in ways that are wholly inconsistent with the spirit and letter of the Constitution. …What business is it of Vermont or Howard County, Ind., to dictate that Walmart, Costco, or Target stop selling “non-essential” items, such as electronics or clothing? …it is an astonishing abuse of power to issue stay-at-home orders, enforced by criminal law, empowering police to harass and fine individuals for nothing more than taking a walk. …The criminalization of movement ends with…three Massachusetts men being arrested, and facing the possibility of 90 days in jail, for crossing state lines and golfing — a sport built for social distancing — in Rhode Island. …In California, surfers, who stay far away from each other, are banned from going in the water. Elsewhere, hikers are banned from roaming the millions of acres in national parks. …Would-be petty tyrants, such as Dallas judge Clay Jenkins, who implores residences to rat out neighbors who sell cigarettes.

So many awful examples, but I’m especially nauseated by Judge Jenkins and his call for snitching. Makes me wonder if he’s related to Andrew Cuomo, Richard Daley, or David Cameron.

I’ll close with two amusing items.

First, every red-blooded American should cheer for this jogger (and you should cheer for him if you’re a red-blooded person from abroad as well).

What the heck is the harm of going for a run alone on the beach? It's probably a thousand times safer than putting gas in your car or getting groceries. Run Forest run! pic.twitter.com/Po1n8m4XWg

— IAMis Dangerous to Evil I hope (@IAMISjp) April 10, 2020

Second, here’s some satire that is both seasonal and accurate (though, to be fair, the disciples weren’t practicing social distancing).

P.S. Maybe this is the kind of harassment that led to “Libertarian Jesus“?

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Chicago’s Continuing Decline…and Inevitable Fiscal Crisis

Is Greece the international version of New Jersey or is New Jersey the American version of Greece?

Is New Jersey the national version of Chicago, or is Chicago the the local version of New Jersey?

The answer is yes, regardless of how the question is phrased because – in all cases – we’re talking about examples of how politicians (and short-sighted voters) create “Goldfish Government.”

Let’s examine Chicago to see how this process works.

The Washington Post noted early last year that the new mayor was going to face an enormous fiscal challenge because of the reckless choices made by previous generations of politicians.

The city has been underfunding its pensions for decades, with dire results. Chicago’s pension plans collectively have only about a quarter of the assets they’ll need to pay benefits, one of the worst funding ratios in the nation. To put that hole in dollar terms, Chicago is about $28 billion short of what it needs, even under relatively favorable assumptions about future returns, or about $10,000 for every man, woman and child living in the city. …radical surgery still needed. Within a few years, pension contributions are projected to suck up more than 20 percent of the city’s budget. And Chicago can’t count on much help from the state, which is dealing with its own, equally severe case of pension underfunding. …what’s happening in Illinois is merely the earliest and most extreme manifestation of a quandary that will soon be dominating the public conversation in many states: how to pay for retirement promises to public employees without entering a fiscal death spiral. …shoddy accounting allowed generations of politicians all over the country to curry favor with public-sector workers by offering them ever-fatter pension packages, gaining immediate benefit while deferring the political cost of paying for all those benefits until much later. Later is now arriving. …Chicago has been losing lower- and middle-class residents for years, in part because of its heavily regressive tax burden. And when Chicago and Illinois both start raising the rates on upper earners — as they will have to, and soon — they run the risk that those people ,too, will start trickling away, either to smaller cities without the burdensome pension-legacy costs.

Megan McArdle pointed out that Chicago is a mess because of “public choice” – i.e., politicians make short-sighted and irresponsible decisions in order to maximize votes and power.

