OECD Bureaucrats Criticize USA for Absence of Parental Leave Mandate

Usually with regard to government-run health care, folks on the left commonly criticize the United States for being the “only country” that does not  provide this or that handout from the government.

That should not be a persuasive argument without first looking at whether the United States is doing better or worse than other nations.

And based on comparative living standards, the United States is far ahead.

So why copy the policies of countries where people are way behind?

But that doesn’t seem to matter to proponents of bigger government such as the bureaucrats at the Paris-based Organization for Economic Cooperation and Development.

Here are some excerpts from an OECD publication about paid parental leave, authored by Jason Fluchtmann.

Except for the United States, all OECD countries have national statutory rights that entitle mothers to (de facto) paid maternity leave around childbirth. …these entitlements are designed to protect infants and mothers around childbirth, to give both parents the necessary time to provide childcare during the early stages of life of a new-born, and ensure that fathers and mothers are financially supported during their time on leave… Across the OECD, statutory rights to paid maternity leave are provided with an average length of 18.5 weeks as of April 2022…, ranging from 43 weeks in Greece (the longest entitlement) to none in the United States – the only OECD member with no national provision of paid maternity leave.

Here is an accompanying chart showing the United States compared to other OECD nations (needless to say, the article never addresses the issue of whether Greece should be a role model).

To hammer home the point, the OECD article concludes with advice for governments.

One thing you may notice is that the OECD report, for all intents and purposes, only looks at supposed benefits and ignores very real costs.

That’s incredibly sloppy. Such policies have very substantial costs.

Here’s some of what Veronique de Rugy wrote a few years ago for Reason.

…calls are intensifying for the federal government to implement paid leave, which may unwittingly hurt those whom the program claims to help. …women would like to get paid to stay home after the birth of their children, yet that’s no more evidence of a market failure than is my not driving a Tesla, even though I’d like to drive one if it were free. This isn’t a reason for government to mandate paid leave (or Teslas) for all workers. …Because paid leave is costly, when firms provide this benefit, they change the composition of their employees’ total compensation by reducing the value of workers’ take-home pay to offset the cost of providing paid leave. While some workers prefer this mix in their pay packages, others don’t. In particular, mandated leave would be a hard trade-off for many lower-paid women who would prefer as much of their income as possible in the form of take-home pay. In fact, polls show that when women learn of the trade-offs inherent in any government-mandated paid-leave policy, their support for such a policy collapses.

As is always the case, Veronique is right. Paid parental leave is not a freebie. If politicians force employers to incur certain costs, workers will bear the burden.

P.S. Parental leave was one of many issues where Trump was in favor of big government rather than economic liberty.

P.P.S. I’m not surprised that OECD bureaucrats push statist policies. They get tax-free salaries (subsidized by American taxpayers!) and thus are insulated from the real-world impact of their dirigiste agenda.

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Big Business vs. Free Enterprise

I explained during a recent speech in Poland that I get very upset when big companies support policies that disproportionately harm small businesses.

By the way, I have no objection to big companies simply because they are big. Or merely because they sometimes earn a lot of profit.

But, as captured by my Eleventh Theorem of Government, I don’t like big business when it gets in bed with big government.

That’s a recipe for all sorts of bad policies, and also a major source of political corruption.

For purposes of today’s column, though, let’s consider how it is a recipe for reducing competition.

We can now quantify the damage, thanks to some new research by Professor Shikhar Singla, published by Goethe University in Frankfurt.

…the total economy-wide cost of regulations since 1970 has increased by almost 1 trillion dollars, which is roughly 5% of US GDP in 2018. …there has been a massive increase in regulation since the late 1990s. …an average small firm faces an average of $9,093 per employee in our sample period compared to $5,246 for a large firm. …We find that a 100% increase in regulatory costs leads to a 1.2%, 1.4% and 1.9% increase in the number of establishments, employees and wages, respectively, for large firms, whereas it leads to 1.4%, 1.5% and 1.6% decrease in the number of establishments, employees and wages, respectively for small firms… Results on employees and wages provide evidence that an increase in regulatory costs creates a competitive advantage for large firms. Large firms get larger and small firms get smaller. …The smaller the firm, the more competitively disadvantaged it gets… Fixed costs create a competitive disadvantage for small firms. …We find that large firms oppose regulations in general. But, they push for regulations which have an adverse impact on small firms. Hence, they are willing to incur a cost that creates a competitive advantage for them.

How much of a competitive advantage?

It’s become very significant this century, as shown by Figure 10 from the study.

Policy obviously veered in the wrong direction at the end of the Clinton Administration and then (unsurprisingly) stayed bad during the Bush, Obama, and Trump years.

And policy is staying bad during the Biden years.

The Wall Street Journal editorialized on this topic in 2021. Here are some excerpts.

…what’s really going on: Old-fashioned self-interest. …Take Amazon CEO Jeff Bezos’s endorsement of a higher corporate tax rate. …Mr. Bezos knows a higher rate would hurt Amazon much less than it would other companies. …Mr. Bezos can buy some political goodwill by providing cover to Democrats on taxes, while his company will benefit on the tax subsidy side of the ledger. Big businesses also know they can afford the higher costs of new regulation that smaller competitors cannot. That helps explain Big Oil’s embrace of methane emission rules in the Obama years that hurt independent frackers, as well as putting a price on carbon now. …Or consider the rush by Big Finance to endorse environmental, social and governance investing, or ESG. …BlackRock CEO Larry Fink is an enthusiast, and guess who will benefit if Biden Administration regulators set new requirements for ESG disclosure or investing? ESG lets BlackRock charge higher investment fees than it can charge for index funds that buy the entire market. …corporations look out first and foremost for their own interests, and that often means collaborating with government for narrow purposes that aren’t always in the public interest.

This is disgusting. And it’s not the first time Bezos and Amazon have tried to hurt small businesses.

In my fantasy world, we would have separation of business and state.

In the real world, I’ll be happy if we can simply block the left’s ESG agenda so that big companies will be forced to earn money in the market rather than steal money via politics.

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Another Bureaucratic Attack on Lifestyle Quality (and Freedom of Choice)

The nanny-state crowd in DC generates red tape with big macroeconomic costs. But also quality-of-life costs.

• Inferior light bulbs
• Substandard toilets
• Inadequate washing machines
• Dribbling showers
• Dysfunctional gas cans
• Crummy dishwashers

And it seems they never rest. After making one part of our life less convenient, they search for a new target.

Next on their list is an attack on gas stoves.

This is not because these appliances are exploding.

It’s not because they lead to fire hazards.

And it’s not because they leak gas and cause preventable deaths.

Instead, the bureaucrats imagine we might possibly be at risk of something, somehow.

I’m not joking. Here are some excerpts from a Wall Street Journal editorial about the latest assault on appliance freedom.

Coercion in the cause of banning fossil fuels is no vice for the Biden Administration… The Consumer Product Safety Commission (CPSC) could soon ban gas stoves. CPSC Commissioner Richard Trumka Jr. teased in an interview…that the agency plans to propose new regulations for gas stoves, which could include a ban. …Mr. Trumka isn’t worried that gas stoves might cause accidental burns—a hidden hazard for electric range-tops that stay hot long after they’re turned off. Instead, the agency’s purported concern is that gas stoves cause indoor air pollution and asthma, though there’s scant evidence to support such claims. …The real hazard isn’t gas stoves but how people use them. Not that this distinction matters to the CPSC, which has a long history of targeting products…because of accidents that are the fault of customers. In this case, Mr. Trumka wants to use indoor pollution as a pretext to advance the climate left’s goal of forcing all buildings to use electricity for everything.

In a column for National Review, Charles Cooke has a withering assessment of this hare-brained initiative.

One could advance any number of compelling arguments against the Biden administration’s reported desire to institute a nationwide ban on gas stoves. …yet to offer any of these objections would ultimately be counterproductive, insofar as it would signal an acceptance of the premise underlying the policy, which is that this is the sort of matter that a free people should expect their federal government to superintend. …That’s right. The correct response here is a rather simple one, all told: Go away. Leave us alone. Stick your ludicrous propositions where the sun don’t shine. …That is a private matter — a matter in which the powers that be ought to have no say. …most of the “science” that’s being sold by the Anti-Stove Brigade seems extremely thin to me, but, even if it weren’t, I still wouldn’t give a toss about it, because I’m an adult, and I’m aware that life is full of trade-offs. …Justifying the administration’s proposed move, CPSC commissioner Richard Trumka Jr. explained that “products that can’t be made safe can be banned.” What, I wonder, would be excluded from that definition?

Amen, especially to the point about letting adults take risks.

• Drinking can be risky, but that doesn’t mean we should have prohibition.
• Doing drugs can be risky, but that’s not an argument for the War on Drugs.
• Smoking can be risky, but that’s hardly a reason to impose a cigarette ban.
• Vaping can be risky, but it’s very misguided to restrict the freedom to vape.
• Consuming sugar can be risky, but politicians should not ban Big Gulps.

And there are lots of other activities that have produce risks of death and injury, such as scuba diving, hang gliding, skateboarding, etc.

In a free society, none of these things should be controlled by government bureaucrats.

P.S. Let’s not forget how some subnational governments are going after plastic straws.

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Applauding Governor Ducey of Arizona

Because politicians have built-in incentives to expand the size and scope of government, it is very rare to find elected officials who actually deliver more liberty.

Some of them will offer rhetoric, of course, but very few of them produce results.

That’s true nationally (with limited exceptions), and it’s true internationally (with limited exceptions).

And it’s almost certainly true at the state level.

Though I found an exception, and that is the topic of today’s column.

The outgoing governor of Arizona, Doug Ducey, deserves praise from libertarians and small-government conservatives.

George Will is especially impressed with Ducey’s education reforms (and I agree).

Here are some excerpts from his Washington Post column.

With two trenchant sentences, the nation’s most successful governor of the 21st century defines the significance of his signature achievement: “Fifty years ago, politicians stood in the schoolhouse door and wouldn’t let minorities in. Today, union-backed politicians stand in the schoolhouse door and won’t let minorities out.” Hence Gov. Doug Ducey’s Empowerment Scholarship Account program, which was enacted this year to provide universal school choice in grades K-12. Every Arizona family is eligible to receive about $7,000 per student per year to pay for private school tuition, home schooling, tutoring, textbooks, online courses, programs for special-needs pupils and more. …ESA was ferociously opposed by the teachers’ unions, whose confidence in the quality of their schools can be gauged by their fear of competition. A union attempt to repeal ESA by referendum failed to get enough signatures to qualify for the ballot, partly because of a group (Decline to Sign) in which, Ducey said here last week, Black leaders were disproportionately active.

The Wall Street Journal is impressed with his tax reform (and I agree).

Arizonans who fled California for sunnier tax climes can breathe easier after a court ruling that has saved the day from a punitive 8% top state tax rate. A state judge…struck down Arizona’s Proposition 208, which placed a 3.5% surtax on incomes above $250,000, or $500,000 for joint filers. …Nixing the surtax means Arizona will soon have a flat tax of 2.5% on individual incomes, the lowest flat rate among states with an income tax. Gov. Doug Ducey slashed the previous 4.5% top rate in his 2022 budget… Tax competition has helped Arizona draw residents and businesses from neighbors like California, but the surtax would have sent the Grand Canyon State down a Golden State path. The tax’s $250,000 income threshold made it a particular burden on small businesses that pay taxes under the individual code. The episode is a reminder of the value of constitutional guardrails on state taxes and spending. Arizona voters in 1980 placed limits on school spending through a ballot initiative, preventing unrestrained budget bloat.

In a column for National Affairs, James Glassman mentions school choice and the flat tax, but also a few of his other accomplishments.

Since Arizona’s governor is limited to eight years in office, Ducey’s second term — which ends in January — will be his last. This makes it an opportune time to consider Ducey’s legacy… This past January, Ducey told the state legislature, “[l]et’s think big and find more ways to get kids into the school of their parents’ choice…” In July, he did just that. The Empowerment Scholarship Account program — the most expansive school-choice program in America — is a pure choice-based system that provides $6,500 per student to any family that prefers an alternative to public schools. …When he entered office, he announced that he wanted the state’s personal income tax rate, which stood at 4.5%, to be “as close to zero as possible.” He started by indexing brackets to inflation, then chipped away at the rate with dozens of specific reductions. Finally, last year, he signed into law the largest tax cut in the state’s history, which will achieve a flat tax of 2.5% within three years. On regulatory policy, …he axed or modified more than 3,000 regulations. …he signed the first universal occupational-licensing law in the nation: Arizona now automatically recognizes occupational licenses issued by any other state. He also eliminated initial licensing fees for applicants from families making less than 200% of the federal poverty level.

Ducey’s licensing reform is especially impressive. For all intents and purposes, he adopted an approach based on “mutual recognition,” and that makes it much easier for people in other states to shift economic activity to Arizona.

P.S. George Will’s column also notes that Ducey is not a fan of Republicans who want to surrender to bigger government.

During a September speech at the Ronald Reagan Presidential Library in California, Ducey deplored the fact that “a dangerous strain of big-government activism has taken hold” in the Republican Party, and “for liberty’s sake we need to fight it with every fiber in our beings”.

Amen. Whether it is called national conservatism, compassionate conservatism, kinder-and-gentler conservatism, common-good capitalism, reform conservatism, or anything else, bigger government is bad news for ordinary citizens.

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Save Lives by Slapping Down the FDA’s War on Vaping

There are many reasons to have disdain for the Food and Drug Administration (pandemic failures, baby formula shortage, delayed drug approval, human cruelty, etc) and this video gives you another.

If you don’t want have time to watch the video, all you really need to know is that there is a lot of scientific evidence showing that vaping is far safer than smoking.

And “far safer” is an understatement.

So if the goal is reducing risk and helping people live longer, giving smokers the option of switching to e-cigarettes and other vaping products should be a no-brainer.

But an absence of brains seems to be a major qualification for some bureaucrats. The FDA is actually trying to criminalize vaping.

I’m not joking. In a column for Reason, Veronique de Rugy bluntly explains the horrific consequences.

There’s something terrifying about a government so powerful that it can shut down your business overnight without even bothering to offer substantive arguments. Yet that’s what U.S. Food and Drug Administration bureaucrats just did to the e-cigarette company Juul. …Most of the…victims will be cigarette smokers. …the FDA has ordered all Juul e-cigarette products off the market even though its own decision features this remarkable admission: “…the FDA has not received clinical information to suggest an immediate hazard associated with the use of the JUUL device or JUULpods.” In other words, neither Juul’s effectiveness in turning smokers away from more dangerous products nor its success at getting some smokers to quit altogether is, for the FDA, sufficient evidence of the product’s benefit to public health. …the FDA all but guarantees that smokers will smoke more cigarettes, turn to less-established products or even go to the black market to get their nicotine fixes. …The FDA’s war…will…likely claim hundreds of thousands of adults who continue to inhale tar from cigarettes thanks to the agency’s refusal to allow safer, but also appealing, alternatives.

