The strong May jobs report — including a 280,000 jump in non-farm payrolls — reminds me of the big debate over the harmful effects of a strong dollar and falling oil prices. But where’s the harm? King Dollar, along with the supply benefits of the oil-fracking revolution, may actually be propping up a subpar economy facing headwinds from heavy business taxes and overregulation.
The entire cost structure of American business benefits from lower-cost imports and the cheaper purchase price of anything when the dollar is king and energy costs sink.
It’s hardly surprising that well-intended programs — e.g., Head Start — survive despite their enormous budgets and inability to show results. First, it’s satisfying to think that one’s good intentions naturally lead to one’s desired results. Second, everyone likes to think of themselves as the good guy, so the temptation against critical thinking is even stronger when the objective is altruistic. Third, it’s just easier — as in it takes less work — to throw some disposable income at a problem without having to check in on it. Who wants to do all the work of conducting a study, anyway?
Unfortunately, the world is often more complicated than we would like it to be, and good intentions are, sadly, no guarantee of success. This is even more true when talking about government programs where the normal pressures and feedbacks of price and accountability are limited or completely removed.
For a different illustration of the problem. consider the results of a recent study into the effects of bird feeding. Stipulating that this is just one (rather small) study, in one place*, of an understudied and enormous global phenomenon — Americans alone spend something on the order of $3 billion a year in feed, plus another $800 million in feeders, baths, and other accessories — the results were an amazing illustration of the general complexity of life, as well as our inability to think beyond the first-order effects of our actions.
Democrats often mock Republicans for having a one-track mind when its comes to economic policy. Here is a famous example, President Obama at the 2012 Democratic National Convention: “And that’s because all [Republicans] had to offer is the same prescription they’ve had for the last thirty years: Have a surplus? Try a tax cut. Deficit too high? Try another. Feel a cold coming on? Take two tax cuts, roll back some regulations, and call us in the morning.” I was there when Obama said that. It got a pretty big laugh.
Anyway, Republicans could make a similar charge about Democrats, substituting “infrastructure spending” for “tax cuts.” Among center-left economists, Larry Summer has perhaps been the most outspoken about how we should take advantage of low interest rates for needed public investment: “The single most important step the US government can take to reverse these discouraging trends is to mount a concerted, large-scale program directed at renewing our national infrastructure. At a time of unprecedented low interest rates and long-term unemployment, such a program is good economics but, more fundamentally, it is common sense.”
Should we replace the income tax with a national sales tax? Some commonsense on the FairTax by the Tax Policy Center:
The tax is designed to protect low-income people from higher taxes via a large new cash transfer program called a “prebate.” Every household would get a cash transfer equal to the amount of tax that a family at the poverty level would owe. (Ironically, this would be the largest welfare program in history.)
The problem is that very high-income households spend only a fraction of their income, while low- and middle-income people spend all or most of what they make. A sales tax, by design, exempts a large share of income at the top. If it includes a prebate to protect people at the bottom and doesn’t add to the deficit, then it must raise taxes on people in the middle.
First-quarter real GDP actually declined by 0.7 percent, according to revisions out this week, creating much new talk about recession. But there is no recession. Trouble is, there continues to be virtually no recovery.
The economy has expanded about 1.5 percent over the past two quarters, 2.4 percent at an annual rate over the past two years, and about 2.3 percent during this six-year, so-called recovery. That’s the real problem. Not a one-quarter snowstorm or inaccurate seasonal adjustments.
In my new The Week column, I look at the Bernie Sanders charge — one also leveled by Elizabeth Warren — that the US economy is an immoral, rigged game. (A funny thing to say, I think, about an economy that produces more billionaire entrepreneurs than any other large, advanced economy.) Another stellar effort by me, of course. Yet on second thought, I sort of wish I had focused on this bit of odd economic analysis by socialist Sanders:
You don’t necessarily need a choice of 23 underarm spray deodorants or of 18 different pairs of sneakers when children are hungry in this country. I don’t think the media appreciates the kind of stress that ordinary Americans are working on.
The WaPo’s Jim Tankersley writes that the “literal implication of that last sentence is that there some kind of a national trade-off between antiperspirant/Air Jordan variety and food for children.” Which of course is silly. Demos’ Matt Bruenig thinks there is a deeper point that Tankersley misses: “Whenever someone argues that we should distribute the national income more evenly so as to reduce poverty and inequality (as Sanders does), the very first thing someone says in response is that doing so will reduce growth and innovation. Sanders is mocking this argument, saying he’d gladly cut poverty and inequality even if it meant a reduction in superficial product innovation.”