Throw in a recession sometime in the next couple of years, and Chicago is going to be in a full-blown crisis. …it’s the fault of generations of politicians before them who promised an ever-richer array of benefits to government workers. Particularly, they liked to raise the retirement benefits. …The whole point of giving workers pension benefits instead of cash was that you didn’t have to pay for them; you could promise the benefits now and gather up the votes that the grateful workers tossed at your feet, all without costing current taxpayers a single dime. …Future taxpayers mostly weren’t voting in 1982 municipal elections. …Chicagoans, welcome to “later.” The municipal pensions only have about 25 percent of the assets they’ll need to cover projected benefits, a shortfall of roughly $28 billion. …If you use a more cautious method, you come up with a shortfall of more than $40 billion. …Moody’s Investors Service rates the city’s general obligation debt as junk bonds. …Chicago is now approaching the point where the growth of its obligations will outpace the growth of any possible revenue stream it might use to cover them. It’s a few steps from there to municipal bankruptcy.

Unsurprisingly, Chicago’s relatively new mayor wants to keep the scam going.

As reported by the Chicago Tribune, she wants to extract more money from taxpayers.

Chicago Mayor Lori Lightfoot…said there’s “no question” residents will need to pay more in taxes or fees to plug a looming city budget shortfall… “There’s no question we’re going to have to come to the taxpayers and ask for additional revenue.” …Lightfoot did not specify what sort of revenue she expects to raise — whether it would come in the form of new taxes, a property tax hike or increased fees. …referring to her campaign promise to seek cuts before asking taxpayers for more money, Lightfoot added, “I meant what I said on the course of the campaign: We have a lot of hard choices we’re going to have to make regarding city finances.”

Like previous mayors, she’s buying votes with other people’s money.

The Wall Street Journal opined last year about her surrender to the teacher unions (a Chicago tradition, as illustrated by the adjacent cartoon by Lisa Benson).

Except it wasn’t really a surrender since she was already on their side (as perfectly captured by this Ramirez cartoon).

So the net result is a combination of bad fiscal policy and bad education policy.

Chicago Mayor Lori Lightfoot and the Chicago Teachers Union on Thursday struck an agreement to end an 11-day strike, and by the looks of it the union was bargaining with itself. The mayor is touting the new contract as the most generous in Chicago history, and she’s right. …The new contract includes a 16% raise over five years (not including raises based on longevity), a three-year freeze on health insurance premiums, lower copays, …and more than 450 new social workers and nurses. …you can bet it will be expensive. Last week the mayor proposed a slew of tax increases including levies on ride-hailing services and restaurant meals. This week her staff suggested that property taxes may have to increase . . . again. Michelle Obama the other day complained that white people were leaving the city to escape minorities who are moving in. No, they’re fleeing Chicago’s high taxes and lousy schools—and so are minorities.

This story from Reason is a powerful (and nauseating) example of how a money-hungry city is making life miserable for ordinary people.

Chicago police pulled Spencer Byrd over for a broken turn signal. Byrd says his signal wasn’t broken, but that detail would soon be the least of his worries. …Byrd was giving a client, a man he says he had never met before, a ride… Police pulled both of them out of the car and searched them. Byrd was clean, but in his passenger’s pocket was a bag of heroin… Police released Byrd after a short stint in an interrogation room without charging him with a crime. But when Byrd went to retrieve his car, he found out the Chicago Police Department had seized and impounded it. …The program impounds cars when the owner beats a criminal case or isn’t charged with a crime in the first place. It impounds cars even when the owner isn’t even driving, like when a child is borrowing a parent’s car. …Byrd calls his car his “livelihood,” and he has been fighting for close to two years now to recover it. He says he has $3,500-worth of tools locked in the trunk, and he can’t retrieve them. …Like tens of thousands of other Chicagoans, Byrd was a victim of years of the city’s fiscal negligence. …to try and nickel-and-dime…out of these massive budget gaps. …The result is a uniquely punitive impound system, in which Chicago profits off restricting the ability of its residents to drive.

Amazingly, Chicago’s politicians want to dig an even deeper hole.

The Wall Street Journal has a new editorial examining a scheme to borrow even more money in hopes of keeping the gravy train rolling.

