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Posts Tagged ‘Big Government’

The people of Iran are protesting against their tyrannical government. The trigger for the anger and unrest is the murderous brutality  of the nation’s so-called Morality Police.

I can’t help but wonder, though, whether there’s also national discontent because of bad economic policy.

According to the latest edition of Economic Freedom of the World, Iran has one of the world’s most repressive governments. Of the 165 jurisdictions, only Libya, Argentina, Syria, Zimbabwe, Sudan, and Venezuela rank lower.

In other words, the Iranian government restricts economic freedom just like it restricts political freedom.

And that has very adverse consequences for the prosperity of the Iranian people, notwithstanding the fact that the nation has abundant energy resources.

Here’s a chart, derived from the Maddison database, that shows how Iran has fallen far behind Bahrain when measuring per-capita economic output.

I picked Bahrain because that’s the nation in the Middle East that ranks highest for economic liberty (#39).

This gives us another example of the “anti-convergence” that occurs when two nations have big differences in economic freedom.

The bottom line is that Iran has a horrible government for more reasons than we’re seeing in today’s headlines.

P.S. Here’s a comparison of economic liberty over time in both Iran and Bahrain.

P.P.S. Western sanctions against Iran obviously undermine prosperity, just as similar sanctions hurt places such as Cuba, North Korea, and Venezuela. I like when people make this point since it shows they (at least implicitly) are making the case for free trade. But I disagree if they want people to believe that such sanctions explain more than a small fraction of the problems in those nations.

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This probably does not quite belong in my collection of “most depressing charts,” but it is definitely very bad news that taxes now impose a greater burden on the average American household than the combined cost of food, clothing, education, and health care.

This is remarkable, especially since education and health care are needlessly expensive because of government intervention.

The dismal numbers in this chart come from an article in Reason by Elizabeth Nolan Brown.

There are not numbers she pulled out of the air. They are from a new report by the Bureau of Labor Statistics.

Here are some excerpts from Ms. Brown’s article.

New consumer spending data from the Bureau of Labor Statistics (BLS) provides some sobering perspective on how much Americans are paying in taxes. …Overall, taxes accounted for about 25 percent of average consumer spending. …On average, each “consumer unit” paid more than $16,000 in taxes last year. This outpaces average spending on food, clothing, education, and health care combined. …This included $8,561.46 in federal income tax, $2,564.14 in state and local income taxes, $2,475.18 in property taxes, $5,565.45 in Social Security deductions, and $105.21 in other taxes.

Ms. Brown’s article says the total tax burden is more than $16,000 while my chart shows that the average tax burden is approaching $19,000. The difference is that she subtracts out so-called stimulus payments, but I think it is more accurate to view those as handouts rather than as tax rebates.

Regardless, the real burden for the average household is actually higher than either number thanks to an absurdly complex tax system.

Household have to spend time, energy, and money to figure out their taxes. And they also pay indirectly because businesses have to pass on their even-higher tax compliance costs to households.

Finally, we should be asking ourselves whether we are getting the same value from coercive taxes that we get from our voluntary spending on food, clothing, education, and health care. All it takes is one trip to McDonald’s and my answer is no.

Heck, given the grotesque inefficiency of government and the economic harm caused by excessive spending, we get negative value from our taxes.

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Last month, I wrote an article comparing Switzerland’s admirable fiscal policy with the profligate tendencies of other European nations.

I included a chart showing that the burden of government spending in Switzerland is far below where it is in countries such as Belgium, Greece, and France – where the public sector consumes about 60 percent of economic output.

And then there are nations such as Germany, Spain, Sweden, Denmark, and Italy, where more than 50 percent of GDP is diverted to finance bloated budgets.

Given this background, I was not surprised to read an article in the New York Times about European politicians engaging in another spending binge.

Nationalizations. Subsidies. Cash handouts. Price caps. Profit taxes. …Governments are resorting to old-school solutions, …throwing vast amounts of money at the energy crisis engulfing the region… E.U. governments have already earmarked more than $350 billion to subsidize consumers, industry and utility companies; ministers met on Friday to narrow down their options for the bloc’s direct intervention in markets to grab excess profits, cap electricity prices and subsidize utilities companies. “Government intervention is back in vogue in a really big way,” said Mujtaba Rahman, Europe director at the consulting firm Eurasia. …The huge public spending is in addition to a nearly trillion-dollar stimulus package adopted over the past year to deal with the economic fallout from the pandemic, mostly through borrowing. …spending billions…may be the only way to keep voters on board with Europe’s strong support of Ukraine against Russia.

The fact that Europe “turns once again to big spending” surely must win a prize for least surprising headline.

What is surprising, though, is some of the mistakes in the article. The reporter, Matina Stevis-Gridneff, seems to think that Europe has been some sort of bastion of laissez-faire fiscal policy.

It’s back to 20th-century economics in Europe. …The standoff with Russia over Ukraine is upturning European economic orthodoxy at rapid speed with barely a peep of dissent at the European Union’s headquarters in Brussels, a bastion of neoliberalism that not so long ago imposed brutal austerity on its own members, most notably Greece, even after it became clear it was harmful. …The ballooning debt load would have normally caused an uproar in the bloc, where fiscal conservatism has dominated policy and politics for years. …Paolo Gentiloni, the top E.U. economic official, ..said that the E.U. would begin to consider changes to its stringent fiscal rules

I’m not sure which part of the above excerpt is most at odds with reality.

  • “A bastion of neoliberalism.” To be blunt, that’s wildly wrong.
  • “Brutal austerity.” To be blunt, that’s wildly wrong.
  • “Fiscal conservatism has dominated policy.” To be blunt, that’s wildly wrong.
  • “Stringent fiscal rules.” To be blunt, that’s wildly wrong.

Though, to be fair, Greece was forced to engage in real austerity for a few years last decade. Though that only happened after a lengthy period of profligacy.

And the Greek people suffered immensely because the government over-spent for so many years.

What’s tragic is that other European nations, led by Italy, almost surely will suffer Greek-style fiscal crises. And the European Central Bank is making a bad situation even worse.

P.S. My other “least surprising headline” columns can be found here, here, and here.

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When I went to Chile last December to write about that nation’s election (see here, here, here, here, and here), I concluded my coverage with a column about the risks of changing that nation’s constitution.

This video from Reason is a fresh look at that topic.

The people of Chile make their choice today.

What’s at stake is whether they want to preserve a constitution based on liberties or replace it with one based on entitlements (the long-standing debate between “negative rights” and “positive rights”).

This should be an easy choice. The current constitution limits the power of government and has helped Chile become the Latin Tiger. Incomes have jumped and poverty has plummeted.

Let’s look at some analysis and commentary.

We’ll start with a story for the New York Times by Jack Nicas, which explains what is happening today.

Voters in Chile on Sunday could transform what has long been one of Latin America’s most conservative countries into one of the world’s most left-leaning societies. In a single ballot, Chileans will decide whether they want…universal public health care; gender parity in government; empowered labor unions; …rights for animals and nature; and constitutional rights to housing, education, retirement benefits, internet access, clean air, water, sanitation and care “from birth to death.” …If voters approve the text, Chile…would suddenly have more rights enshrined in its constitution than any other nation. …The 170-page text would make the Chilean state, which has long had a limited role in its citizens’ lives, the guarantor of more than 100 rights… In addition to housing, health care and education, the new constitution would enshrine the right to…free time, physical activity, sex education, cybersecurity, the protection of personal data and “free and full legal advice” for anyone “who cannot obtain it.” …implementing the new constitution would cost the government 9 percent to 14 percent of Chile’s gross domestic product.

Now that we have the basics, let’s look at whether the new constitution is a good idea.

Writing for National Review, Daniel Di Martino condemns the document.

Chileans…will vote on whether to adopt or reject a proposed constitution written by a socialist-controlled assembly. The document, consisting of 388 articles, would create an unequal justice system and grant more rights for those who claim indigenous ancestry. It would effectively end private health care and education, and it would allow the congress to confiscate Chileans’ pension savings. …The proposed Chilean constitution reads like a longer, more woke, and even more socialist version of Venezuela’s constitution. …It’s a socialist policy wish list. …The proposed constitution would abolish the free-market protections that enabled Chile to become so prosperous. …The proposal prohibits any for-profit educational enterprise at every level, with the result that many private schools would close. …The proposed new law of the land would authorize the government to confiscate accumulated private retirement savings… Chileans have a choice to make in September. Will they vote no on the proposed constitution and keep Chile free and prosperous, or will they vote yes and follow the socialist path of Venezuela?

In case you think Di Martino is exaggerating, a Washington Post report by John Bartlett and Samantha Schmidt reaches the same conclusion, albeit without the criticism.

