When asked about tax loopholes, my first reaction is to determine whether something is an actual tax preference or merely a mitigation of a tax penalty.
Today, let’s examine a different strange loophole. As reported by Politico‘s Joseph Spector, New York politicians are creating a special tax break for journalists.
The state budget, set to be finalized Saturday, includes the nation’s first payroll tax credit for local news organizations in a bid to encourage new hiring… Lawmakers and independent media companies praised the tax break, which will designate $30 million a year to the program, called the Local Journalism Sustainability Act. …New York spends more than $8 billion a year on tax incentives and grants to attract and retain businesses in the high-tax state, and advocates of the measure have for years sought to extend the largesse to the newspaper and local TV industry. The late addition to the $237 billion budget allows eligible outlets to receive a 50 percent refundable credit for the first $50,000 of a journalist’s salary, up to a total of $300,000 per outlet. …The money is largely focused on independently owned publications, but also can cover hiring journalists in print media outlets that “demonstrate a reduction in circulation or in the number of full-time equivalent employees of at least 20 percent over the previous five years.”
There are three things to understand about this proposal.
First, a “refundable credit” is actually government spending. So the new law would be a direct handout for media companies.
Second, it should be obvious why New York’s Democrats want to subsidize a sector that acts as cheerleaders for big government.
Third, the law is written in a way that big media firms like the New York Times theoretically could benefit.
All told, not a good idea. And not what I had in mind when I asked what should be done about media bias.
P.S. If you want to know the best way of dealing with tax loopholes (properly defined), click here and here.
About 12 years ago, there was a controversial claim (based in part on some of my analysis) that Obama was the most fiscally conservative president of the 1980-2012 period, which includes Reagan.
First, here is total civilian employment from 1969 to the present. As you can see, there’s an upward trend line, with occasional blips associated with recessions (if we wanted to be super-rigorous, we would adjust for factors such as size of the labor force and size of the working-age population, but let’s keep things simple).
Second, let’s zoom in on the Bush-Obama years. The most notable thing about this chart was the big loss of jobs because of the financial crisis, followed by a slow recovery.
Third, let’s zoom in on the Trump-Biden years. What stands out in this chart is the massive loss of jobs during the pandemic, followed by an initially rapid recovery and then stumbling progress.
Having absorbed this background information, now let’s look at the new controversial claim. Simon Rosenberg tweeted earlier this month that almost all jobs in recent decades have been created when Democrats were in the White House.
This certainly seems like a damning indictment of Republicans, but is it true?
Lou Jacobsen of Politifact says yes, but with some qualifications.
Are Democratic presidents better at creating jobs and driving the economy? …We caught the latest iteration on X, in a post by Simon Rosenberg, a longtime Democratic strategist in Washington, D.C. …The talking point…has merit. But it ignores caveats around divided governance and lucky timing. …What is the catch? Attributing job creation to policies or presidents isn’t as clear as it might seem. The Republican Congress of 1995 to 2001 might deserve a share of the credit for the job growth under Clinton… In crises especially, the parties have historically worked together. When faced with the 2008 financial crisis and the coronavirus pandemic, George W. Bush and Trump “chose the policy responses that Democrats favored,” said Dan Mitchell, a libertarian economist. …Also, Rosenberg chose a favorable time frame for Democrats. …Job creation under each president also depends on luck. …In one recent example, the number of jobs created under Trump would have been higher had a once-in-a-century pandemic not hit during his fourth year in office.
I appreciate that Lou gave me the chance to add one of my comments to his analysis.
But I want to elaborate. Here’s everything I sent to him as part of our email exchange.
Very convenient to start after the Reagan years. Setting aside that laughable example of cherry-picking, Rosenberg’s number is largely driven by the financial crisis at the end of the George W. Bush years and the COVID crisis at the end of the Trump years. A partisan Democrat could argue “so what?” The net result, after all, was big job losses at the end of the Bush and Trump years. As a libertarian wonk, I don’t have to worry about blindly supporting one side or the other. Instead, I’ll simply point out that Bush and Trump chose the policy responses (bailouts/spending and shutdowns/spending, respectively) that Democrats favored. The real lesson to be learned is that good policies create jobs and bad policies reduce jobs, and it doesn’t matter whether there is an R or D after a politician’s name.
And I concluded by sharing a link to this column, which expands on my point about policy being the most important variable, not partisan affiliation.
The bottom line is that any analysis based on party affiliation will be senseless because we had one pro-market Republican (Reagan, who conveniently wasn’t even included in Rosenberg’s analysis) and lots of mediocre-to-bad Republicans (Bush I, Bush II, and Trump).
Likewise, there was one reasonably good Democrat (Clinton) while the others (Obama and Biden) were statist.
My goal is not to fixate on the bias, but rather to correct the underlying mistakes.
And that’s the purpose of today’s column.
Why? Because Maura Judkis of the Washington Post wrote a story about how capitalism supposedly is responsible for a drug store closing in D.C. Here are some excerpts.
There is almost nothing left to steal at the CVS in Columbia Heights… Everything else that remains in the store in Northwest D.C., which is not much, is under plexiglass… Other shelves, stretching entire aisles, are totally empty. …the Legend of the Empty CVS of Washington…became a horror story of Late Capitalism. …the zombie CVS kept filling prescriptions, dead but somehow still shuffling along — until Thursday, when corporate shut it down, at last. …there’s a Robin Hood mentality… Some shoplifters view it as a form of anti-capitalist social activism.
I read the entire report. As illustrated by the excerpt, it’s about a store being closed because of rampant crime.
Which leads me to ask, what does this have to do with capitalism?!?
The story doesn’t even try to explain how or why free markets are responsible.
There wasn’t even a weak argument about businesses somehow having an obligation to lose money in order to serve a community.
If I had to guess, I’m assuming the reporter – and the editor who picked the headline – are so disconnected from reality that they implicitly assume that everything bad in life somehow is connected to capitalism.
P.S. According to Wikipedia, the term “late capitalism” was first coined by German Marxists about 100 years ago and then spread to the English-speaking world in recent decades. If I understand the tortured reasoning, we’re now supposedly living in a Dystopian nightmare of corporate exploitation.
For what it’s worth, I have no doubt that corporations would like to exploit us, but the best way to avoid that is free enterprise – i.e., a system where companies can only make money by giving us better goods and services at attractive prices. That’s why I’m against industrial policy, protectionism, subsidies, bailouts, and other forms of cronyism that benefit companies rather than people. I’m guessing, however, that the people who use the term “late capitalism” won’t join me in the right to get rid of those statist policies.
The first indication of bias is that every answer was the one that made Biden look good (or less bad).
Sort of like a quiz asking if communists killed 1 billion people, 500 million people, or 100 million. The fact that the right answer is that they “only” killed 100 million is hardly a ringing endorsement of Marx’s evil ideology.
But another problem is that some of the questions also were steroid-fueled examples of grading on a curve. For instance, based on Question #1, we’re supposed to be impressed that the United States has grown faster than Europe’s decrepit welfare states.
For what it’s worth, growing faster than France, Italy, and Greece is not exactly something to celebrate, as you might imagine.
Question #4 also is designed to make Biden look good by comparing job creation during his tenure to what happened under Trump and Obama.
Yet beating Obama is hardly a major achievement, and the Trump numbers are very distorted because Trump and Fauci shut down the economy during the pandemic.
Suffice to say, Biden would not look good if his job numbers were compared were compared to market-friendly presidents like Ronald Reagan and Bill Clinton.
There were two other questions, which also were biased but not to the absurd level as the ones described above.
Question #2 implies that Biden has done a good job because gas prices have only increased by 75 cents a gallon rather than going up by $1 or $2. Sort of like saying a diet is successful if you’re gaining two pounds a week rather than five pounds.
Question #3 implies that Biden has done a good job because wages have almost risen as fast as inflation. Needless to say, the fact that there as been zero inflation-adjusted wage growth is actually a damning indictment of Bidenomics.
Here’s how the Post described the quiz.
The past few years have been tumultuous, with a deadly pandemic, a recession, an inflation spike and overseas wars. Perhaps unsurprisingly, Americans give President Biden low marks on the economy. How bad are things? This quiz will help you calibrate your level of concern, and it will show you how your knowledge of economic reality stacks up against other Americans we asked and other Post readers.
The Post obviously wants readers to conclude that Biden deserves good marks for the economy. The fact that the paper had to engage in contortions tells you what you really need to know.
This is not a trivial problem. Here’s a chart, from a recent report by Reuters, showing how prices have been rising for nearly 10 years and skyrocketing for the past three years.
I’m sharing this chart because the New York Times published a story a few days ago about inflation in Argentina.
What’s remarkable about this report is that the authors, Daniel Politi and Lucía Cholakian Herrera, want readers to think that the country’s just-inaugurated libertarian president, Javier Milei, is responsible for rising prices.
I’m not joking. It’s in both the headline and the story. Here are a few excerpts.
In Argentina, a country synonymous with galloping inflation, people are used to paying more for just about everything. But under the country’s new president, life is quickly becoming even more painful. …since Mr. Milei took office on Dec. 10…, prices have soared at such a dizzying pace that many in this South American country of 46 million are running new calculations on how their businesses or households can survive the far deeper economic crunch the country is already enduring. …“Since Milei won, we’ve been worried all the time,” said Fernando González Galli, 36, a high school philosophy teacher in Buenos Aires.
In other words, the reporters want readers to believe that President Milei, who has been in office less than three weeks, somehow is responsible for high inflation, which has been bad – and getting worse – for a decade.
To understand the absurdity of that argument, here’s another look at the Reuters chart, with a notation on when Milei took office.
Blaming Milei for today’s inflation in Argentina would be like blaming Reagan for the double-digit inflation in the United States in January and February of 1981, right after Reagan was inaugurated.
In the real world, it takes a while for bad monetary policy to create inflation. For instance, the Federal Reserve’s irresponsible monetary expansion that began with the pandemic in 2020 didn’t trigger big price increases until the middle of 2021.
Similarly, it takes a while for good monetary policy to tame inflation.
I’ll close by noting that the article did have a bit of sensible and honest analysis. Here are a few sentences that accurately describe how Milei is trying to undo the damage caused by the prior government.
The previous leftist government had used complicated currency controls, consumer subsidies and other measures to inflate the peso’s official value and keep several key prices artificially low, including gas, transportation and electricity. Mr. Milei vowed to undo all that, and he has wasted little time. Two days after taking office, Mr. Milei began cutting government spending, including consumer subsidies. He also devalued the peso by 54 percent, putting the government’s exchange rate much closer to the market’s valuation of the peso.
Milei needs to engage in what has been called “daredevil economics,” though it’s really just the common-sense policies that used to be called the “Washington consensus.”
Not that folks in the media understand what’s happening. Or if they do understand, they don’t discuss the issue honestly and accurately.
The bottom line is that the New York Times report is a grotesque example of media bias and media sloppiness. Perhaps even worse than this example or this example.
That being said, you can sometimes find displays of common sense and sound thinking. Even from places that almost always support bigger government and more intervention., such as the editorial page of the Washington Post.
Here are some excerpts from the Post‘s recent analysis of how to avoid another shortage of infant formula.
…the infant formula shortage that struck American families in 2022 has mostly abated… Yet…the main lesson of last year’s crisis: Ill-conceived or excessive government rules and regulations were themselves among its causes. Unless and until those are fundamentally reformed, the infant formula supply chain will remain vulnerable to another devastating rupture. …The best proof that this market is over-regulated came from the measures government took to alleviate the crisis, almost all of which involved, well, deregulation. Congress suspended tariffs, allowing imports to come in from Europe and elsewhere; the Agriculture Department, which administers WIC, allowed states to offer a wider variety of formula brands and packages than their current contracts covered. …A better policy would open the United States to appropriately regulated imports, make it easier for new domestic producers to enter the market and let all qualified suppliers sell in all states, counting on competition to temper prices.
I’m guessing the one thing they all have in common is a distrust of politicians and government.
