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NAFTA, USMCA, and Dodged Bullets

Fri, 10/05/2018 - 12:29pm

I don’t want to write about Trump’s new NAFTA deal (which now has the clunky acronym of USMCA), largely because not much changed since the partial deal with Mexico was unveiled.

Also, it’s hard to get too worked up about the new agreement since it largely tinkers with the status quo. And since I was a fan of NAFTA, I’m relieved Trump didn’t eviscerate that pact.

But several experts have produced very good summaries, which means I can be lazy and share their good work.

Let’s start with Jeffrey Schott of the Peterson Institute, who is underwhelmed by the revised NAFTA.

NAFTA’s benefits had always been primarily through the strengthening of economic integration of the three economies. Contrary to President Trump’s claims, the new pact moves backwards in this critical regard and imposes new restrictions that will impede regional trade and investment, stifling the potential for economic growth. On autos, the deal is innovative in a perverse way: It is the first free trade agreement (FTA) negotiated by the United States that raises rather than lowers barriers to trade and investment. It adds layer upon layer of costly new regulations that producers must follow to qualify for NAFTA’s low tariffs—layers virtually certain to drive up costs of autos for consumers and very likely reduce US jobs in the auto sector. …these steps add up to a step backwards on trade and investment in the United States and the region as a whole that, while not as damaging as it could have been, will do little or nothing to help workers, consumers, and the economies of North America.

Veronique de Rugy of the Mercatus Center is similarly dour, though thankful that the deal isn’t as bad as Trump wanted.

…the Trump administration gave up on its worst demands, including one for a minimum of 50 percent mandatory U.S. content to benefit from the new NAFTA duty-free treatment, a ban on student visas for Chinese nationals and an every-five-year sunset clause. If the U.S. hadn’t dropped these poison pills, I doubt we would have had this new deal. Let’s all be grateful for the willingness to compromise on the part of the U.S. trade negotiators. …in spite of the tiny trade-liberalization measures in the deal, tariffs overall remain significantly higher than they were before president Trump started “negotiating.” …The auto section of the deal is not as bad as what the Trump administration had hoped for, but it is still really ugly. For automobiles to enter the U.S. duty-free from North America, at least 75 percent of their content must originate in the U.S., Mexico, and Canada, up from the current 62.5 percent. It doesn’t take a rocket scientist to understand that this requirement will increase the price that Americans pay.

Ryan Young of the Competitive Enterprise Institute piles on.

Given the Trump administration’s emphasis on government-managed trade, it could have been much worse. Now President Trump can claim a political victory and hopefully turn his attention to non-trade issues, while actual trade policy remains mostly unchanged. …The 1,812-page agreement leaves intact the mostly tariff-free relationship between the U.S., Canada, and Mexico. It even has a few improvements, such as a slight liberalization of Canada’s dairy policy. U.S. agriculture policy will remain heavily subsidized and insulated from competition, however. Among the downsides are new wage and country-of-origin rules that will make cars more expensive… Also troubling is a general NAFTA/USMCA ethos under which some countries determine other countries’ regulatory policies for them. This is generally due to trade-unrelated policies in trade agreements, mostly on labor, environmental, and intellectual property issues. …In short, NAFTA has a new name, but it’s still NAFTA. …a major bullet has been dodged between America and two of its largest trading partners. That the Trump administration is calling it a victory means that a major economic loss has been avoided for the time being. It would have been better to leave well enough alone, but under the circumstances, this may be about the best possible outcome.

Simon Lester and Inu Manak grade the new deal, citing good news on agriculture and bad news on labor regulation and autos.

In terms of liberalization in the USMCA, the most important component is the liberalization of Canadian agriculture imports, such as dairy products, eggs, wheat, poultry, and wine. Dairy market access was a key concern for the United States, which has long complained about Canada’s strict supply management and quota system. …In addition, Canada agreed to give up a pricing system for certain types of milk, as well as expanding the U.S. quota for chicken, eggs, and turkey. …The labor rights provisions go further than past U.S. trade agreements. For some people on the left, this could offer a reason to support the agreement. If you are skeptical about including labor provisions in trade agreements, as we are, this is a negative aspect to the agreement. …The new rules of origin are extremely restrictive, raising costs for auto production in North America. This could lead to more production being done outside of North America, or higher costs for consumers. This is the most negative part of the new agreement.

Speaking of all the new command-and-control regulation in the USMCA, this tweet from Scott Linicome sums up one of the great ironies of the NAFTA revision.