Chile’s new constitution, a 388-article charter that envisions a progressive, feminist future for the South American nation. …The constitution is one of the first in the world to be drafted in the context of a climate crisis, and to be written by a convention with gender parity. …It’s a woke constitution propelled by left-leaning millennials and built for a modern nation led by one. …One section…would make the government responsible for preventing, adapting to, and mitigating the effects of climate change. …The charter would make the government responsible for providing free higher education, health care and many other services. It would guarantee a right to housing, and to leisure time. It would require that at least half of all members of government and congress, and employees of public and public-private companies, be women.

As you might expect, Mary Anastasia O’Grady of the Wall Street Journal is not a fan.

The document removes the certainty of personal choice—including in healthcare, pensions and education—weakens property rights, increases the role of the state in the economy and moves the country away from representative democracy and toward mob rule. …the high-performing Chilean economy of the past three decades could be headed to a level of mediocrity similar to that of its neighbors Bolivia and Argentina. …The U.S. Constitution has been successful, in large part, because it constrains government power. Conversely, turning a constitution into a laundry list that mistakes entitlements for rights, and promises to guarantee those rights by empowering the state, is a ticket to poverty and tyranny.

Daniel Raisbeck of Reason wrote about the superiority of the current system last month.

Chile’s current, pro-free market constitution…has served the country well, bringing staggering economic success by Latin American and even global standards. But in an October 2020 referendum, 78 percent of Chilean voters chose to ditch the constitution… It seemingly mattered little to voters that, for years, Chile has had one of the region’s highest per capita GDP. …Poverty…decreased from 45 percent in 1982 to a mere 8 percent in 2014… Not bad for a nation whose economy between 1950 and 1970 was, according to a Library of Congress country study, “the poorest among Latin America’s large and medium-sized countries.”

It’s no surprise that conservatives and libertarians oppose the draft constitution.

But the document is so radical and impractical that the left-leaning Economist opined against the pact.

The document is far less…growth-friendly than the current constitution. It gives trade unions the sole right to represent workers, guarantees them a say in corporate decision-making and allows them to strike for any reason… It says that everyone has the “right to work” and that “all forms of job insecurity are prohibited”. That could make it rather hard to fire anyone. Landowners, such as farmers, could potentially lose the property rights to water on their land. Compensation for expropriated land would not be at a market price but at whatever Congress deems a “just” one. The draft creates a portfolio of socioeconomic rights that could blow up the budget. It requires the establishment of several new bodies, such as an integrated national health system, and cradle-to-grave care, without giving much thought to how they would be funded. The state would oversee the provision of housing, to which it says every person has a right. …Rather than scrapping the old constitution, Chileans should scrap the new one.

And even the Washington Post editorialized against it.

Opponents of the new constitution…worry that uncertainty will hinder investment while a new congress tries to translate new constitutional provisions on mining and other natural resources into legislation. Then there is the complexity of a document that consists of 54,000 words, 388 articles and 178 pages — including a provision on the state’s duty to “promote the culinary and gastronomic heritage of the country.”

But the hard left is mobilized and supportive.

Indeed, David Adler wrote in the U.K.-based Guardian that Chile’s leftist constitution should be a model for all nations.

…a visionary document that would not only update, expand and advance Chileans’ basic rights – to health, housing, abortion, decent work and a habitable planet – but also set a new standard for democratic renewal in the 21st century. …a document that responds directly to the escalating crises of inequality, insecurity and a changing climate. The constitution establishes new universal public services for health, education, and clean water. It endows nature with rights…it finally turns Chile into a full democracy, with gender parity in public institutions, self-determination for Indigenous peoples, collective bargaining for all workers… Chile has shown the way to a new constitutional order – rich with rights.

At the risk of understatement, Mr. Adler is nuts.

You can’t create rights to get goodies unless you also create a “right” to take from others. And that’s a distasteful recipe for a system that punishes success and rewards indolence.

What makes Adler’s analysis so foolish is that there’s compelling research showing that economic liberty produces the outcomes associated with so-called positive rights.

Today’s vote will show whether Chileans understand that free markets lead to more upward mobility and higher living standards. If they want less poverty, they should want more capitalism, not a dirigiste constitution.

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Way back in 2009, in the early days of writing this column, I shared an image that aptly summarizes the bad things that happen when politicians interfere with economic liberty.

The simple message is that more government is almost always the wrong answer.

Today, we’re going to look at an example of how government spending is the wrong answer.

Here are some excerpts from a story in the Washington Post, but the headline tells you everything you need to know.

The offer to military veterans left unemployed by the coronavirus pandemic was tantalizing: A year of online courses courtesy of the federal government. Graduates would be set up for good jobs in high-demand fields… Schedules were disorganized and courses did not follow a set syllabus. School-provided laptops couldn’t run critical software. And during long stretches of scheduled class time, students were left without instruction… The disarray…is the most painful example of broader problems with the $386 million Veteran Rapid Retraining Assistance Program, or VRRAP. …nearly 90 schools have had their approvals yanked, according to VA officials, including several that were actively serving about 100 veterans. …only about 6,800 veterans had enrolled in the program, far fewer than the 17,250 Congress created it to serve, the agency said; just 397 had landed new jobs.

Some of you may be tempted to conclude that the program was a success since it did result in 397 jobs.

Others will conclude it was a failure since the budget was $386 million, implying each job cost taxpayers nearly $1 million.

I sympathize with the second conclusion, of course, but here are two questions that need to be answered.

  1. How many of those 6,800 veterans would have landed new jobs if they didn’t participate in the program?
  2. How much economic activity would have been generated if the $386 million was left in the private sector?

Suffice to say, the answers to those questions would show more jobs and more prosperity if the program was never created.

Incidentally, the story, authored by Lisa Rein and Yeganeh Torbati, includes this depressing bit of information.

The troubles with VRRAP were achingly predictable: A similar program rolled out in 2012 — the Veterans Retraining Assistance Program, or VRAP — also failed to attract students and was widely regarded as a flop.

In other words, it was already known that this specific type of program would be a flop.

Heck, there are decades of evidence that all types of government job-training programs are a failure.

So why did Congress approve this scheme?

Unfortunately, the story only tells us that this program was part of Biden’s failed $1.9 trillion stimulus boondoggle, but it does not tell us which politicians on Capitol Hill pushed the plan.

I’m sure we would find those politicians got a lot of campaign contributions from that the interest groups that financially benefited the boondoggle.

All part of Washington’s corrupt version of recycling.

P.S. Since today’s column highlighted how a headline can have a powerful message, here are some previous headlines that caught my attention.

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As an economist, I can immediately think of several ways that big government is bad news for poor people.

But that’s only a partial list. Today, let’s peruse a report from a few weeks ago in the New York Times.

Authored by Robin Kaiser-Schatzlein, it shows how poor people are routinely victimized by greedy and grasping government in Alabama.

In states like Alabama, almost every interaction a person has with the criminal justice system comes with a financial cost. If you’re assigned to a pretrial program to reduce your sentence, each class attended incurs a fee. If you’re on probation, you’ll pay a fee to take your mandatory urine test. If you appear in drug court, you will face more fees, sometimes dozens of times a year. Often, you don’t even have to break the law; you’ll pay fees to pull a public record or apply for a permit. For poor people, this system is a trap… I asked almost everyone I met — gas station attendants, Starbucks baristas and grocery store clerks of all races — if they knew anyone who had been affected by court fines and fees. Many told me stories of family and friends who had. Some had themselves.

The story includes several anecdotes about people who get nailed by endless fees and charges.

Here’s just one example.

Niaya Williams…began driving hours each day back and forth from her job at McDonald’s and his day care. …she started getting ticketed quite frequently. She remembers that one day, she got her first set of tickets for, among other things, not stopping long enough at a stop sign. … ticket for not having a license, a ticket about switched tags that she didn’t fully understand and a ticket because the officer said Mercury was buckled incorrectly. She recalled being given at least three tickets every time she was pulled over. …She was…arrested because of just traffic infractions and missed court dates, Mrs. Williams said. She was, in essence, guilty of little else than being too poor to pay off her fines.

Echoing what I wrote back in 2015, the author notes that this is not a problem unique to Alabama.

States found fines and fees to be an expedient source of revenue, operating under the radar as what some scholars call nontax taxes.  …A 2019 Governing magazine study of cities, towns and counties with significant revenue from fees and fines showed that nearly 600 jurisdictions relied on fines and forfeitures for more than 10 percent of their revenue and 80 relied on fines and forfeitures for over half their revenue. …“Fees are not about public safety,” said Lauren-Brooke Eisen of the Brennan Center for Justice. “They’re about raising revenue.”

Unfortunately, there is a big logical flaw in the story.

Ms. Kaiser-Schatzlein wants readers to think that Alabama is pillaging poor people because of low taxes and small government.

