Some Folks on the Left Are Honest…but Very Wrong

As part of my collection of honest leftists, I have a bunch of columns highlighting how some advocates of big government (including, to their credit, Bernie Sanders and Andrew Yang) don’t hide from reality.

I’m unalterably opposed to their policies, but at least they openly admit that huge tax increases on ordinary people are needed in order to finance a European-style welfare state.

Now we have two more honest statists to add to our list.

In a column for the Washington Post, Eric Harris Bernstein and Ben Spielberg openly embrace huge tax increases on Americans with modest incomes.

They start by complaining that the tax burden is lower in the United States compared to other western nations.

A no-new-middle-class-taxes pledge…is seriously misguided. Middle-class taxes are a necessary and desirable part of a comprehensive, progressive policy framework… Democratic presidential candidates should make the case for middle-class taxes, not run from them. Here is a basic fact: The United States is a low-tax country. In 2018, the most recent year for which data is available, the United States ranked fourth-lowest in the Organization for Economic Cooperation and Development (a consortium of 36 economically developed countries) in terms of tax revenue collected as a percentage of the economy — behind nations like Germany, Israel, Latvia and Canada. The gap between U.S. and average OECD revenue has widened over time, from 1.3 percentage points of gross domestic product in 1965 to 10 percentage points more recently. That’s nearly $2 trillion per year in forgone revenue from lower tax rates.

Interestingly (though not surprisingly), they don’t acknowledge that Americans are far richer than people in other advanced nations.

So maybe, just maybe, there’s a relationship between tax policy and economic outcomes.

The authors then complain that Reagan triggered an era of lower taxes for the non-rich. Oh, the horror!

In 1979, the year before Ronald Reagan was elected president, the average household in the middle quintile of the income distribution paid 19.1 percent of its income in federal taxes, according to data from the Congressional Budget Office. By 2016, that rate had dropped 5.2 percentage points, more than a quarter, to 13.9 percent. The story is similar for the second and fourth quintiles, which saw their rates decline by 5.6 and 3.8 percentage points respectively over the same period.

Here’s a graphic that accompanied the column.

As you can see, readers are supposed to conclude that the United States is “below average” compared to other developed nations.

What would it mean if politicians reversed all the tax cuts that started under Reagan?

The most revealing factoid from the column is their calculation that middle-income families should be paying $3800 more to the IRS every year.

In 2016, middle-quintile families paid $3,800 less in taxes than they would have at 1979 rates… Low middle-class taxes in the United States stand in stark contrast to the approach in other developed countries, which raise more revenue from the middle class through some combination of taxes on goods and services, payroll taxes, and income taxes.

And don’t forget that the authors don’t just want to go back to 1979 tax rates.

They want America to become another France.

Somehow, I suspect America’s middle-class does not want to be pillaged like their European counterparts.

Amazingly, it gets even worse. The authors want more debt-financed spending and they even endorse the perpetual motion machine of “modern monetary theory.”

Of course, middle-class tax increases are not the only means of providing these public goods. Trillions of dollars can be raised through various taxes on the rich… And funding public investments with government debt, which modern monetary theory’s adherents recommend, is a far better approach than requiring every program to have a designated “payfor.” The government is uniquely positioned to borrow money, and we shouldn’t let unsubstantiated, theoretical concerns about debt levels prevent us from addressing the concrete and urgent needs of today.

I could end the column at this point and simply observe that it’s good to find honest folks on the left, even if they’re wildly wrong.

But the authors of the column unintentionally have given me an excuse to make a key point about taxes, growth, the economy, and the Laffer Curve.

Their graphic inserted above reveals that the overall tax burden in France consumes 46.1 percent of GDP in France, nearly twice as high as the United States.

But high tax rates don’t necessarily produce high tax revenues.

Indeed, I crunched data from the International Monetary Fund and found that per-capita revenues in France are only about 10 percent higher than they are in the United States.

I’m sure Art Laffer won’t be surprised by these results. Neither would Ibn Khaldun.

The bottom line is that most people in Europe are subject to much higher tax rates, which leads to lower living standards and weaker economies, which means there’s not even a lot of tax revenue to spend.

Would your family be willing to give up $10,000, $15,000, or $20,000 of income just so politicians could spend an extra $2,000 per household?

New York vs. Florida, Round #3

I looked last year at how Florida was out-competing New York in the battle to attract successful taxpayers, and then followed up with another column analyzing how the Sunshine State’s low-tax policies are attracting jobs, investment, and people from the Empire State.

Time for Round #3.

A new article in the Wall Street Journal explains how successful investors, entrepreneurs, and business owners can save a massive amount of money by escaping states such as New York and moving to zero-income-tax states such as Florida.

