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Socialism is a joke. It doesn’t work. And it is so often a gateway to totalitarianism.

But that doesn’t mean it won’t happen. In this interview, I express my concern that the United States has passed a tipping point.

In the discussion, I included my usual caveat about the meaning of socialism.

I prefer the technical definition, which involves government ownership of the means of production, central planning, and government-dictated prices. But most people assume it simply means big government, in which case it’s hard to find nations that don’t qualify.

Regardless of the best definition, the reason for my pessimism is simple. It’s a combination of changing demographics and poorly designed entitlement programs.

For all intents and purposes, we’re on a trajectory (the “most predictable crisis in history“) to become another Greece.

The good news is that we probably have a couple of decades before the crisis occurs. The bad news is that our political class seems to have no interest in the reforms that would be necessary to avert the crisis.

Though maybe the crisis will occur sooner than we think. I wrote back in 2015 that the debate between Hillary Clinton and Bernie Sanders was merely a discussion over how fast we should drive in the wrong direction.

Well, Crazy Bernie didn’t get the nomination, but he seems to have won the war for the soul of the party. As I point out in this second clip, the radicals are now in the ascendancy on the left.

By the way, here’s the interview with Thomas Sowell that was used as a lead-in to my interview. He may be even more pessimistic than I am.

Though you’ll notice that Professor Sowell included a caveat, speculating that maybe there will be some unforeseeable development that saves the western world (or perhaps just the United States) from gradual decay.

Let’s close this column with some optimism on that point.

I’m old enough to remember the malaise of the 1970s, which wasn’t just based on the economic mess caused by Nixon-style and Carter-style statism. Many people also thought capitalism was no better than communism and that we needed to find some sort of middle ground (and some economists were horribly guilty of this sin).

Thankfully, Reagan had a different approach (including mockery rather than moral equivalence) and the western world won the Cold War.

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I cared a lot about the 1995-96 shutdown and the 2013 shutdown because those were battles involving the size and scope of government.

But I don’t have a dog in the current fight over immigration and border security. That being said, I told Neil Cavuto that there are several fiscal policy lessons we can learn from the current shutdown fight.

A short TV interview just scratches the surface of an issue, so here are some additional details.

The first lesson is that much of what the government does is irrelevant to America.

I pointed out that ordinary Americans don’t notice or care that departments such as Housing and Urban Development are closed because there’s no net value generated by such bureaucracies.

And polling data supports my assertion.

The second lesson is that some parts of government should be shut down permanently.

If people don’t care or notice that a department is temporarily closed, they probably won’t care or notice if it is permanently closed.

I think that message applies to bureaucracies that are affected by the current shutdown (such as HUD and Transportation) as well as to some of the bureaucracies that are unaffected (Education, Energy, Agriculture, etc).

The third lesson is that temporary shutdowns are not a money-saving exercise.

A shutdown does not alter the amount of entitlement spending and it does not change annually appropriated spending. And since bureaucrats always get back pay for their involuntary vacations, there aren’t any savings there, either.

Some argue (see here and here) that a shutdown gives the executive branch unilateral authority to save money. I actually hope that’s true, but I have very little reason to think the Trump Administration is interested in fiscal rectitude.

The fourth lesson is that a busy and productive Congress is a dangerous Congress.

I included the brief blurb by Senator Tillis prior to my interview because I don’t want a “productive” Congress.

I’m not being nihilistic. Instead, I’m making the simple point that America’s Founders had the right idea in creating a factionalism-based system that enables gridlock.

Last but not least, the fifth lesson is that bureaucrats should have less power over economic activity.

I mentioned that there wouldn’t be any threat of disrupted air travel if all airports got to use a privatized version of TSA.

But that’s just one small example. Tim Carney’s column in the Washington Examiner is a must-read on the issue of pointless bureaucratic impediments to commerce.

…the government shutdown is another lesson… Before now, if an out of state brewery issued a new seasonal, you could simply purchase it across state lines thanks to…Form 5100.31 approvals… Of course, if you’re a particularly skeptical type, you may have a question… Why in the world should a brewer need federal approval on new beer labels? Once we ask that question, a thousand analogous questions come to mind. And in the asking, we expose the trick in so many stories about the crucial work of our expansive federal government. The trick is that the government’s work is often made necessary only by needless federal meddling in the first place. …when some reporter tries to tell you to be grateful that the federal government is opening a gate for you, ask them why the wall is there in the first place.

