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Congress Shouldn’t Sneak Insurance Handout into Next COVID Relief Package

Sat, 05/23/2020 - 12:17pm

Originally published by RealClearHealth on May 22, 2020.

 

While Congress debates a fourth relief package addressing the fallout from the COVID-19 pandemic, health care providers are risking their lives on the front lines to provide care for the sick. But instead of focusing on priorities like ensuring widespread availability of personal protective equipment for health care personnel, or on how best to provide relief for ordinary Americans denied the opportunity to work, some in Congress see this emergency as an opportunity to pass a so-called solution to surprise medical bills that would devastate an already strained health care system.

For health care providers, fallout from the pandemic is not limited to hotspots like New York City. Elective surgeries across most of the nation have been postponed indefinitely and physicians are seeing few patients in their offices to reduce the spread of disease. As a result, back line providers, such as dentists, pediatricians, and surgeons, are experiencing tremendous financial strain. Without the typical level of business, providers are having to cut costs by furloughing workers even as they attempt to prepare for a possible influx of coronavirus cases.

Against this backdrop you would think it insane that Congress would consider a dramatic change to the health care system that hospitals and doctors have consistently warned would be ruinous. Yet that is precisely what is happening as Sen. Lamar Alexander (R-TN), Rep. Greg Walden (R-OR), and Rep. Frank Pallone (D-NJ), with the backing of insurers, once again push their proposal to impose government rate-setting as the answer to surprise medical bills. Unfortunately, it is a case of the cure being at least as bad if not worse than the disease.

Doctors are not the only ones raising the alarm. A letter from the Coalition Against Rate-Setting, signed by 27 taxpayer and consumer protection groups, argues that “it is deeply disturbing that special interest groups are still seeking to promote legislation which will short change our frontline medical workers and lead to reduced accessibility to health care through the nationwide consolidation of health care facilities.”

Having the government set the appropriate rate for out-of-network services would introduce all the usual negative consequences that come with price controls, such as shortages, quality reduction, and rationing. Basing that rate on a median in-network rate would also create a perverse incentive for insurers to narrow networks to get the most favorable price.

This is not mere theorizing. California has tried the rate-setting approach and the results are dismal. A survey by the California Medical Association reports that physicians in the state overwhelming found that California’s surprise billing law accelerated consolidation of independent practices, reduced access to emergency care, and led to a narrowing of insurance contracts.

In contrast, an approach tested in New York has produced promising results. The state reports that over 4 years it has seen a reduction in out-of-network billing of 34 percent, for a savings of $400 million for consumers. To get this result they enacted an arbitration system known as Independent Dispute Resolution that relies on neutral health care experts to adjudicate conflicting claims between insurers and providers, incentivizing robust networks and compromise. Best of all, patients are left out of it.

bipartisan bill (H.R. 3502) with 110 cosponsors, more than any other surprise billing legislation, would adopt the New York model. While this approach is not likely to prove perfect, it denies either insurers or providers a negotiating advantage and seems the best that can be achieved without a wholesale reimagining of our health care system.

The middle of a once-in-a-century health crisis is not the time to make far-reaching changes to the nation’s health care system. But if Congress insists on addressing surprise billing now instead of waiting until the crisis has passed, they should unquestionably choose the solution with a track record of success, and the most support within Congress, over the proven failure. A Congress grateful for the continued sacrifices of doctors and nurses won’t sell them out to the special interests of insurers.

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Image credit: CMSRC | CC BY-SA 3.0.

Are there Innate Differences between Right and Left (and Where Do Libertarians Fit)?

Sat, 05/23/2020 - 12:07pm

I sometimes wonder why libertarians aren’t more persuasive given that there’s so much evidence for our economic and social views.

The answer may have something to do with matters such as psychology. Let’s take a closer look at this issue, starting with a video from Johan Norberg.

Johan’s point is that the real gap is between classical liberals (i.e., libertarians) and statists.

Though most of the research and analysis is based on potential differences between conservatives and liberals, as conventionally defined.

For instance, in a column for the U.K.-based Guardian, Arlie Hochschild writes about differences in awareness on the right and left.

…what’s startling is the further finding that higher education does not improve a person’s perceptions – and sometimes even hurts it. In their survey answers, highly educated Republicans were no more accurate in their ideas about Democratic opinion than poorly educated Republicans. For Democrats, the education effect was even worse: the more educated a Democrat is, according to the study, the less he or she understands the Republican worldview. “This effect,” the report says, “is so strong that Democrats without a high school diploma are three times more accurate than those with a postgraduate degree.” …Even more than their Republican counterparts, highly educated Democrats tend to live in exclusively Democratic enclaves. The more they report “almost all my friends hold the same political views”, the worse their guesses on what Republicans think. …Although in principle more tolerant of political diversity, highly educated – and mostly urban – Democrats live, ironically, with less of it.

And here’s a tweet about educated folks on the left being more likely to live in a bubble.

Regarding the issue of how different ideologies respond to external threats (supposedly a major driver of philosophical differences), Ross Douthat analyzed how conservatives responded to coronavirus in a column for the New York Times.

…an influential body of literature has attempted to psychologize the partisan divide — to identify conservative and liberal personality types, right-wing or left-wing minds or brains… In its crudest form this literature just amounts to liberal self-congratulation, with survey questions and regression analyses deployed to “prove” with “science” that liberals are broad-minded freethinkers and conservatives are cramped authoritarians. But…Haidt argues that conservatives actually have more diverse moral intuitions than liberals, encompassing categories like purity and loyalty as well as care and fairness, and that the right-wing mind therefore sometimes understands the left-wing mind better than vice versa. …the political responses to the pandemic have put these psychological theories to a very interesting test.

He then applies this analysis to the coronavirus.

If there was ever a crisis tailored to the conservative mind-set, surely it would be this one, with the main peril being that conservatives would wildly overreact to such a trigger. …As the disease spread and the debate went mainstream, liberal opinion mostly abandoned its anti-quarantine posture and swung toward a reasonable panic, while conservative opinion divided, with a large portion of the right following the lead of Trump himself, who spent crucial weeks trying to wish the crisis away. …figures like Rush Limbaugh and Sean Hannity manifested a conservatism of tribal denial, owning the libs by minimizing the coronavirus threat. …one might say that the pandemic illustrates the power of partisan mood affiliation over any kind of deeper ideological mind-set. Or relatedly, it illustrates the ways in which under the right circumstances, people can easily swing between different moral intuitions. (This holds for liberals as well as conservatives: A good liberal will be as deferential to authority as any conservative when the authority has the right academic degrees…) …what we call “American conservatism” is probably more ideologically and psychologically heterogeneous than the conservative mind-set that social scientists aspire to measure and pin down. In particular, it includes an incredibly powerful streak of what you might call folk libertarianism… This mentality, with its reflexive Ayn Randism and its Panglossian hyper-individualism, is definitely essential to understanding part of the American right. But…I’m doubtful that it corresponds to any universal set of psychological tendencies that we could reasonably call conservative.

By the way, a new study by four social scientists, published in Nature, casts doubt on the earlier research regarding ideological differences in threat perception

About a decade ago, a study documented that conservatives have stronger physiological responses to threatening stimuli than liberals. This work launched an approach aimed at uncovering the biological roots of ideology. Despite wide-ranging scientific and popular impact, independent laboratories have not replicated the study. We conducted a pre-registered direct replication (n = 202) and conceptual replications in the United States (n = 352) and the Netherlands (n = 81). Our analyses do not support the conclusions of the original study, nor do we find evidence for broader claims regarding the effect of disgust and the existence of a physiological trait.

And another study by three social scientists in the Personality and Social Psychology Bulletin also casts doubt on the earlier research.

One consistent finding is that conservatives show higher disgust sensitivity than liberals. This finding, however, is predominantly based on assessments of disgust to specific elicitors, which confound individuals’ sensitivity and propensity to the experience of disgust with the extent to which they find specific elicitors disgusting. Across five studies, we vary specific elicitors of disgust, showing that the relations between political orientation and disgust sensitivity depend on the specific set of elicitors used. We also show that disgust sensitivity is not associated with political orientation when measured with an elicitor-unspecific scale. Taken together, our findings suggest that the differences between conservatives and liberals in disgust sensitivity are context dependent rather than a stable personality difference.

So maybe there’s not a meaningful difference between right and left with regards to matters such as disgust and threats.

But there seems to be plenty of evidence that there are differences in other areas.

Depending on political affiliation, Americans shop differently, as reported by Suzanne Kapner and Dante Chinni in the Wall Street Journal.

Consumer research data show Democrats have become more likely to wear Levi’s than their Republican counterparts. The opposite is true with Wrangler, which is now far more popular with Republicans. There is no simple explanation behind those consumer moves. Some of it is due to social and political stances companies are taking, such as Levi’s embrace of gun control. …the country is becoming more polarized along political lines, which is having an effect on brands that choose to stay out of the political fray. …Nearly 60% of 1,000 Americans surveyed by Edelman last year said they would choose, switch, avoid or boycott a brand based on its stand on societal issues. That is up from 47% in 2017.

Some of this makes sense to me. I have dramatically reduced my purchases at Dick’s, for example, because of the company’s opposition to the 2nd Amendment.

Here’s a graphic from the story. The self-selection of Fox and CNN viewers is especially noteworthy.

Folks on the right and left may even sleep differently, according to research published in the Journal of Politics by Aleksander Ksiazkiewicz at the University of Illinois.

This article proposes that chronotype (a person’s time-of-sleep preference) is a previously unidentified psychological correlate of political ideology. Chronotype may lead to political ideology through a motivated social cognitive process, ideology may shape sleep patterns through a desire to align with social norms, or ideology and chronotype may arise from common antecedents, such as genetics, socialization, or community influences. Analyses demonstrate a link between a morningness and conservatism in seven American samples and one British sample. This relationship is robust to controls for openness, conscientiousness, and demographics, including age, sex, income, and education.

Last but not least, Justin Lehmiller of the Kinsey Institute, in a column for Politico, says Republicans and Democrats have different fantasies.

I surveyed 4,175 adult Americans from all 50 states about what turns them on…one of the more intriguing things I uncovered was the political divide in our fantasy worlds. While self-identified Republicans and self-identified Democrats reported fantasizing with the same average frequency—several times per week—I found that Republicans were more likely than Democrats to fantasize about a range of activities that involve sex outside of marriage. Think things like infidelity, orgies and partner swapping… By contrast, self-identified Democrats were more likely than Republicans to fantasize about almost the entire spectrum of BDSM activities, from bondage to spanking to dominance-submission play. The largest Democrat-Republican divide on the BDSM spectrum was in masochism, which involves deriving pleasure from the experience of pain. …What connects Republicans and Democrats, I believe, is that their fantasies are at least partly driven by what they can’t have. …Interestingly, the single most commonly fantasized-about politician among both parties was the same: Sarah Palin (though Republicans were much more likely to have Palin fantasies than Democrats). Following Palin, the next most frequently mentioned politicians in Republicans’ fantasies were John F. Kennedy, Bill Clinton and Nikki Haley. While, after Palin, Democrats fantasized about Barack Obama, Bill Clinton and Hillary Clinton.

Maybe I’m strange, but I’ve never met or seen an American politician that piqued my interest.

Though I will confess to occasionally having quirky libertarian fantasies, one of which does involve sex.

Speaking of quirky, folks on the left appear to have more issues with mental health.