This table has the bottom-line numbers.

As explained in the article, taxpayers are discovering that the putative benefits of living in a high-tax state such as New York simply aren’t worth the loss of so much money to state politicians (especially now that the 2017 tax reform sharply reduced the tax code’s implicit subsidy for high-tax states).

There’s a way for rich homeowners to potentially shave tens of thousands of dollars from their tax bills. They can get that same savings the next year and the following years as well. They can cut their taxes even further after they die. What’s the secret? Moving to Florida, a state with no income tax or estate tax. Plenty of millionaires and billionaires have been happy to ditch high-tax states like New York, New Jersey, Connecticut and California. …A New York couple filing jointly with $5 million in taxable income would save $394,931 in state income taxes by moving to Florida… If they had moved from Boston, they’d save $252,500; from Greenwich, Conn., they’d knock $342,700 off their tax bill. …Multimillionaires aren’t just moving their families south, they are taking their businesses with them, says Kelly Smallridge, president and CEO of the Business Development Board of Palm Beach County. “We’ve brought in well over 70 financial-services firms” in the past few years, she says. “The higher the taxes, the more our phone rings.”

An article in the Wall Street Journal late last year explained how states such as Florida are big beneficiaries of tax migration.

David Tepper, Paul Tudor Jones and Barry Sternlicht are among the prominent transplants who have pulled up roots in New York, New Jersey or Connecticut in recent years for Florida. New Yorker Carl Icahn has said he is moving his company to Miami next year. …The loss of the super-wealthy isn’t just a matter of reputation. The exodus of billionaires can crimp state budgets. …The SALT cap has widened the gap between Florida and other states with no income tax, such as Wyoming, and New York City, where residents can owe income taxes at rates that approach 13%.

In a column for National Review, Kevin Williamson analyzes the trade-offs for successful people…and the implications for state budgets.

…one of the aspects of modern political economy least appreciated by the class-war Left: Rich people have options. …living in Manhattan or the nice parts of Brooklyn comes with some financial burdens, but for the cool-rich-guy set, the tradeoff is worth it. …metaphorically less-cool guys are in Florida. They have up and left the expensive, high-tax greater New York City metropolitan coagulation entirely. …Florida has a lot going for it…: Lower taxes, better governance, superior infrastructure… The question is not only the cost, but what you get for your money. Tampa is not as culturally interesting as New York City. …the governments of New York City and New York State both are unusually vulnerable to the private decisions of very wealthy households, because a relatively small number of taxpayers pays an enormous share of New York’s city and state taxes: 1 percent of New Yorkers pay almost half the taxes in the state, and they know where Florida is. New York City has seen some population loss in recent years, and even Andrew Cuomo, one of the least insightful men in American politics, understands that his state cannot afford to lose very many millionaires and billionaires. “God forbid if the rich leave,” he has said. New York lost $8.4 billion in income to other states in 2016 because of relocating residents.

Earlier in 2019, the WSJ opined on the impact of migration on state budgets.

Democrats claim they can fund their profligate spending by taxing the rich, but affluent New Yorkers are now fleeing to other states. The state’s income-tax revenue came in $2.3 billion below forecast for December and January. Mr. Cuomo blamed the shortfall on the 2017 federal tax reform’s $10,000 limit on state-and-local tax deductions. But the rest of the country shouldn’t have to subsidize New York’s spending, and Mr. Cuomo won’t cut taxes.

To conclude, this cartoon cleverly captures the mentality of politicians in high-tax states.

Needless to say, grousing politicians in high-tax states have no legitimate argument. If they don’t provide good value to taxpayers, they should change policies rather than whining about out-migration.

By the way, this analysis also applies to analysis between nations. Why, for instance, should successful people in France pay so much money to their government when they can move to Switzerland and get equivalent services at a much-lower cost.

Heck, why move to Switzerland when you can move to places where government provides similar services at even lower cost (assuming, of course, that anti-tax competition bureaucracies such as the OECD don’t succeed in their odious campaign to thwart the migration of people, jobs, and money between high-tax nations and low-tax nations).

P.S. If you want to see how states rank for tax policy, click here, here, here, and here.

The Federal Government’s Harassment of Oracle

Regulatory policy has been one of the bright spots of the Trump Administration (along with tax policy).

But it’s not a perfect record.

In a column for Townhall, Steve Sherman describes how the Labor Department launched a regulatory attack against Oracle in the final days of the Obama Administration.