Amen.

This is what I was trying to get across in the interview about business decisions being stymied until some bureaucrats signs off.

Let’s wrap up today’s column with a superb Reason video by John Stossel.

P.S. No column on this topic would be complete without adding to our collection of shutdown humor (h/t: Libertarian Reddit).

You can see other examples of shutdown satire by clicking here, herehere, and here.

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After the horrific school shooting in Parkland, Florida, I explained that the gun-control policies being pushed by left-leaning students such as David Hogg would be utterly ineffective at deterring evil people.

But give the kid credit. He’s fully exploiting his 15 minutes of fame (in a way that makes Sandra Fluke look like an amateur).

His latest idea is to somehow boycott financial firms that do business with gun manufacturers.

Dana Loesch asked me to appear on her show to discuss the economics of this issue. It’s a Skype interview, so the quality on my end leaves something to be desired, but I hopefully got across my main point that boycotts only work if consumers change their buying patterns. And, to be blunt, David Hogg is not going to change the minds of people who appreciate the 2nd Amendment.

I also explained that Hogg’s proposed boycott is a private version of Obama’s reprehensible Operation Chokepoint.

Except it won’t work because Hogg’s hyperbole isn’t nearly as effective as the coercive power of government.

Indeed, Hogg is far more likely to increase gun sales, which is the point of this bit of satire.

Though I don’t want to imply that the leftist students from Parkland, Florida, have been completely ineffective.

They demanded change. And the school gave it to them in the form of a preposterous requirement for see-through backpacks. Here are some details from a CNN story.

Survivors of a school shooting in Parkland, Florida, returned from spring break Monday to new security measures that some students said made them feel like they were in prison. Marjory Stoneman Douglas students encountered security barriers and bag check lines as they entered campus Monday morning. Inside the school, administrators handed out the students’ newest mandatory accessories: a see-through backpack much like the ones required at some stadiums and arenas… Now, with the bags, they’re sacrificing their privacy for what he and others consider an ineffective security measure.

Of course these clear backpacks are a joke.

But, as illustrated by this bit of satire, it’s rather naive to expect good results when you ask for more government.

And since students such as Hogg make a big deal about “assault rifles” that are functionally the same as other rifles, it’s poetic justice that he’s now being deprived of an “assault backpack.”

But why stop there?

Surely we don’t want to run the risk of a student hiding a gun under their clothes. We need to ban “assault clothing”!

But David Hogg isn’t meekly acquiescing to see-through backpacks. At least according to this final bit of satire.

Ouch. I thought some of the anti-Fluke humor was hard hitting, but both “hold my sippy cup” and “from my damp soft hands” are rather brutal.

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It’s not easy being a libertarian in the policy world of Washington. I view the flat tax as a timid intermediate step, with the real goal being a tiny federal government (like the Founding Fathers envisioned) that can be financed without any broad-based tax.

Yet even my timid intermediate step is considered radical and impractical by DC standards. There’s no discussion of fundamental tax reform. Instead, the  debate revolves around whether we can reduce a couple of tax rates in one part of the code and “pay for” those changes by altering some provisions in another part of the code.

This is very frustrating, which is why I joked with Neil Cavuto that we could kill two birds with one stone by trading Trump, Hillary, Manafort, and Podesta to Russia in exchange for that country’s 13 percent flat tax.

But I want to address a couple of serious points in the interview.

To conclude, most people assume that something will pass simply because GOPers desperately need some sort of victory to compensate for their failure to repeal (or even just tinker with) Obamacare.

That’s true, but that doesn’t change the fact that any bill can be defeated if Democrats are unified in opposition and a small handful of Republicans decide to vote no.

By the way, I’m not completely unsympathetic to some of the Republicans who are wavering on whether to vote for a reform bill. Consider their predicament: If there’s a bill that cuts the corporate tax rate and gets rid of the deduction for state and local income taxes (to my chagrin, I’m assuming property taxes will still be deductible), that will be a net plus for the economy. But, depending on other provisions in the legislation, it may mean that a non-trivial number of voters (especially from high-tax states) will be hit with a tax increase.

Members of Congress who want good policy can explain to those voters that the economy will grow faster. They can tell those voters that their state politicians now will be more likely to reduce state income tax burdens. I think those assertions are true, but voters looking at higher tax burdens probably won’t care about those long-run effects.

