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Coronavirus and the Future of Public Policy

Mon, 05/04/2020 - 12:34pm

I spoke last week about the “Economic Consequences of the Crisis” for a webinar organized by the Estonian Business School.

My remarks focused on the severity of the downturn, the likelihood of a new fiscal crisis in Europe, and how to balance the costs and benefits of re-opening the economy.

The full program, which was part of the Digital Free Market Road Show, can be viewed by clicking here.

For today’s column, I want to focus on my final slide, which asks whether politicians will use the crisis to permanently expand the size and scope of government.

I didn’t make any sweeping predictions when discussing this slide, though my tone was somewhat pessimistic. Simply stated, I fear we’ll have a bigger burden of government when the coronavirus crisis abates.

This doesn’t necessarily have to be the outcome. As I wrote two years ago, it’s possible for a crisis to produce either more statism or more liberalization.

Robert Higgs and Don Boudreaux, writing about this topic for Reason, fear that politicians will succeed in using the crisis to move the needle in the wrong direction.

Although everyone seems to agree that these measures are to be employed only in the short run, until the incidence of the disease has been reduced either by herd immunity or by new medical treatments, no one at the start put together an exit strategy from these extraordinary increases in governments’ size, scope, and power. Everything was done on a piecemeal basis from day to day, on the assumption that when an endgame came into view the governments would terminate their crisis actions. This assumption runs counter to how crisis-borne increases in government’s size, scope, and power have played out in the past. …the growth of government that attends national emergencies is not surrendered fully when the crisis ends. Instead, a ratchet effect operates whereby much of the crisis-borne growth of government becomes institutionalized in agencies and practices and, more important, in the dominant ideology of political elites and the general public.

Higgs and Boudreaux use insights from “public choice” to describe the process that produces ever-larger government.

As crisis followed crisis—World War I, the Great Depression, World War II, the multifaceted turmoil of the Johnson-Nixon years, the 9/11 attacks, the Great Recession that began in 2008—the ratchet effect ensured that government’s growth trajectory was displaced upward, time after time. …People sometimes regretted actions taken hastily during a crisis but found that reversing them was diabolically difficult. …The ratchet effect operates because of incentives and constraints built into the political and economic structure. …To disable the ratchet effect, people must rouse themselves to think more seriously about the long-run consequences of actions taken hastily in response to national emergencies—and about whether they want to keep their remaining economic freedoms and civil liberties or be content to surrender them one crisis at a time.

It’s hard to argue with their analysis, but I’ll close with a bit of optimism.

Here’s a chart based on data from Economic Freedom of the World, including research extending estimates back to 1950. It shows that – notwithstanding various crises – there has not been a decline in liberty for the United States since World War II.

This suggests that Higgs and Boudreaux are too gloomy.

I wonder, however, when going as far back as the 1950s-1970s, if the data is good enough to produce reliable estimates of economic liberty.

How can it be true, for instance, that overall economic liberty increased during the 1970s, when we had Nixon’s awful statism?

Though maybe I have tunnel vision because of my focus on fiscal policy. A Spanish scholar who put together long-run data on non-fiscal policy (going all the way back to 1850) found that economic liberty has been increasing.

In any event, let’s hope that economic liberty doesn’t shrink in the future. Assuming, of course, we care about national prosperity and poverty reduction.

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Image credit: Erik Scheel | Pexels License.

Seattle Suicide

Sat, 05/02/2020 - 12:27pm

What’s the most poorly governed city in the United States?

Those are all good options, but Seattle may deserve this award. Following municipal elections last November, the City Council is controlled by hard-left members who want to impose the local version of “democratic socialism.”

In a National Review article from February, Christopher Rufo describes their agenda.

Seattle has effectively become the nation’s laboratory for socialist policies. Since the beginning of the year, the socialist faction on the Seattle City Council has proposed a range of policies on taxes, housing, homelessness, and criminal justice that put into practice the national democratic-socialist agenda. In the most recent session, socialist councilwoman Kshama Sawant and her allies have proposed massive new taxes on corporations, unprecedented regulations on landlords (including rent control and a ban on “winter evictions”), the mandated construction of homeless encampments, and the gradual dismantling of the criminal justice system, beginning with the end of cash bail. …In order to consolidate their newfound power, the progressive-socialists have begun to manipulate the democratic process in their own favor: first, by providing all Seattle voters with $100 in taxpayer-funded “democracy vouchers,” which are easily collected by unions, activists, and socialist groups; and second, by implementing a ban on corporate spending in local elections… the progressive-socialists are no longer interested in gaining reasonable concessions; they intend to overthrow capitalism itself.

The Wall Street Journal opined this week on the latest development in Seattle’s suicidal approach.

The economy is on life support, but that isn’t stopping the Seattle City Council from trying to soak employers with a new tax on hiring. …The proposal is a reprise of the council’s 2018 tax on each new hire that was repealed amid public opposition. The new proposal “is 10 times larger than the 2018 version, and it’s also in an economy that’s about 1,000 times worse,” says James Sido of the Downtown Seattle Association…a 1.3% payroll tax on most Seattle businesses with $7 million or more in payroll. …Businesses would be assessed based on the prior year’s payroll, but revenue has cratered this year amid the pandemic. …businesses on the margin that have been forced to lay off or furlough employees may not bring them back if it means crossing that $7 million payroll threshold. The tax would discourage smaller companies from growing in Seattle. …Seattle is the hardest hit city in the U.S., with unemployment rising 105.92% between January and March. Only a socialist would think now is the time to further punish job creation.

Good points.

Though I would add that it’s never a good time to raise taxes and punish job creation.

Here’s what the greedy members of the City Council don’t understand (or pretend not to understand):

It’s complicated and difficult to move out of a country.

It’s a potentially expensive hassle to move out of a state.

It’s relatively easy to move out of a city.

And that’s why Seattle’s experiment with socialism is bound to fail.

If the socialists on the City Council impose this tax, there inevitably will be an out-migration of entrepreneurs and businesses to surrounding suburbs. That will be bad for ordinary people in the city (a point that workers in the economy’s productive sector already understand).

And when that happens, I wonder if they’ll learn that it is possible to run out of other people’s money?

P.S. Seattle’s politicians already have destroyed jobs and ruined businesses with a big increase in the minimum wage.

P.P.S. The constitution of the state of Washington prohibits an income tax, so there’s an ongoing debate whether Seattle’s tax grab – if enacted – would survive a court challenge.

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Image credit: Rattlhed | Public Domain.

Coronavirus and the States: Spending Restraint, Bailouts, Default, or Bankruptcy?

Fri, 05/01/2020 - 12:21pm

A Supreme Court Justice pointed out in 1932 that “a state may, if its citizens choose, serve as a laboratory; and try novel social and economic experiments without risk to the rest of the country.”

Well, we’ve had several experiments in higher taxes and higher spending, and they don’t work.

States with heavier fiscal burdens are accumulating ever-higher levels of debt (especially unfunded liabilities) while also causing an ever-greater exodus of taxpayers to other states.

In the long run, this is a recipe for fiscal crisis since it’s hard to give away lots of money if there aren’t enough taxpayers to finance that profligacy (as illustrated by this set of cartoons).

Well, with the help of the coronavirus, the long run may have arrived.

But the pandemic only exposed a problem that already existed.

Mitch Daniels, the former governor of Indiana, wrote two years ago in the Washington Post that poorly manged states like Connecticut shouldn’t be bailed out by taxpayers in better-run states.

…several of today’s 50 states have descended into unmanageable public indebtedness. …in terms of per capita state debt, Connecticut ranks among the worst in the nation, with unfunded liabilities amounting to $22,700 per citizen. Each profligate state is facing its own budgetary perdition for different reasons, but most share common factors. The explosion of Medicaid spending, even before Obamacare, has devoured state funds… In parallel, public pensions of sometimes grotesque levels guarantee that the fiscal strangulation will soon get much worse. In California, some retired lifeguards are receiving more than $90,000 per year. A retired university president in Oregon received $76,000 per month — and no, that’s not a typo. These are the modern-day welfare queens… More and more desperate tax increases haven’t cured the problem; it’s possible that they are making it worse. When a state pursues boneheaded policies long enough, people and businesses get up and leave, taking tax dollars with them.

In a remarkably prescient passage, Daniels speculates about a future emergency that will lead to pressure for a federal bailout.

Sometime in the next few years, we are likely to go through our own version of the recent euro-zone drama with, let’s say, Connecticut in the role of Greece and maybe a larger, “too big to fail” partner such as Illinois as Italy. Adding up the number of federal legislators from the 15 or 20 fiscally weakest states, one can count something close to half the votes in the House.

Which brings us to the current situation.

The crowd in Washington has already funneled several hundred billion dollars to state and local governments.

But politicians like Governor Cuomo in New York and Governor Pritzker in Illinois view all that money as an appetizer and now they want the fiscal equivalent of an all-you-can-eat buffet.

The editors of the Wall Street Journal are not sympathetic to these fiscal pyromaniacs.

The question to ask is why taxpayers in Appleton and Sarasota should rescue politicians and unions in Albany and Springfield? …states like New York were already in trouble from their own mismanagement. …take Illinois, where Gov. J.B. Pritzker…raised taxes in 2019 and wants to make the state’s current flat tax progressive… Yet he and the unions who own the state house have blocked pension or spending reforms. They’ve long bet on a federal bailout, and they see Covid-19 as their main chance. …President Trump has signaled he’s open to a state bailout because, well, he’s open to anything these days. But Senate Majority Leader Mitch McConnell caused a stir…when he said states should consider bankruptcy rather than get a bailout. …Mr. McConnell’s larger point is that states shouldn’t get more no-strings cash. Private companies that borrow from the Fed and Treasury have to meet stiff conditions, including limits on compensation, and the same should apply to state governments. Bailout conditions should include cuts in nonessential spending, immediate and permanent reductions in public pension benefits.

Kevin Williamson explains in National Review that the problem is a pre-existing penchant for over-spending and vote-buying.

Bailing out the Illinois state pension system is the worst idea from a week in which we were discussing the health benefits of mainlining Lysol. Irresponsible state and local governments are attempting to exploit the fear and disruption of the coronavirus epidemic to push off the consequences of their decades of reckless and culpably dishonest policies onto the federal government. … One of the largest problems facing state and local governments, from Illinois to Oklahoma and from Los Angeles to Dallas, is “unfunded liabilities,” meaning the differences between the promises governments have made to their employees and the money they have set aside to pay for those things. …Government workers are a powerful political constituency — they run California — and they want the same thing everybody else does: more. …If Washington were to dump a few billion dollars into the lap of the feckless cartwheeling goobers who run Illinois, the underlying problem of chronic underfunding of future pension liabilities would remain, and Illinois would be right back where it is today in a year or two. A bailout would not solve the problem — it would keep the problem from being solved.