Alabama has one of the cruelest tax systems in the country. Taxes on most property, for example, are exceptionally low. …millions of others in the state live in the wreckage of a system starved of funding: The state has chronically underfunded schools, bad public transit, a dearth of well-paying jobs, little affordable child care and a diminishing health care system. …Most places have a simple and effective method for quickly ameliorating these problems: They raise property or income taxes. But Alabama often refuses to do so or makes it exceptionally difficult, dooming many to living standards unthinkable for a country as rich as the United States.

Too bad she didn’t do any research on this part of her story.

She could have looked at the latest edition of the Tax Foundation’s State Business Tax Climate Index and learned that Alabama actually has one of the nation’s greediest tax systems.

And if Ms. Kaiser-Schatzlein had spent a few minutes looking at data from the Census Bureau, she would have learned that Alabama is hardly a beacon of limited government.

I crunched the numbers two years ago and found that spending by state and local governments in Alabama was way above average when measured as a share of state income. And it was about average when measured on a per-capita basis.

I’ll conclude by observing that there are many states that have very low tax burdens and relatively low levels of government spending, way below Alabama. Including other southern states such as Florida and Texas, not just places like South Dakota and New Hampshire.

If such policies are a recipe for hurting the poor, why are so many Americans of all income levels migrating to those places?

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Yesterday’s column was rather depressing, focusing on the expansion of a corrupt internal revenue service.

To make matters worse, that IRS expansion is part of a larger package of new taxes and more spending.

So let’s offset that bad news with some economics humor.

Since the Biden-Manchin-Schumer legislation includes a big back-door tax increase on companies (the provision targeting “book income“), that’s a perfect segue to our first item about taxation and incentives.

The Biden-Manchin-Schumer legislation isn’t just about misguided tax increases.

It also contains lots of new spending.

Which is why this list from the Babylon Bee is very appropriate.

Next, most of the world’s major nations are dealing with rising prices.

Why?

Because central banks around the world dramatically expanded their balance sheets (i.e., created too much money).

So this definition is both timely and accurate.

Speaking of central banks, here’s a little girl pretending to be Chairman of the Federal Reserve.

Except we now have the highest inflation in 40 years, so the fire is doing even more damage.

Per tradition, I saved the best for last. I’ve written many times that being pro-capitalism is not the same as being pro-business.

Well, here’s a helpful algorithm to show the difference between genuine free enterprise and despicable cronyism.

P.S. You can enjoy previous collections of economics humor by clicking here, here, and here.

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Even though they ostensibly exist to promote economic growth, the International Monetary Fund (IMF) and Organization for Economic Cooperation and Development (OECD) have an unfortunate track record of promoting higher taxes and bigger government.

Not that we should be surprised. IMF and OECD officials get very comfortable (and tax-free!) salaries, so they have a “public choice” incentive to reflect the wishes of the politicians who control their purse strings.

But understanding the incentives of international bureaucrats definitely does not mean we should give them a free pass when they push bad policy.

And that’s exactly what the IMF and OECD are doing in Latin America.

Consider, for instance, the new IMF report on “Tax Policy for Inclusive Growth in Latin America and the Caribbean.” The authors (Santiago Acosta-Ormaechea, Samuel Pienknagura, and Carlo Pizzinelli) apparently think those struggling nations will grow faster if there is a bigger burden of government.

…fiscal policy…is not progressive enough… This paper presents a detailed assessment of tax structures in LAC and outlines reform options to improve collection… Specific tax design features are then assessed, inspecting how the taxation of capital and labor can be improved…to both increase revenue and provide a more equitable tax structure… Evidence for LA7 countries shows that better PIT design could bring significant gains in collection and equity. … Potentially adverse growth impacts could be mitigated by providing well-targeted incentives to labor force participation of low-wage earners through an earned income tax credit… Increasing the tax burden on certain non-labor income sources (e.g., capital gains) would also raise PIT revenue and improve equity… Other untapped revenue sources should be considered more forcefully, including the taxation of immovable property, inheritance taxes, and environmental taxes.

As illustrated by Figure 1 from the report, one of the clear messages is that Latin American countries should be more like high-tax countries in Western Europe.

What the authors overlook, however, is that the (relatively) rich countries in Western Europe became rich when the burden of government was very small.

There’s never been a nation, anywhere in the world, or at any point in world history, that became rich by adopting big government.

Now let’s look at what the OECD recommends, as part of “Latin American Economic Outlook 2021: Working Together for a Better Recovery.”

The LEO 2021 provides tailored policy messages to help stakeholders take action and build forward better. …it highlights the need to learn from the pandemic and mainstream some of the social policy innovations adopted throughout the crisis to strengthen social protection systems and improve quality and accessibility of public services. …a set of tax policy options could increase revenues… there needs to be greater resource mobilisation…in most LAC countries, which in turn implies greater progressivity of the taxation system… the average tax-to-GDP ratio in the LAC region was 22.9% in 2019, considerably below the OECD average of 33.8%… Countries may need to consider additional ways of raising revenues… PIT is the principal factor behind the tax gap between LAC and the OECD, limiting not only potential revenues but also the redistributive power of the tax system… taxation of immovable property…and of individuals’ capital gains, should contribute to increasing revenues to finance the recovery and improve the progressivity of the taxation system. Other measures include wealth and inheritance taxes.

Table 1 from the report summarizes the “new social contract” that the OECD is advocating.

All you need to understand is that “strengthening social protection systems and public services” is bureaucrat-speak for more government spending and “developing fairer and stronger tax systems” is bureaucrat-speak for higher taxes and class warfare.

I’ll close by calling your attention to this video explaining the ideal fiscal policy for nations in the developing world.

But remember that fiscal policy is just one piece of the puzzle, so I also recommend this video and this video if you want a full understanding of the policies that are needed to create broadly shared prosperity.

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I’m a policy wonk rather than a political pundit.

But since part of my job is educating politicians, I can’t simply rely on arguments about what’s best for the country.

I also have to convince them that they can enact good policy while also keeping their jobs.

And that’s why I developed my Fourth Theorem of Government back in 2017.

The simple message is that ordinary people enjoy more income if and when politicians make wise policy choices.

And that’s a very effective strategy for winning reelection.

The obvious example is Ronald Reagan, who won a landslide in 1984 even though (or, actually, because) he aggressively fought to reduce the burden of federal spending.

But not everybody agrees with me.

In a column for the Washington Post, Henry Olsen argues that the Republican Party needs to ignore libertarian ideas and embrace activist government.

Many conservatives recognize that attracting a new, diverse, working-class voter base also entails a new, non-libertarian approach to economics. …Liberty-minded intellectuals might rail against widespread government involvement in the economy, but voters like free public education, subsidized health care and generous pensions. …voters…prefer the Scylla of tax increases to the Charybdis of entitlement cuts as aging populations put fiscal pressure on health-care and retirement programs. …The Chips package should serve as a symbol of what government will need to do to reinvigorate an economy that builds things.

I’ll make my main points about taxes and entitlements at the end of the column, but I can’t resist some editorializing on two things from the above excerpt.

First, Henry says voters like free public education. Maybe that’s true, but they seem to like the ultra-libertarian idea of school choice even better.

Second, he argues that the recently enacted Chips law is a role model. But if industrial policy was a good idea, why did Japan stagnate? Why has China’s growth slowed?

Let’s now look at more of the column.

Past Republican efforts to limit the growth of entitlement spending after GOP landslides in 1994 and 2010 backfired politically, helping to reelect presidents Bill Clinton and Barack Obama. The fact is that 63 percent of Trump voters care more about keeping Social Security benefits than preventing tax hikes, and 45 percent care more about giving seniors on Medicare what they need than about controlling program costs. …Any serious effort to retain these largely working-class voters — and attract more in the future — must come to grips with these views. …Modern conservatism needs to refine Reagan’s insights and explicitly adopt a theory of when government should act to enhance people’s lives.

My first instinct is to ask for examples of how and when government enhances people’s lives. Or to provide examples of where Reagan thought government did a good job.

That certainly does not seems to fit with Reagan’s message in this video, this video, or the second video from this collection.

Or this video!

But maybe Reagan’s own words were insincere. That seems to be what Olsen thinks since he wrote that “the conservative idol implicitly sanctioned government action if it helped people live dignified lives of their own choosing.”

So let’s forget about words and look at the track record.

What we find is that Reagan was remarkably effective in fighting big government. Indeed, what separates Reagan from every other Republican in recent history is that he successfully fought to constrain the burden of government spending.

But don’t believe me. The data from the Historical Tables of the Budget unambiguously show that Reagan was far better than any other president in the past 50-plus years.

I’ll close by questioning Olsen’s claim that voters prefer tax increases over spending restraint.