Chicago has been seeking to take advantage of historically low interest rates by refinancing debt—even as its credit rating has deteriorated amid swelling budget deficits and pension payments. …In 2017 state and city politicians contrived a shell scheme to lower the city’s borrowing costs. The city essentially sold off sales-tax revenue that it receives from the state to a corporation specially created to pay creditors. …Voila, Chicago’s financial magicians spun junk into gold. …Chicago’s budget woes are mounting, and financial alchemists are diluting the claims of existing creditors. If the city were to renege on its $8 billion in GO debt, those bondholders would surely demand a slice of the sales-tax revenue now pledged to other creditors. This is what happened in Puerto Rico. …Chicago’s population has declined for each of the past four years, and taxpayers are getting tapped out. On top of a $50 million increase in property taxes this year, Mayor Lori Lightfoot has imposed a new “congestion” fee on Uber and taxi rides, doubled the tax on restaurant meals, and raised a special personal property tax on computer cloud software. Yet a recession would probably blow a gigantic hole in its budget and could cause its pension funds to run dry. Does anyone think that city politicians wouldn’t prioritize public workers over bondholders?

So when will this house of cards collapse?

I have no idea. There’s a famous quote from the late economist Rudiger Dornbusch, who observed that, “In economics, things take longer to happen than you think they will, and then they happen faster than you thought they could.”

The people buying bonds from Chicago are betting that the collapse won’t happen in the near future.

But that was the same mentality of the people who bought Greek bonds in, say, 2005.

I’ll simply observe that what’s happening in Chicago is confirmation of my “First Theorem of Government.”

And I’ll also make an easy prediction that the people buying Chicago bonds will want a bailout when the you-know-what hits the fan.

Needless to say, the answer should be a resounding no.

P.S. If you want to know all my Theorems of Government, click here.

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When It’s Politically Beneficial, Democrats Support Huge Tax Breaks for the Rich

Based on rhetoric, the Democratic Party is committed to a class-warfare agenda.

They want higher income tax rates, higher capital gains taxes, higher Social Security taxes, higher death taxes, a new wealth tax, and many other tax hikes that target upper-income taxpayers.

There are various reasons why they push for these class-warfare tax hikes.

• They want more revenue to finance bigger government.
• They think it’s politically advantageous to create social discord.
• They are envious and resentful of successful people.

I don’t pretend to know which factor dominates.

But that’s not important because I want to make a different point. Notwithstanding all their rhetoric, Democrats are sometimes willing to shower rich people with tax breaks.

The Wall Street Journal exposes the left’s hypocrisy in the fight over the deduction for state and local taxes.

Democrats have…grown more concentrated in the richest parts of the country. That explains the strange spectacle of a Democratic presidential field running on the most redistributionist agenda in memory even as Democrats in Congress try to expand a tax break for high-earners in the New York City, San Francisco and Los Angeles metropolitan areas. …Coastal Democrats have failed with gimmicks at the state and federal level to eliminate the SALT cap. The latest effort is the Restoring Tax Fairness for States and Localities Act, which passed the House Ways and Means Committee last week. …The bill would raise the SALT deduction cap in 2019 and eliminate it in 2020 and 2021. …The Tax Foundation found the biggest benefit from the unlimited deduction went to households with incomes above $1 million.

A related issue is the federal government’s special tax exemption for interest paid to holders of state and local government bonds.

I explained in 2013 why it’s bad tax policy.

Josh Barro explained the previous year why this tax break is a boon for the rich.

In 2011, 35,000 taxpayers making more than $200,000 a year paid no federal income tax. …61 percent of those avoided tax for the same reason: their income consisted largely of interest on tax-exempt municipal bonds. As Washington looks…to eliminate tax preferences for the wealthy, why not eliminate this exemption? …Nearly all of those bondholders are either for-profit corporations or individuals with high incomes. The higher your tax bracket, the greater the value of the tax preference… muni bonds have an unfortunate feature…subsidies are linked to the interest rate. That means issuers who must pay higher interest rates get more valuable subsidies. Perversely, the worse a municipality’s credit, the greater incentive it is given to borrow more money.