Among white liberals under 30, nearly half have a mental health condition, compared to 21-26 % among centrists and conservatives. H/t @ZachG932 https://t.co/iG9saHtvRR

— Eric Kaufmann (@epkaufm) April 12, 2020

Since I’ve asserted that folks on the left are “neurotic” and “guilt-ridden,” part of me agrees with these findings.

Though, to be fair, maybe they’re just more likely to visit healthcare providers.

I’ll conclude with what I will conveniently characterize as the most insightful research.

Three scholars, in an article for Current Psychology, find that libertarians are the smartest.

Previous studies consistently showed that analytic cognitive style (ACS) is negatively correlated with social conservatism, but there are mixed findings concerning its relation with economic conservatism. Most tests have relied on a unidimensional (liberal-conservative) operationalization of political orientation. Libertarians tend not only to identify themselves as conservative on this scale but also to score higher on ACS than liberals and conservatives.

Here’s the relevant chart from the study, courtesy of Rolf Degen.

Liberals can take some solace in that they score above conservatives, though there’s not much that can be said for self-identified moderates.

P.S. I started this column by noting that I want to understand how to be a more persuasive advocate for liberty. I don’t know if that will ever happen, but at least I can take comfort in that I will never be as deluded as this columnist who thinks he has discovered a way of becoming a more persuasive advocate for statism.

P.P.S. If you like this type of research, my previous columns on supposedly innate differences across ideologies can be found herehere, and here.

P.P.P.S. And here’s the research on the differences between libertarians and conservatives.

P.P.P.P.S. Here’s a humorous look at the difference between conservatives, liberals, and Texans.

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Image credit: ShonEjai | Pixabay License.

The Boring but Important Topic of Carry Forwards and Net Operating Losses

Fri, 05/22/2020 - 12:53pm

In the world of tax policy, big-picture issues such as tax reform can capture the public’s attention (should we junk the IRS, instance, and adopt a flat tax?).

People also get very interested if politicians are threatening to grab more of their money.

But many tax issues are tedious and boring, even if they involve important issues.

Today, we’re going to discuss another one of the sleep-inducing tax issues – how to account for business losses.

This arcane issues has been attracting a bit of attention because the big coronavirus-driven emergency package included some changes to the tax treatment of such losses (making it easier to reduce overall tax liabilities by balancing losses in some years with profits in other years).

That upset two left-leaning members of Congress, Rep. Lloyd Doggett (D-TX) and Sen. Sheldon Whitehouse (D-RI), who editorialized in USA Today about the changes.

…tucked into its 880 pages were Republican-inserted tax provisions…that..allow certain investors…to cut their tax bills by shifting losses to prior tax years. …Large corporations were also authorized to convert losses from two years before the pandemic into immediate tax refunds. Businesses with losses when the economy was growing are rewarded for poor management or adverse market conditions that had absolutely nothing to do with the pandemic. …let’s reverse the damage. We are offering legislation to unwind this massive tax giveaway, to recover the lost revenues… Giant special interest tax breaks were not needed before and certainly have no place during a pandemic.

Is this right? Did a handful of GOP politicians insert a special favor for their friends in the business community?

For what it’s worth, I’m sure the answer to both questions is yes. Politicians are a very self-interested group and I’m sure there were dozens of provisions in the legislation that qualified for that type of criticism.

I’m interested, however, in whether the provisions moved policy in the right direction or the wrong direction.

Kyle Pomerleau with the American Enterprise Institute explains why the changes were desirable.

The liberalized treatment of losses is not a bailout and does not provide special treatment of certain industries. Loss deductions are an essential part of a well-functioning income tax. Businesses typically make multi-year investments. Those investments may lose money in some years make money in other years. The ability to either carry back losses to offset previous years’ taxes or carry forward losses to offset future taxes ensures that the tax system accurately measures income. Without loss deductions, a tax system would be biased against risky investment. …In the future, lawmakers should consider permanently liberalizing the treatment of losses.

Nicole Kaeding made similar arguments for the National Taxpayers Union.

The provision at hand, a loosening of net operating loss rules, isn’t cronyism. Instead, it reflects Congress’s priority of helping affected individuals and businesses weather our economic crisis by smoothing out “lumpy” tax burdens over time. Net operating losses (NOLs) are key features of the tax code. Tax years, calendar years, and business profitability don’t always align. Net operating loss provisions help smooth profits and losses across tax years to ensure that businesses are taxed on their economic income, not an accounting byproduct. …many have argued that it made little sense for Congress to revise loss rules for 2018 and 2019, when the virus wasn’t a consideration. In the abstract, that concern makes sense but policymakers were concerned about providing immediate liquidity to firms. A 2020 NOL doesn’t help a firm until they file their 2020 tax return in 2021. But allowing carrybacks for 2018 or 2019 allows firms to access capital quickly by amending their previous returns and claiming a refund.

For what it’s worth, I addressed this topic back in 2016 because it became a controversy in that year’s presidential campaign.

I didn’t pretend to know whether Trump was doing the right thing or wrong thing with his tax returns, but I made the argument that a fair and neutral tax system should have carry-forward rules.

Indeed, the business side of the flat tax expressly includes such provisions.

For what it’s worth, households used to have the option for “income-averaging,” which basically meant they could lower their overall tax rate by spreading a spike in income over several years.

A difference between households and businesses, though, is that businesses can suffer losses, while the worst thing that happens to a household is when income drops to zero.

The bottom line is that income averaging for people would be a helpful provision in the tax code, but carry-forward rules for businesses are a necessary provision.

P.S. That last sentence assumes goal is a tax system that is designed to extract money while imposing the smallest-possible amount of damage on economic efficiency.

At the risk of stating the obvious, a simple and fair tax system is not the goal of most politicians. In public, they prefer using the tax code as a tool for class-war demagoguery, and in private, they use it as a vehicle for auctioning off special provisions to their cronies.

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Image credit: Vinícius Pimenta | Pexels License.

The Economic Consequences of Expanding Pay-as-You-Go Social Security Systems

Thu, 05/21/2020 - 12:48pm

Despite the fact that Social Security is an ever-increasing fiscal burden with a 75-year cash-flow deficit of nearly $45 trillion, many politicians in Washington have been trying to buy votes with proposals to expand the program (Barack ObamaHillary ClintonBernie SandersElizabeth Warren, etc).

new working paper from the European Central Bank gives us some insights on what will happen if they succeed.

Authored by Daniel Baksa, Zsuzsa Munkacsi, and Carolin Nerlich, the study look at the long-run impact of related policies in Europe, using Germany and Slovakia as examples.

Here’s their description of the study.

In view of the adverse macroeconomic and fiscal implications of ageing, many European countries have implemented significant pension reforms… More recently, however, the reform progress has stalled, and despite an unchanged demographic outlook, several European countries reversed, or plan to do so, parts of their previously adopted pension reforms. In this paper we offer a framework that allows us to evaluate the macroeconomic and fiscal costs of pension reform reversals. …By using a general equilibrium model with overlapping generations we can account for feedback effects between changes in pension parameters, pension expenditures and macroeconomic variables. …The model is calibrated for Germany and Slovakia.

Before sharing their findings, here’s a look at how demographics are a ticking time bomb for Europe.

The yellow dots are the 2016 numbers for the old-age dependency ratio (the number of people over 65 compared to the 15-64 working-age population) and the red dots show how that ratio will deteriorate by 2070 (the numbers for the United States are similarly grim).

These bad numbers mean that Europe’s economic outlook will worsen over time.

…population ageing has adverse macroeconomic and fiscal implications. …the results show an increase in the public debt-to-GDP ratio by around 100 percentage points until 2070, compared to the initial period, for both Germany and Slovakia. Moreover, real GDP per capita is projected to decline by almost 14% in Germany and 9% in Slovakia, compared to the initial period.

But it’s possible for the numbers to get better or worse, depending on changes to public policy.

…similar to other studies we find evidence that pension reforms help to contain the adverse implications of ageing… In particular, increases in the retirement age appear to help to alleviate ageing pressures most. …we find strong evidence for the presumption that reversals of pension reforms are potentially very costly. In fact, reform reversals would not only result in higher aggregate pension expenditure and public debt-to-GDP ratios, but would in most cases also exacerbate the adverse macroeconomic impact of ageing.

Unfortunately, public policy is now trending in the wrong direction. Here’s what’s been happening in Germany and Slovakia.

Germany recently decided to cap the decline in the benefit ratio and the increase in the contribution rate until 2025 at certain levels, and is considering whether to extend this cap even until 2040. Slovakia decided to break the automatic link between changes in life expectancy and retirement age, by capping the retirement age at 64 years. …in the reversal scenario for Germany we freeze the benefit ratio at its current level of 48% and assume that the contribution rate would not exceed the threshold of 20% until 2040. With this reform reversal scenario we assume that the agreed freeze of the benefits ratio and contribution rate until 2025 will be ex-tended until 2040. In Slovakia, we assume the retirement age to stop increasing from the year 2045 onwards.

And what do they find when countries backtrack on reform?

Here’s what they estimated in Germany.

For Germany, we find that the reform reversal would imply sizeable costs (see Table 6, column “reform reversal”). Specifically, by 2070, the increase in the public debt-to-GDP ratio can be expected to be ceteris paribus almost 60 percentage points higher than under the baseline scenario, as a result of higher pension expenditures, adverse feedback effects and lower contribution rates.

For those interested, here’s Table 6, which I’ve augmented by highlighting in red the most relevant changes. Yes, the debt increases compared to the baseline, but I think it’s equally important (if not more important) to see how young people are hurt and how the burden of government spending goes up.

Now let’s see what the authors found for Slovakia.

…we quantify the fiscal costs of the reform reversal in Slovakia by comparing the debt impact under the reform reversal scenario with that under the baseline scenario. Our results show that such a reform reversal would be very costly. In fact, the increase in the public debt-to-GDP ratio would be more than 50 percentage points higher than the estimated increase of around 100 percentage points of GDP under the baseline scenario (see Table 7).

Here’s Table 7, and again I have highlighted in red the increase in debt as well as the data showing additional harm to young people and a much bigger increase in the burden of government spending.

So what do these findings mean for the United States?

Let’s explain using a homemade infographic. I’ve put four options for Social Security on a spectrum. Here’s what they mean.

  • “Expand Social Security” means more taxes and spending in pay-as-you-go systems that are already costly and out of balance.
  • The “Status Quo” is a typical pay-as-you-go-system (where the United States is now and where Germany and Slovakia were before their reforms).
  • Conventional Reform” means trying to stabilize a pay-as-you-go system by demanding that workers pay more while promising to give them less (what Germany and Slovakia did).
  • The most market-friendly position is “Personal Retirement Accounts,” which transforms creaky pay-as-you-go systems into real individual savings.

Here’s the infographic, including arrows to indicate that some options mean more government and others mean more prosperity.

What Germany and Slovakia did was move from “Status Quo” to “Conventional Reform.” But now they’re backtracking on those reforms and shifting back to the old version of the “Status Quo.”

In other words, a move in the direction of “More Government” and the European Central Bank’s study shows such a step will have negative consequences.

In the United States, by contrast, some folks on the left want America to move from “Status Quo” to “Expand Social Security.”

Like Germany and Slovakia, we’d be moving in the wrong direction. But the damage for the U.S. presumably would be worse because we didn’t first take a step in the right direction.