I very much suspect that is only the case if they think someone else’s taxes are being increased.

If you don’t believe me, I invite you to look at this polling data from left-wing supporters of Bernie Sanders. And if hard-left voters are not willing to pay more to finance European-sized government, what are the odds that Republican voters are willing to pay more?

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Supporting free enterprise does not mean supporting big companies.

Why? Because as John Stossel and Tim Carney discuss, big businesses are more than willing to get into bed with big government and oppose capitalism.

The goal should be genuine consumer-driven, market-based competition. And that means that politicians should not put their thumbs on the scale in favor of specific companies or industries.

Unfortunately, that certainly has happened in countless cases.

At varying times, both Republicans and Democrats have provided special favors to Wall Street, General Motors, airlines, health insurance companies, Boeing, Big Pharma, and banks.

These odious examples help to explain why companies give money and support to politicians from both parties.

But sometimes that approach backfires. Let’s consider how the Chamber of Commerce can be blamed for the looming enactment of Biden’s horribly misnamed Inflation Reduction Act.

The Wall Street Journal opined on this issue today.

The U.S. Chamber of Commerce…bet in 2020 that supporting “centrist” House Democrats would protect against anti-business policies has been a bust. …How does that calculation look now…? Every one of the 15 voted for the $1.9 trillion spending bill in March 2020, despite Chamber opposition to sweeping jobless benefits that stoked labor shortages and stimulus checks that fed inflation. They also voted for the PRO Act, a radical pro-union rewrite of labor law. …Now comes the big moment of truth as the Schumer-Manchin tax and spend bill heads to the House… The chance of Democratic defections is slim. Despite aggressive Chamber lobbying, all 15 rolled over for the $3.5 trillion Build Back Better bill last year.

Amazingly, the Chamber bent over backwards to endorse these politicians, notwithstanding their consistent track record of support for bigger government.

Nearly all had publicly expressed support for scrapping the 2017 corporate tax reform, and for new climate, banking and healthcare regulations. The only reason most qualified for endorsements is because the Chamber altered its voting scorecard to allow extra points for “leadership” and “bipartisanship.” …It’s not too much to say that the Chamber was crucial in midwifing Speaker Nancy Pelosi’s 222-211 seat majority.

The Washington Post wrote last year about the Chamber’s controversial decision to side with Democrats.

Here are some excerpts from the story by Tory Newmyer and Aaron Gregg.

 …the Chamber has been the object of sharp attacks by leading conservatives. …The decision to endorse so many freshman Democrats, rather than give them time for their voting records to take shape, was a dramatic break from past procedure. …the conservative backlash has led to alarm even among some of the organization’s closest allies. A veteran U.S. Chamber board member, speaking on the condition of anonymity to avoid reprisal, said: “It is a legitimate question how well-thought out this strategy is. People are concerned, and they’re discussing where else they can send revenues to support free enterprise.” …Seeing Chamber-endorsed Democrats support pro-union legislation “is like the national right to life organization saying they now support some abortions,” said a former U.S. Chamber executive, who spoke on the condition of anonymity because the person feared reprisal.
If you want examples of conservative hostility, here’s a tweet from Hugh Hewitt.

And here’s a tweet from Oren Cass.

Interestingly, this is not the first time the Chamber of Commerce has sided with the left.

In a column for National Review earlier this year, Nate Hochman recounts what happened during the Hillarycare fight back in 1993.

In March 1993, the Chamber of Commerce surprised many of its allies by coming out in favor of Clinton’s plan for universal coverage with an employer mandate, reversing its earlier opposition to both proposals. …The Chamber’s attempt to curry favor with the new administration provoked a furious conservative backlash. Congressional Republicans — led by John Boehner of Ohio, then the head of the 75-member House Conservative Opportunity Society — organized a mass boycott of the Chamber, urging local and state chapters to disaffiliate in protest. The campaign was devastatingly effective: By the time the dust had settled, the Chamber had lost one-fifth of its membership.

As far as I’m concerned, any business owners who favor free enterprise should not support the Chamber of Commerce. It would be heartwarming to see the organization lose members.

But this brings me back to what I wrote at the start of today’s column. Many business owners don’t support capitalism. They prefer cronyism.

That’s particularly true for large companies, which often see big government as a way of thwarting competition from small companies (such as Amazon’s support for a higher minimum wage).

P.S. The Chamber of Commerce is not the only business association governed by fools. Yes, I’m referring to the Business Roundtable.

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A big argument for free enterprise over statism is that the former delivers growth while the latter leads to stagnation.

And that’s very apparent when you review decades of data.

The case for capitalism is especially powerful if you care about what’s best for the disadvantaged. As the chart from Economic Freedom of the World illustrates, poor people enjoy much higher levels of income in nations that have higher levels of economic liberty.

So why, then, do our friends on the left support bigger government?

There are several possible answers, but today let’s focus on their understandable desire to do things that seem compassionate. Particularly things that seem to offer immediate help.

I think that’s a big reason why some well-meaning leftists support a big welfare state even though there is plenty of evidence that poor people get trapped in dependency. They are so focused on doing something that ostensibly alleviates today’s problems that they do not appreciate the risk of harmful long-run consequences.

This problem is so pervasive that we need to create a new Theorem of Government.

If you want an example of this Theorem, we can look at a story in today’s New York Times.

Reporters Jeanna Smialek and  document how low-income people are being hurt by inflation and will probably be hurt by what will be needed to curtail inflation.

…data and anecdotes suggest that lower-income households, despite the resilient job market, are struggling more profoundly with inflation. That divergence poses a challenge for the Federal Reserve, which is hoping that higher interest rates will slow consumer spending and ease pressure on prices across the economy. Already, there are signsthat poorer families are cutting back. …The Fed might need to raise interest rates even more to bring inflation under control, and that could cause a sharper slowdown. In that case, poorer families will almost certainly bear the brunt again, because low-wage workers are often the first to lose hours and jobs. …America’s poor have spent part of the savings they amassed during coronavirus lockdowns, and their wages are increasingly struggling to keep up with — or falling behind — price increases.

The story is filled with anecdotes about poor people suffering from inflation.

And, as the above excerpts captures, it has plenty of fretting about how the less fortunate will suffer as the Federal Reserve tries to fix the mess.

But what you won’t find in the story is any acknowledgement that poor people would not be dealing with this hardship if the Federal Reserve had not made the mistake of creating too much liquidity in the first place.

Yet this is the big lesson all of us should learn.

The Federal Reserve wanted to offer short-run help to the economy, motivated in part by a desire to help poor people by propping up the economy during the pandemic.

Yet any short-run help has been swamped by subsequent negative consequences.

And this is not unique. The big lesson from the so-called War on Poverty is that poverty rates suddenly stopped declining. In other words, government tried to help, but wound up doing harm.

P.S. Here are the other 13 Theorems of Government.

  • The “First Theorem” explains how Washington really operates.
  • The “Second Theorem” explains why it is so important to block the creation of new programs.
  • The “Third Theorem” explains why centralized programs inevitably waste money.
  • The “Fourth Theorem” explains that good policy can be good politics.
  • The “Fifth Theorem” explains how good ideas on paper become bad ideas in reality.
  • The “Sixth Theorem” explains an under-appreciated benefit of a flat tax.
  • The “Seventh Theorem” explains how bigger governments are less competent.
  • The “Eighth Theorem” explains the motives of those who focus on inequality.
  • The “Ninth Theorem” explains how politics often trumps principles.
  • The “Tenth Theorem” explains how politicians manufacture/exploit crises.
  • The “Eleventh Theorem” explains why big business is often anti-free market.
  • The “Twelfth Theorem” explains you can’t have European-sized government without pillaging the middle class.
  • The “Thirteenth Theorem” explains that people are unwilling to pay for bloated government.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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I don’t like shoveling more money at a corrupt IRS, hurting jobs with higher taxes on “book income,” price controls on prescription drugs, or green-energy pork.

But, as explained in this video clip, the insult added to injury is that the resuscitated “Build Back Better” is being sold as the “Inflation Reduction Act.”

If a private company said that candy bars help you lose weight or that it is okay to stick your hand under a running lawnmower, it would be dragged into court for false and/or dangerous advertising.

But when politicians make utterly dishonest claims about legislation, we have to grit our teeth and endure their lies.

The bottom line is that rising prices inevitably are a consequence of bad monetary policy.

That’s true in the United States, and that’s true elsewhere in the world.

So why, then, did Biden, Schumer, and Manchin decide to affix such an inaccurate label to their tax-and-spend package?

The answer presumably is political. Inflation is a problem for the incumbent party, so why not pretend the budget plan will somehow reduce inflation. Heck, if they could get away with it, they would probably call it the “Inflation Reduction and Cancer Elimination Act.”