Needless to say, it’s not a good idea to have a tax break that benefits the rich while subsidizing profligate states like New Jersey and Illinois.

In a column for Real Clear Policy, James Capretta analyzes how Democrats are working hard to preserve a big loophole.

The push to get rid of the Cadillac tax is short-sighted for both parties, but particularly for the Democrats. …In its estimate of H.R. 748, CBO projects that Cadillac tax repeal would reduce federal revenue by $200 billion over the period 2019 to 2029, with more than half of the lost revenue occurring in 2027 to 2029. …When examined over the long-term, repeal of the Cadillac tax is likely to be one of the largest tax cuts on record. …If the Cadillac tax is repealed, the government will have less revenue to pay for the spending programs many in the party want to expand. And Republicans will be able to say that it was the Democrats, not them, who paved the way for this particular trillion dollar tax cut.

Not only is it a big tax cut to repeal the Cadillac tax, it’s also a tax cut that benefits the rich far more than the poor.

Here are some distributional numbers from the left-leaning Tax Policy Center. I’ve highlighted in red the most-important column, which shows that the top-20 percent get more than 42 percent of the tax cut while the bottom-20 percent get just 1.2 percent of the benefit.

For what it’s worth, I don’t care whether tax provisions tilt the playing field to the rich or the poor.

I care about good policy.

That’s why I like the Cadillac tax, even though it was part of the terrible Obamacare legislation.

In other words, I think principles should guide policy.

My Democratic friends obviously disagree. They beat their chests about the supposed moral imperative to “soak the rich,” but they’re willing to shower the wealthy with big tax breaks so long as key interest groups applaud.

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Rent Control: A Triumph of Vote Counting over Sound Economics

Identifying the worst government policy would be a challenge. Would it be minimum wage laws, which deprive low-skilled workers of a chance for employment and upward mobility? Would it be class-warfare tax rates that generate large amounts of economic damage compared to potential (if any) revenue?

Those are tempting choices, but there’s a strong case that nothing is as foolish as rent control.

Here’s a map showing which states impose or allow this destructive form of intervention.

California politicians are very susceptible to bad ideas.

True to form, as reported by the New York Times, they actually want to impose statewide rent control.

California lawmakers approved a statewide rent cap on Wednesday covering millions of tenants, the biggest step yet in a surge of initiatives to address an affordable-housing crunch nationwide. The bill limits annual rent increases to 5 percent after inflation and offers new barriers to eviction… a momentous political swing. For a quarter-century, California law has sharply curbed the ability of localities to impose rent control. Now, the state itself has taken that step. …Economists from both the left and the right have a well-established aversion to rent control, arguing that such policies ignore the message of rising prices, which is to build more housing. Studies in San Francisco and elsewhere show that price caps often prompt landlords to abandon the rental business by converting their units to owner-occupied homes. And since rent controls typically have no income threshold, they have been faulted for benefiting high-income tenants.

I’m glad the article included the evidence from economists, especially since the headline is grossly inaccurate. If we care about evidence, it’s far more accurate to say that rent control will exacerbate the state’s housing problems.

Which is why the Wall Street Journal opined that this type of intervention is especially destructive.

California already boasts the highest housing costs in the country, and even liberals have come around to acknowledging that not enough homes are built to meet demand. The state has added about half as many housing units as needed to accommodate population growth, and more than half of Californians spend 30% of their income on rent.Blame a thousand regulatory burdens. Local governments limit what housing developers can build and where. They layer on permitting fees, and then there are the state’s high labor costs and expensive green-energy mandates and restrictions that opponents can exploit to block projects for years. …The upshot is that an “affordable” housing unit in California costs $332,000 to build and nearly $600,000 in San Francisco, according to state budget figures. Developers can’t turn a profit on low- and middle-income homes… And now Democrats want to constrain housing prices by fiat. Mr. Newsom and Democratic legislators are pushing a law to limit annual rent increases across the state to 5% plus inflation. …Building permits in the first seven months this year have fallen 17% compared to 2018 despite an increase in state subsidies. …California’s progressive regulatory complex is contributing to this housing slowdown by driving businesses and people from the state. More than 700,000 residents have left since 2010.