P.S. If you want to learn more about the best option, AustraliaDenmarkChileSwitzerlandHong KongNetherlandsFaroe Islands, and Sweden are a few of the many jurisdictions that have fully or partially shifted to systems based on real savings.

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Image credit: 401kcalculator.org | CC BY-SA 2.0.

The HEROES Act Should Not Be Back Door for Price Controls

Thu, 05/21/2020 - 12:08pm

Originally published by Townhall on May 20, 2020.

Congress is digging in for another battle over the proper government response to high unemployment and the shuttering of the economy in response to the coronavirus pandemic. Multiple bills have passed to provide more testing, protective gear and financial aid and the House of Representatives has started the next legislative phase, the HEROES Act, as a $3 trillion follow up to the CARES Act. Speaker of the House Nancy Pelosi (D-CA) has loaded up this bill with unrelated matter and partisan priorities.

President Donald J. Trump has signed into law several measures to respond to the crisis. The largest of those bills is the $2 trillion CARES Act, which included provisions that had zero to do with the coronavirus response effort. According to Rachel Bovard, of the Conservative Partnership Institute, the bill included $10 billion in aid to the U.S. Postal Service, $48 million in sex education funding, $25 million for salaries and expenses of Congress, and $25 million to the John F. Kennedy Center for the Performing Arts – a favorite of Members of Congress who frequent events there. That bill passed with unanimous support in the Senate and was voice voted in the House, because members feared opposing a bill that provided stimulus checks to Americans and attempted to aid small businesses shut down by government mandate.  Now comes the sequel to that massive piece of legislation and this new version has proven to be a partisan legislative effort even more loaded with pet projects unrelated to the coronavirus’ economic impact on Americans.

The HEROES Act included a second $25 billion bailout of the U.S. Postal Service, in addition to provisions to forgive up to $10,000 of student loans for every borrowerThe Heritage Foundation studied the bill and found that a provision to extend unemployment benefits to the end of the year will incentivize people not working. They also found that lifting the state and local tax deduction would be a Blue State tax cut that promotes higher state and local taxation and the $1 trillion promised to bailout states and localities will go to cover shortfalls that have nothing to do with state responses to the coronavirus. Those are big ticket items but expect more provisions to come to light when the American people have time to study the legislation.

There is likely to be an effort to revive a terrible idea that hikes cost on consumers called the “Durbin Amendment.” My group, the Center for Freedom and Prosperity, signed a coalition letter that states “we are concerned by the push by lobbyists for restaurants and other retailers to expand Dodd-Frank’s Durbin Amendment price controls to credit cards as well as debit cards.”  This legislation is a priority that has nothing to do with the coronavirus economic response effort and will end up increasing costs on some businesses and consumers.

The Durbin Amendment hurts low income Americans and was an expensive provision buried in the so called ‘Dodd-Frank Wall Street Reform and Consumer Protection Act.’ That provision applied to debit cards and ended up hurting consumer and resulted in a spike in the fees associated with checking accounts. According to a Mercatus Center report from February of 2014, Dodd-Frank as a whole resulted in increased compliance costs, limited consumer access, and new burdens on small banks. While the law was marketed to help consumers, it may have hurt them more than it helped. Expanding the Durbin Amendment to credit cards would create even more hardship for Americans struggling to combat the economic impact of the coronavirus.

As the coalition argued, “consumers collect roughly $40 billion in annual rewards from credit cards ($167 per cardholder according to CFPB), and banks and credit unions’ ability to both provide free credit cards to consumers and consumer rewards could be imperiled” if this provision were to be added to the HEROES Act. Banks and credit unions would be forced to cut back on investments on cybersecurity and to hike fees on consumers, if this ‘consumer protection’ provision made it to the president’s desk.

Congress should resist efforts to load up the HEROES Act with matters unrelated to the coronavirus economic displacement and oppose any effort to bilk consumers when they are hurting the most. Now is not the time for partisans in the House of Representative to use the bill as a Christmas Tree for progressive priorities.

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Image credit: jarmoluk | Pixabay License.

Using Coronavirus as an Excuse for More E.U. Centralization and Redistribution

Wed, 05/20/2020 - 12:32pm

I wrote earlier this month about coronavirus becoming an excuse for more bad public policy.

American politicians certainly have been pushing all sorts of proposals for bigger government, showing that they have embraced the notion that you don’t want to let a “crisis go to waste.”

But nothing that’s happening in the United States is as monumentally misguided as the effort to create a new method of centralized redistribution in the European Union.

Kai Weiss of the Vienna-based Austrian Economic Center explains what is happening in a column for CapX.

…‘never let a good crisis go to waste’ seems to have become the mantra of both the European Commission a number of national leaders. The coronavirus has become a justification for…‘more Europe’ (which tends to actually mean more EU, to the detriment of Europe). The clearest sign of this renewed Euro-fervour is the plan cooked up by Angela Merkel and Emmanuel Macron earlier this week… Seasoned Brussels observers will be shocked to learn that their proposals have very little to do with the pandemic, and everything to do with deepening the centralisation of EU power and top-down policymaking. While Germany has traditionally…opposed the idea of eurobonds or similar debt collectivisation instruments, it is now advocating for precisely those policies. A €500 billion Recovery Fund… the initial plan is for the European Commission to raise the money on the financial markets. It would subsequently be paid back by the member states and through increased “own resources” – i.e., new taxes levied directly by Brussels… The good news is that none of these policy proposals are yet set in stone. There are some big legal questions, particularly on the Recovery Fund, and national parliaments would need to agree to this expansion of Brussels’ writ. Already countries like the Netherlands, Austria, Denmark, and Sweden have voiced criticism… But for all these obstacles, the direction of travel looks alarmingly clear. The consensus among the EU’s power brokers, as with pretty much any major world event, is that the answer is ‘more Europe’. ..For Macron  Merkel and their allies, this is far too good a crisis to pass up.

story in the New York Times has additional details, including a discussion of potential obstacles.

Ms. Merkel this week agreed to break with two longstanding taboos in German policy. Along with the French president, Emmanuel Macron, Ms. Merkel proposed a 500 billion euro fund… It would allow the transfer of funds from richer countries… And it would do so with money borrowed collectively by the European Union as a whole. …Whatever emerges from the European Commission will be followed by tough negotiations… Chancellor Sebastian Kurz of Austria has raised objections to the idea of grants rather than loans, saying that he has been in contact with the leaders of Sweden, the Netherlands and Denmark. “Our position remains unchanged,’’ he said. …opposition may also come from member states in Central and Eastern Europe. …Those countries are going to be reluctant…to see so much European aid — for which they will in the end have to help pay — skewed to southern countries that are richer than they are. …in northern countries, moves for collective debt to bail out poorer southern countries may feed far-right, anti-European populists like the Alternative for Germany or the Sweden Democrats. They are angry at the idea of subsidizing southerners who, they believe, work less hard and retire much earlier.

What’s depressing about this report is that it appears the battle will revolve around whether the €500 billion will be distributed as grants or loans.

The real fight should be whether there should be any expansion of intra-E.U. redistribution.

For what it’s worth, Germany used to oppose such ideas, especially if funded by borrowing. But Angela Merkel has decided to throw German taxpayers under the bus.

Let’s close with some analysis from Matthew Lynn of the Spectator.

Die-hard European Union federalists have plotted for it for years. …The Greeks and Italians have pleaded for it. And French presidents have made no end of grand speeches, full of references to solidarity and common visions, proposing it. The Germans have finally relented and agreed, at least in part, to share debt within the EU and the euro-zone, and bail-out the weaker members of the club. …The money will be borrowed, based on income from the EU’s future budgets, but it will in effect be guaranteed by the member states, based on the EU’s ‘capital key’. …the rescue plan is completely unfair on all the EU countries outside the euro-zone. …why should they pay for it? Poland…will still be expected to pay in five per cent (or 25bn euros (£22bn)) to bail-out of far richer Italy (Polish GDP per capital is $15,000 (£12,000) compared with $34,000 (£27,000) for Italy).

Pro-centralization politicians are claiming this fund is needed to deal with the consequences of the coronavirus, but that’s largely a smokescreen. It will take many months for this proposal to get up and running – assuming, of course, that Merkel and Macron succeed in bullying nations such as Austria and the Netherlands into submission.

By that time, even the worst-hit countries already will have absorbed temporary health-related costs.

The bottom line is that this initiative is really about the long-held desire by the left to turn the E.U. into a transfer union.

The immediate losers will be taxpayers in Germany, as well as those in Austria, Sweden, the Netherlands, Finland, and a few other nations.

But all of Europe will suffer in the long run because of an increase in the continent’s overall fiscal burden.

And keep in mind that this is just the camel’s nose under the tent. It’s just a matter of time before this supposedly limited step becomes a template for further expansions in the size and scope of government.

Yet another reason why E.U. membership is increasingly an anchor for nations that want more prosperity.

P.S. As suggested by Mr. Lynn’s column, countries in Eastern Europe should fight this scheme. After all, these countries are relatively poor (a legacy of communist enslavement) and presumably don’t want to subsidize their better-off cousins in places like Spain and Italy. But that argument also implies that they should have resisted the Greek bailout about ten years ago, yet they didn’t. Sadly, Eastern European governments acquiesce to bad ideas because their politicians are bribed with “structural adjustment funds” from the European Union.

P.P.S. The luckiest Europeans are the British. They wisely opted for Brexit so they presumably won’t be on the hook for this costly new type of E.U.-wide redistribution (indeed, my main argument for Brexit, which now appears very prescient, was that the E.U. would morph into a transfer union).

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Image credit: European People's Party | CC BY 2.0.

New York vs. Florida, Round #4

Tue, 05/19/2020 - 12:47pm

Politicians from New York want states to get a big bailout from Uncle Sam. I explained earlier this month that this would be a bad idea.

Simply stated, the Empire State is in big trouble because it has a bloated government, not because of the coronavirus.

Probably the strongest piece of evidence is that New York is ranked #50 for fiscal policy according to Freedom in the 50 States.

If you want to understand how New York’s politicians have created a fiscal disaster, let’s compare the Empire State to Florida, which is ranked #1.

I’ve already done that three times (Round #1Round #2, and Round #3), so this will be Round #4.

The Wall Street Journal compared the two states in an editorial two days ago.

…let’s do the math to consider which state has managed its economy and finances better over the last decade. …Democrats in Albany are claiming to be victims of events that are out of their control. But they have increased spending by $43 billion since 2010—about $570,000 for each additional person. Florida’s budget has increased by $28 billion while its population has grown 2.7 million—a $10,400 increase per new resident. New York has a top state-and-local tax rate of 12.7%, while Florida has no income tax. Yet New York has a growing budget deficit, while Mr. Scott inherited a large deficit but built a surplus and paid down state debt. The difference is spending. …Blame New York’s cocktail of generous benefits, loose eligibility standards and waste. New York spends about twice as much per Medicaid beneficiary and six times more on nursing homes as Florida though its elderly population is 20% smaller. …The rate of private job growth in Florida has been about 60% higher than in New York from January 2010 to January 2020. Finance jobs expanded by 25% in Florida compared to 9.7% in New York. …The policy question is why taxpayers in Florida and other well-managed states should pay higher taxes to rescue an Albany political class that refuses to restrain its tax-and-spend governance. Public unions soak up an ever-larger share of tax dollars, but Albany refuses to change.