But, to be fair, perhaps some of them actually believe a big-government plan will have an impact on inflation. For instance, the misguided but honest folks at the Committee for a Responsible Federal Budget released an endorsement letter from 55 supposed experts based on the assumption that higher taxes will lead to lower prices.

Here are some excerpts.

With inflation at a 40-year high…, we are writing to encourage you to pass legislation to reduce budget deficits in a manner that would help counter inflation… As President Biden has explained, “bringing down the deficit is one way to ease inflationary pressures.” …Given the current state of the economy, we believe passing deficit reduction would send an important message to the American people that their leaders are serious about tackling inflation.

There are two big problems with the letter.

First, it is based on Keynesian economics, which assumes higher prices are caused by excessive “aggregate demand” and that deficit reduction (whether from tax increases or spending restraint) can help by slowing the economy.

Yet this is the theory that also told us that it was impossible to have rising prices and rising unemployment, like we saw in the 1970s. And Keynesians also said we couldn’t have falling unemployment and falling inflation, like we enjoyed in the 1980s.

Second, even if one believes in the fairy tale of Keynesian economics, all of the alleged deficit reduction occurs in future years.

And even that is nonsense since every sentient adult knows that the massive expansion of the IRS’s budget is not going to generate a windfall of new tax revenue. And every honest person also knows that lawmakers plan on extending the new Obamacare handouts in the bill.

These tweets summarize why even Keynesians should realize the legislation is fraudulent.

P.S. It is very disappointing (but perhaps not entirely surprising) that former Indiana Governor Mitch Daniels signed the CRFB letter. And it also is disappointing that a couple of people from the American Enterprise Institute added their names as well. They all deserve the Charlie Brown Award.

P.P.S. As I noted in the video, deficit spending can lead to inflation if a central bank buys government bonds in order to help finance additional government spending (the crazy Modern Monetary Theory agenda). Perhaps I am being too charitable, but I don’t think that’s the reason for the Federal Reserve’s big mistake (though I fear it may be happening with the European Central Bank).

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I realize few readers are interested in small, faraway countries. But I periodically write about nations such as Jordan, Cyprus, Latvia, Vanuatu, Panama, and Pakistan because they offer important lessons – mostly negative, but sometimes positive – about fiscal policy.

Today, let’s see what we can learn from Barbados.

That island nation in the Caribbean wound up in fiscal trouble a few years ago and Abrahm Lustgarten of the New York Times wrote a lengthy article last week about that experience.

Here’s the situation as of 2018.

Barbados was out of money. It was so broke that it was taking out new loans just to pay the interest on the old ones, even as its infrastructure was coming undone. Soon the nation would have no choice but to declare itself insolvent, instigating a battle with the dozens of banks and creditors that held its $8 billion in debt and triggering austerity measures that would spiral the island into further poverty. …Mottley, the first woman to lead Barbados, had been working…to develop a plan that would restructure the country’s soaring debts in a way that would free up money to invest in Barbados’s economy.

While the preceding excerpts are mostly to illustrate what was happening, I can’t resist two editorial comments.

Now let’s get back to the story.

Prime Minister Mottley’s plan involved going to the International Monetary Fund, then headed by Christine Lagarde, for a bailout.

Mottley knew that banks and investors would work with her only if Barbados were participating in a formal I.M.F. program… Mottley wanted Lagarde to endorse an economic program that would still allow her to raise salaries of civil servants, build schools and improve piping and wiring for water and power. …No one was sure how Lagarde would respond. Would she trust Mottley to spend on Barbados first? …the director’s surprising reply: She was extremely supportive of what Mottley was proposing.

Needless to say, I don’t like bailouts. And a bailout that enables more government spending seems especially foolish.

But I like to check the numbers before making sweeping pronouncements.

And while I am very skeptical of IMF bailouts, I like that the international bureaucracy has an extensive database with economic and fiscal numbers. Including fiscal data for Barbados going back to 1994.

So let’s see whether Barbados somehow was being hurt by inadequate levels of government spending.

But it turns out that total government spending today is more than four times greater than it was in 1994.

And if we look at government spending as a share of gross domestic product, we can see that government has nearly doubled in size.

To be fair to Ms. Mottley, the politicians in office from 1994-2008 were the most profligate.

But none of that changes the fact that government is far bigger today than it was in the recent past. So the notion that Barbados needs a bigger government budget is nonsense.

Sadly, the reporter did not bother to share any of these numbers. Indeed, in a story that ran more than 10,000 words, there were only 50 words that even hinted at the real problem.

…a mixture of poor management and corruption had eroded the country’s economy. …the country had developed a “dysfunctional” fiscal culture in which government agencies and departments took loans and negotiated deals without consulting the central bank, accumulating sprawling debt… The country’s response was to print more money and borrow more.

I’ll close by observing that Barbados never would have gotten into trouble if it had a Swiss-style spending cap. If government spending had been allowed to grow only 3 percent each year starting in 1994, Barbados would be enjoyed a huge budget surplus today.

P.S. Ironically, economists at the IMF have written in favor of spending caps on multiple occasions. Too bad the political hacks in charge of the bureaucracy don’t pay attention to that research.

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

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

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

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

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

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

The editorial highlights four terrible provisions.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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Whether I’m debating the quality of government schools or the funding of government schools, I routinely share this chart from the late Andrew Coulson.

There are two obvious takeaways from this data.

  1. Taxpayers have been shelling out ever-larger amounts of money.
  2. All that money has produced no improvement in student test scores.

Those two takeaways should lead any rational person to conclude that dramatic changes are needed.

Probably the biggest change is school choice. And the good news is that more and more states are moving in the right direction on this issue.

But there’s another potential big change. As illustrated by this tweet (and this story), a former Secretary of the Department of Education thinks it is time to abolish her former bureaucracy.

Unfortunately, we are not seeing any progress on this goal. The bureaucracy’s budget grew dramatically under Trump. And it’s getting even more bloated under Biden.

But maybe there’s hope. Congressman Tom Massie, a libertarian-leaning Republican from Kentucky, has legislation to get the federal government out of education. Here’s some of his office’s press release on the topic.

Representative Thomas Massie…has introduced H.R. 899, a bill to abolish the federal Department of Education. The bill, which is one sentence long, states, “The Department of Education shall terminate on December 31, 2022.” …said Massie. “States and local communities are best positioned to shape curricula that meet the needs of their students. Schools should be accountable. Parents have the right to choose the most appropriate educational opportunity for their children, including home school, public school, or private school.” The Department of Education began operating in 1980. On September 24, 1981, in his Address to the Nation on the Program for Economic Recovery, President Ronald Reagan said, “…we propose to dismantle two Cabinet Departments, Energy and Education. …There’s only one way to shrink the size and cost of big government, and that is by eliminating agencies that are not needed and are getting in the way of a solution. …education is the principal responsibility of local school systems, teachers, parents, citizen boards, and State governments. By eliminating the Department of Education less than 2 years after it was created, we cannot only reduce the budget but ensure that local needs and preferences, rather than the wishes of Washington, determine the education of our children.”

In a column for the Foundation for Economic Education, Patrick Carroll applauds Congressman Massie, along with his cosponsors who have embraced genuine reform.

Though it may be tempting to think Massie and his supporters just don’t care about education, this is certainly not the case. If anything, they are pushing to end the federal Department of Education precisely because they care about educational outcomes. In their view, the Department is at best not helping and, at worst, may actually be part of the problem. …Massie is echoing sentiments expressed by President Ronald Reagan in 1981, who advocated dismantling the Department of Education even though it had just begun operating in 1980. …Education needs vary from student to student, so educational decisions need to be made as close to the individual student as possible. Federal organizations simply can’t account for the diverse array of educational contexts, which means their one-size-fits-all findings and recommendations will be poorly suited for many classrooms.

Amen.

From the moment it was created by Jimmy Carter, the Department of Education has failed to generate any positive outcome.

By that metric, it has something in common with the Department of Energy, Department of Agriculture, Department of Transportation, Department of Housing and Urban Development, and almost every bureaucracy in Washington.

P.S. As one might expect, Bush’s No Child Left Behind and Obama’s Common Core were both expensive failures.

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

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

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

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

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

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

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

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

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

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

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

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It’s not as bad as Cuba, North Korea, or Venezuela, but Argentina (as illustrated by this video) is a case study of how statism can ruin an economy.

The most important takeaway from the video is that Argentina used to be one of the world’s richest nations.

Even as recently as the late 1940s, Argentina was in the top 10 for per-capita economic output.

But it’s been downhill ever since.

If you want to blame just one politician, the clear choice would be Juan Peron. But he’s been followed by plenty of other statists. Even the supposed conservatives in Argentina seem to be fans of big government.

