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Ending Illegal Congressional Obamacare Exemption Should be a No-Brainer

Wed, 08/02/2017 - 10:00am

President Trump implied in a pair of recent tweets that he wants to end the special Obamacare exemption granted to Congress by Obama’s OPM.

If a new HealthCare Bill is not approved quickly, BAILOUTS for Insurance Companies and BAILOUTS for Members of Congress will end very soon!

— Donald J. Trump (@realDonaldTrump) July 29, 2017

If ObamaCare is hurting people, & it is, why shouldn’t it hurt the insurance companies & why should Congress not be paying what public pays? — Donald J. Trump (@realDonaldTrump) July 31, 2017

CF&P recently joined a coalition of more than 30 organizations calling for precisely this action. It ought to be a no-brainer.

The exemption subverts a requirement, passed due to public demand, that members of Congress and their staff buy insurance through an Obamacare exchange, and that they do so without the generous employer contribution to which they were accustomed. In other words, that they experience the individual exchanges in the same fashion as millions of Americans.

Instead of living under the same law they foisted upon the American people, panicked members of Congress begged the administration to bail them out. Then-President Obama directed OPM to absurdly rule that Congress, which employs thousands, is a small business and therefore entitled to use the taxpayer subsidized DC small business exchange. But to be a small business requires having less 50 employees, so both the House and Senate filed fraudulent forms attesting that they employed less than 50 people, a fact which was only uncovered through litigation.

Trump believes forcing Congress to live under Obamacare will encourage them to repeal and replace it. I’m not so convinced. While it might create an additional incentive to reform, I don’t think it’s going to suddenly force a consensus on what shape that reform should take.

But even if it doesn’t make Obamacare repeal any more likely, he should do it anyway because it’s the right thing to do. The exemption is illegal and unconstitutional, and requires the filing of forms containing knowingly false information in order to obtain. It’s an obvious issue of good government that Congress not be allowed to sidestep provisions of the laws it passes, much less to do so using such tactics.

If Americans have to live under Obamacare, then Congress should as well.

Early Evidence Doesn’t Bode Well for Finland’s Basic Income Experiment

Tue, 08/01/2017 - 12:00pm

The notion that government should automatically give everyone money – a policy known as “universal basic income” – is now getting a lot of attention.

From an economic perspective, I acknowledge that the idea should not be summarily rejected. Here’s some of what I wrote earlier this year.

…there actually is a reasonable argument that the current welfare state is so dysfunctional that it would be better to simply give everyone a check instead.

But I’m nonetheless very skepitcal. Simply stated, the math doesn’t work, people would have less incentive to work, and there would be “public choice” pressures to expand the size of the checks.

So when the topic came up as part of a recent interview, I criticized the proposal and praised Swiss voters for rejecting – by an overwhelming margin – a referendum that would have created a basic income in that nation.

My reaction was probably even more hostile than normal because I don’t like it when guilt-ridden rich people try to atone for their wealth by giving away my money.

Moreover, it’s silly for Zuckerberg to use Alaska as an example because of its oil wealth and small population.

That being said, if I had more time, I would have been more nuanced and pointed out that we hopefully will learn more from some of the experiments that are happening around the world. Especially what’s happening on the other side of the north pole from Alaska.

The New York Times published an in-depth preview of Finland’s experiment late last year. Here’s a description of the problem that Finnish policymakers want to solve.

…this city has…thousands of skilled engineers in need of work. Many were laid off by Nokia… While entrepreneurs are eager to put these people to work, the rules of Finland’s generous social safety net effectively discourage this. Jobless people generally cannot earn additional income while collecting unemployment benefits or they risk losing that assistance. For laid-off workers from Nokia, simply collecting a guaranteed unemployment check often presents a better financial proposition than taking a leap with a start-up.

For anyone who has studied the impact of redistribution programs on incentives to work, this hardly comes as a surprise.

Indeed, the story has both data and anecdotes to illustrate how the Finnish welfare state is subsidizing idleness.

In the five years after suffering a job loss, a Finnish family of four that is eligible for housing assistance receives average benefits equal to 73 percent of previous wages, according to data from the Organization for Economic Cooperation and Development. That is nearly triple the level in the United States. …the social safety net…appears to be impeding the reinvigoration of the economy by discouraging unemployed people from working part time. …Mr. Saloranta has his eyes on a former Nokia employee who is masterly at developing prototypes. He only needs him part time. He could pay 2,000 euros a month (about $2,090). Yet this potential hire is bringing home more than that via his unemployment benefits. “It’s more profitable for him to just wait at home for some ideal job,” Mr. Saloranta complains.

So the Finnish government wants to see if a basic income can solve this problem.

…the Finnish government is exploring how to change that calculus, initiating an experiment in a form of social welfare: universal basic income. Early next year, the government plans to randomly select roughly 2,000 unemployed people — from white-collar coders to blue-collar construction workers. It will give them benefits automatically, absent bureaucratic hassle and minus penalties for amassing extra income. The government is eager to see what happens next. Will more people pursue jobs or start businesses? How many will stop working and squander their money on vodka? Will those liberated from the time-sucking entanglements of the unemployment system use their freedom to gain education, setting themselves up for promising new careers? …The answers — to be determined over a two-year trial — could shape social welfare policy far beyond Nordic terrain.

The results from this experiment will help answer some big questions.

…basic income confronts fundamental disagreements about human reality. If people are released from fears that — absent work — they risk finding themselves sleeping outdoors, will they devolve into freeloaders? “Some people think basic income will solve every problem under the sun, and some people think it’s from the hand of Satan and will destroy our work ethic,” says Olli Kangas, who oversees research at Kela, a Finnish government agency that administers many social welfare programs. “I’m hoping we can create some knowledge on this issue.” …Finland’s concerns are pragmatic. The government has no interest in freeing wage earners to write poetry. It is eager to generate more jobs.

As I noted above, this New York Times report was from late last year. It was a preview of Finland’s experiment.

People have been getting checks for several months. Are there any preliminary indications of the impact?

Well, the good news is that recipients apparently like getting free money. Here are some excerpts from a report by Business Insider.

…some of the 2,000 recipients are already reporting lower levels of stress. The $600 they receive each month might not be much, but it’s enough to put some people’s anxiety at ease.

But the bad news is that the handouts are giving people the flexibility to reject work.

Marjukka Turunen, head of Kela’s legal benefits unit, told Kera News. “There was this one woman who said: ‘I was afraid every time the phone would ring, that unemployment services are calling to offer me a job,’”… Scott Santens, a basic income advocate and writer…says basic income redistributes power into the middle-class — namely, to turn down unappealing jobs.

The last sentence of the excerpt is particularly worrisome. Some advocates think universal handouts are good precisely because people can work less.

It’s obviously too early to draw sweeping conclusions, especially based on a couple of anecdotes.

However, a recent column in the New York Times by two left-leaning Finns suggests that the data will not be favorable to universal handouts. The authors start with a basic explanation of the issue.

Universal basic income is generating considerable interest these days, from Bernie Sanders, who says he is “absolutely sympathetic” to the idea, to Mark Zuckerberg, Facebook’s chief executive, and other tech billionaires. The basic idea behind it is that handing out unconditional cash to all citizens, employed or not, would help reduce poverty and inequality… As a rich country in the European Union, with one of the highest rates of social spending in the world, Finland seemed like an ideal testing ground for a state-of-the-art social welfare experiment. …Kela, the national social-insurance institute, randomly selected 2,000 Finns between 25 and 58 years of age who were already getting some form of unemployment benefits. The subsidies were offered to people who had been unemployed for about one year or more, or who had less than six months of work experience.

But then they denigrate the study.

…the Finnish trial was poorly designed… The trial size was cut to one-fifth of what had originally been proposed, and is now too small to be scientifically viable. Instead of giving free money to everyone, the experiment is handing out, in effect, a form of unconditional unemployment benefits. In other words, there is nothing universal about this version of universal basic income. …The government has made no secret of the fact that its universal basic income experiment isn’t about liberating the poor or fighting inequality. Instead, the trial’s “primary goal” is “promoting employment,” the government explained in a 2016 document proposing the project to Parliament. Meaning: The project was always meant to incentivize people to accept low-paying and low-productivity jobs.

Maybe I’m reading between the lines, but it sounds like they are worried that the results ultimately will show that a basic income discourages labor supply.

Which reinforces my concerns about the entire concept.

Yes, the current system is bad for both poor people and taxpayers. But why would anyone think that we’ll get better results if we give generous handouts to everyone?

So if we replace all those handouts with one big universal handout, is there any reason to expect that somehow people will be more likely to find jobs and contribute to the economy?

Again, we need to wait another year or two before we have comprehensive data from Finland. But I’m skeptical that we’ll get a favorable outcome.

P.S. Since I rarely write about Finland, I should point out that it is ranked #20 for economic liberty, only four spots behind the United States (and the country is more pro-market than America when looking at non-fiscal policy factors).

P.P.S. On the minus side, Finland has decided that broadband access is somehow a human right. On the plus side, the country’s central bank produces good research on the burden of government spending, and its former president understood the essential flaw of Keynesian economics.

Congressional Coalition Weighs in for TV White Spaces to Bring Rural Broadband

Mon, 07/31/2017 - 4:46pm

A bipartisan coalition of 43 House Members sent a letter today urging the FCC to promote rural broadband access. Like CF&P’s own comments, the coalition urges the FCC to preserve three whites spaces channels in every market so that private innovation can work to close the digital divide.

From the letter:

According to the FCC’s 2016 Broadband Progress Report, approximately 34 million Americans do not have broadband internet access. Of these, about 24 million live in rural communities that lack the network infrastructure necessary to provide a reliable and affordable broadband connection. This means students, farmers, doctors, law enforcement officials, and families across rural America are unable to access the internet and, consequentially, are being denied the economic, health, and public safety advances enabled by that access.

…We believe that the television white spaces (TVWS) have strong potential to revolutionize broadband internet accessibility in rural areas. TVWS allows a broadband internet connection to cover 9 miles, while navigating the physical terrain that at times can make wireless broadband connectivity difficult. Because of this range, these internet connections are extremely cost-effective requiring minimal infrastructure investments, and are far more dependable than the limited connections that many rural areas currently have.

The effort was led by Congressman Kevin Cramer (R-N.D.), a former utility regulator, and co-led by Reps. Cathy McMorris Rodgers (R-Wash.), Peter Welch (D-Vt.), Mark Meadows (R-N.C.), Mark Pocan (D-Wis.), Austin Scott (R-Ga.), Suzan DelBene (D-Calif.), Darrell Issa (R-Calif.), Anna Eshoo (D-Calif.), and Mark Walker (R-N.C.). Together they represent leadership from both parties, key committees, and influential factions like the House Freedom Caucus and the Republican Study Committee.