There is a sliver of good news. A court has temporarily blocked the FDA’s deadly decision.

But it is unclear whether that will lead to a permanent victory for better policy.

So what’s the bottom line?

Proponents of a ban fixate on the risk that vaping can be a gateway to nicotine use. And maybe even a gateway for smoking. And they are especially concerned about teenagers getting hooked.

These are legitimate concerns. But cost-benefit analysis shows that those risks are outweighed by the risks of people consuming cigarettes when vaping is not an option.

Many years ago, I wrote at article for the Journal of Regulation and Social Cost to explain how many government policies are indirectly deadly. With its war against vaping, the government is being more direct.

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Baby Formula and Big Government

While I definitely criticized the Food and Drug Administration for its many mistakes during the pandemic, I only made passing reference to that bureaucracy when referencing the shortage of baby formula during the concluding portion of a recent program.

And even that mention was not negative.

I was vaguely aware that the FDA had temporarily shut down a factory in Michigan because of concerns about bacteria in formula. And even a curmudgeonly libertarian like me did not view that as being a bad thing.

So I basically assumed that the severe shortages depicted in this map were mostly the result of bad luck.

But I should have known that bad government policy also played a big role.

The above map comes from an article for Reason by Jonathan Alder. Here’s some of what he wrote.

…if you’re having a hard time finding infant formula, you can thank Uncle Sam. …a combination of arguably well-intentioned policies have combined to magnify the effects of the Abbott recall and prevent American consumers from having access to alternative supplies. These include tariffs and quotas on infant formula imports, Food and Drug Administration regulations, and other government policies that both constrain imports and reduce the incentive for foreign producers in countries like Canada to invest in production that could help serve the American market. …There are steps the government could take to ease the shortage, such as removing or temporarily suspending FDA rules that bar the importation of infant formula from countries. …Infant formula that is perfectly safe and that is produced in accordance with European standards that are at least as stringent as US health and safety requirements, cannot be imported because the FDA has not reviewed and approved what is printed on the package, which is a costly and time-consuming process for producers.

The Wall Street Journal opined on the topic as well.

By now you’ve heard that some 40% of the nation’s baby formula is out of stock… This should never happen in America. How did it? Here’s the government part of the story you won’t hear from the political class. …the market is so concentrated is tariffs up to 17.5% on imports, which protect domestic producers from foreign competition. Non-trade barriers such as FDA labeling and ingredient requirements also limit imports even during shortages. …the Trump Administration sought to protect domestic producers by imposing quotas and tariffs on Canadian imports in the USMCA trade deal. …America’s baby-formula shortage illustrates how bigger government can make big business bigger, thereby limiting competition and choice.

Jon Miltimore, writing for the Foundation for Economic Education, further criticized government policy in this area.

…the government itself is primarily responsible for the baby formula shortage. …the New York Times…reported in March 2021, “baby formula is one of the most tightly regulated food products in the US, with the Food and Drug Administration (FDA) dictating the nutrients and vitamins, and setting strict rules about how formula is produced, packaged, and labeled.” …many American parents buy “unapproved” European formula even though…it’s technically against the law. …On this black(ish) market, it turns out Americans are willing to pay big bucks for European formula. …At times, these nefarious black market imports have resulted in high profile busts, like in April 2021 when US Customs and Border Protection agents in Philadelphia seized 588 cases of baby formula (value: $30,000) that violated the FDA’s “import safety regulations.” Some may contend that the FDA is simply keeping Americans and their babies safe—which is no doubt what regulators want you to believe—but this overlooks an inconvenient fact: despite the FDA’s efforts, Americans are consuming vast amounts of black market baby formula, and the children are doing just fine.

Robby Soave also addressed the issue for Reason.

U.S. officials could have made such shortages less likely by approving baby formula that is widely available in Europe, but per usual, the Food and Drug Administration (FDA) has other priorities. The agency has a long history of taking forever—years and years and years—to approve foods and medications that European officials have already decided are perfectly safe for human consumption. …This is yet another in a long line of failures: Both the FDA and the Centers for Disease Control and Prevention (CDC) screwed up the early approval process for COVID-19 testing. …The FDA should really stop erecting regulatory hurdles that make it harder for working-class parents to feed their families.

I don’t know if the FDA has been over-zealous in closing the Abbott plant in Michigan, so I won’t comment on that issue.

But I do know that imposing trade taxes on imports of baby formula is a bad idea.

And I know it’s also a bad idea to deny Americans the freedom to buy European-produced baby formula, especially since FDA bureaucrats simply don’t like certain labels.

Indeed, I’ll close by making the key point that we should have “mutual recognition” policies with other advanced nations. In other words, we should start with the default assumption that consumers have the right to buy goods from countries such as Japan, Netherlands, Australia, and the United Kingdom.

This type of “good globalism” should be part of well-designed free-trade agreements with peer countries.

P.S. Mutual recognition also allows for regulatory diversity, which reduces systemic risk.

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The Failure of Bidenomics, Part VI

Having addressed Biden’s track record on subsidies, inflation, protectionism, household income, and fiscal policy, let’s finish our series by reviewing the president’s record on regulatory issues.

The first place to start is the Federal Register, which is Uncle Sam’s official site for new rules.

Though it gives us conflicting information. The number of pages (a crude measure of regulatory zeal, as I noted a few years ago) actually decreased during Biden’s first year. But only compared to Trump’s last year.

To understand what’s really going on, let’s look at the Forbes article from which the above table was taken.

Clyde Wayne Crews of the Competitive Enterprise Institute sifts through the data and concludes that Biden is a fan of expanded red tape.

The Federal Register is the daily depository of rules and regulations produced by hundreds of federal departments and agencies. …Under Biden, the regulatory establishment has its Hall Pass back, and it shows. The Federal Register page count ended the year with 74,532 pages. …The 2020 count under Trump was far higher, at 86,356. There had been “only” 61,308 pages back in Trump’s first year of 2017, which had been the lowest count in a quarter-century… Trump’s first year represented a 35 percent drop… But Trump’s final year made him number two… How come? Well, …removing rules that ought not have been written in the first place still requires writing new rules to do it. …So, paradoxically, any concerted Trump moves on “one-in, two-out” in service of deregulating and removing that which came decades before required fattening the Register to some extent. …Despite Biden’s lower Federal Register page count, we’re nonetheless back in the mode of not just unapologetically but combatively fattening the Federal Register. …several hundred of Trumps rules had been deemed “deregulatory” for purposes of his one-in, two-out program… Biden’s revivalist counts are embedded with no such purpose… Trump definitely left a mark. Biden is working on erasing it.

Incidentally, I don’t think regulatory experts from the left would disagree with the above assessment.

For instance, Brookings has a regulatory tracker that monitors what’s been happening since Biden took office and you will not find any evidence that the current administration is interested in limiting or reducing red tape.

Let’s wrap up by looking at a specific example of Biden’s regulatory excess. It’s about domestic energy production, which is a very timely issue given what is happening in Ukraine.

Ben Cahill of the Center for Strategic and International Studies summarized some of what Biden did to hinder America’s ability to produce energy.

President Joe Biden has followed through on a campaign pledge by introducing a moratorium on new oil and gas leasing on federal lands and waters. With nearly 25 percent of U.S. oil and gas production coming from federal lands, the policy shift may have significant implications for future investment and production. …This pause will not affect existing operations or permits for existing leases, and private lands will not be affected. …A more permanent leasing ban would have a significant impact, although visible offshore production declines may not materialize for up to 10 years, given the typical timeframe for planning, exploration, appraisal, and development. Onshore production declines could conceivably show up faster.

As you can see, the main damage is to future energy production rather than current energy production.

Needless to say, the same is true about the Biden Administration’s limitations on energy exploration and development in Alaska.

And don’t forget about pipelines (and geopolitics!), as mentioned in this column by Kevin Williamson for National Review.

The Biden administration already is reaching out to Caracas, where officials describe the initial conversation as “cordial” and “respectful.” I’ll bet it is. And Maduro’s isn’t the only tyrannical tuchus that requires kissing: President Joe Biden is said to be planning a personal trip to Riyadh to beg Crown Prince Mohammed bin Salman to ramp up Saudi production. …Right about now, President Biden must be wishing he had an extra pipeline to Canada. The thought has occurred to Alberta premier Jason Kenney, who observes about Keystone XL: “If President Biden had not vetoed that project, it would be done later this year — 840,000 barrels of democratic energy that could have displaced the 600,000 plus barrels of Russian conflict oil that’s filled with the blood of Ukrainians.” …We could spare ourselves some of these calculations by maximizing our own output — not only of crude oil and natural gas but also of refined-petroleum products. That would also mean building the necessary pipeline infrastructure and reforming our antiquated maritime regulations to enable the transportation of those fuels.

The bottom line is that the Biden Administration wants more regulation and red tape.

That has adverse consequences for economic dynamism and growth.

Especially when bureaucrats at the regulatory agencies ignore cost-benefit analysis (or put their thumbs on the scale to get a result that matches their ideological preferences).

And, in the case of energy, regulatory policy can have significant geopolitical implications as well.

P.S. You can click here to learn something about Obama’s record on the issue, and click here to learn a bit about Trump’s track record as well.

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Jimmy Carter’s Stellar Record on Transportation Deregulation

While specific examples can be very complex, the economic analysis of regulation is, at least in theory, quite simple.

Rules and red tape impose burdens that hinder economic activity, and this leads to higher costs for businesses and consumers.

These higher costs may be justified in some cases. That’s why it’s important to have high-quality cost-benefit analysis.

But in many cases, such analysis will show that regulation doesn’t make sense.

Fortunately, some presidents have understood that too much regulation is bad for prosperity.

Consider, for instance, the excellent track record of Jimmy Carter. We’ll start with an article by Norm Singleton for RealClearMarkets.

…deregulation was a major part of Carter’s economic agenda and one of the greatest aspects of his legacy.  It’s something that Carter and Reagan had in common, not something that set them apart. Carter—and other leading progressives at the time such as Ralph Nader—understood…Regulation frequently, if not always, benefits big businesses…at the expense of small businesses and most importantly, consumers. …the Civil Aeronautics Board (CAB), set airline routes, flight, schedules, and even prices. The result was 10 airlines enjoyed a de facto government-protected 90% of the air travel market: a monopoly with extra steps. This supposedly “pro-consumer” regulatory system made flying unaffordable for many Americans. Consequently, Carter signed the Airline Deregulation Act of 1978, ending the CAB’s power to control air travel. The result was new airlines entering the market offering lower prices and expanded routes. …Carter also pushed Congress to deregulate trucking and railroads.

Here are some details on the benefits of trucking deregulation, from a study by Andrew Crain published in the Journal on Telecommunication and High Tech Law.

The ICC was given jurisdiction over trucking companies and prevented competitive entry by rarely granting new trucking permits. The development of efficient trucks should have been a great boon to shippers. …ICC regulations, however, prevented truckers from offering those benefits to consumers. Trucking companies were forced to travel set routes at set prices. …During his presidential campaign, Carter promised to pursue deregulation. …Carter was good to his word. In 1979, he appointed three deregulation proponents to the ICC, Darius B. Gaskins, Marcus Alexis and Thomas Trantum. …In July 1980, Carter signed the Motor Carrier Act, which lifted most restrictions on entry, on the goods truckers could carry, and on the routes they could travel. …Rates fell, and trucking companies multiplied.

Jeremy Lott discusses Carter’s achievement on rail deregulation in a piece for the Washington Examiner.

The same regulatory regime had been in place since the Interstate Commerce Act of 1887, which regulated railroads…with price controls and mandates…. The elected official who took the lead on changing things is the person for whom the Staggers Act is named, Democratic Rep. Harley Staggers of West Virginia, then the chairman of the House Interstate and Foreign Commerce Committee. “The good thing about the Staggers Act is that it eliminated or greatly reduced federal regulation over most railroad operations that had been slowly killing the industry over decades. Freight railroads on life support were freed from rigid price controls and service mandates and quickly began to rebound, became profitable again, and U.S. freight railroads are once again the top-performing freight rail system in the world,” Marc Scribner…told the Washington Examiner. …”Over the past 40 years, rail traffic has doubled … rail rates are down more than 40% when adjusted for inflation … and recent years have been the safest on record,” the AAR said. 

And Ian Jefferies of the Association of American Railroads, in a column for the Wall Street Journal, explained how the industry has improved with less red tape.

…there was a time when both parties could agree on the benefit of…regulatory reform. The bipartisan Staggers Rail Act of 1980, passed by a Democratic Congress and signed by President Jimmy Carter, deregulated the freight railroad industry. …Previously, railroad rates and service were set by government, and carriers were often forced to provide service on lines lacking commercial viability. …The impact on railroads was predictable and disastrous. At one point, 1 in 5 rail miles was serviced by bankrupt railroads. …deregulation was chosen over nationalization, which would have cost taxpayers billions of dollars. …the Staggers Act not only improved service along the mainline network; it helped give birth to a short-line rail industry that today operates 50,000 miles of the 140,000-mile network that spans across the United States. …Since 1980, freight railroads have poured more than $710 billion of their own funds back into their operations. Average rail rates are 43% lower today than in 1981 when adjusted for inflation. This translates into at least $10 billion in annual savings for U.S. consumers.

Michael Derchin’s column in the Wall Street Journal notes how a retiring Supreme Court Justice played a key role in deregulating air travel.

Justice Breyer, who joined the Supreme Court in 1994 and plans to retire this summer, has cited his research for the Airline Deregulation Act as among his best and most significant work. …The late Sen. Edward M. Kennedy reached out to Mr. Breyer in 1975. Kennedy…saw deregulation as key to increasing competition and making air travel more affordable. Mr. Breyer, then a professor at Harvard Law School, worked with Kennedy… The Airline Deregulation Act of 1978 passed with bipartisan support and created a free market in the commercial airline industry. Government control of fares, routes and market entry for airlines was removed, and the Civil Aeronautics Board’s regulatory powers were phased out. …Since deregulation, average domestic round-trip real airfares have plunged about 60%, to $302 from $695. Load factors—the percentage of seats filled on each flight—stood at 84% just before the pandemic, compared with 55% before deregulation. In the early 1970s, 49% of U.S. adults had flown. In 2020 the share was 87%.

Here’s a chart showing how consumers have been big winners.

So what’s the bottom line?

As Phil Gramm and Mike Solon explained last year in the Wall Street Journal, the United States is still enjoying the fruits of Jimmy Carter’s deregulatory achievements.

Far from hurting consumers, as progressive myth alleges, deregulation of the U.S. transportation system unleashed a wave of invention and innovation that reduced logistical transportation cost—the cost of moving goods as a percentage of gross domestic product—by an astonishing 50% over 40 years. Airline fares were cut in half on a per mile basis, while air cargo surged from 5.4% of all shipments to 14.5% by 2012… In this Carter-Kennedy led reform, the duty of government was to protect the consumer from harm, not to protect the producer from competition. Without the productive energy released by deregulating airlines, trucking, railroads…, the U.S. might not have found its competitive legs as its postwar dominance in manufacturing ended in the late 1970s. The benefits of deregulation to this day continue to make possible powerful innovations that remake the world.