Simply stated, we libertarians have noticed that slippery slopes are…well…slippery. When government gets a bit more power, they eventually wind up with a lot more power.
And this is why there is reflexive hostility to proposals for the Federal Reserve to adopt a digital currency.
Some of our friends on the left think such suspicion is absurd, or even downright crazy.
In her Washington Postcolumn, Catherine Rampell accuses Florida Gov. Ron DeSantis of being “looney” and “paranoid” because he recently spoke against the idea.
DeSantis can’t help but pivot from tangible, kitchen-table economic issues to bizarre culture-war concerns. And that’s where we get into looney-tunes territory. In a speech this past weekend in Pennsylvania, DeSantis suggested that the real reason to fear the Fed is that central bankers…”want the Fed to control a digital dollar,” he said. “Guess what’ll happen? They’re going to try to impose an ESG agenda through that. You go and use too much gas, they’re going to stop it. They’re not going to honor the transaction because you’ve already bought more than what they think. You wanna go buy a rifle, they’re going to say no, you have too many, too many of those, you can’t do it.” …DeSantis…appears to be invoking conspiracy theories that the left wants to eliminate physical cash… The Fed would then use that surveillance to control everyone’s lives, specifically to undermine the Second Amendment. …this is all so paranoid and untethered to reality that it’s almost like financial fan fiction.
It appears, however, that Ms. Rampell is the one untethered to reality.
I don’t like Joe Biden’s economic policies, though that’s hardly a surprise since I haven’t liked the policies of any president this century (I’ve referred to Bush, Obama, and Trump as the “three stooges of big government“).
Other people have a more sympathetic perspective on the President’s performance.
David Leonhardt of the New York Times wrote an analysis of Joe Biden’s economic record and he lists two failures.
Inflation
Failure to get approval of the so-called Build Back Better plan
And he lists three supposed successes.
Economic recovery
Infrastructure and tech subsidies
Green subsidies
I disagree with much of Leonhardt’s analysis. For instance, his section on inflation does not mention the Federal Reserve. That’s sort of like writing about World War II and not mentioning Germany (other journalists have made the same mistake).
But I want to focus mostly on what Leonhardt wrote about the economy.
His main contention is that Biden is a success because the unemployment rate is low. Yet that overlooks the fact that labor force participation is weak, so I don’t view that as a Biden “success” (and I have been raising this concern since way before Biden took office).
But a far bigger problem with Leonhardt’s analysis about the economy is that he wrote nothing about living standards. I don’t know if that was a deliberate omission, but almost everything his readers should have learned is captured by this chart from the Department of Labor.
In the interest of full disclosure, I highlighted the “0.0” line in orange because I wanted to emphasize that inflation-adjusted worker compensation has been negative for the entirety of the Biden presidency.
By the way, it would be perfectly reasonable for a Biden defender to point out that worker compensation was already dropping when he took office. And it also would be reasonable for a Biden defender (or even a Trump defender) to blame that drop on the pandemic.
A Biden defender also could claim that the trend in recent months has been positive and that we might actually see rising living standards in the future.
However, those caveats don’t change the fact the Leonhardt’s article fails to mention the economic data that arguably matters most to people. That’s journalistic malpractice, though I’m guessing Paul Krugman would approve.
P.S. Leonhardt’s failure to mention living standards is not the worst example of journalistic malpractice at the New York Times. That award goes to the three reporters who wrote a big story about Venezuela’s economic failure and never once mentioned socialism.
There is a real debate about the shape of the Laffer Curve and the ideal point on the curve.
The fifth point recognizes that well-meaning and knowledgeable people can vigorously disagree.
Do changes in tax policy have big effects or small effects on the economy? How much revenue feedback will occur if there is a change in tax rates?
Just a couple of examples of questions that I have endlessly debated with reasonable folks on the left.
But let’s focus today on the unreasonable left. Or, to be more specific, let’s look at an editorial from the St. Louis Post-Dispatch.
Here are some portions of that newspaper’s simplistic screed.
…the deficit explosion…effectively disproved his theory that cutting taxes on the rich would increase government tax revenue. …Laffer continues to be unchastened…, even as Britain reels from a leadership shuffle caused by the catastrophic application of his very theories. Hand it to Laffer: Seldom does someone who is so often proven wrong have the gumption to maintain he’s right… His famous “Laffer curve” presumes to prove that tax cuts for the rich will spur economic investment, causing such strong economic growth that the government’s tax revenue would actually rise instead of falling. …Yes, the economy was robust in the 1980s after Reagan’s historic tax cuts. But that’s also when the era of big budget deficits began. …congressional Republicans and President Donald Trump in 2017 slashed corporate taxes in what they claimed was a necessary economy-booster… Then-Treasury Secretary Stephen Mnuchin’s famous vow that the tax-cut plan would “pay for itself” in growth — the very definition of Laffer’s theory — has since been exposed as the voodoo it always was.
Almost every sentence in the above excerpt cries out for correction.
For instance, Reagan and his team never claimed that the 1981 tax cuts would be self-financing (though IRS data shows that lower tax rates on the rich did produce more revenue).
And it’s absurd to blame the United Kingdom’s political instability on tax cuts that never occurred.
If Secretary Mnunchin claimed the entire tax cut would pay for itself, he clearly deserves to be mocked, but it’s worth noting that the lower corporate tax rate from the 2017 reform is very close to being self-financing.
Not that we should be surprised. Both the IMF and OECD have research showing that lower corporate tax rates do not necessarily lead to lower corporate tax revenues.
The bottom line is that the editorial board of the St. Louis Post-Dispatch obviously puts ideology above accuracy.
P.S. I can’t resist sharing one other excerpt from the editorial.
“The Kansas Experiment,” was a debacle. The state’s economy didn’t skyrocket, but the deficit did, forcing deep cuts to education before the legislature finally acknowledged defeat and reversed the tax cuts.
Once again, the editors are showing that ideology trumps accuracy. Here’s what really happened in Kansas. I hope we can have more defeats like that! Though I’ll be the first to admit that North Carolina is a much better role model.
Moreover, the Fed’s big mistake started in early 2020 when the central bank dramatically expanded its balance sheet (see chart). And that error took place well before Joe Biden entered the White House.
Unfortunately, instead of pointing a finger of blame at the Fed, some of our friends on the left have decided to assert that inflation is caused by greedy companies.
A recent New York Timescolumn by German Lopez addressed this claim.
The good news is that Mr. Lopez’s column pours cold water on the “greedflation” theory.
The bad news is that the column completely overlooks the role of the Federal Reserve.
As prices have increased faster than at any other point in four decades, lawmakers have scrambled for explanations. In recent months, some Democrats have landed on a new culprit: price gouging. …”greedflation.” For Democrats, it is a convenient explanation as inflation turns voters against President Biden. …And it lets them recast inflation as the fault of monopolistic corporations — which progressives have long railed against. …there are other, more widely accepted explanations… Covid disrupted supply chains globally. Russia’s invasion of Ukraine caused another wave of disruptions, particularly in food and energy. The stimulus bills left people with a lot of extra cash, and many Americans spent it. That prompted too much demand for too little supply, so prices increased.
Just in case you suspect I’m not being fair, the words “federal reserve” or “central bank” do not appear in the article. Anywhere.
Needless to say, writing a column about rising price levels without mentioning the Fed is like writing the history of World War II and not mentioning Germany.
Why did the reporter make this mistake? If I had to guess, he probably noticed there was a debate inside the Democratic Party between the “crazy left” and the “rational left.” So he wrote about that conflict without noting (or perhaps even realizing) that there are other points of view.
P.S. For those who want more background, the crazy left are economic illiterates such as Robert Reich, Bernie Sanders, and Elizabeth Warren (and some guy named Lindsay Owens, who was cited in the article).
What could the bureaucrats have done to earn praise?
You’ll be amazed to learn that the Economist believes the IRS helped the economy by becoming a vehicle for income redistribution.
I’m not joking. Here are some excerpts from the article.
Despite its awful backlog, the irs has, from another perspective, had a very good pandemic. It has played a critical role in delivering support to Americans. And it has been surprisingly efficient at it. For each of the three rounds of stimulus payments, the irs was the conduit. Within two weeks of Mr Biden’s signing of the stimulus bill in March 2021, for instance, it sent out $325bn via 127m separate payments, mainly by direct bank deposit. Some people fell through the cracks and cheques took longer. But most got the money quickly. The irs operated at even greater frequency in making child-tax-credit payments every month. …It also expanded the earned-income tax credit, a subsidy given to low earners, one of America’s biggest anti-poverty programmes. Putting it together, a poor family with two young children could expect $20,000 from the irs last year, double what they would normally receive.
The Economist seems to think it’s wonderful that the IRS now plays a big role in distributing goodies.
In all, the agency paid out more than $600bn in pandemic-related support in 2021, equivalent to about two-thirds of Social Security spending in the federal government’s budget. “We have seen a substantial share of what used to be the social safety-net migrate from the public-expenditure side of the federal ledger to being run through the tax code,” points out Gordon Gray of the American Action Forum, a think-tank. …the irs…stands as one of the few federal agencies that would generate a large and nearly immediate return on investment were the government to spend more on it. The hope for the harried tax agents is that…irs performance during the pandemic will have earned it grudging support in Washington, demonstrating that it is both overstretched and indispensable.
Needless to say, “delivering support to Americans” should not be an “indispensable” function of the a bureaucracy that was created to collect tax revenue.
Even more problematic, giving out record amounts of money is not what “has kept the economy going.” This is a Keynesian view of the world.
In reality, the borrow-and-spend approach is akin to thinking you are richer after taking money out of the right pocket and putting it in the left pocket.
P.S. The article also cites the bogus estimate of a $1 trillion tax gap. If the Economist now is in the business of uncritically regurgitating make-believe numbers, I’m also willing to play that game. I encourage that magazine’s reporters to call me and I’ll blindly claim that all tax cuts pay for themselves and that we can have entitlement reform without transition costs.
Actually, I have ethics, so I won’t make those over-the-top claims.
P.P.S. Amazingly (but predictably), the Economist never mentioned past or present IRS scandals.
Today, let’s analyze whether there is a similar problem with journalists. And we’ll start with this video from Prager U.
Just as with the column on academic bias, we’ll start by looking at evidence about whether members of the press actually do lean to the left.
Since I’ve shared may examples of media bias (see here, here, here, here, here, here, here, and here), I think the answer is yes.
But don’t believe me, Journalists openly admit their orientation.
And this isn’t a recent thing. A Roper Center report back in the 1990s included this table showing the leftist tilt was especially pronounced among D.C.-based journalists.
And the profession seems to have drifted more to the left over the past couple of decades.
A couple of years ago, David Rutz of the Washington Free-Beacon reported on a survey of financial journalists.
A survey of financial journalists revealed a stark political contrast, with 58 percent of respondents describing themselves as liberal against just 4 percent calling themselves conservative. The study, conducted by professors at Arizona State University and Texas A&M University, sought to “provide new insights into the inputs, incentives, and beliefs that shape their reporting” by interviewing 462 financial reporters about their jobs. …The findings of the reporters’ political leanings mirrors that of Politico surveys of the White House press corps in 2016 (zero Republicans among 72 reporters surveyed) and 2017 (three Republicans out of 63 surveyed).
Given some of the awful analysis one now finds in the Economist, I’m not surprised that financial journalists are just as bad as political journalists.
Here’s some more data.
Paul Bedard of the Washington Examinersummarized a report on political giving by members of the media.
Reporters and other members of the media have donated at least $110,000 to candidates and parties…, with over 90% going to Democrats including, Joe Biden, Sen. Bernie Sanders, and Rep. Alexandria Ocasio Cortez, according to a new deep-dive report. …”Journalists at The New York Times, Washington Post, Boston Globe, and Houston Chronicle are among dozens of reporters, editors, and other newspeople who’ve given tens of thousands of dollars to political candidates and causes,” said the report… Those were just for large amounts. Contributions of $200 or less do not require detailed FEC reporting. …according to the report, though, …the vast majority of reporters and staffers do not make any contributions.