Adam Michel of the Heritage Foundation explains how bailouts create the wrong incentives.

The prospect of federal tax dollars creates an incentive for state legislatures to both expand existing programs beyond sustainable levels, and to simultaneously underfund those programs in hopes of further federal support. …One example is how states often delay needed infrastructure projects (for which funds are locally available) in hopes of one day receiving federal funds to cover the project costs. …An unrestricted bailout of the states could be highly unequal, forcing taxpayers in well-run states to subsidize those who have systematically underfunded their pensions and rainy day funds, or those states who have particularly volatile revenue systems. …Federal aid tends to expand state budgets and make them less resilient during future crises. Simply moving state funding to the federal government does little more than redistribute local costs to federal taxpayers across all 50 states.

Senator Rick Scott of Florida opines for the Wall Street Journal that taxpayers in his state shouldn’t pick up the tab for New York’s profligate politicians.

…one thing we absolutely shouldn’t do is shield states from the consequences of their own bad budgetary decisions over the past few decades. …Democrats’ true aim: using federal taxpayer dollars to bail out poorly run states—typically, states controlled by Democrats. …Florida is well-positioned to address the coming shortfall in revenue without a bailout. The state may need to make some choices, which is what grown-ups do in tough economic times. And if we need to borrow a small amount in the short term to get us through this economic crisis, that borrowing will be cheaper thanks to our AAA bond rating and the reduction in state debt. New York Gov. Andrew Cuomo said it was “irresponsible” and “reckless” not to bail out states like his, a state with two million fewer people than Florida and a budget almost double the size of ours.

Well stated. Any comparison of Florida and New York shows the benefit of limited government.

Jonathan Williams and Lee Schalk of the American Legislative Exchange Council, opining for the Hill, argue against a bailout.

A growing chorus of governors is calling on Congress to “bail out” state governments. …Their plea comes on the heels of the $2 trillion CARES Act, which included a general $150 billion COVID-19 relief fund, a $30 billion education costs fund, a $45 billion disaster relief fund and more for state and local governments. …History suggests that federal bailouts…incentivize future fiscal irresponsibility and create a moral hazard problem. Bailouts reward fiscally reckless states at the expense of fiscally responsible ones. Academic research from the Mercatus Center at George Mason University shows that federal bailouts could even lead to higher state level taxes. According to their research, every dollar of federal aid to states drives state taxes higher by 33 to 42 cents. …State and local governments do not lack revenue. They lack spending restraint. Over the past 40 years, after fully accounting for increases in population and inflation, state and local direct general spending has grown by 88 percent.

The last sentence in the excerpt is key. State politicians have been violating fiscal policy’s Golden Rule by letting spending grow too fast.

What’s needed is TABOR-style spending restraint, as Williams pointed out in a 2015 speech.

So if a bailout is the wrong solution, what’s the right solution? There are three potential options.

Ramesh Ponnuru writes that states should have a process for declaring bankruptcy.

Some states have made exorbitant promises to their employees over the years without providing adequate funding. They made up the difference, on paper, by projecting unrealistically high returns on pension investments. The Federal Reserve, applying a better projection of returns, estimates that pensions are underfunded by $4 trillion. McConnell is right to think that it would be unfair to make Florida’s teachers and firefighters pay for benefits for their counterparts in Illinois, and unwise to create an incentive for further irresponsibility by state officials. …Federal law currently makes no provision for states to re-organize their commitments through bankruptcy proceedings. Creating one would not keep the coronavirus from crushing state budgets. It could, however, prevent, or at least limit, future federal bailouts for state mismanagement of pensions.

His colleague at National Review, Kevin Williamson, has a different perspective. His article argues that default is better than a Washington-dictated process for bankruptcy.

The several states are not administrative subdivisions of the federal government. They are powers in their own right, superseded by the U.S. government only in certain matters that involve more than one state: Washington can declare war or write immigration law, but it cannot tell Austin how to run the Texas Rangers or Sacramento how to prioritize its finances. Because bankruptcy law is federal law, putting states into bankruptcy reorganization would upend our basic constitutional arrangement, making state governments answerable to federal bankruptcy judges and, behind them, to Congress. …Sovereigns don’t go bankrupt. Sovereigns default. And that is what is likely to happen with the pension crisis, at least as far as states’ creditors are concerned. It is what should happen. …we should not use the coronavirus as an excuse to federalize the consequences of culpably irresponsible and fundamentally dishonest governance at the state and local level. …If we want debt markets to work, then investors have to pay the price for bad investments. (Lending money to an organization run by Bill de Blasio is a bad decision.) Making creditors take a painful haircut creates incentives to discourage such willy-nilly lending and profligate spending in the future. …Government debt should in this respect be treated like any other debt — and we should change the law to strip municipal bonds of their tax-free status, which creates a subsidy for debt.

And Andrew Biggs of the American Enterprise Institute argues in the Wall Street Journal that – if a bailout is offered – it should be accompanied by strict conditions.

Congress may want to offer assistance, but it should come with strict conditions: Any state looking for a pension handout must either live by the stricter accounting rules federal law imposes on private pension plans or freeze its pension and shift all employees to defined-contribution retirement plans. Private-sector plans must assume more-conservative investment returns than public-sector plans and address unfunded liabilities more rapidly. As a result, private pensions today have set aside more than twice as much funding per dollar of promised future benefits than have state and local pensions. …Freezing a pension doesn’t make its unfunded liabilities go away. But it caps existing liabilities while shifting employees to plans in which the government’s funding obligation is clearly defined and can’t be evaded using actuarial or accounting tricks.

Of these options, a conditional bailout is not a good idea, even though it is the best way of doing the wrong thing.

Either bankruptcy or default would be a much better choice, and I lean in the direction of default (the same view I have when contemplating Europe’s failing welfare states).

But the right option is to avoid getting in trouble in the first place.

And that means low taxes, spending restraint, and other market-friendly policies.

I’ll simply note that the states most anxious for bailouts are near the bottom in rankings of small government and economic liberty.

If Washington provides a bailout, that’s a reward for statism and irresponsibility (sort of like foreign aid subsidizing bad policy overseas).

P.S. One month ago, I wrote that the worst coronavirus-related proposal would be restoring the federal tax deduction for state and local tax payments.

I still think that is a terrible idea, of course, but a big bailout from Washington would be even worse.

Coronavirus and the Risky Mix of Bailouts, Big Business, and Big Government

Wed, 04/29/2020 - 12:16pm

Since government officials have imposed severe restrictions on economic activity, I’m sympathetic to the notion that businesses should be compensated.

But, as I warn in this CNBC interview, I have major concerns about big government and big business getting in bed together.

As is so often the case with interviews on live TV, there are many issues that didn’t get appropriate attention (either because there was too little time or because I failed to address a key point).

  • major risk of bailouts is that politicians will insist on having a say in how companies operate. Indeed, that’s what Christian Weller was calling for in the final part of the interview. I should have pointed out the huge economic downside of having government in the boardroom.
  • There’s a rationale for short-run emergency legislation, but we should be very concerned that self-interested politicians and power-hungry bureaucracies will use the coronavirus crisis as an excuse to permanently expand their power and control over the economy’s productive sector.

P.S. I usually try to avoid making predictions (economists are lousy forecasters), but I feel confident in asserting that my friends on the left – once the coronavirus crisis has ended – will be complaining about big businesses having too much power.

I’m not against large companies, per se. But I don’t want bigger firms to gain an advantage over small companies by getting in bed with government.

If we want fair and honest competition, we need separation of business and state. No bailouts, no cronyism, no subsidies, and no favoritism.

That’s the part folks on the left don’t understand.

P.S. If you want more information on the economic damage caused by bailouts, watch this video and this video.

P.P.S. Speaking of videos, here’s some satire about the toys that politicians get for their children.

P.P.P.S. I wish this was satire, but American taxpayers are helping to underwrite cronyism in other countries.

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Image credit: Andy Withers | CC BY-NC-ND 2.0.

How Much Democracy Is Desirable?

Tue, 04/28/2020 - 12:22pm

Like many supporters of individual liberty, I’m an anti-majoritarian. I don’t want my freedom to be at the mercy of 51 percent of the population. For all intents and purposes, I want the Supreme Court to protect the country from democracy.

So, based solely on the title, I was automatically disposed to like 10% Less Democracy, a book authored by Professor Garett Jones of George Mason University.

But Garett’s book isn’t a manifesto about the American Constitution and its (sadly neglected) provisions designed to protect economic liberty. It doesn’t even mention my favorite part, Article 1, Section 8, which lists the few and limited powers of the central government.

Instead, his book focuses on a different topic. He’s arguing that we will get better outcomes if ordinary people have less influence on public policy.

And he’s not subtle about that point. The full title of his book is 10% Less Democracy: Why you should trust elites a little more and the masses a little less.

All of a sudden, I was less instinctively favorable to the book.

Simply stated, there are too many cases where the elite tends to be on the wrong side.

When someone says we should trust the elite, I envision people like Mitt Romney and Michael Bloomberg deciding everything from how much tax we pay to what food we’re allowed to eat.

To be sure, people like that would produce a much better outcome when compared to having a lunatic like Bernie Sanders in charge of the government, but I’d like to have a government filled with people who are more likely to leave me alone, such as Calvin CoolidgeGrover Cleveland, and Ronald Reagan.

But you’re not supposed to judge a book by its cover. And that means you shouldn’t judge it by its subtitle, either.

So I took the bold step of actually reading the book (unlike, for instance, when I wrote about Nancy MacLean’s smear job against James Buchanan).

And I liked it. A lot. It’s well written, avoids needless jargon (you don’t need to be a trained economist to understand his points), and touches on many important issues.

And Garett does a great job of dispassionately providing evidence. So even when he made points that rubbed me the wrong way, I was forced to wonder whether I was thinking with my heart rather than my head.

Here’s a small sampling of why you should buy – and read – the book.

In Chapter 1, you’ll learn that there’s very little evidence that democracies produce better economic results, but you will learn that they’re less likely to produce famine and mass killings.

In Chapter 2, you’ll learn how Congress is a “favor factory” and read Garett’s hypothesis that politicians will be more likely to support good policies such as free trade if they have longer terms.

In Chapter 3, you’ll learn that independent central banks work better (yes, feel free to criticize the Federal Reserve, but nations such as Argentina show it’s always possible to get worse outcomes).

In Chapter 4, you’ll learn from state evidence that independent judges also generate better results, at least when compared to judges that are directly elected by voters.

In Chapter 5, you’ll learn that not all voters are created equal.

In Chapter 6, you’ll learn that public policy might improve if bondholders had a bigger say in government policy, an insight from Alexander Hamilton.

In Chapter 7, you’ll learn some “public choice” insights about getting things done in Washington (whether that’s a good idea is an entirely different discussion).