That’s the good news.

The bad news is that Joe Biden is hardly another Jimmy Carter.

P.S. Daniel Bier, in a column for the Foundation for Economic Education, points out that Carter even deserves credit for deregulating the beer market.

Carter’s most lasting legacy is as the Great Deregulator. Carter deregulated oil, trucking, railroads, airlines, and beer. …In 1978, the USA had just 44 domestic breweries. After deregulation, creativity and innovation flourished in the above-ground economy. Today, there are 1,400 American breweries. And home brewing for personal consumption is also now legal.

If you want to know more about beer deregulation, click here. If you want to know who makes a lot of money from beer sales, click here.

P.P.S. Jimmy Carter didn’t have a good record on fiscal issues, but he was more frugal than almost every Republican president over the past six decades (with Reagan being the obvious exception).

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America’s Most Libertarian State Is…

When I wrote about the 2018 edition of Freedom in the 50 States, Florida ranked as the nation’s most libertarian state.

In the 2021 version, New Hampshire takes the top spot (reclaiming the lead it had back in 2016).

Here’s a map showing the 10 best and 10 worst states. One obvious takeaway is that New Hampshire deserves extra praise because it is in a region where there seems to be a general disdain for economic and personal liberty.

And here’s a table showing how all the states rank.

As you can see, Florida is still a very good state.

Indeed, Florida is getting better over time. All that happened in the new edition of Freedom in the 50 States is that New Hampshire got better even faster.

This seems to be a pattern.

You can see from Figure 9 that the best states have been getting better over the past 10 years while the worst states are stagnating.

If you want some background on the publication, here’s how the authors (Will Ruger and Jason Sorens) describe their index.

…the 2021 edition examines state and local government intervention across a wide range of policy categories—from taxation to debt, from eminent domain laws to occupational licensing, and from drug policy to educational choice. …We…strive to make it the most comprehensive and definitive source for economic freedom data on the American states. …Although the United States has made great strides toward respecting each individual’s rights regardless of race, sex, age, or sexual preference, some individuals face growing threats to their interests in some jurisdictions. Those facing more limits today include smokers, builders and buyers of affordable housing, aspiring professionals wanting to ply a trade without paying onerous examination and education costs, and less-skilled workers priced out of the market by minimum-wage laws. Moreover, although the rights of some have increased significantly in certain areas, for the average American, freedom has declined generally because of federal policy that includes encroachment on policies that states controlled 20 years ago.

For more information, here’s how the states rank for economic freedom.

And here are the rankings for personal freedom.

Let’s look at the some other tables.

Since I’m most interested in fiscal policy, I’m reflexively drawn to Table 7. Kudos to Florida, Tennessee, New Hampshire, and South Dakota (the absence of a state income tax really helps). And I’m surprised to see Massachusetts in the top 10 (it helps to a have a flat tax).

For what it’s worth, Hawaii really stinks. And I’m not surprised to see New York next to last.

Here’s a look at how states have changed since 2000.

No big surprises, though it’s interesting to note that North Dakota (which was ranked #1 back in 2013) has suffered a relative decline (now ranked #15) simply because its improvement has been rather modest compared to the big improvements in other states.

P.S. For those interested in methodological issues, here’s a look at the formula used to determine which states have the most freedom and least freedom.

P.P.S. If you look at the weighting for personal freedom, you’ll find that educational freedom is 2 percent of a state’s score. Given the importance of school choice (for both individual education outcomes and national economic competitiveness), I wonder if that variable is insufficiently appreciated.

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Net Neutrality and a Lesson about Regulation

If you’re a policy wonk, you’ll enjoy this history of how government regulation has hindered the development of telecommunications technology.

I want to focus on the part of the video, beginning about 30:00, which discusses “net neutrality.” The interview with Professor Hazlett took place in 2017, at a time when there was lots of fighting over this issue.

The pro-regulation crowd claimed that net neutrality was needed to protect consumers from slow and expensive service. And they made all sorts of ridiculous claims about the Trump Administration’s plans to get rid of the Obama-era regulation.

At the time, this tweet from the Democratic members of the U.S. Senate got a lot of attention.

So what actually happened after net neutrality was repealed?

I suppose the first question to answer is:

Did..

…the…

…Internet…

…slow…

…to…

…a…

…crawl?

Not exactly. Robby Soave gives us the details in a column for Reason. He starts with some background information.

Exactly four years ago, the Federal Communications Commission (FCC) repealed the internet regulation known as net neutrality, which had forced internet service providers (ISPs) to treat all content identically in terms of download and streaming speeds, for instance. Since the popular policy had come into existence during the Obama administration, and was gutted during President Donald Trump’s term, its demise was treated as the end of the internet as we know it by panic-stricken #resistance liberals. …The term net neutrality was coined by law professor Tim Wu in 2006; his big idea was that the government needed the power to restrict ISPs’ ability to offer different levels of service to different customers. …Wu cautioned that without rules requiring internet service providers to treat all traffic and content equally, the internet as we had come to know it would cease to exist.”

And here are the results.

Today, the internet is still here, and still functioning properly. Expectations that ISPs would practice widespread and improper discrimination did not pan out. On the contrary, the internet is better and faster for basically everybody than it was when net neutrality ended—in fact, it’s better and faster than at any point in the past. …Foes of net neutrality were clearly correct that the internet didn’t need the government to save it, and absent federal direction and regulation, everything is fine.

The moral of the story is that we experienced a major test of regulation vs. deregulation. And we’ve learned that the advocates of red tape were wildly wrong and the supporters of free enterprise were exactly right.

That’s a lesson we can apply to all sorts of other issues involving government intervention (housing subsidies, financial markets, fisheries, organ transplants, labor markets, etc, etc).

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So-Called Employment Protection Legislation Is Bad for Workers

Tax issues such as depreciation, net operating losses, worldwide taxation, and carry forwards probably set the record for inducing boredom, but I suspect most people also have little interest in a workforce issue known as “employment protection.”

But they should.

Job creation and wage levels can be adversely affected when politicians impose laws and regulations that sound nice, but have the unintended consequence of increasing the cost of employing people.

The good news is that this is an area where the United States gets a high score.

As shown in the chart, America is behind only Denmark in having a deregulated market for matters such as hiring, firing, and compensation.

Today, we’re going to examine some research about the impact of government intervention in labor markets.

Here are some excerpts from a new working paper for the European Central Bank, authored by Gerhard Rünstler, that looks at the impact of labor market deregulation in eurozone nations over the past 20-plus years.

This paper uses a narrative panel VAR to estimate the macro-economic effects of reforms in the euro area in between 1998 Q1 and 2018 Q4. …The narrative VAR finds that unemployment benefit reforms lead to a relatively quick increase in employment and a moderate decline in the real wage. In the medium term, the effect on employment remains, while real compensation reverts back to baseline. The responses to reforms of regular contract EPL are similar, but the response of employment builds up gradually and reaches its full scale only after about six years. …the effects of EPL reforms depend on the state of the business cycle: in states of low growth the response of real activity and employment is more delayed. Some of the reforms had sizeable medium-term effects. In particular, the German Hartz reforms and EPL reforms in Portugal after 2007 altogether raised GDP and employment by above 2% in these countries. Reforms in the Netherlands, Italy, and Spain had smaller but still significant effects.

Here are some of the statistical estimates from the study, starting with a look at relaxing employment protection legislation.

Output and employment increase, which is good news, but the most important finding is an increase in long-run compensation.

Here’s a look at what happens if the law is changed to reduce subsidies for joblessness.

Unsurprisingly, there’s more output and more employment (a lesson we’ve learned in the United States).

I’ll include one final graphic from the study.

Figure 5 shows that the benefits may be larger, or materialize more quickly, depending on the economy’s underlying health.

The bottom line is that it is always a good idea to reduce government intervention in labor markets. If you want more jobs and higher pay, deregulate when the economy is weak and deregulate when the economy is strong.

By the way, the European Central Bank is not the only international organization to reach this conclusion.

I also want to share some passages from last year’s Doing Business report from the World Bank.

…firms should…be free to conduct their business in the most efficient way possible. When labor regulation is too cumbersome for the private sector, economies experience higher unemployment—most pronounced among youth and female workers. …Flexible labor regulation provides workers with the opportunity to choose their jobs and working hours more freely, which in turn increases labor force participation. …For example, if France were to attain the same degree of labor market flexibility as the United States, its employment rate would rise by 1.6 percentage points, or 14% of the employment gap between the two countries. When Sweden increased labor market flexibility, by giving firms with fewer than 11 employees the freedom to exempt two workers from their priority list, labor productivity in small firms increased 2–3% more than it did at larger firms. …Many high- and upper-middle-income economies, including Denmark…and the United States, have flexible labor regulation. In other advanced economies, including Luxembourg, Slovenia, and Spain, strict labor rules make the process of hiring employees arduous. Research shows that strict employment protection legislation shapes firms’ incentives to enter and exit the economy, which in turn has implications for job creation and economic growth. …When faced with rigid employment protection laws, firms lose the freedom to conduct business efficiently. …A firm’s ability to adjust to shocks is adversely affected by rigid labor regulation. Moreover, firms invest less in new product creation in such an environment.

The moral of the story is that when politicians impose laws to “protect” workers, they’re actually making it less likely that businesses will hire workers.

P.S. This cartoon aptly captures what happens when well-intentioned people expand government (by the way, most politicians are not well-intentioned).

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Defend Vaping, Save Lives

Competent and honest people in the world of public policy understand that decisions have costs and benefits.

Simply stated, there is no such thing as a free lunch, though politicians like to pretend otherwise (to cite an especially absurd example, the Biden Administration is actually claiming that a multi-trillion dollar expansion of the welfare state has “zero cost”).

One of the more perverse examples of free-lunch thinking is the campaign in Washington against the use of electronic cigarettes (usually referred to as vaping).

Rational and sensible people understand that vaping has big benefits (regular cigarettes are a far more dangerous way of enjoying nicotine), while also recognizing potential costs (some people who would not become smokers might choose to vape).

Sadly, both politicians and bureaucrats myopically fixate on the potential costs while paying little or no attention to the tangible benefits.

Regarding politicians, Alan Viard of the American Enterprise Institute criticizes Democrats in the House of Representatives for pushing a tax on vaping.

The proposal would apply the federal tobacco tax to e-cigarettes for the first time. (The tobacco tax rate would also be doubled). Under the proposal, e-cigarettes would be taxed based on their nicotine content. Linking the tax to nicotine is misplaced… As Satel has commented, “The virtue of vaping is that it uncouples deadly smoke from nicotine, which, contrary to common impression, has no appreciable role in causing cancer.” …e-cigarettes offer a life-saving alternative to cigarettes, enabling smokers to more easily quit their deadly habit. …two academic research studies…found that e-cigarette taxes have increased cigarette smoking. Another recent study, which was funded by the National Institutes of Health, similarly found that “higher e-cigarette tax rates increase traditional cigarette use.” …Taxes should reduce smoking, not increase it. E-cigarette taxes pose a threat to public health.

Regarding bureaucrats, Jacob Sullum explains for Reason that the notoriously incompetent Food and Drug Administration is strangling the e-cigarette industry with red tape.

Electronic cigarettes, which deliver nicotine without tobacco or combustion, are the most important harm-reducing alternative to smoking ever developed, one that could prevent millions of premature deaths in the United States alone. Yet bureaucrats and politicians seem determined to negate that historic opportunity through regulations and taxes that threaten to cripple the industry. …the Food and Drug Administration (FDA)…says…every vaping device and nicotine liquid sold in the U.S. is “marketed unlawfully” and “subject to enforcement action at the FDA’s discretion.” …it is not enough for a manufacturer to show its products are far less hazardous than conventional cigarettes. Nor is it enough to show that nontobacco flavors are enormously popular among former smokers, because the FDA might still conclude, however implausibly, that the risk of underage consumption outweighs the welfare of smokers interested in making the potentially lifesaving switch to vaping. …The folly of the obsession with preventing underage vaping was apparent in San Francisco, where a ban on flavored ENDS seems to have boosted smoking by teenagers and young adults.

By the way, this is a global issue.

As you might predict, the notoriously incompetent World Health Organization is on the wrong side.

In a column for CapX, Mark Oates explains how that bureaucracy needs to be slapped down.

The World Health Organisation has once again defied scientific advice by baldly stating that ‘E-cigarettes are not proven cessation aids’. The WHO’s stance flies in the face of all the available evidence. …with around 7 million people dying every year due to smoking-related illnesses, getting policy right in this area could have a huge impact. …we appear to be fighting a losing battle against an international consensus to over-regulate or even ban vaping products which are proven to be the most successful and popular quitting aids available.

And some nations are imposing anti-science policies.

In a column for the Sydney Morning Herald, Alex Wodak and Colin Mendelsohn explain that Australia is about to make a big mistake.

Every year, 21,000 Australians die prematurely from smoking cigarettes. That is more deaths than from alcohol, plus prescription drugs, plus illicit drugs, plus road crash deaths, plus HIV, plus suicide. Governments have moral and health obligations to reduce smoking-related deaths by adopting policies that minimise the harm caused by the inhalation of tobacco smoke. …Currently Australians can import nicotine liquid for vaping from overseas or purchase it from a small number of participating pharmacies… From October 1, importation of nicotine liquid will be closely monitored by the Australian Border Force. …the problem is that in Australia, nicotine for vaping is treated as a medicine regulated by the Therapeutic Goods Administration, or TGA. The TGA includes nicotine liquid for vaping in the Poisons Standard while explicitly excluding cigarettes. The net effect is that a much less dangerous way of consuming nicotine is highly restricted while cigarettes, responsible for the deaths of up to two of every three long-term smokers, are readily available from 20,000 outlets.

I’ll close by reiterating that vaping should be defended because it saves lives.

From a cost-benefit perspective, people who want nicotine definitely should vape rather than smoke.

But I also can’t resist making a liberty argument.

Even if vaping was dangerous, it should still be legal. Adults should be free to make choices about the risks they incur.

That means they should be allowed to engage in all sorts of risky behaviors, such as parachuting, eating unhealthy food, hang gliding, smoking, and scuba diving.

And they also should be free to engage in not-so-risky behaviors, such as vaping.

P.S. The vaping tax is a blatant violation of Biden’s promise not to impose taxes on people making less than $400,000 per year, though I imagine nobody is surprised that he was lying (a bipartisan problem in Washington).

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Thomas Sowell, Cost-Benefit Analysis, and the Limits of Regulation

Thomas Sowell is a great economist, but his expertise extends to other fields of study. Everything from history to education.

But he’s also famous for being a great communicator, with dozens of well-known quotes.