The letter is a rare example of unity in today’s polarized political environment.

If the FCC follows the advance in the letter, it will pave the way for companies like Microsoft to solve an important social and economic issue. Notably, the issue requires no expansion of government authority as the FCC already controls the TV band. The agency need only use its authority wisely to provide regulatory certainty and foster an environment conducive to private investment and innovation.

In My Fantasies, Here’s How Donald Trump Wins on Obamacare

Mon, 07/31/2017 - 12:05pm

In the eight years of writing this column, I’ve periodically confessed to certain fantasies. But you’ll notice that these fantasies don’t involve supermodels from Victoria’s Secret (though they did make a cameo appearance in one column).

Instead, either because I’m getting old or because I’m a dorky libertarian, my fantasies involve public policy. Here are imaginary things that have caused my pulse to quicken.

I now have a new fantasy. It involves Donald Trump. But the fantasy doesn’t involve the size of his hands, or any other body part.

Instead, I want President Trump to use his existing power to create irresistible pressure for Obamacare repeal.

Simply stated, I’m fantasizing that this tweet becomes reality.

If a new HealthCare Bill is not approved quickly, BAILOUTS for Insurance Companies and BAILOUTS for Members of Congress will end very soon!

— Donald J. Trump (@realDonaldTrump) July 29, 2017

Michael Cannon, my prescient colleague at the Cato Institute, has been urging this approach since the beginning of the year.

Here’s some of what he wrote for National Review.

Trump…can restore the Constitution’s limits on executive power, provide relief to Americans suffering under Obamacare, and hasten repeal.

Michael has a 14-point list, but here are the ones that matter for our purposes today.

First, put pressure on Congress.

1. End Congress’s illegal Obamacare exemption. Obamacare threw members of Congress and congressional staff out of their health plans and in effect cut their pay by up to $12,000 per year. Obama ignored the law and made illegal payments to private insurance companies on behalf of members of Congress and their staff for six years — all to prevent Congress from reopening the law. Trump should announce that he will end those illegal payments immediately, and that he will veto any bill restoring the pay cut that Obamacare dealt Congress, until Congress earns that money by repealing and replacing the law. Congress shouldn’t get an exemption from Obamacare until the American people do. Democrats who actually voted for Obamacare especially should have to live under it.

Second, put pressure on insurance companies.

2. End Obamacare’s unconstitutional cost-sharing subsidies. In House v. Burwell, a federal judge ruled that the Obama administration “violate[d] the Constitution” by paying billions of dollars in “cost-sharing” subsidies to private insurance companies without a congressional appropriation. Trump should immediately drop the Obama administration’s appeal of that decision, stop the unconstitutional payments, and prevent insurers from canceling Obamacare plans until 2018.

3. End Obamacare’s illegal “reinsurance” payments. The Government Accountability Office found that the Obama administration illegally diverted additional billions of dollars in “reinsurance” payments from the Treasury to private insurance companies. Trump should immediately stop the diversion of those funds and demand that insurers repay the more than $3 billion in unlawful payments they have received.

4. Block Big Insurance’s “risk-corridor” raid on the Treasury. The Obama administration tried to circumvent a statutory cap on “risk-corridor” payments to private insurance companies by offering to settle lawsuits filed by the insurers. Trump should immediately announce that his administration will not settle but will instead vigorously defend taxpayers’ interests in all such lawsuits.

Needless to say, the combination of angst-ridden folks on Capitol Hill and angst-ridden bigwigs from insurance companies would probably be more than enough to get weak-kneed Republicans to climb on board for repeal.

Indeed, in my fantasy, Trump uses his bully pulpit (and Twitter account) to specifically pressure those callow Republicans who voted for major repeal in 2015 and then flip-flopped and voted against various (usually partial) repeal proposals earlier this month.

Various media sources certainly agree that Trump has a huge amount of leverage.

Here are excerpts from a Bloomberg story.

Ending the CSR subsidies, paid monthly to insurers, is one way that Trump could hasten Obamacare’s demise without legislation, by prompting more companies to raise premiums in the individual market or stop offering coverage. …health-care analyst Spencer Perlman at Veda Partners LLC said in a research note that there’s a 30 percent chance Trump will end CSR payments, which may “immediately destabilize the exchanges, perhaps fatally.” …Many insurers have already dropped out of Obamacare markets in the face of mounting losses, and blamed the uncertainty over the future of the cost-sharing subsidies and the individual mandate as one of the reasons behind this year’s premium increases.

The Blaze has a similar report.

President Donald Trump announced on Saturday that if Congress doesn’t act soon on health care, he could end federal “BAILOUTS” for insurance companies, which could effectively force Congress to act or else put health insurance companies in the difficult position of having to raise rates on people who can’t afford to pay them or to leave Obamacare exchanges entirely. …The “BAILOUTS” to insurance companies Trump referred to in his tweet are “cost sharing reduction” payments… If Trump were to withhold these funds from health insurance companies, it would likely result in many insurers choosing to leave the Obamacare health insurance exchanges… If health insurance companies choose to leave the insurance exchanges, which is the most likely response, it could catalyze the collapse of the Obamacare exchange system, making it more difficult for members of Congress to wait on implementing a repeal and replace bill.

And here are passages from a Wall Street Journal story.

President Donald Trump made one of his most explicit threats to cut off payments to insurance companies to force senators and lobbyists back to the bargaining table for a GOP health-care bill, and saying, for the first time, that he was also willing to cancel some of lawmakers’ health-care benefits. …Those payments have been challenged in court by House Republicans, who argue the funds were never authorized by Congress. A federal judge has sided with the House but allowed the payments to continue until the litigation concludes. Democrats have said that cutting off the payments would be tantamount to sabotaging the insurance markets… Mr. Trump’s Saturday tweet…also the first to mention that he was open to another idea proposed by conservative activists to pull lawmakers back to the task of a health-care bill: cutting off their existing health benefits. …some lawmakers contending that it is an end-run around a provision in the 2010 health law that requires members of Congress to get their health coverage like other Americans.

Keep in mind, by the way, that this isn’t just a matter of political brinksmanship. The various payments to insurance companies are either not authorized by the law, or they were authorized and Congress has declined to appropriate funds. In other words, these payments make a mockery of the rule of law. They are illegal and/or unconstitutional.

Moreover, my former Heritage colleague Mike Needham has a good explanation of how the Obama Administration preposterously decided to classify Congress as a small business in order to enable subsidies that were not part of the Obamacare legislation. Once again, throwing the rule of law overboard for political convenience (which was a pattern with the previous Administration).

So even if Trump didn’t want to get rid of Obamacare, these payments should end.

But we may as well make a policy virtue out of legal necessity by getting rid of these payments as part of a campaign to pressure Capitol Hill to do what’s right and get rid of the disastrous Obamacare legislation.

P.S. Never forget that we wouldn’t be in this mess if John Roberts had upheld his oath and ruled that Obamacare was unconstitutional.

P.P.S. From the moment he emerged on the national stage, I’ve been worried that Donald Trump would preside over an expansion in the burden of government. But if there’s a libertarian bone in his body, it becomes apparent when he tweets. Not only did he tweet a very appropriate and effective threat against Obamacare yesterday, he also tweeted a very appropriate and effective threat about a government shutdown back in May.

Senator Chris Murphy and the All-Encompassing State

Sun, 07/30/2017 - 12:35pm

As a former Connecticut resident, I’m ashamed that my home state, which used to be a success story with no income tax, has morphed into a high-tax welfare state that is now increasingly infamous for the outflow of productive people and taxable income.

And even though I left several decades ago, I also feel vaguely guilty that my former state produces politicians such as Senator Chris Murphy.

Most people have never heard of him since he’s never accomplished anything in Washington. Though I would argue that’s a good thing since he’s a knee-jerk statist.

But I gather that Senator Murphy no longer wants to be in the shadows. Here’s a tweet he issued yesterday that has received a lot of publicity.

Last night proved, once again, that there is no anxiety or sadness or fear you feel right now that cannot be cured by political action.

— Chris Murphy (@ChrisMurphyCT) July 28, 2017

Wow, this is an astounding display of statolatry. The kind of statement one might expect from a functionary in a totalitarian regime. Or maybe a line from George Orwell’s 1984. Just think of the implications:

  • Are you afraid of spiders? Hey, government can help!
  • Are there dandelions in your yard? Don’t worry, Big Brother to the rescue!
  • Did McDonald’s forget to include a toy in your Happy Meal? Time for political action!

While his views are reprehensible, I’m actually glad Senator Murphy inadvertently revealed his statism. If nothing else, it’s produced some clever humor. The folks at Twitchy have been sharing this tweet, which came from a parody account for a North Korean news service.  

US senator Chris Murphy of Connecticut province endorses Juche Idea of Great Leader Kim Il-Sung, political action as cure for all human ills https://t.co/e0wRit5yD6 — DPRK News Service (@DPRK_News) July 28, 2017

By the way, if you’re like me and are not familiar with “Juche,” it’s apparently a North Korean twist on Marxism.

In other words, take the traditional horror of communism and then add a layer of autarky to ensure even greater misery.

And here’s another amusing take, juxtaposing Murphy’s statolatry with Reagan’s wisdom (see last video from this collection). And they even demoted him to Representative rather than Senator.

But we shouldn’t merely mock Murphy.

His views truly are reprehensible because they imply there is no element of human existence that is independent of government. The state is everything.

And if that sounds familiar, it’s probably because you know something about economics, philosophy, and history. The most evil people in world history have expressed the same sentiment.

Such as the leader of Germany’s National Socialist Workers Party.

And the first dictator of the Soviet Union.

 

Though if I had to pick the quote that is closest to Murphy’s, it would be this awful statement from Mussolini.

 

Senator Murphy obviously doesn’t share the horrid ideology of either national socialism or international socialism, so his version of statolatry is far more benign.

Sort of like this cartoon instead of gulags and concentration camps.

But I still think his views are reprehensible. We’re not children and the government is not our parents. America’s Founding Fathers strictly limited the powers of the federal government because they understood the risks of a coercive state dictating our lives. Even if it’s benign statism rather than totalitarian statism.

Why the Private Sector Does a Better Job than the Government

Sat, 07/29/2017 - 12:31pm

When I give speeches about the economic case for small government, one of my main points is that people in the private sector (workers, investors, managers, entrepreneurs, etc) are motivated by self interest to allocate labor and capital efficiently. To be more specific, the pursuit of higher pay and greater profit will lead people to allocate resources productively.

I freely admit that people in the private sector make mistakes (most new business ventures ultimately fail, for instance), but I explain that’s part of a dynamic process in a market economy. Every success and every mistake leads to feedback, both via the price system and also via profits and losses. All of which leads to continuous changes as people – especially entrepreneurs – seek to better serve the needs and wants of consumers, since that’s how they can increase their income and wealth.