Probably the most shocking data comes from a study on media bias, written by Hans Hassell, John Holbein, and Matthew Miles. Based on Twitter patterns, they found that journalists tend to be on the far left, perhaps even further to the left than Bernie Sanders.
Interestingly, the authors then proceed to claim that the media’s left-wing orientation does not impact the stories that get written.
To run our correspondence experiment, we created an artificial campaign email address for a fictitious candidate for the state legislature. We emailed the journalists on our list, asking them to cover the potential candidate. …this story appears to be something that is generally considered newsworthy but is subject to journalist discretion and is exactly the type of story where gatekeeping biases could be manifest. Our email appeared to be from a campaign staffer, indicating that the candidate was about to announce his candidacy within the next week and asking whether the journalist would be interested in sitting down with the candidate sometime in the following week to discuss his candidacy and vision for state government. The text in each of the emails was identical except for the bio of the candidate that we included at the end of the message. In the brief bio, we randomly varied the candidate’s ideological description. …there is no statistical or substantive difference in the probability of a journalist responding to the email based solely on the treatment conditions. Comparing the two poles, strong conservative candidates are, on average, a mere 0.4 percentage points less likely to get a response than strong progressive candidates.
For what it’s worth, I think this study is misleading. Why? Because it looks for bias in one of the few places where it’s unlikely to exist.
It’s not surprising that journalists (especially ones who write for local outlets) are equally likely to cover campaign announcements, regardless of the partisan or ideological orientation of candidates.
Based on my decades of experience in Washington, however, I can state with near certainty that there would not be equal coverage if the study tested how journalists respond to new research on, say, fiscal policy.
To be blunt, a study from a right-leaning source on the benefits of smaller government would receive far less attention than a study from a left-leaning source that asserted the opposite.
I wrote about a specific instance of this kind of bias last year.
Now let’s consider another real-world example. Jason DeParle of the New York Times recently wrote about a “study” that purported to show that Biden’s per-child handouts boosted brain activity in young children.
All sorts of social scientists (see here, here, here, here, here, and here) pointed out that it was – at best – a very weak study.
This isn’t my field of expertise, so I don’t have anything to add to their criticisms.
But I will note that the New York Times and other major establishment voices don’t give prominent coverage to much stronger and more rigorous studies showing the various social pathologies (unemployment, dependency, single-parent households, poverty, loss of societal capital, etc) associated with redistribution.
Instead, research that doesn’t match with the preferred narrative gets little or no attention.
Now that we’ve established that a bias exists and that it affects news coverage, let’s close by considering the implications.
In a column for the Wall Street Journal, Van Gordon Sauter, the former head of CBS News, acknowledges the media’s bias and says it won’t change.
The highly influential daily newspapers in New York, Washington, Los Angeles and Boston are now decidedly liberal. On the home screen, the three broadcast network divisions still have their liberal tilt. Two of the three leading cable news sources are unrelentingly liberal… The news media is catching up with the liberalism of the professoriate, the entertainment industry, upscale magazines and the literary world. …To many journalists, objectivity, balance and fairness—once the gold standard of reporting—are not mandatory in a divided political era and in a country they believe to be severely flawed. …The media seems uninterested in these issues of bias. But wouldn’t a softening of its editorial orientation bring new readers or viewers? Probably not. The growth of new customers would be more than offset by the defection of outraged members of the current audience. The news media seems very comfortable with its product and ability to sell it. …There is no personal, professional or financial reason to change.
But the unwillingness to change probably isn’t good for the nation. Or the media.
In a 2018 editorial, Investor’s Business Daily speculated that increasing bias was bad news for the press.
Ask journalists, and they’ll likely tell you they play things right down the middle. They strive to be “fair.” They’re “centrists.” Sorry, not true. …Journalists, besotted with their own ideology, are no longer able to recognize their own bias. …journalism is one of the most left-wing of all professions. …This is an enormous problem for the media — perhaps bigger than they realize. A Rasmussen Reports survey in late October found that 45% of all likely voters in the midterm elections believed “that when most reporters write about a congressional race, they are trying to help the Democratic candidate.” Just 11% said the media would try to help the Republican. …A post-election survey of 1,000 voters by McLaughlin & Associates found that “a forceful plurality (48%) of respondents believe the media coverage is unfair and biased”… It wasn’t always this way. …In 1971, Republicans made up 25.7% of all journalists. Democrats were 35.5%… By 2014, the year of the last survey, the share of journalists identifying as Republican had shrunk to 7.1%, an 18.6 percentage point drop. …Democrats today outnumber Republicans today by four to one.
One takeaway is that bias on the part of the establishment press has paved the way for ideological bifurcation.
The major networks, most cable stations, and newspapers are now much more brazen about siding with the left. And this has encouraged the creation of a parallel media universe on the right, featuring Fox, talk radio, and alternative media.
So are there any policy implications, at least for those of us with a libertarian orientation?
Nope. Media companies should be free to be biased. Or free to be neutral. The market can then reward or punish firms based on their choices.
But I’ll close by warning that some folks on the left want to subsidize journalists. Here are some excerpts from a column in Reason by Christian Britschgi about the tax bill being pushed by House Democrats.
House Democrats are keen to raise taxes…to pay for their $3.5 trillion spending bill. But they’re cutting local newspapers some slack by slipping a special subsidy for publishers into their latest tax proposal. …local publishers would get annual tax credits of up to $25,000 for each journalist they employ …if the value of the tax credit exceeds the Medicare taxes a publisher pays, the publisher would receive the difference in the form of a check from the IRS. This transforms the policy from a targeted tax break to a direct subsidy. …there are two serious problems with the idea. The first is that taxpayers are being forced to pay for local journalism they wouldn’t otherwise choose to support. Giving struggling outlets government checks only weakens their need to reach readers, or to convince donors of their value. …The second, more serious problem is that it puts the federal government in charge of deciding what counts as a legitimate newspaper and who counts as a legitimate journalist under the tax code. …Imagine IRS agents poring over a newspaper (or Substack) to see if it qualifies for special tax treatment. Not exactly an image consistent with the First Amendment.
This definitely isn’t the biggest reason to oppose Biden’s so-called Build Back Better, but ethical people of all persuasions should be nauseated by this effort to create a lapdog press living off government handouts.
It’s presumably not controversial to point out that the Washington Post (like much of the media) leans to the left. Indeed, the paper’s bias has given me plenty of material over the years.
As you can see, what really irks me is when the bias translates into sloppy, inaccurate, or misleading statements.
In 2011,the Post asserted that a plan to trim the budget by less than 2/10ths of 1 percent would “slash” spending.
Later that year, the Post claimed that the German government was “fiscally conservative.”
Ms. Warren’s version of the wealth tax, which calls for 2 percent annual levies on net wealth above $50 million, and 3 percent above $1 billion, very rich people would face large tax bills even when they had little or negative net income, forcing them to sell assets to pay their taxes. …huge chunks of private wealth tied up in real estate, rare art and closely held businesses are more difficult — sometimes impossible — to assess consistently. …Such problems help explain why national wealth taxes yielded only modest revenue in the 11 European countries that levied them as of 1995, and why most of those countries subsequently repealed them.
I’m disappointed that the Post overlooked the biggest argument, which is that wealth taxation would reduce saving and investment and thus lead to lower wages.
But I suppose I should be happy with modest steps on the road to economic literacy.
The Post‘s editorial also echoed my argument by pointing out that ProPublica was very dishonest in the way it presented data illegally obtained from the IRS.
ProPublica muddied a basic distinction, which, properly understood, actually fortifies the case against a wealth tax. The story likened on-paper asset price appreciation with actual cash income, then lamented that the two aren’t taxed at the same rate. …ProPublica’s logic implies that, when the stock market goes down, Elon Musk, whose billions are tied up in shares of Tesla, should get a tax cut.
Amen (this argument also applies to the left’s argument for taxing unrealized capital gains).
Now that I’ve presented the sensible portions of the Post‘s editorial, let’s shift to the bad parts.
First and foremost, the entire purpose of the editorial was to support more class-warfare taxation.
Fortunately, legitimate goals of a wealth tax can be achieved through other means… This would require undoing not only some of the 2017 GOP tax cuts, but much previous tax policy as well… The higher capital gains rate should be applied to a broader base of investment income… President Biden’s American Families Plan calls for reform of this so-called “stepped-up basis” loophole that would yield an estimated $322.5 billion over 10 years.
The editorial also calls for an expanded death tax, one that would raise six times as much money as the current approach.
…simply reverting to estate tax rules in place as recently as 2004 could yield $98 billion per year, far more than the $16 billion the government raised in 2020.
Last but not least, it argues for these tax increases because it wants us to believe that politicians will wisely use any additional revenue in ways that will increase economic opportunity.
The public sector could use new revenue from stiffer capital gains and estate taxes to expand opportunity.
Proponents argue that if we give politicians more money, we’ll somehow get more prosperity.
At the risk of understatement, this theory isn’t based on empirical evidence.
Which is the message of a 2017 video from the Center for Freedom and Prosperity. And it’s also the reason I repeatedly ask the never-answered question.
P.S. To make the argument that capital gains taxes and death taxes are better than wealth taxation, the Post editorial cites research from the Paris-based Organization for Economic Cooperation and Development. Too bad the Post didn’t read the OECD study showing that class-warfare taxes reduce overall prosperity. Or the OECD study showing that more government spending reduces prosperity.
How should Nazism be classified, particularly when compared to socialism? Are these ideologies at opposite ends of a spectrum, or are they simply different sides of the same collectivist coin?
In my humble opinion, both views are correct, which is why I think this triangle is the best way to classify various ideologies.
Nazis are motivated by race hatred and the socialists are motivated by class hatred, so they basically are at opposite ends at the bottom of the triangle.
These different ways of looking at the issue explain why Glenn Kessler of the Washington Post created a controversy when he decided to “fact check” this statement from gadfly Congresswoman Marjorie Taylor Greene.
According to Kessler, Greene deserved “four Pinocchios” for asserting that Hitler and the Nazis were socialists.
The full name of Hitler’s party was Nationalsozialistische Deutsche Arbeiterpartei. In English, that translates to National Socialist German Workers’ Party. But it was not a socialist party; it was a right-wing, ultranationalist party dedicated to racial purity, territorial expansion and anti-Semitism — and total political control. …the 1920 Nazi party platform…there are…passages denouncing banks, department stores and “interest slavery.” That could be seen as “a quasi-Marxist rejection of free markets. But these were also typical criticisms in the anti-Semitic playbook …Hitler adamantly rejected socialist ideas, dismantled or banned left-leaning parties and disapproved of trade unions. …We suggest Greene brush up on her history… She earns Four Pinocchios.
This is remarkable. The Nazis called themselves socialists, yet Kessler says Greene is lying for saying the same thing.
I’m not the only one to notice this bizarre example of media bias.
Professor Hannes Gissurarson from Iceland debunked Kessler’s hack analysis.
A ‘fact-checker’ at Washington Post, Glenn Kessler, asserts that a Republican Member of the House of Representatives is wrong in a recent comment on Hitler’s national socialism. It is not, as she had said, a branch of socialism. Kessler writes that the German Nazi Party, despite its name (the National-Socialist Workers’ Party), ‘was not a socialist party…’ In support of his case, Kessler quotes the first eight of the 25 points in the 1920 Nazi political programme… He lukewarmly concedes that in the Nazi programme there were also passages denouncing capitalism. But why does he not quote them as well? …It is hard not to discern the socialist overtones in these points. Why did the Washington Post fact-checker not quote them in full like the first eight? …according to Hayek national socialism could be considered to be the rebellious socialism of the lower middle class… Traditional socialists, democrats as well as communists, shared with Hitler’s national socialists the belief that conscious organisation had to replace the spontaneous order… Hayek is certainly right that there are strong family resemblances between traditional socialism and national socialism. Both are totalitarian creeds.
Professor David Henderson also eviscerated Kessler’s sloppy column.