By the way, the politicians in Albany already made the same mistake.

And, as you might expect, the Wall Street Journal‘s editorial page had the correct response.

Law by law, Gov. Andrew Cuomo and Democrats are chipping away at the policies that made New York City livable after decades of decline… Democrats this week are ramming through rent-control bills that…effectively dictates rents for one million or so rent-regulated apartments and restricts landlords’ ability to evict tenants who don’t pay. …Once a tenant moves out—which doesn’t happen often since folks can pass on the entitlement to friends and relatives—landlords would be required to offer the unit to another tenant at restricted rates. …Nor could they raise rates by more than 2% annually to pay for improvements or evict a nonpaying tenant who “cannot find a similar suitable dwelling in the same neighborhood.” Since landlords would have less incentive to make fixes, more apartments will deteriorate and come to resemble New York City’s squalid public housing. …One result will be less housing investment… Progressives are vindicating CEO Jeff Bezos ’s decision to pull Amazon’s second headquarters out of New York. Don’t be surprised if other businesses follow.

You won’t be surprised to learn that politicians in other nations sometimes make the same mistake.

The U.K.-based Guardian wrote about how rent control has backfired in Sweden.

Half a million are on the waiting list for rent-controlled flats in Stockholm, meaning a two-tier system, bribes and a thriving parallel market… the system is experiencing acute pressures. Building of rental homes almost dried up after a financial crisis in the early 1990s, and there is a dire shortage of properties. Demand is such that it is almost impossible to get a direct contract. With nearly half of all Stockholmers – about 500,000 people – in the queue, it can take 20 or 30 years to get to the top of the pile. …The result is a thriving rental property black market, with bribes of as much as 100,000 kronor per room to obtain a direct contract, McCormac says. Many people sublet space in their rental apartments. …“Rent controls were supposed to enable people to live in central locations, but now it is having the opposite effect,” McCormac says. “People without social connections will have a very hard time finding a flat,” says Kleberg.

And Germany is making the same mistake – even though it should have learned from the mistakes under Hitler’s national socialism and East Germany’s communism.

…the kinds of ideas traditionally associated with planned economies are gaining more and more support all over Germany. …Substantial numbers of people have moved to Germany’s major cities…the supply of housing has failed to keep pace with these significant developments, and this is largely because construction approval processes are so long-winded and the latest environmental regulations have made building prohibitively expensive. …In Germany’s capital, Berlin, …it now takes 12 years to draft and approve a zoning plan, which in many cases is a prerequisite for the development of new dwellings. …An initiative in Berlin calling for the expropriation of private real estate companies has collected three times as many signatures as it needed to initiate a petition for a referendum. …Kevin Kühnert, chairman of the youth organization of the center-left SPD…has gone as far as calling for a complete ban on private property owners renting out their apartments. …Berlin’s Senate approved the main components of a rent freeze in the German capital. …Advocates of such central economic planning react sensitively when they are reminded that it has already been tried… An earlier rent freeze was approved in Germany on April 20, 1936, as a gift from the National Socialist Party to the citizens of Germany on Adolf Hitler’s 47th birthday. The National Socialists’ rent cap was adopted into the GDR’s socialist law by Price Regulation No. 415 of May 6, 1955, and it remained in force until the collapse of the GDR in 1989.

Now let’s review some economic research.

Three Stanford professors researched the issue, looking specifically as San Francisco’s local rent control rules.