President Obama was not a good president, but he was really good at issuing midnight regulations… Obama’s army of left-wing lawyers were also busy writing up last minute lawsuits… President Obama’s administration went after the tech companies Palantir, Google, then Oracle by alleging discrimination using statistics gathered as part of routine audits of these government contractors. In all of these suits, no actual evidence of discrimination was presented, merely statistics gathered that claimed to prove discrimination. This type of evidence would be tossed out in a real court, but with these suits, they were handled administratively and internally at the Department of Labor. …Oracle was so outraged by continued harassment that they fought back and sued the federal government for violating the Constitution’s separation of powers arguing that the lawsuits statutory authority.

So why am I criticizing the Trump Administration for regulatory harassment that was launched under Obama?

For the simple reason that some of Trump’s appointees have allowed the assault to continue, as former Congressman Bob Barr explained for the Daily Caller.

The Trump administration has performed admirably in reducing the regulatory red tape that has strangled American businesses… But for reasons not entirely clear, the Department of Labor has lagged behind other agencies in this regard. One clear example is the way the department’s Office of Federal Contract Compliance Programs (OFCCP) has continued unnecessary and counterproductive Obama-era litigation against tech companies… In a 2017 study, the U.S. Chamber of Commerce…set forth in extensive detail that the OFCCP in recent years had become enamored of faulty, statistics-based challenges to companies engaged in federal contracts… A number of lawsuits reflecting this abusive approach to regulatory enforcement were filed against large tech companies in the waning months of the Obama administration. …the Department of Labor sued…, just two days before President Trump was sworn in, Oracle. …the Labor Department instead has become…a regulatory bully searching for ways to punish companies. …Hopefully, …Donald Trump and Eugene Scalia…will step in and make sure that the small but powerful agency…gets on board the administration’s drive to actually reduce federal regulatory burdens

The Washington Post has some details on the dispute between Oracle and the federal government.

…the Labor Department…alleges Oracle, the database management company founded by billionaire Larry Ellison, paid some women as much as 20 percent less than their male peers, or $37,000, in 2016. The lawsuit was filed by the department’s Office of Federal Contract Compliance Programs, which audits companies with government contracts worth more than $100 million a year. …The hearing in San Francisco has broad significance for the tech industry because the allegations against Oracle are similar to the department’s claims that other tech giants, including Google and Palantir, exercised systemic bias against minority and female employees in hiring, pay or promotion. …Oracle’s lawyer argued that the Labor Department’s expert witness compared employees based on broad job titles and failed to take into account that a software developer who worked on Oracle’s product PeopleSoft is valued differently in the market than developers who work on the artificial intelligence of machine learning. …The department claims Oracle’s college recruiting program hired 500 graduates between 2013 and 2016 for product development roles at its Redwood Shores, Calif., headquarters, 90 percent of whom were Asian. During the same period, Oracle only hired six black people through the recruitment program. …The agency argues that pay disparities stem from Oracle’s practice of…relying on prior salaries to set their pay at Oracle.

The key thing to understand is that the federal government is unable to find any victims of actual discrimination.

As the Wall street Journal opines, bureaucrats are relying on statistical differences.

Protecting the constitutional separation of powers is back in political fashion as more businesses challenge abuses of administrative agencies. One case worth watching is Oracle’s lawsuit arguing that the Labor Department has usurped the federal judiciary and other executive agencies. Labor’s Office of Federal Contract Compliance Programs (OFCCP) filed a discrimination complaint against Oracle in the waning days of the Obama Administration. During a routine audit, the OFCCP in 2014 conducted a statistical analysis of Oracle’s workforce. And what do you know? The agency says it discovered disparities based on race and sex that it claimed were prima facie evidence of discrimination. …In sum, the agency said Oracle discriminated against every class of worker in one way or another. It demanded that Oracle lose current and forgo future federal contracts plus pay up to $400 million in restitution to its alleged victims. Yet its case all but collapsed at an administrative trial this month. The Labor office presented no evidence of intentional discrimination or even witnesses who claimed as much. …Oracle is suing the OFCCP for violating the Administrative Procedure Act and separation of powers. …the agency investigates, prosecutes, tries and punishes businesses even though it has no legislative authority to do so.

I’ll close by citing Thomas Sowell’s column for Jewish World Review on how “disparate impact” is basically a scam.

“Disparate impact” statistics have for decades been used, in many different contexts, to claim that discrimination was the reason why different groups are not equally represented as employees or in desirable positions… The implicit assumption is that such statistics about particular outcomes would normally reflect the percentage of people in the population. But, no matter how plausible this might seem on the surface, it is seldom found in real life… Blacks are far more statistically “over-represented” among basketball stars in the NBA… Hispanics are similarly far more “over-represented” among baseball stars than in the general population. Asian Americans are likewise far more “over-represented” among students at leading engineering schools like M.I.T. and Cal Tech than in the population as a whole. None of this is peculiar to the United States. You can find innumerable examples of such group disparities in countries around the world and throughout recorded history.