In other words, Adam Smith was right when he said that self-interest encourages people to focus on making others better off.

By contrast, when politicians and bureaucrats allocate resources (either directly via spending programs, or indirectly via regulation or tax distortions), feedback mechanisms are very weak. Once politicians intervene, they never seem to care if they are generating positive results. There are plenty of examples, however, of government imposing high costs while producing no benefits. Or even producing harm.

And let’s not forget that “Public Choice” teaches us that interest groups will manipulate government to obtain unearned benefits.

The main lesson from all this information is that it’s good to have small government rather than large government.

But there’s a secondary lesson about how the economic harm of government can be reduced if market forces somehow can be part of the process. And that’s why a new study from two Italian economists at the Centre for Economic and International Studies is worth sharing.

The abstract of the study is a good summary.

We empirically investigate the effect of oversight on contract outcomes in public procurement. In particular, we stress a distinction between public and private oversight: the former is a set of bureaucratic checks enacted by contracting offices, while the latter is carried out by private insurance companies whose money is at stake through so-called surety bonding. We analyze the universe of U.S. federal contracts in the period 2005-2015 and exploit an exogenous variation in the threshold for both sources of oversight, estimating their causal effects on costs and execution time. We find that: (i) public oversight negatively affects outcomes, in particular for less competent buyers; (ii) private oversight has a positive effect on outcomes by affecting both the ex-ante screening of bidders – altering the pool of winning firms – and the ex-post behavior of contractors.

In other words, normal bureaucratic waste, featherbedding, and cost overruns are less likely when the private sector does the oversight.

And here’s an excerpt from the text for those who want more details.

…we propose a distinction between public and private oversight, depending on its source. Public oversight includes all formal checks – cost certifications, pricing data transmission, production surveillance – which the contracting authorities enact during the contract awarding phase and execution. It typically involves considerable paperwork for both the buyer and the sellers. At the cost of some red tape, it is aimed at alleviating the moral hazard problem… On the other hand, private oversight involves third parties – surety companies – issuing bonds (surety bonds) to secure the buyer against unpredictable events. If the seller fails to fulfill contractual tasks, contracting authorities make claims to recover losses. A surety is then called on either to complete the public work by themselves (i.e. with their own resources or by subcontracting) or to refund the authority of the bond value. Being liable in case of unsatisfactory contract outcomes, the sureties have strong incentives both to screen bidders (ex ante) and to monitor contractors (ex post). They help mitigate the asymmetry of information between the buyer and the sellers thanks to their experience of the market – i.e. access to private information – and the screening enacted through price discrimination on premia, which directly affects offers placed by potential contractors. Hence, private oversight enhances the selection of the best contractors and provides a second tier of monitoring of contractors’ progresses.

This is encouraging. It would be nice to have smaller government, but it also would be nice to get the most bang for the buck when the government does spend money.

To be sure, there are probably many parts of government that are impervious to market forces.

But surely there are many ways to protect taxpayers by creating incentives to save money.

  • For instance, on the programmatic level, we can enlist the private sector to fight rampant Medicare and Medicaid fraud by allowing private investigators to keep a slice of any recovered funds.
  • And on the sectoral level, we can achieve big educational gains with school choice, thus giving schools a bottom-line incentive to attract students with better outcomes.
  • Last but not least, we can rely on the competitive impact of federalism to encourage better macroeconomic policy by state and local governments.

The moral of the story, needless to say, is that the private sector does a better job than government. So let’s do what we can to unleash market forces. Be more like Hong Kong and less like Venezuela.

A Primer on Inequality, Growth, and Fairness

Fri, 07/28/2017 - 12:18pm

In addition to his exemplary work as a Senior Fellow at the Cato Institute, Johan Norberg narrates some great videos for Free to Choose Media. Here are some that caught my eye.

But my favorite video, which I shared back in January, is his concise explanation of why policy makers should focus on fighting poverty rather than reducing inequality.

I’m posting it again to set the stage for a discussion on inequality and fairness.

Now let’s dig into the main topic for today.

study by three academics from Yale’s Department of Psychology concludes that people want fairness rather than equality.

…there is no evidence that people are bothered by economic inequality itself. Rather, they are bothered by something that is often confounded with inequality: economic unfairness. Drawing upon laboratory studies, cross-cultural research, and experiments with babies and young children, we argue that humans naturally favour fair distributions, not equal ones, and that when fairness and equality clash, people prefer fair inequality over unfair equality.

My former grad school classmate Steve Horwitz wrote about the aforementioned study

…what we really care about is something other than inequality per se. We care about upward mobility, or average income overall, or how well the least well off do. …A recent study in Nature argued, with evidence, that what bothers people more than inequality per se is “unfairness.” People will accept inequality if they feel the process that produced it is fair. …when I give talks about inequality. I point out the number of Apple products visible in the room and ask them if they think the wealth Steve Jobs and other Apple founders accumulated over their lifetimes was objectionable. Is that the kind of inequality they object to? Students are usually hard-pressed to articulate why Jobs’ wealth is wrong… I also remind them that economic studies show that only about 4% of the total benefits of innovation accrue to the innovator. The rest goes to consumers.

Steve cites Nozick and Hayek to bolster his argument before then making the key point that markets produce material abundance based on genuine fairness.

As Robert Nozick argued in Anarchy, State, and Utopia: if each step in the evolution of the market is fair by itself, how can the pattern of income that emerges be unfair? …Hayek…observed in The Constitution of Liberty that if we want equality of outcomes, we will have to treat people unequally. If, however, we treat people equally, we will get unequal outcomes. Hayek’s argument was premised on the fact that human beings are not equal in our native intelligence, strength, skills, and abilities. …If people really care about fairness, then supporters of the market should be insisting on the importance of equality before the law. …Equality of outcomes requires that we treat people differently, and this will likely be perceived as unfair by many. Equality before the law corresponds better with notions of fairness even if the outcomes it produces are unequal. …If what appear to be concerns about inequality are, in fact, concerns about unfairness, we have ways of addressing them that demonstrate the power of exchange and competitive markets. Markets are more fair because they require that governments treat us all equally and that none of us have the ability to use political power to protect ourselves from the competition of the marketplace and the choices of consumers. In addition, market-based societies have been the best cure for poverty humans have ever known.

Writing for CapX, Oliver Wiseman analyzes other scholarly research on equality and fairness.

A 2012 study by behavioural economists Dan Ariely and Mike Norton generated some attention for demonstrating that Americans wanted to live in a more equal country. But more equal is not the same thing as fully equal. …if you let people choose between equal and unequal societies – and then tell them that they themselves will be assigned a level of wealth within it completely at random – most people choose inequality. And that preference is observable across the political spectrum, in different countries and at a range of ages.

But people don’t want undeserved inequality since that is the result of unfair interventions (i.e., cronyism).

This paper’s conclusions help explain much of the outcry over economic inequality in recent years. Occupy Wall Street and the very idea of the “one per cent” emerged just after the financial crisis plunged much of the world into recession, and US and British banks were handed billion-dollar bailouts to steady the ship. The anger didn’t come from the fact that bankers were so well paid. It came from the perception that they’d made that money by piling up risk rather than being particularly clever or hard-working – risk that was now being underwritten by the taxpayer. The wealth wasn’t just distributed unequally, but unfairly. The market mechanisms that most people accepted as the rules of the economic game suddenly seemed rigged. …Voters, in other words, don’t want equality – they want fairness. …As the Soviets found, true economic equality cannot be accommodated within a system that allows people tolerable levels of economic and political freedom. But fairness, by contrast, is something capitalism can – and should – deliver.

Professor Tyler Cowen of George Mason University cites some additional academic research buttressing the conclusion people don’t object to fair types of inequality.

…most Americans don’t mind inequality nearly as much as pundits and academics suggest. A recent research paper, by Graham Wright of Brandeis University, found that polled attitudes about economic inequality don’t correlate very well with the desire for government to address it. There is even partial evidence, once controls are introduced into the statistics, that talk of inequality reduces the support for doing something about it. …It’s not obvious why such counterintuitive results might be the case. One possibility is that…talk about economic inequality increases political polarization, which lowers the chance of effective action. Or that criticizing American society may cause us to feel less virtuous, which in turn may cause us to act with less virtue. …A variety of other research papers have been showing that inequality is not a major concern per se. One recent study by Matthew Weinzierl of Harvard Business School shows that most Americans are quite willing to accept economic inequality that stems from brute luck, and that they are inclined to assume that inequality is justified unless proved otherwise.

Last but not least, Anne Bradley of the Institute for Humane Studies augments this analysis by explaining the difference between ethical market-driven inequality versus unfair cronyist-caused inequality.

The question of whether income inequality is bad hinges on the institutions within that society and whether they support entrepreneurship and creativity or thuggery and exploitation. Income inequality is good when people earn their money by discovering new and better ways of doing things and, through the profit mechanism, are encouraged to bring those discoveries to ordinary people. …Rising incomes across all income groups (even if at different rates) is most often the sign of a vibrant economy where strangers are encouraged to serve each other and solve problems. Stagnant incomes suggest something else: either a rigged economy where only insiders can play, or an economy where the government controls a large portion of social resources, stalling incomes, wealth, and wellbeing.

She includes a very powerful example of why it can be much better to live in a society with high levels of (fair) inequality.

Consider the following thought experiment: knowing nothing other than the Gini index scores, would you rather live in a world with a Gini of .296 (closer to equality) or .537 (farther from equality)? Many people when asked this question choose the world of .296. These are the real Gini scores of Pakistan (.296) and Hong Kong (.537). If given the choice, I would live in Hong Kong without thinking twice. Hong Kong has a thriving economy and high incomes, and it is the world leader in economic freedom. The difference between these two countries could not be more striking. In Pakistan, there might be more income equality, but everyone is poorer. It is difficult to emerge out of poverty in Pakistan. Hong Kong provides a much richer environment where people are encouraged to start businesses, and this is the best hope for rising incomes, or income mobility.

Her example of Hong Kong and Pakistan is probably the most important takeaway from today’s column.

Simply stated, it’s better to be poor in a jurisdiction such as Hong Kong where there is strong growth and high levels of upward mobility. Indeed, I often use a similar example when giving speeches, asking audiences whether poor people are better off in Hong Kong, which has only a tiny welfare state, or better off in nations such as France and Greece, which have bloated welfare states but very little economic dynamism.

The answer is obvious. Or should be obvious, at least to everyone who wants to help the poor more than they want to punish the rich (and there are plenty in the latter camp, as Margaret Thatcher explained).

And I’m now going to add my China example to my speeches since inequality dramatically increased at the same time that there was a stupendous reduction in poverty.

Once again, the moral of the story should be obvious. Focus on growth. Yes, some rich people will get richer, but the really great news is that the poor will get richer as well. And so long as everyone is earning money through voluntary exchange rather than government coercion, that also happens to be how a fair economy operates.

