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Economics & the Economy Archive

Saturday

26

April 2014

0

COMMENTS

Should We Punish Success as Inequality Fix?

Written by , Posted in Economics & the Economy, Taxes

Thomas Picketty has received a lot of attention for his attack on capitalism. His new book Capital in the Twenty-first Century has breathed new life into old Marxist critiques of capitalism, and been elevated to the status of very important book by the designated smart people™ who make it their business to decide what is important for the rest of us. It has received glowing coverage from the elite press like The New York Times and The Nation, and gushy reviews from prominent statists thanks to his assertion that capital is unfairly allocated, and that inequality poses an existential threat to democracy. In response, he calls for the admittedly utopian and impractical imposition of a global tax on wealth.

I’m not going to offer a rebuttal to Picketty. That work has already  been done. Rather, I’m here to note how his work has emboldened statists to admit their deepest policy desires – policies so radical and destructive that in the past were only whispered about at cocktail parties.

Matthew Yglesias writes at Vox that we need “confiscatory taxation” because “endlessly growing inequality can have a cancerous effect on our democracy.” Others are calling for a “maximum wage.”

There are problems with such proposals. First, inequality is largely misstated and misunderstood. Much of the data to back claims of rapidly growing inequality are being driven by statistical artifacts and cultural trends – creations of changes in the nature of households which make up the basis of inequality comparisons, or of changes in marriage patterns, or of problems with trying to take static snapshots of a dynamic economy.

Yglesias correctly notes that taxes influence behavior. Specifically, if you tax something, you get less of it. This forms the basis for his assertion that we should “apply the same principle of taxation-as-deterrence to very high levels of income.” If you start with the presumption that large incomes are unearned and without economic merit this might make sense. But if you believe that the market by-and-large distributes resources based on productivity, then this plan is quickly revealed as a tax on high levels of productivity. And with the agreed upon understanding that taxing a thing makes it less likely to occur, that means discouraging high levels of productivity. The net results is lower total output.

It is, in other words, the classic leftist plan to more evenly distribute a smaller economic pie. Or, as Margaret Thatcher would say, they would “rather that the poor were poorer, provided that the rich were less rich.”

Tuesday

14

January 2014

0

COMMENTS

To Cry or Not to Cry

Written by , Posted in Big Government, Culture & Society, Economics & the Economy

The Huffington Post has a story about a chef at a high-end restaurant who apparently ran into a bit of social media controversy when she questioned whether or not crying babies should be tolerated at the restaurant.

At the end of the story, a poll asks, “Should upscale restaurants like Alinea ban babies?” None of the available answers were satisfactory to me.

The great thing about a free market system is that it accommodates all answers! It shouldn’t ultimately matter to the folks at Alinea what people who don’t or never will patron Alinea prefer. They should serve their customers or people they want to be their customers by catering to their preferences. And the types of people that do patronize Alinea, moreover, might have a different preference than people that prefer other restaurants.

Because we live in a somewhat free society that still has at least a somewhat free economy, people who want to eat without crying babies and people who want to take their children to nice restaurants can all get their wish without needing to fight about it. This is not the case for other questions where one-size-fits-all answers are imposed on everyone, such as how to best educate children or provide healthcare, which is why those decisions tend to be much more contentious and the cause of social acrimony.

Monday

13

January 2014

0

COMMENTS

Notable Quotations

Written by , Posted in Big Government, Economics & the Economy, Free Markets, The Nanny State & A Regulated Society

Simon Lester, “The Good Old Days of Global Poverty:”

Protectionism takes a lot of money from everyone, in order to give concentrated benefits to a small group of politically connected interest groups. This is the kind of policy that is usually condemned by both the left and right. In the case of the trade debate, however, some well-respected opinion leaders seem OK with such policies. Why is that? My best guess is that it taps into an emotional “us versus them” worldview. It isn’t really about economics at all. It’s about patriotism and nationalism. “They” are bad. “We” are good. So let’s punish them, even if in doing so we are really punishing us.