In Chapter 8, you’ll learn that joining the anti-democratic European Union is the right choice for some nations, but also that the United Kingdom had good reasons for Brexit.

In Chapter 9, you’ll learn how Singapore is a huge success story with “50% less democracy.”

Garett concludes with some analysis on how to get the right amount of democracy.

His basic hypothesis is that we have too much input from the masses and he even put together his own version of the Laffer Curve to show that we would get better outcomes with less democracy.

By the way, I can’t resist pointing out that you want to be at the peak of Garett’s Laffer Curve.

With the original Laffer Curve, however, that’s not the right outcome.

P.S. Garett’s book does suffer from one sin of omission. I would have appreciated a chapter on the anomaly of Switzerland. It’s a very successful, very well-governed nation, yet it has an extremely high level of not just democracy, but direct democracy. Voters directly decide all sorts of major policy issues.

Is Switzerland an exception to the rule? Are Swiss people simply more rational than their neighbors? Does the country’s federalism-based model lead to better choices? It would be fascinating to get Garett’s insights.

Government Size, Government Effectiveness, and Coronavirus

Mon, 04/27/2020 - 12:53pm

A couple of weeks ago, I debunked a remarkably anti-empirical column by Dana Milbank of the Washington Post.

He claimed that America’s response to the coronavirus was hampered because government is too small, yet the nations he cited as successful role models actually have much smaller public sectors than the United States.

I congratulated him for accidentally making a strong case for libertarianism and providing evidence for my Seventh Theorem of Government.

Unfortunately, other journalists share Mr. Milbank’s ignorance with regards to easily accessible data on fiscal policy.

Writing for the Atlantic, George Packer asserts that the U.S. response to the coronavirus has been a miserable failure because government is too small.

Every morning in the endless month of March, Americans woke up to find themselves citizens of a failed state. …a federal government crippled by years of right-wing ideological assault, politicization by both parties, and steady defunding. …tests for the virus were almost impossible to find… years of attacking government, squeezing it dry and draining its morale, inflict a heavy cost that the public has to pay in lives. All the programs defunded, stockpiles depleted, and plans scrapped meant that we had become a second-rate nation.

Michael Brendan Dougherty of National Review takes apart Packer’s column.

He points out that CDC funding has increased, while also noting that the bureaucracy has squandered the additional money it has received.

…the CDC’s funding has increased — not that it has made good use of the extra money. This is not a lean and mean virus-fighting machine, getting by on starvation-level resources. It maintains a Hollywood liaison to consult on films. In recent years, it has expanded beyond its core mission to promote motorcycle safety and sponsor programs dedicated to fostering “safe, stable, nurturing relationships” in schools. If you’re wondering why there was lots of political and social messaging larding up CDC documents on COVID-19, just realize that when Congress increases an agency’s funding, the result is likely to be more ideological make-work jobs rather than a more effective workforce. …as for public-sector health-care spending, ours is not notably low — it’s roughly equivalent to those of the developed nations of Western Europe.

And he also observes that nations with smaller governments have done a better job than countries with bigger governments.

…The East Asian states that have done best in fighting COVID-19 are not social-democratic but hyper-capitalist. Compared with them — and to America —Western Europe has done much worse at containing the spread of the coronavirus and the holding down the death toll.

Excellent points.

For my contribution to this debate, I’m going to investigate whether Mr. Packer is right about “steady defunding” of the federal government.

To see whether he is correct about “programs defunded,” I went to Table 1.3 of the Historical Tables of the Budget and created the following chart to see what happened to inflation-adjusted spending over the past 40 years.

Lo and behold, it turns out that Mr. Packer is completely wrong. There hasn’t been any defunding. Not even close.

Instead, the inflation-adjusted burden of government is almost three times greater today than it was the year Reagan was elected (and it will be more than three times greater once all the emergency spending is included).

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.

P.S. There were periods when spending grew faster than at other times. There were also times when the private sector grew faster than the government (fulfilling the Golden Rule). And we also can see the how government exploded because of TARP and Obama’s faux stimulus and then was briefly constrained during the Tea Party era (and is now climbing rapidly under Trump).

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Image credit: Bjoertvedt | CC BY-SA 3.

The International Monetary Fund, Negative-Sum Economics, and the Eighth Theorem of Government

Sat, 04/25/2020 - 12:46pm

At the risk of understatement, I’m not a fan of the International Monetary Fund (IMF).

The international bureaucracy is the “Johnny Appleseed” of moral hazard, using bailouts to reward profligate governments and imprudent lenders.

The IMF also is infamous for encouraging higher tax burdens, which is especially outrageous since its cossetted employees are exempt from paying tax on their lavish salaries.

In recent years, the IMF has been using inequality as a justification for statist policies. Most recently, the lead bureaucrat at the IMF, Kristalina Georgieva, cited that issue as a reason for governments to impose higher taxes to fund bigger welfare states.

…inequality has become one of the most complex and vexing challenges in the global economy. Inequality of opportunity. Inequality across generations. Inequality between women and men. And, of course, inequality of income and wealth. …The good news is we have tools to address these issues… Progressive taxation is a key component of effective fiscal policy. At the top of the income distribution, our research shows that marginal tax rates can be raised without sacrificing economic growth. …Gender budgeting is another valuable fiscal tool in the fight to reduce inequality…. The ability to scale up social spending is also essential… A cornerstone of our approach to issues of economic inclusion is our social spending strategy.

What’s especially remarkable is that the IMF has claimed that the punitive policies actually will lead to more growth, in stark contrast to honest people on the left who have always acknowledged the equity-efficiency tradeoff.

The economics editor at the left-leaning Guardian, Larry Elliott, is predictably delighted with the IMF’s embrace of Greek-style fiscal policy.

Raising income tax on the wealthy will help close the growing gap between rich and poor and can be done without harming growth, the head of the International Monetary Fund has said. Kristalina Georgieva, the IMF’s managing director, said higher marginal tax rates for the better off were needed as part of a policy rethink to tackle inequality. …The IMF managing director, who succeeded Christine Lagarde last year, said higher taxes on the better off…would help fund government spending to expand opportunities for those “communities and individuals that have been falling behind.” …Georgieva said the IMF recognised that social spending policies are increasingly relevant in tackling inequality. …She added that many less well-off countries needed to scale up social spending.

Ironically, the IMF actually has admitted that this approach is bad for prosperity.

It has produced research on something called “equally distributed equivalent income” to justify lower levels of income so long as economic misery is broadly shared.

I’m not joking. You can click here to see another example of the IMF embracing poverty if it means the rich disproportionately suffer.

In other words, negative-sum economics. Though Margaret Thatcher was more eloquent in her description of this awful ideology.

At first, this column was going to be a run-of-the-mill anti-IMF diatribe.

But as I contemplated how the people fixated on inequality are willing to treat the poor like sacrificial lambs, it occurred to me that this is a perfect opportunity to unveil my Eighth Theorem of Government.

P.S. Here are my other theorems of government.

  • The “First Theorem” explains how Washington really operates.
  • The “Second Theorem” explains why it is so important to block the creation of new programs.
  • The “Third Theorem” explains why centralized programs inevitably waste money.
  • The “Fourth Theorem” explains that good policy can be good politics.
  • The “Fifth Theorem” explains how good ideas on paper become bad ideas in reality.
  • The “Sixth Theorem” explains an under-appreciated benefit of a flat tax.
  • The “Seventh Theorem” explains how bigger governments are less competent.

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Image credit: IMF | Public Domain.

New Numbers Confirm Social Security’s Dismal Fiscal Outlook

Fri, 04/24/2020 - 12:32pm

When I put forth the “The Case for Social Security Personal Accounts” in early 2011, I pointed out that the program’s long-run fiscal shortfall was more than $27 trillion.

We should be so lucky to have that problem today.

The Social Security Administration just released the annual report on the program’s finances, so I went to to Table VI.G9 of the “Supplemental Single-Year Tables” to peruse the yearly projections for future revenue and spending (which are adjusted for inflation so we have a more accurate method for comparisons).

The bad news is that an ever-increasing amount of our income is going to be grabbed by payroll taxes. The worse news is that Social Security’s spending burden will climb at an even-faster rate (historical data to the left of the red line, future projections to the right of the red line).

For those who focus on the less-important issue of red ink, the gap between revenue and spending over the next 75 years is projected to reach $44.7 trillion.

The gap in this year’s report is not directly comparable to the number I cited in 2011, but there’s no question the program’s finances are heading in the wrong direction.

This is partly because Social Security – as a “pay-as-you-go” program – is very vulnerable to demographic changes.

Like other types of Ponzi Schemes, it can work so long as there are always more and more new people entering the system.

But America’s demographic profile is changing. We’re living longer and having fewer kids.

In a column for the Foundation for Economic Education, Daniel Kowalski has a summary of how the program works and why it has a grim future.

Social Security recipients are not paid with the money that the government deducted directly from them and their past employers. Instead that money was used to pay the benefits for past retirees, while current retired recipients are getting their money through Americans who are currently working and contributing to the system. …the first recipients of the Social Security program took out far more than they put in with the difference being made up by the fact that active workers then greatly outnumbered beneficiaries. In 1940 this was not an issue as there were 159 workers supporting one beneficiary. …By 1960, 15 years after President Roosevelt’s death, that ratio was reduced to 5 workers for every beneficiary. In 1980, the ratio dropped to just above three and in 2010 it dropped below that. …there is one thing that Millennials and Generation Z can do to prepare themselves for that day. Start saving and planning for retirement now and make a plan that does not count on a government-issued Social Security check.

He’s right, and his column doesn’t even address the other problem for young people, which is the fact that they get a rotten deal from the program, paying in record amounts of money in exchange for hollow promises of a meager monthly benefit.

By the way, the numbers in the two charts above are based on the Social Security Administration’s “intermediate” assumptions.

I’ve never had any reason to question the reasonableness of those numbers. But in a world with coronavirus, which is causing crippling short-run economic damage and could cause significant long-run harm, it may be more prudent to look at SSA’s “high-cost” assumptions.

The bottom line is that the program’s long-run shortfall could be more than $20 trillion higher.

And remember, these numbers are in 2020 dollars. In other words, adjusted for inflation.

So how do we solve this mess? How do we avoid a grim fiscal future?

Shifting to a system of personal retirement accounts would be the most prudent approach. Yes, there would be an enormous transition cost since we would need to pay benefits to current retirees and many older workers, but that transition cost would be less than the $44.7 trillion unfunded liability (or even more!) of the current system.

I’ve written many times about the benefits of personal accounts for the United States, but I find most people are more interested in real-world evidence. Here are just a few of the several dozen nations that either fully or partially utilize private savings instead of political promises.

P.S. Some folks in Washington want to exacerbate Social Security’s fiscal burden by expanding the program.

P.P.S. I hate to add to the bad news, but the long-run finances for Medicare and Medicaid are an even-bigger problem.