The best part – I mean, what really drives a sane man to the brink – is that the guys who wrote the USMCA’s incomprehensible industrial mandates are the same ones saying that the agreement is needed to stop “non-market economies” pic.twitter.com/vgtk6wPmzN

— Scott Lincicome (@scottlincicome) October 4, 2018

William Reinsch of the Center for Strategic and International Studies adds his two cents, mostly noting that we’re lucky Trump didn’t make things that much worse (a common theme from all the experts).

It is somewhat comforting to see that one of the worst things you can say about U.S.-Mexico-Canada Agreement (USMCA) is that the new trade agreement replaces a term that everyone knows and can say with an unpronounceable acronym. …the business communities in all three countries dodged a serious bullet. …no one had to swallow many of the so-called poison pills. …The fact that many of its efforts to build an economic wall around the United States did not make it to the finish line is also good news, although the Canadians and Mexicans probably deserve more credit for that than our administration does.

Let’s close with some optimism. Dalibor Rohac of the American Enterprise Institute writes for CapX that the new pact shows that Trump’s protectionist instincts can be sidetracked.

…considering the range of possible outcomes, a sigh of relief is in order. President Trump’s zero-sum view of the world and his penchant for grand gestures and publicity stunts created a real risk that NAFTA – one of the great successes of trade liberalisation around the world – would follow the fate of other agreements from which his administration decided to withdraw. Forcing higher wages and labour protection standards on a relatively poor country such as Mexico will have unintended consequences, but that is likely an acceptable price for keeping trade in North America tariff-free. …USMCA shows how President Trump’s protectionism can be constrained by other world leaders: by letting the US President score easy headline-grabbing victories, which will allow him to claim that he has ‘fixed’ previously ‘horrible’ trade deals, while leaving the substance of policies mostly unchanged.

Needless to say, this doesn’t cast Trump in a positive light.

I’ll close by restating a point I made in August about, “The process of NAFTA began under Reagan, negotiations finished under the first President Bush…, and the pact was approved under Clinton.”

And American workers were beneficiaries, though Trump put 1.8 million jobs at risk by threatening to deep six that achievement.

Thankfully, it looks like NAFTA will largely survive Trump.

Amazon’s Pay Hike: The Good, the Bad, and the Ugly

Thu, 10/04/2018 - 12:22pm

I want higher wages.

Indeed, that’s a big reason why I favor better tax policy. I want low rates and less double taxation so we get more entrepreneurship and investment, which then will lead to higher productivity and more compensation for workers.

With this in mind, let’s look at some good news from a story in the New York Times.

Amazon said on Tuesday that it would raise the minimum wage to $15 an hour for its United States employees, a rare acknowledgment thatit was feeling squeezed by…a tight labor market. The raises apply for part-time workers and those hired through temporary agencies. …The new wages will apply to more than 250,000 Amazon employees, including those at the grocery chain Whole Foods, as well as the more than 100,000 seasonal employees it plans to hire for the holiday season.

This is an encouraging development. My support for pro-market policies is partly driven by philosophy (freedom to engage in voluntary exchange, etc), but also motivated by a desire to help people become more prosperous.

It’s too soon to say for sure, but perhaps we’re seeing evidence that last year’s tax reform is paying dividends. Of course, it’s also possible that we’re in a bubble that’s about to pop, but let’s hope that’s not the case.

In any event, there’s also some bad news in the story. Amazon’s decision may not simply be a business decision. It also might be a way of appeasing the crowd in Washington.

The company now employs about 575,000 people worldwide, up more than 50 percent in the past year…the pay of those workers has become a growing issue for activists… “I think they saw the writing on the wall…,” Senator Bernie Sanders of Vermont said in an interview after the announcement. …Mr. Sanders and labor organizers have criticized the wages and conditions of Amazon’s work force. …As recently as last month Amazon was resisting the pressure.

The most nauseating aspect of this is that Amazon’s boss issued a groveling tweet to Crazy Bernie.

Thank you @SenSanders. We’re excited about this, and also hope others will join in. https://t.co/kasWkkOhWo

— Jeff Bezos (@JeffBezos) October 2, 2018

Since I’ve shared the good news and bad news, now let’s look at the ugly news.

Having decided to boost wages for his workers, Bezos now want to impose higher costs on smaller companies that compete against Amazon.

The company said it would also lobby Washington to raise the federal minimum wage, which has been set at $7.25 for almost a decade.