If you want further details on the difference between the two states, Chris Edwards takes a close look at the burden of government spending.

New York and Florida have similar populations of 20 million and 21 million, respectively. But governments in New York spent twice as much as governments in Florida, $348 billion compared to $177 billion. On some activities, spending in the two states is broadly similar… But in other budget areas, New York’s excess spending is striking. New York spent $69 billion on K-12 schools in 2017 compared to Florida’s $28 billion. Yet the states have about the same number of kids enrolled—2.7 million in New York and 2.8 million in Florida. New York spent $71 billion on public welfare compared to Florida’s $28 billion. Liberals say that governments provide needed resources to people truly in need. Conservatives say that generous handouts induce high demand whether people need it or not. Given that New York’s welfare costs are 2.5 times higher than Florida’s, the latter effect probably dominates. …New York governments employed 1,196,632 workers in 2017 compared to Florida’s 889,950 (measured in FTEs). …Most New York residents do not benefit from bloat in government payrolls, inefficient transit, excessive welfare, and deficit spending. To them, the high taxes are disproportionate to the government services received. That is why they are moving to better‐​managed states with lower taxes.

Here’s the accompanying chart.

And he also compares the level of bureaucracy in both states.

New York’s excess includes spending more on handouts such as welfare. Another cause of New York’s high spending is employment of more government workers and paying them more than in Florida. …New York governments employ 34 percent more workers than Florida governments. …The two states have similar K-12 school enrollments of 2.7 million in New York and 2.8 million in Florida. But New York employs 31 percent more teachers and administrators than Florida. Do the 111,000 extra staff in New York generate better school outcomes? Apparently not…study puts Florida near the top and New York in the middle on school quality. Does New York really need two times more highway workers than Florida and three times more welfare workers? …Government workers in New York make 42 percent more in wages than government workers in Florida, on average.

Here’s the accompanying chart.

The bottom line is that New York is a great place to be an over-paid bureaucrat in an over-staffed bureaucracy.

But if you’re a taxpayer, Florida is the easy winner – which may explain why so many productive people are leaving the Empire State and permanently migrating to the Sunshine State.

P.S. The same pattern exists all across the United States. Taxpayers are escaping the poorly managed states and fleeing to low-tax states. Especially ones with no income taxes.

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Image credit: Zack Seward | CC BY-ND 2.0.

Coronavirus, Federal Spending, and Media Innumeracy

Mon, 05/18/2020 - 12:41pm

When I write enough columns with the same underlying point, I sometimes create a special page to highlight the theme, such as the “Bureaucrat Hall of Fame” and “Poverty Hucksters.”

I may have to do something similar for people who assert that America’s response to the coronavirus has been hampered because the federal government is too small.

For instance, Dana Milbank wrote in the Washington Post last month that “anti-government conservatism…caused the current debacle with a deliberate strategy to sabotage government.”

Ironically, the nations he cited for their successful approach – Singapore, South Korea, and Taiwan – all have a much smaller burden of government spending than the United States.

Which actually supports my argument that bigger governments are less effective and competent.

But evidence doesn’t seem to matter to some journalists.

One of Milbank’s colleagues, Dan Balz, has just authored a long article that regurgitates the assertion that there’s been “underinvestment” in the federal government.

The government’s halting response to the coronavirus pandemic represents the culmination of chronic structural weaknesses, years of underinvestment and political rhetoric that has undermined the public trust… The nation is reaping the effects of decades of denigration of government and also from a steady squeeze on the resources needed to shore up the domestic parts of the executive branch. This hollowing out has been going on for years as a gridlocked Congress preferred continuing resolutions and budgetary caps… The question is whether the weaknesses and vulnerabilities exposed by the current crisis will generate a newfound interest among the nation’s elected officials — and the public — in repairing the infrastructure of government. …“We don’t want to invest in the capacity of government to get the job done,” Kettl said. …said David E. Lewis, a political science professor at Vanderbilt University…“We’re seeing a government that is suffering now from a long period of neglect that began well before this administration. And that neglect has accelerated during this administration.”

What’s especially remarkable is that the article cites the government’s lack of testing capacity as evidence of “underinvestment.”

Over these years, there have been a series of major government breakdowns that helped shake confidence in government’s competence. …The pandemic has forced another critical look at government’s competence. …more tests might have helped contain the spread. It is the case now as businesses look to reopen but cannot assure safety for workers or their communities without the widespread availability of tests, which so far does not exist.

Yet the bureaucracies with responsibility for testing – the FDA and CDC – have received big budget increases.

Was that money well spent?

Hardly. Not only have they failed in their mission, their red tape and inefficiency have hindered the private sector’s ability to develop and deploy tests.

Notwithstanding all this evidence, Balz wants readers to believe that people don’t have faith in government because of hostile rhetoric from politicians.

Marc Hetherington, a professor at the University of North Carolina, said the public conversation about government began to shift with the election of Ronald Reagan in 1980. …“What changed with Reagan and the decades since is that the conversation moves away from what government ought to do to government is incompetent to do things,” he said. …Democratic politicians have engaged in some of the same kind of thing. “Every candidate has campaigned on a bureaucracy-bashing theme,” Nabatchi said. “That message has gotten through to affect people’s confidence in government.”

The alternative explanation, needless to say, is that people don’t have confidence in the public sector because government has a long track record of mistakes and incompetence.

But I guess that’s merely my opinion.

So let’s instead close today’s column with some hard data.

Here’s a chart I shared last month while debunking an article by George Packer for the Atlantic (he claimed we have “a federal government crippled by years of…steady defunding”).

It shows that federal spending has tripled since 1980. And that’s after adjusting for inflation!

Which led me to observe that, “The bottom line is that I can’t figure out whether to be more dismayed that journalists are innumerate or that major publications apparently don’t have fact checkers.”

That same sentiment obviously applies to Dan Balz and the Washington Post.

P.S. While Balz and Milbank were guilty of avoiding numbers, the Washington Post doesn’t have a great track record when its journalists try to use numbers. In other words, maybe the problem is bias rather than innumeracy.

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Image credit: Martin Jacobsen | CC BY-SA 3.0.

Restoring Fiscal Sanity, Post-Coronavirus

Sat, 05/16/2020 - 12:07pm

The good news is that there will be a record reduction next year in the burden of government spending. Unfortunately, the bad news is that this reduction will only occur because of gigantic spending increases this year.

In this webinar, I explain how fiscal policy is being affected by coronavirus, and then explain why a spending cap is the way to restore fiscal sanity.

You can watch the full webinar, organized by Lebanon’s Modern University for Business and Science, by clicking here.

But if you don’t want to watch the entire event, or even my 11-minute presentation, all you really need to understand is that red ink is exploding this year. Not just in the United States, but in other nations as well.

The fiscal wreckage, as illustrated in this chart I shared for the audience, is greater than the world experienced during the financial crisis/great recession.

For what it’s worth, I wish the chart specified how much of the debt is caused by additional spending and how much is caused by declining tax revenues.

It’s also worth noting that these numbers will probably deteriorate even further over the next few months. Politicians are likely to approve more handouts and subsidies. And if there’s not a rapid economic recovery (I express doubt about that outcome in my remarks), tax revenue will continue to fall far short of baseline estimates.

The sad reality is that we don’t know the full degree of the coronavirus-caused fiscal wreckage. That being said, it’s safe to assume that – sooner or later – there will be a big debate in Washington over how to reverse the damage. And in other nations as well.

In my presentation, I explained why a Swiss-style spending cap is the right approach. In other words, simply impose a limit so that government grows slower than the private economy – i.e., fiscal policy’s Golden Rule.

I’d like to be able to specifically show how a spending cap would undo the current mess, but that’s not possible because we can only make wild guesses about the full extent of the fiscal fallout.

That being said, I’ll share two pieces of evidence to show the value of a spending cap.

First, here’s an estimate I prepared earlier this year to show how America’s fiscal situation would have been much stronger today if a spending cap had been imposed back in 2000.

Needless to say, it would have been nice if the U.S. had big surpluses when the coronavirus hit.

Our second piece of evidence is the experience of the U.S., France, and the U.K. in the decades before World War I.

All three nations had enormous debt burdens as a result of previous conflicts.

And all three countries dramatically reduced debt by using the same strategy of long-run spending restraint.

The bottom line is that spending restraint has worked in the past and it can work in the future.

Unfortunately, I doubt that either Donald Trump or Joe Biden is interested in that approach.

P.S. One thing we can say for certain is that responding with tax increases almost surely will make a bad situation even worse.

The WTO Should Be Preserved, but Bilateral Free-Trade Pacts Are the Way Forward for Future Liberalization

Fri, 05/15/2020 - 12:56pm

Last year, I released this video to help explain why the World Trade Organization has been a good deal for the United States.

My argument was – and still is – very straightforward, and it’s based on two simple propositions.

  1. Free trade is good because societies are more prosperous with free markets and open competition.
  2. The WTO has helped nations move in that direction by reducing import taxes and other trade barriers.

This outcome is particularly beneficial for the United States since other countries tend to be more protectionist.

But not everyone agrees with this position.

President Trump is a notorious critic of the WTO, for instance, which isn’t surprising since he doesn’t understand trade.

There are also plenty of opponents on the left, which also isn’t surprising since they don’t like capitalism and competition.

What is somewhat surprising, however, is that some Republican lawmakers also have decided to oppose the WTO.

In a column last week for the New York Times, Senator Josh Hawley of Missouri actually argued that it’s time to get rid of the World Trade Organization. Here’s his argument against the Geneva-based body.

The global economic system as we know it is a relic; it requires reform, top to bottom. We should begin with one of its leading institutions, the World Trade Organization. We should abolish it. …Its mandate was to promote free trade, but the organization instead allowed some nations to maintain trade barriers and protectionist workarounds, like China, while preventing others from defending themselves, like the United States. …Meanwhile, the W.T.O. required American workers to compete against Chinese forced labor but did next to nothing to stop Chinese theft of American intellectual property and products. …too many jobs left America’s borders for elsewhere. As factories closed, workers suffered, from small towns to the urban core. …Enough is enough. The W.T.O. should be abolished, and along with it, the new model global economy. The quest to turn the world into a liberal order of democracies was always misguided.

And here’s what he wants as a replacement.

The only sure way to confront the single greatest threat to American security in the 21st century, Chinese imperialism, is to rebuild the U.S. economy and to build up the American worker. And that means reforming the global economic system. …The United States must seek new arrangements and new rules, in concert with other free nations, to restore America’s economic sovereignty and allow this country to practice again the capitalism that made it strong. …For nearly 50 years before the W.T.O.’s founding, the United States and its allies maintained a network of reciprocal trade that protected our national interests and the nation’s workers. We can do it again …It means striking trade deals that are truly mutual and truly beneficial for America and walking away when they are not. It means building a new network of trusted friends and partners to resist Chinese economic imperialism.

Since Hawley doesn’t seem to appreciate the benefits of trade, the simple approach would be to criticize him for wanting politicians and bureaucrats to have the power to interfere with voluntary exchange across borders.

Such criticism is warranted, of course, but I want to take this opportunity to make four points about how there may be hope for the future.