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

Will The US Find An Effective Response To OECD “Digital Tax” Effort?

Fri, 04/24/2020 - 3:17am

This article appeared in IFC Review on April 2, 2020.

Negotiations within the Organisation for Economic Cooperation and Development (OECD) to reach agreement on new rules governing taxation of cross-border economic activity have been underway for some time now, yet only in recent months has the Trump administration adopted a consistently combative stance, particularly with regard to nations pursuing their own unilateral digital services taxes (DST).

The lack of a comprehensive response to the OECD’s rapid march toward a radical rethinking of the principles of corporate taxation, and even statements offering support for the initiative, suggests that the Trump administration lacks a full appreciation of the agenda of the OECD and its dominant European membership, as well what that means for both US interests and the global economy.

Contextualising The OECD Focus On Digitalisation

While the digitalisation project seemed to emerge suddenly, along with an aggressive self-imposed timeline, it is best understood as the latest front in a decades-long war against tax competition that reflects the OECD’s evolution from an agency primarily concerned with encouraging trade and eliminating double taxation to one preoccupied with advancing the interests of rich, European welfare states.

An out-growth of the Base Erosion and Profit Shifting (BEPS) project, the OECD’s digital tax initiative has arguably surpassed the rest of BEPS in scope and significance, as it seeks nothing less than a fundamental rewrite of the principles of international taxation. No longer would physical presence serve as the foundation for tax obligations should the OECD get its way. Instead, taxing rights would be allocated by some yet-to-be-determined formula based on where customers, or end users, are located. Replacing the physical presence standard with a destination-based system would reduce the efficacy of jurisdictions providing low tax rates to attract mobile capital, resulting in higher global tax burdens.

This is what the members driving the OECD agenda have long desired. In 1998 the OECD released a report called “Harmful Tax Competition: An Emerging Global Issue.” The authors were open about their goals to eliminate tax competition because it “may hamper the application of progressive tax rates and the achievement of redistributive goals”. Essentially, tax competition thwarts the policy preferences of high-tax welfare states.

The Trump Administration Takes Notice

The OECD identified two avenues to pursue as part of the digital tax project. Both Pillar 1, which seeks to reallocate corporate profits based on sales instead of physical location, and Pillar 2, which seeks a global minimum tax rate, serve to limit the effects of tax competition. The Trump administration, however, is primarily treating the issue as a raid on American tech companies rather than a systemic attempt to alter the global tax landscape. In so far as France and others are designing their DSTs to almost exclusively hit American firms, they’re not wrong that US-based firms are being singled out. But they risk missing the big picture.

Earlier this year, as France worked toward implemented a DST, the Trump administration threatened significant retaliatory tariffs. This approach was not unreasonable as the DST is itself a form of tariff, and the US Trade Representative concluded, after an investigation. that it was discriminatory. The threats of retaliation succeeded in getting France to back off, at least until the end of the year.Treasury Secretary Steven Mnuchin even expressed support for the minimum global corporate tax rate, defying the traditional position of Republican administrations in favour of tax competition. “It’s something we absolutely support,” he said in Paris, “that there’s not a chase to the bottom on taxation.” This mirrors the language of OECD loyalists who have long complained that competition would lead to an elimination of corporate tax revenues despite all empirical evidence to the contrary.

The tech industry’s position is to oppose DSTs at the national level while pushing for an OECD agreement. As Mark Zuckerberg explained on behalf of Facebook, “We want the OECD process to succeed so that we have a stable and reliable system going forward”. This seems to be the logic that has guided the Trump administration’s response thus far. Unfortunately, the industry position is myopic and plays right into the hands of the high-tax nations.

It’s understandable that businesses seek consistency over a patchwork of changing tax systems, even at the cost of higher tax burdens. But the US is not a business and thus can afford to consider the larger picture. Simply put, acceding to the OECD process amounts to rewarding high-tax nations for using threats and coercion to hijack the global agenda.

Playing Hardball With The OECD

The OECD purports to be a consensus-based organisation. It uses this idea to deflect criticisms that come from placing onerous burdens on IFCs and low-tax jurisdictions. But it’s an illusion. Despite jumping through years of costly hoops to satisfy OECD requirements, IFCs still find themselves blacklisted by the EU and attacked by its member nations. The OECD uses peer-review to judge the degree to which IFCs comply with its regulatory and information sharing requirements, but no such process exists for high-tax nations who engage at the OECD level in bad faith by reaching agreements only to then unilaterally impose stiffer requirements.

Even the threat of such action distorts the multilateral process. High-tax European nations have hung the Sword of Damocles over the global economy in the form of threats to impose unilateral taxes on the gross receipts of international businesses. The OECD is dependent upon these threats to advance its agenda, as they drive otherwise reluctant parties to the bargaining table. To emphasise the point, Director of the OECD’s Centre for Tax Policy and Administration Pascal Saint-Amans warned, “There’s no plan B. There is a plan C – for chaos. And I believe that”. Translation: Agree to our terms, or else.

Despite benefiting from high-tax nations controlling the agenda through threats to impose confiscatory taxes, the arrangement erodes the OECD’s credibility over time. IFCs ought, by now, to see that they will not satisfy the rich welfare states until they are completely unable to compete. The US should similarly recognise that engaging in the OECD process at this point only serves to perpetuate a cycle of bad faith negotiation.

The Trump administration attempted to thread the needle with a “safe harbour” proposal that would essentially have allowed multinational corporation to choose the current rules or the new international tax system featuring apportionment and global minimum taxes. Almost needless to say, this went nowhere. Corporate avoidance of confiscatory taxes is precisely what the high-tax cabal seeks to eliminate.

There is a better approach available to the Trump administration. It should reach out and coordinate with IFCs and low-tax jurisdictions, and together they should inform the OECD that it has strayed well beyond its original mission and make clear that they refuse to agree to any attempt to move toward tax harmonisation. This will force the OECD to confront the hypocrisy of its self-proclaimed consensus model, while also effectively calling the bluff of France and other nations threatening to place tariffs on foreign digital services. Let them and their citizens bear the brunt of the economic pain they desire instead of outsourcing the dirty work to the OECD.

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Image credit: TheDigitalArtist | Pixabay License.

Coronavirus and Subsidized Unemployment

Thu, 04/23/2020 - 12:57pm

Remember the “jobless recovery” of the Obama years?

Part of the problem was that President Obama kept extending unemployment benefits, which subsidized joblessness, as even Paul Krugman and Larry Summers had warned.

The good news was that Congress eventually said no in 2014 (actually one of the three best things to happen that year).

After that happened, the labor market improved.

But politicians apparently didn’t learn anything. As part of emergency coronavirus legislation, they turbo-charged unemployment benefits.

The Wall Street Journal‘s editorial from yesterday has a good summary.

Much of the harm from the coronavirus is unavoidable, but it would be nice if politicians didn’t compound the damage by ignoring the laws of economics. The worst blunder so far on that score is the $600 increase in federal jobless benefits… Why would anyone take a pay cut to go back to work? …Employees say they’ll take the unemployment check for as long as they can make more money by not working. …This does not mean these workers are lazy. Workers are making rational decisions based on the economic incentives the political class has created. …The question now is whether the Trump Administration will learn from its negotiating mistake. Democrats will try to extend the $600 for another few months, and then a few more after that, as they describe anyone who disagrees as heartless.

Tim Kane, in a piece for the Hill, explains why this doesn’t make sense.

The UI system is a case study in perverse incentives in the best of times, but the four-month “fix” in the Coronavirus Aid, Relief, and Economic Security Act (CARES) makes it far worse. …Existing UI provides a government payment to each worker who is involuntarily laid off, in essence paying people not to work. The amount varies slightly according to state-based formulas. But UI checks are generally set to replace 50 percent of the individual’s wages until they find a new job. …Pandemic UI jacks up the replacement rate with a supplemental $600 per unemployed worker for the next four months. That’s roughly an extra $2,400 each month that will go to you only if you are unemployed. …Now that the CARES Act is the law of the land, any American with an annual salary of $62,000 has no financial incentive to work, certainly not until August. …the federal government is going to pay non-working Americans way more than working Americans.

In a column for Bloomberg, Conor Sen explores the implications.

It’s also important to be mindful of how, once the economy is growing again, a $600 weekly benefit can distort the labor market. That works out to the equivalent of $15 an hour for a 40-hour work week, a level that substantially exceeds the minimum wage in most states. When restaurants are open for business again, they are likely to complain if they can’t hire dishwashers who understand that it’s not worth giving up unemployment benefits. One step to winding down the program might be reducing the benefit over time in response to labor-market conditions and monitoring the impact that’s having on workers accepting jobs.

Sam Hammond, writing for National Reviewopines on the potential human cost.

…the new Pandemic Unemployment Assistance program…will…add an extra $600 per week to the base benefit (equal to half the state’s regular unemployment benefit) for up to four months. …This $600 per week add-on — equivalent to a $15-per-hour full-time income — means that many workers will soon be eligible to receive more in unemployment compensation than they would make on the job. …It should go without saying that no government in history has ever designed an unemployment-insurance program quite like this — one that virtually anyone can qualify for, and with benefits on par with the median weekly earnings of full-time workers. …a worst-case scenario is easy to imagine…once quarantines begin to lift, a fraction of Pandemic UI recipients will choose to stay on “extended benefits”… Temporary unemployment will become structural, and a jobless recovery will drag out for decades.

Veronique de Rugy of the Mercatus Center cites some of the academic literature.

The unintended consequences and moral hazard of UI during normal times and normal recessions are well known. Put briefly, generous UI benefits create an incentive for workers to delay looking for jobs until the expiration of the benefit. In 2010, Harvard University economist Robert Barro estimated that the Great Recession expansions in UI benefits raised the US unemployment rate by about 2.7 percentage points. …In addition, economists Lawrence F. Katz and Bruce D. Meyer observe that workers receiving unemployment benefits were likely to postpone their job searches until their benefits expired. This finding was confirmed by many other studies, including one by economist Alan Krueger,  who wrote in 2008 that “job search increases sharply in the weeks prior to benefit exhaustion.”

And she points out that there is a better approach.

…an old policy proposal that should receive new attention—a proposal that by design encourages people to go back to work as quickly as they can… Personal unemployment insurance savings accounts (PISAs) are designed to maintain a financial incentive to return to work as soon as possible. These accounts are individually owned by workers who, during spells of unemployment, can make orderly withdrawals to partially compensate for the loss to their income but can keep and build the balance during their regular times of employment. …This form of UI is not a mere theoretical proposition. The experience of Chile is worth noting, but other countries such as Austria and Colombia have adopted similar plans.

Making a related point, Congressman Justin Amash points out that it would be less harmful to simply give people money rather than giving them money on the condition that they don’t work.