Jacob Sullum, “Do You Drink Too Much? Don’t Ask the CDC:”

Why does the CDC say “at least 38 million” Americans drink too much? Because it maintains that “drinking too much” includes not just so-called binge drinking but several other categories as well. If you are a man who consumes 15 or more drinks in a week or a woman who consumes eight or more, you drink too much. …If you are a woman, the CDC does not want to hear about how you limit yourself to one drink every day except Saturday, when you have two, thereby exceeding the government’s arbitrary limit. …And don’t even try to point out the lack of evidence that light to moderate drinking during pregnancy harms fetuses. The CDC has decreed that all these patterns of drinking are excessive, and its only challenge now is convincing the rest of us.

Colin Grabow, “If You Think Communism Is Bad For People, Check Out What It Did To The Environment:”

In addition to being an advocate for an ideology directly responsible for tens of millions of non-war deaths and untold human misery, Myerson has revealed himself as something of an ignoramus concerning communism’s shocking record on environmental issues. Not only a blight on the human condition, communism’s impact on the planet’s ecology has proven consistently ghastly.

 

Friday

10

January 2014

0

COMMENTS

Notable Quotations

Written by , Posted in Big Government, Economics & the Economy

Richard Rahn, “Fumbling the crystal ball:”

I am reasonably confident in saying the world is headed for a major financial crisis, because the numbers show that most large economies are projected to further increase their debt-to-gross domestic product ratios this year, which are already at record-high global levels. However, I cannot forecast with a high probability (nor do I know others who can) when this financial crisis will occur.

A forecast that the world will have a new major financial crisis is really a forecast that the world’s political leaders are incapable or unwilling to make the necessary changes to avoid the crisis (e.g., substantially reducing government spending). If a new Margaret Thatcher or Ronald Reagan suddenly came forward, or if current leaders of major countries decided to make the necessary changes, my forecast of the crisis would become less likely.

Chris Edwards, “Why Is the Federal Government So Wasteful?”

There is no straightforward, technocratic way to “reinvent” the federal government to make it work with a decent amount of efficiency. Some of these problems can be reduced to an extent, but as long as the federal government is as large as it is, it will sadly continue wasting hundreds of billions of dollars from misallocation, mismanagement, and other problems.

The only real solution to the ongoing waste in the federal government is to downsize it.

Don Boudreaux, “Perhaps They’re All Unconsciously Biased:”

A perennial “Progressive” nostrum is the notion that other people’s consciousness must be “raised.”  A powerful belief among “Progressives” seems to be that there are only two possible reasons why someone might disagree with “Progressives’” plans to reconstruct society with government force: either the disagreeable person has a financial stake in publicly expressing disagreement or the disagreeable person suffers a “bias” that must be “corrected” by “consciousness-raising” or “awareness” campaigns.

 

Wednesday

1

January 2014

0

COMMENTS

Redistribution and the Human Prosperity Deniers

Written by , Posted in Big Government, Economics & the Economy, Liberty & Limited Government

Writing for the Washington Examiner, Randolph May highlights President Obama’s recent declaration that that income inequality is the “defining challenge of our time.” May harkensd back to Alexis de Tocqueville’s prescient warnings in Democracy in America:

Tocqueville argued that a democratic regime, by the sheer force of the majoritarian canon it embodies, would ceaselessly move in the direction of striving for ever greater degrees of what he called “equality of condition.”

This continual push for more equality of condition would lead inexorably to an ever-increasing encroachment of government authority at the expense of individual freedom.

We’ve witnessed just such an encroachment and it appears to be accelerating despite vast growth in overall human prosperity. That’s the thrust of a piece by Marian Tupy that challenges overly pessimistic accounts of the state of the world:

The dystopian world that Francis describes, without citing a single statistic, is at odds with reality. In appealing to our fears and pessimism, the pope fails to acknowledge the scope and rapidity of human accomplishment—whether measured through declining global inequality and violence, or growing prosperity and life expectancy.

The thesis of Evangelii Gaudium is simple: “unbridled” capitalism has enriched a few, but failed the poor…

Just how free the free market really is today is debatable. The United States is perceived as the paragon of free-market capitalism. And yet over the last two decades, according to Wayne Crews of the libertarian Competitive Enterprise Institute, Washington has issued 81,883 regulations—or nine per day. Maybe the marketplace should be regulated less, and maybe it should be regulated more. But unbridled it is not.