This is a classic example of cronyism. A big company is using the coercive power of government to unfairly tilt the playing field.

The Wall Street Journal opined about this oleaginous development.

Jeff Bezos…the Amazon CEO showed he also has impeccable political timing. His decision to raise Amazon’s minimum wage to $15 an hour will buy the tech company some political insurance… Mr. Bezos also announced that Amazon will now lobby Congress to raise the national minimum wage from $7.25 an hour. If Amazon is already paying $15, it’s no competitive sweat for Mr. Bezos to look virtuous for the media and politicians.

The WSJ also commented on the implicit extortion.

Speaking of government, Amazon’s wage increase may also buy some insurance against a looming assault from Congress. Bernie Sanders, the Vermont socialist and likely presidential candidate in 2020, has introduced the Stop Bezos Act that would tax Amazon to finance government transfer payments like food stamps. …Mr. Bezos also wants to hold off the federal antitrust cops, but that may cost more than $15 an hour. Politics aside, Amazon’s wage increase wouldn’t be possible if the U.S. economy hadn’t risen out of its eight-year Obama doldrums. As always, the best way to raise living standards is faster growth, not political coercion.

Amen.

Sadly, this is not the first time Amazon has climbed into bed with politicians. It is currently seeking special handouts from state and local governments for a new headquarters complex.

P.S. If you want to understand why government-imposed mandates for higher minimum wages are misguided, there’s very powerful evidence from Seattle. Simply stated, workers lose jobs and income.

Defense, Debt, and a Choice for the GOP

Wed, 10/03/2018 - 2:38am

Back in January, I explained that Republicans in Congress were fools to believe that they could grow defense spending without substantial entitlement reforms:

It is simply not possible to grow defense spending without substantial, cost-curbing reforms to the rest of the federal budget. Over the past half century the federal government has fundamentally changed its role in the US economy: in 1962 the federal budget gave $2 to the Pentagon for every $1 it spent on welfare-state entitlements; in 2017 defense spending amounted to 22 cents for every $1 to entitlements. The Pentagon’s share of the federal budget has fallen from 49 percent under President Kennedy to just below 15 percent today.

I also noted that back in June 2017, Representative Cheney (R-WY) and her dad, former Vice President Dick Cheney, wrote:

Providing for the defense of America is the most sacred constitutional obligation of the U.S. Congress. If Congress fails in this, no balanced budget, no health-care reform, no tax reform, no entitlement reform will matter. If lawmakers fail to provide the resources necessary for the defense of the nation, nothing else they do will matter.

Since then, Congress has increased defense spending substantially, closing in on an all-time-high in Pentagon appropriations. So now that Representative Cheney and other strong supporters of our armed forces have gotten what they wanted, will you now please turn your attention to entitlements?

The need for entitlement reform is not just a matter of fiscal conservatism. It is, in fact, also a national security issue. Or, as I pointed out in another article back in January, House Speaker Paul Ryan (R-WI) was dead wrong thinking that

we can grow defense spending without entitlement reform. When I made that point last week, the Chinese government proved me right: with a mere whisper about reconsidering their investments in US Treasury bonds, Beijing rattled Wall Street and — if ever so briefly — raised our interest rates. In a financial heartbeat, China demonstrated that our government debt, built over half a century of excessive welfare-state spending, is a major threat to our national security.

The financial tremors were caused by a recommendation from senior Chinese government officials that the country change its investment policies toward U.S. Treasuries. I noted that

the Chinese whisper could very well have been a muscle-flexing move. From a US national-security viewpoint it was perfectly timed. It came just as Congressional budget talks kicked into high gear and Republicans raised demands for more defense spending. The message from Beijing was that if they wanted to, they could stop our efforts at increasing defense spending, and even disrupt our ability to maintain current levels of defense spending.

With $1 trillion in U.S. Treasuries, the Chinese could indeed do some real harm if they wanted to. My numbers from January:

As of 2017, the interest cost on the federal debt was $457 billion. This equals an interest rate of 2.26 percent on the entire federal debt. If the interest had been 0.3 percentage points higher, the same level as it was in 2013, interest payments would have exceeded $518 billion. That would have topped federal spending on income security ($514 billion). At an average interest rate of 2.75 percent, the total interest cost would have been $556 billion, a smidgen more than the $546-billion budget for the Department of Health and Human Services. With a 3 percent rate, the US Treasury would have had to spend $607 billion on interest — $4 billion more than the entire Department of Defense budget.