Sowell isn’t just theorizing.

He wrote a thoroughly researched book on exactly this issue.

The bottom line is that groups – on average – sometimes have different interests and aptitudes.

Walter Williams observed about ten years ago that, “Not every choice based on race represents racism and if you think so, you risk misidentifying and confusing human behavior.”

And there’s no evidence that Oracle even made decisions based on race to begin with.

So the bureaucrats at the Department of Labor are using bad methodology to harass and extort a company.

Left-leaning administrations have a track record of pushing bad policies on their way out of office, so I’m not surprised the Obama Administration launched the attack on Oracle. But I am surprised that the Trump Administration has allowed the legal assault against the company to continue.

P.S. While I normally don’t think the federal government should have any power to interfere with regards to market outcomes for hiring, pay, promotion, and association, it’s legitimate for Uncle Sam to put conditions on companies that bid on federal contracts. I just wish they would fight actual examples of bias, not mere statistical differences.

Tax Policy and Migratory Patterns of the Golden Geese

People underestimate the importance of modest long-run trends.

• A small boost in economic growth, if sustained, can have a major effect on long-run living standards.
• A small shift in the growth of government spending, over time, can determine a nation’s fiscal viability.
• A small change in birthrates, in the long run, has a huge impact on a country’s population and finances.

Another example is state-level migration.

This is occurring for many reasons, including demographics and weather.

But it’s also happening because many people are moving so they can benefit from the better opportunities that exist in lower-tax states.

The Tax Foundation has an article on interstate migration based on data from United van Lines.

States compete with each other in a variety of ways, including attracting (and retaining) residents. Sustained periods of inbound migration lead to greater economic output and growth. Prolonged periods of net outbound migration, however, can strain state coffers… While it is difficult to measure the extent to which tax considerations factor into individuals’ moving decisions, there is no doubt that taxes are important in many individuals’ personal financial deliberations. Our State Business Tax Climate Index uses over 100 variables to evaluate states on the competitiveness of their tax rates and structures. Four of the 10 worst-performing states on this year’s Index are also among the 10 states with the most outbound migration in this year’s National Movers Study (New Jersey,  New York, Connecticut, and California).

Here’s the map showing states ranked my migration status.

Similar data also is collected by U-Haul.

Mark Perry of the American Enterprise Institute put together this visual on the states with the most in-migration and out-migration.

He looked at the data based on voting patterns. I’m more interested in the fact that states without income taxes do very well.

By the way, we don’t have to rely on moving companies.

And here are some excerpts from an editorial by the Wall Street Journal on the topic, based on data from the IRS and Census Bureau.

Slowing population growth will have significant economic and social implications for the country, but especially for high-tax states. The Census Bureau and IRS last week also released state population growth and income migration data for 2018 that show the exodus from high-tax to low-tax states is accelerating. …New York was the biggest loser as a net 180,000 people left for better climes. Over the last decade New York has lost more of its population to other states (7.2%) than any other save Alaska (8%), followed by Illinois (6.8%), Connecticut (5.6%) and New Jersey (5.5%). Hmmm, what do these states have in common? Large tax burdens… Where are high-tax state exiles going? Zero income tax Florida drew $16.5 billion in adjusted gross income last year. Many have also fled to Arizona ($3.5 billion), Texas ($3.5 billion), North Carolina ($3 billion), Nevada ($2.3 billion), Colorado ($2.1 billion), Washington ($1.7 billion) and Idaho ($1.1 billion). Texas, Nevada and Washington don’t have income taxes.

Here’s an accompanying visual.

Once again, we see a pattern.

Tax policy obviously isn’t the only factor that drives migration between states, but it’s clear that lower-tax states tend to attract more migration, while higher-tax states tend to drive people away.

And keep in mind that when people move, their taxable income moves with them.

Which brings me back to my opening analysis about trends. Over time, the uncompetitive states are digging themselves into a hole. Migration (at least by people – the Golden Geese – who earn money and pay taxes) in any given year may not make a big difference, but the cumulative impact will wind up being very important.

P.S. Speaking of which, feel free to cast your vote for the state most likely to suffer fiscal collapse.

The Bernie Sanders-Style Agenda of Spain’s New Government

Last month’s election in the United Kingdom attracted considerable attention, not only because it would decide Brexit, but also because of the potential risk of a hard-left Labour government in the world’s 5th-largest economy.

The British dodged that bullet but the people of Spain are not so fortunate. A new government with a very statist platform has just been formed.

Writing for CapX, Luis Pablo de la Horra explains that Spain now faces a grim future.