It seems to me that the Ricochet community could use some good news right now. So here it is:
When Democrat Jerry Brown ran a long shot presidential campaign back in 1992, he snarkily referred to Bill and Hillary Clinton as “Bonnie and Clyde,” the Depression-era bank robbers. Brown, now the governor of California, thought he had a legitimate chance to win the nomination. He wasn’t going to let some delicate notion of political etiquette stand in his way.
Don’t expect that kind of tough talk from Bernie Sanders, another longshot Democratic presidential candidate challenging a Clinton. During his announcement Tuesday, all the socialist Vermont senator had to say about Hillary Clinton was that his campaign “is not about Hillary Clinton.”
That’s not exactly surprising. The socialist Sanders almost certainly doesn’t believe he will defeat the Clinton machine and be the Democratic Party’s next presidential nominee — much less America’s next president. So there’s no reason to play attack dog. More likely, what Sanders really wants is a big stage to highlight what he sees as the terrible unfairness and inequality of the modern U.S. economy, one where Americans have “a choice of 23 underarm spray deodorants or of 18 different pairs of sneakers when children are hungry in this country.” In other words, the economy is just dandy at generating wealth, but that prosperity only benefits a few.
THE SEASTEADING INSTITUTE was the toast of tech entrepreneurs when it received financial backing from venture capitalist Peter Thiel in 2008. Its mission was to build a manmade island nation where inventors could work free of heavy-handed government interference. One early rendering shows an island raised on concrete stilts in eerily calm waters. The buildings atop the platform resemble nothing so much as the swanky tech campus of an entrepreneur’s ultimate dream: No sign of land or civilization in sight. The island, despite appearing strapped for square footage, has room for a full-size swimming pool with deck lounges.
When economists talk about America suffering a “great stagnation,” that is the conclusion they draw from the data represented in these two charts, via a new Goldman Sachs research note:
It is often said that conservatives suffer from entirely too much nostalgia for the past. To be perfectly honest, there is a degree of truth to that criticism. We would do well to remember that the good old days were never quite as good as we remember them. Liberals would do well to remember that this phenomenon is hardly exclusive to the right. Bernie Sanders is a self-identified socialist, Democratic candidate for president, and all around crackpot (but I repeat myself). He also longs for the days of a top marginal tax rate of 91%.
“Ninety-nine percent of all new income generated today goes to the top 1 percent. The top one-tenth of 1 percent owns as much wealth as the bottom 90 percent. Does anybody think this is the kind of economy we should have. Do we think it’s moral?”
He continued.
Janet Yellen told us last week that the fed funds target rate will be raised slightly later this year. But after that, future rate hikes will be small and gradual over the next several years. In fact, we may never have true normalization (4 percent). In my view, Yellen is offering a back-to-the-’50s approach to interest rates. And she’s right, though for many wrong reasons.
For average folks, what might this policy mean? I’ll take a guess: No boom and no bust. No inflation and no recession. All the post-war recessions were preceded by an inverted Treasury yield curve, where short rates are higher than long rates. That won’t happen for many years. Plus, upward oil-price spikes lead recessions, but we’re now in a downward energy-price cycle.
In my new The Week column, I write about the GOP’s problem — particularly Jeb Bush’s — with the Great Recession and Financial Crisis: Republican George W. Bush happened to be president when it happened. That is a tough-to-remove stain on the Bush brand and the GOP brand. Now as I wrote awhile back, “Obama didn’t end the Great Recession that Bush didn’t cause.” W.’s tax cuts/budget deficits/income inequality/financial deregulation aren’t the real story.
But life isn’t fair. Presidents get much of the blame or credit for what happens when happens when they’re in the Oval Office. What’s more, the economic collapse has tempered the public’s enthusiasm for pro-market policies. Now it is certainly worthwhile to try and correct the record on causality. I think the GR&FC were more or less a replay of the Great Depression, where the Fed took a modest downturn in the making and made it much, much worse. In their Financial Crisis Inquiry Report dissent, Keith Hennessey, Douglas Holtz-Eakin, and Bill Thomas outline a variety of domestic and international factors: credit bubble, housing bubble, nontraditional mortgages, credit ratings and securitization, financial institutions concentrated correlated risk, leverage and liquidity risk, risk of contagion, common shock, financial shock and panic. In that same report, my colleague Peter Wallison states “the sine qua non of the financial crisis was U.S. government housing policy.”