Glenn Kessler, the Post‘s official fact checker, …analyzes various statements and claims to determine whether they are true. If he finds them false, he awards them Pinocchios, with the number of Pinocchios depending on the degree of falsehood. The highest number of Pinocchios he awards is 4. On May 29, Glenn Kessler earned his own Pinocchios. …Nazis…really were a socialist party. …Kessler attempts to buttress his case by listing the first 8 of 25 planks in the 1920 Nazi Party platform. Those planks do help his case that the Nazis were anti-Semitic (duh) and nationalists (ditto duh). But what about the other 17 planks? …pretty socialistic.
Here are some of those planks that Kessler conveniently omitted.
11. Abolition of unearned (work and labour) incomes. Breaking of rent-slavery. …
13. We demand the nationalization of all (previous) associated industries (trusts).
14. We demand a division of profits of all heavy industries.
15. We demand an expansion on a large scale of old age welfare. …
17. We demand a land reform suitable to our needs, provision of a law for the free expropriation of land for the purposes of public utility, abolition of taxes on land and prevention of all speculation in land.
Henderson also zings Kessler for using a misleading quote from Martin Niemoller.
By the way, the Nazis didn’t merely advocate for socialism in an early platform. They also implemented statist policies once they took power.
Back in 2007, Michael Moynihan wrote about the Nazi welfare state in a book review for Reason.
…the Nazis maintained popular support—a necessary precondition for the “final solution”—not because of terror or ideological affinity but through a simple system of “plunder,” “bribery,” and a generous welfare state. …Requisitioned Jewish property, resources stolen from the conquered, and punitive taxes levied on local businesses insulated citizens from shortages and allowed the regime to create a “racist-totalitarian welfare state.” …To understand Hitler’s popularity, …”it is necessary to focus on the socialist aspect of National Socialism.” …Adolf Eichmann viewed National Socialism and communism as “quasi-siblings,” explaining in his memoirs that he “inclined towards the left and emphasized socialist aspects every bit as much as nationalist ones.” As late as 1944, Propaganda Minister Josef Goebbels publicly celebrated “our socialism,” reminding his war-weary subjects that Germany “alone [has] the best social welfare measures.” Contrast this, he advised, with the Jews, who were the very “incarnation of capitalism.” …Hitler implemented a variety of interventionist economic policies, including price and rent controls, exorbitant corporate taxes, frequent “polemics against landlords,” subsidies to German farmers…and harsh taxes on capital gains, which Hitler himself had denounced as “effortless income.”
The bottom line is that the Nazis are justifiably hated for reasons that have nothing to do with economic policy.
Here are two videos from Prager University for those who want more information. First, we can learn about communism and Nazism.
Second, we can learn about the history of fascism.
Let’s wrap up by quoting George Will on the interrelated ideas of fascism, Nazism, and socialism.
Fascism…was a recoil against Enlightenment individualism: the idea that good societies allow reasoning, rights-bearing people to define for themselves the worthy life. …Mussolini, a fervent socialist until his politics mutated into a rival collectivism, distilled fascism to this: “Everything within the state, nothing outside the state, nothing against the state.” The Nazi Party — the National Socialist German Workers’ Party — effected a broad expansion of socialism’s agenda…
Last, but not least, here’s a reminder that we should be very wary of demagogues who promise goodies.
The second is how profits should be taxed, and that’s the focus of today’s column.
My perfect-world answer is that there should be no tax on profits because we have a government that is so small that there’s no need for any type of income tax. But I’m in the United States rather than a fiscal paradise such as Bermuda, Monaco, or the Cayman Islands. So if we start with the assumption that a corporate income tax is going to exist, how should it operate?
To answer that question, let’s start with this simple example of a kid’s lemonade stand. Here’s how much money it spent and how much revenue it generated (before it was shut down by overzealous bureaucrats).
How much profit did our budding entrepreneur make?
The correct answer, of course, is that the business didn’t earn any profits. Indeed, it lost $2. So there obviously should not be any tax.
But some people don’t understand the difference between taxable income (which is largely based on cash flow in one year) and “book income” (which is largely a backward-looking, accrual-based estimate of profits to help inform shareholders about the overall financial condition of a corporation).
Or, maybe they do understand and simply prefer to engage in dishonest demagoguery. For instance, let’s look at a recent report by Patricia Cohen in the New York Times.
…a new study finds that at least 55 of America’s largest paid no taxes last year on billions of dollars in profits…thanks to a range of legal deductions and exemptions that have become staples of the tax code, according to the analysis. Salesforce, Archer-Daniels-Midland and Consolidated Edison were among those named in the report, which was done by the Institute on Taxation and Economic Policy, a left-leaning research group in Washington. …Twenty-six of the companies listed, including FedEx, Duke Energy and Nike, were able to avoid paying any federal income tax for the last three years even though they reported a combined income of $77 billion. Many also received millions of dollars in tax rebates.
Sounds terrible, right.
Except if you read the fine print, in which case you’ll find out the report discussed in the article isn’t based on company tax returns. Instead, the leftist group, the Institute on Taxation and Economic Policy (ITEP), used financial statements to make up some numbers.
And ITEP’s use of book income meant it didn’t properly measure things such as business investment expenditures and net operating losses, which are necessary to determine whether a company has an actual cash-flow profit.
Ms. Cohen never should have written a story about ITEP’s shoddy and dishonest report, though at least she acknowledged that there are reasons to question the findings.
A provision in the 2017 tax bill allowed businesses to immediately write off the cost of any new equipment and machinery. The $2.2 trillion CARES Act…included a provision that temporarily allowed businesses to use losses in 2020 to offset profits earned in previous years, according to the institute. …many deductions and credits are there for good reason — to encourage research and development, to promote expansion and to smooth the ups and downs of the business cycle, taking a longer view of profit and loss than can be calculated in a single year.
The bottom line is that the ITEP report is garbage.
There’s no reason to expect taxable income to match up with financial statements or “book income.”
Indeed, the differences between those measures is why there are also companies that – according to ITEP’s sloppy methodology – pay tax when they supposedly have losses.
For those who actually care about the truth, the top half of this visual shows how a proper business tax system should work (i.e., one that taxes profits when they actually occur).
But I’ve only written one column specifically on the topic of whether the press is slanted. In that article, I pointed out that media bias rarely is based on lies.
Even when stories are overtly misleading (as is often the case with reports about poverty, for instance), journalists almost always are clever enough to avoid crossing a line to outright dishonesty.
In practice, media bias is largely about what gets covered and what doesn’t.
Media bias very rarely involves dishonesty. Deception yes, but not inaccuracies. It’s almost always about story selection and what gets emphasized.
Today, I want to share an example of this phenomenon.
A left-leaning group called the International Equalities Institute recently published a report claiming that lower tax rates on upper-income taxpayers don’t lead to faster growth.
The London-based group isn’t well known and neither are the two authors (David Hope and Julian Limberg), yet this study received a massive amount of attention.
To cite just a few examples, it got major coverage from the Washington Post.
The reason this report got so all this attention, in my humble opinion, is that it gave reporters an excuse to advance a pro-statism message.
And that meant writing press releases about the report rather than practicing real journalism. They praised the study as “comprehensive” and “sophisticated,” though presumably none of them know anything about its methodology.
And they certainly didn’t seek out any contrary views.
So allow me to point out a few problems with the Hope-Limberg report. Feel free to read the entire study, but I think these passages fairly summarize the two main arguments (tax cuts help the rich and tax cuts don’t help the economy) in the publication.
…it remains an open empirical question how cutting taxes on the rich affects economic outcomes. In this paper, we use data from 18 OECD countries covering the last fifty years to investigate the effects of major tax cuts for the rich on income inequality, economic growth, and unemployment. …Our results show that…major tax cuts for the rich increase the top 1% share of pre-tax national income in the years following the reform… The magnitude of the effect is sizeable; on average, each major reform leads to a rise in top 1% share of pre-tax national income of 0.8 percentage points. The results also show that economic performance, as measured by real GDP per capita and the unemployment rate, is not significantly affected by major tax cuts for the rich.
Regarding the two arguments, I’m not sure what point Hope and Limberg think they’re making with their first point about lower tax rates leading the rich to earn more income.
At the risk of stating the obvious, that’s one of the main selling points for better tax policy. Supporters of lower tax rates explicitly want entrepreneurs, investors, business owners, and other successful people to have better incentives to earn and report taxable income.
So the Hope-Limberg data actually confirm that lower tax rates on upper-income taxpayers are a great way of getting them to be more productive. Art Laffer would give them an A+ if they were students.
But what about the second argument? Is it true that there’s no positive impact when tax rates are reduced on work, saving, investment, risk-taking, and entrepreneurship?
Let’s examine their conclusions. Here’s the chart showing when selected nations reduced tax rates (in red). Hope and Limberg then calculated whether those countries enjoyed a bump in jobs and growth over the following five years and want us to accept their argument that there was no positive impact.
Since the report doesn’t include the underlying data or the model used to generate the results, we’re supposed to accept their results at face value.
At the risk of being the skunk at the garden party, I’m unconvinced. Hope and Limberg are political scientists rather than economists, but it seems like they overlooked some very important issues.
Most important, why didn’t they factor in the impact of other government policies (trade, regulation, government spending, monetary policy, etc)? Taxation is just one small piece of the economic policy puzzle. Maybe they covered these concerns in their undisclosed model and data, but estimating economic performance by looking solely at tax policy is like trying to figure out the score of a baseball game by just comparing the performance of shortstops.
And there are a couple of other concerns I have, such as why did they pick these 18 countries and ignore other nations? And why not examine economic performance beyond five years?
I’ll conclude by also noting that their study doesn’t pass the smell test.
Are we really supposed to believe that Ireland’s lower tax rates didn’t help turn the “Sick man of Europe” into the Celtic Tiger?
Are we really supposed to believe that New Zealand’s tax cuts didn’t contribute to that nation’s remarkable turnaround?
Are we really supposed to believe that countries such as Italy, Finland, Belgium, etc, are examples of supply-side reform?
The bottom line is that better tax policy isn’t some sort of elixir that guarantees prosperity. Especially if other policies in a nation are misguided.
In a story for the Washington Post, Tracy Jan (aided by Seung Min Kim and Emily Guskin) argue that the Trump’s policies were bad news for African Americans.
Black voters overwhelmingly chose Biden, with 87 percent casting their ballots for him… Trump presided over the most unequal recession in modern American history because of his mismanagement of the coronavirus pandemic. …Economists say that rather than champion economic policies targeting average Black Americans, who are more likely to work low-wage jobs without health and retirement benefits, Trump’s annual budgets proposed eviscerating the social safety net, with cuts to housing, food stamps and health care.
The second minor comment is that the recession was caused by the coronavirus, not by Trump’s policies.
The major comment is that Ms. Jan and her two colleagues wrote a lengthy story (more than 2,000 words) and never once mentioned or acknowledged that the black poverty rate fell to a record low during the Trump years.
Or that median household income for blacks rose to a record high.
This is a shocking level of journalistic malpractice. Sort of like writing about the Cold War without ever mentioning the Soviet Union.
By the way, I’m not saying that a pro-Trump spin was needed. They could have written about the poverty and income data and offered alternative explanations for why there were good numbers.
To be fair, the article does acknowledge that unemployment rate for African Americans fell to a record low during the Trump years.
…the Black unemployment rate’s record low average of 6.1 percent over 2019 — a steady improvement that had begun during the Obama administration — remained double that of Whites.
Though the obvious implication is that Trump doesn’t deserve any credit for a trend that started under Obama.
Which is certainly a legitimate argument, though honest journalists would have cited some people making the counter argument that his policies did make a difference (for what it’s worth, I think it’s a combination of both).
P.S. I’ll add another minor comment. The story quotes several people (all on the left side of the political spectrum) on how African Americans ostensibly will benefit if there is a bigger welfare state and more redistribution.
Let’s add to the collection today by perusing an interesting – but frustrating – article in the New York Times about Venezuela’s near-decimated oil industry.