1. Hawley is actually endorsing the status quo. After World War II, the US took the lead in creating the General Agreement on Tariff and Trade (GATT), a multilateral system of agreements which produced successive rounds of trade liberalization. The US then took the lead in creating the WTO so there would be a system (dispute resolution) to encourage nations to comply with their GATT commitments. But the dispute resolution process is now toothless because there are no longer enough judges for the system to operate (Trump has blocked the appointment of new judges). For all intents and purposes, the world is now operating under the pre-WTO rules – which seems to be what Hawley is calling for in his column.

2. The WTO no longer is a vehicle for global trade liberalization. The WTO is a consensus-based organization, which means unanimity is required for additional GATT-style reductions in global trade barriers. But since membership has expanded to include a number of countries with a protectionist mindset (most notably India, but China and Brazil also are a problem), it’s extremely unlikely that we’ll ever see another multilateral agreement for additional tariff reductions. This doesn’t change the fact that GATT was a big past success, and it doesn’t change the fact that it would be nice if the WTO’s dispute-resolution mechanism was back in operation. It simply means that we won’t be able to build on that progress.

3. Hawley is also endorsing, practically speaking, the best path forward. Another round of multilateral trade liberalization is off the table, but that doesn’t prevent nations from moving forward with bilateral free-trade agreements (FTAs are consistent with WTO rules). Interestingly, Hawley seems to support that approach. The U.S. already has nearly 20 of these pacts and is engaged in major negotiations with the United Kingdom for a new FTA that hopefully will be a template for future FTAs with other market-friendly nations.

4. Beware of the regulatory-harmonization wolf in FTA clothes. While bilateral trade pacts are desirable, it’s important to pay attention to the fine print. The European Union wants to hijack FTAs and make them vehicles for regulatory harmonization (meaning other nations have to agree to the EU’s onerous approach to red tape). If the goal is to have more trade, more competition, and more dynamism, the United States and other pro-market countries should make “mutual recognition” the foundation of future free-trade pacts.

The bottom line is that Hawley is wrong about the WTO, but he may actually be right about the best way of achieving future trade liberalization. Assuming, of course, that he actually means what he wrote about striking new deals.

In an ideal world, needless to say, these new bilateral FTAs (or even multi-nation FTAs) should be in addition to the WTO.

P.S. An under-appreciated aspect of the WTO is that it gives nations like the US a more-effective way of pressuring China to eliminate subsidies and other trade-distorting practices.

P.P.S. I’m normally very skeptical of international organizations. But the WTO encourages globalization rather than global governance, a key distinction.

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Image credit: World Trade Organization | CC BY-SA 2.0.

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

Thu, 05/14/2020 - 12:52pm

I’ve written four columns (hereherehere, and here) on the general failure of government health bureaucracies to effectively respond to the coronavirus.

The pattern was so pronounced that it even led me to unveil a Seventh Theorem of Government.

I’m not surprised at this outcome, of course, given the poor overall track record of the public sector.

But I was negatively surprised to learn how red tape from these bureaucracies prevented the private sector from quickly reacting to the crisis.

Today, let’s take a closer look at one of those bureaucracies, the Atlanta-based Centers for Disease Control (CDC).

Eric Boehm, writing for Reason, has a nice summary of the CDC’s failures.

Over the past three decades, the Centers for Disease Control (CDC) has seen its taxpayer-funded budget doubled. Then doubled again. Then doubled again. And then nearly doubled once more. But spending nearly 14 times as much as we did in 1987 on the agency whose mission statement says it “saves lives and protects people from health threats” did not, apparently, help the CDC combat the emergence of the biggest disease threat America has faced in a century. In fact, …inflating the CDC’s budget may have weakened the agency’s ability to handle its core responsibility by giving rise to mission creep and bureaucratic malaise. …the CDC’s budget has ballooned from $590 million in 1987 to more than $8 billion last year. If the agency had grown with inflation since 1987, it would have a budget of about $1.3 billion today. …Has all that extra funding made America safer? …hindsight now suggests that the CDC should have spent more time and money researching emergent influenza-like infectious diseases, a project that received just $185 million in funding… Instead, the CDC was doing things like spending $1.75 million on the creation of a “Hollywood liaison”.

A big problem with bureaucracies is that they engage in mission creep. They concoct new roles and responsibilities in hopes of justifying bigger budgets and more staff.

The CDC certainly is no exception. In its early years, the bureaucracy had a targeted mission, focusing on diseases posing a major threat to public health, such as malaria, plague, and tuberculosis.

Over the years, though, it has lost focus and become involved with social issues.

Daniel Greenfield opines on the CDC’s foolish diversions on issues such as obesity.

The Centers for Disease Control has…one job which it messes up every time. The last time the CDC had a serious workout was six years ago during the Ebola crisis. Back then CDC guidelines allowed medical personnel infected with Ebola to avoid a quarantine and interact with Americans… There were no protocols in place for treating the potentially infected resulting in the further spread of the disease inside the United States. …Meanwhile, CDC personnel had managed to mishandle Ebola virus samples, accidentally sending samples of the live virus to CDC labs. …During the Ebola crisis, the CDC had been spending…$2.6 million on gun violence studies. But the CDC has a history of wasting money on everything from a $106 million visitor’s center with Japanese gardens, a $200K gym, a transgender beauty pageant, not to mention promoting bike paths. …the CDC’s general incompetence…, like that of other government agencies, just ticks along wasting money. In 1999, the CDC announced a plan to end syphilis in 5 years…an unserious social welfare proposal that wanted to battle racism and was such a success that by 2018, syphilis rates had hit a new record high. … The CDC’s fight against the “obesity epidemic” is even sillier. That includes…giving LSU over a million bucks to work with farmers’ markets. Obesity obviously can kill people, but it’s not something that the CDC can or should be trying to fix. …Unfortunately, the CDC, like every federal agency, has drifted from its core mission into social welfare. …No one thinks about the CDC until we need it and discover it doesn’t work. And then the same story repeats itself a few years later while the CDC goes back to battling obesity and racism. …We don’t need a CDC that changes people’s minds about eating chocolate or engaging in unprotected sex. There are already multiple redundant parts of the government that are trying and failing there.

In a column for Forbes, Larry Bell reviewed the history of the CDC’s politicized campaigning against gun ownership.

In 1996, the Congress axed $2.6 million allocated for gun research from the CDC out of its $2.2 billion budget, charging that its studies were being driven by anti-gun prejudice. …There was a very good reason for the gun violence research funding ban. Virtually all of the scores of CDC-funded firearms studies conducted since 1985 had reached conclusions favoring stricter gun control.  This should have come as no surprise, given that ever since 1979, the official goal of the CDC’s parent agency, the U.S. Public Health Service, had been “…to reduce the number of handguns in private ownership”… Sociologist David Bordura and epidemiologist David Cowan characterized the public health literature on guns at that time as “advocacy based upon political beliefs rather than scientific fact”. …Dr. Katherine Christoffel, head of the “Handgun Epidemic Lowering Plan”, a CDC-funded organization…said: “guns are a virus that must be eradicated…”

Michelle Minton of the Competitive Enterprise Institute wrote for Inside Sources about the CDC’s senseless efforts to restrict vaping.

Our health agencies had the information and the resources, so they should have been planning for this, but they weren’t. The problem isn’t because they’re underfunded, it’s that they are bloated and mismanaged. …a close look at how CDC spends its budget reveals it has strayed from this mission of protecting Americans from communicable diseases, turning more toward influencing people’s lifestyle choices. …Indeed, prior to the COVID-19 pandemic, CDC and other agencies were busy sounding the alarm about the nonexistent “epidemic” of youth vaping. Collectively, they spent billions on anti-vaping advertisements, biased research and lobbying, wasted countless hours of congressional hearing time, and squandering public trust. Had they remained focused on infectious disease, might have been prepared to fight real epidemics, like the COVID-19. …there’s nothing new about exploiting a crisis to expand budgets and score political points. Similar claims of inadequate funding were made during the 2014 outbreak of Ebola, for which various health agencies got an additional $5.4 billion. And what do we have to show for it now?

Let’s wrap up by noting that squandering money should be viewed as the CDC’s indirect failure.

The direct failure was how the bureaucracy bungled its one legitimate function of fighting infectious disease.

Jacob Sullum, writing for the New York Post, explains what happened.

The grand failure of federal health bureaucrats foreclosed the possibility of a more proactive and targeted approach… At first, the Centers for Disease Control and Prevention ­monopolized COVID-19 tests. When the CDC began shipping test kits to state laboratories in early February, they turned out to be defective. The CDC and the Food and Drug Administration initially blocked efforts by universities and businesses to develop and conduct tests… The CDC still insists that “not everyone needs to be tested for COVID-19.” But without testing everyone — or at least representative samples — for both the virus itself and the antibodies to it, we can do little better than guess its prevalence, its lethality and the extent of immunity among the general public. …Our ignorance about COVID-19 will have profound consequences, potentially leading to an overreaction that wrecks the economy while saving relatively few lives… You can thank the same agencies on which we are relying to guide us through this crisis.

Veronique de Rugy of the Mercatus Center summarizes the issue, noting that the CDC is a monumental failure.

The lack of preparedness at every level of government (federal, state, and local) has nothing to do with a lack of funding or inadequate staffing. Instead, it has everything to do with governments’ bloat, mismanagement, cronyism, and poor focus. That’s particularly true of the Centers for Disease Control (CDC). …it is no secret how much the CDC is to blame for the country’s lack of preparedness to take on the coronavirus (followed very closely in ineptitude by the Food and Drug Administration). …By now, every major newspaper has reported on the incredible failure of the CDC during this crisis. …Messing up is not a new thing for the CDC. However, unlike what its employees and political allies like to claim, the agency’s poor record and its lack of preparedness has nothing to do with a lack of funding. …For instance, funding for its National Center for Emerging and Zoonotic Infectious Diseases—which aims to prevent diseases like Ebola—received only $514 million in 2018, a tiny sliver (less than 5%) of total CDC funding. And less than half of that $514 million went to emerging diseases like COVID-19. The rest of that budget is spent on stuff like chronic fatigue. Meanwhile, funding…to prevent smoking, alcohol consumption, and poor diets…received nearly $1 billion over that same time, almost double the funding for infectious-disease prevention.

Here’s a look (courtesy of Chris Edwards) at what’s happened to the CDC budget over time.

As you can see, the bureaucrats got more and more funding. Yet when America needed competence, they didn’t deliver.

P.S. The bureaucrats are not the only ones to blame. A big reason for the CDC’s lack of focus is that headline-seeking and vote-buying politicians created new roles and responsibilities. The CDC was happy to get more power, staff, and money, of course (just as it will be happy to get more power, staff, and money as a reward for its failure to deal with the coronavirus).

P.P.S. It’s almost as if there’s a lesson to be learned.

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Image credit: Raed Mansour | CC BY 2.0.

What Lessons Can the Country Learn from California’s Red-Tape Nightmare?

Wed, 05/13/2020 - 12:50pm

From the perspective of lifestyle (factors such as climate, scenery, and recreational opportunities), there’s probably no better state in which to live than California.

But if you want to be an entrepreneur, start a business, and create jobs, the Golden State is one of the worst places in America.

I’ve already written about the state’s punitive tax system. The 13.3 percent tax rate is far higher than any other state. That’s an acceptable burden to rich folks in Silicon Valley since they amass their wealth in the form of unrealized (and untaxable) capital gains.

But it’s a crippling burden for regular business owners.

California also has a very unfriendly regulatory regime, ranking a lowly 48 out of 50 according a comprehensive study.

What does that mean, in practical terms?