America Needs Tax Cuts and Tax Reform, But Can the GOP Deliver?

Thu, 07/27/2017 - 12:44pm

It’s depressing to see how Republicans are bungling the Obamacare issue. But it’s also understandable since it’s politically difficult to reduce handouts once people get hooked on the heroin of government dependency (a point I made even before Obamacare was enacted).

Unfortunately, I fear that the GOP might bungle the tax issue as well. I was interviewed the other day by Dana Loesch on this topic and highlighted several issues.

Here’s the full discussion.

What’s especially frustrating about this issue is that taxes should be reduced. A lot.

Brian Riedl of the Manhattan Institute debunks six tax myths. Here they are, followed by my two cents.

Myth #1: Long-term deficits are driven by tax cuts and falling revenues

Fact: They are driven entirely by rapid spending growth

Brian nails it. I made this same point earlier this year. Indeed, because the tax burden is projected to automatically increase over time, it is accurate to say that more than 100 percent of the long-run fiscal problem is caused by excessive spending (particularly poorly designed entitlement programs).

Myth #2: Democratic tax proposals would significantly reduce the deficit

Fact: Their most common proposals would raise little revenue

Once again, Brian is right. There are ways to significantly increase the tax burden in America, such as a value-added tax. But the class-warfare ideas that attract a lot of support on the left won’t raise much revenue because upper-income taxpayers have substantial control over the timing, level and composition of their income.

Myth #3: Taxing millionaires and corporations can balance the long-term budget

Fact: These taxes cannot cover Washington’s current commitments, much less new liberal wish lists

Since even the IRS has admitted that upper-income taxpayers finance a hugely disproportionate share of the federal government, it hardly seems fair to subject them to even more onerous penalties. Especially since the IRS data from the 1980s suggest punitive rates could lead to less revenue rather than more.

Myth #4: The U.S. income tax is more regressive than other nations

Fact: It is the most progressive in the entire OECD

There are several ways to slice the data, so one can quibble with Brian’s assertion. But when comparing taxes paid by the rich compared to taxes paid by the poor, it is true that the United States relies more on upper-income taxpayers than any other developed nation. Not because we tax the rich more, but because we tax the poor less.

Myth #5: The U.S. tax code is becoming more regressive over time

Fact: It has become increasingly progressive over the past 35 years

Brian is right. Child credits, changes in the standard deduction and personal exemptions, and the EITC have combined in recent decades to take millions of households off the tax rolls. And since the U.S. thankfully does not have a value-added tax, lower-income people are largely protected from taxation.

Myth #6: Tax rates do not matter much to economic growth

Fact: They are among the most important factors

There are many factors that determine a nation’s economic success, including trade policyregulationmonetary policy, and rule of law, so a good tax code isn’t a guarantor of prosperity and a bad tax system doesn’t automatically mean malaise. But Brian is right that taxation has a significant impact on growth.

In the interview, I said that I had two fantasies. First, I want to junk the corrupt internal revenue code and replace it with a simple and fair flat tax.

Second, I’d ultimately like to shrink government so much that we could eliminate the income tax entirely.

Many people don’t realize that income taxes only began to plague the world about 100 years ago.

If we can somehow restore the kind of limited government envisioned by America’s Founders, the dream of no income tax could become a reality once again.

But if Republicans can’t even manage to cut taxes today, when they control both the executive and legislative branch, then neither one of my fantasies will ever become reality.

The United States Should Copy Canada, But Only the Good Parts

Wed, 07/26/2017 - 12:29pm

Canada is now one of the world’s most economically free nations thanks to relatively sensible policies involving spending restraintcorporate tax reformbank bailoutsregulatory budgeting, the tax treatment of saving, and privatization of air traffic control. Heck, Canada even has one of the lowest levels of welfare spending among developed nations.

So when I saw a column in the Atlantic, suggesting that America can learn from Canada, I was instantly intrigued.

But it turns out that the author, Jonathan Kay, was more interested in extolling the virtues of big government rather than boasting about his nation’s economic reforms.

He starts by grousing about sub-par infrastructure in America.

There hasn’t been a new major airport constructed in the United States since 1995. And the existing stock of terminals is badly in need of upgrades. Much of the surrounding road and rail infrastructure is in even worse shape (the trip from LaGuardia Airport to midtown Manhattan being particularly appalling). Washington, D.C.’s semi-functional subway system feels like a World’s Fair exhibit that someone forgot to close down. Detroit’s 90-year-old Ambassador Bridge—which carries close to $200 billion worth of goods across the Canada-U.S. border annually—has been operating beyond its engineering capacity for years.

I have little doubt that America has serious infrastructure problems, particularly in big cities (such as New York, Washington, and Detroit) where spending decisions are driven by a desire to line the pockets of unionized bureaucrats rather than to provide services to taxpayers.

But is the United States really some sort of third-world backwater compared to our northern cousins? A few years ago, I looked at data from the World Economic Forum’s Global Competitiveness Report to see how the United States was ranked for infrastructure and discovered America was in 12th place. Which was higher than Canada’s 15th-place ranking.

But maybe things have changed since 2014. So I perused the most recent rankings. Lo and behold, the United States actually jumped one spot, to #11, while Canada remained in 15th place.

I don’t want to imply that the United States has good infrastructure policy. As far as I’m concerned, increased federal involvement has caused our system to become somewhat dysfunctional.

But since Canada ranks even lower, perhaps Mr. Kay shouldn’t be throwing rocks in a glass house.

What makes his error noteworthy is that he then tries to argue that America’s supposedly inferior infrastructure is the result of inadequate taxation.

The United States is falling apart because—unlike Canada and other wealthy countries—the American public sector simply doesn’t have the funds required to keep the nation stitched together. …The Organization for Economic Co-Operation and Development (OECD), a group of 35 wealthy countries, ranks its members by overall tax burden—that is, total tax revenues at every level of government, added together and then expressed as a percentage of GDP—and in latest year for which data is available, 2014, the United States came in fourth to last. Its tax burden was 25.9 percent—substantially less than the OECD average, 34.2 percent. If the United States followed that mean OECD rate, there would be about an extra $1.5 trillion annually for governments to spend.

The obvious implication of Mr. Kay’s column is that a much bigger tax burden would lead to much better infrastructure.

Yet if that was the case, then why does the United States rank above Canada?

Heck, I also want to ask why Mr. Kay to explain why the l0w-tax outposts of Hong Kong and Singapore ranked #1 and #2 for infrastructure?

His entire column is a case study of sloppiness. He starts out with an easily falsifiable assertion about infrastructure and he then makes another easily falsifiable claim about taxes. Does the Atlantic not have any editors?

By the way, none of this is an attack on Canada. Indeed, if you look at Economic Freedom of the World, you will see that Canada has passed the United States and now has more economic liberty. Or perhaps it would be more accurate to say that America’s score dropped faster and farther than Canada’s score. In any event, Canada is now ranked #5 and the United States is #16.

In other words, there is much to admire in Canada. And much to copy.

But Mr. Kay apparently doesn’t want America to mimic pro-market reforms. Instead, he thinks the lesson to be learned is that there should be higher taxes in the United States.

Let’s look at two final excerpts from his column, starting with his observation about the joy of taxation.

It’s really quite simple: When Canadian governments need more money, they raise taxes. Canadians are not thrilled when this happens. But as Justice Oliver Wendell Holmes Jr. put it, taxes are the price paid “for civilized society.”

I can’t resist pointing out that Justice Holmes made his point about taxes and civilization back when the federal government only consumed about 5 percent of economic output. As I wrote in 2013, “I’ll gladly pay for that amount of civilization.”

And the final excerpt implies that the business community in Canada doesn’t mind taxes.

…when I recently interviewed Canadian business leaders about the challenges they perceive, the word taxes didn’t get mentioned much.

Since the federal corporate tax rate in Canada is 15 percent, far lower than the 35 percent federal corporate rate in the United States, I’m not surprised that Canada’s business leaders no longer think taxes are their biggest problem. So why doesn’t Mr. Kay argue we should copy that feature of the Canadian system?

Sigh. I joked back in 2012 that supporters of small government in the United States might want to escape to Canada because of all the market-oriented reform. These are the changes that Mr. Kay should be extolling.

P.S. I’m surprised Mr. Kay didn’t advocate that we copy Canada’s government-run health system. You know, the one that is so wonderful that a Canadian politician escaped to the U.S. for surgery while leaving ordinary Canadians stuck in long waiting lines.

P.P.S. To close on a light note, here’s a satirical article about American leftists trying to escape to Canada after the 2010 elections.

Jeff Sessions: Wildly Wrong on Civil Asset Forfeiture

Tue, 07/25/2017 - 12:37pm

Because America’s Founding Fathers properly wanted to protect citizens from government abuse, the Constitution has several provisions (presumption of innocence, ban on warrantless searches, right to jury trial, 5th Amendment protection against self-incrimination, and other due process legal protections) to protect our liberties.

So one can only imagine how Jefferson, Madison, Mason, et al, must be rolling in their graves as they contemplate the disgusting practice of civil asset forfeiturewhich basically allows agents of the government in the modern era to steal property from people who have not been convicted of any crime. I’m not joking.

Even worse, government agencies are allowed to profit from this form of theft, creating a terrible incentive for abuse.

Like certain other bad government policies that trample our rights (i.e., money-laundering laws that require banks to snoop on law-abiding customers), civil asset forfeiture is largely a result of the government’s failed War on Drugs. In other words, a classic example of one bad policy leading to other bad policies.

Widespread condemnation of civil asset forfeiture led to a tiny step in the right direction by the Obama Administration. And there have been positive reforms at the state level.

However, the Trump Administration and Justice Department are now pushing in the wrong direction.

Writing for USA Today, Professor Glenn Reynolds correctly castigates the Attorney General for his actions.

Attorney General Jeff Sessions wants to steal from you. Oh, he doesn’t call it that. He calls it “civil forfeiture.” But what it is, is theft by law enforcement. Sessions should be ashamed. If I were president, he’d be fired. Under “civil forfeiture,” law enforcement can take property from people under the legal fiction that the property itself is guilty of a crime. …It was originally sold as a tool for going after the assets of drug kingpins, but nowadays it seems to be used against a lot of ordinary Americans who just have things that law enforcement wants. …Once in America, we had a presumption of innocence. But that was inconvenient to the powers that be. The problem is pretty widespread: In 2015, The Washington Post reported that law enforcement took more stuff from people than burglars did. …Sessions is doing exactly the wrong thing by doubling down on asset seizure. The message it sends is that the feds see the rest of us as prey, not as citizens. The attorney general should be ashamed to take that position.

David French of National Review is similarly disgusted.

