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Posts Tagged ‘Government intervention’

The current crisis teaches us that excessive regulation and bureaucratic sloth can have deadly consequences.

Here’s John Stossel’s video with another lesson, explaining that we need more capitalism rather than more government.

This seems like a no-brainer, especially given the wretched economic performance of countries where the government owns or controls the means of production.

But not everyone agrees. The appropriately named Paris Marx wants government to have more power, making the case for nationalization of Amazon in an article for Jacobin.

The government needs to…respond to the needs of people across the country as the pandemic situation deteriorates. The response should be to nationalize Amazon and integrate it with the USPS. …Nationalizing the company would also allow Amazon workers to get covered by the same union as postal workers… Amazon isn’t just an online e-commerce marketplace. …Amazon Web Services (AWS) is a cloud computing platform…the cloud should be placed under public ownership. Taking control of AWS would allow the government to…ensure the cloud platform is serving the public good… We have a rare opportunity to fundamentally alter the economy to serve the needs of people instead of private profit, and it’s time to seize it.

Call me crazy, but if the government takes over Amazon and merges it with the Postal Service, I’m guessing that what emerges will have the inefficiency of the latter rather than the nimbleness of the former.

Just imagine a giant Department of Motor Vehicles (or, on a related note, the government’s track record on teaching kids to drive).

Which is why the U.K.-based Economist warned back in 2017 about the dangers of government-run companies.

Expanded state ownership is a poor way to cure economic ailments. For much of the 20th century, economists were open to a bit of dirigisme. …But in the 1970s economists came to see state ownership as a costly fix to such problems. Owners of private firms benefit directly when innovation reduces costs and boosts profits; bureaucrats usually lack such a clear financial incentive to improve performance. Firms with the backing of the state are less vulnerable to competition; as they lumber on they hoard resources that could be better used elsewhere. …economists saw in the productivity slowdown of the 1970s evidence that an overreaching state was throttling economic dynamism. …State-owned firms pose risks beyond that to dynamism. Government-run companies may prioritise swollen payrolls over customer satisfaction. More worryingly, state firms can become vehicles for corruption, used to dole out the largesse of the state to favoured backers or to funnel social wealth into the pockets of the powerful. As state control over the economy grows, political connections become a surer route to business success than entrepreneurialism.

The good news is that very few politicians are supporting explicit nationalization.

The bad news is that there’s plenty of support for intermediate steps involving cronyism, industrial policy, and various types of direct and indirect subsidies.

Including in the legislation recently approved in Washington (not that anyone should be surprised).

Professor Amit Seru from Stanford and Professor Luigi Zingales from the University of Chicago warn, in a column for the Wall Street Journal, that the U.S. has take a dangerous step on the road to central planning.

The need to help individuals and small firms has provided cover to the largest corporate subsidy program in U.S. history. Under intense pressure from lobbyists, the Cares Act allocates $510 billion to support loans for large businesses. A small chunk of this money ($56 billion) will be used directly by the Treasury to grant loans to airlines and other “strategic” firms (read: Boeing). The Treasury will then confer the rest ($454 billion) to the Federal Reserve to absorb losses the Fed might incur in lending to firms in the private sector. The expectation is that the central bank will leverage this money… This is the largest step toward a centrally planned economy the U.S. has ever taken. And it socializes only losses. Profits, when they come, remain private. …The urgency of the moment facilitated a giveaway to vested interests. Now that the Cares Act is law, policy makers need to find ways to impose restrictions on how the money is deployed. It isn’t only a question of fiscal prudence; the nature of American capitalism is at stake.

In other words, the U.S. is moving in the wrong direction on my “Industrial Policy Spectrum.”

The key unanswered question is whether the government’s new powers will be temporary or permanent.

There’s a legitimate argument for some form of intervention while the crisis in ongoing. But what happens once things go back to normal? Will politicians allow the “creative destruction” of capitalism, or will they use their expanded power to permanently interfere with market forces?

If they choose the latter, there will be less long-run prosperity.

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Most economic downturns are caused by misguided government policy, which leads to predictable battles over how to address the fallout as well as battles over how to avoid the same mistakes in the future.