Using a 1994 law change, we exploit quasi-experimental variation in the assignment of rent control in San Francisco to study its impacts on tenants and landlords. Leveraging new data tracking individuals’ migration, we find rent control limits renters’ mobility by 20% and lowers displacement from San Francisco. Landlords treated by rent control reduce rental housing supplies by 15% by selling to owner-occupants and redeveloping buildings. Thus, while rent control prevents displacement of incumbent renters in the short run, the lost rental housing supply likely drove up market rents in the long run, ultimately undermining the goals of the law. …In the long run, landlords’ substitution toward owner-occupied and newly constructed rental housing not only lowered the supply of rental housing in the city, but also shifted the city’s housing supply towards less affordable types of housing that likely cater to the tastes of higher income individuals. Ultimately, these endogenous shifts in the housing supply likely drove up citywide rents, damaging housing affordability for future renters…it appears rent control has actually contributed to the gentrification of San Francisco, the exact opposite of the policy’s intended goal. …rent control has contributed to widening income inequality of the city.

To be fair, rent control is just one of several bad policies that mess up the city’s housing market.

Now let’s shift to the other side of the country.

Jeff Jacoby of the Boston Globe shared evidence from a disastrous experiment in Massachusetts.

…a handful of Democratic lawmakers want to bring the horror of rent control… This isn’t happening only in Massachusetts. …Oregon’s governor just signed a statewide rent-control law and efforts to overturn rent-control bans are underway in Illinois, Colorado, and Washington state. …the folly of rent control is so well-established that to deny it requires, as Hillary Clinton might say, a willing suspension of disbelief. Massachusetts and most other states have banned rent control because the harm it causes far outweighs any benefit it confers. When politicians impose a ceiling on rent, the results are invariable: housing shortages, depressed real estate values, increased decay, less new construction. …The longer rent control persists, and the more harshly it is enforced, the worse the problem grows. …in New York City, where strict rent controls date back to World War II, the annual rate at which apartments turn over is less than half the national average, while the share of tenants who haven’t moved in more than 20 years is more than double the national average. …Acknowledging the damage caused by rent control is neither a right- nor left-wing issue. …the communist foreign minister of Vietnam…made…the…point in 1989: “The Americans couldn’t destroy Hanoi,” Nguyen Co Thach remarked, “but we have destroyed our city by very low rents.” …When Massachusetts voters struck down rent control in 1994, it was in the teeth of preposterous fearmongering by hardline tenant activists… What happened in reality was that tens of thousands of apartments were decontrolled with no ill effects… When tenants were analyzed by occupation, it was high-earning professionals and managers who predominated among the beneficiaries of rent control; semi-skilled and unskilled workers lagged far behind. Rent control always ends up benefiting the young, strong, and well-to-do at the expense of the old, weak, and poor.

Meanwhile, Meghan McArdle opined in the Washington Post about the perverse economic consequences of rent control.

…there are a few questions where there’s near unanimity, and rent control is one of them. Pretty much every economist agrees that rent controls are bad. …the policy appears to be making a comeback. …City governments may have to relearn why their predecessors pruned back rent-control policies. Rent control is supposed to protect poor, deserving tenants from the depredations of greedy landlords. And it does, up to a point. …The problem is that rent control doesn’t do anything about the reason that rents are rising, which is that there are more people who want to live in desirable areas than there are homes for them to live in. Housing follows the same basic laws of economics as other goods that consumers need… rent control also reduces the incentive to supply rental housing. …an actual solution to skyrocketing rents: Build more housing, so that the rent controls won’t be necessary… To do that, cities would need to ease the costly land-use regulations that make it so difficult for developers to fill the unmet demand. …Alas, that’s not going to happen… Declining housing stock is just one of the many potential costs of rent controls; others include a deteriorating housing stock as landlords stop investing in their properties, and higher rents. Yes, higher, because rent control creates a two-tier housing market. There are cheap, price-stabilized apartments that rarely turn over, because why would you give up such a great deal? Then there are the uncontrolled apartments, which everyone else in the city has to fight over, bidding up the price. …the people getting the biggest benefit are white, affluent Manhattanites.

By the way, you hopefully have noticed a pattern.