Authored by Sheyla Urdaneta, Anatoly Kurmanaev and Isayen Herrera, it provides a thorough description of how the energy sector in oil-rich Venezuela has collapsed.
For the first time in a century, there are no rigs searching for oil in Venezuela. Wells that once tapped the world’s largest crude reserves are abandoned… Refineries that once processed oil for export are rusting hulks… Fuel shortages have brought the country to a standstill. At gas stations, lines go on for miles. …The country that a decade ago was the largest producer in Latin America, earning about $90 billion a year from oil exports, is expected to net about $2.3 billion by this year’s end… More than five million Venezuelans, or one in six residents, have fled the country since 2015, creating one of the world’s greatest refugee crises, according to the United Nations. The country now has the highest poverty rate in Latin America, overtaking Haiti.
But here’s what shocked me. The article never once mentions socialism. Or statism. Or leftist economic policy.
Instead, there is one allusion to “mismanagement” and one sentence that refers to government policy.
…years of gross mismanagement… Hugo Chávez, appeared on the national stage in the 1990s promising a revolution that would put Venezuela’s oil to work for its poor majority, he captivated the nation. …Mr. Chávez commandeered the country’s respected state oil company for his radical development program. He fired nearly 20,000 oil professionals, nationalized foreign-owned oil assets and allowed allies to plunder the oil revenues.
Almost 1800 words in the article, yet virtually no discussion of how maybe, just maybe, Venezuela’s hard shift to the left (as illustrated by the chart, economic freedom has steadily declined this century) may have contributed to the collapse of the country’s major industry.
This is journalistic malpractice. Sort of like writing about 2020 and not mentioning coronavirus or writing about 1944 and not mentioning World War II.
For those of you who do care about facts, it’s worth knowing that Venezuela has the world’s lowest level of economic liberty according to Economic Freedom of the World and second-to-lowest level of economic liberty according to the Index of Economic Freedom.
In a column for USA Today, Daniel di Martino writes about the awful consequences of his nation’s drift to socialism.
All my life, I lived under socialism in Venezuela until I left and came to the United States as a student in 2016. Because the regime in charge imposed price controls and nationalized the most important private industries, production plummeted. No wonder I had to wait hours in lines to buy simple products such as toothpaste or flour. …My family and I suffered from blackouts and lack of water. The regime nationalized electricity in 2007 in an effort to make electricity “free.” Unsurprisingly, this resulted in underinvestment in the electrical grid. By 2016, my home lost power roughly once a week. …The real reason my family went without water and electricity was the socialist economy instituted by dictators Hugo Chavez and Nicolas Maduro. The welfare programs, many minimum-wage hikes and nationalizations implemented by their regimes resulted in a colossal government deficit that the central bank covered by simply printing more money — leading to rampant inflation. …I watched what was once one of the richest countries in Latin America gradually fall apart under the weight of big government.
And he issues a warning about what could happen to the United States.
…neither Medicare for All nor a wealth tax alone would turn the United States into Venezuela overnight. No single radical proposal would do that. However, if all or most of these measures are implemented, they could have the same catastrophic consequences for the American people that they had for Venezuela.
The good news, so to speak, is that it would take many decades of bad policy to turn the U.S. into an economic basket case. There’s even a somewhat famous quote from Adam Smith (“there is a great deal of ruin in a nation“) about the ability of a country to survive and withstand lots of bad public policy.
But that doesn’t mean it would be a good idea to see how quickly the U.S. could become Venezuela. As I pointed out when writing about Argentina, it’s possible for a rich country to tax, spend, and regulate itself into economic crisis.
P.S. If you like gallows humor, you can find Venezuela-themed jokes here, here, here, here, here, and here.
P.P.S. I speculated about the looming collapse of Venezuela in both 2018 and 2019. Sadly, it looks like the regime will last at least until 2021.
A couple of weeks ago, I debunked a remarkably anti-empirical column by Dana Milbank of the Washington Post.
He claimed that America’s response to the coronavirus was hampered because government is too small, yet the nations he cited as successful role models actually have much smaller public sectors than the United States.
Unfortunately, other journalists share Mr. Milbank’s ignorance with regards to easily accessible data on fiscal policy.
Writing for the Atlantic, George Packer asserts that the U.S. response to the coronavirus has been a miserable failure because government is too small.
Every morning in the endless month of March, Americans woke up to find themselves citizens of a failed state. …a federal government crippled by years of right-wing ideological assault, politicization by both parties, and steady defunding. …tests for the virus were almost impossible to find… years of attacking government, squeezing it dry and draining its morale, inflict a heavy cost that the public has to pay in lives. All the programs defunded, stockpiles depleted, and plans scrapped meant that we had become a second-rate nation.
Michael Brendan Dougherty of National Reviewtakes apart Packer’s column.
He points out that CDC funding has increased, while also noting that the bureaucracy has squandered the additional money it has received.
…the CDC’s funding has increased — not that it has made good use of the extra money. This is not a lean and mean virus-fighting machine, getting by on starvation-level resources. It maintains a Hollywood liaison to consult on films. In recent years, it has expanded beyond its core mission to promote motorcycle safety and sponsor programs dedicated to fostering “safe, stable, nurturing relationships” in schools. If you’re wondering why there was lots of political and social messaging larding up CDC documents on COVID-19, just realize that when Congress increases an agency’s funding, the result is likely to be more ideological make-work jobs rather than a more effective workforce. …as for public-sector health-care spending, ours is not notably low — it’s roughly equivalent to those of the developed nations of Western Europe.
And he also observes that nations with smaller governments have done a better job than countries with bigger governments.
…The East Asian states that have done best in fighting COVID-19 are not social-democratic but hyper-capitalist. Compared with them — and to America —Western Europe has done much worse at containing the spread of the coronavirus and the holding down the death toll.
Excellent points.
For my contribution to this debate, I’m going to investigate whether Mr. Packer is right about “steady defunding” of the federal government.
To see whether he is correct about “programs defunded,” I went to Table 1.3 of the Historical Tables of the Budget and created the following chart to see what happened to inflation-adjusted spending over the past 40 years.
Lo and behold, it turns out that Mr. Packer is completely wrong. There hasn’t been any defunding. Not even close.
Instead, the inflation-adjusted burden of government is almost three times greater today than it was the year Reagan was elected (and it will be more than three times greater once all the emergency spending is included).
The bottom line is that I can’t figure out whether to be more dismayed that journalists are innumerate or that major publications apparently don’t have fact checkers.
P.S. There were periods when spending grew faster than at other times. There were also times when the private sector grew faster than the government (fulfilling the Golden Rule). And we also can see the how government exploded because of TARP and Obama’s faux stimulus and then was briefly constrained during the Tea Party era (and is now climbing rapidly under Trump).
I would prefer not to write about President Trump’s new budget, largely because I know it’s not a serious proposal.
Even before he was elected, I pointed out that Trump was a big-government Republican who had no intention of dealing with serious fiscal issues such as the rising burden of entitlement spending.
So I wasn’t surprised that he capitulated to swamp-friendly budget deals in 2017, 2018, and 2019. And I’m depressingly confident that the same thing will happen this year.
That being said, I want to comment on how the media is covering his latest budget.
Take a look at some of the headlines that are dominating the news this morning.
All of these headlines make is seem like Trump is proposing a Reagan-style budget with lots of cuts, especially with regards to domestic programs.
All of that would be great news…if it was true.
In reality, here’s what Trump is projecting for total spending over the next 10 years.
Can you find the spending cuts?
And here’s what’s happening with domestic spending (mandatory outlays plus domestic discretionary) according to Trump’s budget.
Can you find the spending cuts?
Last but not least, here’s Trump’s plan for domestic discretionary spending.
Can you find the spending cuts?
So why is there such a big disconnect in the media? Why are there headlines about cutting and slashing when government is growing by every possible measure?
For the simple reason that the budget process in Washington is pervasively dishonest, as I’ve explained in interviews with John Stossel and Judge Napolitano. Here are the three things you need to know.
The politicians created a system that automatically assumes big increases in annual spending, called a baseline.
When there’s a proposal to have spending grow slower than the baseline, the gap between the proposal and the baseline is called a cut.
It’s like being on a diet and claiming progress because you’re gaining two pounds each month rather than five pounds.
Defenders of this system argue that programs should get built-in increases because of things such as inflation, or because of more old people, which leads to more spending for programs such as Social Security and Medicare.
It’s certainly reasonable for them to argue that budgets should increase for these reasons.
But they should be honest. Be forthright and assert that “Spending should climb X percent because…”
Needless to say, that won’t happen. The pro-spending politicians and interest groups like the current approach because it allows them to scare voters by warning about “savage” and “draconian” spending cuts.
Remember how Obama said the sequester would wreak havoc because of massive cuts? Except there weren’t any cuts, massive or otherwise. As Thomas Sowell pointed out, Obama was trying to deceive voters.
To help me follow policy developments, I get 30-plus daily emails from various news outlets and institutions, and I scroll through these messages to see what I should be reading.
But since I just wrote about the dismal performance of government schools as part of my series for National Education Week, I obviously noticed this story (highlighted in red) in an email from the New York Times.
My immediate reaction, given the wealth of evidence, was to scoff at the discredited notion that more spending is a key to better educational outcomes.
Anyhow, I clicked on the story and read that supposed experts are puzzled about stagnant academic performance.
The performance of American teenagers in reading and math has been stagnant since 2000, according to the latest results of a rigorous international exam, despite a decades-long effort to raise standards and help students compete with peers across the globe. …The disappointing results from the exam, the Program for International Student Assessment, …follow those from the National Assessment of Educational Progress, an American test that recently showed that two-thirds of children were not proficient readers. …Low-performing students have been the focus of decades of bipartisan education overhaul efforts, costing many billions of dollars, that have resulted in a string of national programs — No Child Left Behind, Race to the Top, the Common Core State Standards, the Every Student Succeeds Act — but uneven results.
By the way, we haven’t had a “decades-long effort to raise standards.”
What we really had is a decades-long effort to appease teacher unions by pouring more money into the existing school monopoly.
That was the real purpose of failed schemes like Bush’s No Child Left Behind (I call it No Bureaucrat Left Behind) and Obama’s Common Core.
I briefly thought how much fun I would have if I was an editor at the New York Times. Then the email summary would have looked like this.
To be fair, I don’t think spending (either a lot or a little) is the issue.
The real problem is the structure of our education system. We have a very inefficient monopoly that has been captured by the teacher unions, which means mediocre results.
It doesn’t matter that most teachers are well meaning and it doesn’t matter that most parents are well meaning. Until we replace the monopoly with school choice, things won’t get any better.
Let’s close with some speculation about whether the above story is an example of media bias?
Perhaps, but I think it’s most likely that it’s an an example of the “Butterfield Effect.” As I explained back in 2010, this is a term used to mock journalists for being blind to the real story.
A former reporter for the New York Times, Fox Butterfield, became a bit of a laughingstock in the 1990s for publishing a series of articles addressing the supposed quandary of how crime rates could be falling during periods when prison populations were expanding. A number of critics sarcastically explained that crimes rates were falling because bad guys were behind bars and invented the term “Butterfield Effect” to describe the failure of leftists to put 2 + 2 together.
In other words, the journalist who wrote the aforementioned story may not be biased. Or even a leftist.
But such people inhabit a world where government is universally perceived as a means of solving problems.
P.S. Here are some of my favorite examples of the “Butterfield Effect,” all of which presumably were caused by some combination of media bias and economic ignorance.
A newspaper article that was so blind to the Laffer Curve that it actually included a passage saying, “receipts are falling dramatically short of targets, even though taxes have increased.”
Another article was entitled, “Few Places to Hide as Taxes Trend Higher Worldwide,” because the reporter apparently was clueless that tax havens were attacked precisely so governments could raise tax burdens.
In another example of laughable Laffer Curve ignorance, the Washington Post had a story about tax revenues dropping in Detroit “despite some of the highest tax rates in the state.”
Likewise, another news report had a surprised tone when reporting on the fully predictable news that rich people reported more taxable income when their tax rates were lower.