If substantial monthly cash payments had been provided to the people, then businesses could make necessary adjustments to wages and hours without harming workers. This dynamic would allow them to keep more people employed while enhancing the long-term viability of the business.

— Justin Amash (@justinamash) April 2, 2020

By the way, a study from the Bank for International Settlements, published well before coronavirus became an issue, notes other negative effects of unemployment benefits.

Many countries provide unemployment insurance (UI) to reduce individuals’ income risk and to moderate fluctuations in the economy. However, to the extent that these policies are successful, they would be expected to reduce precautionary savings and hence bank deposits–households’ main saving instrument. In this paper, we study this reduced incentive to save and uncover a novel distortionary mechanism through which UI policies affect the economy. In particular, we show that, when UI benefits become more generous, bank deposits fall. Since deposits are the main stable funding source for banks, this fall in deposits squeezes bank commercial lending, which in turn reduces corporate investment.

Just another chapter in the government’s book on how to discourage savings.

Let’s close with some real world illustrations of how Washington’s approach is backfiring.

story from National Public Radio shows how workers respond logically to perverse incentives.

…the extra money can create some awkward situations. Some businesses that want to keep their doors open say it’s hard to do so when employees can make more money by staying home. “We basically have this situation where it would be a logical choice for a lot of people to be unemployed,” said Sky Marietta, who opened a coffee shop along with her husband, Geoff, last year in Harlan, Ky. …The shop had been up and running for only a few months when the coronavirus hit. …Marietta was determined to stay open. …But even though she had customers, Marietta reluctantly decided to close the coffee shop just over a week ago. “The very people we hired have now asked us to be laid off,” Marietta wrote… “Not because they did not like their jobs or because they did not want to work, but because it would cost them literally hundreds of dollars per week to be employed.” …the $10 to $15 an hour they’d make serving coffee is no match for the new jobless benefits.

Maxim Lott also wrote about another tragic example.

An additional $600 per week in unemployment benefits…causing concern that some workers could be in a position to actually make more money by leaving their jobs. . …That angers some essential workers on the front lines on the crisis. “I can tell you as a worker who barely makes over minimum wage, at $12 an hour, the whole thing is complete BS,” Otis Mitchell Jr., who works in West Virginia transporting hospital patients to get medical tests, told Fox News. Mitchell Jr. added that he has unemployed friends who already are getting the extra $600, and that “I prefer to work, but sadly I’d make more staying home.” …generous payments are…scheduled to last for four months, ending July 31.

report from CNBC also found perverse consequences.

Jamie Black-Lewis felt like she won the lottery after getting two forgivable loans through the Paycheck Protection Program. …When Black-Lewis convened a virtual employee meeting to explain her good fortune, she expected jubilation and relief that paychecks would resume in full even though the staff — primarily hourly employees — couldn’t work. She got a different reaction. “It was a firestorm of hatred about the situation,” Black-Lewis said. …The anger came from employees who’d determined they’d make more money by collecting unemployment benefits than their normal paychecks. …“I couldn’t believe it,” she added. “On what planet am I competing with unemployment?”

If you want to see why people are choosing unemployment, here’s a chart from the CNBC story. Using examples from three states, it shows the normal generosity of unemployment benefits on the left and the new approach on the right.

Needless to say, it’s economic malpractice to make unemployment more attractive than jobs paying $20-$30 per hour.

It’s the real-world version of this satirical Wizard-of-Id cartoon.

P.S. Speaking of satire, Nancy Pelosi actually argued that paying people not to work was a form of stimulus.

P.P.S. Here are a couple of anecdotes, one from Ohio and one from Michigan, about the perverse impact of excessive unemployment benefits during the last downturn.

P.P.P.S. If you want more academic literature on the relationship between government benefits and joblessness, click here and here.

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Image credit: Michael Raphael, FEMA Photo Library | Public Domain.

Wealth Tax and Coronavirus

Wed, 04/22/2020 - 12:58pm

The folks who don’t want to let a crisis go to waste have been very busy in the era of coronavirus, pushing an ever-expanding menu of bad ideas.

Now we have another bad idea to add to the list.

A professor from Yale Law School, Daniel Markovits, argues in a column in the New York Times that the virus is a great excuse to impose a wealth tax.

Our extraordinary battle against the pandemic should draw on the immense reserves that the most privileged among us have accumulated over decades of abundance. To achieve this goal, America should institute a wealth tax. …the relief effort should be funded through a one-time wealth tax imposed on the richest Americans… An exemption for the first $2.5 million of household wealth would exclude the bottom 95 percent from paying any tax at all and leave the top 5 percent with total taxable wealth of roughly $40 trillion. A 5 percent tax on the richest 5 percent of households could thus raise up to $2 trillion. …this one-time wealth tax…appeal ought to cross partisan lines. …A wealth tax would fund the relief effort in a way that gives meaning to shared sacrifice in the face of a universal threat.

My initial suggestion for Professor Markovits is the same one I put forth for Bill Gates. He should lead by example and donate a big chunk of his income, as well as the bulk of his savings and investments, to the IRS.

As an Ivy League professor, I’m sure he’s comfortably positioned as a member of the infamous “top 1 percent” of taxpayers, so he can be a guinea pig for his idea. To make things easy, the government has a website for him to use.

But let’s set aside snark and focus on the economic consequences. This issue deserves serious attention, not only because it is a threat in the United States, but also because it’s becoming an issue in other nations.

Such as Argentina.

Argentine Economy Minister Martin Guzman has backed the idea of a wealth tax on the country’s rich…to…find money to help cope with the Covid-19 pandemic. The tax would affect 11,000 people with fortunes of at least $2 million, Guzman said… He spoke in an interview with journalist Horacio Verbitsky, published on the website El Cohete a la Luna. President Alberto Fernandez, in a separate interview, spoke of the need for wealth redistribution.

And South Africa.

The South African government will consider a proposal for a one-off wealth tax during an economic recovery planning meeting… Such a tax could assist Africa’s most industrialized economy as it bounces back from the coronavirus outbreak and a five-week lockdown that is scheduled to be lifted on 30 April. The proposal comes from a group of economists, led by former South African National Treasury budget chief Michael Sachs.

The big problem with all of these proposals is that they ignore the crippling economic impact of wealth taxation.

The important thing to understand is that such taxes impose very punitive implicit tax rates on saving and investment. As seen in the accompanying chart, the actual tax rate depends on how well affected taxpayers are investing their money.

And it doesn’t take extreme assumptions to see that many taxpayers will face implicit tax rates of more than 100 percent!

And since all economic theories – even foolish ones such as socialism – agree that saving and investment are vitally important if we want higher living standards, any sort of wealth tax is a big mistake.

Actually, that’s an understatement.

In a normal economy, a wealth tax is a big mistake. But we’re now dealing with the very painful economic fallout from the coronavirus.

We will have a desperate need for lots of private capital if we want to restore prosperity as fast as possible, which is why imposing a wealth tax nowadays (in addition to other forms of double taxation that already exist) would be a catastrophic blunder.

And if the class-warfare crowd succeeds in their campaign to punish the rich, poor people will suffer the most.

P.S. Some people argue that a one-time wealth tax, similar to what Prof. Markovitz proposes and what South Africa is considering, wouldn’t have adverse economic effects because it penalizes productive behavior in the past (and there’s no way for people to reduce work, saving, and investment that already took place). But as I explained when debunking IMF arguments for a one-time wealth tax, this assertion is flawed because a) people will adjust their behavior when such a tax is discussed, b) people won’t trust it is a one-time tax, and c) the money will be used to finance a larger burden of government spending.

A Lesson about Economic Performance and Trade Balances

Wed, 04/22/2020 - 12:02pm

One year ago, I shared this video to explain why a “trade deficit” doesn’t matter, in large part because it is simply a result of foreigners wanting to invest in America’s economy with some of the dollars they earn.

We also have a trade deficit, I pointed out, because we’re richer than most other nations. Simply stated, we can afford to buy more from people in other nations than they can afford to buy from us.

Indeed, I pointed out that the trade deficit increased in Trump’s first few years in office because better tax policy and better regulatory policy increased America’s economic performance relative to other countries.

This is why, as a general rule, it’s actually a sign of economic strength to have a so-called trade deficit.

The flip side of this observation is that trade deficits will decline if the economy is weak.

And that seems to be happening today. Christine McDaniel of the Mercatus Center, writing for the Hill, notes that the trade deficit is now falling for that unfortunate reason.

The Trump administration’s dream of reducing the trade deficit is finally coming true. …for the first two months of 2020, the U.S. trade deficit dropped to $113.5 billion. That’s down from $130.4 billion over the same period last year, a 13 percent decrease. …Needless to say, …we import less. Today, we are importing less because Americans are consuming less during an economic shut down. …We are probably on track to shrink the trade deficit even more this year. …Consumer confidence declined sharply in March, which reflects consumer sentiment — that is, their overall desire to go out and buy things, including imports. …The irony is that the pandemic is fulfilling one of his campaign promises. Nobody is treating it like good news — but this dream coming true just highlights why the metric is so flawed.

To emphasize Ms. McDaniel’s point, let’s look at the long-run data on America’s trade balance.

Here are the annual numbers from the Bureau of Economic Analysis, measured as a share of economic output.

As you can see, our last trade surplus was during the 1970s, when America was suffering from stagflation, and the trade deficit since then has always declined when there’s been a recession.

By the way, you can also see how the trade deficit increased during the Reagan years and the Clinton years. The obvious lesson is that pro-market policies make us richer, and that means we buy more and attract more investment.

That’s good outcome, even if the so-called trade deficit climbs.

The bottom line is that if we want to reduce our trade deficit (and also, by definition, reduce our capital surplus), we should adopt the Bernie Sanders agenda. We won’t be rich enough to buy much from foreigners, and people in other nations won’t be so willing to invest in America’s economy.

Maybe I’m crazy, but that seems like a bad outcome.

P.S. Trade balances also can be affected by other factors, such as shifts in monetary policy and the economic performance of major trading partners.

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Image credit: AKrebs60 | Pixabay License.

The Best Counter-Tweet of 2020

Mon, 04/20/2020 - 12:46pm

Nine days ago, I wrote about Dana Milbank scoring an “own goal” because he claimed we needed bigger government to deal with coronavirus, yet all the nations he cited for their effective responses actually have a much smaller fiscal burden than the United States.

Today, we have the Twitter equivalent of an “own goal.”

R.D. Hale, a British guy from the #SocialistCampaignGroup tweeted that he wants to move to an island and start a new country with Jeremy Corbyn and Bernie Sanders.

As far as I’m concerned, that’s a good idea. I certainly wouldn’t be upset if hard-core leftists decided to leave the United States (there’s even a satirical version of this idea).

But Tom Harwood, as you can see, had a response that was far more clever.

Ouch! I don’t know if “own goal” does this justice. This is a brutal dunk by Harwood on Hale.