Let’s look at a few examples to understand the state’s hostile business environment.

We’ll start with the high-profile case of Elon Musk, who is openly rebelling against government red tape by restarting production in his Tesla factory.

Tesla CEO Elon Musk confirmed Monday he’s flouting county rules by reopening a Northern California plant amid concerns over safety during the coronavirus crisis, tweeting: “I will be on the line with everyone else. If anyone is arrested, I ask that it only be me.” …Musk tweeted, “Tesla is restarting production today against Alameda County rules. …all other auto companies in US are approved to resume. Only Tesla has been singled out. This is super messed up!” …The county later responded in a statement: “We have notified Tesla that they can only maintain Minimum Basic Operations until we have an approved plan…and we hope that Tesla will likewise comply without further enforcement measures.” …a frustrated Musk wrote that he was filing a lawsuit to halt the local restrictions and predicted relocating Tesla’s Palo Alto, Calif., headquarters to Texas or Nevada.

To be sure, this is a very unusual example, one where the battle is complicated by the very difficult issue of how to deal with a serious virus.

So let’s zoom out and consider other examples that existed well before the pandemic.

Andy Quinlan of the Center for Freedom and Prosperity explains for Townhall that California has a long history of policies that discourage entrepreneurship and job creation.

To climb out of the massive pit the economy has been thrown into, it will take not just the release of workers from their homes, but also entrepreneurs and innovators capable of adapting to a new economic environment. Unfortunately, innovators are often treated very poorly by all levels of government. And the worst offender is arguably California… Consider last year’s passage of AB 5. It upended California’s gig economy by requiring that contractors be reclassified as employees, even against their will, when certain thresholds were met. The arbitrary caps were set so low that self-employed freelancers have been devastated by a loss of work as many companies suddenly stopped working with California workers. …The state’s regulators are also unfairly attacking an innovative hotel business. OYO Hotels…focuses on the small hotels ignored by the large chains, offering them proprietary technology and marketing assistance to dramatically improve their ability to reach and attract customers, along with capital to ensure their rooms are up to the company’s standards… But California’s regulators have other ideas. They…claim that OYO’s activities make it a franchise, and therefore it was required to seek approval before ever operating in the state.

John Moorlach, a senator in California’s legislature, wrote a column for the Orange County Register about the Golden State’s anti-growth mentality.

If you were a corporate manager looking to build or lease a plant and hire workers, where would you look first? California, with a $13 minimum wage rising to $15 in 2022? …Then there’s the state income tax. During times of plenty, maybe it’s worthwhile to put up with California’s 13.3% top state personal income tax rate… But during tough times? …If you needed that 13.3 percent to re-invest in your company, instead of going to a poorly run state government, where would you go? …Companies that play by the rules, paying all the taxes and observing every labor regulation, will be at a disadvantage… The cost structure will just be too high. So many of these honest firms will go out of business, join the underground economy or move to Texas. …Every state needs a healthy economy in order to survive. …over-burdening its entrepreneurial sector…becomes an abuse.

Now you know why many people are “voting with their feet” and leaving the state.

Let’s close with my home-made visual that illustrates what red tape means for entrepreneurs.

Yes, there are some entrepreneurs who can make it all the way, but many others don’t have the time, money, energy, or expertise the navigate the entire course.

And others can get through eventually, but only at the cost of shrinking their businesses and hiring fewer workers.

Here’s the bottom line: This isn’t a binary no-regulation-vs-all-regulation choice. The states with the best scores for regulation (the top 5 are Kansas, Nebraska, Idaho, Iowa, and Indiana) have red tape, but it’s a question of degree.

Sensible jurisdictions give entrepreneurs more “breathing room” to start businesses and create jobs. Which is why the scholarly evidence shows that less regulation is good for prosperity.

P.S. The good news is that entrepreneurs can escape California’s red tape by moving across the border. The bad news is that this strategy doesn’t solve the problem of federal rules and mandates.

P.P.S. Since I’m always asked about this comparison, you can review data comparing Texas and California by clicking hereherehere, and here.

P.P.P.S. Here’s my favorite California vs Texas joke.

P.P.P.P.S. Libertarian readers will appreciate the argument for private regulation.

Taxes and Growth

Tue, 05/12/2020 - 12:44pm

I’ve explained the economics of taxation, which is based on the common-sense notion that you get less productive economic activity when taxes drive a bigger wedge between pre-tax income and post-tax consumption.

Simply stated, the more you tax of something, the less you get of it, and this applies to taxes on labor and taxes on capital.

Today, let’s examine some empirical evidence. I’ve done that before (see herehereherehereherehereherehere, and here), but it’s always good to expand the collection.

Three Italian professors, in a new working paper for the Centre for Economic and International Studies, investigated the relationship between taxes and growth.

We’ll start with a description of the methodology.

In this paper, we revisit a traditional issue in the empirics of growth and economic policy: whether taxation has long-lasting effects on real GDP dynamics. …we focus on the impact that taxes may have on the rates of physical and human capital accumulation. …our main departure from the existing literature is the use of a semi-parametric technique, which allows for countries’ unobserved heterogeneity in the input effects on per capita GDP. …we test our model, using a sample of 21 OECD countries over the period 1965-2010.

Here are the key findings.

Our main finding is that taxation negatively affect per capita GDP growth rates, both directly and indirectly, via physical and human capital saving rates. …Our cross-country analysis makes a clear point on this, at least for our sample of OECD countries: on average, tax cuts produce a beneficial impact on GDP dynamics but of modest size. In our baseline specification, a cut by 10% in personal income tax rate generates an change in the real per capita GDP growth rate of +1% while a cut by 10% in corporate income tax rate increases the rate of growth of real per capita GDP by 0.9%. …The main message of our empirical exercise is that, across various samples and specifications, taxes are harmful for growth.

These are very strong results.

Though I find it very interesting that the authors say they are “of modest size.”

I guess that depends on expectations and perspective. I’ll simply repeat the point I made two years ago about the importance of even small increases in the long-run growth rate.

The bottom line is that future Americans would enjoy significantly greater prosperity with better tax policy.

That’s a desirable outcome at any point in time, and it’s even more important today as we consider how to recover from the economic wreckage caused by the coronavirus.

Interestingly, the study ends with some interesting estimates on the impact of lower tax rates on labor and capital.

Table 10 reports the results of a “what if”exercise, in which we compute the change in GDP growth rate generated by a ceteris paribus cut by 10 % in τw and τk.

And here is the aforementioned Table 10 (“τw” is the tax rate on labor and “τk” is the tax rate on capital).

There are two big takeaways from this research.

First, it’s further evidence that Trump’s tax reform, which lowered the corporate tax rate from 35 percent to 21 percent, was a very good step for the American economy.

Second, it’s further evidence that it’s a big mistake for Biden and other folks on the left to push for higher tax rates, including big increases in tax rates on personal income.

P.S. Just in case those last two sentences sound overly favorable to Trump, I’ll remind people that reckless spending increases – sooner or later – will lead to punitive tax increases. In other words, if Biden wins and there are big tax hikes, Trump will deserve some of the blame (just as Bush’s irresponsible policies set the stage for some of Obama’s irresponsible policies).

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Image credit: Shaw Girl | CC BY-NC-ND 2.0.

Overregulation More Damaging Than Ever

Tue, 05/12/2020 - 12:36pm

Originally published by Townhall on May 11, 2020.

April’s jobs report was the worst in U.S. history, with 20.5 million jobs lost thanks to the coronavirus and subsequent lockdowns. Some layoffs are temporary and likely to return as soon as lockdowns are lifted, but a full recovery could take quite some time. Exactly how long will depend in large part on the degree to which government policy prevents market dynamism.

To climb out of the massive pit the economy has been thrown into, it will take not just the release of workers from their homes, but also entrepreneurs and innovators capable of adapting to a new economic environment. Unfortunately, innovators are often treated very poorly by all levels of government. And the worst offender is arguably California, which, as the largest state, has a profound impact on the national economy.

Consider last year’s passage of AB 5. It upended California’s gig economy by requiring that contractors be reclassified as employees, even against their will, when certain thresholds were met. The arbitrary caps were set so low that self-employed freelancers have been devastated by a loss of work as many companies suddenly stopped working with California workers. They were forced to choose between giving up the flexibility and control that comes with self-employment or being newly unable to take on sufficient work to pay their bills.

The legislation looks particularly short-sighted in the era of social distancing, where Americans are looking for opportunities to work from home now more than ever.

The state’s regulators are also unfairly attacking an innovative hotel business. OYO Hotels has disrupted traditional business models in the industry, but its entrance into the US market has been beset by government obstacles.

OYO focuses on the small hotels ignored by the large chains, offering them proprietary technology and marketing assistance to dramatically improve their ability to reach and attract customers, along with capital to ensure their rooms are up to the company’s standards, and their partners typically see a significant jump in occupancy. Started in India, it quickly grew to become the second largest chain in the world, spanning 80 countries, and is now looking to establish a presence in the United States.

But California’s regulators have other ideas. They are determined to force a new business model into an old template. Specifically, they claim that OYO’s activities make it a franchise, and therefore it was required to seek approval before ever operating in the state.

Requiring permission from the local czars to engage in economic activity does not lead to a robust economy. But the bigger issue in OYO’s case is that they are not even operating as a franchise in California.

Where a franchise model requires an upfront payment from the franchisee in exchange for access to a brand, OYO puts skin in the game. It partners with hotels to make improvements and then shares in the success. It also offers a minimum gross revenue guarantee, tailored to the financial situation of each hotel, as part of its agreement.

OYO does also have a franchise model that it has deployed in some other markets, and may yet bring to the U.S., but the determination of whether that is the best approach should be made by market participants, not unelected bureaucrats.

Treating OYO as a franchise even when it does not meet the statutory requirements would impose unnecessary and costly regulatory burdens. Unfortunately, regulations tend to be written with the last business model in mind, while innovators are always looking for the next one. Regulators need to remember that they exist to cater to the needs of the market, not the other way around.

In response to economic pressure surrounding the coronavirus, states have suspended hundreds of regulations that were never actually needed in the first place. These range from restrictions on telehealth services to prohibitions on alcohol delivery.

Given the financial hit that the coronavirus has had on the travel industry, innovation and investment of the sort brought by OYO should be welcomed with open arms. Policymakers ought to reel in regulators who refuse to do so.

In good times it is easy to tolerate a certain number of bad policies, or to justify inaction on the grounds that there may be higher priorities than removing regulatory barriers. But when every policy could mean the difference between bouncing back economically and a prolonged depression, a critical look at the nation’s regulatory landscape is warranted.

The Bizarre Attack on Vaping

Mon, 05/11/2020 - 12:52pm

Since I’ve never smoked or vaped, I have no personal interest in the the regulatory battle over vaping and e-cigarettes.

That being said, I started writing about this issue back in 2016 because it involves several important principles.

  1. The libertarian argument that people should be free to do what they want with their own bodies
  2. Whether the “administrative state” should be able to unilaterally grab more regulatory power.
  3. The degree to which “harm reduction” or “zero tolerance” should guide government policies.

From a public health perspective, the third point is most important.

It’s a fight between those who want the Food and Drug Administration to use its self-anointed regulatory authority to ban e-cigarettes (because vaping is worse than not vaping) and those who explain that e-cigarettes are helpful (because vaping is far less risky than smoking).