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I’ve been arguing all year that a substantially lower corporate tax rate is the most vital goal of tax reform for reasons of competitiveness.

And I continued to beat that drum in an interview last week with Fox Business.

The Wall Street Journal agrees that the time has come for a lower corporate rate. Unless, of course, one would prefer the United States to fall even further behind other countries.

President Emmanuel Macron last week pushed a budget featuring substantial tax relief through the National Assembly. The top rate on corporate profits will fall to 28% by 2020 from 33.33% today, and Mr. Macron has promised 25% by 2022. …Critics branded Mr. Macron “the President for the rich” for these overhauls, but the main effect will be to stimulate investment and job creation… The Netherlands also is jumping on the bandwagon. Prime Minister Mark Rutte promises to cut the top corporate rate to 21% from 25% by 2021… Do American politicians really want to have to explain to voters why they let the U.S. trail even France?

For the most part, opponents of tax reform in the United States understand that they have lost the competitiveness argument. So they will pay lip service to the notion that a lower corporate rate is desirable (heck, even Obama notionally agreed), but they will fret about the loss of tax revenue and a supposed windfall for the “rich.”

I agree that tax revenues will decrease, at least in the short run. But there’s some very good research showing the long-run revenue-maximizing corporate rate is somewhere between 15 percent and 25 percent.

And Chris Edwards of the Cato Institute reviewed fifty years of data for industrialized nations and ascertained that lower tax rates are associated with rising revenue.

There’s also good evidence from Canada and the United Kingdom if you want country-specific examples of the relationship between corporate tax rates and corporate tax revenue.

By the way, even left-leaning multilateral bureaucracies such as the International Monetary Fund and the Organization for Economic Cooperation and Development have published research showing the same thing.

And what about the debate over whether the “rich” benefit?

That issue is a red herring. Yes, shareholders of companies, on average, have higher incomes, and they will benefit if the rate is reduced, but I’ve never been motivated by animosity against those with more money (assuming they earned their money rather than mooching off the government).

What does get my juices flowing, however, is growth. And if we can get more dynamism in the economy, that translates into more jobs and higher income.

A new report from the Council of Economic Advisers estimates the potential benefit for ordinary people.

Reducing the statutory federal corporate tax rate from 35 to 20 percent would, the analysis below suggests, increase average household income in the United States by, very conservatively, $4,000 annually. …Moreover, the broad range of results in the literature suggest that over a decade, this effect could be much larger.

There’s some good cross-country data showing nations with lower corporate tax rates do better.

Between 2012 and 2016, the 10 lowest corporate tax countries of the OECD had corporate tax rates 13.9 percentage points lower than the 10 highest corporate tax countries, about the same scale as the reduction currently under consideration in the U.S. The average wage growth in the low tax countries has been dramatically higher.

Here’s the accompanying chart.

As you can see, there’s a clear divergence between higher-tax and lower-tax nations. Though, given the limited time period in the chart and the fact that many other factors can impact wage growth, I’m actually more persuaded by some of the other empirical research cited in the CEA report.

Arulpalapam et al (2012) find that workers pay nearly 50 percent of the tax, while Desai et al (2007) estimate a worker share of 45 to 75 percent. Gravelle and Smetters (2006) generate a rate of 21 percent when the rate of capital mobility across countries is moderate and 73 percent when capital can flow freely, evidence that the labor incidence is likely both dynamic and positively correlated with the rate of international capital transfers. A Congressional Budget Office (CBO) study (Randolph, 2006) finds that workers bear 70 percent of the corporate income tax burden in the baseline and 59 to 91 percent in alternative specifications. In a summary study, Jensen and Mathur (2011) argue for an assumption of greater than 50 percent. …A cross-country study by Hassett and Mathur (2006) based on 65 countries and 25 years of data finds that the elasticity of worker wages in manufacturing after five years with respect to the highest marginal tax rate in a country is as low as -1.0 in some specifications, although other sets of control variables increase the elasticity to -0.3. Expanded analysis by Felix (2007) follows the Hassett and Mathur strategy, but incorporates additional control variables, including worker education levels. Felix settles on an elasticity of worker wages with respect to corporate income taxes of -0.4, at the high end of the Hassett and Mathur range. …Felix (2009) estimates an elasticity of worker wages with respect to corporate income tax rates based on variation in the marginal tax rate across U.S. states. In this case, the elasticity is substantially lower; a 1 percentage point increase in the top marginal state corporate rate reduces gross wages by 0.14 to 0.36 percent over the entire period (1977-2005) and by up to 0.45 percent for the most recent period in her data (2000-2005). …Desai et al (2007)…measure both the changes in worker wages and changes in capital income associated with corporate income tax changes. The estimated labor burden of the corporate tax rate varies from 45 to 75 percent under various specifications in the paper.