Especially since both Sanders and Corbyn actually have offered praise for Castro and Cuba.

The bottom line is that the utter misery and deprivation of the Cuban people is a pretty good indication of what would happen if lunatics like Sanders and Corbyn ever had free rein to impose their policies in the U.S. or U.K.

P.S. Here’s the best counter-tweet of 2019.

Coronavirus and Federalism

Sat, 04/18/2020 - 12:06pm

I’ve written that policy makers need to consider both the human toll of the coronavirus and the human toll of a depressed economy.

I also discussed this tradeoff with Brian Nichols, beginning about seven minutes into this podcast.

And, as you can see from this tweet, even the United Nations has acknowledged that a weak economy leads to needless death.

Hopefully this story will convince more people that economic shutdown impose a serious human toll. https://t.co/45GVuLEUOy https://t.co/hRmKEkDzCq

— Dan Mitchell (@danieljmitchell) April 17, 2020

Since I don’t have any expertise on epidemiology, I’m not arguing that the economy should be opened immediately. I’m simply stating that the people who do make such decisions should be guided by the unavoidable tradeoff that exists between lives lost from disease and lives lost from foregone prosperity.

Which then raises the question of who should make such decisions.

As reported by the New York Post, President Trump claims he has all the authority.

President Trump on Monday said the decision to reopen the country’s ailing economy ultimately rests with him, not state leaders, as he feuds with governors over when to allow Americans to return to work. …Trump is now looking at reopening the economy by May 1, putting him on a collision course with state leaders who are pushing back, saying it would be dangerous to “take our foot off of the accelerator” in the war against the virus. …Rebuffing the president’s claims Monday, constitutional experts say it is state leaders who have the power to police their citizens under the 10th Amendment.

Trump is wrong.

He’s wrong in part because the Constitution limits the powers of the central government.

But he’s also wrong because – as explained by scholars from the Austrian School of Economics – we’re far more likely to get better choices when they’re decentralized.

In some cases, that means allowing individuals to make informed choices about how much risk to take.

But, to the extent government must be involved, it makes more sense to have state and local officials make choices rather than the crowd in Washington.

Opining for the Wall Street Journal, Walter Olson explains why federalism is the right approach.

Public-health merits aside, the president can’t legally order the nation back to work. The lockdown and closure orders were issued by state governments, and the president doesn’t have the power to order them to reverse their policies. In America’s constitutional design, …the national government is confined to enumerated powers. It has no general authority to dictate to state governments. Many of the powers government holds, in particular the “police power” invoked to counter epidemics, are exercised by state governments and the cities to which states delegate power. …Modernizers have long scoffed at America’s federalist structure as inefficient and outdated, especially in handling emergencies. …Today you won’t find these critics scoffing at the states or overglamorizing Washington. One federal institution after another, including the Food and Drug Administration and Centers for Disease Control and Prevention, has been caught flat-footed by Covid-19. …State governments, by contrast, with some exceptions here and there, have responded to the emergency more skillfully and in a way that has won more public confidence. …The record of federal systems—some of the best known are in Canada, Germany and Switzerland—suggests there’s a lot of resilience packed into the model.

Michael Brendan Dougherty elaborates in an article for National Review.

Writer Molly Jong-Fast complains, “So the states are basically governing themselves because our president doesn’t know how to president at all?” Well, no. It’s simple: Our president doesn’t have dictatorial powers, even in a national emergency. The president doesn’t have authority to shut down your local gin joint. Your state governor does have this power, in extraordinary circumstances. That so many governors have done so, often responding to popular demand for shutdowns, demonstrates America’s genuine practice of federalism — a system that is allowing us to respond to this crisis even faster than the states of Europe… One of the reasons federalism can act faster is that it allows decentralization. It is less politically risky to impose measures in one state than on an entire nation. You can respond where the hotspots are, rather than imposing costs evenly across an undifferentiated mass of the nation where the overall average risk may be low.

Professor Ilya Somin wrote on this same topic for Reason. He noted limitations on federalism in a pandemic, but also pointed out the benefits of decentralization.

The US is a large and diverse nation, and it is unlikely that a single “one-size-fits-all” set of social distancing rules can work equally well everywhere. In addition, state-by-state experimentation with different approaches can increase our still dangerously limited knowledge of which policies are the most effective. Moreover, if one policymaker screws up, his or her errors are less likely to have a catastrophic effect on the whole nation. …There is, in fact, a long history of state and local governments taking the lead in battling the spread of contagious disease. During the 1918-19 flu pandemic, state and local restrictions were the primary means of inhibiting the spread of the virus, while the federal government did very little.

John Daniel Davidson of the Federalist echoes the benefits of having choices made at the state and local level.

The founders wisely chose a federal republic for our form of government, which means sovereignty is divided between states and the federal government. The powers of the federal government are limited and enumerated, while all powers not granted to the feds are reserved for the states, including emergency police powers of the kind we’re seeing states and localities use now. …Much of the media seems wholly unaware of this basic feature of our system of government. …Trump explained that many governors might have a more direct line on this equipment and if so they should go ahead and acquire it themselves, no need to wait on Washington, D.C. This is of course exactly the way federalism is supposed to work. …We should expect the government power that’s closest to affected communities to be the most active, while Washington, D.C., concern itself with larger problems.

And those “larger problems” are the ones enumerated in Article 1, Section 8.

The bottom line is that we should always remember the Third Theorem of Government, which helps to explain one of the reasons why it’s generally a bad idea to give the folks in Washington more power and authority.

Instead, we should try to be more like Switzerland, which is one of the world’s best-governed nations in large part because of a very decentralized approach.

Which may be why economists at the (normally statist) International Monetary Fund found a clear link between federalism and quality governance.

Let’s hope Donald Trump realizes that federalism is the right approach.

P.S. My favorite example of federalism came from Vermont.

Coronavirus and Price Gouging

Fri, 04/17/2020 - 12:21pm

Exactly one month ago, I wrote “A Primer on Price Gouging” to explain why government-mandated price controls are an unwise response when prices for certain goods climb after a disaster.

Here’s a video from Johan Norberg on the topic.

And here’s Professor Michael Munger from Duke University on the same issue.

Those are both excellent presentations.

In a column for the Nashville Business Journal, Professor Daniel Smith explains in written form why laws against price gouging inevitably backfire.

High prices in the wake of a disaster or in the face of uncertainty often spark consumer outrage and calls for stricter price-gouging laws. Such measures, however, would actually harm consumers searching for necessities in emergencies. …in the face of uncertainty, such as the coronavirus, it is instinctive for consumers to stock up on goods, such as water, toilet paper, and nonperishable food. Stores need some way to discourage consumers from hoarding or wasting necessities as well as to encourage the increased manufacture and delivery of necessities to the affected area. Higher prices, driven by the increase in demand for these goods, naturally incentivize both of these important functions. …higher price encourages consumers outside of the affected area to also economize on their purchases. The increased demand for building materials for rebuilding New Orleans after Hurricane Katrina drove building material prices up across the nation, leading unaffected consumers to delay less essential building or remodeling projects. …Higher prices also encourage the manufacture and delivery of necessities to the affected area. …higher market prices, by increasing the supply of necessary goods, is the driving force that will ultimately push the price back down. …there is always concern for providing for low-income residents. But the empty shelves created by price gouging laws do little to help them.

It’s worth pointing out, incidentally, that workers can engage in “price gouging” as well.

This tweet from Mark Perry cites a story about nurses being able to earn much more money if they agree to work in New York City.

Travel Nurses Are Earning More Than $10K Per Week and $100K for 13-Week Assignments To Work In NYC. Wait… Isn’t that Unfair and Illegal #PriceGouging? @Jeff_Jacoby @danieljmitchell @swinshi @scottlincicome @JohnStossel @stevenfhayward @WSJopinion https://t.co/WB2RQ2Ocl3

— Mark J. Perry (@Mark_J_Perry) April 2, 2020

For what it’s worth, I fully support those nurses extracting much higher pay. They’re going into the medical equivalent of a war zone.

And that’s a good outcome for society. Allowing prices (whether for goods or labor) to rise and fall in response to market conditions ensures that resources go where they have the most value.

Sadly, many politicians in Washington either don’t know or don’t care about the harmful impact of intervention.

Indeed, the House of Representatives wants to demonize so-called price gougers, as reported by Billy Billion of Reason.

When it comes to the federal government’s coronavirus response, there is much room for self-criticism. But that won’t come from the House’s new select oversight committee, announced by Speaker Nancy Pelosi (D–Calif.)… House Majority Whip Jim Clyburn (D–S.C.), telling CNN’s Jake Tapper that the committee will instead focus on things like “price gouging” and “profiteering.” …In other words, if Clyburn’s description is to be taken at face value, lawmakers will scapegoat private businesses, as opposed to delving into the list of ways the government has failed the American public. …The South Carolina representative said the House will…punish those that set high prices on essential goods, though he didn’t say how this would work in practice.

What’s really galling about the actions of Pelosi, Clyburn, and other politicians is that they’re insulated from the policies they impose on the rest of us.

They have voted themselves generous pensions, so they they don’t have to worry about a bankrupt Social Security system.

They have voted themselves lavish fringe benefits, so they don’t have to worry about dealing with the Obamacare disaster.

And they doubtlessly have arranged to be first in line for goods and services if there are shortages caused by anti-gouging laws.

Maybe, just maybe, they’re part of the problem rather than part of the solution.

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Image credit: Paul Townsend | CC BY-SA 2.0.

The Case Against Price Controls

Thu, 04/16/2020 - 12:58pm

An unfettered “price system” is a core feature of capitalism, as explained in videos from Marginal RevolutionLearn Liberty, and Russ Roberts.

This video from Don Boudreaux is a great addition to that collection.

What happens, though, when politicians interfere with this system by dictating minimum or maximum prices?

I’ve previously addressed why price controls are misguided, looking at the sector-specific impact of government price-rigging for items such as rental housinglabor, and pharmaceuticals.

Now let’s consider the macroeconomic impact of price controls.

The World Bank has just published a new working paper on this issue. Here are some of the key findings.

Price controls have a long history with well documented examples… In the 20th century, these policies were used extensively in several Western countries…, culminating with widespread controls in the United States and the United Kingdom in the 1970s… Price controls were also ubiquitous in communist countries with planned economies. …Price controls can be imposed in a variety of ways. They may involve price ceilings, or price floors, imposed on selected goods and services by the authorities. …this study seeks to enumerate the challenges that price controls impose for growth and development and government policies. While they may be introduced with the best intentions to improve social outcomes, available evidence suggests that price controls often undermine growth and development, impose fiscal burdens…price control measures frequently morph into distortive subsidy regimes. Important social, fiscal and environmental costs are likely to follow, as well as adverse consequences for investment and employment, and productivity growth.