Today’s crisis is different. It’s more akin to a natural disaster. But it’s not a one-off event like a big hurricane or earthquake. It’s an ongoing pandemic, which is having a terrible impact on many sectors of the economy. And if it lasts a long time, the consequences will be catastrophic depression rather than ordinary recession (which is why it is reasonable to contemplate the economic and health tradeoffs of re-opening the economy).

To deal with the immediate consequences of this crisis, Washington has responded by approving a mutli-trillion dollar relief package. And I won’t be surprised if politicians come back with another huge package.

Since responding to a pandemic is a legitimate function of government, I don’t have a principled objection to emergency legislation (for wonky readers, there’s an interesting debate in libertarian circles about whether government assistance – even bailouts – can be justified because government has ordered a shutdown of economic activity, which can be viewed as a “regulatory taking“).

That being said, I worry that self-interested politicians will use the crisis as an excuse to shovel goodies to their friends and cronies.

And I also want to minimize the danger that politicians will use the crisis as a reason to permanently expand the size and scope of government.

I’ve already written about how the crowd in Washington is exploiting the crisis with regards to three different issues.

Today, let’s consider a potential downside of providing assistance to companies. We’ll focus on airlines, but the lessons apply to any businesses that get government assistance.

A Bloomberg report explains why this issue, in general, is controversial.

…the administration may consider asking for an equity stake in corporations that want coronavirus aid from taxpayers. …Against that, there’s the potential for political risk. During the financial crisis, some Republicans decried a tilt toward European-style socialism. The current crisis coincides with the — albeit fading — candidacy of Bernie Sanders, and his democratic socialist platform. …“This is a very big slippery slope because the ownership of private capital by government is not traditionally consistent with capitalism,” said Kevin Caron, portfolio manager for Washington Crossing.

The Wall Street Journal‘s editorial on this issue focuses on the airline industry and makes some very important points.

America’s beleaguered passenger airlines are allocated roughly $50 billion in the coronavirus relief bill… The idea is simply to freeze the staff list for six months, at which point the pandemic might have receded and air travel recovered. In exchange, Congress has authorized the Treasury Secretary, at his sole discretion, to “receive warrants, options, preferred stock, debt securities, notes, or other financial instruments” that constitute “appropriate compensation to the Federal Government.” …The desire to get something for the taxpayer’s buck is understandable, but there’s a real risk here of a long-term nationalization. …Washington should have no role in directing the business of a private company, and Treasury Secretary Steven Mnuchin perhaps would agree. What if his successor turns out to be Treasury Secretary Elizabeth Warren? …Helping the airlines weather a 100-year pandemic might be, arguably, within the government’s job description. Owning them isn’t.

The bad news is that are no good options.

It’s not a good idea to simply give taxpayer money to airlines. And it’s also not a good outcome for airlines to go bankrupt, perhaps leading to a total shutdown rather than a reorganization.

Some outcomes, however, are worse than others. And having government as a major shareholder is the option with the greatest long-run risk. Simply stated, it’s a recipe for cronyism and industrial policy.

Based on what’s already happened on issues such as energy and trade, I don’t trust President Trump and his team to have a hands-off attitude. What will happen, as we approach the November election, if the White House thinks it can win a key state by forcing a company (either an airline or any other affected firm) to increase jobs and/or pay?

Or, if you happen to trust Trump, what happens if Joe Biden wins in November and – as the Wall Street Journal warned – a dogmatic interventionist like Elizabeth Warren becomes Treasury Secretary.

She already has a very bad track record on issues of corporate governance. Do you want her to have the power that comes with being a major shareholder?

For all intents and purposes, this is why I unveiled the Fifth Theorem of Government last September.

I’ll close with some troubling observations about where we may be heading.

  1. The technical definition of fascism (at least with regards to its economic policy) is nominal private ownership of business but government control.
  2. The technical definition of socialism is outright government ownership and control of business (along with other policies such as central planning and price controls).

Which raises the depressing issue of how much government ownership is required to get to #1 and how much additional government ownership is required to get to #2.

Could it be that Bernie Sanders may be the real winner, regardless of who is in the White House next year?

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Five days ago, I wrote “Coronavirus and Big Government” to highlight how sloth-like bureaucracy and stifling red tape deserve much of the blame for America’s slow response to the crisis.