The agreement between socialists and populists includes an economic agenda which, if carried out, would have a disastrous impact on the Spanish economy. …the new coalition government intends to repeal the labor-market reform passed by Rajoy’s conservative government in 2012. This reform, which was aimed at introducing flexibility in Spain’s dysfunctional labor market, has crucially contributed to reducing the unemployment rate from 26% in late 2012 to 14% today. In fact, a 2016 report by BBVA Research shows that the labor-market reform prevented the destruction of almost one million jobs between 2012 and 2015. ..Sánchez’s government plans to increase taxes on large corporations… The agreement between Sánchez and Podemos also includes the imposition of rent controls in large cities. …Given that the problem of housing in Spain is related to an insufficient supply of apartments in urban areas, rent controls would only aggravate the situation, reducing the number of dwellings available and pushing up prices in non-rent-controlled areas. …An increase in public spending is also among the plans of the soon-to-be new government of Spain. …Juan Ramón Rallo, professor of Economics at IE Business School, estimates that the increase in public spending planned by Sánchez’s government for this year amounts, in net terms, to 3 percentage points of GDP.

A column by Leonid Bershidsky for Bloomberg also notes the new government’s hard-left agenda.

The formation of the government headed by Socialist leader Pedro Sanchez and including the far-left Podemos group…commits him to a more resolutely leftist agenda than the Socialists would have advanced alone. Among other things, it calls for the repeal of the 2012 labor market reform, which succeeded in driving down unemployment from its peak of 26.3% in February, 2013 to about 14% today. …The coalition also plans to hike income taxes for corporations and high earners, starting with those individuals who make 130,000 euros ($146,000) a year and capital gain taxes. A minimum wage hike to 1,200 euros a month from the current 1,050 euros is planned. The leftist parties also have committed to unlink pensions from life expectancy…an ambitious tax-and-spend program.

By the way, I can’t resist sharing these excerpts from a BBC report on the hypocrisy-drenched leader of hard-left Podemos.

Pablo Iglesias and Irene Montero, the party’s spokeswoman, were accused of hypocrisy for spending €600,000 (£527,000; $700,000) on a house with a swimming pool and guest quarters. Mr Iglesias has previously criticised politicians who live “in villas”. …Some rank-and-file members said it undermined the party’s grassroots credibility. …Mr Iglesias formed Podemos in January 2014 with a group of fellow left-wing university lecturers. …He has previously made much of the fact that he lived in modest accommodation in the working class Madrid neighbourhood of Vallecas and that he bought his clothes in supermarkets.

The moral of the story is that people never get rich from leftist economic policy, but leftist politicians inevitably wind up fat and happy.

But I’m digressing.

What makes the new Socialist-Podemos government so disturbing is that Spain desperately needs to move in exactly the other direction.

Writing for Cayman Financial Review, Miguel Sanchez de Pedro warned about his country’s unpalatable fiscal position.

Spain is a welfare state… Public expenditures represent 43.9 percent ($498 billion, 2017) of GDP. …pensions, healthcare and education made up 68.2 percent ($418 billion) of total public expenses for the year 2017. …The quasi-federal regime has proven highly expensive and inefficient, particularly during troubled economic cycles that leave the central government largely without any capacity to influence expenditure and rebalance regional finances. …The untenable compulsory public pension system is threatened under current and foreseeable scenarios of an ageing population…the social security accounts show a technical bankrupt institution with a negative financial net worth…due to the growing mismatch between the number of contributing workers needed to pay per pensioner – actually 1.9 workers per pensioner.

And here’s a portion of an infographic he put together about his nation’s unstable pension system.

A big problem for Spain is that too many people are riding in the wagon and too few workers are generating prosperity in the economy’s productive sector.

In a column for E21, Daniel Di Martino highlighted this concern.

Sánchez’s plan is to increase spending and finance it by raising taxes on businesses and high-income individuals. …These measures would discourage work and solidify the culture of dependency on the state. …hiring more public workers would make more people want to switch to the public sector… there are more people who receive government pensions, are unemployed, or work for the government than there are workers in the private sector. …Prime Minister Sánchez’s measures would sentence Spaniards to joblessness and state dependency, while emptying the state coffers when millionaires and soccer players leave.

And here’s a pie chart from his column.

In a study for the Bank of Spain, five economists crunched numbers for the country’s economy and concluded that higher taxes don’t yield good results.

In this paper we adopt the narrative approach to estimate the output effects of tax shocks in Spain. To this end, we have constructed a detailed record of all the relevant legislated tax changes implemented during the period 1986-2015. …Next, we estimate the GDP effects of an exogenous tax change by constructing impulse-response functions derived from simple VARs. …We find that a 1% of GDP increase in taxes depresses output by around 1.3% after one year, this effect fading away at more distant horizons. …All things considered, our set of estimates provides a coherent picture of negative short-term output effects triggered by tax increases (and vice versa).

