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Posts Tagged ‘Economics’

Back in 2010, then-House Speaker Nancy Pelosi actually claimed that paying people not to work would be good for the economy.

Wow, that’s almost as bizarre as Paul Krugman’s assertion that war is good for growth.

Professor Dorfman of the University of Georgia remembers Pelosi’s surreal moment and cites it in his column in Forbes, which debunks the Keynesian assertion that handouts create growth by giving recipients money to spend.

It is true, of course, that the people getting goodies from the government will spend that money, which also means more money for the merchants they patronize.

People who favor redistribution for other purposes often try to convince others to support them on the grounds that their favored policies will also create economic growth. …let’s review the story as told by those in favor of redistribution. When the government provides benefits to people without much income or spending power, those people will immediately go out and spend all the money they receive. This spending creates an economic multiplier effect as those who get the dollars re-spend some of them… There is nothing particularly wrong with the above story as far as it goes. Economic spending does create more spending as each person who gains income then spends some of that income somewhere else.

But there’s always been a giant hole in Keynesian logic, as Prof. Dorfman explains.

The redistribution advocates always forget to consider one part: where did the money handed out in government benefits come from? …There are three possible answers to that question: the money was raised in taxes, the money was borrowed from an American, or the money was borrowed from abroad. The fact that the money came from someplace is the key because for the government to have money to hand out it must first take it from somebody.

I would add a fourth option, which is that the government can just print the money. But we can overlook that option for the moment since only true basket cases like Venezuela go with that option. And even though we have plenty of policy problems in America, we’re fortunately a long way from having to finance the budget with a printing press.

So let’s look at Dorfman’s options. When governments tax and borrow from domestic sources, all that happens is that spending get redistributed.

If the government raised the money in taxes, then the people paying the taxes have less money to spend in the exact amount that is going to be handed out. …somebody’s spending power was reduced by the exact amount that somebody else receives. …If the money is borrowed from an American, the same thing happens. The person lending the money now either doesn’t spend the money or cannot save the money. When money is saved, banks lend it out. That borrower intends to spend the money (otherwise, why borrow?). When the money is lent to the government instead of being put in the bank, the loan and associated spending it would have created disappear.

And the same is true even when money is borrowed from foreign sources.

…the final hope for economic growth from government transfers would be if the government borrowed the money from abroad. This could work, as long as the money otherwise would not have appeared in the U.S. economy. For example, if China sells us products, they end up with dollars. The question is: if they don’t use those dollars to buy Treasury bonds, what will they do instead? The answer is that the dollars generally have to end up back in the U.S. Even if China turns those dollars into euros and buys German bonds instead, somebody else now owns those dollars and will spend them in the U.S. in some fashion (buying products, companies, or investments).

Prof. Dorfman explains that Keynesianism is merely a version of Bastiat’s broken-window fallacy.

…the claimed economic stimulus from giving money to the poor is offset by the lost spending we do not get from the original holder of the money. …this is a classic example of a famous economic principle: the broken window fallacy. In the fallacy, townspeople rejoice at the economic boost to be received when a shopkeeper must spend money to replace a broken window. What they miss is that absent the broken window, the shopkeeper would have bought something else with her money. In reality the economy is unchanged in the aggregate.

Well said, though allow me to augment that final excerpt by pointing out that the economy actually does change when income is redistributed, albeit in the wrong direction.

This is because many redistribution programs give people money, but only if they don’t work or earn only small amounts of income. And less labor in the economy means less output.

In effect, redistribution programs create very high implicit tax rates on being productive, which is why welfare programs trap people in government dependency.

Last but not least, let’s preemptively deal with a couple of Keynesian counter-arguments.

They often argue, for instance, that redistribution is good for growth because lower-income people have a higher “marginal propensity to consume.”

That’s true, but irrelevant. Even if other people are more likely to save, the money doesn’t disappear. As Prof. Dorfman explained, money that goes into the financial system is lent out to other people.

At this point, a clever Keynesian will argue that the money won’t get lent if overall economic conditions are weak. And there is some evidence this is true.

But those weak conditions generally are associated with periods when the burden of government is climbing, so the real lesson is that there’s no substitute for a policy of free markets and small government.

P.S. Here’s the video I narrated for the Center for Freedom and Prosperity about Keynesianism.

P.P.S. Advocates of Keynesian economics make some very weird arguments to justify more government spending.