Unsurprisingly, the report finds that price controls are more common in emerging markets and developing economies (EMDEs), especially in low-income countries (LICs).

Price controls are widely employed across advanced economies and EMDEs. They tend to be much more pervasive in EMDEs than in advanced economies… Among EMDEs, they are more prevalent in LICs… In EMDEs that have become middle-income countries (MICs) since 2001, price controls are somewhat less common than in the average EMDE

The logical conclusion, of course, is that the existence of price controls helps to explain why these countries have lower levels of economic development.

Here’s a chart from the study showing the prevalence of price controls.

The study goes on to list all the negative effects associated with price controls.

If you don’t want to read a lengthy excerpt, I’ve highlighted some of the adverse consequences.

The use of price controls can have adverse consequences for growth for several reasons. Price ceilings can depress producer margins and discourage domestic investment and entrepreneurial activity…they can discourage foreign investment in those sectors by increasing the country risk premium facing global firms…where the controlled price is above that required for a competitive return to investment, its maintenance requires barriers to entry or costly government stockpiling of excess supply… Price-support controls can depress competition… Price control regimes may also tilt the allocation of resources towards the subsidized sector. …such policies can end up reducing productivity, and worsening income inequality… They may lead to inefficient use of subsidized inputs… They can also adversely affect incentives to adopt productivity-raising new technologies. Empirical evidence suggests that market-oriented structural reforms, including the reduction of price controls and their related subsidies, are strongly associated with improved firm-level productivity in EMDEs… Moreover, price controls that distort consumption towards price-controlled goods, can cause chronic shortages of these goods… Price controls in the financial sector, such as ceilings on interest rates, can distort financial markets… These measures reduce the supply of credit to safer borrowers and small and medium-sized enterprises, increase the level of non-performing loansreduce competition and innovation in lending markets, and increase informal lending. Moreover, they can exacerbate inequality by limiting the poor’s access to lending. …Replacing price controls…, coupled with structural reforms, can be both pro-poor and pro-growth. Indeed, policies to lower subsidies that underpin price controls appear to be associated with higher per capita output growth.

An exhaustive list, to put it mildly. I’m almost surprised that lung cancer and tooth decay weren’t included as well.

Let’s now shift from macro impact to micro examples.

Writing for the Hill, Professor J.W. Verret of George Mason University Law School looked at price controls on payment processing.

In 2011, the Federal Reserve adopted rules implementing fee caps on debit card transactions, pursuant to the Dodd-Frank Act of 2010. These rules have led to diminished access to credit products for consumers and have failed in their promise to lower consumer debit fees. The last eight years have shown this to be a failed experiment. …The amendment’s direct price control has gotten most of the attention and well-deserved criticism, having resulted in the same consequences as all price controls. Every college student taking Economics 101 learns that keeping prices at an artificially low level results in an undersupply of vital goods or services. …Supporters of the Durbin amendment’s price controls and exclusivity ban argued that the provision would pass cost savings on to consumers. That alone was not a legitimate argument in the first place, as it would merely reflect use of government power to take property rights from innovators and redistribute them to politically sympathetic beneficiaries. Even if one were willing to accept that as a legitimate policy goal, the fact is it didn’t happen. Studies by the Federal Reserve Bank of Richmond demonstrate that the Durbin amendment didn’t even fulfill its intended purpose. Retailers simply kept the cost savings. Thus, the Durbin Act merely reflected a very successful act of lobbying by retailers.

Yet another bad feature of a very bad law.

We also have a story in the Washington Post regarding price controls on brides in China.

The new rule was taped onto doorways around town: Officials were limiting what a groom-to-be could pay for a bride. The going rate was about $38,000, or five times the average annual salary in this village about four hours outside of Beijing. Now, families were told to keep it below $2,900. Anything more and they would risk being accused of human trafficking. The “bride price”…has been part of the marriage pact in most of China for centuries. The costs, though, are swelling as China copes with one of the biggest demographic imbalances in history. …There are an estimated 30 million or so more men then women in China… So officials in Da’anliu and other villages have taken matters into their own hands on one thing they can control: the bride price. …The controls are good if you have a son. Not so good for families with a daughter. Ask Liang, a pear farmer in Da’anliu. He has one daughter. When it comes time for her to marry, “I will ask whatever amount I want,” he said. “It’s not fair otherwise.” …“It’s the market,” he said. “I’m allowed to charge what the market will bear for my pears. Why not my daughter?” …The Da’anliu Communist Party secretary, Liang Huabin, has seen the way families scrimp and save and panic over the bride price. …He was not sure what to do about it until one of his constituents sent him a picture of a bride price limit instituted in another Chinese village. He decided to try something similar. …Wang Feng, a sociologist who studies Chinese demography at the University of California at Irvine, said…families…would find ways around any regulation — even limits on bride price. “It’s trying to cure a symptom, not the root issue,” he said

Yet another bit of evidence that price controls don’t work, even in a market that shouldn’t exist (at the risk of coming across as a chauvinistic westerner, Chinese daughters should be able to make their own marriage choices).

Since I started this column with a video, I’ll recycle a video I first shared nearly 10 years ago.

It shows how removal of price controls triggered the post-war economic miracle in West Germany.

For those who want more information on this topic, the Mises Institute has an online version of Forty Centuries of Wage and Price Controls, authored in 1978 by Robert L. Scheuttinger and Eamonn F. Butler.

These first few sentences from Chapter 1 aptly summarize the lessons from history.

From the earliest times, from the very inception of organized government, rulers and their officials have attempted, with varying degrees of success, to “control” their economies. The notion that there is a “just” or “fair” price for a certain commodity, a price which can and ought to be enforced by government, is apparently coterminous with civilization. For the past forty-six centuries (at least) governments all over the world have tried to fix wages and prices from time to time. When their efforts failed, as they usually did, governments then put the blame on the wickedness and dishonesty of their subjects, rather than upon the ineffectiveness of the official policy. The same tendencies remain today.

Last but not least, here’s a cartoon from the book.

It shows (I think) the former head of the AFL-CIO, George Meany, in the role of Darth Vader and Jimmy Carter as a hapless version of Luke Skywalker.

This was back when wage and price controls were a government-imposed response to government-created inflation (a classic example of Mitchell’s Law).

Nowadays, price controls are primarily a tool for various interest groups to tilt the playing field.

P.S. The late Jeff MacNelly was the Michael Ramirez of the Reagan generation. For example, see these cartoons about government shutdowns, the tax code, and the United Nations.

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Image credit: U.S. National Archives and Records Administration | Public Domain.

Coronavirus, Economics, and Saving Lives

Wed, 04/15/2020 - 12:59pm

I’ve shared plenty of jokes about how America is getting a trial run of life under socialism thanks to the coronavirus.

But, as discussed in this interview, there are some very serious issues relating to economic policy during a pandemic.

I started the interview by stating that we’re in uncharted territory. And I openly acknowledge I’m not an expert on epidemiology in general or the coronavirus in particular. (And neither are the politicians and pundits who dominate Washington, even if they pretend otherwise.)

Which is why, in this list of four takeaways from the interview, I start with the need for more information.

1. Testing is key – We desperately need to get the economy going again, but that’s not going to happen until we know the extent of the disease. Without that information, I suspect it won’t matter whether politicians officially lift the lockdowns. Many individuals won’t go back to work because of concerns about personal safety and many businesses won’t reopen because of concerns about things such as liability and profitability.

2. The FDA and CDC have failed – As I stated in the interview (and as I’ve repeatedly stated in my columns), the Washington bureaucracies have hindered an effective and rapid response to the coronavirus. We need to get rid of the rules and red tape that prevent the private sector from responding to the demand for tests.

3. Be concerned about a long-run expansion in the burden government – I’m extremely worried about the coronavirus being the pretext for a permanent expansion in Washington’s power over the private sector.

A column in today’s Wall Street Journal by former Senator Phil Gramm, along with Mike Solon, echoes my fears.

…even in a time of bitter partisanship, consensus can almost always be found in a crisis to spend a large sum of taxpayer money. …politicians and interest groups have…sought to use the crisis to expand permanently government spending and the role government plays in the aftermath. …Based on the massive programs already adopted and the decision to use the Fed as a crisis lender, the role of government in post-coronavirus America will be significantly expanded. …the capacity of private businesses and banks to lead the recovery could be smothered. …The government would direct the recovery and the Fed would allocate credit. Is that a future most Americans want to fight for?

4. An extended economic shutdown is bad for health outcomes – I wrote about this issue last month, explaining that a weak economy leads to adverse consequences for health and longevity.

Andrew Sullivan succinctly captured this painful tradeoff in his column for New York.

There are costs to this collective exercise in empathy and compassion. You contemplate the rising chances of a long and devastating global depression. You look ahead to months and months more of quarantine, empty streets, crippled businesses, shrinking retirement savings, and rising poverty. And you realize that our choice for life over wealth is a little more complicated. There will come a point at which we will have to risk some lives to reopen and save the economy. …in principle, at some point, there will be a crossover moment when quarantine and lockdown cease to have the net-positive impact they are now having.

If you want more information, click on any of these stories and tweets and you’ll learn more about why there is a very legitimate concern.

macro-economic evaluation of #covid19 measures in the UK using CGE modelling. I will let you draw your own conclusions. @healtheconomics @Covid19Rc pic.twitter.com/Rbq9j5zKPZ

— Eline van den Broek-Altenburg (@E_line) April 2, 2020

Let’s close with excerpts from a column by Tim Worstall for the U.K.-based CapX.

…there are no solutions, only trade-offs. There are costs to everything just as there are benefits and the task is to balance them… This is not to make the mistake of claiming that money, share prices and asset values outweigh lives. Rather, it’s to point that GDP is the sum of economic activity, production, incomes and consumption. If that falls 15% that means we are are all significantly poorer – and that poverty will kill people as surely as the virus is doing. …It’s also why the NHS limits access to treatments to those which cost less than £30,000 (or £50,000 for some diseases) per quality adjusted life year gained. …healthcare is something society spends more of its income upon as incomes rise. Naturally, a richer country will spend a higher portion of GDP on health care than a poorer one. …The optimal point is to balance spending on maintaining human life, while avoiding the damage to those same lives caused by a slump in economic activity. …The aim now is to…minimise overall deaths from all causes. To my mind, a six month shutdown risks missing that target by tipping the world into a depression that is more damaging than the disease itself.

Tim is right.

If politicians impose too many restrictions on the economy, we can lose more lives in the long run.

Which is why this Venn Diagram accurately shows where I am. And hopefully where everyone is.

P.S. This lesson about tradeoffs applies to all types of government policy, not just the coronavirus (cleverly captured in the Remy video at the end of this column).

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Image credit: U.S. Army Photo | Public Domain.