That’s a lot of jargon, so I suspect that many readers will find data from Germany and Australia to be more useful when considering how workers benefit from lower corporate rates.

P.S. While I think a lower corporate tax rate may result in more revenue over time, that’s definitely not my goal.

P.P.S. The biggest obstacle to good tax policy is the unwillingness of Republicans to impose even a modest amount of spending restraint.

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In my 30-plus years in Washington, I’ve lived through some very bad pieces of legislation.

But the most depressing experience was probably the TARP bailout. In part, it was depressing because bad government policy created the conditions for the crisis, so it was frustrating to see the crowd in Washington blame capitalism (in effect, a repeat of what happened in the 1930s).

Far more depressing, however, was the policy response. Thanks largely to the influence of Treasury Secretary Hank Paulson, the Bush Administration decided to bail out the big firms on Wall Street rather than use “FDIC resolution,” which would have bailed out depositors but at least shut down big institutions that were insolvent.

In other words, TARP was pure cronyism. Wall Street firms had “invested” in Washington by giving lots of contributions to politicians and TARP was their payoff.

With this background, you’ll understand why I asserted in this interview that the dissolution of two business advisory councils is the silver lining to the black cloud of Charlottesville.

Since that was just one segment of a longer interview and I didn’t get a chance to elaborate, here are some excerpts from an article in Harvard Business Review by Robert Litan and Ian Hathaway about the connection between anemic productivity numbers (which I wrote about last week) and cronyism.

Baumol’s writing raises the possibility that U.S. productivity is low because would-be entrepreneurs are focused on the wrong kind of work. In a 1990 paper, “Entrepreneurship: Productive, Unproductive, and Destructive,” Baumol argued that the level of entrepreneurial ambition in a country is essentially fixed over time, and that what determines a nation’s entrepreneurial output is the incentive structure that governs and directs entrepreneurial efforts between “productive” and “unproductive” endeavors. Most people think of entrepreneurship as being the “productive” kind, as Baumol referred to it, where the companies that founders launch commercialize something new or better, benefiting society and themselves in the process. A sizable body of research establishes that these “Schumpeterian” entrepreneurs, those that are “creatively destroying” the old in favor of the new, are critical for breakthrough innovations and rapid advances in productivity and standards of living. Baumol was worried, however, by a very different sort of entrepreneur: the “unproductive” ones, who exploit special relationships with the government to construct regulatory moats, secure public spending for their own benefit, or bend specific rules to their will, in the process stifling competition to create advantage for their firms. Economists call this rent-seeking behavior.

That’s the theory.

What about evidence? Well, Obamacare could be considered a case study since it basically was a giveaway to big pharmaceutical firms and big health insurance companies.

But the authors look at the issue more broadly to see if there is an economy-wide problem.

Do we…see a rise in unproductive entrepreneurship, as Baumol theorized? …James Bessen of Boston University has provided suggestive evidence that rent-seeking behavior has been increasing. In a 2016 paper Bessen demonstrates that, since 2000, “political factors” account for a substantial part of the increase in corporate profits. This occurs through expanded regulation that favors incumbent firms. Similarly, economists Jeffrey Brown and Jiekun Huang of the University of Illinois have found that companies that have executives with close ties to key policy makers have abnormally high stock returns.

This is very depressing.

I don’t want companies to do well because the CEOs cozy up to politicians. If entrepreneurs and corporations are going to be rolling in money, I want that to happen because they are providing valued goods and services to consumers.

I wrote about Bessen’s research last year. It’s very unsettling to think that companies make more money because of political connections than they do from research and development.

There are two reasons this is troubling.

First, it means slower growth because government intervention is undermining the efficient allocation of labor and capital that occurs with productive entrepreneurship.