And I started that column by sharing four points from a previous column on “Government, Coronavirus, and Libertarianism.” I’ll start today’s column by repeating the final observation.

4. The federal government has hindered an effective response to the coronavirus.

Here’s a video from John Stossel documenting the federal government’s clumsy incompetence.

And here are a bunch of stories and tweets that provide additional elaboration.

Feel free to click on the underlying stories if you want to get even angrier about the deadly impact of big government.

The silver lining to all the bad news is that politicians and bureaucrats have been relaxing regulatory barriers.

But will they learn the right lesson and permanently repeal government-created barriers that hinder the provision of health care?

Is it true, as Robert Tracinski wrote for the Bulwark, that “We’re All Libertarians now”?

This talking point has since been taken up by others in a more technically accurate form: there are no libertarians in a pandemic. The idea is that when a crisis hits, everyone suddenly realizes how much they need Big Government. This is a bizarre argument to make about a virus that got a foothold partly because of the corrupt and tyrannical policies of a communist government in China. The outbreak is currently at its worst in Italy, where socialized medicine has not turned out to be a panacea. And it was allowed to get out of control in America because the feds imposed an incompetent government monopoly on COVID-19 testing, blocking the use of better and faster tests developed by private companies. …There has been a surge of emergency deregulation to lift artificial barriers that prevent people from solving problems. …the loosening of federal controls on the private development of diagnostic testing, after the disastrous attempt to centralize it all at the CDC. We’re also seeing the suspension of restrictive licensing requirements on doctors and nurses to allow them to work across state lines, so they can go where the shortages are worst. There has also been a whole series of waivers on restrictions on the transportation and serving of food and beverages in order to help restaurants stay in business and feed their customers by offering curb-side service.

Needless to say, I hope Tracinski is right.

But I worry that the net result of this crisis is that we’ll have more red tape and the CDC and FDA will have bigger budgets.

If you think I’m being too pessimistic, just remember that the Department of Veterans Affairs was rewarded with more money after letting veterans die on secret waiting lists, the IRS was rewarded with more money after persecuting Tea Party groups to help Obama’s political prospects, and the education monopoly endlessly gets rewarded with more money even though student outcomes stagnate or deteriorate.

All as predicted by the First Theorem of Government.

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Back in 2013, I joked that “you get bipartisanship when the Stupid Party and the Evil Party both agree on something.”

That generally means bad outcomes, with the TARP bailout being a prime illustration.

We now have another example since many Republicans and Democrats want to restrict – or even ban – companies from buying shares from owners (i.e., company shareholders).

Known as stock buybacks, these share purchases should be viewed as an innocuous way of distributing profits.

But you’ll see below that many politicians think they be able to dictate how private businesses operate.

First, let’s look at some excerpts from the Tax Foundation’s very useful primer on the issue.

It’s important to understand why stock buybacks occur and the economic role they play. The new tax law lowered the corporate income tax rate… A lower rate also means that corporations will receive larger profits than anticipated on investments they made in the past—it should be expected that companies would share at least some of this unexpected increase in cash with their shareholders. …Stock buybacks are complements to investment, not substitutes for it. Research shows that stock buybacks do not deprive firms of capital that they would otherwise invest, and further, that stock buybacks can facilitate long-term investment by redirecting funds from lower growth firms to higher growth firms. …Limiting the ability of a corporation to return value to shareholders—value which was created by productive investments made in the past—will not improve economic conditions.

Many experts from the worlds of finance, business, and public policy have tried to explain why stock buybacks should not be viewed as controversial.

In a column for the Wall Street Journal, for instance, Donald Luskin and Chris Hynes explain why it’s a bad idea to curtail buybacks.

Sen. Elizabeth Warren would require, among other things, that to receive aid…companies receiving aid be permanently barred from executing share buybacks, even after the aid is repaid. This is an opportunistic mutation of the left’s longstanding claim that buybacks are a uniquely evil form of predatory capitalism. In reality, buybacks create benefits for shareholders large and small… Shareholders must receive a dividend when it’s declared and pay taxes on it. In a share buyback, investors who want cash can sell some shares and pay taxes. If they don’t want cash, they can choose to hold on to their shares. …Some opponents of buybacks…argue that they waste company cash that ought to be reinvested in plant and equipment. But not every company is in growth mode, and even those that are might have more cash than growth ideas. …Paying money out to shareholders frees them to reinvest in new companies with big growth ideas. This is the best way to promote growth for the economy as a whole.