If the Chinese chose to dump their Treasuries onto the global debt market, it would cause interest rates to rise much higher than three percent. An interest shock wave would have disruptive effects on a Congress that has not only ignored entitlement spending, but actively worked to remove all stops to spending growth. Having thrown out the sequester, dismantled the IPAB panel in Medicare and “suspended” the debt ceiling, our beloved senators and representatives no longer have anything between them and a virtual Autobahn of spending growth.

It was hardly surprising, then, to see a recent CNBC report  that said exactly what I warned about already back in January:

The federal government could soon pay more in interest on its debt than it spends on the military, Medicaid or children’s programs. The run-up in borrowing costs is a one-two punch brought on by the need to finance a fast-growing budget deficit, worsened by tax cuts and steadily rising interest rates that will make the debt more expensive. With less money coming in and more going toward interest, political leaders will find it harder to address pressing needs like fixing crumbling roads and bridges or to make emergency moves like pulling the economy out of future recessions.

Dear GOP, what is it going to be? Are you going to systematically address runaway entitlement spending, or are you going to continue to outspend the world’s drunken sailors?

We have reasons to fear that the Republican majority on Capitol Hill leans in the drunken-sailor direction. There is growing support among their ranks for a paid-leave proposal from Senator Rubio (R-FL). A general income-security program – the technical term for paid leave – is one of the three missing pieces in the American welfare state, before it becomes a full-blown European behemoth (the other two are universal child care and single-payer health care).

As if paid leave were not enough, the Republican-led Congress has already opened the door for a single-payer health care system. Not only would that destroy the world’s best health care system (bruised as it is from Obamacare) but it would require nightmarish tax increases.

Perhaps emerging signs of a new global debt crisis might motivate the GOP to rethink their spending habits. If not, the United States will be pulled down into a Greek-style fiscal tailspin the like of which we have not seen at last since the Great Depression. When that happens, everything the Republicans in Congress have worked for, especially in terms of more defense spending, will be squandered.

 

Market-Driven Prosperity Produces Better Public Health

Tue, 10/02/2018 - 12:18pm

Back in 2012, I shared a chart showing that workplace deaths declined substantially after the creation of the Occupational Safety and Health Administration.

But I then shared a second chart showing that workplace deaths declined just as much before OSHA was created.

The moral of my story was quite simple. Deaths primarily fell because America become much more prosperous. And there’s a lot of evidence that wealthier is healthier.

Today, let’s look at a similar example.

study published by the National Bureau of Economic Research looks at the impact of public health measures in the early 1900s. They start by sharing some good news.

Since the mid-19th century, mortality rates in the Western world have plummeted and life expectancy has risen dramatically. Sometimes referred to as the mortality transition, this development is widely recognized as one of the most significant in the history of human welfare (Fogel 2004). Two features characterize the mortality transition. First, it was driven by reductions in infectious diseases and diseases of infancy and childhood (Omran 2005; Costa 2015). Second, it was concentrated in urban areas.

Do government policies deserve the credit?

There’s some evidence for that hypothesis.

…recent reviews of the literature emphasize the role of public health efforts, especially those aimed at purifying the water supply. For instance, Cutler et al. (2006) argue that public health efforts drove the dramatic reductions in food- and water-borne diseases at the turn of the 20th century. Similarly, Costa (2015) argues that clean-water technologies such as filtration and chlorination were “the biggest contributor[s] to the decline in infant mortality”

To be sure, there were huge public projects in the first several decades of last century. Here’s the data on sewage treatment facilities.

And here’s some data on milk purification efforts.

And the study has data on other aspects of public health as well.

The key question is whether all these efforts were successful. The three authors decided to investigate.

Using data on 25 major American cities for the years 1900-1940, the current study revisits the causes of the urban mortality decline at the turn of the 20th century. Specifically, we conduct a statistical horse race that attempts to distinguish the effects of ambitious, often extraordinarily expensive (Costa 2015, p. 554), public health interventions aimed at controlling mortality from food-and-water-borne diseases. Following previous researchers (Troesken 2004; Cutler and Miller 2005; Beach et al. 2016; Knutsson 2018), we explore the extent to which filtering and chlorinating drinking water contributed to the decline in typhoid mortality observed during the period under study and, more generally, to the observed declines in total and infant mortality. In addition, we explore the effects several other municipal-level efforts that were, at the time, viewed as critical in the fight against typhoid and other food- and water-borne diseases (Meckel 1990; Levitt et al. 2007; Melosi 2008) but have not received nearly as much attention from modern-day researchers. These interventions include: the treatment of sewage before its discharge into lakes, rivers and streams; projects designed to deliver clean water from further afield such as aqueducts and water cribs; requirements that milk sold within city limits meet strict bacteriological standards; and requirements that milk come from tuberculin-tested cows. Because the urban mortality transition was characterized by substantial reductions in infant and childhood mortality (Omran 2005) and because exclusive breastfeeding was not the norm during the period under study (Wolf 2001, 2003), improvements in milk quality seem a particularly promising avenue to explore.