…

As for the negative consequences of “trickle-down” economics that the pope bemoans, let’s look at them in turn.

First, consider inequality. Academic researchers—from Xavier Sala-i-Martin of Columbia University, to Surjit Bhalla, formerly of the Brookings Institution and Rand Corporation, to Paolo Liberati of the University of Rome—all agree that global inequality is declining. That is because 2.6 billion people in China and India are richer than they used to be.

…Paradoxically, the shrinking of the global inequality gap was only possible after India and China abandoned their attempts to create equality through central planning. By allowing people to keep more of the money they earned, the Chinese and Indian governments incentivized people to create more wealth. Allowing inequality to increase at home, in other words, diminished inequality globally. And global inequality, surely, is the statistic that should most concern the leader of a global religion.

Tupy is also the editor of new Cato Institute project HumanProgress.org, which documents the dramatic improvements in human well-being that have taken place primarily over the last century. The site is needed because public perception is much more negative than reality, driven by cynical politicians who conjure ever more reasons to continue expanding government, as well as their own power.

Speaking of prosperity deniers, Donald Boudreaux recently provided a list of salient questions to ask of redistribution’s proponents, questions which they are unlikely able to answer. Here’s a sample:

Do you not worry that creating government power today to take from Smith and give to Jones — simply because Smith has more material wealth than Jones — might eventually be abused so that tomorrow, government takes from Jones and gives to Smith simply because Smith is more politically influential than Jones?

Suppose that Jones chooses a career as a poet. Jones treasures the time he spends walking in the woods and strolling city streets in leisurely reflection; his reflections lead him to write poetry critical of capitalist materialism. Working as a poet, Jones earns $20,000 annually. Smith chooses a career as an emergency-room physician. She works an average of 60 hours weekly and seldom takes a vacation. Her annual salary is $400,000. Is this “distribution” of income unfair? Is Smith responsible for Jones’ relatively low salary? Does Smith owe Jones money? If so, how much? And what is the formula you use to determine Smith’s debt to Jones?

I highly recommend reading the rest of Boudreaux’s piece. And if you happen to favor redistribution, I suggest you try answering the questions and seeing if you still do.

Friday

27

December 2013

0

COMMENTS

Overgovernment: Foreign Follies Edition

Written by , Posted in Big Government, Economics & the Economy, The Nanny State & A Regulated Society

Federal, state and local governments within the United States are all prone to overgovernment, and the problem has certainly gotten worse as government has grown in recent years. But they still lack in bureaucratic prowess compared to their foreign counterparts, as evidenced in part by these two recent stories on international governmental excess.

In France, kindness is a fine-able offense. Or at least it is for bar owners who allow their customers to demonstrate consideration by bringing empty glasses back to the bar:

French officials have fined a pub in Brittany €9,000 for “undeclared labour” after a customer returned some empty glasses to the bar.

For customers at the Mamm-Kounifl concert-café in Locmiquélic, carrying drinks trays and used glasses back to the bar was a polite tradition.

But for social security agency URSAFF, it was also an infringement of labour laws because customers were acting like waiters, French local newspaper Le Télégramme reported.

Surprisingly, some commentators on the story actually sided with the government! They share the fallacious reasoning behind the law, which supposedly exists to protect labor, i.e. jobs. Doing a task that another could be paid to do, in other words, is seen as a threat to their employment. But where does one draw the line with this sort of thinking? Should I be fined for mowing my own lawn instead of hiring a lawn care service? For cleaning my own house instead of hiring a maid? Or, in the case of New Jersey, pumping my own gas? Any activity we engage in for ourselves could be performed by another, thus creating a “job.” But does pursuing employment growth in this fashion make economic sense?

Ultimately, what this comes down to is an erroneous understanding many have regarding the nature of employment. Jobs don’t exist to fulfill demand for employment. Jobs exist when something needs doing. Production is the goal and employment is a byproduct. After all, if we could produce all that we needed without working, would that not be the ideal world? Reducing productivity to increase employment thus defeats the purpose of work and makes us all unnecessarily poorer in the process.