…civil asset forfeiture. It’s a gigantic law-enforcement scam (in 2014 the government took more money from citizens than burglars stole from crime victims), and it’s a constitutional atrocity. It’s a constitutional atrocity that Donald Trump’s Department of Justice just expanded. Yesterday, Attorney General Jeff Sessions revived an abusive program that allows state authorities to seize property and then transfer the property to the federal government to implement the forfeiture process. Once the Feds obtain forfeiture, they then share the proceeds with the seizing state agency. This allows state law enforcement to explicitly circumvent state forfeiture restrictions and profit while doing so. …civil forfeiture allows the government to deprive citizens of their property even when it doesn’t even try to prove that the citizen committed a crime. …if the last 30 years of constitutional jurisprudence have taught us anything, it’s that we can’t count on courts to protect the Constitution when the War on Drugs is at issue. Forfeiture expanded dramatically as part of the War on Drugs, and the Supreme Court has proven that it will undermine even the First Amendment when constitutional rights clash with drug-enforcement priorities.

Erick Erickson adds his condemnation in the Resurgent.

Attorney General Jeff Sessions…has decided to expand a positively unconstitutional policy that should be ruthlessly fought in courts and legislatures around the country. Jeff Sessions wants to seize the property of Americans accused of crimes even if they are never found guilty by a jury. …According to the Department of Justice’s Inspector General, the Drug Enforcement Agency alone has seized more than $3 billion from people not charged with a crime. …What is appalling here is that many states are enacting prohibitions on civil asset forfeiture, but the Attorney General wants to allow state and local law enforcement to use federal asset forfeiture laws to continue seizing property. Local law enforcement will thereby be able to get around their own states’ laws, so long as they share the spoils of their ill gotten gains with the federal government. This turns the concept of federalism on its head.

In a column for Reason, Damon Root of Reason adds his two cents.

…civil asset forfeiture is not a “lawful tool.” It is an unconstitutional abuse of government power. The Fifth Amendment forbids the government from depriving any person of life, liberty, or property without due process of law. Civil asset forfeiture turns that venerable principle on its head, allowing government agents to take what they want without the bother of bringing charges, presenting clear and convincing evidence, and obtaining a conviction in a court of law. It is the antithesis of due process. …Supreme Court Justice Clarence Thomas…recently explained in a statement respecting the denial of certiorari in the case of Leonard v. Texas, not only has civil asset forfeiture “led to egregious and well-chronicled abuses” by law enforcement agencies around the country, but the practice is fundamentally incompatible with the Constitution.

Last but not least, the editors of National Review make several important points.

Like the Democrats’ crackpot plan to revoke the Second Amendment rights of U.S. citizens who have been neither charged with nor convicted of a crime simply for having been fingered as suspicious persons by some anonymous operative in Washington, seizing an American’s property because a police officer merely suspects that he might be a drug dealer or another species of miscreant does gross violence to the basic principle of due process. No doubt many of the men and women on the terrorism watch list are genuine bad guys, and no doubt many of those who have lost their property to asset forfeiture are peddling dope. But we are a nation of laws, which means a nation of procedural justice. If the DEA or the LAPD wants to punish a drug trafficker, then let them build a case, file charges, and see the affair through to a conviction. We have no objection to seizing the property of those convicted of drug smuggling — or of crimes related to terrorism, or many other kinds of offenses. We object, as all Americans should object, to handing out these punishments in the absence of a criminal conviction. …No American should be deprived of liberty or property without due process.

Amen.

For those of us who honor the Constitution, civil asset forfeiture is a stain on the nation.

Let’s close with an amusing take on the issue. Even though he’s referred to me as insane and irrational, I think Matthew Yglesias wins the prize for the most clever tweet.

Look, just because Sessions hasn’t actually been convicted of a crime is no reason we can’t start seizing his property now.

— Matthew Yglesias (@mattyglesias) July 22, 2017

P.S. If you want to put a human face on the horror of civil asset forfeiture, check out the horrible abuse that the Dehko family experienced. Or the mistreatment of Carole Hinders. Or the ransacking of Joseph Rivers. Or the brutalization of Thomas Williams.

P.P.S. And think about the fact that the first two administrators of the federal government’s asset forfeiture program now want it to be repealed.

CF&P-Led Coalition Calls for Reversal of CFPB’s Anti-Arbitration Rule

Mon, 07/24/2017 - 1:58pm

Center for Freedom and Prosperity

For Immediate Release
Monday, July 24, 2017
202-285-0244

www.freedomandprosperity.org

CF&P-Led Coalition Calls for Reversal of CFPB’s Anti-Arbitration Rule

(Washington, D.C., Monday, July 24, 2017) A coalition of 27 taxpayer protection and grassroots organizations led by the Center for Freedom and Prosperity sent a letter today urging Congress to invoke the Congressional Review Act to reverse a new CFPB rule preventing financial services companies from using arbitration to resolve customer disputes.

Link to the coalition letter pdfhttp://www.freedomandprosperity.org/files/2017-07-24_CFPB_binding_arb_coalition_ltr.pdf

The letter argues that CFPB’s own report offers no solid justification for a rule prohibiting use of binding arbitration, and instead demonstrates that the alternative of class-action lawsuits work only for lawyers, not consumers. The legal uncertainty surrounding CFPB should also be resolved before any more costly, industry-upending regulations are allowed to be promulgated.

Excerpt from the letter:

We, the following free-market, limited-government, and liberty-oriented organizations, ask you to use the Congressional Review Act (CRA) to reverse recently published rules promulgated by the Consumer Financial Protection Bureau (CFPB) ending long-held policy allowing for binding arbitration contracts. Failure to reverse this regulation will result in an avalanche of class-action lawsuits that will hurt jobs and do little to benefit consumers.

The CFPB’s arbitration rule has been described as “Christmas in July” for America’s trial lawyers – and rightly so. According to the CFPB’s own finding, the rule will cost consumers billions of dollars and unleash over 6,000 class action lawsuits every five years. This rule is an obstacle to the efforts to right America’s fiscal ship and create jobs and prosperity for the American people.

Signers of the letter and other experts offered the following comments on the rule:

CF&P President Andrew Quinlan commented, “The misnamed Consumer Financial Protection Bureau is putting the interests of trial lawyers ahead of consumers. Congress can and should protect the American people from its latest overreach by acting quickly to reverse this rule.”

Veronique de Rugy, Senior Research Fellow at the Mercatus Center, said, “The CFPB is the definition of an out-of-control bureaucracy. It failed to identify a need for interference in the market and yet acted anyway. It’s somewhat ironic that it is now up to Congress to protect consumers from the CFPB.”

“Bureaucrats should not prohibit contractual agreements between consenting adults,” offered Cato Institute Senior Fellow Dan Mitchell.

“The unchecked power of the Consumer Financial Protection Bureau (CFPB) poses a threat to the very people it’s intended to help,” said Chrissy Harbin, Americans for Prosperity Vice President of External Affairs. “The CFPB’s recent rules not allowing for binding arbitration contracts will create an environment ripe for America’s trial lawyers to file class-action lawsuits that will undermine job creation and economic growth. AFP is proud to stand with other free-market organizations calling on the CFPB to use the Congressional Review Act to reverse this harmful rule.”

“Arbitration terrifies class action lawyers because it greatly reduces their ability to wring quick settlements or engage in attrition by litigation. It remains an invaluable and under-appreciated tool in our hyper-litigious society, and one for which Americans should remain ready to fight,” said Center for Individual Freedom President Jeffrey Mazzella.

Representatives of the following 27 organizations signed the coalition letter:
Center for Freedom and Prosperity; Americans for Tax Reform; Taxpayers Protection Alliance; American Commitment; Americans for Prosperity; Institute for Liberty; R Street Institute; Competitive Enterprise Institute; National Taxpayers Union; American Conservative Union; Frontiers of Freedom; Log Cabin Republicans; American Consumer Institute; 60 Plus Association; FreedomWorks; Less Government; Americans for Limited Government; Center for Individual Freedom; Small Business & Entrepreneurship Council; Campaign for Liberty; Council for Citizens Against Government Waste; Market Institute; Digital Liberty; National Black Chamber of Commerce; Institute for Policy Innovation; Hispanic Leadership Fund; and Consumer Action for a Strong Economy

For additional comments:
Andrew Quinlan can be reached at 202-285-0244, [email protected]
Brian Garst, Dir. of Policy and Communications, can be reached at [email protected]

###

Coalition to Congress: Overturn CFPB Arbitration Rule

Mon, 07/24/2017 - 1:22pm

[PDF Version]

July 24, 2017

Dear Speaker Ryan and Majority Leader McConnell:

We, the following free-market, limited-government, and liberty-oriented organizations, ask you to use the Congressional Review Act to reverse recently published rules promulgated by the Consumer Financial Protection Bureau (CFPB) ending long-held policy allowing for binding arbitration contracts. Failure to reverse this regulation will result in an avalanche of class-action lawsuits that will hurt jobs and do little to benefit consumers.

The CFPB’s arbitration rule has been described as “Christmas in July” for America’s trial lawyers – and rightly so. According to the CFPB’s own finding, the rule will cost consumers billions of dollars and unleash over 6,000 class action lawsuits every five years. This rule is an obstacle to the efforts to right America’s fiscal ship and create jobs and prosperity for the American people.

Class action lawsuits primarily benefit the trial lawyers rather than the plaintiffs they claim to represent. One extreme example regarding the Bank of Boston even resulted in some of the “winning” plaintiffs owing more in legal fees to lawyers, who walked away with millions, than the meager winnings they received. Class-action lawsuits all too often benefit no one but lawyers, and arbitration provides a fair alternative that should not be prohibited by regulatory fiat.

The CFPB’s own report provides undermines the case for relying exclusively on class-action lawsuits. Of the minority of cases filed between 2010 and 2013 that were later settled, consumers received on average only $32, while lawyers received $424 million in total fees. This disparity is due in part to the fact that claims are never filed by the vast majority of those in an eligible class, and lawyers receive fees based on inflated award figures that are never paid out.

There are also significant issues with the structure of the CFPB and its overall lack of accountability to elected officials. A United States Court of Appeals has held that “when measured in terms of unilateral power, the Director of the CFPB is the single most powerful official in the entire U.S. Government, other than the President. Indeed, within his jurisdiction, the Director of the CFPB can be considered even more powerful than the President.”

As a rehearing of this ruling on the CFPB’s constitutionality by the full Circuit is currently underway, and Congress weighs its own various options to rein in the unaccountable agency, CFPB should at the very least be prevented from instituting major new rules that could disrupt large segments of the economy until such issues are resolved. This is a prime opportunity for members of Congress to uphold their oaths to support and defend the Constitution by safeguarding the nation from costly new CFPB regulations.