Here’s one of the graphs from the study.

This echoes earlier academic research showing that class-warfare tax increases are especially destructive.

And let’s not forget how higher corporate tax burdens in Spain also have backfired.

P.S. Supposedly right-of-center governments in Spain also have adopted bad policy, so maybe voters figured they should opt for the real thing.

P.P.S. Spain has a peculiar problem involvng its navy.

P.P.P.S. Politicians always claim they want to tax the rich, but the Spanish experience shows that people with modest incomes are the big victims, to it’s understandable that they do everything possible to protect their money from greedy government.

Ranking Economic Liberty in America States, Canadian Provinces, and Mexican States

My favorite publication from the Canada-based Fraser Institute is Economic Freedom of the World, which ranks nations based on economic liberty.

I religiously write about each year’s report (starting back in 2011), and I also cite the data dozens of time each year when analyzing policy in various nations.

The second-best report from the Fraser Institute is Economic Freedom of North America, which ranks economic liberty in all American states, Canadian provinces, and Mexican states. Here’s the headline data from the most-recent edition, with Canadian provinces highlighted in brown and Mexican states highlighted in green.

I’m not surprised to see New Hampshire in first place, and I’m not surprised to see Florida in second place.

Both states rank near the top in various measures of economic liberty in the United States.

I’m also not surprised to see Mexican states clustered at the bottom.

What’s particularly interesting is to see how rankings have changed for the United States and Canada.

…economic freedom had been declining in all three countries until recently. From 2004 to 2013, the average score for all 92 jurisdictions fell from 7.64 to 7.09. Canadian provinces saw the smallest decline, only 0.08, whereas the decline in the United States was 0.59 and in Mexico, 0.63. However, economic freedom has increased in the United States and Mexico since 2013. In contrast, in Canada, after an increase in 2014, it has fallen back below its 2013 level. …on the all-government index the highest ranked jurisdiction is New Hampshire with a score of 8.13. After six straight years in first, Alberta fell to a tie for 6th last year, and fell further to a tie for 24th place at 7.94 in this year’s report. Florida is in 2nd with 8.07… The highest-rated Mexican state is Guanajuato at 61st with 6.49, behind all 50 US states and 10 Canadian provinces, and below 60th place by more than one full point.

Here’s a look at the biennial numbers for the three nations.

I’ve highlighted in green the two recent times Canada ranked about the United States (gee, thanks Obama) and highlighted in red the two recent times Canada ranked below the United States (gee, thanks Trudeau).

In my humble opinion, a key takeaway in the report is what happened to Alberta.

Here are some relevant excerpts.

Alberta, for seven years in a row up to 2015, was the top jurisdiction among the 92 jurisdictions in the index in the all-government index, as it was among Canadian prov-inces in the subnational index. However, in 2015, Alberta elected new political leaders who made changes in taxation, spending, and regulation that have had a significant negative effect on economic freedom. …Since 2015, Alberta has fallen from 1st to a tie for 24th place in the 2017 all-government index. It scored 8.31 in 2014 in this index, falling by 0.37 points in the 2017 index, the largest fall over that period of the 92 jurisdictions in the all-government index. Alberta’s decline in the subnational index, where of course provincial leader-ship has its greatest impact, was much larger, 1.42 points, between 2014 and 2017.

And here’s a table that shows what has happened over the past few years.

I actually warned about Alberta’s fiscal deterioration back in 2015, so I’ll be interested to see if the province can restore some budgetary sanity.

To be sure, Alberta is still the top-ranked province, but that’s more a reflection of bad policy elsewhere in Canada.

P.S. In general, Canada is a sensible, market-oriented nation. Indeed, the United States should copy its northern neighbor on issues such as spending restraint, welfare reform, corporate tax reform, bank bailouts, regulatory budgeting, the tax treatment of saving, school choice, and privatization of air traffic control.

How Government Intervention Makes Housing More Expensive

Just as the sun rises in the east and sets in the west, there are some consistent patterns with government.

Politicians, for instance, will enact a policy that distorts the economy and causes damage (with regards to trade, bailouts, guns, health, whatever). And they’ll then point to the damage and assert that even more intervention is needed.

I call this Mitchell’s Law, though I certainly don’t claim to be the first to observe this distressing tendency.

Today, we’re going to examine a classic example of this phenomenon by looking at how politicians are distorting the housing market with supply restrictions that produce higher costs, and then compounding their mistake with subsidies and price controls.

Edward Pinto of the American Enterprise Institute offers some economic analysis.