Labor is finite, while that which can be labored over is for all practical purposes infinite. The challenge, and where governments typically fail and thereby cause unemployment, is in having a system which encourages the entrepreneurial exploration of new products and services. Innovations that enhance productivity, whether it be ATM’s, automated cashiers, or even the realization that customers can return their own empty glasses (nevermind that such hardly represents the sum total of a server’s job), are not the cause of long-term unemployment. Innovations that allow us to make more for less, or free labor from doing one task so that it may be allowed to do another instead, make us richer and should be encouraged. Discouraging innovations in order to “protect jobs” is economic backwardness.

Moving from France to Denmark, we find a case of excessive nannyism (Hat-tip: Cato@Liberty):

…scientists have now discovered that too much of the most commonly used type of cinnamon, cassia, can cause liver damage thanks to high levels of coumarin, a natural ingredient found in the spice.

…As a result, the EU has laid down guidelines for the maximum content of coumarin in foodstuffs – 50mg per kg of dough in traditional or seasonal foods that are only consumed occasionally, and 15mg per kg of dough in what it terms as everyday fine baked goods.

Last month, the Danish food authority ruled that the nation’s famous cinnamon swirls were neither traditional nor seasonal, thus limiting the quantity of cinnamon that bakers are allowed to use, placing the pastry at risk – and sparking a national outcry that could be dubbed the great Danish bake strop.

The president of the Danish Bakers’ Association, Hardy Christensen, said: “We’ve been making bread and cakes with cinnamon for 200 years. Then suddenly the government says these pastries are not traditional? I have been a baker for 43 years and never come across anything like this – it’s crazy. Using lower amounts of the spice will change the distinctive flavour and produce less tasty pastries. Normally, we do as we’re told by the government and say OK, but now it’s time to take a stand. Enough is enough.”

Anything taken in sufficient quantities can be hazardous to one’s health. This is especially true of government.

Friday

25

October 2013

0

COMMENTS

Shrinking Dollars

Written by , Posted in Economics & the Economy

A recent letter to the The New York Times:

To the Editor:

Richard A. Friedman finds that an hour of psychotherapy ain’t what it used to be (“Shrinking Hours,” October 12). He attributes this, along with similar phenomena, to a “contracting culture.” It’s an interesting hypothesis, but economics might provide a better answer. Thanks to inflation brought about by government monetary policy, prices in nominal dollars must constantly rise just for providers to maintain the same level of compensation over time.

Many industries are able to innovate and reduce costs at an equal or faster pace than inflation, which hides its impact from consumers. For the rest it’s either raise prices or lower the quantity of goods provided (ever shrinking chip bags being a prominent example). It’s further no surprise that therapists would understand the psychology of consumers and bet that they’ll be less likely to notice a few minutes trimmed off their sessions than a price increase.

Sincerely,
Brian Garst
Director of Government Affairs
Center for Freedom and Prosperity

Monday

16

September 2013

0

COMMENTS

DC’s Latest Harebrained Idea

Written by , Posted in Big Government, Economics & the Economy

Of all the bad ideas to come out of DC, this may yet be the worst:

Before you join the cynics and naysayers who airily dismiss the notion that Washington should bid to host the 2024 Olympics, hear the counsel of a man intimately familiar with both our city and Olympics success.

Andrew Altman headed the District’s Office of Planning from 1999 to 2005 under Mayor Tony Williams, where he won praise for pushing redevelopment of the Anacostia waterfront. More recently, Altman headed a British public corporation that planned the rebirth of London’s blighted East End after it hosted the 2012 Olympics.

Does he think the Olympics could help revitalize struggling neighborhoods in the District (and elsewhere) in similar fashion, at the same time that it united our fragmented region around common goals?

You bet.

“I think it would be fabulous for Washington, having lived in Washington and loved it,” Altman said. “The Olympics are a great motivator to mobilize people regionally around a vision for future growth.”

Let the chorus say, “Amen.”

Count me among those “cynics and naysayers.” Trying to host the Olympics in DC would not only make life miserable for those of us here (DC’s transportation infrastructure is stretched to the limit already), but it would be a massive money sink for the area.

As Veronique de Rugy points out, the economic impact of sports subsidies never lives up to the hype. The result is always a net loss for taxpayers. The Olympics in particular have proven quite costly for host cities.