I use one of them on my rotating banner because it succinctly summarizes why the left has to rely on emotional appeals rather than rigorous evidence.

For purposes of today’s column, I want to cite one of his other quotes, this one dealing with the fact that tradeoffs are an inevitable reality.

Simply stated, if you want more of one thing, you have to accept less of another thing.

And this has important implications for regulatory policy – especially about the value of cost-benefit analysis.

Let’s look at two examples.

First, here’s the abstract from a study by Jordan Nickerson from MIT and David Solomon from Boston College.

Since 1977, U.S. states have passed laws steadily raising the age for which a child must ride in a car safety seat. These laws significantly raise the cost of having a third child, as many regular–sized cars cannot fit three child seats in the back. Using census data and state–year variation in laws, we estimate that when women have two children of ages requiring mandated car seats,they have a lower annual probability of giving birth by 0.73 percentage points. Consistent with a causal channel, this effect is limited to third child births, is concentrated in households with access to a car, and is larger when a male is present (when both front seats are likely to be occupied). We estimate that these laws prevented only 57 car crash fatalities of children nationwide in 2017. Simultaneously, they led to a permanent reduction of approximately 8,000 births in the same year, and 145,000 fewer births since 1980, with 90% of this decline being since 2000.

This raises all sorts of challenging questions, such as what’s the value of a life saved compared to the value of lives that might have existed (a philosopher might have a different answer than an actuary at the Social Security Administration!).

And let’s not forget that you seemingly could save more lives if there were mandatory 5-mph speed limits, but that policy also has tradeoffs that could produce more deaths elsewhere.

For what it’s worth, I think parents should get to decide whether they need a car seat for a 7-year old (and thus have more children), but I’m not going to pretend there are no negative consequences.

Let’s look at another example.

In a post for Marginal Revolution, Prof. Alex Tabarrok of George Mason University points out that you can save lives in India by selling cars with abysmally low safety ratings.

These cars are very inexpensive. A Renault Kwid, for example, can be had for under $4000. In the Indian market these cars are competing against motorcycles. Only 6 percent of Indian households own a car but 47% own a motorcycle. Overall, there are more than five times as many motorcycles as cars in India. Motorcycles are also much more dangerous than cars. …The GNCAP worries that some Indian cars don’t have airbags but forgets that no Indian motorcycles have airbags. Even a zero-star car is much safer than a motorcycle. Air bags cost about $200-$400…and are not terribly effective. (Levitt and Porter, for example, calculated that air bags saved 550 lives in 1997 compared to 15,000 lives saved by seatbelts.) At $250, airbags would increase the cost of a $5,000 car by 5%. A higher price for automobiles would reduce the number of relatively safe automobiles and increase the number of relatively dangerous motorcycles and thus an air bag requirement could result in more traffic fatalities.

Unlike the issue of car seats for kids, there’s no moral ambiguity on this topic.

Indians should be allowed to buy “unsafe” cars because there will be far fewer fatalities and serious injuries.

By the way, cost-benefit analysis is not a panacea. Benjamin Zycher of the American Enterprise Institute wrote a few years ago that such analysis can be counterproductive if you have a biased and ideologically driven bureaucracy such as the Environmental Protection Agency.

But even halfway competent and fair cost-benefit analysis would be very helpful in the world of public policy.

• It would tell us that it makes no sense to raise tax rates to the point where governments collect little or no revenue.
• It would tell us that the negative effects of drug prohibition are likely greater than the negative effects of legalization.
• It would tell us anti-money laundering policies are far more likely to hurt poor people rather than to catch criminals.

Then again, politicians and bureaucrats probably have incentives to not produce that kind of information..

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America’s Labor Laws Are (Relatively Speaking) Great for Workers

In my fantasy country of Libertaria, there is no Department of Labor, no regulation of employment contracts between consenting adults, and no favoritism for either labor or management.

In the real world, the relevant question is the degree of regulation and intervention. Especially compared to other nations, which is why the the Employment Flexibility Index is a useful measuring stick.

The Employment Flexibility Index is a quantitative comparison of regulatory policies on employment regulation in EU and OECD countries. …Higher values of the Employment Flexibility Index reflect more flexible labor regulations.

The good news, for American workers and American companies, is that the United States has the second-best system among developed nations, trailing only Denmark (another reason why pro-market people should appreciate that Scandinavian nation).

It’s hardly a surprise that France is in last place, notwithstanding President Macron’s attempt to push policy in the right direction.

It’s worth noting that the United States has much less regulation of labor markets than the average European nation. Which may help to explain why American living standards are so much higher.

Let’s review some academic research on the issue of employment regulation.

In an article for the Harvard Journal of Law & Public Policy, Professor Gail Heriot of the University of San Diego Law School explains how regulations discourage job creation and also may encourage discrimination.

… there’s a demographic out there that we ought to be worrying about, it is young people, the perennial newcomers to the economy. Well-meaning employment laws primarily benefit those who already have jobs, often at the expense of those who do not. …For low-skilled young people trying to get their first jobs, the most immediate threat may be the steep minimum wage hikes adopted recently in various cities.…young people even with great educational credentials are unknown quantities to employers and, hence, risky to hire, especially in a legal environment in which employee terminations can lead to costly legal disputes. …he best way for employers to avoid being wrongly accused of a Title VII violation is to avoid hiring someone who could turn out to be litigious if things do not work out. That creates a perverse incentive to avoid hiring the first African American or the first woman in a particular business or department. …A law that was intended to end discrimination in hiring, thus, ends up encouraging it instead.

In a Cambridge University working paper, Maarten de Ridder and Damjan Pfajfar found that wage rigidities, which are driven in part by red tape, are correlated with greater levels of economic damage when there is an adverse policy shock.

We find considerable variation in downward nominal wage rigidities across states and over time. Our estimates of nominal rigidities are positively related to state minimum wages, unionization,union bargaining power, and the size of services and government in employment and negatively to labor mobility. …We therefore focus on nominal wage rigidities when assessing the transmission of policy shocks. We find that states with greater downward nominal wage rigidities experience larger and more persistent increases in unemployment and declines in output after monetary policy shocks. …Similar results also hold for exogenous changes in taxes… States with higher nominal rigidities experience larger increases in unemployment and declines in output after a tax increase compared to states that are more flexible. We further show that institutional factors that could drive wage rigidities—like minimum wages and right-to-work-legislation—have a similar effect. States with a higher minimum to median wage ratio and those without right-to-work legislation experience larger and more persistent effects of monetary and tax policy shocks. Combined, these results firmly corroborate the hypothesis that resistance to wage cuts deepens policy shocks.

And in an article for Regulation, Warren Meyer explains that red tape and intervention is particularly bad news for unskilled workers.

The government makes it too difficult, in far too many ways, to try to make a living employing unskilled workers. …In the 1950s, 1960s, and 1970s, there was a wave of successful large businesses built on unskilled labor (e.g., ServiceMaster, Walmart, McDonalds). Today, investment capital and innovation attention is all going to companies that create large revenues per employee with workers who have college educations and advanced skills. …the mass of government labor regulation is making it harder and harder to create profitable business models that employ unskilled labor. For those without the interest or ability to get a college degree, the avoidance of the unskilled by employers is undermining those workers’ bridge to future success

Let’s close by looking at a chart from a 2018 presentation by Martin Agerup.

He shows that red tape doesn’t even provide meaningful job security for those who are already employed.

The bottom line is that so-called employment protection legislation is very bad news for those who are looking for jobs while offering no measurable benefit for those who have jobs (especially if we compare living standards across nations).

If we want more jobs, the best prescription is less government.

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Government Intervention and Unintended Consequences

Most people say the key feature of capitalism is competition. Hard to argue with that characterization, but I would go one step further and say that it is one of the consequences of competition – “creative destruction” – that best captures why free markets make it possible for entrepreneurs to deliver mass prosperity.

But what’s the key feature of government? Is it waste? Dependency? Corruption?

Those are all good answers, but perhaps “unintended consequences” should be first on the list. Courtesy of Reason, here are three examples.

I’ve previously written about both ethanol subsidies and so-called employment protection legislation, two of the three examples were already familiar to me.

I wasn’t aware, however, that businesses resorted to big concrete edifices to get around Vermont’s billboard ban (though I have read, in a classic case of baptists and bootleggers, that big companies such as hotel chains sometimes try to thwart competition from small businesses by teaming up with environmentalists to ban billboards).

In the world of fiscal policy, there are many example of unintended consequences.

• Unemployment benefits producing more unemployment.
• Trying to penalize the rich, but hurting lower-income people.
• Raising tax rates but lowering tax revenue collections.

I’ll conclude by asking an open question: Can anyone give an example of a positive unintended consequence of government?

This isn’t a joke query. I assume there are a few examples, even if I can’t think of any of them.

P.S. Here’s a humorous example of an unintended consequence.

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Everything You Need to Know about Bad Government in California

California is a fascinating state for people who follow public policy. It has some immense advantages, such as climate, coastline, and natural resources.

But it also has high taxes, absurd regulations, a bloated bureaucracy, and a costly welfare state.

The net result of all these factors is mixed. There are some sectors that are still thriving, such as high tech, but there’s also evidence that the Golden State is losing ground.

And the comparative data will probably get worse over time because many taxpayers and businesses are now fleeing to lower-tax states.

Since I specialize in public finance, I’m tempted to say bad fiscal policy is California’s biggest problem. And that may actually be the case.

But if someone asks me for an example of what’s wrong with the Golden State, I’m going to direct them to this story in the Los Angeles Times.

The California Legislature on Monday approved a $100-million plan to bolster California’s legal marijuana industry, which continues to struggle to compete with the large illicit pot market nearly five years after voters approved sales for recreational use. …State officials initially expected to license as many as 6,000 cannabis shops in the first few years, but permits have been issued only for 1,086 retail and delivery firms. In 2019, industry officials estimated there were nearly three times as many unlicensed businesses as ones with state permits. …The $100 million would go to local agencies with the most provisional licenses for growing, manufacturing, distribution, testing and retail operations. Some of the money can be used by cities offering equity funding to cannabis businesses owned by people of color.

Yes, you read correctly.

The state did a smart thing (removing legal prohibitions on marijuana), but did it in the worst possible way (burdening the sector with high taxes and red tape).

As a result, there’s still a very robust black market.

Here are some additional details about how politicians and bureaucrats have made it difficult to operate a legal business.

Many cannabis growers, retailers and manufacturers have struggled to make the transition from a provisional, temporary license to a permanent one renewed on an annual basis — a process that requires a costly, complicated and time-consuming review. …some face two to four years to get through the licensing process. Many would face the prospect of shutting down, at least temporarily, if they don’t get a regular license by current state deadlines, Kiloh said. …Supporters of legalization blame the discrepancy on problems that they say include high taxes on licensed businesses, burdensome regulations… A key requirement to convert from a provisional license is to conduct a CEQA review to indicate how pot farms and other cannabis businesses will affect the surrounding water, air, plants and wildlife, and to propose ways to mitigate any harms. However, Kiloh said, some cities are just setting up ordinances and staffing to process licenses, meaning many businesses cannot meet the looming deadline. …industry officials note the money will go to a small fraction of California cities, and only those that have already decided to allow cannabis businesses. …said Kiloh, owner of the Higher Path cannabis store in Sherman Oaks. “The real problem is CEQA analysis is a very arduous process,” he added. “I think it would be good to have more reform of the licensing system instead of just putting money to it.”

Wow, provisional licenses, permanent licenses, CEQA analysis, taxes, regulations, reviews, and ordinances.

Sounds like my regulatory obstacle course. No wonder so many buyers and sellers of pot prefer the black market.

And Mr. Kiloh is correct. The solution is to deregulate, not to dump more money into the system.

No wonder California is a mess.

P.S. The late (and great) Walter Williams joking speculated whether California should set up East German-style border controls to prevent taxpayers from escaping.

P.P.S. There is a pro-secession group in California, though they should be careful what they wish for.

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Vaccines and Cost-Benefit Analysis (and Individual Liberty)

I’ve written many times about the value of cost-benefit analysis for government policy.

My go-to example is that a nationwide 5-mph speed limit would reduce traffic fatalities, but the resulting economic damage would be so pervasive that there would a net reduction in life expectancy.

In other words, the indirect effects would outweigh the direct effects.

But that’s just a theoretical example.

We now have a real-world case study thanks to a remarkably short-sighted decision about the Johnson & Johnson vaccine by bureaucrats at the Food and Drug Administration (FDA).

Ronald Bailey of Reason is very blunt about the deadly consequences.

The U.S. Centers for Disease Control and Prevention (CDC) and the Food and Drug Administration (FDA) issued a statement today “recommending a pause in the use” of Johnson & Johnson’s COVID-19 vaccine…based on six cases of a rare blood clot disorder in people who had been inoculated with the one-dose vaccine. There have been six cases out of 6.8 million people who have already been inoculated with the vaccine. The blood clot incidents all occurred in women between the ages of 18 and 48. Those odds amount to one in 1.13 million, which is comparable to your annual chances of being struck by lightning (1 in 1.22 million). For comparison, a November 2020 meta-analysis in The Lancet found that more than one in five very ill hospitalized and post-mortem* COVID-19 patients experienced venous thromboembolism—that is, blood clots in their veins. A 2010 study in the Journal of American Preventive Medicine reported that the annual incidence of thromboembolism between the ages of 15 and 44 was about 1.5 cases per 1,000 people. In addition, the risk of blood clots from taking oral contraceptives is about 1 in 1,000 annually. …By focusing on the not-yet-proven, very low risk of blood clots versus the known risks of the increased misery, hospitalizations, and deaths that the Johnson & Johnson vaccine would have prevented, our overly cautious public health bureaucrats will likely cause more sickness and deaths among Americans than would otherwise have occurred.

Just in case you’re tempted to dismiss the above article because of Reason‘s libertarian perspective, Philip Bump’s article in the Washington Post makes the same point about tradeoffs.

It’s easy to imagine the internal debate at the Centers for Disease Control and Prevention upon learning that six cases of a rare, dangerous blood clot have been found in women who received the Johnson & Johnson vaccine. Allowing the vaccine to be distributed while experts reviewed the cases risks exposing more people to the possible problem. Pausing distribution, though, runs a different risk… Given that about 6.8 million doses of the Johnson & Johnson vaccine have been administered and that there have been only six such incidents, the rate at which those red dots occur is about 1 in 1.1 million vaccinations. …By way of comparison, every year about 12 in 100,000 Americans die in a car crash. …more than 561,000 people in the United States have died of covid-19, the disease caused by the virus. That’s about 1.8 percent of the 31.2 million people who have contracted it. Given the effectiveness of the Johnson & Johnson vaccine in preventing serious illness and death, vaccinating 6.8 million people could have…protected millions of people probably prevented thousands of deaths — with six problematic incidents.

Mr. Bump makes the broader point that each of us make cost-benefit decisions every day.