A New York Times article was headlined, “Trillions Spent, but Crises like Greece’s Persist,” indicating nobody realized spending was the problem rather than solution.
The news staff of the Wall Street Journal also demonstrated their ignorance of the Laffer Curve with a story headlined: “Despite Top-Property Tax Rate in Connecticut, the State’s Capital Teeters on Bankruptcy.”
The New York Times is going overboard with disingenuous columns.
A few days ago, I pointed out the many errors in David Leonhardt’s column extolling the wealth tax.
I also explained back in August how Steven Greenhouse butchered the data when he condemned the American economy.
And Paul Krugman is infamous for his creative writing.
But Mr. Leonhardt is on a roll. He has a new column promoting class warfare tax policy.
Almost a decade ago, Warren Buffett made a claim that would become famous. He said that he paid a lower tax rate than his secretary, thanks to the many loopholes and deductions that benefit the wealthy. …“Is it the norm?” the fact-checking outfit Politifact asked. “No.” Time for an update: It’s the norm now. …the 400 wealthiest Americans last year paid a lower total tax rate — spanning federal, state and local taxes — than any other income group, according to newly released data. …That’s a sharp change from the 1950s and 1960s, when the wealthy paid vastly higher tax rates than the middle class or poor.
Here’s the supposed proof for Leonhardt’s claim, which is based on a new book from two professors at the University of California at Berkeley, Emmanuel Saez and Gabriel Zucman.
So is Leonhardt (channeling Saez and Zucman) correct?
Are these charts evidence of a horrid and unfair system?
Nope, not in the slightest.
But this data is evidence of dodgy analysis by Leonhardt and the people he cites.
First and foremost, the charts conveniently omit the fact that dividends and capital gains earned by high-income taxpayers also are subject to the corporate income tax.
Even the left-leaning Organization for Economic Cooperation and Development acknowledges that both layers of tax should be included when measuring the effective tax rate on households.
Indeed, this is why Warren Buffett was grossly wrong when claiming he paid a lower tax rate than his secretary.
But there’s also another big problem. There’s a huge difference between high tax rates and high tax revenues.
Simply stated, the rich didn’t pay a lot of tax when rates were extortionary because they can choose not to earn and declare much income.
Today, by contrast, upper-income taxpayers are paying an overwhelming share of the tax burden.
It’s especially worth noting that tax collections from the rich skyrocketed when Reagan slashed the top tax rate in the 1980s.
Let’s close by pointing out that Saez and Zucman are promoting a very radical tax agenda.
Saez and Zucman sketch out a modern progressive tax code. The overall tax rate on the richest 1 percent would roughly double, to about 60 percent. The tax increases would bring in about $750 billion a year, or 4 percent of G.D.P…. One crucial part of the agenda is a minimum global corporate tax of at least 25 percent. …Saez and Zucman also favor a wealth tax
Punitive income tax rates, higher corporate tax rates, and a confiscatory wealth tax.
Does anybody think copying France is a recipe for success?
P.S. I pointed out that Zucman and Saez make some untenable assumptions when trying to justify how a wealth tax won’t hurt the economy.
P.P.S. It’s also worth remembering that the income of rich taxpayers will be subject to the death tax as well, which means Leonhardt’s charts are doubly misleading.
Check out these excerpts from a New York Timescolumn by Steven Greenhouse.
The United States is the only advanced industrial nation that doesn’t have national laws guaranteeing paid maternity leave. It is also the only advanced economy that doesn’t guarantee workers any vacation, paid or unpaid, and the only highly developed country (other than South Korea) that doesn’t guarantee paid sick days. …Among the three dozen industrial countries in the Organization for Economic Cooperation and Development, the United States has the lowest minimum wage as a percentage of the median wage — just 34 percent of the typical wage, compared with 62 percent in France and 54 percent in Britain. It also has the second-highest percentage of low-wage workers among that group… All this means the United States suffers from what I call “anti-worker exceptionalism.” …America’s workers have for decades been losing out: year after year of wage stagnation.
Sounds like the United States is some sort of Dystopian nightmare for workers, right?
Well, if there’s oppression of labor in America, workers in other nations should hope and pray for something similar.
Here’s a chart showing per-capita “actual individual consumption” for various nations that are part of the Organization for Economic Cooperation and Development. As you can see, people in the United States have much higher living standards.
By the way, I can’t resist pointing out another big flow in Greenhouse’s NYT column.
He wrote that the U.S. has “the second-highest percentage of low-wage workers.” That sounds like there’s lots of poverty in America. Especially since the U.S. is being compared to a group of nations that includes decrepit economies such as Mexico, Turkey, Italy, and Greece.
But this statement is nonsense because it is based on OECD numbers that merely measure the percent of workers in each nation that earn less than two-thirds of the national median level. Yet since median income generally is much higher in the United States, it’s absurd to use this data for international comparisons.
In other words, Greenhouse is relying on data that deliberately confuse absolute living standards and relative living standards. Why? Presumably to try to make the United States look bad and/or to advance a pro-redistribution agenda.
Given the repeated failures of Keynesian economic policy, both in America and around the world, you would think the theory would be discredited.
Or at least be treated with considerable skepticism by anyone with rudimentary knowledge of economic affairs.
Apparently financial journalists aren’t very familiar with real-world evidence.
Here are some excerpts from a news report in the Wall Street Journal.
The economy was supposed to get a lift this year from higher government spending enacted in 2018, but so far much of that stimulus hasn’t shown up, puzzling economists. Federal dollars contributed significantly less to gross domestic product in early 2019 than what economic forecasters had predicted after Congress reached a two-year budget deal to boost government spending. …Spending by consumers and businesses are the most important drivers of economic growth, but in recent years, government outlays have played a bigger role in supporting the economy.
Maybe the reporter, Kate Davidson, should have made a few more phone calls.
Especially, for instance, to the people who correctly analyzed the failure of Obama’s so-called stimulus.
With any luck, she would have learned not to put the cart before the horse. Spending by consumers and businesses is a consequence of a strong economy, not a “driver.”
Another problem with the article is that she also falls for the fallacy of GDP statistics.
Economists are now wondering whether government spending will catch up to boost the economy later in the year… If government spending were to catch up in the second quarter, it would add 1.6 percentage points to GDP growth that quarter. …The 2018 bipartisan budget deal provided nearly $300 billion more for federal spending in fiscal years 2018 and 2019 above spending limits set in 2011.
The government’s numbers for gross domestic product are a measure of how national income is allocated.
If more of our income is diverted to Washington, that doesn’t mean there’s more of it. It simply means that less of our income is available for private uses.
That’s why gross domestic income is a preferable number. It shows the ways – wages and salaries, small business income, corporate profits, etc – that we earn our national income.
Last but not least, I can’t resist commenting on these two additional sentences, both of which cry out for correction.
Most economists expect separate stimulus provided by the 2017 tax cuts to continue fading this year. …And they must raise the federal borrowing limit this fall to avoid defaulting on the government’s debt.
Sigh.
Ms. Davidson applied misguided Keynesian analysis to the 2017 tax cut.
The accurate way to analyze changes in tax policy is to measure changes in marginal tax rates on productive behavior. Using that correct approach, the pro-growth impact grows over time rather than dissipating.
And she also applied misguided analysis to the upcoming vote over the debt limit.
If the limit isn’t increased, the government is forced to immediately operate on a money-in/money-out basis (i.e. a balanced budget requirement). But since revenues are far greater than interest payments on the debt, there would be plenty of revenue available to fulfill obligations to bondholders. A default would only occur if the Treasury Department deliberately made that choice.
P.S. If you want to enjoy some Keynesian-themed humor, click here.
P.P.S. If you’re a glutton for punishment, you can watch my 11-year old video on Keynesian economics.
P.P.P.S. Sadly, the article was completely correct about the huge spending increases that Trump and Congress approved when the spending caps were busted (again) in 2018.
Based on what he wrote for the opinion pages of the New York Times, Nicholas Kristof belongs on that list of “useful idiots.”
Cuba…in health care…does an impressive job that the United States could learn from. …an American infant is, by official statistics, almost 50 percent more likely to die than a Cuban infant. By my calculations, that means that 7,500 American kids die each year because we don’t have as good an infant mortality rate as Cuba reports. …a major strength of the Cuban system is that it assures universal access. Cuba has the Medicare for All that many Americans dream about. …It’s also notable that Cuba achieves excellent health outcomes even though the American trade and financial embargo… Cuba overflows with doctors — it has three times as many per capita as the United States… Outsiders mostly say they admire the Cuban health system. The World Health Organization has praised it, and Ban Ki-moon, the former United Nations secretary general, described it as “a model for many countries.”
Kristof admits in his piece that there are critics who don’t believe the regime’s data, but it’s clear he doesn’t take their concerns seriously.
And he definitely doesn’t share their data. So lets take a close look at the facts that didn’t appear in Kristof’s column.
My first recommendation is to watch Johan Norberg’s video on the real truth about Cuba’s infant mortality.
But there’s so much more.
Jay Nordlinger authored the most comprehensive takedown of Cuba’s decrepit system back in 2007. Here are some of the highlights.
The Left has always had a deep psychological need to believe in the myth of Cuban health care. On that island, as everywhere else, Communism has turned out to be a disaster: economic, physical, and moral. Not only have persecution, torture, and murder been routine, there is nothing material to show for it. The Leninist rationalization was, “You have to break some eggs to make an omelet.” Orwell memorably replied, “Where’s the omelet?” There is never an omelet. …there is excellent health care on Cuba — just not for ordinary Cubans. …there is not just one system, or even two: There are three. The first is for foreigners who come to Cuba specifically for medical care. This is known as “medical tourism.” The tourists pay in hard currency… The second health-care system is for Cuban elites — the Party, the military, official artists and writers, and so on. In the Soviet Union, these people were called the “nomenklatura.” And their system, like the one for medical tourists, is top-notch. Then there is the real Cuban system, the one that ordinary people must use — and it is wretched. Testimony and documentation on the subject are vast. Hospitals and clinics are crumbling. Conditions are so unsanitary, patients may be better off at home, whatever home is. If they do have to go to the hospital, they must bring their own bedsheets, soap, towels, food, light bulbs — even toilet paper. And basic medications are scarce. …The equipment that doctors have to work with is either antiquated or nonexistent. Doctors have been known to reuse latex gloves — there is no choice. …So deplorable is the state of health care in Cuba that old-fashioned diseases are back with a vengeance. These include tuberculosis, leprosy, and typhoid fever. And dengue, another fever, is a particular menace.
Wow, I guess shortages extend well beyond toilet paper.
Next we have some very sobering data from a 2004 article in Canada’s National Post.
…a small bottle of tetracycline costs US$5 and a tube of cortisone cream will set you back as much as US$25. But neither are available at the local pharmacy, which is neat and spotless, but stocks almost nothing. Even the most common pharmaceutical items, such as Aspirin and rubbing alcohol, are conspicuously absent. …Antibiotics, one of the most valuable commodities on the cash-strapped Communist island, are in extremely short supply and available only on the black market. Aspirin can be purchased only at government-run dollar stores, which carry common medications at a huge markup in U.S. dollars. This puts them out of reach of most Cubans, who are paid little and in pesos. Their average wage is 300 pesos per month, about $12. …tourist hospitals in Cuba are well-stocked with the latest equipment and imported medicines, said a Cuban pediatrician, who did not want to be identified. …”Tourists have everything they need,… But for Cubans, it’s different. Unless you work with tourists or have a relative in Miami sending you money, you will not be able to get what you need if you are sick in Cuba. As a doctor, I find it disgusting.”