The Washington Post is not exactly a hotbed of libertarian thinking, so it’s noteworthy that its editorial warned that politicians shouldn’t be dictating private business choices.

the practice by which public corporations use spare cash to buy back their own stock has turned into a policy flash point for both Democrats and Republicans. The basic allegation is that profits devoted to stock buybacks…are profits not plowed back into new plants, equipment or higher wages. …Contrary to the concerns about diverting investment funds, U.S. nonresidential investment and job creation have been rising for most of the past decade. When shareholders get cash for their stocks, the money doesn’t disappear; it flows through the economy, often as productive investment elsewhere. …Perhaps a tax change would accomplish something — though companies would still have an incentive to give spare cash back to shareholders as long as there is no clearly superior investment alternative. Critics of stock buybacks are saying, in effect, that elected officials or regulators may know better than companies themselves what should be done with extra cash.

Writing for the Foundation for Economic Education, Ethan Lamb points out why Senator Cory Booker doesn’t understand the economics of buybacks.

Senator Cory Booker…reintroduced the “Workers Dividend Act,” which would mandate corporations match every dollar spent on buybacks with compensation toward employees. …this bill presupposes that stock buybacks are inherently bad for society. …Booker doesn’t understand the function of stock buybacks. …Buybacks are just another mechanism, like dividends, to return money to shareholders. …Booker and company will also argue that stock buybacks come at the expense of investment, whether it be in the form of wages or capital expenditures. …none of that is true. …stock buybacks are a brilliant example of the free-market system offering a win-win to both parties. In other words, when the corporation purchases its own stock, the money from that exchange has to go somewhere. Presumably, the investor that just received the money would re-invest in another company that would be more inclined to use that money on investments in labor, R&D, or capital.

The editors of the Wall Street Journal warned about the risks of government intervention.

Stock buybacks are the latest bipartisan piñata, whacked by politicians on the left and right who misunderstand capital markets. …Repurchasing shares is simply one way a company can return cash to owners if it lacks better ideas for investment. …Senators complain that “when corporations direct resources to buy back shares on this scale, they restrain their capacity to reinvest.” But the money doesn’t fall into a black hole. An investor who sells stock into a buyback will save or reinvest the proceeds. …Banning buybacks won’t create better investment options inside companies. Instead CEOs may spend more on corporate jets or pet projects with marginal economic returns. …A recent report from Mr. Rubio floats the idea of raising tax rates on buybacks. …For example: “An increased tax rate on repurchases might raise revenue to finance other incentives for capital investment.” In other words, Mr. Rubio wants politicians to have more leverage to direct how businesses deploy their capital. This would produce less investment, not more, with corresponding damage to workers and federal revenue.

Jon Hartley, in an article for National Review, debunks the notion that there’s some sort of special tax favoritism for buybacks.

Marco Rubio’s plan to tax stock buybacks in the hopes of spurring investment…is heavily flawed for multiple reasons. …the senator seems to be operating under the incorrect belief that buybacks are tax-advantaged, when in fact buybacks are already taxed in the form of capital-gains taxes. Since 2003, when the dividend-tax rate was lowered to remove the tax advantage then afforded buybacks, the tax rates on qualified dividends and long-term capital gains have been the same. …let’s take a hypothetical example: Say an investor bought a stock at $100 and over the period of a year, the stock price appreciated by 10 percent to $110 after the company increased its profits and paid corporate taxes (at today’s 21 percent rate) on its earnings. If the company pays a $2 dividend at the end of the year and the investor sells the stock at $108 (ex-dividend), the investor pays the 23.8 percent dividend tax on the $2 dividend received and 23.8 percent on the $8 capital gain. If the company buys back some of its stock at $110 instead of paying a dividend and the investor sells his shares at $110, the investor pays the long-term capital-gains tax of 23.8 percent on the $10 he made. …Now, let’s imagine that Senator Rubio’s legislation is passed and a tax on buybacks goes into effect. …A transaction that was previously subject to two layers of taxation (corporate and capital-gains taxes) is suddenly subject to three layers of taxation (corporate taxes, capital-gains taxes, and buyback taxes), yielding a higher overall tax bill.