Nearly everything we do is a balance between risk and reward. Driving down the street, as mentioned above. Walking outside, where a meteorite could suddenly slam into your skull. Sitting on your couch, where your floor could give way or an electrical fire could break out or a bear could crash through your window. None of these things is likely, so we don’t worry about them, but they could. We draw a balance.

The people on Twitter who can do math (regardless of ideology) were united in their disdain for what the bureaucrats did.

Such as:

And:

And:

And:

And:

And:

And that’s just a very small sampling.

For my modest contribution to this discussion, I want people to have liberty to take the J&J vaccine, regardless of the shameful actions of the bureaucrats in Washington (or their counterparts at the state level).

Indeed, I also want them to have the freedom to take the AZ vaccine.

Let adults make their own choices about costs and benefits, about risks and rewards.

That means they can choose vaccines (or not), as well as whether to vape, to own a gun, to donate/sell organs, or to try experimental treatments.

Liberty is not only a good principle, it also generates the best health outcomes.

P.S. To learn more about the harmful policies of the FDA, click here and here.

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The Pointless Burden of Anti-Money Laundering Laws

Back in 2010, I narrated this video on money laundering for the Center for Freedom and Prosperity, mostly to help people understand that governments are imposing huge costs on both industry and consumers without any offsetting benefits (such as reductions in crime).

As you can tell from the video, I’m not a big fan of anti-money laundering (AML) laws and know-your-customer (KYC) regulations.

And in the 11-plus years since the video was released, I’ve shared lots of additional data about the costly futility of the government anti-money laundering laws and regulations.

• They are pointless.
• They are expensive.
• They are intrusive.
• They are discriminatory.
• They are ineffective.
• They disproportionately hurt poor people.

That’s the bad news.

The good news (sort of) is that more people are noticing that the current approach is an expensive failure. Even some folks from the establishment media are waking up to the problem, as illustrated by an article in the latest edition of the Economist.

…banks remain the Achilles heel in the global war on money-laundering, despite the reams of regulations aimed at turning them into front­line soldiers in that conflict. However, closer examination suggests that the global anti-money-laundering (AML) system has serious structural flaws, largely because governments have outsourced to the private sector much of the policing they should have been doing themselves. …Money-laundering was not even a crime across much of the world until the 1980s. Since then countries from Afghanistan to Zambia have been arm-twisted, particularly by America, into passing laws. …This has turned AML compliance into a huge part of what banks do and created large new bureaucracies. It is not unusual for firms such as HSBC or JPMorgan Chase to have…more than 20,000 overall in risk and compliance.

Here’s some of the evidence cited in the article.

A study published last year…concluded that the global AML system could be “the world’s least effective policy experiment”, and that compliance costs for banks and other businesses could be more than 100 times higher than the amount of laundered loot seized. A report based on a survey of professionals, published last year by LexisNexis, an analytics firm, found that worldwide spending on AML and sanctions compliance by financial institutions (including fund managers, insurers and others, as well as banks) exceeds $180bn a year. …the numbers tell of a war being lost. …Statistics on how much is intercepted by authorities are patchy. A decade-old estimate by the United Nations Office on Drugs and Crime put it at just 0.2% of the total. In 2016 Europol estimated the confiscation rate in Europe to be a higher but still paltry 1.1%.

Sounds like a damning indictment right?

But I wrote that the article was only “sort of” good news. That’s because the writers at the Economist fail to reach the logical conclusion.

Instead of junking the current system, they want to double down on failure.

…governments need to work harder collectively to make the AML system fit for purpose.

This is akin to looking at welfare programs, realizing that they create dependency and weaken families, but then supporting even more redistribution.

Sadly, I suspect the new evidence cited in the article won’t lead to more sensible thinking in Washington, either.

• Democrats don’t care if the current approach is failing since they see anti-money laundering laws as a way of destroying financial privacy, which they think is necessary to collect more tax revenue.
• Republicans don’t care if the current approach is failing because they mindlessly support a tough-on-crime approach, regardless of whether it actually produces positive results.

Indeed, politicians in DC recently expanded AML laws.

I guess the moral of the story is that politicians can always take a bad situation and make it worse.

P.S. I’m batting .500 in my career as a global money launderer.

P.P.S. Here’s Barack Obama’s satirical encounter with AML laws and KYC rules.

P.P.P.S. Speaking of Obama and money laundering, I fear Biden will resuscitate his reprehensible “Operation Chokepoint.”

P.P.P.P.S. I also fear Biden will continue support for asset forfeiture, another disgusting policy that is a part of money-laundering policy.

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Assessing Trump’s Record on Regulation

When I did my final assessment of Trump’s economic record, I gave him credit for cutting red tape in some areas, but also noted that he increased government intervention in other areas.

…there were some very positive moves on regulation, but they were partly offset by areas where Trump increased intervention (coal subsidies, property rights, Fannie/Freddie, and international tax rules, for instance).

I did give him credit, on net, for moving regulatory policy in the right direction. In other words, the good things he did regarding red tape outweighed the bad things.

But that’s a judgement call, in part because it’s rather difficult to measure the myriad forms of regulation from dozens of different bureaucracies, but also because there’s no agreement on how to measure success (is it a victory, for instance, to reduce the rate of increase in red tape?).

To see how this is challenging, let’s see what various experts wrote about Trump’s regulatory track record.

A new study, authored by Professors Cary Coglianese, Natasha Sarin, and Stuart Shapiro, pours cold water on Trump’s claim that he successfully reduced economic intervention.

Both the extent and impact of the Administration’s efforts to eliminate regulation are considerably less substantial than President Trump and his supporters have claimed. …We recognize that the Trump Administration has repealed or modified a series of agency regulations adopted under the Obama Administration, and even that the Administration has adopted a smaller number of new regulations deemed significant than other recent administrations. Yet overall the reality of regulatory elimination is rather unremarkable… The Administration has accomplished markedly little compared to what it has claimed. … in measuring levels of regulatory activity,researchers rely on a variety of sources of data, including overall pages in the Federal Register and the CFR,the incidence of new rules published in the Federal Register,and the number of actions listed in the semi-annual regulatory agenda. …The Code of Federal Regulations (CFR) is the authoritative source of all existing regulatory requirements on the books. …Growth continued in the Obama Administration to 185,053 pages in 2016. If President Trump’s claim to have eliminated 25,000 pages were correct, we would expect to see no more than160,000 pages in the CFR by now. But, quite to the contrary, the count as of the end of 2019 was185,984 pages—actually a somewhat greater number of pages, not fewer.

Here’s Figure 1 from the paper, which does confirm that there was not a 25,000-page reduction in red tape.

Though if you focus on the last couple of years, it is obvious that the rate of increase slowed significantly. Depending on one’s perspective, that is either a victory or a smaller defeat.

The authors do acknowledge that the number of pages isn’t even the right way to measure regulatory burden.

So they then examine the claim that the Trump Administration had more initiatives to reduce rather than increase red tape.

A count of pages in the CFR is only an indirect proxy for regulatory obligations. …Another way to look at what the Trump Administration has done by way of deregulation would be to look not at pages but at the number of actual rules. …Although the President and his supporters have claimed various levels of deregulatory activity—from 7 to 22 rules removed for every new rule added—these claims are false or misleading. …The lists overcount deregulatory actions by including withdrawals of proposals that were never finalized, delays in effective dates which do not eliminate regulations, non-regulatory actions such as the repeal of guidance documents, and even proposed deregulatory actions rather than completed ones. In addition, when comparing deregulatory actions to regulatory ones, the White House only counts new regulations designated as “significant,” while they count deregulatory actions of any magnitude or level of significance… rather than there being more deregulatory actions than other actions, as the Trump Administration’s claims have implied, there was, in fact, just the opposite. Overall about three completed actions in the regulatory agenda appear for every action designated as deregulatory.

The bottom line, based on their assessment, is that Trump didn’t accomplish much, particularly when compared to what happened under Carter and Clinton.

…in terms of“dramatic regulatory relief,” nothing the Trump Administration has done compares to the deregulation of the airlines, rail, and truck transportation that was executed by the Carter Administration in the late 1970s. Prior to that time, these major sectors of the economy—along with others, such as natural gas and telecommunications—were subject to regulations of prices and outputs—an inefficient form of regulation that advantaged incumbent firms but at the expense of consumers. President Carter championed major deregulatory initiatives that loosened the government restrictions on the air, rail, and transport sectors.Retrospective analysis indicates that the deregulation of these industries resulted in $70 billion in annual consumer benefits. …the evidence does not support the Trump Administration’s claims to have engaged in a dramatic scaling back of government regulation. More pages were removed from the CFR in the Clinton Administration than the Trump Administration. A more substantial unleashing of market forces occurred from the deregulatory changes made in the Carter Administration. And the Trump Administration has done at least as much regulating as it has deregulating.

For what it’s worth, Clinton was much more market oriented than most people realize. And Carter, while misguided in some areas, did a very good job on regulation.

So it’s not necessarily a knock on Trump to say he fell short of those two presidents.

Now let’s look at a pro-Trump perspective.

Professor Casey Mulligan of the University of Chicago early last year offered an upbeat assessment of the former president’s performance in tackling regulations.

In just three years the administration has reversed hundreds of regulations, many of which drone on for hundreds of pages. …Many of the regulations reversed had been written and implemented at the behest of special interests, including large banks, trial lawyers, major health insurance companies, big tech companies, labor unions, and foreign drug manufacturers. …the Council of Economic Advisers (CEA)…dedicated a great deal of manpower preparing a comprehensive and rigorous assessment of deregulation since 2017. That report, released in June, concluded that the past three years of deregulation is comparable to, and probably exceeds, any deregulatory episode in modern U.S. history. …the CEA report estimates that over the next five to 10 years, the deregulatory efforts of the Trump administration will increase annual real incomes in the United States by $3,100 per household.

I wrote about the above-mentioned report from the CEA in the summer of 2019. The CEA’s goal was to present Trump’s policies favorably, so I certainly don’t object to some skepticism from outsiders, but I also noted that, “the underlying assumptions aren’t overly aggressive” and “even modest improvements in growth lead to meaningful income gains over time.”

In a column for the Hill, James Broughel of the Mercatus Center analyzed Trump’s track record and concluded that some good things happened.

…the president issued Executive Order 13,771 soon after taking office. Its “2 for 1” requirement received the most attention: Two regulations must be identified for elimination each time a new one is put forward. However, perhaps more important is the “regulatory budget” it set up, which essentially set a cap on new regulatory costs executive branch agencies can impose. …A look at the data suggests the cap is largely working. On Jan. 20, 2017 — Trump’s inauguration day — there were 1,079,601 regulatory restrictions on the books. By Dec. 6, 2019, that number stood at 1,077,822. While the code has not declined substantially by this measure — and the administration should acknowledge that aggregate cuts to-date have been modest — it’s rare to see a code fail to grow across an entire presidential term.

Incidentally, the Mercatus measure of “regulatory restrictions” almost certainly is better than other measures of red tape, so it’s disappointing that Coglianese, Sarin, and Shapiro failed to include it in their analysis.

But if we’re simply looking at the volume of “significant rules,” here’s a tweet from James Pethokoukis showing that the increase in red tape dramatically slowed once Trump took over.

Philip Wallach of the R Street Institute examined Trump’s track record on red tape in an article for National Review in late 2019 and he thought the glass was half empty rather than half full.

Regulation became one area where conservatives wary of Trump allowed themselves high hopes. Trump’s experiences as a developer left him with a bone-deep skepticism of regulations. …There have been some real bright spots for deregulators. Many of the Obama administration’s aggressive and legally dubious environmental rules have been stalled or rolled back, including the Waters of the United States rule, Corporate Average Fuel Economy standards for tailpipe emissions, and the Clean Power Plan, which regulated greenhouse-gas emissions from existing power plants. The Endangered Species Act will be interpreted so as to make it less burdensome. Promises to scrap Obamacare may have gone unfulfilled, but the administration has quietly and constructively made the program more flexible for states and individuals. …the Trump administration…to an unprecedented degree…has…issu[ed] far fewer new regulations than any of its predecessors.

As you can see, it’s important to define success. Is it a victory to have “far fewer new regulations”?

Or, as you can see in the following excerpt from Wallach’s article, is it a victory to cut red tape by less than Obama increased it?

These triumphs notwithstanding, three years in, hopes of a thoroughgoing overhaul have been dashed. …hitting the pause button, however unusual, does not a revolution make. The hoped-for transformation of the administrative state is nowhere to be found. …In 2018, the administration sought to show its relative merit by noting that, through its first two years, the Obama administration had imposed $245 billion in regulatory costs. The Trump administration’s negative $33 billion in costs imposed at that point certainly was a lot less than $245 billion. But the comparison cuts harder in the other direction: The administration is admitting that it is coming nowhere close to reversing the costs imposed even by the Obama administration — let alone the decades of regulatory burdens built up previously. …the administration’s math allows it to take credit for deregulatory policies as soon as they are promulgated, without paying any attention to whether they are carried through. …the administrative state has been more discomfited than deconstructed by the Trump administration.

Last but not least, former Obama official Cass Sunstein opined for Bloomberg back in 2018 that Trump’s main achievement was to slow the tide of new regulations.

Is President Donald Trump dismantling the regulatory state? Not close. …let’s take a broader perspective. Under George W. Bush, the Office of Information and Regulatory Affairs approved about 2,500 final regulations. Under Barack Obama, it approved about 2,100 final regulations. …By comparison, the Trump administration has repealed … dozens of finalized regulations. …about 2 percent of the number of regulations finalized over the past 16 years. …Much more fundamentally, he’s substantially slowed the flow of new ones. …From Bush’s inauguration to Sept. 1, 2002, the Office of Information and Regulatory Affairs approved about 400 proposed regulations and about 500 final regulations. From Obama’s inauguration to Sept. 1, 2010, the Office of Information and Regulatory Affairs approved about 270 proposed regulations and about 470 final regulations. …the Bush and Obama administrations look pretty similar… The Trump administration is a big outlier. From Trump’s inauguration to the present, the Office of Information and Regulatory Affairs approved about 170 proposed regulations and about 160 final regulations. That’s a major reduction.

So what’s my two cents?

The obvious conclusion is that the Trump Administration did some good things to ease the nation’s regulatory burden, but there was no major paradigm shift.

The United States had a lot of red tape when Trump took office and it had a lot of red tape when Trump left office, though he definitely slowed the rate of increase.

But a slower rate of increase is still not good news, as illustrated by the fact that the Fraser Institute calculates that America’s score on red tape has declined slightly since 2016.

Indeed, the overall score for economic liberty in the United States has declined slightly since Obama left office, which is evidence for my argument that Trump delivered an incoherent mix of good policies (taxes, for instance) and bad policies (trade, for instance).

P.S. Trump’s Jekyll-Hyde record on economic policy is one of the reasons why I prefer Reaganism over Trumpism. The establishment doesn’t like either of those options, but I very much prefer the one that unambiguously reduces the size and scope of government.