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From a leftist perspective, making lots of money is not necessarily a bad thing. Rich Hollywood celebrities almost always get a free pass, especially if they embrace statist beliefs.

The crowd in Silicon Valley also is generally forgiven for being rich, perhaps because they donate to politicians like Bernie Sanders.

Folks on Wall Street, by contrast, apparently are the epitome of evil. Even when they support new regulations such as Dodd-Frank, that doesn’t put them in the good graces of today’s leftists. And if they run private equity funds that earn “carried interest,” that puts them in the arch-villain category.

But there are exceptions to all these rules. If you’re a gazillionaire from the entertainment industry, even if you’re a minority, you can get yourself in trouble for the ostensible crime of committing capitalism.

And that’s what is happening to Beyoncé. She is getting lots of bad press because she has a line of clothing and some of those clothes are being produced in Sri Lankan “sweatshops.”

To be sure, working 10 hours of day in a third-world clothing factory would be a horrible life for those of us lucky enough to live in advanced economies.

So we’re tempted to argue that “sweatshops” should be banned, but only because we don’t think about tradeoffs. Most important, what would happen to the Sri Lankan workers if they didn’t have this choice?

Writing for The Federalist, David Harsanyi points out that the attacks on Beyoncé are misguided.

Beyoncé is doing more to improve the lives of Sri Lankan workers than all fair-traders and finger-wagging journalists combined. …The Sun’s exposé claiming that workers at the singer’s new apparel company are nothing but “slaves” who earn 64 cents per hour so that Beyoncé’s can buy another yacht. …It’s a shame that people are still forced to live on such a pittance.

Yes, it’s a shame.

But you know what’s even worse than being a Sri Lankan worker in one of Beyoncé’s factories?

Being a Sri Lankan worker who doesn’t have one of those jobs.

A gross monthly average income of a Sri Lankan is around 8839 rupees. …For thousands of…fellow laborers, a Beyoncé job offers a higher salary.

In other words, as David explains, job creation and economic growth are the best way to boost living standards for the people of Sri Lanka, and that’s exactly what’s happening.

Beyoncé, who is running a business not a charity, is an inadvertent force of good. …salaries will rise and so will the quality of life. This competition will impel employers to increase productivity and, if Sri Lanka doesn’t revert to its old ways, the economy will grow.

By the way, that remark about not reverting to “its old ways” is not a throwaway line.

Sri Lanka does not have a free-market economy, but it’s also not nearly as statist as it used to be. So if the country wants continued growth, at the very least it needs to avoid backsliding. And what it really should do is further shrink government and liberalize the economy.

In the meantime, here’s a great video from Ben Powell about how “sweatshops” are good for workers.

By the way, Ben also has written about the history of so-called sweatshops in the United States. And the story is pretty much identical to Sri Lanka, with these factories being a route to upward advancement as America’s economy began to prosper.

As such, it would be a shame if we denied Sri Landkan workers the same route for economic growth.

P.S. Shifting to another topic, we have come bad news followed by good news from Down Under.

The Australian government, which ostensibly is right of center, proposed a new tax on migrant labor. But now that tax is being deferred, hopefully on a permanent basis.

Here are some of the details from a Reuters story.

The ruling conservative government, which is counting on the support of rural voters in the July 2 poll, will defer the tax increase and hold a review of labor force issues in rural and regional communities, Assistant Treasurer Kelly O’Dwyer said. Under the proposal, foreign travelers on working holiday visas would have paid tax of 32.5 percent on every dollar earned from July 1, when previously they paid no tax on income up to A$18,000 ($13,100), the same as locals. …Australia has encouraged backpackers to work on farms with special visas allowing them to stay for a second year if they do three months work in rural Australia.

Sigh, Seems like the Australian Liberal Party (which is a classical liberal party) should adopt the no-tax-hike pledge to avoid making this kind of unforced error.

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Incentives matter.

Sometimes that can be explained with wonky discussions of marginal tax rates or welfare traps.

But that may not be the best approach when trying to convince someone with no aptitude for economics. So what’s the best way of introducing such concepts to, say, a Bernie Sanders supporter?

You can point to the economic chaos in places such as Greece and Venezuela and explain that Margaret Thatcher was right when she warned that socialists eventually run out of other people’s money.

But that’s probably not too effective because they’ll simply point to Sweden and Denmark and you’ll have a hard time educating them that those countries became successful when government was small and that they’ve been falling behind ever since big welfare states were imposed.

So perhaps we first need to help them understand very simple notions.