Sincerely,

Andrew F. Quinlan ~ President, Center for Freedom and Prosperity
Grover Norquist ~ President, Americans for Tax Reform
David Williams ~ President, Taxpayers Protection Alliance
Phil Kerpen ~ President, American Commitment
Christine Harbin ~ Vice President of External Affairs, Americans for Prosperity
Andrew Langer ~ President, Institute for Liberty
Daniel Schneider ~ Executive Director, American Conservative Union
Eli Lehrer ~ President, R Street Institute
Iain Murray ~ Vice President for Strategy, Competitive Enterprise Institute
Pete Sepp ~ President, National Taxpayers Union
George Landrith ~ President, Frontiers of Freedom
Gregory T. Angelo ~ President, Log Cabin Republicans
Steve Pociask ~ President, American Consumer Institute
James L. Martin ~ Founder & Chairman, 60 Plus Association
Jason Pye ~ Vice President of Legislative Affairs, FreedomWorks
Seton Motley ~ President, Less Government
Rick Manning ~ President, Americans for Limited Government
Jeffrey Mazzella ~ President, Center for Individual Freedom
Karen Kerrigan ~ President, Small Business & Entrepreneurship Council
Norman Singleton ~ President, Campaign for Liberty
Tom Schatz, President, Council for Citizens Against Government Waste
Charles Sauer ~ President, Market Institute
Katie McAuliffe ~ Executive Director, Digital Liberty
Harry C. Alford ~ President/CEO, National Black Chamber of Commerce
Tom Giovanetti ~ President, Institute for Policy Innovation
Mario H. Lopez ~ President, Hispanic Leadership Fund
Matthew Kandrach ~ President, Consumer Action for a Strong Economy

Great Moments in Foreign Government

Mon, 07/24/2017 - 12:03pm

In my writings about “Great Moments in Foreign Government,” I’ve come across amazing examples of bone-headed and incompetent behavior by politicians and bureaucrats in other nations.

Let’s add to this collection with three new stories about failures by foreign governments.

Our first example is from the United Kingdom, where the Times reports that spending on “sex education” actually increased teen pregnancy rates.

Teenage pregnancy rates have been reduced because of government cuts to spending on sex education and birth control for young women, according to a study that challenges conventional wisdom. The state’s efforts to teach adolescents about sex and make access to contraceptives easier may have encouraged risky behaviour rather than curbed it, the research suggests. In 1999, faced with some of the highest teenage pregnancy rates in Europe, ministers paid councils tens of millions of pounds a year to tackle the problem. Some local authorities made the morning-after pill freely available through pharmacies, while most hired teenage pregnancy “co-ordinators”, opened sexual health clinics in schools, and funded sex and relationship education (SRE) classes. The number of pregnancies, however, has fallen at a significantly faster rate since the grants were scrapped in 2010, in spite of critics’ dire prophecies to the contrary. David Paton, of the Nottingham University Business School, and Liam Wright, of the University of Sheffield, found that the decline was steepest in areas where councils slashed their teenage pregnancy budgets most aggressively. …Analysis of 149 local authorities from 2009 to 2014 adds to a body of evidence that suggests that when the government involves itself in teenagers’ sex lives it often winds up achieving the opposite of what was intended.

A government policy backfiring? Perish the thought!

It reminds me of the story about students who took driver education classes from the government in Indiana being more likely to have accidents than the students who didn’t take classes.

Our second example is from Sweden, where a local government wants to create an entitlement for on-the-clock sex breaks.

Workers in Sweden could soon be allowed to take paid “sex breaks” during the day… A councillor in the northern town of Overtornea presented a motion asking that the area’s workers be given an hour during the day to go home and be intimate with their partners. …Muskos admitted there was no way to check whether workers would actually use the hour for its intended purpose. “You can’t guarantee that a worker doesn’t go out for a walk instead,” he said, adding that employers needed to trust their employees. …”This means that childbirth should be encouraged,” his motion states, as reported by Swedish newspaper Kuriren. …He said single people should also be allowed to take the hour to spend time improving their own well-being.

I wonder if the government will hire additional bureaucrats to monitor current bureaucrats to ensure that they are having sex on their breaks.

But what about those without spouses or significant others? Will the government pay to get them a partner? Don’t laugh, that’s something the British government already has done.

Speaking of which, we return to the United Kingdom for our third and final example. It seems lemonade cops don’t just exist in CaliforniaGeorgia, and Oregon, they also patrol the mean streets of London.

A five-year-old girl selling lemonade to revellers heading to a festival in east London had her stand shut down by council officers who slapped her and her father with a £150 fine. Andre Spicer said his daughter burst into tears and told him “I’ve done a bad thing” after enforcement officers read out a lengthy legal letter before issuing him the notice. The five-year-old and Mr Spicer, a professor at City University, were given the fine for “trading without a permit” after they set up the make-shift stall near their home in Mile End. …Mr Spicer branded the enforcements officers’ decision an “over-zealous way of applying the rules,” after the pair set out to refresh festival goers heading to Lovebox in Victoria Park on Saturday. He said: “It’s not like she was trying to make a massive profit, this is just a five-year-old kid trying to sell lemonade. …Mr Spicer said he tried to tell his distraught daughter they would set up another stand to sell their homemade pop once they had a permit, but she replied: “No. It’s too scary.”

At least Canada tries to be unique. They bust kids who sell worms instead of lemonade.

But perhaps harassing kids is the best we can expect from the British government. After all, this is the place that is sometimes too incompetent to give away money. Though our cousins across the Atlantic are remarkably effective at producing pointless signs and road markings.

Two Reasons Why Policy Stability Means Economic Decline for Italy

Sun, 07/23/2017 - 12:56pm

I’m rather pessimistic about Italy.

Simply stated, its economy is moribund. If you peruse the OECD’s economic database, you’ll see that both inflation-adjusted GDP and inflation-adjusted private consumption expenditure (in some ways a more accurate measure of actual quality of life) have grown by an average of just slightly over one percent annually this century.

And even though Italy’s population growth has been anemic, there are more people. And when you add a larger population to the equation, you get per-capita changes in output and living standards that are even less impressive.

But not everyone shares my dour outlook. I recently exchanged views with someone who said that Italy hasn’t increased the burden of government in recent years.

And that person is right. Sort of.

Here’s a chart showing Italy’s score from Economic Freedom of the World since the start of the 21st century. As you can see, it’s been remarkably stable.

But I have two reasons why I think policy stability is a recipe for economic decline.

First, you don’t win a race by standing still if others are moving forward. If you look closely at the above chart, you will see that Italy used to be ranked #36 in the world for economic freedom but it now ranks #69. In other words, Italy’s absolute level of economic freedom barely changed over the period, but its relative position declined significantly because other nations engaged in reforms and leapfrogged Italy in the rankings.

Second, Italy is in the middle of dramatic demographic changes that will have a huge impact on fiscal policy. People are living longer and having fewer children, but Italy’s welfare state was set up on the assumption that there would be lots of working-age taxpayers to finance old-age beneficiaries. In other words, policy stability will lead to fiscal crisis thanks to changes in the composition of the population. Think Greece, but on a bigger scale.

And when I refer to Greece on a bigger scale, I’m thinking another fiscal crisis.

Demond Lachman of the American Enterprise Institute is pessimistic about Italy and warns that high levels of red ink could cause a big mess.

We’ve got an Italian economy that is categorized by extremely high public debt. Their public debt level is now something like 132% of GDP, they’ve got a banking system that is bust, that banks have something like 18% of their loans non-performing, that is a huge amount, the economy is completely sclerotic, that the level of Italian GDP today is pretty much the same as it was some fifteen years ago. There’s been practically no growth, declining living standards… What also makes Italy very important from a global point of view is that we’re now not talking about a small country like Greece which doesn’t have that much systemic significance. We’re talking about the third largest country in the Eurozone. We’re talking about a country that has the world’s third largest sovereign bond market with something like two and a half trillion dollars of debt.

And don’t forget that these grim fiscal numbers probably mean even higher taxes on Italy’s young workers.

But those taxpayers aren’t captives. Cristina Odone, in a column for CapX, points out that young people are getting the short end of the stick.

Gerontocracy, stifling regulations and huge unemployment have hindered Italy’s prosperity for decades now. The country hailed for its economic miracle and famed for its creative and industrious entrepreneurs (at the helm, usually, of family-run businesses such as Gucci, Prada, and Ferrero) today comes second only to Greece (among EU countries) for the size of its national debt. …Italy’s unemployed youngsters, who constitute 40 per cent of under-24-year-olds, gnash their teeth at the unfairness of national life, where fossils control the levers of power while flouting their sinecures. A quarter of under-30-year-olds classify as NEETS, young people who are not in education, work or training. Contrast this with the UK, where only one in 10 under the age of 30 is in the same position. …Labour laws continue to blight young people’s prospects. …This sclerosis risks turning Italy into the sick man of Europe.

No wonder many young Italians are migrating to nations with more economic opportunity. AFP has a story on the dour outlook in Italy.

With the country struggling to kick an economic slump, some 40,000 Italians between 18 and 34 years old set out to seek greener pastures elsewhere in 2015, according to the Migrantes Foundation. “Just talking with people (in Italy) it’s clear going away might be the only solution,” said D’Elia, 26, who has spent the last five years in London, where he currently works as a barman, and intends to stay for now despite high living costs. …most of Italy’s youths are unwilling to return — and the country is seen as offering little to attract foreign graduates. …GDP is forecast to inch up just 1.3 percent this year. The jobless rate hovers at over 11 percent, well above the euro area average of 9.3 percent. Among 15 to 24-year olds it leaps to 37 percent, compared with a European average of 18.7 percent. …Sergio Mello, who set up a start-up in Hong Kong before moving to San Francisco, said Italy “does not offer a fertile environment to develop a competitive business”. …Mello says there are other problems: “The bureaucracy wastes a lot of time”, the red tape “drives you crazy”.

Unfortunately, rather than ease up on government burdens so that young people will have some hope for the future, some Italian politicians want new mandates, new spending, new taxes, and new restrictions.

I’ve previously written about new destructive tax policies that shrink the tax base. And I’ve written about wasteful new spending schemes, like a €500 “culture bonus.”

And now there’s something equally silly on the regulatory front being proposed by politicians. Here are excerpts from a report by Heat Street on the initiative.

Italy could soon become the first Western country to offer paid “menstrual leave” to female workers. …If passed, it would mandate that companies enforce a “menstrual leave” policy and offer three paid days off each month to working women who experience painful periods. …The Italian version of Marie Claire described it as “a standard-bearer of progress and social sustainability.” But the bill also has critics, including women who fear this sort of measure could backfire and end up stigmatizing them. Writing in Donna Moderna, another women’s magazine, Lorenza Pleuteri argued that if women were granted extra paid leave, employers would be even more reluctant to hire women, in a country where women already struggle to integrate the workforce. …Miriam Goi, a feminist writer, …fears that rather than breaking taboos about women’s menstrual cycle, the measure could end up perpetuating the idea that women are more emotional than men and require special treatment.