Ted Frank, writing for the Washington Examiner, adds further analysis.

Sen. Josh Hawley, a Missouri Republican, proposed banning buybacks as one of a series of conditions of government relief. Anyone making blanket condemnations of stock buybacks is either confused or otherwise fundamentally unserious — and proposing counterproductive policies that will slow the recovery. …It’s economically indistinguishable from a special dividend, where a corporation pays out money to every shareholder, except it permits shareholders to elect their own tax consequences, unlike a dividend that creates a tax event immediately. …Proposals to ban buybacks are effectively proposals to demand corporations hold such huge stockpiles of cash, depriving shareholders of investment choices. Such proposals will backfire by slowing down the economic recovery when money that could be invested is instead held in corporate bank accounts, doing nothing.

I want to close by sharing two additional columns that argue against restrictions on stock buybacks, but also suggest that there may be some desirable reforms that might – as a side effect – lead to fewer buybacks.

Clifford Asness recently opined for the Wall Street Journal about buybacks and investment, echoing many of the points included in the above excerpts.

Share buybacks are when a company purchases its own common shares on the open market. After a buyback, a company is left with less cash and fewer shares outstanding. Buybacks, along with ordinary dividends, are one of the main ways companies return cash to investors—the ultimate objective of any investment. So why have buybacks become the subject of vitriolic criticism? …The lead accusation against buybacks is that they “starve investment.” …Related to the claims of starving investment, some argue that today’s buybacks are a form of “self-liquidation” in which companies are systematically shrinking away. This ignores that…the net cash outflow from share buybacks has been more than replaced by cash inflow due to new borrowing (think of this as a debt-for-equity swap). Despite buybacks, on net companies have been raising money, not liquidating. …Buybacks…facilitate a movement of capital from companies that don’t need it to those that do. That’s how markets are supposed to work.

But he then notes that the tax code’s bias for debt could be a problem.

…there are some possible problems with buybacks. If taken to excess far beyond today’s levels and financed with debt, they could lead to too much leverage.

Noah Smith explains for Bloomberg that banning stock buybacks is the wrong response to the wrong question.

Stock buybacks are a fraught and confusing issue. …A number of politicians have decried this practice, and sought restrictions or a ban. …Many observers are mystified by this animosity. …share repurchases are like dividends — a way to return money to shareholders. When companies don’t have any way to invest their money profitably, they might as well give the money back to investors.

But he then suggests other government policy mistakes that could be artificially boosting the level of buybacks.

…many of the concerns people have with buybacks probably could be better addressed by reforming other parts of the corporate system. If executive short-termism is the problem, stock- and option-based compensation should be discouraged. If debt is the problem, tax corporate borrowing more heavily. …instead of attacking buybacks, reformers should focus on fixing other parts of corporate America.

Since I just wrote about the tax code being biased in favor of debt, I obviously am very sympathetic to tax reforms that would put debt and equity on a level-playing field.

Noah Smith raised the issue of whether stock- and option-based compensation arrangements for company executives are artificially encouraging buybacks.

Well, my modest contribution to this discussion is to explain that such compensation packages became more prevalent after Bill Clinton’s failed 1993 tax hike imposed a significant indirect tax increase on corporate salaries of more than $1 million. That tax hike, however, did not apply to performance-based compensation, such as measures tied to a stock’s performance.

So what we’re really looking at are a couple of example’s of Mitchell’s Law in action.

Politicians adopt bad policies (favoritism for debt in the tax code and higher taxes on regular salaries), which lead to unintended consequences (more stock buybacks), which then gives politicians an excuse to further expand the size and scope of the federal government (restrictions and bans on buybacks).

Lather, rinse, repeat.

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I wrote last week about the libertarian response to the coronavirus crisis and made four simple points.

  1. Governments should focus on protecting life, liberty, and property. That includes fighting pandemics.
  2. A big sprawling federal government will be less capable and competent when responding to a real crisis.
  3. International evidence suggests greater government control is not a good recipe for success.
  4. Domestic evidence indicates that bureaucracies such as the FDA and CDC are exacerbating the problem.