That’s why, when trying to introduce basic concepts, I’ll often share clever images and cartoons.

Here’s a great addition to that collection (h/t: Zero Hedge). It basically shows why redistributionism is doomed to failure because a lot of people inevitably will decide that life is easier when you’re a consumer rather than a producer.

Definitely worth sharing, I hope you’ll agree.

I view this cartoon as being very similar to the second frame of the famous riding-in-the-wagon cartoons I first posted back in 2011.

Which gives me an opportunity to end today’s column with a very serious point. When redistribution programs are first created, politicians generally argue that they make sense because a lot of people will pay very small amounts to help a handful of folks who are genuinely needy.

That sounds compassionate and affordable. And perhaps it is, but there are two reasons why programs that sound reasonable in the beginning eventually morph into modern welfare states.

  1. Politicians figure out they can buy votes by making the wagon more comfortable and attractive (i.e., public choice economics).
  2. A growing number of people figure out that it’s better to ride in the wagon rather than pull the wagon (i.e., erosion of social capital).

And when you combine these two factors with changing demographics, it’s easy to understand why the future is so grim for so many countries.

P.S. Here’s the Danish version of why redistributionism fails.

P.P.S. Since “keep half” was a big part of today’s image, I can’t resist sharing again this satirical lesson about fairness for a supporter of Bernie Sanders.

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I have no idea whether Donald Trump believes in bigger government or smaller government. Higher taxes or lower taxes. More intervention or less. Sometimes he says things I like. Sometimes he says things that irk me.

Politicians are infamous for being cagey, but “The Donald” is an entirely different animal. Instead of using weasel words that create wiggle room, he simply makes bold statements that are impossible to reconcile.

Consider his views on government debt.

Here’s an interview with Dana Loesch of Blaze TV from earlier this week. I was in Zurich and it was past midnight, so I was a tad bit undiplomatic about Trump’s endlessly evolving views. Simply stated, it’s not a good idea to default. And it’s not a good idea to monetize debt either.

For what it’s worth, while Trump is oscillating between different position on debt, one of his top advisers is claiming that his plan will produce a multi-trillion dollar surplus.

Sigh.

The sensible approach would be for Trump to make simple points.

  1. Debt is a symptom and the real problem is too much spending.
  2. The solution is to follow the Golden Rule.
  3. Therefore, impose a Swiss-style spending cap.

But he hasn’t asked me for advice, so I’m not holding my breath waiting for him to say the right thing.

It’s also a challenge to decipher Trump’s position on tax policy.

He actually put forth a good tax proposal, but nobody takes it seriously since he doesn’t have a concomitant plan to restrain spending.

So his campaign supposedly designated Larry Kudlow and Steve Moore to modify the plan, but then said the original proposal would stay unchanged.

This does not create a sense of confidence.

Trump also is getting pressure on his personal tax situation. He said he would release his tax return(s). Now he says he won’t. I speculated on what this implies in an essay for Time, listing five reasons why he may decide to keep his returns confidential.

The first two reasons deal with a desire for privacy and a political concern that he may appear to be less wealthy than he’s led folks to believe.

First, he may resent the idea of letting the world look at his tax returns for reasons of personal privacy, which is an understandable sentiment. …Can Trump get away with stonewalling on his returns? Perhaps. President Barack Obama refused to release his college transcript and didn’t seem to suffer any political damage. …Second, Trump’s tax return will probably show a surprisingly low level of income, and he might be concerned that such a revelation would erode the super-successful-billionaire aura that he has created.

I also suspect he’s worried that his tax return will make him look like…gasp…a tax avoider.

Third, to the degree that Trump’s return shows a lower-than-expected amount of taxable income, this will probably be because his accountants and tax lawyers have carefully plumbed the 75,000-page internal revenue code for deductions, credits, exemptions, exclusions and other preferences… Since we all seek to legally minimize our tax liabilities, that shouldn’t be a political problem. …That normally would be a persuasive answer, but voters may look askance when they learn that Trump is taking advantage of mysterious provisions dealing with things they don’t understand, like depreciation, carryforwards, foreign tax credits, muni bonds and deferral. …Fourth, for very wealthy individuals and large companies, the complexity of the tax code means there’s no way of knowing if a tax return is accurate. …Given Trump’s persona, he presumably pushes the envelope.

Last but not least, I imagine Trump has “offshore” structures.