It’s unclear if this policy was actually enacted, but it’s a bad sign that it was even considered. Simply stated, making workers more expensive is not a good way to encourage more job creation. Even a columnist for the New York Times acknowledged that feminist-driven economic policies backfire against women.

The bottom line is that Italy needs sweeping reductions in the burden of the public sector. Yet the nation’s politicians are more interested in expanding the size and scope of government. Perhaps now it’s easy to understand why I fear the country may have passed the tipping point. You can be in a downward spiral even if policy doesn’t change.

The Top-100 Libertarians

Sat, 07/22/2017 - 12:16pm

I’m in Las Vegas for FreedomFest, which is sort of like summer camp for libertarians, small-government conservatives, and others who don’t like a bloated and intrusive state.

I’ll be talking about tax reform, the sharing economy, and strategies to constrain big government.

One of the features of this 10th-anniversary meeting of FreedomFest is that the world’s top-100 libertarians will be feted. You can see the entire list at NewsMax, but here’s the top 10. A very impressive collection.

 

You’ll notice that Cato’s founder and former president is in the Top 10, but he’s not the only representative from the organization.

The Cato Institute is justly recognized for being a principled and effective organization.

So it’s no surprise that several of us are listed in the Top 100.

I’m honored to be on the list, though I wonder if I’m there because I’m noisy rather than competent. That being said, given the expansion of government under both Bush and Obama, I guess nobody would be on the list if it was based on achievements. We obviously need to do a better job as a movement.

Here’s a photo from a casual dinner last night that included David Boaz (#15), Richard Rahn (#61), Barbara Kolm (#64), Veronique de Rugy (#84), and Deirdre McCloskey (#87). And yours truly (#38), of course.

A rogue’s gallery of dissidents, for sure.

Let’s close with some libertarian humor, courtesy of a future Top-100 libertarian who also is in Vegas for FreedomFest.

I’ll have to add this to my collection of pro-and-con libertarian humor.

In One Story, Everything You Need to Know About Government

Fri, 07/21/2017 - 12:17pm

Every so often, I run across a chart, cartoon, or story that captures the essence of an issue. And when that happens, I make it part of my “everything you need to know” series.

I don’t actually think those columns tell us everything we need to know, of course, but they do show something very important. At least I hope.

And now, from our (normally) semi-rational northern neighbor, I have a new example.

This story from Toronto truly is a powerful example of the difference between government action and private action.

A Toronto man who spent $550 building a set of stairs in his community park says he has no regrets, despite the city’s insistence that he should have waited for a $65,000 city project to handle the problem. …Retired mechanic Adi Astl says he took it upon himself to build the stairs after several neighbours fell down the steep path to a community garden in Tom Riley Park, in Etobicoke, Ont. Astl says his neighbours chipped in on the project, which only ended up costing $550 – a far cry from the $65,000-$150,000 price tag the city had estimated for the job. …Astl says he hired a homeless person to help him and built the eight steps in a matter of hours. …Astl says members of his gardening group have been thanking him for taking care of the project, especially after one of them broke her wrist falling down the slope last year.

There are actually two profound lessons to learn from this story.

Since I’m a fiscal wonk, the part that grabbed my attention was the $550 cost of private action compared to $65,000 for government. Or maybe $150,000. Heck, probably more considering government cost overruns.

Though we’re not actually talking about government action. God only knows how long it would have taken the bureaucracy to complete this task. So this is a story of inexpensive private action vs. costly government inaction.

But there’s another part of this story that also caught my eye. The bureaucracy is responding with spite.

The city is now threatening to tear down the stairs because they were not built to regulation standards.…City bylaw officers have taped off the stairs while officials make a decision on what to do with it. …Mayor John Tory…says that still doesn’t justify allowing private citizens to bypass city bylaws to build public structures themselves. …“We just can’t have people decide to go out to Home Depot and build a staircase in a park because that’s what they would like to have.”

But there is a silver lining. With infinite mercy, the government isn’t going to throw Mr. Astl in jail or make him pay a fine. At least not yet.

Astl has not been charged with any sort of violation.

Gee, how nice and thoughtful.

One woman has drawn the appropriate conclusion from this episode.

Area resident Dana Beamon told CTV Toronto she’s happy to have the stairs there, whether or not they are up to city standards. “We have far too much bureaucracy,” she said. “We don’t have enough self-initiative in our city, so I’m impressed.”

Which is the lesson I think everybody should take away. Private initiative works much faster – and much cheaper – than government.

P.S. Let’s also call this an example of super-federalism, or super-decentralization. Imagine how expensive it would have been for the national government in Ottawa to build the stairs? Or how long it would have taken? Probably millions of dollars and a couple of years.

Now imagine how costly and time-consuming it would have been if the Ontario provincial government was in charge? Perhaps not as bad, but still very expensive and time-consuming.

And we already know the cost (and inaction) of the city government. Reminds me of the $1 million bus stop in Arlington, VA.

But when actual users of the park take responsibility (both in terms of action and money), the stairs were built quickly and efficiently.

In other words, let’s have decentralization. But the most radical federalism is when private action replaces government.

The Libertarian Hypocrisy Test

Thu, 07/20/2017 - 12:01pm

I’ve shared several quizzes that people can take to see whether they are libertarian, some of which are very simple and some of which are very nuanced and complex.

I’ve also shared many examples of statist hypocrisy.

So I guess I shouldn’t be surprised to see that someone on the left wants to play this game by combing the concept of quizzes and hypocrisy. I don’t know R.J. Eskow, but he has a quiz on a left-wing website that’s designed to ostensibly measure libertarian hypocrisy.

Though it’s hard to treat the exercise seriously since it is prefaced by some rather silly rhetoric.

Libertarian…political philosophy all but died out in the mid- to late-20th century, but was revived by billionaires and corporations that found them politically useful. …They call themselves “realists” but rely on fanciful theories… They claim that selfishness makes things better for everybody, when history shows exactly the opposite is true. …libertarianism, the political philosophy whose avatar is the late writer Ayn Rand. It was once thought that this extreme brand of libertarianism, one that celebrates greed and even brutality, had died in the early 1980s… There was a good reason for that. Randian libertarianism is an illogical, impractical, inhumane, unpopular set of Utopian ravings. …It’s only a dream. At no time or place in human history has there been a working libertarian society which provided its people with the kinds of outcomes libertarians claim it will provide.

I’m not an ideological enforcer of libertarianism, but I can say with great confidence that Randians are only a minor strain of the libertarian movement. Many of us (including me) enjoyed one or more of her books, and some of us even became libertarians as a result of reading tomes such as Atlas Shrugged, but that’s the extent of her influence.

I also find it odd that Eskow didn’t do his homework when conspiracy-mongering about the Kochs or mentioning Cato. We get almost no funds from corporations. Indeed, I’m willing to bet that major left-wing think tanks get a much higher share of their budget from businesses.

…political libertarianism suddenly had pretensions of legitimacy. This revival is Koch-fueled, not coke-fueled… Exxon Mobil and other corporate and billionaire interests are behind the Cato Institute, the other public face of libertarianism.

Though Eskow gives us a bit of credit.

…the unconventionality of their thought has led libertarians to be among this nation’s most forthright and outspoken advocates for civil liberties and against military interventions.

Gee, thanks. What a magnanimous concession!

But I’ve spent enough time on preliminaries. Let’s get to the test.

Though I have to warn you that it’s just a rhetorical test. You can’t click on answers. There’s not even an answer key where you can calculate any results.

For all intents and purposes, the test is just a series of “gotcha” questions. Eskow probably hopes that libertarians will get flustered when confronted by this collection of queries.

But I’m always up for a challenge. So I decided to give my two cents in response to each question.

Are unions, political parties, elections, and social movements like Occupy examples of “spontaneous order”—and if not, why not?

The term “spontaneous order” refers to the natural tendency of markets to produce efficient and peaceful outcomes without any sort of centralized design or command. I’m not sure how this is connected to government and politics, however. Perhaps Eskow is asking whether political pressure groups can arise without centralized design and command. If so, then I’ll say yes. But if the question is designed to imply that market forces are akin to government actions and/or political activity, I’ll say no.

Is a libertarian willing to admit that production is the result of many forces, each of which should be recognized and rewarded?

Admit it? That’s an inherent part of our approach to economics. The famous “I, Pencil” essay celebrates this principle, and this video is a modern version that captures many of the same concepts. For what it’s worth, I’m guessing Eskow thinks that the market allocation of recognition and reward is somehow deficient, so he’s making some sort of weird argument that intervention is needed.

Is our libertarian willing to acknowledge that workers who bargain for their services, individually and collectively, are also employing market forces?

Yes, we think workers should be able to use any non-coercive tactic to get the maximum pay, including joining unions. And we also recognize the right of employers to use non-coercive tactics to keep costs down. But note that I include “non-coercive” in my analysis. That’s because no employee should be forced to remain at a company that doesn’t pay enough, and no employer should be forced to hire any particular worker or deal with any particular union. Market forces should determine those choices.

Is our libertarian willing to admit that a “free market” needs regulation?

Admit it? We view the private economy in part as a giant network of mutually reinforcing regulation. But Eskow probably doesn’t understand how private regulation operates. And besides, I’m sure his question is about command-and-control government regulation. And if that’s the focus of the question, am I a hypocrite for saying yes in some circumstances, but accompanied by rigorous cost-benefit analysis?

Does our libertarian believe in democracy?

Most libertarians will avoid the hypocrite label on this question because we are not fans of “democracy.” At least, we don’t believe in democracy if that means untrammeled majoritarianism. Indeed, the U.S. Constitution was created in part to protect some minority rights from “tyranny of the majority.” The bottom line is that we believe in a democratic form of government, but one where the powers of government are tightly constrained.

Does our libertarian use wealth that wouldn’t exist without government in order to preach against the role of government?

This question is based on the novel left-wing theory that wealth belongs to government because the economy would collapse without “public goods.” This might be an effective argument against an anarcho-capitalist, but I don’t think it has any salience when dealing with ordinary libertarians who simply want the federal government to stay within the boundaries envisioned by the Founding Fathers. Small-government libertarians are willing to give government 5-10 percent on their income to finance these legitimate activities. But, yes, we will preach when the burden of government expands beyond that point.

Does our libertarian reject any and all government protection for his intellectual property?

I’ll admit this is a tough question. I’ve never written on this issue, but libertarians are split on whether governments should grant and enforce patents and copyrights. Though I suspect both camps are probably intellectually consistent, so I doubt hypocrisy is an issue.

Does our libertarian recognize that democracy is a form of marketplace?