Though, Kyle Smith makes a good argument for why the DC is an appropriate host for the Olympics. As the Olympics are typically beneficial to only select businesses and industries at the expense of the broader taxpaying public, thee games are symbolically appropriate for the world’s premiere practitioner of crony capitalism.

Sunday

25

August 2013

0

COMMENTS

Holder Rattles the Sabers

Written by , Posted in Economics & the Economy, The Courts, Criminal Justice & Tort

Tough talk from the nation’s top legal obstructionist:

Attorney General Eric Holder on Tuesday put Wall Street on notice with a vague threat, saying that the Justice Department may be gearing up for civil or criminal prosecutions against those responsible for the 2008 financial meltdown.

“My message is, anybody who’s inflicted damage on our financial markets should not be of the belief that they are out of the woods because of the passage of time,” Holder said in an interview with The Wall Street Journal.

Holder didn’t expound on the nature of the charges or whom the DOJ might have in its crosshairs.

If Eric Holder both actually meant what he said and understood who is properly to blame, the DC governing class would be running for the hills. But they’re not. The politicians that repeatedly voted for bad policies or propped up Fannie and Freddie get a pass. The bubble-inducing Fed gets a pass. But if you’re some middling banker in New York, watch out! I have to imagine that as the criminal cabal occupying the White House becomes increasingly exposed for repeated, persistent resistance to any legal or constitutional controls, they’ll be seeking scapegoats and distractions. Eric Holder may have just tipped his hand in terms of who those scapegoats are likely to be.

Thursday

22

August 2013

0

COMMENTS

Bono Stumbles On Truth About Poverty

Written by , Posted in Economics & the Economy, Foreign Affairs & Policy, Free Markets

I’ve always liked Bono. Not only does he make good music, but unlike so many in Hollywood he actually seems to care about his chosen causes. Rather than strut and preen for the cameras or play partisan political games, he just goes about his business trying to help in the way he judges best. That’s respectable regardless of whether I share his policy approach, and I rarely do.

But now I have even more reason to like him.

Speaking at Georgetown University about the state of economic reality in Africa, Bono had this to say about poverty:

“Aid is just a stopgap. Commerce [and] entrepreneurial capitalism take more people out of poverty than aid. Of course we know that.”

Sadly, many of the college students present likely do not know that. And while we can ask ourselves why it matters what some musician says about economics and policy, the fact that it is coming out of Bono’s mouth will do more to get them to challenge their own assumptions than it would from someone like me. Culture, even of the popular sort, matters.

Though what was most likely a shocking realization for Bono after decades of experience with impoverished peoples is rather pedestrian for those of us in the free market movement. The failure of aid  has been well covered by folks like Dambisa Moyo. She points out the perversion international aid system, whereby holding on to power in developing countries is a function of pleasing foreign aid givers, rather than their citizens. It is disincentive, in other words, for political accountability. Keeping the aid spigot open is more beneficial for those who desire power than improving that lot of the people.

Nor is how to improve the lot of the people a great mystery. Though it is hard. Essentially, it requires neoliberal institutions to provide the legal and political frameworks necessary to enforce basic rights – with property rights being among the most critical in terms of encouraging economic growth. Hernando de Soto did a great job examining the importance of property rights and access to honest and efficient legal system to encouraging wealth creation.

And let’s be clear about this point. Wealth is created. It is not the natural state of mankind. It is not something that absence of which is explained by some civilizational theft, exploitation, or the spread of capitalism, as it is fashionable to believe in certain circles. To paraphrase Tom Palmer, who delivered the most cogent argument on poverty I have yet heard, poverty does not need explanation. It is the natural state of mankind. The vast majority of humans that have ever existed have lived in grinding poverty. Wealth requires explanation. Only in very recent times in a historical sense have regular people had any wealth to speak of. And it hasn’t grown slowly, it as exploded. Explaining that is much more interesting than explaining poverty.

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About Me

profileI serve as Vice President of the Center for Freedom and Prosperity, a non-profit think tank dedicated to preserving tax competition and free markets. This site features my personal views, which are not reflective of CF&P.

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