Recently there has been a flurry of legislative proposals to add yet more housing subsidies to the housing sector, already one of the most heavily subsidized. …These are the most recent in a long history of ill-conceived policies that increase housing demand but do nothing about supply. The result: higher home prices and rents, particularly for low-income and minority households, the very ones these initiatives profess to help. …layers of subsidies combined with federal, state, and local regulations act to drive up costs while simultaneously constraining supply. …For example, Los Angeles has a median home price that is 8.8 times median income, up from 4.2 times in 1979. And median rent in LA is 49% of the median income, up from 32% in 1979. These results are largely driven by (i) easy access to credit which drive demand and prices ever higher, (ii) local land use restrictions and regulations that constrain new supply and drive building costs higher, and (iii) housing subsidies that make it even more difficult for market rate housing to compete. …Market-based solutions are the only way to bring home prices and rents back in line with median incomes and improve accessibility.

While there are plenty of bad housing policies in Washington (Fannie Mae and Freddie Mac, Department of Housing and Urban Development, mortgage-interest deduction, etc), much of the problem is caused by state and local governments.

Kevin Williamson of National Review cites a regulation in Dallas to show that government intervention causes problems.

…smaller secondary residences built on the lots of other houses..have long been a go-to source of cheap housing in college towns and other places with substantial itinerant populations of temporarily penniless young people. …Dallas…prohibited the building and rental of these residences in the 1970s on the theory that this would help to improve the living conditions on the south side of town… To the great surprise of nobody except politicians and their creatures, prohibiting the construction and rental of affordable housing did not do much to help poor people in Dallas connect with affordable housing. …The politicians have decided that there is an affordable-housing crisis in America. They should know: They created it. …Why? Because people who own homes have more political power than people who might want to buy one at some point in the future.

The Wall Street Journal opined today about the inane anti-housing policies in the Beaver State.

Politicians bemoan the lack of affordable housing, but their policies often create the problem. Look no further than Oregon… Oregon’s population grew by nearly 400,000 between 2010 and 2019. But the state added a mere 37 housing permits for every 100 new residents… Oregon’s land-use rules have been dysfunctional for decades. …strict limits on urban expansion…urban growth boundaries… Rising housing prices are the inevitable result of this government-imposed scarcity. …Portland has enforced an “inclusionary zoning” requirement on new residential buildings with 20 or more units. The city now compels many landlords to rent up to a fifth of new units at below-market rates. …Permits for 20-plus-unit residential buildings plummeted 64% in 25 months after inclusionary zoning took effect, while applications to build smaller multi-family structures spiked… The rest of Oregon is following Portland’s bad example with more price controls. Last year it became the first state to impose universal rent control.

To show the impact of regulatory restrictions, the invaluable Mark Perry of the American Enterprise Institute has a must-read comparison of Los Angeles with two Texas cities.

Adjusting for population, there are about 600 homeless people per 1 million population in Houston and Dallas, but nearly five times as many in LA at 2,707. The comparisons…highlight the simple economic logic that if you restrict the supply of new housing units (especially multifamily homes, duplexes, and large apartment buildings) in states like California with onerous building, land use, and zoning regulations, those restrictions are guaranteed to result in higher housing costs, higher apartment rents, and ultimately a greater homeless population. …The increasing rents, escalating home prices, and growing homelessness problem in California cities like LA are a direct result of local and state restrictions that artificially constrict the supply of new housing units. The solution is therefore simple, but politically unpopular and probably not politically feasible: California should increase its supply of housing by reducing its onerous restrictions on building new housing units.

Here’s his accompanying table. Notice how Dallas and Houston are much more affordable than Los Angeles.

And there’s less homelessness as well, in large part because housing is cheaper.

Kevin Williamson wrote in National Review about the anti-housing policies of New York’s governor.

Some of the inflated expenses associated with life in New York can be avoided… But you have to live somewhere. As in the Bay Area, Washington, and other Democrat-dominated cities, housing is the real killer in New York City and environs. …Like most U.S. cities advertising themselves as “progressive,” New York has a lot of political leaders who talk about affordable housing and a lot of political policies that keep affordable housing — and many other kinds of housing — from being built. This is not accidental: People who already own property typically have a lot more political influence than people in the first-time home-buyer market. …At the behest of moneyed environmental interests, Cuomo has stood athwart the building of practically any new conventional energy infrastructure, including pipelines for clean-burning natural gas. …Much of New York’s gas comes from Pennsylvania and West Virginia, but there isn’t enough carrying capacity to get it to New York. And New York has plenty of gas of its own, too, but New Yorkers can’t use it — thanks again to Cuomo, who has banned modern gas-extraction techniques in the state, again at the behest of the anti-energy ideologues who enjoy an outsized financial footprint in the Democratic party.

In addition to zoning laws and other land-use restrictions, the government also makes construction more expensive, as explained in a report in the Wall Street Journal.