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In One Image, Everything You Need to Know about Government Intervention

While I freely self-identify as a libertarian, I don’t think of myself as a philosophical ideologue.

Instead, I’m someone who likes digging into data to determine the impact of government policy. And because I’ve repeatedly noticed that more government almost always leads to worse outcomes, I’ve become a practical ideologue.

In other words, when looking at at an issue, I now have a default assumption that government is going to be the problem, not the solution.

I think more people will share my viewpoint if they peruse this chart from Mark Perry.

It shows changes in prices for selected goods and services over the past 21 years, and the inescapable conclusion (as I noted when writing about the 2014 version of his chart) is that we get higher relative prices in sectors where there’s the most government intervention.

Especially healthcare and higher education.

By contrast, we see falling relative prices (and sometimes falling absolute prices!) in sectors where there is little or no government intervention.

Here’s some of Mark’s description of what we can learn from his chart.

I’ve updated the chart above with price changes through the end of last year. During the most recent 21-year period from January 2000 to December 2020, the CPI for All Items increased by 54.6% and the chart displays the relative price increases over that time period for 14 selected consumer goods and services, and for average hourly wages. …Various observations that have been made about the huge divergence in price patterns over the last several decades… The greater (lower) the degree of government involvement in the provision of a good or service the greater (lower) the price increases (decreases) over time, e.g., hospital and medical costs, college tuition, childcare with both large degrees of government funding/regulation and large price increases vs. software, electronics, toys, cars and clothing with both relatively less government funding/regulation and falling prices.

By the way, I can’t resist also calling attention to Mark’s data on what’s happened over time to prices for various health care services and procedures.

We find that prices have skyrocketed in areas of the healthcare sector where government plays a big role, especially hospital care.

By contrast, prices have been steady (or even falling!) in areas of the healthcare sector where competitive markets are allowed to operate, most notably for cosmetic procedures.

It’s almost as if it makes sense to have a default assumption that government is the problem rather than the solution.

P.S. While the data in Mark’s chart tell a depressing story about the harmful effect of government intervention, he shares one bit of good news in his article.

The annual increase in college tuition and fees of only 1.4% last year was the smallest annual increase in the history of the CPI for college tuition and fees going back to 1978, and the only annual increase ever below 2%. That increase is far below the average annual increase in college tuition of nearly 7% over the last 42 years. So perhaps the “higher education bubble” is finally starting to show signs of deflating?

I hope he’s right, but worry he’s wrong.

P.P.S. Sadly (but predictably), some people seem to think government-caused price increases are a reason to support more government intervention.

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Coronavirus and the Failure of Big Government: A Closer Look at the FDA

In my five-part series on coronavirus and the failure of big government (here, here, here, here, and here), the Food and Drug Administration (FDA) received some unflattering attention.

Whether we’re examining its performance regarding equipment, testing, or vaccines, the bureaucracy has hindered the private sector’s ability to quickly and effectively respond to the pandemic.

Today, let’s devote an entire column to problems with the FDA.

Historically, the big issue is that the bureaucracy is too cautious and risk-averse.

The argument from the FDA is that a lengthy and expensive process for approving drugs is necessary to avoid the risk of a drug with bad side effects.

And there are benefits to that approach, with thalidomide being the obvious example.

However, there are also costs. Most notably, the FDA’s onerous approval process means that it takes a long time before consumers get access to many life-saving and life-improving drugs.

The net result is that the FDA has killed more people than it has saved.

If you think that is hyperbole, read this summary of academic research from the Independent Institute.

…requiring a lot of testing has at least two negative effects. First, it delays the arrival of superior drugs. During the delay, some people who would have lived end up dying. Second, additional testing requirements raise the costs of bringing a new drug to market; hence, many drugs that would have been developed are not, and all the people who would have been helped, even saved, are not. …three bodies of evidence suggest that the FDA kills and harms, on net. …It is difficult to estimate how many lives the post-1962 FDA controls have cost, but the number is likely to be substantial; Gieringer (1985) estimates the loss of life from delay alone to be in the hundreds of thousands (not to mention millions of patients who endured unnecessary morbidity). …Deaths owing to drug lag have been numbered in the hundreds of thousands. …in recent years thousands of patients have died because the FDA has delayed the arrival of new drugs and devices

Oh, and it’s worth mentioning that the FDA process means companies much charge higher prices to compensate for the expensive approval process.

But let’s look at where we are today and explore the FDA’s role in fighting the coronavirus.

We’ll start with this tweet about the bureaucracy’s unhelpful role last year as the pandemic was getting worse.

The hero of February was the Seattle Flu Study, which raised the alarm about community spread; the villain was the FDA, which refused to allow private companies to develop tests.

Incredibly, the FDA is doubling down.https://t.co/ANAvasasty

— Ben Thompson (@benthompson) May 17, 2020

But I mostly want to focus on what the FDA is doing today to make our lives less safe.

Professor Garret Jones of George Mason University has a column in the Washington Examiner excoriating the bureaucracy’s deadly delays in approving another vaccine.

Good enough for Britain. Good enough for the European Union. Not good enough for the United States. That’s what the U.S. Food and Drug Administration thinks about the evidence for the Oxford-developed, AstraZeneca-made COVID-19 vaccine: the cheap, refrigerator-friendly, easy-to-transport injection that, so far at least, is 100% successful at keeping people with COVID-19 out of the hospital. The Oxford vaccine has been given to more than a million British citizens, and the EU is now scrambling to find as many doses as it can… So why hasn’t the Oxford vaccine been approved for use in the U.S.? Because the FDA made clear that AstraZeneca needed to finish its lengthy trials in the U.S., above and beyond the trials AstraZeneca had already run in the United Kingdom, Brazil, and South Africa. …My colleague at George Mason University, Alex Tabarrok, refers to the “invisible graveyard” — those dead because lifesaving drugs and vaccines were delayed or never invented. Every day we delayed vaccine approval in 2020 was a day that COVID-19 could spread unabated, killing people in the U.S. in the hundreds of thousands. And that deadly delay continues in 2021. …The FDA should approve the Oxford vaccine immediately. Since it doesn’t require fancy freezers, it will easily reach small towns and local clinics in a way that current COVID-19 vaccines in the U.S. can’t.

Since I have friends who have died from the virus, it’s infuriating that the FDA is hindering the approval and deployment of the AstraZeneca vaccine.

Heck, I would love the chance to get it myself, yet a bunch of cossetted bureaucrats are telling me that my life should be at risk instead.

If you’re wondering why the FDA is mindlessly causing needless danger and death, this tweet from Professor Jones may tell us everything we need to know (he also mentioned Pelosi’s unhelpful role in the column cited above).

Why is she putting people’s lives at risk?

Is it because she reflexively supports red tape? Is it because she’s getting campaign contributions from Pfizer and is trying to keep a competing vaccine off the market? Is it because Astra-Zeneca’s vaccine was developed in the U.K. and she opposed Brexit?

I don’t know the answer, but I’m 99.99 percent sure she’s already been vaccinated and isn’t at risk like the rest of us.

What about the FDA’s motivations?

Dr. Henry Miller’s recent column in the Wall Street Journal has some insight on why the bureaucracy is willing to put our lives in danger.

…countless patients could benefit, if Food and Drug Administration regulators were less risk-averse. I know that from firsthand experience. …As the head of the FDA’s evaluation team, I had a front-row seat. …during the early 1970s, as the supply of animal pancreases declined and the prevalence of diabetes increased, fears of drug shortages spread. Around the same time, a new and powerful tool—recombinant DNA technology, or gene splicing—became available. …Eli Lilly & Co. immediately saw the technology’s promise for producing human insulin… Insulins had long been Lilly’s flagship products, and the company’s expertise was evident in the purification, laboratory testing and clinical trials of Humulin, its new human insulin. Lilly’s scientists painstakingly verified that their product was pure and identical to pancreatic human insulin. …In May 1982 the company submitted to the FDA a voluminous dossier providing evidence of the product’s safety and efficacy. …My team and I were ready to recommend approval after four months’ review. But when I took the packet to my supervisor, he said, “Four months? No way! If anything goes wrong with this product down the road, people will say we rushed it, and we’ll be toast.” That’s the bureaucratic mind-set. …A large part of regulators’ self-interest lies in staying out of trouble. One way to do that, my supervisor understood, is not to approve in record time products that might experience unanticipated problems.

Sadly, this FDA mindset hasn’t changed.

As a result, Americans are needlessly dying.

P.S. Professor Alex Tabarrok has another example of senseless regulation from the FDA.

The idea that the FDA can regulate and control what individuals may learn about their own bodies is deeply offensive. https://t.co/hVgoK4agM4

— Alex Tabarrok (@ATabarrok) September 19, 2020

P.P.S. Here’s my column on the CDC’s unhelpful role in dealing with the pandemic.

P.P.P.S. And here’s what I wrote about the international bureaucrats at the World Health Organization.

P.P.P.P.S. When dealing with other advanced nations, we should adopt the principle of “mutual recognition” so our consumers have the option of benefiting from products approved elsewhere, such as the Astra-Zeneca vaccine.

P.P.P.P.P.S. In an all-too-typical example of Mitchell’s Law, politicians and bureaucrats have created a process than makes drugs very expensive. They then respond by agitating for price controls rather than fixing the underlying problem.

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Ranking Presidents: Trump’s Mixed Economic Record

Since both political parties have sent good and bad people to the White House, I don’t think it makes much sense to compare all Democratic presidents vs all Republican presidents.

But we can learn a lot by looking at the track record of specific presidents. I’ve done that with several past chief executives (Wilson, Hoover, FDR, Nixon, Reagan, Bush I, Clinton, Bush II, and Obama), and today we’re going to assess Trump’s performance.

The bottom line, as you can see from the chart, is that he did really well in some areas and really poorly in other areas, so his overall record was flat. Or perhaps slightly negative.

The bottom line is that Trump was good on taxes and bad on spending and trade.

And there were some very positive moves on regulation, but they were partly offset by areas where Trump increased intervention (coal subsidies, property rights, Fannie/Freddie, and international tax rules, for instance).

By the way, I’d like to give Trump a negative grade for his failure to address entitlements, but, in the interest of fairness, I only include actual policy changes.

Having given my big-picture assessment, here are some columns and articles that offer interesting insights.

We’ll start with some pro-Trump analysis. Professor Casey Mulligan opined in the Wall Street Journal that he restored growth (until the coronavirus, of course).

The Obama administration promulgated hundreds of new federal regulations that protected certain special interests from market competition. The beneficiaries included large banks, trial lawyers, big tech, major health-insurance companies, labor unions and foreign drug manufacturers. President Trump promised to undo all that, and in many cases succeeded, sometimes with the help of a Republican Congress. …Mr. Trump also helped remove government obstacles to innovation and competition in health care. Democrats will tell you that the first calendar-year drop in retail prescription drug prices in 46 years was mere coincidence, not the result of deregulation. …The Fed and the Obama economic team overpredicted growth almost every year from 2010-16. When growth failed to meet their rosy predictions, Mr. Obama’s advisers blamed the poor economic performance on America itself. …No one in Washington predicted that small business optimism would skyrocket to record levels when Mr. Trump was elected, that real wages would grow again (especially for blue-collar workers), that business formation would hit 20th-century highs, or that poverty and unemployment rates would quickly fall to record lows for Hispanics and African-Americans.  …Although Mr. Trump’s economic policy was imperfect, it was preferable by a long shot to Mr. Obama’s, which punished work, hiring and success rather than rewarding them. 

And here’s a chart that definitely makes Trump look good compared to Obama.

Those numbers will look much worse once 2020 numbers are included, but I won’t blame Trump for coronavirus-caused economic havoc (though I also don’t give him full credit for the good data in 2019).

Now let’s look at some less-than-flattering analysis.

Jeffrey Tucker of the American Institute for Economic Research lists some of Trump’s statist policies.

From 2015, even from his first public speeches following his presidential run, it was clear that Donald Trump was not a conservative in the Reagan tradition… This is not an American ideal. It’s not about freedom, rights, the rule of law, much less the limits on government. …Trump’s first year began with a more traditional Republican agenda of tax cuts, deregulation, and non-progressive court appointments. …That all changed on January 22, 2018. …This was the beginning of the trade war that would expand to Europe, Canada, Mexico, most of Asia, and ultimately the entire world. …What he ended up seeking was nothing short of trade autarky. …In addition to this calamity, US government spending soared 47% while the money supply registered record increases as measured by M1. The effects of this debt and money printing will be felt through next year.

Rick Newman wrote for Yahoo that Trump’s fiscal performance makes him an honorary Democrat.

Trump’s last-second objection to the $900 billion coronavirus relief bill Congress approved after eight months of negotiation is an unexpected Christmas gift for Democrats. Trump says the $600 direct payment to most Americans contained in the bill is too small. He wants $2,000. Trump could have insisted on this while Congress was drafting the bill… Democrats are gleeful. They’d happily accept a supersized stimulus payment, and even better, they now get to watch Republicans battle each other as they try to figure out what to do about Trump. Some Congressional Republicans think $2,000 is too generous, and there’s no chance of that getting into the bill unless other provisions come out. 

Newman was focusing on Trump’s spending proclivities during the pandemic, but the assertion that “maybe Trump’s a Democrat” applies to his fiscal record during his first three years as well.

P.S. I didn’t rank Trump on monetary policy for the same reason I didn’t rank Obama on that issue. Simply stated, I think both of them pursued a misguided Keynesian approach of easy money and artificially low interest rates, but we don’t have firm evidence (yet) of negative consequences.

P.P.S. I also didn’t give Trump a grade, positive or negative, regarding coronavirus. The federal government failed, but those failures largely were independent of the White House.

P.P.P.S. I generally approved of Trump’s judicial appointments, but don’t includes judges in my assessments of economic policy (though I may have to change my mind if they restore the Constitution’s protections of economic liberty and limits on the power of Washington).

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Hopes and Fears for 2021

Yesterday was my review of the best and worst policy developments in 2020.

Today, I’ll share my hopes and fears for 2021.

These are not predictions (economists have a terrible track record when try to make forecasts). Instead, these are merely good and bad things that might plausibly happen.

We’ll start with the positives.

Gridlock – I don’t necessarily think Biden is a hard-core leftist, but his fiscal agenda is terrible. I want him to have an excuse to put those policies on the back burner, and that will happen if Republicans control the Senate and we have “gridlock.” Simply stated, I’d rather nothing happen in Washington than have bad things happen. By the way, I’ll openly admit to being a hypocrite on this issue. At some point, I hope there will be a White House and a Congress that want to reform the tax code and fix entitlements. When that happens, I won’t want any obstacles.

Supreme Court tosses civil asset forfeiture – I’m recycling this item from last year because I’m hopeful that it’s just a matter of time before the Justices toss out this wretched policy that literally allows government to steal property from people who have not been convicted of any crime, or even charged with any wrongdoing.