The net result is that the people of Argentina keep losing ground relative to their peers in other nations.

To some degree, Argentina is an example of why “modern monetary theory” is a bad idea. Simply stated, it’s not a good idea to finance big government via inflation.

Not that we need another example. Sri Lanka’s economic collapse already taught us the same lesson.

But Argentina’s wretched politicians seem determined to make a bad situation worse. In her column for the Wall Street Journal, Mary Anastasia O’Grady opines about the nutty ideas of the current Minister of the Economy, Silvina Batakis.

Ms. Batakis’s resume isn’t reassuring. She’s a former minister of the economy for the province of Buenos Aires (2011-15) who left her successor with empty coffers and forced him to turn to the federal government for emergency help to pay the salaries of public employees. …In a 2019 tweet, Ms. Batakis advised that to “combat” poverty requires “a state that plans and intervenes.” Worry has quickly spread that Ms. Batakis will abandon even mild attempts to end the fiscal profligacy and money printing that has generated inflation now running at more than 60% a year, and accelerating.

So what comes next?

…another round of hyperinflation driven by government “experts” who believe in modern monetary theory—which posits that printing money to pay bills doesn’t have to cause inflation if tax rates are high enough.

No wonder the Argentinian peso has lost so much of its value.

So what’s the bottom line? Well, I asked in 2019 whether the country could break free of “economy-sapping statist governance.”

Given the country’s dependency culture, the answer almost certainly is no.

P.S. The last minute of the above video warns that Democrats have a policy agenda that will make America more like Argentina. That’s true, but the profligate spending of Bush I, Bush II, and Trump suggests most Republicans are not any better. They may even be worse.

P.P.S. Argentina’s politicians are not the only villains. The IMF also deserves to be castigated for enabling and subsidizing the nation’s bad policy.

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I wrote yesterday about how pro-market policies in Estonia are helping that nation catch up (converge) with other European nations.

Indeed, Estonia arguably is the most successful country to emerge from the economic wreckage of Soviet socialism.

Above-average growth has been especially beneficial for the less fortunate (and socialism meant a lot of people were in this category).

As you can see from the chart I shared yesterday, the share of people suffering from serious poverty has plummeted.

Based on this data, one might think that Estonia would win universal praise from right and left. The former would applaud the pro-market policies and the latter would applaud how so many people have been lifted out of poverty.

Unfortunately, the bureaucrats at the Organization for Economic Cooperation and Development (OECD) don’t seem to be happy about Estonia’s economic renaissance.

And what’s really remarkable is that the data I cited yesterday came from an OECD report. Yet that same report advocates policies that would be harmful to that nation’s economy.

For instance, the report notes (accurately) that demographic changes are going to create fiscal pressure in Estonia, but the OECD bureaucrats then state that the problem is insufficient tax revenue.

To make matters worse, the bureaucrats from the OECD want the Estonian government to weaken or reverse some of the country’s best policies.

Such as the top-ranked business tax system and the pro-growth flat tax.

There are other recommendations in the OECD report that would hurt Estonia’s economy, such as a higher minimum wage and more regulation of labor markets (an area where Estonia already has problems).

To be fair, the report does suggest lower tax rates for low-wage workers, so not every recommendation is anti-growth.

But one good suggestion doesn’t excuse a dozen proposals to increase the burden of government. This report on Estonia is further evidence that the OECD arguably is the world’s worst bureaucracy (which is quite an achievement considering the many shortcomings of the IMF).

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In this clip from an interview with Chile’s Axel Kaiser, I discuss “Wagner’s Law” and the lessons to be learned from fiscal policy in Western Europe.

If you don’t want to watch the video, my discussion can be summarized in three sentences.

  • Yes, welfare states in Western Europe are comparatively rich by world standards.
  • But those  countries became rich when they had relatively small governments.
  • Adopting high taxes and big welfare states has since stunted their economic growth.

And here’s a fourth sentence that I should have mentioned.

  • They compensate for bad fiscal policy by having laissez-faire policies in other areas.

I expect that some people won’t accept my argument without some supporting evidence, so I’m going to share some charts.

We’ll start with this chart from Our World in Data. As you can see, nations in Western Europe has almost no welfare states prior to World War II. And it wasn’t until the 1960s and 1970s that big welfare states began to exist.

In other words, all the economic growth and industrial development that occurred in the 1800s and early 1900s took place when the fiscal burden of government was very small.

And if you want to see more charts to confirm this data, click here, here, and here.

Next we have a chart showing how the burden of government spending in the United States and Western Europe used to be similar, but then began to diverge after value-added taxes were adopted in the late 1960s and early 1970s.

Last but not least, let’s consider whether the expansion of the welfare state in Western Europe had negative economic consequences.

The answer is yes. This chart, prepared by Prof. Leszek Balcerowicz (former head of Poland’s central bank) shows that Western Europe was rapidly converging with the United States, but then began to lose ground after big welfare states were imposed (and also after improvements in American economic policy under Presidents Reagan and Clinton).

And if you want to see more charts to confirm this data, click here, here, here, and here.

P.S. Since I added a fourth sentence above, explaining that many European nation have good policies in other areas to compensate for bad fiscal policy, here’s a chart I prepared in 2018 showing how many European nations score very highly for economic freedom once fiscal policy is removed from the equation.

To see overall rankings of economic liberty, you can peruse the data from Economic Freedom of the World and the Index of Economic Freedom.

The bottom line is that Western European nations (with notable exceptions such as Italy, France, and Greece) get good scores, but would be far stronger if they had better fiscal policy.

And that’s the lesson that developing nations should learn.

P.P.S. As part of the interview, Axel and I also talked about California’s grim economic outlook.

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

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

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

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

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

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

So why are people leaving the City?

Some of it was temporary, caused by the pandemic.

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

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

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

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

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

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

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

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

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

Now the chickens are coming home to roost.

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

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What’s the most depressing chart in the world?

If you believe in limited government and you’re looking back in time, this example or this example are good candidates.

But if we’re looking into the future, this chart from a new study by the European Central Bank is very sobering.

And it’s a depressing chart because it doesn’t matter whether you believe in big government or small government. That’s because this chart shows a dramatic shift in population demographics.

Simply stated, Europe’s welfare states are in deep trouble because over time there will be fewer and fewer workers to pay taxes and more and more old people expecting benefits.

Here’s what the ECB experts, Katalin Bodnár and Carolin Nerlich, wrote about their findings.

The euro area, like many other advanced economies, has entered an era of drastic demographic change. …Declining birth rates and rising life expectancy are causing the number of pensioners to increase relative to workers. In the next one and a half decades, this trend will be amplified as the sizeable baby boom generation enters retirement and the cohort of workers shrinks. …The old-age dependency ratio is projected to reach almost 54% by 2070… If left unaddressed, population ageing will pose a burden on public finances in the euro area, given the relatively strong role of publicly financed pension and health care systems. Debt sustainability challenges might arise from mounting ageing-related public spending, which will be particularly a concern in high debt countries.

That last sentence in the above excerpt should win a prize for understatement of the year.

Many of Europe’s welfare states already are on the verge of crisis. And as demographics change over time (findings replicated in the European Commission’s Ageing Report), they will go from bad to worse.

Here’s a breakdown of how the “age dependency ratio” will change in various nations.

By the way, if you look at the right side of Chart 4, you’ll see Japan’s horrible numbers as well as a worrisome trend for the United States.

Most people focus on how demographic change will lead to more debt.

I think it’s more important to focus on the underlying problem of government spending.

This next chart combines both. The vertical axis shows the increase in age-related government spending while the horizontal axis shows debt levels.

The bottom line is that countries in the top-right quadrant are in deep trouble. Especially in the long run (though Italy could go belly-up very soon).

The ECB report does suggest ways to address this looming crisis.

To safeguard against the adverse economic and fiscal consequences of population ageing, there is a need to build-up fiscal buffers during good economic times, to improve the quality of public finance and to implement growth-enhancing structural reforms. …Further pension reforms are needed that encourage workers to postpone their retirement.

Don’t hold your breath waiting for any of these things to happen. Building up “fiscal buffers” means running surpluses today to offset deficits tomorrow. But European nations are running big deficits because of excessive spending today, so there will be no maneuvering room in the future.

P.S. Here’s some comedy (and more comedy) about Europe’s fiscal mess.

P.P.S. It is possible to reduce large debt burdens, so long as governments simply restrain spending.

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In Part I, I warned that “stakeholder capitalism” is not just empty virtue signaling. Some advocates are using the concept to promote a statist agenda.

For Part II, let’s start with this video.

The main message of the video is that ethical profits are good for shareholders, but also good for everyone else (the supposed stakeholders).

By contrast, companies that don’t prioritize profits wind up hurting workers and consumers, not just the company’s owners (i.e., shareholders).