Fifth, it’s highly likely that Trump does business with so-called tax havens. For successful investors and entrepreneurs with cross-border economic activity, this is almost obligatory because jurisdictions like the Cayman Islands have ideal combinations of quality governance and tax neutrality. …But in a political environment where the left has tried to demonize “offshore” tax planning, any revelations about BVI companies, Panama law firms, Jersey trusts and Liechtenstein accounts will be fodder for Trump’s many enemies.

Needless to say, I greatly sympathize with Trump’s desire to minimize his tax burden and I applaud his use of so-called tax havens (which are routinely utilized by wealthy Democrats).

And I even sympathize with his desire for privacy even though divulging personal financial information is now a routine obligation for politicians.

The point I should have made in my essay is that Trump would be in a stronger position if he said from the start that his tax returns are nobody else’s business.

And shifting back to policy, he’ll be in a stronger position if he picks a message and sticks to it (though ideally not the same message as Hillary Clinton).

P.S. Since I mentioned Obama’s still-secret college transcript, I may as well share this very clever mock transcript that explains a lot about his misguided approach to policy.

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Among Republicans and conservatives, Ronald Reagan is widely revered as a great President.

From their perspective, he was the candidate who actually made America great again.

Fans of the Gipper tell us the economy rebounded, inflation was tamed, incomes rose, unemployment fell, and the Evil Empire was defeated. What’s not to love?

That’s an impressive list of accomplishments, but is it accurate? Did Reagan and his policies produce good results, or has history created a misleading perspective (just as people for many decades credited Franklin Roosevelt for ending the Great Depression when we now know that FDR’s policies actually lengthened and deepened the downturn)?

Some libertarians are skeptics, arguing that Reagan’s rhetoric about reining in big government was much better than his actual record.

So let’s look at what actually happened in the 1980s.

The place to start, if we want neutral and unbiased data, is Economic Freedom of the World. Annual data for the 1980s isn’t available, but the every-five-year data allows us to see that economic liberty did increase between 1980 and 1990.

By the way, a couple of caveats would be helpful at this point. Reagan entered office in January 1981 and left office in January 1989, so there’s not a perfect overlap between the EFW data and the Reagan years. Also, the EFW data measures changes in a nation’s economic liberty and it silent on whether a president (or the legislative branch) deserves credit or blame.

Now let’s look at the specific components to see the potential impact of Reaganomics on important variables such as fiscal policy, rule of law and property rights, trade policy, regulatory policy, and monetary policy.

I’ve created a table from the data on page 188 of the latest Economic Freedom of the World. As you can see, there was a substantial improvement in fiscal policy, a modest improvement in monetary policy, no change in regulation, no change in rule of law and property rights, and a small drop in trade.

And if you then dig into the EFW excel file and look at the specific variables that are used to create these five scores, you’ll get more details.

On fiscal policy, for instance, there was a modest improvement in the “government consumption” score but a huge jump in the “top marginal tax rate” score. All of which makes sense because the burden of government spending (measured as a share of GDP) fell slightly during the Reagan years while the top tax rate dropped dramatically from 70 percent t0 28 percent.

Monetary policy improved for the obvious reason that the big drop in inflation meant a big increase in the “inflation” score. And the trade score dipped mostly because of an erosion in score for “tariffs.”

Now for my subjective assessment. I think Reagan was even better than shown by the EFW data. Here are three reasons.

  1. The overall burden of government spending only fell by a small amount, but that number masks the fact that domestic spending was reduced significantly as a share of GDP during the Reagan years. That decrease was somewhat offset by a buildup of defense spending, but you can argue that the subsequent collapse of the Soviet Union meant this was a rare instance of government outlays actually generating a positive rate of return.
  2. Reagan’s approach to monetary policy rarely gets the credit it deserves. By supporting a tough anti-inflation policy, he made it possible for the Federal Reserve to restore price stability. It’s very rare for a politician to allow some short-run pain (especially political pain) to achieve long-run gain for the country. And, to be fair, some of the credit goes to Jimmy Carter (though he also deserves blame for letting the inflation genie out of the bottle in the first place).
  3. On trade policy, Reagan’s legacy is much better than indicated by the EFW scores. During his tenure, the NAFTA and GATT/WTO trade liberalization negotiations began and gained considerable steam. Yes, the implementation occurred later (with both the first President Bush and President Clinton deserving credit for following through), but we never would have reached that stage without Reagan’s vision of expanded trade and rejection of the protectionist philosophy.

Last but not least, let’s look at what Reagan’s policies meant for ordinary people. Did more economic liberty lead to better lives?