Rich people generally get the biggest benefits under rent control.

Let’s close with a look at how economists from across the philosophical spectrum view rent control

Here’s some survey data from the University of Chicago.

Incidentally, there’s an obvious reason why politicians persist in pushing bad policy. In the case of rent control, it’s because tenants outnumber landlords.

So even if politicians understand that the policy will backfire, their desire to get votes will trump common sense. Especially if they assume they can blame “greedy landlords” for the inevitable housing shortages and then push for government housing subsidies as an ostensible solution.

Another example of Mitchell’s Law.

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While de Blasio Fiddles, New York City Burns

In 2016, Bernie Sanders was considered very extreme for wanting to transform America into a very expensive European-style welfare state.

If the Democratic Party’s presidential debates this summer are any guide, that radical approach is now mainstream. Almost all the candidates have been competing over who could most quickly turn American into Greece.

The Mayor of New York City, Bill de Blasio, was especially determined to show that he was even more radical than Bernie Sanders. At one point, while watching de Blasio bellow about class-warfare taxes, I thought about a satirical version of the Pizza Hut commercial, with the Vermont Senator exclaiming “No one out-crazies the Bern.”

But give de Blasio credit for tryring. His only signature moment in an otherwise lackluster campaign occurred when he said he wanted to “tax the hell out of the wealthy.”

He even has a www.taxthehell.com website where he outlines his various proposals to cripple investment and entrepreneurship by imposing confiscatory taxes.

In other words, he is like Crazy Bernie in that he seems to really believe in ever-larger government. Consider these excerpts from a Q&A session he did with New York Magazine.

…our legal system is structured to favor private property. I think people all over this city, of every background, would like to have the city government be able to determine which building goes where, how high it will be, who gets to live in it, what the rent will be. I think there’s a socialistic impulse, which I hear every day, in every kind of community, that they would like things to be planned in accordance to their needs. And I would, too. Unfortunately, what stands in the way of that is hundreds of years of history that have elevated property rights… Look, if I had my druthers, the city government would determine every single plot of land, how development would proceed. And there would be very stringent requirements around income levels and rents. That’s a world I’d love to see, and I think what we have, in this city at least, are people who would love to have the New Deal back, on one level. They’d love to have a very, very powerful government, including a federal government… I’m calling for a millionaires tax… need to see the wealthy paying their fair share. It frustrates me greatly that we don’t have the power here to tax the wealthy in this city.

Not only does he talk the talk, he also walks the walk.

Albeit in a bad way.

Here are some excerpts from a news report about one of his attacks on property rights.

Liberal New York City Mayor Bill de Blasio is rolling out a new plan that would potentially allow the city government to seize buildings of landlords who force tenants out — a plan his opponents say amounts to “straight communism.” De Blasio…wants to take action against landlords who try to force tenants out by making the property unliveable — and pulled out an executive order to create a Mayor’s Office to Protect Tenants. He said that in the event the government intervenes, the buildings would then be controlled by a “community nonprofit.” …“My first reaction was: Is this communist Cuba?” state Assemblymember Nicole Malliotakis, who ran against De Blasio in the 2017 mayoral race, told Fox News. “ I can say that as a daughter of Cuban refugees who fled Castro’s Cuba in 1959, this is what happened to her family, she had her home taken, my grandfather had his gas station taken.” “This is extreme even for Mayor de Blasio, because we know that he has socialist leanings, but this is straight communism and I think it’s very scary to America-loving, democracy-loving people.”

By the way, I’m guessing that landlords are in a tough position because of NYC’s rent control laws.

To be fair, many of the problems in New York City didn’t start with de Blasio.

There’s a long history of wasting money.

To be more specific, unfunded pensions are the biggest reason NYC is in deep trouble.