This fight has a September 9 deadline. The Food and Drug Administration decided several years ago that its power to regulate tobacco somehow meant it also has the power to regulate vaping. The bureaucrats then created a system requiring future approval for marketing and sale of e-cigarettes and related products (originally to be unveiled in 2022 but a federal judge has ordered an earlier deadline).

The FDA has basically given itself the power to prohibit these products, and if you’re interested in that aspect of the battle, here are two short articles (pro and con) about that effort.

I want to focus today on whether it makes sense to impose prohibition, and it’s a simple matter of cost-benefit analysis. Some people want to enjoy nicotine, so is it better for them to vape or to smoke?

Writing for the American Enterprise Institute, Roger Bate points out that smoking is far worse.

…there is an increasing amount of evidence to support it over smoking. As Michael Siegel — a public health Professor at Boston University — says “there is overwhelming evidence that smoking is more hazardous than vaping. One of the most compelling lines of evidence is a series of studies showing that when smokers switch to e-cigarettes, they experience immediate and dramatic improvement in both their respiratory and cardiovascular health, measured both subjectively and objectively.” Cancer rates are at an all-time low partially due to the introduction of vaping and subsequent reduction in smoking.

And if people can’t vape, that leads to more smoking.

Six scholars, in a new study for the National Bureau of Economic Research, found that higher taxes on vaping led to more cigarette consumption.

We explore the effect of e-cigarette taxes enacted in eight states and two large counties on e-cigarette prices, e-cigarette sales, and sales of other tobacco products. …We then calculate an e-cigarette own-price elasticity of -1.5 and a positive cross-price elasticity of demand between e-cigarettes and traditional cigarettes of 0.9, suggesting that e-cigarettes and traditional cigarettes are economic substitutes. We simulate that for every one standard e-cigarette pod (a device that contains liquid nicotine) of 0.7 ml no longer purchased as a result of an e-cigarette tax, the same tax increases traditional cigarettes purchased by 6.4 extra packs.

If you don’t want to read an academic study, a press release from Georgia State University (home to one of the scholars) summarizes the key findings.

Increasing taxes on e-cigarettes in an attempt to cut vaping may cause people to purchase more traditional cigarettes according to a new study funded by the National Institutes of Health. For every 10 percent increase in e-cigarette prices, e-cigarette sales drop 26 percent while traditional cigarette sales jump by 11 percent. …“Vaping-related illnesses are a public health concern. However, cigarettes continue to kill nearly 480,000 Americans each year, and several research reviews support the conclusion that e-cigarettes contain fewer toxicants and are safer for non-pregnant adults,” said co-author Erik Nesson of Ball State University. …Michael F. Pesko from Georgia State University. “We estimate that for every 1 e-cigarette pod no longer purchased as a result of an e-cigarette tax, 6.2 extra packs of cigarettes are purchased instead,” he said. “The public health impact of e-cigarette taxes in this case is likely negative.”

Needless to say, if higher taxes on vaping lead to more smoking, one can only imagine how much additional cigarettes will be consumed if vaping is outlawed.

And that means more cancer, more heart disease, and other illnesses.

The folks who support anti-vaping policies respond by arguing that vaping enables nicotine consumption by some young people and may even be a gateway to smoking.

That’s probably true, but it’s also true that some of those young people would opt for smoking if they didn’t have the option to vape.

From a utilitarian perspective, the bottom line is that vaping saves lives.

The anti-vaping crowd might even admit that’s true, but they presumably would then argue in favor of banning cigarettes.

But why stop there? Obesity also is a major threat to health, so why not ban cakes, pies, pasta, and french fries? And big gulps (oh, wait, that’s already happening)?

And mandate broccoli consumption as well, along with a government-required five-mile jog on days that end in “y”.

At the risk of understatement, the right solution is to let adults make their own decisions. The FDA should quit its harassment campaign against vaping.

P.S. If FDA bureaucrats actually want to save lives, they should focus on their onerous rules and silly regulations that have hampered the private economy’s ability to respond to the coronavirus.

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Image credit: Vaping360 | CC BY 2.0.

Coronavirus Is Worsening America’s Grim Fiscal Outlook

Sat, 05/09/2020 - 12:22pm

I’ve warned that the budgetary impact of the coronavirus may trigger another fiscal crisis in Europe.

Especially Italy.

But what about the United States? Will we reach a point, as Margaret Thatcher famously warned, of running out of other people’s money?

We probably still have a couple of decades before that happens, as I speculated at the end of a recent interview, but that doesn’t mean we should continue down our current path.

The Wall Street Journal opined on this topic yesterday, citing newly released estimates from the Congressional Budget Office.

Friday’s Congressional Budget Office report on the federal fisc for April…usually a surplus month as tax payments roll in, but the Treasury postponed tax day this year until July 15. We are grateful for such small government favors. Spending more than doubled in April from the year before and revenue fell by 55%. …we are all apparently supposed to be converts to Modern Monetary Theory. This is the view that governments can spend whatever they like because the Federal Reserve can monetize it without economic harm. We may get to test this proposition. …the damage from so much spending will come in two ways. First, in resources misallocated to government rather than into private hands to invest. Second, in the tax increases that the political class will eventually impose, perhaps starting as early as 2021.

As is so often the case, the WSJ is correct in its analysis.

The fiscal crisis won’t be too much red ink. That’s merely the symptom of the real disease, which is that government is getting far too big.

As the editorial warns, this undermines prosperity because resources get diverted from the economy’s productive sector.

And as that spending burden increases, it means more and more pressure for tax increases, which further penalize growth. I’ve already noted that politicians will try to exploit the crisis by imposing a wealth tax, but I think the real prize – in the mind of statists – is a money-gobbling value-added tax.

I’ll close by sharing a chart from Brian Riedl of the Manhattan Institute, which estimates the per-capita burden of inflation-adjusted federal spending in the United States.

The red portion of the chart is coronavirus-related spending, plus future interest payments on the additional borrowing for all that spending, and the blue portion is spending in prior years plus estimates of future spending (already on an upward trajectory because of poorly designed entitlement programs).

That chart does not paint a pretty picture, but Brian’s numbers may be too optimistic. He assumes that the coronavirus-related emergency spending is just temporary and that additional interest on a bigger debt is the only long-run impact.

But if politicians make some of that spending permanent (which will be in their self-interest), then we’ll be traveling even faster in the wrong direction.

All the more reason to impose a spending cap, which is the only major fiscal reform with a track record of success.

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Image credit: Max Pixel | CC0 Public Domain.

A Real-World Depiction of Life under Socialism

Fri, 05/08/2020 - 12:20pm

When making the case against socialism, I’ve pointed out how that coercive ideology is an evil and immoral failure.

But maybe the best argument is contained in this very short video that was shared by a group of Tory activists in the United Kingdom.

Ms. Badenoch is now a member of the United Kingdom’s Parliament, and she was describing what it was like to grow up in Nigeria, a country where capitalism was not allowed to flourish.

Given the upside-down incentive system created by socialism, it’s no surprise that she endured hardship.

And while her story is just an anecdote, there is overwhelming evidence that nations with more economic liberty generate much better outcomes for ordinary people.

If you’re interested in learning more Ms. Badenoch, the U.K.-based Daily Mail profiled her back in 2017.

Kemi Badenoch is black; although British-born, she was raised in Nigeria by African parents, returned to England when she was 16 and rose from impoverished first-generation immigrant to parliamentarian in just 21 years. …Kemi, 37, married with two young children, won her safe seat in rural Essex with a 24,966-seat majority after Sir Alan Haselhurst, 80, stood down after 40 years. …What’s more, she was chosen ahead of Theresa May’s special adviser Stephen Parkinson, a Cambridge-educated white male. Kemi’s maiden Commons speech…marked her as a rising star. She spoke of her African childhood, saying: …‘Unlike many colleagues born since 1980, I was unlucky enough to live under socialist policies. It is not something I would wish on anyone, and it is just one of the reasons why I am a Conservative.’ …Kemi has a refreshing view of politics. …She supports Brexit — ‘the greatest ever vote of confidence in the project of the United Kingdom’ — and her heroes are Winston Churchill, Margaret Thatcher…she made a last-minute decision in favour of Leave. ‘And since, I’ve felt more and more confident that it was the right one,’ she says. ‘Many people who voted Brexit warmed to me because they felt I wasn’t a typical Leave voter. I’ve no time for those who say, “Brexit is all about racism.” That’s offensive. ‘It’s about sovereignty, bureaucracy and how we make our laws. …Kemi is fired up by the patriotism of the emigre who chose to live in Britain. ‘I’m Conservative because of the experiences I’ve had,’ she says. ‘I know what it’s like to live in a Third World country run by a regime with Socialist principles. It shaped my outlook and helped me appreciate how great Britain is.’

She was on the correct side on Brexit and Thatcher was one of her heroes. And she got the seat after beating out an ally of Theresa May, who was on the wrong side of Brexit.

That’s a very nice combination, but I want to zoom out and make a big-picture observation about how Ms. Badenoch’s move to the United Kingdom is part of a global pattern.

Simply stated, people vote with their feet against socialism.

People didn’t try to escape from West Germany to East Germany.

There are no caravans marching toward Venezuela (notwithstanding this satire).

Refugees aren’t in ramshackle boats trying to go from Florida to Cuba.

By the way, people also vote with their feet against big government inside the United States.

Needless to say, there’s a lesson to be learned from these migratory patterns.

P.S. If you like first-hand accounts of what it’s like to live under socialism, I recommend these videos from Gloria AlvarezThomas Peterffy, and two Venezuelans.

P.P.S. Ms. Badenoch’s video is only 37 seconds, but you can also learn about socialism in videos that last 10 seconds or less.

Recognizing the Deadly Impact of Economic Lockdowns

Thu, 05/07/2020 - 12:26pm

Last October, before coronavirus became the world’s dominant issue, I shared this clever Remy video to help make the point that policies designed to save lives can go too far. Indeed, if they do enough harm to the economy, they can actually cause additional death.

I’ve written about this tradeoff in the context of the coronavirus, pointing out that policymakers should look at total deaths, not just deaths from the virus.

In a column for the Philadelphia Inquirer, Professors Antony Davies and James Harrigan elaborate on these tradeoffs.

In times of crisis, people want someone to do something, and don’t want to hear about tradeoffs. This is the breeding ground for grand policies driven by the mantra, “if it saves just one life.” …Rational people understand this isn’t how the world works. …Unfortunately, even mentioning tradeoffs in a time of crisis brings the accusation that only heartless beasts would balance human lives against dollars. …Five-thousand Americans die each year from choking on solid food. We could save every one of those lives by mandating that all meals be pureed. Pureed food isn’t appetizing, but if it saves just one life, it must be worth doing. …Legislating…these things would be ridiculous, and most sane people know as much. How do we know? Because each of us makes choices like these every day that increase the chances of our dying. …The uncomfortable truth is that no policy can save lives; it can only trade lives. Good policies result in a net positive tradeoff. But we have no idea whether the tradeoff is a net positive until we take a sober look at the cost of saving lives. …It’s time we took a sober look at what this shutdown is costing us.

Opining for the Wall Street Journal, Joseph Sternberg warns that all options are bad, but herd immunity may be the least-worst approach.