But here’s the surprising result.

They did not find much evidence that public health efforts made a difference.

…our results suggest that the building of a water filtration plant cut the typhoid mortality rate by nearly 40 percent. More generally, however, our results are not consistent with the argument that public health interventions drove the extraordinary reductions in infant and total mortality observed between 1900 and 1940. Specifically, we find that efforts to purify milk had no appreciable effect on infant mortality and no effect on mortality from non-pulmonary tuberculosis (TB), which was often transmitted through infected milk. Likewise, neither chlorinating the water supply nor constructing sewage treatment plants appears to have been effective. …Our results point to other factors such as better living conditions and improved nutrition as being responsible for the sharp decline in urban mortality at the turn of the 20th century.

Here’s the chart showing that infant mortality consistently declined, largely independent of public health efforts.

I’m not suggesting, by the way, that public health spending is bad. Nor am I asserting that it’s a waste of money.

Notwithstanding some of the jokes that target libertarians, the goal isn’t to abolish every regulation or program governing safety and health. Maybe I’m a bad libertarian, but I’d pick a city with sewage treatment over one without.

But my main point is that I don’t need to make that choice. Nobody does.

The data strongly suggests that economic growth and rising levels of prosperity are the real drivers of improved health outcomes. Market-driven prosperity is what generates the wealth needed to improve public health, whether the actual delivery takes place via public or private action.

Debunking a Critique of Capitalism

Mon, 10/01/2018 - 12:37pm

Over the years, I’ve felt compelled to “debunk” various articles, columns, and speeches that fundamentally misrepresented and/or misunderstood key economic issues.

A partial list includes Keynesian economics, the Laffer CurveObama tax propagandaElizabeth Warren’s class warfaresequester hysteriaexport subsidieslibertarianismcarried interestgovernment sizeinequalityScandinavia, and the value-added tax.

It’s time to add to that list. In a column for the Washington Post, Steven Pearlstein claims to have identified “Five myths about capitalism.” He’s not necessarily attacking free enterprise, but he does make several points that rub me the wrong way and/or should be addressed. Here’s his introduction.

Thirty years ago, in the face of a serious economic challenge from Japan and Europe, the United States embraced a form of free-market capitalism that was less regulated, less equal, more prone to booms and busts. Driving that shift was a set of useful myths about motivation, fairness and economic growth that helped restore American competitiveness. …Here are five of the most persistent ones.

Before we get to his myths, I can’t resist questioning his assertion that markets lead to “more booms and busts,” in part because we had very long and strong expansions during the market-oriented Reagan and Clinton years and in part because the big 2008 recession was largely a result of bad government policy.

But let’s set that aside and look at Pearlstein’s myths. Here’s his first assertion.

Adam Smith, the father of economics, first pointed out in his most famous work, “The Wealth of Nations ,” that in vigorously pursuing our own selfish interests in a market system, we are led “as if by an invisible hand” to promote the prosperity of others. …Smith, however, was never the prophet of greed that free-market cheerleaders have made him out to be. In other passages from “The Wealth of Nations,” and in his earlier work, “The Theory of Moral Sentiments,” Smith makes clear that for capitalism to succeed, selfishness must be tempered by an equally powerful inclination toward cooperation, empathy and trust — traits that are hard-wired into our nature and reinforced by our moral instincts. …An economy organized around the cynical presumption that everyone is greedy is likely to be no more successful than one organized around the utopian assumption that everyone will act out of altruism.

This isn’t really a myth as much as a misrepresentation. What “free-market cheerleaders” extol Smith as a “prophet of greed”?

I self-identify as one of those cheerleaders, and I simply point to Smith’s famous observation about how self-interest is what drives merchants to improve our lives.

Do some people go crazy with greed? Of course.

But that’s true in any system (look at how Chavez’s family members lined their pockets).

What makes capitalism a preferable system is that greedy people have to cater to consumers if they want more money.