Trade liberalization – To be charitable, Trump was a disaster on trade. Biden almost certainly will move policy in the right direction, including a restoration of the World Trade Organization‘s ability to settle disputes.

I used to list the collapse of Venezuela’s totalitarian government as one of my annual hopes and I still think that will happen, hopefully sooner rather than later. That being said, I’m getting a superstitious feeling that I’m jinxing regime change since I’ve listed that hope the past three years and it hasn’t happened.

Now let’s look at the negatives.

Absence of gridlock, leading to big anti-growth tax increases – If Democrats win both Senate seats in Georgia in a few days, that will give them control of the Senate, which will dramatically increase the danger that Biden will push his class-warfare tax policies.

Re-regulation – Trump did not have a perfect track record on red tape (coal subsidies, property rights, Fannie/Freddie, for instance), but there was a net shift in the right direction during his four years. Biden almost certainly will impose more intervention. Indeed, I’m not aware of a single regulatory issue where he’s on the right side. So don’t get your hopes up for better showerheads and dishwashers.

Kamala Harris becomes president – The Vice President-Elect staked out policies far to the left of Biden when she ran for president. And she has a reprehensible track record of trampling rights when she was California’s top cop. That’s an unsavory combination. If she’s even half as bad as her rhetoric, we all should wish Biden good health for the next four years.

P.S. If you want to see hope and fears for previous years, here are my thoughts for 2020, 2019, 2018, and 2017.

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2020’s Tweet of the Year

Every so often, I highlight tweets that deserve attention because they say something important, usually in a clever and succinct fashion.

• Best-ever tweet about inequality.
• Best tweet about capitalism vs socialism.
• The most depressing tweet.
• Trump’s worst-ever tweet.
• The best-ever counter-tweet.

Today, I’m highlighting what I consider to be the year’s best tweet.

The tweet is from Matthew Lesh of the Adam Smith Institute in London and it shows the big difference between private sector results and government incompetence.

Some readers may wonder if he is being unfair? Is the tweet merely libertarian-style grousing?

Well, consider this recent story from the Washington Post, which details how government incompetence at the Centers for Disease Control (CDC) greatly delayed testing capacity.

On Jan. 13, the World Health Organization had made public a recipe for how to configure such a test, and several countries wasted no time getting started: Within hours, scientists in Thailand used the instructions to deploy a new test. The CDC would not roll out one that worked for 46 more days. …The agency squandered weeks as it pursued a test design far more complicated than the WHO version and as its scientists wrestled with failures… The CDC’s response to what became the nation’s deadliest pandemic in a century marked a low point in its 74-year history. …Without tests to identify the early cases, health authorities nationwide were unable to isolate the infected and trace the rapid spread among their close contacts. …120 public health labs were without a government-approved test of their own and, with few exceptions, depended wholly on getting the CDC’s kits. …companies had no incentive to navigate regulatory hurdles and mass-produce kits.

The above story describes how the CDC screwed up at the start of the pandemic.

In her December 27 column for the Washington Post, Megan McArdle highlights a new example of CDC incompetence.

…the now-infamous November meeting of the CDC’s Advisory Committee on Immunization Practices…unanimously agreed that essential workers should get vaccinated ahead of the elderly, even though they’d been told this would mean up to 6 percent more deaths. This decision was supported in part by noting that America’s essential workers are more racially diverse than its senior citizens. …the discussion of whether to prioritize essential workers was anything but robust. …not one of those 14 intelligent and dedicated health professionals suggested adopting the plan that kills the fewest people. …for the past nine months, public health experts have insisted that minimizing deaths should override other concerns, even quite important ones. So how, in this case, did equity conquer death?

Let’s close with some excerpts from Aaron Sibarium’s article on the same issue for the Washington Free Beacon.

The committee openly acknowledged that its initial plan would result in more deaths than “vaccinating older adults first.” But, the panel said, the plan would reduce racial disparities—something they deemed more important than saving lives… The result was an explicitly race-conscious plan that would have prioritized shrinking the case gap between races over saving the most lives. …All of this—the exclusions, the contradictions, the moral redundancies—helped disguise the agenda that it justified, giving unscientific value judgments an air of scientific assuredness.

The really amazing aspect of this story is that there almost surely would be more minority deaths if this this approach was implemented.

But the “woke” bureaucrats though that would have been okay since there would have been an even-greater increase in white deaths.

This is healthcare version of their warped view that it’s okay to support policies that reduce income for poor people so long as the rich incur even greater losses.

Anyhow, I guess we should “congratulate” the CDC for showing it can compete with the WHO in the contest to see which bureaucracy had the worst response to the coronavirus (we already had plenty of evidence that the FDA is incompetent).

We can add this column to my series (here, here, here, and here) on how government blundering magnified the coronavirus pandemic.

P.S. If I had the flair for self-promotion that you often find in D.C., I would have been tempted to claim that my tweet from earlier today deserves some sort of recognition.

But I don’t need attention and affirmation. I simply want people to understand that it’s reprehensible that we have cossetted international bureaucrats (who get lavish, tax-free salaries!) pushing sloppy and ideological nonsense that will make the world less prosperous.

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Everything You Need to Know about Government in a Single Story

When I write an everything-you-need-to-know column, I’m inevitably guilty of hyperbole.

All that I’m really doing is highlighting a very compelling example of how politicians make a mess of just about anything they touch.

That’s even true in the rare cases when they’re trying to enact policies I prefer.

The crux of the problem is that politicians like having some level of power and control over various sectors of the economy, for the simple public choice-driven reason that they can then extort bribes, campaign cash, and other goodies.

Which is good news for donors, crooks, and cronies, as P.J. O’Rourke wisely noted.

But it’s bad news for those of us who don’t like sleaze. Yet sleaze is almost inevitable when politicians have power to interfere with private market transactions.

Check out these excerpts from a Politico report.

In the past decade, 15 states have legalized a regulated marijuana market for adults over 21, and another 17 have legalized medical marijuana. But in their rush to limit the numbers of licensed vendors and give local municipalities control of where to locate dispensaries, they created something else: A market for local corruption. Almost all the states that legalized pot either require the approval of local officials – as in Massachusetts — or impose a statewide limit on the number of licenses, chosen by a politically appointed oversight board, or both. These practices effectively put million-dollar decisions in the hands of relatively small-time political figures – the mayors and councilors of small towns and cities, along with the friends and supporters of politicians who appoint them to boards. …They have also created a culture in which would-be cannabis entrepreneurs feel obliged to make large campaign contributions or hire politically connected lobbyists. …It’s not just local officials. Allegations of corruption have reached the state level in numerous marijuana programs, especially ones in which a small group of commissioners are charged with dispensing limited numbers of licenses.

Needless to say, what’s happening in the marijuana industry happens wherever and whenever politicians have power.

“All government contracting and licensing is subject to these kinds of forces,” said Douglas Berman, a law professor at Ohio State University who authors a blog on marijuana policy. …“There’s a lot of deal-making between businesses and localities that creates the environment of everyone working their way towards getting a piece of the action,” Berman said. Whether it’s city or county officials that need to be appeased, local control is “just another opportunity for another set of hands to be outstretched.”

The report concludes by noting that corruption can be avoided very simply. Just make sure politicians and other people in government have no power or authority.

States that have largely avoided corruption controversies either do not have license caps — like Colorado or Oklahoma — or dole out a limited number of licenses through a lottery rather than scoring the applicants by merit — like Arizona. Many entrepreneurs, particularly those who lost out on license applications, believe the government shouldn’t be in the business of picking winners and losers and should just let the free market do its job.

Amen.

I’ll conclude by noting that politicians are doing the right thing in the worst way.

I want to end the War on Drugs because it is a costly failure. It’s not that I think drug use is a good idea. But I recognize that the social harm of prohibition is greater than the social harm of legalization.

And, as a libertarian, I believe people should be free to make their own decisions (consistent with the libertarian non-aggression principle, of course), even if I happen to disapprove.

Sadly, politicians are not legalizing pot for libertarian reasons.

Instead, they see it as a way of having a new product to tax (and they’re botching that). And, as illustrated by today’s story, they see it as a way of lining their own pockets.

I’m almost tempted to say we’d be better off if marijuana was criminalized so it could be sold on the black market instead.

But the real moral of the story is that government power is a recipe corruption.

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The Pro-Growth Impact of Deregulation

Regulatory policy is one of the five ingredients in the recipe for growth and prosperity.

Ideally, there should be a minimal amount of red tape, and it should be governed by sensible cost-benefit analysis (i.e., so it deals with genuine externalities such as pollution).

Unfortunately, politicians rarely favor this light-touch approach, in part because of unseemly “public choice” incentives and in part because they focus only on the benefit side of the cost-benefit equation.

But the cost is very real.

And that means that there are substantial benefits when governments reduce the regulatory burden.

Let’s look at some research published by Italy’s central bank. Sauro Mocetti, Emanuela Ciapanna, and Alessandro Notarpietro investigated the impact of liberalization last decade. Here’s what they looked at.

…the importance of structural reforms, aimed at promoting sustainable and balanced growth, has been at the center of the economic debate, in Italy… Structural reforms are measures designed for modifying the very structure of an economy; they typically act on the supply side,i.e. by removing obstacles to an efficient (and equitable) production of goods and services, and by increasing productivity, so as to improve a country’s capacity to increase its growth potential… The aim of this paper is to assess the macroeconomic impact of three major structural reforms carried out in Italy over the last decade. They include (i)liberalization of services, (ii) incentives to “business innovation” (included in the so-called “Industry 4.0” Plan) and (iii) several measures in the civil justice system aimed at increasing the courts efficiency.

And here are their results.

Our results indicate that the three reforms, introduced in different years and with different timing, starting in 2011 and up to 2017, have already begun to produce their effects on the main macroeconomic variables and on Italy’s potential output. In particular, and taking into account the uncertainty surrounding our micro-econometric estimates, by 2019 GDP was between 3 and 6% higher than it would otherwise have been in the absence of these reforms, with the largest contribution being attributable to the liberalizations in the service sector. A further increase of about 2 percentage points would be reached in the next decade, due to the unfolding of the effects of all the reforms considered here. Therefore, the long-run increase in Italy’s potential output would lie in between 4% and 8%. We also detect non-negligible effects on the labor market: employment would increase in the long term by about 0.4%, while the unemployment rate would be reduced by about 0.3 percentage points.

More output and more jobs. Hard to argue with that outcome.

Here are some charts from the study. Figure 7 shows the impact on some macroeconomic aggregates.

And Figure 8 shows the estimated improvement in the labor market.

These results are good news, but Italy still has a long way to go. It’s only ranked #51 according to Economic Freedom of the World, and it’s score for regulation has only improved by a slight margin over the past decade.

P.S. I shared some research earlier this year about the positive impact of another type of deregulation in Italy.

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Another Initiative to Improve the Quality of Life from the Trump Administration

Even though I agree with the “nanny state” crowd on a few issues (sugary soda and cigarettes are not healthy, for instance), I oppose their efforts to impose their preferences using government coercion.

Especially when their initiatives lower our quality of life.

• Inferior light bulbs
• Substandard toilets
• Inadequate washing machines
• Dribbling showers
• Dysfunctional gas cans
• Crummy dishwashers

Call me crazy, but I don’t like having to flush a toilet more than once.

And I really don’t like modern gas cans that spill gas all over the place as I’m trying to refill a hot lawnmower (immolation doesn’t seem like it would be a pleasant experience).

But what’s really annoying is going to a hotel that has installed low-flow showerheads, or visiting with someone who has that type of showerhead in their home. At the very least, it means you will spend at least twice as much time as normal to get clean.

Well, we have a bit of good news.

The Trump Administration wants consumers to have the option of enjoying better showers. Here are some excerpts from a CNN story by Sam Fossum and Paul LeBlanc.

The US Department of Energy on Tuesday finalized a pair of new rules rolling back water efficiency standards on showerheads… The new showerhead rule goes after the two-and-a-half-gallon-per-minute maximum flow rate set by Congress in the 1990s. Under current federal law, each showerhead in a fixture counts toward that limit collectively — but the Energy Department’s new rule means each showerhead individually can reach the limit set by Congress. …”Today the Trump Administration affirmed its commitment to reducing regulatory burdens and safeguarding consumer choice,” Secretary of Energy Dan Brouillette said in a statement. “With these rule changes, Americans can choose products that are best suited to meet their individual needs and the needs of their families.” The rollbacks were quickly rebuked by environmental advocates and consumer and appliance standards groups.

If I understand correctly, we’ll still have inadequate showerheads, but we’ll be allowed to have showers that use more than one of them.

Not the ideal outcome, to be sure, but definitely better than the status quo.

But don’t get too excited. It’s very likely that the incoming Biden Administration will propose and then adopt a new regulation to overturn what just happened.

So refurbish your shower now while the opportunity exists.

Or, if you live in a grandfathered home that still has decent amenities, don’t sell.

P.S. I’m normally not in favor of more laws, but I would strongly favor legislation mandating that all politicians and bureaucrats have to retrofit their residences any time some idiotic new regulation is imposed. In other words, no grandfathering for the ruling class. They should live by the rules they want to impose on the rest of us, whether we’re looking at showerheads, taxes, coronavirus, or education.

P.P.S. The Trump Administration also has a new rule that would allow a return to better-quality dishwashers.

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A Genuine Quality-of-Life Achievement from the Trump Administration

Last year, I shared this video from the Competitive Enterprise Institute to help explain how government bureaucrats are making it harder for Americans to clean their plates, bowls, and silverware.

Washington’s dishwasher mandate is just one example of how red tape diminishes the quality of life.

Bureaucrats have concocted other ways of spreading misery and frustration.

• Inferior light bulbs
• Substandard toilets
• Inadequate washing machines
• Dribbling showers
• Dysfunctional gas cans

Call me crazy, but I don’t like spending extra time in the shower, flushing more than once, and risking self-immolation when I refill my lawnmower.

But there is a bit of good news. The Trump Administration wants to make it easier for us to clean up after dinner.

The Wall Street Journal’s editorial is a good summary of the issue.

For years American homes have been stuck with dishwashers that take forever and still don’t get the job done. A new Department of Energy rule…will help change that. …Regulations on energy and water usage—tightened in 2013 by the Obama Administration—mean that dishwashers now take at least two hours to complete a full wash cycle. Dishes may still emerge with pieces of last night’s lasagna baked on. …CEI petitioned the Energy Department to allow dishwashers that would reduce the average cycle to one hour from two, while also giving better performance. CEI argued that if the aim of the regulation was to conserve water and energy, it’s unlikely they achieved their purpose. People responded to poor dishwasher performance by pre-rinsing each dish before putting it through their washers, wasting more water… The revised DOE rule is…an example of how common-sense deregulation can deliver real benefits for the public.

And Sam Rutzick of Reason explains this latest development in the battle for clean dishes.