The experts might have been right the first time. …The stated goal was not to vanquish the virus but merely to try to control its spread so as not to overwhelm health-care systems. …Those opinions now are widely derided, often in insulting terms. Yet subsequent events suggest they’re mainly correct. …The trouble started in mid-March when “herd immunity,” previously the tacit or acknowledged endgame for most of the world, became a toxic phrase. Critics pointed out that allowing the virus to spread in a controlled manner would cost lives. …But if those experts have a more plausible plan than taking a controlled path to herd immunity, the world is waiting to hear it. …A vaccine is a year or more in the future, if one ever emerges. An effective mass test-and-trace regime would require a level of competence and focus that typically eludes modern governments.

The tradeoffs are especially important in poor countries.

A new report in South Africa, largely prepared by actuaries, finds that the health costs of the lockdown could be 29 times greater than the health costs of the virus. Here are some details in a story published by the Financial Mail.

The lockdown will lead to 29 times more lives lost than the harm it seeks to prevent from Covid-19 in SA, according to…a new model developed by local actuaries. …They have sent a letter…to President Cyril Ramaphosa…they call for an end to the lockdown, a focus on isolating the elderly and allowing children to go back to school, while ensuring the economy restarts so that lives can be saved. …The actuaries used a model comparing “years of lives lost” from Covid-19, to “years of lives lost” from the lockdown. …their model translated into a minimum of 26,800 “years of lives lost” due to Covid-19, and a maximum of 473,500 years. …The actuaries then used the figures predicted by the National Treasury to model the impact on poverty. … their model showed that the number of years lost owing to the economic contraction caused by lockdown lies between 14-million and 24-million.

I have no idea, of course, whether these numbers are correct. Especially since even the world’s biggest experts are still learning about the disease.

But the underlying methodology is sensible. Policies that cause a weaker economy (and South Africa already has plenty of those) will make a country poorer and its people poorer.

And poorer people in poorer nations will die at younger ages.

Somebody sent me this image, which helps to capture the health costs of lockdowns.

P.S. Back in 2012, I pointed out that the economy’s sub-par performance under Obama would lead to almost 60,000 premature deaths. I openly acknowledged that this back-of-the-envelope calculation was very speculative, but what’s not speculation is that richer societies are healthier societies.

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Image credit: Liberty Junkies | .

English Hypocrite Joins the Bureaucrat Hall of Fame

Wed, 05/06/2020 - 12:21pm

One of the most-nauseating features of government is how politicians and bureaucrats impose lots of restrictions on ordinary people, yet then officially or unofficially create exemptions for themselves.

The coronavirus pandemic has created a new opportunity for the political class to flaunt its privileged status while stepping on the rights of ordinary people.

The Wall Street Journal opined on this issue today and noted plenty of elected officials have decided to exempt themselves from lockdown rules.

A good sign that a government policy is misconceived is that its most energetic promoters can’t abide by it. The coronavirus outbreak has exposed this sort of hypocrisy more than a few times. Mayor Bill de Blasio famously visited his favorite YMCA for a workout even as his office was telling the rest of New York City to stay home. In Chicago, salons and barbershops were shut down while Mayor Lori Lightfoot allowed herself a haircut. Beaumont, Texas, Mayor Becky Ames flouted her city’s shelter-in-place order to have her nails done.

But these examples are trivial compared to the actions of Neil Ferguson, the officious British government employee who has been publicly hectoring his countrymen to follow stay-at-home orders, but decided those rules didn’t apply to his f*buddy.

Neil Ferguson, the epidemiologist at Imperial College,…led the researchers who predicted that, absent a forceful governmental response on movement and commerce, Covid-19 could cause more than 500,000 deaths. That modeling was soon scaled back, but Mr. Ferguson has since become a familiar figure in Britain for urging the government to impose strict shelter-in-place orders. It appears Mr. Ferguson wasn’t sheltering in place. Or, rather, he was but his paramour, Antonia Staats, wasn’t. …Ms. Staats had crossed London at least twice since citywide lockdowns were imposed in March—a clear violation of government rules. He has resigned from his position as government adviser.

I’m not surprised Ferguson is a hypocrite. It goes with the territory.

But I do wonder how he became a government adviser with the Conservative Party supposedly in charge? I thought Republicans were the “stupid party.”

In any event, the U.K.-based Sun is famous for its clever headlines (sort of like the New York Post), and this latest scandal is no exception.

Let’s conclude that Ferguson deserves to be the second Brit in the Bureaucrat Hall of Fame (joining the chap who worked in law enforcement while moonlighting as a jihadist).

P.S. For what it’s worth, Ms. Staats is a left-wing activist, so she’s part of a long tradition of statists who want more power for government, but conveniently don’t think they should be subject to the rules imposed on the rest of us.

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Image credit: David Iliff | CC BY-SA 3.0.

Does Sweden Have the Right Response to the Coronavirus?

Tue, 05/05/2020 - 12:47pm

Having already written several dozen columns on public policy and the coronavirus, it’s time to add my two cents to the debate over Sweden’s (comparatively) laissez-faire approach to the pandemic.

If nothing else, it’s remarkable that the nation Bernie Sanders praised for socialism (albeit incorrectly) is now the poster child for (some) libertarians.

What makes Sweden special, as depicted in this graphic from CNN, is a more lenient attitude about letting ordinary life continue.

Did Sweden make the right choice?

Let’s review several analyses, starting with Hilary Brueck’s article for Business Insider.

In Sweden, bars and restaurants are open to the public, you can go get a haircut, and primary school is in session. …life goes on. …If anyone can have success with such a low-enforcement disease-fighting strategy, it may be Sweden. …The Swedish prerogative asks citizens to act like adults, and then trusts that, left to their own devices, people will. …The Swedes are also seriously weighing concerns that have been taken as inevitable, if unfortunate, collateral damage in other countries, such as the mental health risks of being stuck inside, rising rates of abuse, and substance use disorders. …Other countries, including the UK and the Netherlands, originally toyed with the idea… Both were accused of heartlessness: sacrificing the old and vulnerable… But Sweden has persevered. …The economy has…taken a hit. …8% of the country is now unemployed, a figure that’s projected to continue to rise, possibly hitting 10% by this summer.

Writing for Reason, Johan Norberg explains his nation’s strategy.

The Swedish government has declared no state of emergency and no orders to shelter in place. …Those who want to show how great Sweden is doing have produced charts comparing us to countries like Britain, Belgium, France, Spain, and Italy. Those who want to prove the opposite replace those countries with Norway, Denmark, and Finland, all of which have fewer deaths. …Sweden has had more COVID-19 deaths per capita than our Nordic neighbors. But that is an obvious result of those countries’ decisions to postpone cases and deaths by locking down whole societies for a period of time. The thing to watch is what happens when they begin to open up again and will face a new wave of COVID-19. …A Harvard model projects that a 60 percent suppression of the disease will result in a higher peak later on and a higher number of total deaths than a mitigation strategy like the one Sweden used, where the spread is reduced by no more than 20 or 40 percent, so that the disease can pass through the population to create herd immunity during a period when the vulnerable are protected. Other models come to other conclusions, of course… We just don’t know yet, and only time will tell. Herd immunity might yet beat herd mentality. …our economy still hurts… But losing two-thirds of your revenue rather than 100 percent might mean the difference between life and death for many entrepreneurs. …Perhaps Sweden will do worse long term… Or perhaps Sweden is the one place that is succeeding in limiting long-term damage, caring for the sick, and protecting the vulnerable, all while working toward herd immunity. …What we do know is that Sweden has not cracked down on basic liberties like others have, and has not wrecked society and the economy to the same extent.

In a column for the New York Times, Ian Bremmer, Cliff Kupchan, and Scott Rosenstein cast doubt on Sweden’s approach.

In Sweden, business is not actually proceeding as usual. …But restrictions from government are considerably less severe than many other countries. …The results have been mixed. Sweden has the highest fatalities and case count per capita in Scandinavia, but is lower than some of its neighbors to the south. Economic disruption has been significant but not as debilitating as other countries. …the nation’s top infectious disease official recently estimated that approximately 25 percent of the population has developed antibodies. …But if immunity is short-lived and only present in some individuals, that already uncertain 25 percent becomes even less compelling. We also still don’t know what total population percentage would be necessary to reach the herd immunity goal. …there are huge risks with copying the strategy in a country like the United States. The American people are far less healthy than Swedes.

The Wall Street Journal opined this morning about Sweden’s strategy.

While its neighbors and the rest of Europe imposed strict lockdowns, Stockholm has taken a relatively permissive approach. It has focused on testing and building up health-care capacity while relying on voluntary social distancing, which Swedes have embraced. The country isn’t a free-for-all. Restaurants and bars remain open, though only for table service. Younger students are still attending school, but universities have moved to remote learning. …the country’s strategy…is to contain the virus enough to not overwhelm its health system. …Sweden has been clear it is aiming for a “sustainable” strategy that it can practice until there is a vaccine or cure while also being economically tolerable. The lockdown countries have held the virus in relative check for now, though probably with less broad immunity in the population. They appear to be delaying some deaths but at the risk of a larger outbreak once they open up if there is no cure. …No one knows which mitigation strategy will save the most lives while doing the least economic harm. But the rush to condemn Sweden isn’t helpful.

In a column for National Review, John Fund and Joel Hay argue for the Swedish approach.

With a death rate significantly lower than that of France, Spain, the U.K., Belgium, Italy, and other European Union countries, Swedes can enjoy the spring without panic or fears of reigniting a new epidemic as they go about their day in a largely normal fashion. …Dr. Anders Tegnell, the chief epidemiologist of Sweden, …heroically bucked the conventional wisdom of every other nation and carefully examined the insubstantial evidence that social-isolation controls would help reduce COVID-19 deaths over the full course of the virus. …Tegnell has looked at other nations that are loosening their lockdowns. “To me it looks like a lot of the exit strategies that are being discussed look very much like what Sweden is already doing,” he told Canada’s Globe & Mail. …Jan Albert, a professor in the Department of Microbiology, Tumor, and Cell Biology at Sweden’s Karolinska Institute, told CNN that strict lockdowns “only serve to flatten the curve, and flattening the curve doesn’t mean that cases disappear — they are just moved in time.” …Initially, the main justification for the global lockdowns was that they were necessary to prevent a crush of patients from overwhelming hospital intensive-care units. …Despite no lockdowns and few social-isolation controls other than proper spacing in restaurants and a ban on gatherings of more than 50 people, the Swedish hospital system never experienced anything remotely like the crush of ICU patients in Italy, Spain, and New York City. …Of course, Sweden paid a price during the pandemic. …they will tell you it was worth it. And it is easy to figure out that price. They never cratered their economy… Now many countries and U.S. states are beginning to follow Sweden’s lead.

So who is right, the optimists or the pessimists?

The honest answer is that we don’t know, though it probably depends on how quickly (if ever) someone develops either a vaccine or a cure.

Here’s my back-of-the-envelope comparison of Sweden’s laissez-faire approach and the lock-down approach in the United States.

In the short run, Sweden has more cases and less economic damage.

But what really matters is how things evolve in the long run. If no vaccine or treatment materializes, then other nations will eventually be forced to copy Sweden’s approach. That presumably will mean a similar number of cases over time, so all the additional short-run economic damage will have been pointless.

But if a vaccine or treatment appears relatively soon, then people presumably will conclude that Sweden made the wrong choice (though even that will be a matter for debate depending on the degree to which people understand the long-run relationship between health outcomes and national prosperity).

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Image credit: Bengt Nyman | CC BY 2.0.

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