Here’s Pearlstein’s second myth.

This is an almost universal belief among corporate executives and directors — that it is their principal mission and legal obligation to deliver the highest possible return to their shareholders. The economist Milton Friedman first declared in the 1970s that the “one social responsibility of business [is] . . . to increase its profits,” but the corporate raiders of the 1980s were the ones who forced that view on executives and directors, threatening to take their companies or fire them if they didn’t go along. …“maximizing shareholder value”…is now widely taught by business schools, ruthlessly demanded by Wall Street’s analysts and “activist” investors, and lavishly reinforced by executive pay packages tied to profits and share prices. In fact, corporations are free to balance the interests of shareholders with those of customers, workers or the public… Legally, corporations can be formed for any purpose. …The only time a corporation is obligated to maximize its share price is when it puts itself up for sale.

I’m not sure what point he’s making. Does he think companies shouldn’t try to make profits? Does he not understand the purpose of profits? Does he want to put corporate governance under the control of politicians, like Elizabeth Warren?

For what it’s worth, he’s correct that corporations can be set up for reasons other than profit, though I’m not sure that’s any sort of stunning revelation.

Here’s the third supposed myth.

The theory of “marginal productivity” holds that a worker’s wage or salary reflects the “amount of output the worker can produce,” according to Harvard’s Greg Mankiw, author of a best-selling economics textbook. This idea is useful in constructing economic models, but Mankiw and others have also relied on it to justify widening income inequality and to oppose proposals to redistribute income… In reality, however, the pay set by markets is also subjective, reflecting the laws and social norms under which markets operate. The incomes earned by workers who planted tobacco — and those who owned tobacco plantations — changed considerably after slavery was abolished, and again after laws protecting sharecroppers were enacted, and again when minimum-wage laws were passed… While it is probably better to rely on markets rather than government to set pay levels, that doesn’t mean that the way the markets set pay is a purely objective assessment of economic contribution or that redistribution is theft.

I’m glad he acknowledges that it is “probably better” for markets to set wages, but this section is largely incoherent.

He writes about slavery, but that has nothing to do with capitalism. After all, slavery was government-sanctioned and government-enforced involuntary labor, whereas a defining feature of capitalism is voluntary exchange.

Now for the fourth myth.

The reason Americans tolerate higher levels of income inequality is because of our faith that we all have a fair chance at achieving the American Dream or becoming the next Bill Gates. “In America we stand for equality,” writes Arthur Brooks of the American Enterprise Institute, a leading defender of the morality of capitalism. “But for the large majority of us, this means equality of opportunity, not equality of outcome.” …But while the United States has made great strides in removing legal barriers to equal opportunity, at least half the difference in income between any two people is determined by their parents, either through inherited traits like intelligence, good looks, ambition and reliability (nature), or through the quality and circumstances of their upbringing and education (nurture). …Unless we are prepared to engage in extensive genetic reengineering, or require that all children be brought up in state-run boarding schools, we must acknowledge that we can never achieve full equality of opportunity.

This section actually makes some sense. Some people do have better parents and better genes, and that does put them in a better position to succeed.

In any event, I very much hope that Pearlstein doesn’t think that government-imposed “genetic reengineering” and/or “state-run boarding schools” are good ideas.

Here’s the final myth, and also the one that got me most agitated.

Economists have long believed that there is an unavoidable trade-off between equality and growth — having more of one means having less of the other. Arthur Okun’s book about it, “Equality and Efficiency: The Big Tradeoff,”remains a classic. The implosion of communism and the decisions of socialist countries like Sweden to reduce taxes and welfare are widely seen as acknowledgments of the failure of overly egalitarian systems to produce adequate economic growth. But evidence suggests that there is also a point at which high levels of inequality begin to deliver less economic growth, not more — and that the United States has passed that point, according to research by the International Monetary Fund. …rising income inequality erodes the trust people have in one another and their willingness to cooperate.

I’m glad he cited Okun, and it’s also good that he cited Sweden’s turn in the right direction.

But it’s very disappointing that he called attention to the IMF’s incredibly shoddy research on inequality.

As I’ve repeatedly explained, inequality that results from voluntary exchange is fine and inequality that results from Cronyism is bad. Studies that fail to distinguish between the two are either deliberately dishonestor breathtakingly shoddy.

I’ll close by asking critics of capitalism to give just one accurate answer to my two-question challenge. Or, if that’s too difficult, create the left-wing version of this chart.

I won’t be holding my breath.

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