The answer is yes. The poisonous hidden tax of inflation largely disappeared. The unemployment rate fell. Labor force participation increased (in marked contrast with Obama). And there was a big increase in income for average Americans (again, in sharp contrast with Obama).

No wonder, when presented with a hypothetical matchup, the American people said they would elect Reagan over Obama in a landslide.

P.S. Critics of Reaganomics, including some on the right, inevitably raise the issue of deficits and debt and assert that Reagan failed. I think red ink is the wrong measure, but even for those who fixate on that variable, it’s worth noting that deficits were relatively small by the time Reagan left office and the Congressional Budget Office predicted they would continue falling if his policies were maintained. Moreover, the 1980-1982 double-dip recession was the reason red ink expanded so much during the early Reagan years, and that was primarily the inevitable consequence of the reckless monetary policy of the 1970s.

P.P.S. For Reagan humor, click here, here, and here.

P.P.P.S. If you want to be inspired, click here and here to see two short clips of Reagan in action. And at the bottom of this post, there’s a great video of Reagan embracing libertarianism.

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Economists certainly don’t speak with one voice, but there’s a general consensus on two principles of public finance that will lead to a more competitive and prosperous economy.

To be sure, some left-leaning economists will say that high tax rates and more double taxation are nonetheless okay because they believe there is an “equity vs. efficiency” tradeoff and they are willing to sacrifice some prosperity in hopes of achieving more equality.

I disagree, mostly because there’s compelling evidence that the left’s approach ultimately leads to less income for the poor, but this is a fair and honest debate. Both sides agree that lower rates and less double taxation will produce more growth (though they’ll disagree on how much growth) and both sides agree that a low-tax/faster-growth economy will produce more inequality (though they’ll disagree on whether the goal is to reduce inequality or reduce poverty).

Since I’m on the low-tax/faster-growth side of the debate, this is one of the reasons why I’m a big fan of tax competition and tax havens.

Simply stated, when politicians have to worry that jobs and investment can cross borders, they are less likely to impose higher tax rates and punitive levels of double taxation. Interestingly, even the statist bureaucrats at the Organization for Economic Cooperation and Development (who, ironically, get tax-free salaries) agree with me, writing that tax havens “may hamper the application of progressive tax rates.” They think that’s a bad thing, of course, but we both agree that tax competition means lower rates.

And look at what has happened to tax rates in the past few years. Now that politicians have undermined tax competition and weakened tax havens, tax rates are climbing.

So I was very surprised to see some economists signed a letter saying that so-called tax havens “serve no useful economic purpose.” Here are some excerpts.

The existence of tax havens does not add to overall global wealth or well-being; they serve no useful economic purpose. …these jurisdictions…increase inequality…and undermine…countries’ ability to collect their fair share of taxes. …There is no economic justification for allowing the continuation of tax havens.

You probably won’t be surprised by some of the economists who signed the letter. Thomas Piketty was on the list, which is hardly a surprise. Along with Jeffrey Sachs, who also has a track record of favoring more statism. Another predictable signatory is Olivier Blanchard, the former top economist at the pro-tax International Monetary Fund.

The only surprise was that Angus Deaton, the most recent recipient of the Nobel Prize for economics, signed the letter.

But if that’s an effective “appeal to authority,” there’s a far bigger list of Nobel Prize winners who recognize the economic consensus outlined above and who understand a one-size-fits-all approach would undermine progress.

In other words, there is a very strong “economic purpose” and “economic justification” for tax havens and tax competition.

Simply stated, they curtail the greed of the political class.

Philip Booth of the Institute of Economic Affairs in London opined on this issue. Here’s some of what he wrote for City A.M.

…the statement that tax havens “have no useful purpose” is demonstrably wrong and most of the other claims in the letter are incredible. Offshore centres allow companies and investment funds to operate internationally without having to abide by several different sets of rules and, often, pay more tax than ought to be due. …Investors who use tax havens can avoid being taxed twice on their investments and can avoid being taxed at a higher rate than that which prevails in the country in which they live, but they do not avoid all tax. …tax havens also allow the honest to shelter their money from corrupt and oppressive politicians. …one of the advantages of tax havens is that they help hold governments to account. They make it possible for businesses to avoid the worst excesses of government largesse and crazy tax systems – including the 39 per cent US corporation tax rate. They have other functions too: it is simply wrong to say that they have no useful purpose. It is also wrong to argue that, if only corrupt governments had more tax revenue, their people would be better served.