Second, cronyism is very corrosive because people equate business with capitalism, so their support for capitalism declines when they see companies getting special favors.

I wish ordinary people understood that big business and free enterprise are not the same thing.

Though I fully understand their disdain for certain big companies. Consider the way a select handful of big companies use the Export-Import Bank to obtain undeserved profits. How about the way big agri-businesses rip off consumers with the ethanol scam. Don’t forget H&R Block is trying to get the IRS to drive competitors out of the market. Big Sugar also gets a sweet deal by investing in politicians. Another example is the way major electronics firms enriched themselves by getting Washington to ban incandescent light bulbs. Needless to say, we can’t overlook Obama’s corrupt green-energy programs that fattened the wallets of well-connected donors. And General Motors became Government Motors thanks to politicians fleecing ordinary Americans.

The bottom line is that it’s time to save capitalism from the rent seekers in the business community.

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I’m rather frustrated about the lack of real results from the Republicans in Washington.

Yet Trump and some GOPers want to take credit for a rising stock market, as if that is some sort of positive reaction to their non-accomplishments.

As you can see from this interview, I don’t completely reject this hypothesis. After all, stock values are a reflection of the market’s expectations of future after-tax profits. So if investors think that good reforms – such as a lower corporate tax rate – are going to happen, then it makes sense that the value of financial assets will increase.

By the way, I can’t resist commenting on the claim from the Economic Policy Institute that the stock market is a “meaningless indicator” that has nothing to do with the well-being of workers.

That’s nonsense. Assuming we’re looking at genuine and durable increases in stock values (rather than a bubble), that’s a reflection of a growing economy, which translates into more income for workers.

In the language of economists, capital and labor are complimentary goods. More of one increases the value of the other. Which is why I told the folks at Politifact that it’s good for workers in the long run when financial assets become more valuable since that presumably means more investment.

Dan Mitchell, a scholar at the libertarian Cato Institute, agreed that “capital and labor compete for shares of income in the short run.” Over the long term, however, “there is no trade-off between corporate profits and labor income,” he said.

But let’s focus on the bigger issue of whether Trump deserves any credit for the stock market’s performance.

Ira Stoll, writing for the New York Sun, shares some very appropriate caveats.

The stock market, in other words, is like a lot of things: politicians want to take credit for it when news is good, but absolve themselves of responsibility when news is bad. One might hope for a more consistent perspective from journalists or from independent research organizations. Imagine, say, an election-day to election-day presidential job-performance dashboard that included data on measures such as stock market performance, the value of the dollar, job creation, unemployment, labor force participation, and real GDP growth. It can indeed be hard to isolate a president’s influence on all these things from other variables, such as, say, the composition of Congress. Should Mr. Obama or President Clinton get credit for the stock market booms in their terms? Or should the Republican Congresses under which they occurred? How does one accurately account for the period between the election and inauguration, when stock market gains may reflect anticipated improvements, but growth results measure existing budgets and policies?

Having given lots of reasons to be cautious, Stoll nonetheless thinks investors are buoyed by the pro-growth parts of Trump’s agenda.

…steps Mr. Trump takes — reducing regulation or slowing the growth of it, reducing corporate income tax rates, allowing more energy exploration — will outweigh any negatives. In other words, there’s a decent case that Mr. Trump does deserve at least some credit for the stock market gains.

I don’t have any objection to this analysis.

Though allow me to add another caveat to the list. As I explained when discussing the same topic back in March (see final interview) and indirectly suggested in the above interview, Trump is playing a risky game.

What if the stock market is artificially inflated because of the Fed’s easy-money policy? If that’s the case, there almost certainly will be a correction and stock values will drop.

This won’t be Trump’s fault, but he’ll then be very vulnerable when opponents argue that he should be blamed. As the old saying goes, live by the sword, die by the sword.

In my humble opinion, politicians (at least the ones who support good policy on net, and I still don’t know whether Trump is in this category) should argue for good policy because that will lead to higher per-capita income over time.

And they also should say, in the interests of accuracy, that it generally takes time to see good results.

Consider the lesson of the Reagan years. The first couple of years were a bit bumpy, both because some of Reagan’s good reforms – particularly the tax cuts – were slowly phased in and because some short-run pain was inevitable as inflation was brought under control (an overlooked and very beneficial achievement). But once his policies kicked in, the economic results were very positive.

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