Let’s dig deeper into this topic.

Stakeholder theory reflects the more interventionist approach of continental Europe’s “civil law” while the shareholder approach is more consistent with the “common law” approach of the Anglosphere (the United Kingdom and many of its former colonies, including the United States).

That’s a key observation in Samuel Gregg’s column for Law & Liberty, which reviews a book by Professor Nadia E. Nedzel.

…stakeholder theory reinforces continental European rule through law inclinations and vice-versa, not least because of shared hard-communitarian foundations. …Such goals undermine the ability of corporations to produce prosperity. An emphasis on stability and maintaining levels of employment, for instance, exacts a cost in terms of organizational dynamism, not least by discouraging risk-taking and entrepreneurship. …Without such adjustments, however, a business will become complacent and uncompetitive. Eventually it will disappear, along with all the jobs once provided by the business. Likewise, if boards of directors are not focused on delivering shareholder value because profit is considered only one of many company objectives, a decline in earnings is sure to follow. …To the extent that stakeholder theory draws upon hard-communitarian principles which it shares with continental European rule through law models, it risks undermining already fragile commitments to rule of law in America and elsewhere. That’s just one more reason to shore up the priority of shareholder interests throughout corporate America. These priorities help explain the weaker economic performance of many corporations in civil law jurisdictions compared to those businesses located primarily in the Anglo-American sphere.

Allison Schrager of he Manhattan Institute wrote for the City Journal that Biden is on the wrong side and that his mistake, along with others, is failing to understand that so-called stakeholders benefit when companies are profitable.

…one thing that stood out was Biden’s vow to “put an end to the era of shareholder capitalism.” …disdain for the notion that a corporation’s primary objective is to maximize value for its shareholders has united the disparate likes of Elizabeth Warren and Bernie Sanders and the Davos/Larry Fink crowd. It’s no surprise that Joe Biden is against it, too. …Maximizing shareholder value…does not create conflicts between different stakeholders, because economic success is not zero-sum. …long-term success requires happy and loyal employees, a healthy relationship with the community, and a thriving environment.

In a column for the Wall Street Journal, Lucian A. Bebchuk and Roberto Tallarita shared their research showing that CEOs who pontificate about stakeholders don’t actually change their behavior.

…we dug deeper, investigating an array of corporate documents for the 136 public U.S. companies whose CEOs signed the statement. …we found evidence that the signatory CEOs didn’t intend to make any significant changes to how they do business. …We’ve identified almost 100 signatory companies that updated their corporate governance guidelines by the end of 2020. We found that the companies that made updates generally didn’t add any language that elevates the status of stakeholders, and most of them reaffirmed governance principles supporting shareholder primacy. …We also found that about 85% of the signatory companies didn’t even mention joining the “historic” statement in their proxy statements sent to shareholders the following year. Among the 19 companies that did mention it, none indicated that joining the statement would cause any changes to how they treat stakeholders.

Speaking of insincere hypocrites, that’s a good description of the Davos crowd. Matthew Lesh of the Adam Smith Institute wrote about their trendy support for stakeholders in a column for CapX.

…the man behind the World Economic Forum has declared that Covid warrants a ‘Great Reset’. With tedious predictability, Klaus Schwab’s bogeymen are the twin menaces of “neoliberal ideology” and “free market fundamentalism”. …he’s also calling for a “stakeholder model of corporate capitalism”… But it’s an idea based on a false dichotomy. A business that fails to return a profit to its shareholders cannot do anything for its other stakeholders, such as providing useful products to customers, paying its staff, procuring from suppliers… Delivering for shareholders is ultimately indivisible from benefiting your other ‘stakeholders’ because you can’t do one without the other. …Shivaram Rajgopal of Columbia Business School has found that top European companies who brandish their social and environmental credentials do no better in these criteria than American companies. But the European firms are much worse at ensuring good corporate governance. For example, worker representation on Germany’s supervisory boards has often meant worker representatives teaming up with managers to push against new technology and methods. In the longer run, this undermines returns to shareholders, but also means poorer products for customers, lower salaries for employees.

The bottom line is that there are lots of misguided attacks against capitalism, but none of the criticisms change the fact that free enterprise is the only system to ever deliver mass prosperity to ordinary people.

And that’s true even if big companies don’t support the system that enabled their very existence (perhaps because they fear they will got knocked from their perch by the the forces of “creative destruction“).

P.S. Just like yesterday, I can’t resist adding this postscript about the left-leaning executive who thought he was rejecting Milton Friedman, but actually did exactly as Friedman recommended.

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Yesterday’s column discussed Caterpillar’s decision to move its headquarters from high-tax Illinois to low-tax Texas.

Today, we have more bad news for the Prairie State.

A major investment fund, Citadel, also has decided to leave Illinois.

Is the company moving to a different high-tax state, perhaps California or New York? Maybe Connecticut or New Jersey?

Nope. Citadel is going to Florida, a state famous for having no income tax.

The Wall Street Journal opined this morning about Citadel’s move.

The first step to recovery is supposed to be admitting you have a problem. But Illinois Gov. J.B. Pritzker still won’t, even after billionaire Ken Griffin on Thursday said he’s moving his Citadel hedge fund and securities trading firm to Miami from Chicago. …Meantime, Democrats in Springfield continue to threaten businesses and citizens with higher taxes… It’s no wonder so many companies and people are leaving, and mostly to low-tax states. …In 2020, $2.4 billion in net adjusted gross income moved to Florida from Illinois, about $298,000 per tax filer. …Mr. Griffin has spent tens of millions of his personal fortune trying to rescue Illinois from bad progressive governance. Maybe he figures it’s time to cut his losses.

Other (former) Illinois residents cut their losses last decade.

Scott Shackford of Reason shared grim data at the end of 2020 about the ongoing exodus from Illinois.

For the seventh year in a row, census figures show residents moving out of Illinois in significant numbers. …Perhaps demanding that your excessively taxed residents give the government even more money is not the best way to keep those residents in your state… Over the course of the last decade, Illinois lost more than a quarter-million people…not even California…has seen Illinois’ population loss. …Government leaders have responded not with better fiscal management (the state’s powerful unions blocked pension reforms), but with more taxes and fees, even as residents leave.

The bottom line is that Illinois is currently losing people and businesses.

Just as it lost people and businesses last decade.

And you can see from this map that taxpayers also were fleeing the state earlier this century.

I’m guessing the state’s hypocritical governor probably thinks this is a good thing because the people who left probably didn’t vote for tax-and-spend politicians.

But that’s a very short-sighted viewpoint.

After all, parasites need a healthy host. If you’re a flea or a tick, it’s bad news if you’re on a dog that dies.

As Michael Barone noted many years ago, that’s a lesson that Illinois politicians haven’t learned.

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I wrote a couple of days ago about California’s grim future.

But now I’ll share some good news. No matter how bad California gets, the Golden State probably won’t have to worry about people and businesses fleeing to Illinois.

That’s because the Prairie State is an even bigger mess. If California is committing “slow motion suicide,” Illinois is opting for the quickest-possible fiscal demise.

Politicians in Springfield (the Illinois capital) have a love affair with higher taxes. A very passionate love affair.

But the state’s productive people have a different point of view. More and more of them have been escaping.

And they are now being joined by the state’s most-famous company, as Matt Paprocki of the Illinois Policy Institute explains in a column for the Washington Post.

When Boeing announced last month that it was moving its headquarters from Chicago to Arlington, Va., it sent shudders through the Illinois business community and state capital. But last week, when the heavy-equipment manufacturer Caterpillar said it was moving its headquarters to Texas, it felt more like a bulldozer ramming into the news. …If you’re an Illinois business owner or resident, as I am, the economics of staying are tough and the enticements to move away are many. …According to the U.S. Census Bureau, last year the state had the third-largest loss of residents due to domestic migration in the nation (-122,460), trailing only California and New York.

It’s easy to understand why people and businesses are leaving.

In 2017, Illinois lawmakers raised the personal income tax rate to 4.95 percent, from 3.75 percent, and hiked the corporate rate to 7 percent, from 5.25 percent. When J.B. Pritzker took office as governor in 2019, he passed another 24 tax and fee hikes costing taxpayers over $5 billion. …With 278,475 regulatory restrictions and requirements — double the national average — Illinois has the third most heavily regulated environment in the country. …Illinois owes over $139 billion in state pension debt as of last year, and local governments owe about $75 billion, which is the primary driver for Illinois’ spiraling property taxes, second-highest in the nation.

Mr. Paprocki offers all sorts of suggestions for reform, including a spending cap.

But the chances of pro-growth reform are effectively zero. The governor is a hard-core leftist (as well as a hypocrite) and the state legislature is controlled by government employee unions.