…the Cuban government continues to respond to international criticism of its human rights record by citing…praise for its achievements in health and medicine…the unequivocally positive descriptions of the Cuban health care system in the social science literature are somewhat misleading. In the late 1990s, I conducted over nine months of qualitative ethnographic and archival research in Cuba. During that time I shadowed physicians in family health clinics, conducted formal and informal interviews with a number of health professionals, lived in local communities, and sought to participate in everyday life as much as possible. Throughout the course of this research, I found a number of discrepancies between the way the Cuban health care system has been described in the scholarly literature, and the way it appears to be described and experienced by Cubans themselves. …After just a few months of research, …it became increasingly obvious that many Cubans did not appear to have a very positive view of the health care system themselves. A number of people complained to me informally that their doctors were unhelpful, that the best clinics and hospitals only served political elites and that scarce medical supplies were often stolen from hospitals and sold on the black market. Further criticisms were leveled at the politicization of medical care… Public criticism of the government is a crime in Cuba, and penalties are severe. Formally eliciting critical narratives about health care would be viewed as a criminal act both for me as a researcher, and for people who spoke openly with me. …One of the most readily apparent problems with the health care system in Cuba is the severe shortage of medicines, equipment, and other supplies. …Many Cubans (including a number of health professionals) also had serious complaints about the intrusion of politics into medical treatment and health care decision-making.
With 11.1% of GDP dedicated to health care and 0.8% of the population working as physicians, a substantial amount of resources is directed towards reducing infant mortality and increasing longevity. An economy with centralized economic planning by government like that of Cuba can force more resources into an industry than its population might desire in order to achieve improved outcomes in that industry at the expense of other goods and services the population might more highly desire. …Physicians are given health outcome targets to meet or face penalties. This provides incentives to manipulate data. Take Cuba’s much praised infant mortality rate for example. In most countries, the ratio of the numbers of neonatal deaths and late fetal deaths stay within a certain range of each other as they have many common causes and determinants. …Cuba, with a ratio of 6, was a clear outlier. This skewed ratio is evidence that physicians likely reclassified early neonatal deaths as late fetal deaths, thus deflating the infant mortality statistics and propping up life expectancy. Cuban doctors were re-categorizing neonatal deaths as late fetal deaths in order for doctors to meet government targets for infant mortality. …Physicians often perform abortions without clear consent of the mother, raising serious issues of medical ethics, when ultrasound reveals fetal abnormalities because ‘otherwise it might raise the infant mortality rate’. …The role of Cuban economic and political oppression in coercing ‘good’ health outcomes merits further study.
The bottom line is that Cuba is a hellhole and statistics from a repressive regime can’t be trusted.
Though the real message of today’s column is that we should be revolted by people who are willing to be dupes for totalitarianism.
And I can understand why people willing to debase themselves in that way are so sensitive to criticism.
P.S. The New York Times has a pathetic history of covering up for the crimes of communism, most notably Walter Duranty, who was given a Pulitzer Prize in 1932 even though he despicably lied in his reports to promote Stalin’s horrid regime. He even covered up Stalin’s holocaust of the Ukrainian people. Even though Duranty’s evil actions are now public knowledge, the Pulitzer Prize Board has not revoked the award. The New York Times, to its credit, at least has acknowledged that Duranty lied to promote Stalin’s brutal dictatorship. One wonders if the newspaper eventually will apologize for Kristof.
P.P.S. I’m also not impressed that a former Secretary General of the U.N. endorsed Cuba’s health care system. After all, it was an official from the U.N. who praised the lack of obesity among the starving people of North Korea.
But all these instances of intentional and unintentional bias are trivial compared to our next example.
The New York Times has gone above and beyond conventional media bias with a video entitled, “How Capitalism Ruined China’s Health Care System.”
Here’s the part that caused my jaw to drop.
After the sad opening story about the guy with the sick mother, there’s a section from 1:33-2:27 that makes two observations that basically show the premise of the video is totally wrong.
First, it points out (from 1:33-1:42) that there is a universal, government-run health system that ostensibly covers the guy’s mother, so her unfortunate status is yet another example that coverage in a government-run healthcare system is not the same as treatment.
Second, it points out (from 2:05-2:27) that life expectancy soared once the communist party relaxed its grip on the economy and allowed some liberalization, which would seem to be powerful evidence that capitalism leads to better health outcomes.
These are astounding mistakes.
But it gets worse. Sarah Lilly, who lives in China, debunked the rest of the video in a column for FEE.
The New York Times…attempts to blame capitalism for the many problems in China’s health care system. …As a resident of China and a recipient of outstanding private health care here, I was confused as to why the Times would show us the horrors of a capitalist system without actually visiting a private health care facility. …All of the horrors depicted in the high-quality video—the long lines, the scalping, and the hospital fights—occurred at government-run health care facilities. …At the very least, failing to feature a single private medical facility while blaming capitalism for the dysfunction of China’s public health system is intellectually dishonest.
She points out that the big-picture analysis in the video is wrong.
In the video, the Times praises Chairman Mao’s introduction of “free” health care and claims that when capitalism was introduced into the country, the state retreated and care was no longer free. Neither statement is true. First, health care was never free; it was paid for by tax revenues. Second, the state never retreated; rather, its regulatory apparatus became vaster and even more invasive. Out of sheer necessity, China allowed for the creation of private hospitals to ease the burden of the country’s heavily bureaucratic and deteriorating health care system.
And she also explains that the details of the video are wrong.
The Times video depicts the ungodly long line most Chinese face to see a physician. …It’s an appalling scene. …There’s just one problem. The Shanghai Cancer Center is a public hospital, not a private one. The long lines, scalpers, bribes, and physical fights with hospital staff—all of these exclusively happen in the public, communist, government-run hospitals. …In an egregious bit of sleight-of-hand, the Grey Lady asserts that capitalism is ruining Chinese health care while presenting us with a hospital where capitalism is not practiced.
To be fair, we get the same type of mistake when journalists look at the flaws in the American health system. They blame capitalism when the problems of ever-higher prices and uneven coverage are the consequences of government intervention.
P.S. My columns about sloppy bias at the New York Times don’t include Paul Krugman’s writings. Debunking those mistakes requires several different collections.
I don’t focus much on media bias because journalists generally aren’t dishonest. Instead, they choose which stories to highlight or downplay based on what advances their political agenda. Though every so often I’ll highlight an example of where bias leads to an egregious (maybe even deliberately dishonest) mistake.
And how about when the New York Times published a story about schools being “starved of funding” when even a cursory look at the data would confirm outlays have climbed substantially.
Now we have an addition to that collection from a WonkBlog column in the Washington Post. The piece starts with an accurate observation that the tax plan on Capitol Hill isn’t a long-run tax cut.
Senate rules require the Tax Cuts and Jobs Act not to add to the federal deficit after 10 years. …The bill aims to cut corporate taxes in perpetuity…but they actually need to raise money to offset the permanent corporate tax reduction.
Yes, as I wrote two weeks ago, the long-run tax cuts have to be offset by long-run revenue increases. So that part of the column is fine.
We then get this rather dubious assertion.
Republicans are paying for a permanent cut for corporations with an under-the-radar tax increase on individuals.
In part, it’s a dodgy claim because there are provisions in the bill that collect more revenue from companies, such as the partial loss of interest deductibility and various base erosion rules. So if he wanted to be accurate, the author should have begun that sentence with “Republicans are partially paying for…”
But that’s only part of the problem. As you can see from this next excerpt, he cites a former Democrat staffer and doubles down on the allegation that individual taxpayers will be coughing up more money to Uncle Sam because of the legislation.
This chart, playing off what the Senate’s former top tax aide and New York University professor Lily Batchelder pointed out on Twitter on Friday evening, makes vividly clear where Republicans ultimately raise that money. …we know it’s individual taxpayers who ultimately bear the cost of the tax bill.
And here’s the chart that ostensibly shows that you and me are going to pay more money so evil corporations can enjoy a tax cut.
Notice, however, the part I circled in green. It shows that Republicans are repealing Obamacare’s individual mandate as part of their tax reform plan, and it also shows that repeal has budgetary effects.
So how is this a tax increase (the pink portion of the bar chart), as the Washington Post wants us to believe?
Needless to say, the honest answer is that it isn’t a tax hike. Getting rid of the mandate means people won’t get “fined” by the IRS if they choose not to buy health insurance. If anything, that should count as a tax cut.
But that’s not what’s represented by the pink part of the bar chart. Instead, it shows that when you get rid of the mandate and consumers choose not to get Obamacare policies, that automatically means that insurance companies will get fewer subsidies from Uncle Sam (getting access to that cash was one of the reasons the big insurance companies lobbied for Obamacare).
In other words, the chart actually is showing that corporate rate reduction is partially financed by a reduction in spending, which is a win-win from my perspective.
By the way, you don’t have to believe me. On page 9 of the Joint Committee on Taxation’s revenue estimate (which presumably will be posted on the JCT website at some point), you find this footnote about the “outlay effect” of repealing the mandate.
At the risk of stating the obvious, an “outlay effect” is when a change in law causes a shift in government spending. That’s what’s happening, not a tax increase on individuals.
By the way, the author sort of admits this is true in a passage buried near the bottom of the column.
…a number of analysts argue that it’s wrong to consider the loss of insurance related to the end of the ACA mandate a tax increase, because it reflects individuals’ choice not to get insurance.
That’s a pathetic attempt at justifying a dishonest article.
Here’s the bottom line.
Individuals will be paying less money to the IRS because of this provision, not more.
The fiscal impact of the provision is less spending, not more tax revenue.
Sadly, most readers will have no idea that they were deliberately misled.
P.S. The “alternative inflation measure” in the bill (the red portion of the bar chart) arguably is a tax increase. Or, for those who persuasively argue that it’s a more accurate measure, it’s a provision that will result in individual taxpayers sending more money to Uncle Sam compared to current law since the new measure (chained CPI) will result in smaller inflation adjustments to tax brackets and the standard deduction.
P.P.S. If repealing just one small piece of Obamacare will save about $300 billion over the next decade, imagine how much money we could save if the entire law was repealed.
P.P.P.S. Since I’ve previously explained how politicians use alchemy to turn spending increases into tax cuts, I guess it’s not surprising that some folks are using the same magic to turn spending cuts into tax increases.
The bias extends to politics, of course, though the only time I felt compelled to comment was when ABC News rushed to imply that the Tea Party somehow was connected to a mass shooting in Colorado.
Well, I now feel compelled to comment again. But this example goes beyond bias and should be characterized as blatant and disgusting dishonesty. The hacks at Time took a quote from Charles Koch and then used selective editing to completely misrepresent what he actually said.
In a just world, the person who engaged in this bit of mendacity would lose his or her job and never again work in journalism. But I would hold my breath waiting for that to happen.
But let’s set aside the issue of media bias and dishonesty.
I want to highlight what Mr. Koch said about GDP. He expressed skepticism of that measure because it doesn’t distinguish between good expenditures and bad expenditures.
That’s one of the reasons why I prefer gross domestic income instead of gross domestic product. In simple terms, GDI measures how our national income is generated and GDP measures how it is allocated.
As the Bureau of Economic Analysis explains, the two numbers are basically different sides of the same coin.
In national economic accounting, GDP and GDI are conceptually equal. GDP measures overall economic activity by final expenditures, and GDI measures it by the incomes generated from producing GDP. In practice, GDP and GDI differ because they are constructed using different sources of information. …when one looks at annual data – where the timing differences are less important, the correlation between GDP and GDI is 0.97.
That correlation shouldn’t be a surprise. Indeed, over a longer period of time, the two numbers should be identical.
Both go up when the economy is doing well, and both go down when there is a recession.
But I want to make a more subtle point.
The reason I like GDI over GDP is because one the former is more likely to lead people to support good policy while the latter is more likely to lead people in the direction of bad policy.
GDP numbers only measure how we spend or allocate our national income. It’s a very indirect way of measuring economic health. Sort of like assessing the status of your household finances by adding together how much you spend on everything from mortgage and groceries to your cable bill and your tab at the local pub. Wouldn’t it make much more sense to directly measure income? Isn’t the amount of money going into our bank accounts the key variable? The same principle is true – or should be true – for a country. That’s why the better variable is gross domestic income (GDI). It measures things such as employee compensation, corporate profits, and small business income. …We should be focusing on how to increase national income, not what share of it is being redistributed by politicians.