The average cost for home builders to comply with regulations for new home construction has increased by nearly 30% over the last five years, according to new research from the National Association of Home Builders. Regulatory costs such as local impact fees, storm-water discharge permits and new construction codes, which have risen at roughly the same rate as the average price for new homes, make it increasingly difficult for builders to pursue affordable single-family construction projects… The cost of regulation imposed during the land development and construction process on average represented $84,671 of the cost of the average new single-family home in March. That is up from $65,224 in 2011, the last time the home-building industry group conducted a similar survey on regulatory costs. …A study this week from housing research firm Zelman & Associates found that local infrastructure “impact fees” have increased by 45% on average since 2005 in 37 key home building markets across the country, to about $21,000 per home.

Here’s a sobering graphic from the article.

All this regulation is bad for macroeconomic performance.

A recent study by two economists finds that land-use restrictions result in substantial misallocation of labor, causing a non-trivial reduction in economic output and family income.

The increase in spatial wage dispersion is driven at least in part by cities like New York, San Francisco, and San Jose, which…adopted land use restrictions that significantly constrained the amount of new housing that can be built. As described by Glaeser (2014), since the 1960s coastal US cities have gone through a property rights revolution that has significantly reduced the elasticity of housing supply… Instead of increasing local employment, productivity growth in housing-constrained cities primarily pushes up housing prices and nominal wages. The resulting misallocation of workers lowers aggregate output and welfare of workers in all US cities. This paper measures the aggregate productivity costs of local housing constraints… We use data from 220 metropolitan areas in the United States from 1964 to 2009… we calculate that increasing housing supply in New York, San Jose, and San Francisco by relaxing land use restrictions to the level of the median US city would increase the growth rate of aggregate output by 36.3 percent. In this scenario, US GDP in 2009 would be 3.7 percent higher, which translates into an additional $3,685 in average annual earnings. …We conclude that local land use regulations that restrict housing supply in dynamic labor markets have important externalities on the rest of the country. Incumbent homeowners in high productivity cities have a private incentive to restrict housing supply. …this lowers income and welfare of all US workers.

So how can this problem be fixed?

In a column for the Foundation for Economic Education, Cathy Reisenwitz explains that state and local politicians need to remove barriers.

America is in the middle of a housing crisis. The cause is simple: we’re not building housing fast enough to keep up with jobs. While the number of U.S. households grew by 11.2 million between 2005 and 2015, we only added about 9.9 million new housing units. …this isn’t a problem Washington can fix. That’s because this problem, and its solution, lies in cities and towns across the country. …Cities across the country make it impossible to build enough housing to meet demand by blocking, restricting, and delaying housing developments. …Even in areas where you can technically build multi-unit homes, other land-use restrictions make it all-but-impossible. These exclusionary land use practices include height restrictions, setback requirements, parking minimums, community review, aesthetic considerations, and minimum lot sizes. …A recent statistical analysis…showed that in 44 out of 50 states, the more land-use regulations on the books, the more homes cost. Reducing land use regulations is the right move for getting Americans out of poverty and into work.

Let’s close with some good news.

Salim Furth has a new article for City Journal, and he argues that all the evidence is actually changing minds and leading to some deregulation.

Last year, Democratic- and Republican-led states and municipalities passed legislation addressing housing affordability, a hopeful sign that housing deregulation is beginning to attract bipartisan support… Encouragingly, Arkansas and Texas have squelched such requirements through bipartisan state legislation. Arkansas has restored autonomy to homeowners on virtually all building-design choices, from color to roof pitch, while Texas has purged local restrictions on building materials. …North Carolina and Texas…passed legislation requires cities and counties to issue project approvals within a few weeks. In Texas, a developer can now move forward with construction if a municipality takes more than 30 days to review a completed application. North Carolina now imposes a 15-business-day limit for building permits involving one- and two-family dwellings. …State legislators will likely continue to address housing-supply restrictions in the years ahead. …The battle over rent control and inclusionary zoning could intensify as well, as it already has in California and Oregon. …policymakers in blue and red states alike should consider how current regulations restrict housing supply and drive up prices.

The bottom line is that housing across the nation will be much more affordable if state and local governments let markets operate.

Here’s a map showing estimates of land-use restrictions in major metropolitan areas. The goal for the nation should be more green and less red.

Incidentally, Fairfax, VA, is part of the D.C. area, so that red spot indicates that my home’s value is being subsidized (as are the homes of Washington’s parasite class).

But since I believe in a just society, I hope my part of the map becomes green, even if it means my home becomes less valuable (folks on the left are willing to hurt the poor so long as they also hurt the rich, whereas I’m willing to sacrifice myself so long as unjust favoritism for others also vanishes).