That column led to an invitation, from the folks at Pairagraph, to participate in a debate with Jason Furman, a Harvard professor who served as Chairman of President Obama’s Council of Economic Advisers.

Here are some excerpts from Jason’s opening statement.

Dan, you wrote a thoughtful piece the other day on a “Libertarian Perspective on the Coronavirus Response.” …But, I would also hope you would support me…in supporting a temporary increase in the share of Medicaid costs paid by the federal government. …health treatment is essential, and extra money…will help hospitals expand capacity as needed. After the pandemic is over we can take more time to debate the cost-benefit of this public funding for a low-income entitlement.

He then lists these four fiscal proposals.

Here’s some of what I wrote in my opening response.

Regarding potential steps to boost the economy, …conventional remedies may not be effective in the current environment. I don’t think my preferred policies (lower tax rates, for instance) will have much impact when people and businesses are focused on curtailing the spread of the virus. And I also don’t think Keynesian policies will be effective… That being said, we are facing a black-swan environment. …there is enormous pressure for Washington to do something.

What about Jason’s four proposals?

I agree on his first suggestion, but not on the mechanism.

…more health infrastructure would be very helpful. Which is why I want the private sector to take the lead. We’ll get faster results at lower cost.

As you might guess from what I wrote two days ago about paid sick leave, I’m very skeptical about program expansions.

I don’t want politicians to exploit a crisis to impose their long-standing policy preferences – especially when taxpayers, consumers, and workers will be burdened with long-run costs.

However, I’m open to his other two proposals.

I don’t think universal payments and/or business loans will prevent short-term economic harm. But if the federal government is going to do something, then payments and loans at least address a real problem (temporary loss of income) with a plausible action (temporary provision of cash).

Though I do warn that these ideas will have adverse unintended consequences.

In an ideal world, firms would guard against black-swan events by having business interruption insurance and households would similarly protect themselves by setting aside funds in savings accounts. Those prudent steps will be less likely in a world where people expect government intervention.

Our submissions are limited to 500 words, so neither of us had much opportunity to share details (there will be a second round, so the debate isn’t over yet).

Even with that limit, I made sure to mention Crisis and Leviathan, Robert Higgs’ must-read book about the unfortunate history of politicians using crises as an excuse to seize more power and control over the private economy.

That’s because my biggest fear is that this temporary crisis will lead to permanent expansions in the size and scope of government.

Libertarians don’t fear the “slippery slope” because we’re paranoid. We fear it because we understand the perverse incentive structure of politicians.

I don’t know whether we’ll become Greece or Venezuela if we tumble down that slope. But I know it will lead to a bad outcome.

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I’m not a big fan of paternalism because of my libertarian belief that people should be free to govern their own lives.

That’s true even if they make choices that I think are foolish.

Needless to say, many politicians don’t share this laissez-faire perspective.

But not all governments are equally intrusive. Epicenter has released a new version of the Nanny State Index, allowing us to see which EU nations have the most onerous rules governing private behavior.

The Index has been charting the slide towards coercive paternalism since 2016 and there is little good news to report this year. Once again, Finland tops the league table but although it maintains a strong lead, other countries are closing the gap. …Whether it is food, drink, vaping or smoking, the lifestyle regulators have the wind in their sails… In general, the story is one of a constantly expanding nanny state raising prices and trampling freedom. The blame lies overwhelmingly with domestic governments, not with the European Union. Although the EU has made the situation worse with its counter-productive policies on tobacco and e-cigarettes, it cannot be held responsible for regressive taxation, draconian smoking bans and excessive regulation of alcohol and food. The gulf between the more liberal countries at the bottom of the Index and the more heavy-handed countries at the top shows how much latitude member states have. Treating your citizens like children is, by and large, a domestic policy choice.

As you can see from this table, Finland is the worst, followed by two of the (otherwise sensible) Baltic nations.

Meanwhile, Germany gets the best score, followed by Czech Republic and Slovakia.

The report’s author, Christopher Snowdon of London’s Institute of Economic Affairs, observes that nanny-state policies don’t even achieve their putative goal of longer lifespans.