Coalition Calls for Liability Protections for Frontline Pandemic Responders

Wed, 04/15/2020 - 5:06am

For Immediate Release
Wednesday, April 15, 2020
202-285-0244
www.freedomandprosperity.org

Coalition Calls for Liability Protections for Frontline Pandemic Responders

(Washington, D.C., Wednesday, April 15, 2020) Reports suggest that without action, lawyers will soon be flocking to the courts to seek to profit from the global pandemic. A coalition representing 22 organizations, led by the Center for Freedom and Prosperity, today urged Congress to protect healthcare workers and businesses from opportunistic and abusive lawsuits following the COVID-19 pandemic.

An excerpt from the coalition letter:

“While the rest of America has come together to fight this pandemic, some trial lawyers have instead plotted to line their pockets with COVID19 related lawsuits. Their greed is hurting America in this time of crisis, and lawmakers must put their exploitation of this public health crisis into check.

Because of the looming threat posed by the trial lawyers’ tort agendas, doctors and healthcare professionals remain fearful of making the tough healthcare decisions that are needed to respond to this pandemic; hospitals, nursing homes, and assisted living facilities are afraid that the care delivered in unprecedented circumstances will be second-guessed; manufacturers are hesitant to produce essential products; and transportation companies are risking their very existence to keep America supplied.”

CF&P President Andrew F. Quinlan commented, “As healthcare professionals and other essential workers risk their lives to fight the COVID-19 pandemic, Washington owes it to them to provide protections taken in a time of crisis. Our already weakened economy cannot afford to now line the pockets of greedy trial lawyers.”

The letter urges Congress to respect Constitutional limits, but warns that without action, “Costs will significantly rise on the American people in the form of higher healthcare bills, reduced competition and access to treatment and care, and increased prices on the goods and services that they need to weather this crisis.”

Representatives from the following 22 organizations joined the letter: 

Center for Freedom and Prosperity, Americans for Tax Reform, FreedomWorks, Americans for Prosperity, Center for a Free Economy, American Commitment, The American Consumer Institute, 60 Plus Association, Frontiers of Freedom, Committee to Unleash Prosperity, Tea Party Nation, HSA Coalition, Center for Individual Freedom, Institute for Liberty, Citizen Outreach, Hispanic Leadership Fund, Consumer Action for a Strong Economy, National Tax Limitation Foundation, Phyllis Schlafly Eagles, Pacific Research Institute, National Center for Public Policy Research, Americans for Limited Government

The full letter is available here.

For additional comments:
Andrew Quinlan can be reached at 202-285-0244, [email protected]

###

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Image credit: Daniel_B_photos | Pixabay License.

Coalition to Congress: Provide Liability Protection for Pandemic Responders

Wed, 04/15/2020 - 3:58am

[PDF Version]

April 15, 2020

The Honorable Mitch McConnell
317 Russell Senate Office Building
Washington, DC 20510

The Honorable Nancy Pelosi
235 Cannon House Office Building
Washington, D.C. 20515

Dear Majority Leader McConnell and Speaker Pelosi:

The undersigned organizations write to ask for your support in providing stronger liability protections that are consistent with the principles of federalism to those currently on the frontlines of the nation’s coronavirus response and relief efforts.

Members representing both sides of the aisle in Congress, including Sens. Kyrsten Sinema (D-Az.), Sen. Rand Paul (R-Ky.), Sen. Deb Fischer (R-Neb.), and Sen. Josh Hawley (R-Mo.) have raised the need for Congress to do so in some capacity, and for good reason. While the rest of America has come together to fight this pandemic, some trial lawyers have instead plotted to line their pockets with COVID-19 related lawsuits. Their greed is hurting America in this time of crisis, and lawmakers must put their exploitation of this public health crisis into check.

Because of the looming threat posed by the trial lawyers’ tort agendas, doctors and healthcare professionals remain fearful of making the tough healthcare decisions that are needed to respond to this pandemic; hospitals, nursing homes, and assisted living facilities are afraid that the care delivered in unprecedented circumstances will be second-guessed; manufacturers are hesitant to produce essential products; and transportation companies are risking their very existence to keep America supplied.

If trial lawyers’ predatory, self-serving agenda succeeds, it will hobble our nation’s economic recovery. Costs will significantly rise on the American people in the form of higher healthcare bills, reduced competition and access to treatment and care, and increased prices on the goods and services that they need to weather this crisis. Vital industries that support our economy could suffer catastrophic bankruptcies. Worst of all, much of the innovation and capital needed to find cures, both to this disease and the economic devastation posed by it, will face significant delays as well, exacerbating the feelings of hopelessness and despair felt throughout the nation. Only the nation’s trial lawyers would benefit from this type of system.

We urge you to embrace reasonable constitutional reform proposals to create shields from trial lawyers’ frivolous, costly, and job-killing litigation schemes. Doing so will advance the interests and well-being of the American people through the COVID-19 pandemic and beyond.

Sincerely,

Andrew F. Quinlan ~ President, Center for Freedom and Prosperity
Grover Norquist ~ President, Americans for Tax Reform
Jason Pye ~ Vice President of Legislative Affairs, FreedomWorks
Brent Wm. Gardner ~ Chief Government Affairs Officer, Americans for Prosperity
Ryan Ellis ~ President, Center for a Free Economy
Phil Kerpen ~ President, American Commitment
Steve Pociask ~ President / CEO, The American Consumer Institute
James L. Martin ~ Founder/Chairman, 60 Plus Association
Saulius “Saul” Anuzis ~ President, 60 Plus Association
George Landrith ~ President, Frontiers of Freedom
Steve Moore ~ President, Committee to Unleash Prosperity
Judson Phillips ~ President, Tea Party Nation
Daniel Perrin ~ Founder, HSA Coalition
Jeffrey Mazzella ~ President, Center for Individual Freedom
Andrew Langer ~ President, Institute for Liberty
Chuck Muth ~ President, Citizen Outreach
Mario H. Lopez ~ President, Hispanic Leadership Fund
Matthew Kandrach ~ President, Consumer Action for a Strong Economy
Peter Ferrara ~ Senior Adviser, National Tax Limitation Foundation
Ed Martin ~ President, Phyllis Schlafly Eagles
Sally C. Pipes ~ President, CEO, Thomas W. Smith Fellow in Health Care Studies, Pacific Research Institute
David Ridenour ~ President, National Center for Public Policy Research
Rick Manning ~ President, Americans for Limited Government

 

Coronavirus Thuggery

Tue, 04/14/2020 - 12:29pm

I’m a big fan of federalism. After all, compared to what happens when Washington screws up, there’s a lot less damage if a state or city imposes a bad law.

Moreover, it’s relatively easy to move across a border if a state or city is doing something foolish. Leaving the country, by contrast, is a much bigger step (and a lot harder if you have some money).

That being said, politicians outside of Washington deserve plenty of scorn (to show that Washington has no monopoly on venality and incompetence, I periodically share columns that highlight “Great Moments in State Government” and “Great Moments in Local Government“).

And the coronavirus crisis is giving us plenty of new evidence.

Writing for the Federalist, John Daniel Davidson takes aim at control-freak politicians.

…some mayors and governors…think they have unlimited and arbitrary power over their fellow citizens, that they can order them to do or not do just about anything under the guise of protecting public health. We’ve now witnessed local and state governments issue decrees about what people can and cannot buy in stores, arrest parents playing with their children in public parks, yank people off public buses at random, remove basketball rims along with private property, ticket churchgoers… The most egregious example of this outpouring of authoritarianism was an attempt by Louisville, Kentucky, Mayor Greg Fischer to ban drive-in church services on Easter. …he also threatened arrest and criminal penalties for anyone who dared violate his order, and in an Orwellian twist, invited people to snitch on their fellow citizens. …this didn’t just happen in Louisville. Two churches in Greenville, Mississippi, that were holding drive-in services for Holy Week said police showed up and ordered churchgoers to leave or face a $500 fine. …the targeting of churches, while undoubtedly the most offensive overreach by state and local governments, is hardly the only instance of government gone wild. In Michigan, Gov. Gretchen Whitmer has taken it upon herself to declare what items are and are not “essential,” dictating to grocery stores what they can and cannot sell… Among the nonessential, and therefore banned, items are fruit and vegetable plants and seeds. …(Lottery tickets, on the other hand, are still permitted.)

There’s so much outrageous material in this article that it’s almost impossible to focus on one item.

I’ll simply note that it is entirely predictable – but totally disgusting – that Governor Whitmer in Michigan has exempted sales of lottery tickets from her lockdown order. I guess risk is okay if it’s for the purpose of getting more revenue by screwing poor people.

Since we’re on the topic of Governor Whitmer and Michigan, this tweet indicates that it’s okay to put infants in danger. After all, they don’t line the pockets of government by purchasing lottery tickets.

Per order from @GovWhitmer, people in Michigan are now banned from purchasing a new baby car seat in stores.

This is dangerous and this order needs clarification immediately. #migov #mileg pic.twitter.com/hlWNab6OTY

— Tori Sachs (@Tori_Sachs) April 11, 2020

Let’s look at more examples of nanny-state authoritarianism. David Harsanyi’s column in National Review is appropriately scathing.

Free people act out of self-preservation, but they shouldn’t be coerced to act through the authoritarian whims of the state. Yet this is exactly what’s happening. …politicians act as if a health crisis gives them license to lord over the most private activities of America people in ways that are wholly inconsistent with the spirit and letter of the Constitution. …What business is it of Vermont or Howard County, Ind., to dictate that Walmart, Costco, or Target stop selling “non-essential” items, such as electronics or clothing? …it is an astonishing abuse of power to issue stay-at-home orders, enforced by criminal law, empowering police to harass and fine individuals for nothing more than taking a walk. …The criminalization of movement ends with…three Massachusetts men being arrested, and facing the possibility of 90 days in jail, for crossing state lines and golfing — a sport built for social distancing — in Rhode Island. …In California, surfers, who stay far away from each other, are banned from going in the water. Elsewhere, hikers are banned from roaming the millions of acres in national parks. …Would-be petty tyrants, such as Dallas judge Clay Jenkins, who implores residences to rat out neighbors who sell cigarettes.

So many awful examples, but I’m especially nauseated by Judge Jenkins and his call for snitching. Makes me wonder if he’s related to Andrew CuomoRichard Daley, or David Cameron. I’ll close with two amusing items. First, every red-blooded American should cheer for this jogger (and you should cheer for him if you’re a red-blooded person from abroad as well).

What the heck is the harm of going for a run alone on the beach? It’s probably a thousand times safer than putting gas in your car or getting groceries. Run Forest run! pic.twitter.com/Po1n8m4XWg

— IAMis Dangerous to Evil I hope (@IAMISjp) April 10, 2020

Second, here’s some satire that is both seasonal and accurate (though, to be fair, the disciples weren’t practicing social distancing).

P.S. Maybe this is the kind of harassment that led to “Libertarian Jesus“?

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Image credit: National Archives | Public Domain.

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