…the city is staring bankruptcy in the face. …but there’s been little talk about one of the main causes of the city’s growing debt: public employee pensions. As of today, nearly 75 percent of the city’s $197.8 billion deficit is due to pension and other retirement liabilities. …Sick of high taxes, residents and businesses are already leaving in droves… NYC offers five different pension plans to its municipal employees, from teachers to members of the school board. These pensions serve as a source of retirement income to former city employees and are defined benefit plans, meaning that benefits are guaranteed by the employer. …it’s no surprise that the pension plans’ funded ratio, which shows the ratio of the plans’ assets to liabilities, has dropped to 71.4 percent for NYCERS and 58.6 percent for TRS—thanks to accumulated debt. …for every dollar spent on NYCERS payroll, 34 cents goes toward pensions, and that number is 10 cents higher for TRS. …Pension contributions make up 11 percent of the city’s total budget and consume 17 percent of the city’s tax revenues. And it’s worth remembering that in the city ranked number one in local tax burden in the United States.

As you might suspect, Mayor de Blasio certainly isn’t doing anything to address this problem.

I’m simply noting that the problem existed before he took office and presumably would still exist with any other mayor.

And there are other officials in New York City who deserve scorn.

Manhattan District Attorney Cy Vance is a traveling man with some high-end tastes. The prosecutor spent $249,716 on meals and work trips to everywhere from the City of Angels to the City of Lights over the past five years, according to records obtained via a Freedom of Information Law request. Vance paid for it all – including a $4,780 roundtrip flight to London and a $2,800 stay at a five-star Paris hotel – with money his office obtained from state-asset forfeiture funds largely tied to big-sum legal settlements with banks, records show. He controls more than $600 million stemming from forfeitures. …the other city district attorneys say they did not use asset forfeiture money to cover their work travel expenses. …Vance also does not skimp when it comes to eating out… He spent $645 at Patroon on East 46th Street to cover dinner… Vance also has expensed five meals at Tribeca’s Odeon for a total of $897… During his Paris visit, he spent $94 at Le Nemrod, $124 at Marco Polo, $72 at Le Saint Regis and $169 at Le Christine, according to the expense reports. …DAs have wide-ranging flexibility on how asset forfeiture money is used. Expenditures must cover “law enforcement” issues — but few other rules exist.

Here’s a map showing Vance’s travel.

By the way, the most outrageous part of this story isn’t the luxury travel or the expensive meals.

What really irks me is that his high-flying lifestyle is made possible by asset forfeiture, which is what happens when the government steals someone’s property – oftentimes without any finding of guilt!

The bottom line is that New York City has a terrible mayor, but the problem goes way beyond one person.

Which is why this final story, from Bloomberg, should be the canary in the coal mine when contemplating the future of the city.

New York leads all U.S. metro areas as the largest net loser with 277 people moving every day — more than double the exodus of 132 just one year ago. Los Angeles and Chicago were next with triple digit daily losses of 201 and 161 residents, respectively. This is according to 2018 Census data on migration flows to the 100 largest U.S. metropolitan areas compiled by Bloomberg News. …While New York is experiencing the biggest net exodus, the blow is being softened by international migrant inflows. From July 2017 to July 2018, a net of close to 200,000 New Yorkers sought a new life outside the Big Apple while the area welcomed almost 100,000 net international migrants. …Some areas are affected by high home prices and local taxes, which are pushing residents out and deterring potential movers from other parts of the country. About 200,000 residents left New York last year. Los Angeles had a decline of nearly 120,000 and Chicago fell by 84,000.

Here’s the map showing the cities losing the most people and gaining the most people.

By the way, it’s no coincidence that most of the fast-growth cities are in states with no income taxes.

P.S. Mayor de Blasio wants to “tax the hell out of the wealthy” in New York City, but fortunately he’s been somewhat frustrated in that goal because of limits on his power.

P.P.S. Because taxpayers in NYC no longer have unlimited ability to deduct their state and local taxes on their federal returns, the 2017 tax law almost certainly is contributing to the exodus from New York City. And every time one of those taxpayers escape, NYC gets closer to fiscal crisis.

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