Amen. I especially like his final point in that excerpt, which is similar to Marian Tupy’s explanation that tax planning and tax havens are good for Africa’s growth.

Last but not least, Philip makes a key point about whether tax havens are bad because they are sometimes utilized by bad people.

…burglars operate where there is property. However, we would not abolish property because of burglars. We should not abolish tax havens either.

When talking to reporters, politicians, and others, I make a similar point, arguing that we shouldn’t ban cars simply because they are sometimes used as getaway vehicles from bank robberies.

The bottom line, as Professor Booth notes, is that we need tax havens and tax competition if we want reasonable fiscal systems.

But this isn’t simply an issue of wanting better tax policy in order to achieve more prosperity. In part because of demographic changes, tax havens and tax competition are necessary if we want to discourage politicians from creating “goldfish government” by taxing and spending nations into economic ruin.

P.S. Here’s my video on the economic case for tax havens.

 

P.P.S. Let’s not forget that the Paris-based Organization for Economic Cooperation and Development is the international bureaucracy most active in the fight to destroy tax competition. The is especially outrageous because American tax dollars subsidize the OECD.

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According to Economic Freedom of the World, there are five major factors that determine a nation’s economic performance.

Here’s the recipe for growth and prosperity.

  • Rule of law and property rights.
  • Small government.
  • Stable monetary policy.
  • Reasonable regulatory policy.
  • Free trade.

This great publication is the first thing I check when I want to see whether a country leans in the direction of markets or whether it is burdened by a lot of statism. And it allows for meaningful comparisons between nations since it relies on global data sources.

But not all economic variables have good data sources that allow apples-to-apples comparisons. It’s very difficult to measure the degree to which various governments interfere with the price system by imposing controls (either minimum or maximum price limits).

Identifying the degree of cronyism in an economy also is a challenge since there are not reliable numbers for the degree to which politicians in various nations provide favors for particular firms or sectors.

So I was very interested when I saw that the Economist has put together a ranking that shows the degree to which a nation’s billionaires either earn their wealth via markets or cheat their way to wealth via cronyism.

It obviously doesn’t cover nearly as many nations as Economic Freedom of the World, but perhaps the folks at the Economist have come up with a methodology that eventually will allow a specific measure of cronyism in the future.

The article explains how the rankings were derived.

…for the past 20 years, from Malaysia to Mexico, crony capitalists—individuals who earn their riches thanks to their chumminess with government—have had a golden era. Worldwide, the worth of billionaires in crony industries soared by 385% between 2004 and 2014, to $2 trillion. The Economist’s crony-capitalism index tries to measure the extent of this graft for a number of important countries. Industries that have a lot of interaction with the state are vulnerable to crony capitalism (a full list of industries is provided in the table below). These activities are often legal but always unfair (Donald Trump, a casino and property tycoon, earns the 104th spot in our individual crony ranking). …Germany is cleanest, where just a sliver of the country’s billionaires derives their wealth from crony sectors. Russia fares worst in our index: wealth from the country’s crony sectors amounts to 18% of its GDP.

I’m glad to have these new numbers, but I’m not completely sold on the methodology used by the Economist.

Is all banking and finance really cronyism? That seems a bit of a stretch. While there are some indications that Warren Buffett is now a cronyist, I’m not aware of any evidence suggesting he used government connections to become rich in the first place.

And what about energy and chemicals? That description may apply to some rich people in the U.S. and elsewhere, but there are plenty of examples (the Koch brothers) of billionaires in this sector that have earned their wealth.

And speaking of wealth, why did the article compare wealth (which is a stock) and GDP (which is a flow)? I realize the Economist needed some sort of benchmark, but they chose an approach that has dubious methodological value.

All that being said, I suspect that the countries near the top of that list have a genuine problem with cronyism and the ones near the bottom do a better job of letting market forces operate.

So congratulations to Germany and South Korea and boos for Russia and Malaysia.

And a bit of applause for the United States. We have some egregious forms of cronyism that benefit the undeserving rich, but most American billionaires apparently earn their money.

Now let’s zoom out and look at the historical case against cronyism with this superb video from Prager University.

The bottom line is that scams like Solyndra are the modern version of what many railroads did in the 1800s.

I didn’t realize, though, that Uncle Sam also squandered money trying to invent the airplane.

P.S. You can enjoy other great videos from Prager University by clicking here, here, here, here, here, and here.

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