The “public choice” school of economics was created to apply economic analysis to political action, and most libertarians would agree with that approach. So the obvious answer is that, yes, we recognize that democracy is a type of marketplace. Once again, though, I think Eskow has an ulterior agenda. He probably wants to imply that if we accept market outcomes as desirable, then we must also accept political decisions as desirable. Yet he should know, based on one of the questions above, that we’re not huge fans of majoritarianism. The key distinction, from our perspective, is that market choices don’t involve coercion.

Does our libertarian recognize that large corporations are a threat to our freedoms?

Since libertarians are first in line to object when big companies lobby for bailoutssubsidies, and protectionism, the answer is obviously yes. Libertarians opposed Dodd-Frank, unlike the big companies on Wall Street. Libertarians opposed Obamacare, unlike the big insurance companies and big pharmaceutical companies. Libertarians oppose the Export-Import Bank, unlike the cronyists at the Chamber of Commerce. We are very cognizant of the fact that businesses are sometimes the biggest enemies of the free market.

Does he think…that historical figures like King and Gandhi were “parasites”?

This question is a red herring, based on Ayn Rand’s hostility to selflessness. As I noted above, very few libertarians are hard-core Randians. We have no objection to people dedicating their lives to others. And if that means fighting for justice and against oppression, we move from “no objection” to “enthusiastic support.”

If you believe in the free market, why weren’t you willing to accept as final the judgment against libertarianism rendered decades ago in the free and unfettered marketplace of ideas?

Since we don’t have any pure laissez-faire societies, we libertarians have to admit that we still have a long way to go. But our views aren’t right or wrong based on whether they are accepted by a majority. Heck, I would argue for libertarianism in France, where I’d have several thousand opponents for every possible ally.

I’ll close today’s column by briefly expanding on this final question, especially since Eskow also made similar claims in some of the text I excerpted above.

If you look around the world, you won’t find a Libertopia or Galt’s Gulch (egads, a Rand reference!). That being said, there is a cornucopia of evidence that nations with comparatively small and non-intrusive governments are much more prosperous than countries with lots of taxes, spending, and intervention.

Yes, voters do have an unfortunate tendency to elect more bad politicians (in place likes France and Greece) than sensible politicians (in places such as Switzerland and New Zealand), but that’s not the real test. What ultimately matters is that there’s a very strong relationship between liberty and prosperity. Libertarians pass that test with flying colors.

Bad Federalism Is Better than No Federalism

Wed, 07/19/2017 - 12:02pm

don’t like the income tax that’s been imposed by our overlords in Washington. Indeed, I’ve speculated whether October 3 is the worst day of the year because that’s the date when the Revenue Act of 1913 was signed into law.

don’t like state income taxes, either.

And, as discussed in this interview about Seattle from last week, I’m also not a fan of local income taxes.

From an economic perspective, I think a local income tax would be suicidally foolish for Seattle. Simply stated, this levy will drive some well-heeled people to live and work outside the city’s borders. And when revenues fall short of projections, Seattle politicians likely will compensate by increasing the tax rate and also extending the tax so it is imposed on those with more modest incomes. And that will drive more people out of the city, which will lead to an even higher rate that hits even more people.

Lather, rinse, repeat.

Though I pointed out that this grim outcome may be averted if the courts rule that Seattle doesn’t have the legal authority to impose an income tax.

But I also explained in the discussion that a genuine belief in federalism means that you should support the right of state and local governments to impose bad policy. I criticize states such as California and Illinois when they expand the burden of government. And I criticize local entities such as Hartford, Connecticut, and Fairfax County, Virginia, when they expand the burden of government.

But I don’t think that Washington should seek to prohibit bad policy. If some sub-national governments want to torment their citizens with excessive government, so be it.

There are limits, however, to this bad version of federalism. State and local governments should not be allowed to impose laws outside their borders. That’s why I’m opposed to the so-called Marketplace Fairness Act. And they shouldn’t seek federal handouts to subsidize bad policy, such as John Kasich’s whining for more Medicaid funding.

Moreover, a state or local government can’t trample basic constitutional freedoms, for instance. If Seattle goes overboard with its anti-gun policies, federal courts presumably (hopefully!) would strike down those infringements against the 2nd Amendment. Likewise, the same thing also would (should) happen if the local government tried to hinder free speech. Or discriminate on the basis of race.

By the way, it’s worth pointing out that these are all examples of the Constitution’s anti-majoritarianism (which helps to explain why the attempted smear of James Buchanan was so misguided).

The bottom line is that I generally support the rights of state and local governments to impose bad policy, so long as they respect constitutional freedoms, don’t impose extra-territorial laws, and don’t ask for handouts.

And I closed the above interview by saying it sometimes helps to have bad examples so the rest of the nation knows what to avoid. Greece and France play that role for the industrialized world. Venezuela stands alone as a symbol of failed statism in the developing world. Places like Connecticut and New Jersey are poster children for failed state policy. And now Seattle can join Detroit as a case study of what not to do at the local level.

Social Security’s Creeping Fiscal Crisis

Tue, 07/18/2017 - 12:51pm

Since it is the single-largest government program, not only in the United States but also the entire world, it’s remarkable that Social Security isn’t getting much attention from fiscal policy wonks.

Sure, Obamacare is a more newsworthy issue because of the repeal/replace fight. And yes, it’s true that Medicare and Medicaid are growing faster and eventually will consume a larger share of the economy.

But those aren’t reasons to turn a blind eye toward a program that will soon have an annual budget of $1 trillion. Especially since the tax-and-spend crowd in Washington is actually arguing that the program should be expanded. I’m not kidding.

If nothing else, the just-released Trustees Report from the Social Security Administration demands attention. As I do every year, I immediately looked at Table VI.G9, which shows the annual inflation-adjusted budgetary impact of the program.

Here’s a chart showing how the program has grown since 1970 and what is expected in the future. Remember, these are inflation-adjusted numbers, so the sharp increase in outlays over the next several decades starkly illustrates that Social Security will be grabbing ever-larger amounts of money from the economy’s productive sector.

It’s also worth noting that the program already is in the red. Social Security outlays began to exceed revenues back in 2010.

And the numbers will get more out of balance over time.

By the way, some people say that the program is in decent shape since the “Trust Fund” isn’t projected to run out of money until 2034. That’s technically true, but utterly meaningless since it is nothing but a pile of IOUs.

You don’t have to believe me. A few years ago, I quoted this passage from one of Bill Clinton’s budgets.

These balances are available to finance future benefit payments and other trust fund expenditures–but only in a bookkeeping sense. …They do not consist of real economic assets that can be drawn down in the future to fund benefits. Instead, they are claims on the Treasury, that, when redeemed, will have to be financed by raising taxes, borrowing from the public, or reducing benefits or other expenditures.

Amen.

This is why annual cash flow into and out of the program is what matters, at least if we care about the Social Security’s economic impact.

And for those who want to know about the gap between the inflow and outflow, here’s a chart showing how deficits are going to explode in coming decades. Again, keep in mind these are inflation-adjusted numbers.

That’s not a typo in the chart. The total shortfall between now and 2095 is a staggering $44.2 trillion. Yes, trillion.

Remarkably, there’s an even bigger long-run problem with Medicare and Medicaid. Which helps to explain I relentlessly push for genuine entitlement reform.

But let’s focus today on Social Security. The answer to this looming fiscal nightmare is to copy one of the many nations that have shifted to “funded” retirement systems based on real savings. I’m a big fan of the Australian approach. Chile also has a great system, and Switzerland and the Netherlands are good role models as well. Hong Kong and Singapore also rely on private savings for retirement, and both jurisdictions demonstrate that aging populations and falling birth rates aren’t necessarily a fiscal death sentence. Heck, even the Faroe Islands and Sweden have jumped on the bandwagon of private retirement accounts.

The Economic Benefits of Spending Restraint in the United Kingdom

Mon, 07/17/2017 - 12:51pm

wrote yesterday about a very depressing development in the United Kingdom. Politicians in that country – including some supposed fiscal conservatives – are contemplating a big expansion in the burden of government spending in order to give pay hikes to the bureaucracy.

What makes this so unfortunate is that the country has been making fiscal progress. Ever since 2010, government spending has grown by an average of 1.6 percent annually. And since the private economy has expanded at a faster pace, this period of restraint has satisfied my golden rule. In other words, the public sector – though still very large – is now a smaller burden on the private sector.

This progress could be quickly reversed, though, with a new spending binge. And it would be especially foolish to throw in the towel just to give more money to government employees. Just like in the U.S., bureaucrats already are overcompensated compared to their counterparts in the productive sector of the economy.

Let’s take a closer look at whether U.K. policymakers should end “austerity” and expand the relative burden of government spending.

The Centre for Policy Studies in London has examined the issue, and this new research from CPS debunks the notion that there should be large increases in bureaucrat compensation.

But since we covered that topic yesterday, let’s focus instead on what CPS discovered when reviewing the impact of spending restraint on various economic aggregates.

…when examining OECD countries that were left with a large budget deficit in 2010 (those countries with a deficit of over 5% of GDP in 2010), it appears that there is a strong correlation between those countries that cut spending by a higher degree, on average, and countries which achieved a larger reduction in deficit, higher average growth rates, a larger fall in proportionate unemployment and marginally better wage growth (see Figures 5, 6, 7 and 8). Of course, correlation does not necessarily mean causation. However, this provides strong evidence that there is no link between austerity and lower growth, higher unemployment and weaker wage growth.

Let’s look at the charts referenced in the excerpt.

We’ll start with Figure 5, which looks at the relationship between spending restraint and deficit reduction. Nobody should be surprised to see that the symptom of red ink shrinks when there’s a reduction in the underlying disease of too much government spending.

I think the most important data is contained in Figure 6, which maps the relationship between economic growth and spending restraint. As you can see, a lower burden of government spending is associated with better economic performance.

There’s also a connection between smaller government and lower joblessness, as shown in Figure 7.

Last but not least, Figure 8 shows the positive relationship between lower spending and higher wages.

As explained in the CPS report, correlation is not causation. But since these results are in sync with research from academic scholars (and even research from left-leaning bureaucracies such as the IMFWorld Bank, and OECD), the only prudent conclusion is that the U.K. should not give up on fiscal responsibility.

And perhaps the real lesson is that a constitutional spending cap should be enacted whenever a consensus for good policy materializes. That way, there’s a much lower risk of backsliding when politicians get weak-kneed.

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If you have Constitutional values, believe in fiscal restraint, limited government, and a free market economy - then join us or just come and listen to one of our excellent speakers. We meet every Tuesday from 6-8 pm at Mixon Fruit Farms in the Honeybell Hall, 2525 27th St. East, Bradenton, Florida. Map it

Tea Party Manatee welcomes all like-minded Americans.

Our core values are:

  • Defend the Constitution
  • Fiscal Responsibility
  • Limited Government
  • Free Markets
  • God and Country

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