So if you’re hoping for a TABOR-style spending cap, there’s little reason to be optimistic.

And if you’re hoping for reforms that will improve the state’s “least friendly” tax climate, don’t hold your breath.

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I’ve been warning for many years that California is committing “slow-motion suicide.” I discussed the not-so-golden future of the Golden State as part of a longer interview with Chile’s Axel Kaiser.

If you don’t want to spend a couple of minutes to watch the interview, the key takeaway is that California has lots of natural advantages, but the state is suffering from too much government.

Both fiscal policy and regulatory policy are a nightmare, and the net result is that people and business are now leaving the state.

I wrote about the state’s problems back in January, and I also addressed the link with California’s bad policy in columns in 2016 and 2020.

So instead of regurgitating some of my thoughts, let’s use today’s column to see what others have written.

For instance, Joel Kotkin wrote a very depressing assessment of California for Real Clear Investigations.

…most Californians, according to recent surveys, see things differently. They point to rising poverty and inequality, believe the state is in recession and that it is headed in the wrong direction. …Reality may well be worse… In a new report for Chapman University, my colleagues and I find California in a state of existential crisis, losing both its middle-aged and middle class, while its poor population faces dimming prospects. …Worse than just a case of progressive policies creating regressive outcomes, it appears California is descending into something resembling modern-day feudalism… California also suffers the widest gap between middle- and upper-middle-income earners of any state. …California lags all peer competitors – Texas, Arizona, Tennessee, Nevada, Washington and Colorado – in creating high wage jobs in fields like business and professional services… California’s “renewable energy” push has generated high energy prices and the nation’s least-reliable power grid… The state now ranks 49th in homeownership rate… California ranked 49th in the performance of poor, largely minority, students. …since 2000, California has lost 2.6 million net domestic migrants… In 2020, California accounted for 28 percent of all net domestic outmigration in the nation.

In a column for the Washington Examiner, Cole Lauterbach shares some of the findings from a new study published by the Hoover Institution.

A report studying business headquarter migration says California’s businesses are moving their centers of operations at a much higher rate in 2021 compared to previous years. …The authors use several different sources to track business migration out of the state, finding the number of companies who either announce or file that they’re in another state has risen sharply… The authors stress that the numbers are likely understated since smaller companies aren’t required to disclose a move. In their research, the authors found “high tax rates, punitive regulations, high labor costs, high utility and energy costs, and declining quality of life for many Californians which reflects the cost of living and housing affordability,” as reasons for the moves. …The most common destinations for states leaving California are Texas, Arizona and Nevada.

Notice, by the way, that Texas and Nevada have no income tax and Arizona has a low-rate flat tax.

But let’s keep the focus on California’s overall problems.

Conor Friedersdorf, in an article for the Atlantic, offers a grim assessment of the Golden State.

This place inspires awe. If I close my eyes I can see silhouettes of Joshua trees against a desert sunrise; seals playing in La Jolla’s craggy coves of sun-spangled, emerald seawater; fog rolling over the rugged Sonoma County coast at sunset into primeval groves of redwoods that John Steinbeck called “ambassadors from another time.” …Yet I fear for California’s future. …the state’s leaders and residents shut the door on economic opportunity… Indeed, blue America’s model faces its most consequential stress test… the Institute for Justice, a public-interest law firm, released a report on barriers to work that disproportionately affect the middle and working classes. “California is the most broadly and onerously licensed state,” the report found, and is also “the worst licensing environment for workers in lower-income occupations.” …a survey of 383 CEOs by Chief Executive magazine, which weighed regulations and tax policy above all other metrics, ranked California the worst state for business, and Forbes ranked it among the worst for its high business costs and stifling regulatory environment.

Speaking of regulatory environment, California’s screwy approach to marijuana legalization/taxation tells you everything you need to know about the state.

P.S. If you want to laugh about California’s plight, click here, here, here, here, here, here, and here.

P.P.S. My seven-part series comparing Texas and California appeared in March 2010February 2013April 2013October 2018June 2019, December 2020, and February 2021.

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

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

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

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

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

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

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

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

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

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

But Uncle Sam is not the biggest profiteer.

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

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

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

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Echoing remarks earlier this month to a group in Nigeria, I spoke today about fiscal economics to the 2022 Africa Liberty Camp in Entebbe, Uganda.

During the Q&A session, I was asked to specify the ideal amount of government spending. I addressed that issue in an April interview while visiting Spain.

You’ll notice that I didn’t give a specific number in the above video. Just like I didn’t give a specific number to the audience in Uganda.

That’s because there is not an exact answer. The only thing we can definitively state is that government in most nations should be far smaller than it is today.

This is illustrated by the “Rahn Curve,” which I discussed both in the interview and in my speech today.

What is the Rahn Curve? Here’s some of what I wrote back in 2015.

…it shows the non-linear relationship between the size of government and economic performance. Simply stated, some government spending presumably enables growth by creating the conditions (such as rule of law and property rights) for commerce. But as politicians learn to buy votes and enhance their power by engaging in redistribution, then government spending is associated with weaker economic performance because of perverse incentives and widespread misallocation of resources.

And here’s a visual depiction of the Rahn Curve. The upward-sloping part of the curve shows that spending on genuine public goods is associated with more prosperity. But once government budgets exceed a certain level, additional spending means weaker economic performance.

In the above graph, I show that growth is maximized when government consumes about 15 percent-20 percent of economic output.

But I actually think prosperity would be maximized if government was a smaller burden, perhaps about 5 percent-10 percent of GDP.

In 2017, I explained the appropriate role of government in a libertarian society. My analysis was based on my “minarchist” views, which imply government only spends money for national defense and rule of law.

By contrast, my anarcho-capitalist friends would say we don’t need any government.

Meanwhile, moderate libertarians (or conservative Republicans) might be amenable to having state and local governments play a role in education and infrastructure.

The bottom line is that I think growth would be maximized if government consumes – at most – 10 percent of economic output (which was the size of government in the 1800s when the Western world became rich).

But I will be happy with any progress (particularly since government is projected to become an even bigger burden if left on autopilot).

If you want to watch more videos related to the Rahn curve, there are many options.

P.S. Here’s my response to a critic from the left.

P.P.S. Interestingly, some normally left-leaning international bureaucracies have acknowledged you get more prosperity with smaller government. Check out the analysis from the IMF, ECB, World Bank, and OECD.

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For those who read these columns on my website, you presumably have noticed that I have a rotating banner at the top of the page.

One of the options is a quote from Milton Friedman about the blundering inefficiency of Washington.

Though I believe in fairness. I also have periodic columns about the incompetence of local governments, state governments, and foreign governments.

The bottom line is that if someone thinks government is the answer, I definitely think they’ve asked the wrong question.

But that doesn’t stop some people from a knee-jerk belief in bigger government. In an article for the Jacobin, Nick French wants the government to take over dating apps.

I’m not joking. Here is some of what he wrote.

…the longer I use these dating apps, the stranger the whole experience feels. …what matters to the app owners is not getting their users good dates. What matters is that they can make money off of us. …We could consciously uncouple our dating lives from the tyranny of the profit motive, though — with publicly owned apps that will democratize how we meet people online. …companies profiting from user data handsomely without compensating users smacks of exploitation. After all, if it’s my app use that generates data and therefore profits for the company, aren’t I entitled to a share of that value I created? …it does seem strange that questions about the implications of dating for social justice should be left in the hands of Silicon Valley MBAs — whose ultimate motivation, of course, is to turn a profit. Questions about how to deal with bias or prejudice in dating apps would be far better off as a matter for public, democratic deliberation.

For what it’s worth, profit-seeking companies have an incentive to give customers what they want.

Based on the performance of bureaucracies such as the Postal Service, I suspect we’ll all live celibate and lonely lives if the government takes over apps like Tinder and Bumble.

And that would be the case regardless of whether we have government-run dating apps (socialism) or government-controlled dating apps (fascism).

Mr. French seems open to either approach.

What might that look like? It doesn’t necessarily mean establishing a government-run National Dating Service or taking Tinder under state control. …but what exactly this “platform socialism” looks like will differ from platform to platform. …Users could collectively deliberate about the possible impacts of different choices, from the perspectives of social justice as well as users’ individual well-being. …the state would have an important role to play: in providing public funding for the development of cooperatively owned dating apps.

By the way, some governments already try to play matchmaker.

…some countries are already paying to set up their own dating services. The Singaporean government’s Ministry of Social and Family Development has a webpage devoted to helping the uncoupled find partners; it advertises a government-run online dating portal, officially accredited dating agencies, and a “Partnership Fund”

I’m usually a fan of Singaporean economic policy, but obviously I don’t think governments have the ability to boost marriage and fertility (but at least they don’t go overboard like Hungary).

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