And, on a related note, you can back to 2009 for a column I wrote explaining that consumer spending is a reflection of a strong economy, not the cause of a strong economy.
And this video ties everything together by debunking the Keynesian argument that politicians should focus on goosing consumer spending.
Now I have a new example, though I’m not sure whether to call it dishonest or clueless.
The EU Observer has a brief report that poverty has reached record levels in Germany.
Despite a booming economy, 12.9 million people in Germany were living below the poverty line in 2015, the Equal Welfare Association reported on Thursday. Based on figures from the Federal Statistical Office the alliance found a record high poverty rate of 15.7 percent in 2015.
By the way, I can’t resist pointing out that there is no “booming economy” in Germany. Growth in 2016 was only 1.9 percent.
But I’m digressing. Let’s get back to the main point of today’s column.
As you can see from the story’s headline, the implication is that lots of people are left behind and mired in deprivation even though the economy is moving forward.
But there’s a problem with both the story and the headline.
If you read carefully, it turns out that both the story (and the study that triggered the story) have nothing to do with poverty.
No link at all. None. Zero. Nada. Zilch.
I’m not joking. There’s no estimate of the number of people below some measure of a German poverty line. There’s no calculation of any sort about living standards. Instead, this story (and the underlying report) are about the distribution of income.
…people [are] defined as poor when living on an income less than 60 percent of that of the median German household.
One might be tempted at this point to dismiss this as a bit of journalistic sloppiness. Indeed, one might even conclude that this is a story about nothing.
After all, noting that some people are below 60 percent of the median income level is about as newsworthy as a report saying that half of people are above average and half are below average.
But there actually is a story here. Though it’s not about poverty. Instead, it’s about an ongoing statist campaign to redefine poverty to mean unequal distribution of income.
I’m not joking. For instance, the bureaucrats at the Paris-based Organization for Economic Cooperation and Development actually put out a study claiming that there was more poverty in the United States than in nations such as Greece, Portugal, and Turkey.
How could they make such a preposterous claim? Easy, the OECD bureaucrats didn’t measure poverty. Instead, they concocted a measure of the degree to which various countries are close to the left-wing dream of equal incomes.
And the Obama Administration also tried to manipulate poverty statistics in the United States in hopes of pushing this statist agenda of coerced equality.
Robert Rector of the Heritage Foundation wrote about what Obama tried to do.
…the Obama administration…measure, which has little or nothing to do with actual poverty, will serve as the propaganda tool in Obama’s endless quest to “spread the wealth.” …The current poverty measure counts absolute purchasing power — how much steak and potatoes you can buy. The new measure will count comparative purchasing power — how much steak and potatoes you can buy relative to other people. …In other words, Obama will employ a statistical trick to ensure that “the poor will always be with you,” no matter how much better off they get in absolute terms. …The weird new poverty measure will produce very odd results. For example, if the real income of every single American were to magically triple over night, the new poverty measure would show there had been no drop in “poverty,” because the poverty income threshold would also triple. …Another paradox of the new poverty measure is that countries such as Bangladesh and Albania will have lower poverty rates than the United States, even though the actual living conditions in those countries are extremely bad.
Even moderates such as Robert Samuelson recognized that Obama’s agenda was absurd. Here is some of what he wrote.
…the new definition has strange consequences. Suppose that all Americans doubled their incomes tomorrow, and suppose that their spending on food, clothing, housing and utilities also doubled. That would seem to signify less poverty — but not by the new poverty measure. It wouldn’t decline, because the poverty threshold would go up as spending went up. Many Americans would find this weird: People get richer but “poverty” stays stuck.
To put this all in context, the left isn’t merely motivated by a desire to exaggerate and misstate poverty. That simply the means to an end.
What they want is more redistribution and higher tax rates. The OECD openly admitted that was the goal in another report. Much as all the fixation about inequality in America is simply a tool to advocate bigger government.
The establishment media, by contrast, is excited about the election and many journalists are doing everything possible to aid the election of Hillary Clinton. In some cases, their bias leads to them to make silly pronouncements on public policy in hopes of undermining Trump. Which irks me since I’m then in the unwanted position of accidentally being on the same side as “The Donald.”
For instance, some of Trump’s private tax data was leaked to the New York Times, which breathlessly reported that he had a huge loss in 1995, and that he presumably used that “net operating loss” (NOL) to offset income in future years.
As I pointed out in this interview, Trump did nothing wrong based on the information we now have. Nothing morally wrong. Nothing legally wrong. Nothing economically wrong.
All that people really need to know is that NOLs exist in the tax code because businesses sometimes lose money (the worst thing that happens to individuals, by contrast, is that we get laid off and have zero income). With NOLs, companies basically get a version of “income averaging” so that they’re taxed on their long-run net income (i.e., total profits minus total losses).
In other words, this is not a controversy. Or it shouldn’t be.
But if you don’t believe me, let’s peruse the pages of The Flat Tax, which was written by Alvin Rabushka and Robert Hall at Stanford University’s Hoover Institution and is considered the Bible for tax reformers.
Here’s what it says about business losses in Chapter 5.
Remember that self-employed persons fill out the business tax form just as a large corporation does. Business losses can be carried forward without limit to offset future profits (assuming your bank or rich relatives will keep lending you money). There is no such thing as a tax loss under the individual wage tax. You can’t reduce your compensation tax by generating business losses. Well-paid individuals who farm as a hobby or engage in other dubious sidelines to shelter their wages from the IRS had better enjoy their costly hobbies; the IRS will not give them any break under the flat tax.
And here’s the business postcard for the flat tax. As you can see, it’s a very simple system based on the common-sense notion that profits equal total receipts minus total expenses.
And it allows “carry-forward” of losses, which is just another term for a company being able to use NOLs in one year to offset profits in a subsequent year.
But it’s not just advocates of the flat tax how hold this view.
A news report for the Wall Street Journal notes that NOLs are very normal in the business world for the simple reason that companies sometimes lose money.
The tax treatment of losses, bound to become a subject of national debate, is a typically uncontroversial feature of the income-tax system. The government doesn’t pay net refunds when business owners lose money, but it lets taxpayers use those losses to smooth their tax payments as they make money. That reflects the fact that “the natural business cycle of a taxpayer may exceed 12 months,” according to a congressional report.
Megan McArdle of Bloomberg also comments on this make-believe controversy.
At issue is the “net operating loss,” an accounting term that means basically what it sounds like: When you net out your expenses against the money you took in, it turns out that you lost a bunch of money. However, in tax law, this has a special meaning, because these NOLs can be offset against money earned in other years. …this struck many people as a nefarious bit of chicanery. And to be fair, they were probably helped along in this belief by the New York Times description of it, which made it sound like some arcane loophole wedged into our tax code at the behest of the United Association of Rich People and Their Lobbyists. …Every tax or financial professional I have heard from about the New York Times piece found this characterization rather bizarre. The Times could have just as truthfully written that the provision was “particularly prized by America’s small businesses, farmers and authors,” many of whom depend on the NOL to ensure that they do not end up paying extraordinary marginal tax rates — possibly exceeding 100 percent — on income that may not fit itself neatly into the regular rotation of the earth around the sun.
I like how she zings the NYT for its biased treatment of the issue.
She also explains why the law allows NOLs and why businesses (including, presumably, Trump’s companies) would prefer to never be in a position to utilize them.
“If someone has a $20 million gain in one year and a $10 million loss in the second year, that person should be treated the same as someone who had $5 million in each of the two years,” says Alan Viard, a tax specialist at the American Enterprise Institute, who like all the other experts, seemed somewhat surprised that this was not obvious. “There are definitely tax provisions narrowly targeted to various industries that you could take issue with,” says Ron Kovacev, a tax partner at Steptoe and Johnson. “The NOL is not one of them.” …Losing $900 million dollars may save you $315 million or so on future or past taxes. But astute readers will have noticed that it is not actually smart financial strategy to lose $900 million in order to get out of paying $315 million to the IRS. Most of us would rather have the other $585 million than a tax bill of $0. …If Trump managed to pay no taxes for years, the most likely way he did this was by losing sums much vaster than the unpaid taxes. This is fair, it is right, it is good tax policy.
In other words, Trump used NOLs, but he would have greatly preferred to avoid the big $916 million loss in the first place.
Ryan Ellis, writing for Forbes, doesn’t suffer fools gladly on this issue.
…political reporters don’t know a damned thing about taxes. …That ignorance was on display in vivid colors over the weekend. We were told that this tricky NOL was some sort of “loophole” that only super-rich bad guys like Donald Trump got to use. We were told that this relieved him of having to pay taxes for 18 years, a laughably arbitrary, made up number that is the tautological output of simple arithmetic and wild assumptions. …It’s not difficult to see how political reporters got played like a fiddle here. Most of them have never actually run a business, much less learned about the tax rules surrounding them.
I especially like that Ryan also nails the NYT for bias, in this case because the reporters used made-up number to imply that he didn’t pay tax for almost two decades.
And Ryan also notes that NOLs are very common (and were even used in 2015 by Trump’s opponent).
…a net operating loss is very common in businesses. As Alan Cole of the Tax Foundation pointed out this morning, about 1 million taxpayers had an NOL in 1995. It results from business deductions exceeding business income in a particular year. …Trump’s not the only presidential candidate this year who once had a big loss on his taxes. In 2015, the Clintons realized a capital loss of nearly $700,000. That will be available in perpetuity to offset capital gains they might incur. Unlike an NOL, a capital loss can slowly be used to offset other income, albeit at a slow $3000 per year net of any other gains offset.
Now that we’ve established that there’s nothing remotely scandalous about NOLs, let’s see whether there are any lessons we can from this kerfuffle.
Let’s return to the Wall Street Journalstory cited earlier in this column.
Real-estate developers can generate losses more easily than other taxpayers. …Unlike investors in other businesses, they can use those losses to offset other income. …Bryan Skarlatos, a tax lawyer at Kostelanetz & Fink LLP, said…“Trump appears to have a perfect storm of allowable real-estate losses that can be offset against streams of income from salaries from his companies and royalty fees from the use of his name,” Mr. Skarlatos said. “Most taxpayers who have large real-estate losses don’t have such large steady streams of other ordinary income; they just have losses that may turn into profits in the future when they sell the real estate.”
This doesn’t tell us whether Trump actually did use his NOLs to offset other income, though I’m guessing the answer is yes. And as I speculated in the above interview, I wonder whether the losses were real losses or paper losses.
And others have suggested that Trump actually lost other people’s money and he was able to use their losses to offset some of his income.
I have no idea if that’s even possible, just as I have no idea whether his losses were real.
But I do know that a flat tax would put an end to any possible gamesmanship since it is a cash-flow system (which means it is based on actual transactions that take place, not whether companies use currency).
In a world with a flat tax, Trump would be allowed to “carry forward” losses, but only if they are real. And as explained above, he wouldn’t be able to use those losses to offset income that gets reported on the individual postcard.
The exclusion for employer-provided health benefits (which is a major cause of the third-party-payer problem in the health sector).…New York spends more than $8 billion a year on tax incentives and grants to attract and retain businesses in the high-tax state, and advocates of the measure have for years sought to extend the largesse to the newspaper and local TV industry. The late addition to the $237 billion budget allows eligible outlets to receive a 50 percent refundable credit for the first $50,000 of a journalist’s salary, up to a total of $300,000 per outlet. …The money is largely focused on independently owned publications, but also can cover hiring journalists in print media outlets that “demonstrate a reduction in circulation or in the number of full-time equivalent employees of at least 20 percent over the previous five years.”
…“Is it the norm?” the fact-checking outfit Politifact asked. “No.” Time for an update: It’s the norm now. …the 400 wealthiest Americans last year paid a lower total tax rate — spanning federal, state and local taxes — than any other income group, according to newly released data. …That’s a sharp change from the 1950s and 1960s, when the wealthy paid vastly higher tax rates than the middle class or poor.
Simply stated, the rich didn’t pay a lot of tax when rates were extortionary because 
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