Insofar as ‘public health’ campaigners acknowledge the damage done by their policies, they argue that it is more than offset by the benefit to health – the ends justify the means. But there is little evidence that countries with more paternalistic policies enjoy greater health or longevity. As Figure 1 shows below, there is no correlation whatsoever between Nanny State Index scores and life expectancy.

Here’s the chart showing the lack of a relationship between paternalism and longevity.

By contrast, there is a correlation between economic prosperity and life expectancy.

…there is a strong, statistically significant relationship between health and wealth. Figure 4 shows the relationship between life expectancy and economic prosperity as measured by per capita GDP. This suggests that pursuing economic growth would bring much greater benefits to health than coercive efforts to control personal behaviour with bans and taxes.

Here’s the chart from the study showing the relationship between the two variables.

The obvious takeaway is that European governments should focus on policies that expand economic liberty if they truly care about the well-being of their citizens.

P.S. What about the United States? I’m not sure where we would rank in the Nanny State Index. Though we do have some indication of which states have a more laissez-faire attitude. When I wrote about Freedom in the 50 States back in 2013, I noted that Massachusetts ranked #1 in the “bachelor party” category (based on issues such as booze, hookers, fireworks, and drugs). That category doesn’t exist int he most-recent edition, but Nebraska ranks #1 in the “victimless crimes” category.

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The most obvious threat to free enterprise is Bernie Sanders, though other prominent leftists are giving “Crazy Bernie” plenty of competition.

But I sometimes wonder whether the more tangible threat to capitalism comes from self-described conservatives who say they support markets but embrace trendy ideas that would expand the size and scope of the federal government.

The people who gravitate to these ideas inevitably argue that a Reagan-style agenda of free markets and limited government is somehow inadequate.

They even make the laughable claim that the Republican Party in recent decades has been dominated by libertarian economic thinking. I’m not joking.

And they come up with creative justifications for bad ideas.

For instance, Oren Cass has concocted a “cost of thriving index” that purports to show ever-increasing economic pressure on families.

Cost-of-Thriving Index (COTI): the number of weeks of the median male wage required to pay for rent on a three-bedroom house at the 40th percentile of a local market’s prices, a family health insurance premium, a semester of public college, and the operation of a vehicle. …The COTI shows a declining capacity of a worker to meet the major costs of a typical middle-class household. As the COTI basket has become unaffordable, families have found workarounds, like having more household members work more hours, making do without, borrowing, and relying on government support. Each of these comes with its own costs, undermines the stability of families and the rationale for their formation, and creates high levels of stress and uncertainty. …The U.S. economy of recent decades has eroded, rather than reinforced, the American model of thriving, self-sufficient fami­lies.

Here’s his COTI graph, which supposedly shows that a breadwinner would have to work 53 weeks per year to buy what was easily affordable back in 1985.

A number of experts have identified serious methodological problems with his work (see Scott Winship, Mark Perry, Robert Verbruggen, Stan Veuger, Matt Yglesias, Don Boudreaux, and Andrew Biggs).

I want to make a different point. So I’m going to ignore all the problems that exist with the methodology and data, and I’m going to assume – for the sake of argument – that Cass’ chart is accurate.

And the reason I’m willing to make that heroic assumption is that Cass inadvertently shows why bigger government and more intervention is a bad idea.

Here are the numbers he used to create his chart.

If you examine what’s happened with the different categories, you’ll quickly notice that almost all the increase in his index is the result of ever-high costs for health care and college.

Yet those are precisely the areas where there the role of government has increased.

More specifically, we have a massive third-party-payer problem with health care caused by Medicare, Medicaid, and the tax code’s healthcare exclusion.

And we have a massive third-party-payer problem in higher education thanks to a big expansion of loans, grants, and other subsidies.

In both cases, providers have responded to government intervention with higher prices and massive inefficiency.

The bottom line is that the chart should be modified to show the harmful impact of government.

The challenge for Cass is to somehow explain why more government is a good idea when his own numbers show that we’re getting bad results in the sectors where we already have lots of government.

Maybe, just maybe, there’s a lesson to be learned. Or a principle that should be applied.

P.S. Or we could just listen to Ronald Reagan (see 2nd and 8th videos).

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