Trump’s Department of Energy finalized a rule establishing a new product class for residential dishwashers that will have a normal cycle time of up to one hour and that can use five gallons of water per cycle. Those rules effectively roll back an Obama-era rule limiting standard dishwashers to use no more than 3.1 gallons of water per cycle. That limit forced dishwasher companies to adjust their products’ cycle lengths. And the supposedly more efficient but less useful dishwashers have been a punchline…the average dishwasher cycle time has jumped from the one-hour cycle that was common a decade ago to more than two hours today. The tighter rules didn’t lead to energy savings for customers. …they actually increased water consumption by 63 billion gallons, as households would have to run their dishwashers multiple cycles, or pre-rinse their dishes by hand, in order to get dishes actually clean.

But Rutzick’s column contains a very important caveat.

Joe Biden may reverse this important bit of deregulation.

Unfortunately, the new rules may not last. While the incoming administration has been vague about which deregulatory efforts they intend to undo, they have spoken in favor of tightening environmental regulations—and the new dishwasher rules could be a casualty. If so, that’ll be bad news for consumers. 

For what it’s worth, while he embraced some very bad policies during the campaign, I don’t think Joe Biden is a Bernie Sanders-style nutjob.

But I fear environmentalism is an area where he will push policy significantly to the left.

So I’m not overly optimistic that we’ll have better dishwashers in the future.

The only good news is that Americans, every time they do the dishes, will have an irritating reminder that government is the problem rather than the solution.

P.S. Yes, I realize better dishwashers are not as important as better tax policy (or as important as worse trade policy), but I don’t think politicians should be undermining our quality of life.

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Money Laundering Policy: Another Pointless and Costly Step by Uncle Sam

More than ten years ago, I narrated this video in hopes of convincing politicians and bureaucrats that anti-money laundering laws (and associated regulations) were a costly and intrusive failure.

Sadly, my efforts to bring sanity to so-called AML policy (sometimes known as know-your-customer rules, or KYC) have been just as much of a failure as my efforts to get a flat tax. Or my campaign for a spending cap.

I can’t event get my left-leaning friends to care about this issue, even though poor people are disproportionately harmed when governments impose AML mandates on financial institutions.

Worst of all, not only is AML policy not getting better, there are constant efforts to make it more onerous.

The most-recent example is a proposed regulation, which Andrea O’Sullivan discusses in an article for Reason.

…the Federal Reserve and Treasury Department have proposed expanding what is called the “travel rule” to capture international funds transfers above $250. Currently, financial institutions are required to make certain reports on customers when they send international transactions in excess of $3,000. This has been the threshold since the travel rule was first adopted in the U.S. in 1996… surveilled people are suspected of no crime, nor are they given any opportunity to opt out of this data collection. Still, the government preemptively requires that their transactions be tagged and tracked as if they had done something wrong. …it’s worrying that government agencies don’t even consider personal privacy when proposing new regulations. …By law, federal agencies must issue cost-benefit analyses that weigh the trade-offs of a proposed new rule to industry and society. The travel rule analysis only considers the costs that would be imposed on banks on regulators. The extreme cost to privacy for millions of Americans is not even an afterthought… America’s financial surveillance system…creates compliance and hacking risks for institutions that must store this data. And it doesn’t even work very well. Criminals are routinely able to get the finance they need despite this web of data tracking. Meanwhile, innocent people may have trouble making transactions or get caught in the hassle of some overzealous agent. It’s a big mess.

This is an absurd proposal. The odds of any criminal being caught by added red tape are trivially small. Yet the bureaucrats at the Federal Reserve and Treasury are pushing this new regulation because they don’t care about costs that are borne by others.

Ideally, the entire reporting regime should be scrapped. As an interim measure, the $3,000 figure should be adjusted for the inflation that’s occurred since 1996, which would push the reporting limit to about $5,000.

Since we’re on the topic of inflation and reporting requirements, Prof. Randall Holcombe wrote an article for the Foundation for Economic Education about the anti-privacy reporting rules for other financial transactions.

…the Currency and Foreign Transactions Reporting Act of 1970 requires that financial institutions must keep records of cash transactions summing to more than $10,000 in one day and report suspicious transactions to the federal government. …because the limit is stated as a dollar amount ($10,000), inflation lowers the real value of that limit year after year. Adjusting for inflation, $10,000 in 1970, when the Act was passed, would be $65,000 today. …it appears to me the Act violates the Fourth Amendment, which states in part, “The right of the people to be secure in their persons, houses, papers, and effects, against unreasonable searches and seizures, shall not be violated…”

Let’s close with a story in the Wall Street Journal that highlights how ordinary people are victimized by AML laws.

Mary Ann Liegey, a retired teacher in Manhasset, N.Y., was shocked in March when she received a letter from her local parish: “Your $20 check payable to St. Mary’s Church…was returned due to Frozen/Blocked Account.” The 75-year-old Ms. Liegey discovered that Citigroup Inc. had blocked her checking and trust accounts after she didn’t respond to a notice asking her for personal information to verify the accounts—part of the bank’s efforts to comply with government-mandated rules referred to as “know your customer,” or KYC. The rules are designed to make it harder for money launderers, terrorists and other criminals to finance illicit activities, hide funds or move dirty money around the globe. …The difficulty and complexity of these reviews are exacerbated by advances in technology that have fundamentally changed the ways people interact with banks. More customers are opening accounts or interacting through mobile apps rather than by walking into a branch and presenting physical identification.

Ms. Liegey isn’t the only victim.

There’s also Mr. Laderer.

Bill Laderer, who owns a landscaping business in Sea Cliff, N.Y., groused that Capital One Financial Corp. suddenly cut off his credit card because he hadn’t provided an employee identification number for his business, which has operated since 1941.

And Ms. Griffit.

Donna Griffit has had a Citigroup account for her California-based business, which helps startups craft pitches, for more than a decade. At the beginning of February, she got a letter saying the bank needed unspecified information from her by month’s end or her account could be closed. When she called the bank a few days later, no one could figure out what was needed, and the bank said it would get back to her, she recalled. She thought it was resolved. But in June, she discovered her account had been frozen.

I’ll close with this excerpt, which shows that all of us are actually victims because banks are spending lots of money to comply with AML/KYC laws.

Needless to say, those costs are passed along to customers.

…the average spending on KYC-related procedures for corporate and asset-manager clients by financial institutions with more than $10 billion in revenue grew to $150 million last year, with each having about 300 employees directly involved, up from just 68 a year prior.

What makes these laws so perverse is that they impose high costs on both individuals and businesses.

Yet they don’t reduce crime.

They don’t reduce terrorism.

They don’t stop drug dealers.

They don’t stop the mafia.

The bottom line is that you don’t help law enforcement by creating haystacks of data and then expect them to find needles.

Nonetheless, politicians support these laws because they can tell their constituents that they’re fighting bad people.

P.S. A recent aspect of AML/KYC laws is that there are proposals to ban cash (including the $100 bill).

P.P.S. In my campaign to be a global money launderer, I have one victory and one defeat.

P.P.P.S. Statists frequently demagogue against so-called tax havens for supposedly being hotbeds of dirty money, but take a look at this map put together by the Institute of Governance and you’ll find only one low-tax jurisdiction among the 28 nations listed.

P.P.P.P.S. You probably didn’t realize you could make a joke involving money laundering, but here’s one starring President Obama.

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The Economic Impact of the Biden Agenda

The good news is that the election season is almost over. The bad news is that we’ll have a president next year who does not embrace classical liberal principles of free markets and social tolerance.

But that doesn’t mean Trump and Biden are equally bad. Depending on what issues you think are most important, they’re not equally bad in what they say. And, because politicians often make insincere promises, they’re not equally bad in what they’ll actually do.

Regarding Trump, we have a track record. We know he’s pro-market on some issues (taxes and red tape) and we know he’s anti-market on other issues (spending and trade).

Regarding Biden, we have his track record in the United States Senate, where he routinely voted to expand the burden of government.

But we also have his presidential platform. And that’s the topic for today’s column. We’re going to review the major economic analyses that have been conducted on his proposals.

We’ll start with a report from Moody’s Analytics, authored by Mark Zandi and Bernard Yaros, which compares the economic impacts of the Trump and Biden agendas.

The economic outlook is strongest under the scenario in which Biden and the Democrats sweep Congress and fully adopt their economic agenda. In this scenario, the economy is expected to create 18.6 million jobs during Biden’s term as president, and the economy returns to full employment, with unemployment of just over 4%, by the second half of 2022. During Biden’s presidency, the average American household’s real after-tax income increases by approximately $4,800, and the homeownership rate and house prices increase modestly. Stock prices also rise, but the gains are limited. …Near-term economic growth is lifted by Biden’s aggressive government spending plans, which are deficit-financed in significant part. …Greater government spending adds directly to GDP and jobs, while the higher tax burden has an indirect impact through business investment and the spending and saving behavior of high-income households. …The economic outlook is weakest under the scenario in which Trump and the Republicans sweep Congress and fully adopt their economic agenda. …Trump has proposed much less expansive support to the economy from tax and spending policies.

Here’s the most relevant set of graphs from the report.

The Moody’s study is an outlier, however. Most other comprehensive analyses are less favorable to Biden.

For instance, a study for the Hoover Institution by Timothy Fitzgerald, Kevin Hassett, Cody Kallen, and Casey Mulligan, finds that Biden’s plan will weaken overall economic performance.

We estimate possible effects of Joe Biden’s tax and regulatory agenda. We find that transportation and electricity will require more inputs to produce the same outputs due to ambitious plans to further cut the nation’s carbon emissions, resulting in one or two percent less total factor productivity nationally. Second, we find that proposed changes to regulation as well as to the ACA increase labor wedges. Third, Biden’s agenda increases average marginal tax rates on capital income. Assuming that the supply of capital is elastic in the long run to its after-tax return and that the substitution effect of wages on labor supply is nontrivial, we conclude that, in the long run, Biden’s full agenda reduces fulltime equivalent employment per person by about 3 percent, the capital stock per person by about 15 percent, real GDP per capita by more than 8 percent, and real consumption per household by about 7 percent.

Wonkier readers may be interested in these numbers, which show that there’s a modest benefit from unwinding some of Trump’s protectionism, but there’s a lot of damage from the the other changes proposed by the former Vice President.

In a report authored by Garrett Watson, Huaqun Li, and Taylor LaJoie, the Tax Foundation estimated the impact of Biden’s proposed policies. Here are some of the highlights.

According to the Tax Foundation General Equilibrium Model, Biden’s tax plan would reduce the economy’s size by 1.47 percent in the long run. The plan would shrink the capital stock by just over 2.5 percent and reduce the overall wage rate by a little over 1 percent, leading to about 518,000 fewer full-time equivalent jobs. …Biden’s tax plan would raise about $3.05 trillion over the next decade on a conventional basis, and $2.65 trillion after accounting for the reduction in the size of the U.S. economy. While taxpayers in the bottom four quintiles would see an increase in after-tax incomes in 2021 primarily due to the temporary CTC expansion, by 2030 the plan would lead to lower after-tax income for all income levels.

Table 2 from the report is worth sharing because it shows what policies have the biggest economic impact.

The bottom line is that it’s not a good idea to raise the corporate tax burden and it’s not a good idea to worsen the payroll tax burden.

Here are some excerpts by a study authored by Professor Laurence Kotlikoff for the Goodman Institute.

The micro analysis is based on The Fiscal Analyzer (TFA), which uses data from the Federal Reserve’s Survey of Consumer Finance to calculate how much representative American households will pay in taxes net of what they will receive in benefits over the rest of their lives. …The key micro issues…are the degree to which the Vice President’s reforms alter relative remaining lifetime net tax burdens and lifetime spending of the rich and poor within specific age cohorts and the impact of the reforms on incentives to work, i.e., remaining lifetime marginal net tax rates. The macro analysis is based on the Global Gaidar Model (GGM)…a dynamic, 90-period OLG, 17-region general equilibrium model. …The analysis includes three sets of findings. The first is the change in lifetime net taxes defined as the change in lifetime net taxes. The second is the percentage change in lifetime spending, defined as the change in the present value of outlays on all goods and services as well as bequests, averaged across all survivor path. The third is the lifetime marginal net tax rate from earning an extra $1,000. TFA’s lifetime marginal net tax rate measure takes full account of so-called double taxation. …The GGM predicts a close to 6 percent reduction in the U.S. capital stock. The GGM predicts close to a 2 percent permanent reduction in annual U.S. GDP.  The GGM predicts a roughly 2 percentage-point reduction in wages of U.S. workers, with a larger reduction in the wages of high-skilled workers.

In a study for the Committee to Unleash Prosperity, Professor Casey Mulligan estimated the following effects.

This study addresses the impact of these tax rate changes on economic behavior – work, investment, output and growth. This study finds that the Biden tax agenda will reduce production, incomes, and employment per capita by increasing taxation of both labor and business capital. Employment will be about 3 million workers less in the long run (five to ten years). This employment effect is primarily due to the agenda’s expansion of health insurance credits, which raises the average marginal tax rates on labor income by 2.4 percentage points. Biden also plans to increase taxes on businesses and their owners by a combined 6 to 10 percentage points. These taxes will reduce long-run wages, GDP per worker, and business capital per worker in the long run. By decreasing both the number of workers per capita and GDP per worker, respectively, these two key elements of Biden’s agenda reinforce to significantly reduce GDP per capita and average household incomes. I estimate that, as a result of Biden’s tax agenda, real GDP per capita would be 4 to 5 percent less, which is about $8,000 per household per year in the long run. The two parts of the tax agenda combine to reduce real per capita business capital by 7 to 12 percent in the long run.

Here’s a table from the study.

I’ll add two points to the above analyses.

First, the reason that the Moody’s study produces wildly different results is that its model is based on Keynesian principles. As such, a bigger burden of government spending is assumed to stimulate growth.

For what it’s worth, I think borrowing and spending can lead to short-run increases in consumption, but I’m very skeptical that Keynesian policies can generate increases in national income (i.e., what we produce rather than what we consume) over the medium-run or long-run.

All of the other studies rely on models that estimate how government policies impact incentives to engage in productive behavior. They don’t all measure the same things (some of the studies look solely at taxes, some look at overall fiscal policy, and some also include a look at regulatory proposals) but the methodologies are similar.

Second, I’ll re-emphasize the point I made at the beginning about how politicians routinely say things during campaigns that are either insincere or impractical.

For instance, Trump promised to restrain domestic discretionary spending by $750 billion and he actually increased it by $700 billion.

Likewise, I don’t expect Biden (assuming he prevails) to deliver on his campaign promises. In this case, that’s good news since he won’t increase taxes and spending by nearly as much as what he’s embraced during the campaign (in my fantasy world, he turns out be like Bill Clinton and actually delivers a net reduction in the burden of government).

P.S. For those on the losing side of the upcoming election, I’ll remind you that Australia is probably the best option if you want to escape the United States. Though you may want to pick Switzerland if you have a lot of money.

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