This week on The Libertarian podcast, I’m leading Richard Epstein through a discussion of income inequality. Is it the disaster that liberals are making it out to be? What do progressive proposals to address the situation get wrong? What are some free market approaches that could help the poor? And are conservatives destined to lose this fight because of the Left’s appeal to emotion? All that below or on your mobile device if you subscribe to The Libertarian via iTunes or your favorite podcast service.
When I think about California, I think the best thing is to paraphrase historian Richard Cobb’s famous quip about France: “Wonderful state, California… pity about the Californians.”
On Tuesday, the Los Angeles Municipal Star Chamber (a.k.a. City Council) voted 14-to-1 to follow Seattle over a fiscal cliff and increase the city’s minimum wage to $15/hour (given that California law does not allow workers earning tips to be paid less than the minimum wage, that means waitstaff would earn fifteen dollars plus tips.) The city’s non-Mexican, anti-American Mexican-American mayor Eric Garcetti has been fervently pushing for Los Angeles to commit economic seppuku since taking office, and he has gotten his way. One can only assume the one holdout vote simply wanted a more reasonable living wage of $100/hour.
While The New York Times cheers this lunacy on, anyone with half-a-brain would know that this scheme is madness. Of course, the collective population of much of Los Angeles can barely cobble together a third of a cerebellum, so it is entirely understandable that this nonsense would pass in a town as overwhelmingly stupid as this one. But what is the real aim? Well, the unions were the real drivers of this wage hike, so that should explain everything. After all, there are only three major industries that remain unionized in L.A.: the entertainment industry (which is coughing up blood like a consumptive); the public school teachers; and the government employees. As the first group really does not have to worry about making minimum wage once it secures union membership, the latter two unions are certainly the real culprits.
Technological advances can help us do more with less. In a new piece at the Breakthrough Institute, Jesse Ausubel argues that with better tech, a “large, prosperous, innovative humanity, producing and consuming wisely, might share the planet with many more companions, as nature rebounds.” A future of abundance, not austerity. Already we may be at Peak Farmland and Peak Timber because of efficiency and alternatives. Also, Peak Car:
The beginning of a plateau in the population of cars and light trucks on US roads suggests we are approaching peak car. The reason may be that drone taxis will win. The average personal vehicle motors about an hour per day, while a car shared like a Zipcar gets used eight or nine hours per day, and a taxi even more. Driverless cars could work tirelessly and safely and accomplish the present mileage with fewer vehicles. The manufacturers won’t like it, but markets do simply fade away, whether for typewriters or newsprint.
Moreover, new forms of transport can enter the game. According to our studies, the best bet is on magnetically levitated systems, or maglevs, “trains” with magnetic suspension and propulsion. Elon Musk has proposed a variant called the hyperloop that would speed between Los Angeles and San Francisco at about 1,000 kilometers per hour, accomplishing the trip in about 35 minutes and thus comfortably allowing daily round trips, if the local arrangements are also quick.
We’ve been hearing about the water shortage all year. If you’ve watched any of the Tour of California Bike Race, you may have seen them pass a reservoir with vastly less water than is typical this time of year. Blogger Scott Alexander decided to do an assessment of the water shortage to find if there was a simple solution. First, he figured out how California uses its water and created this helpful graph in millions of acre-feet (MAF):
He then assessed home water consumption:
All urban water consumption totals 9 million acre-feet. Of those, 2.4 million are for commercial and industrial institutions, 3.8 million are for lawns, and 2.8 million are personal water use by average citizens in their houses. In case you’re wondering about this latter group, by my calculations all water faucets use 0.5 million, all toilets use 0.9 million, all showers use 0.5 million, leaks lose 0.3 million, and the remaining 0.6 million covers everything else – washing machines, dishwashers, et cetera.
It is already becoming clear that one of the major issues that the 2016 presidential election will turn upon is income inequality. Republicans should be able to win that struggle if they turn the conversation to economic growth. As I note in my new column for Defining Ideas, there are plenty of conceptual weaknesses in the progressive argument that the GOP can seize upon:
Let’s start with this fundamental observation: It is possible to reduce income inequality in one of two ways: lower the income at the top or raise it at the bottom. Indeed, it is possible, but only by extreme measures, to eliminate all inequality by spreading the wealth of the richest individuals around so that everyone has the same income. Yet none of the critics of income inequality will go that far, because they realize that that strategy will depress the income of the poor as well as the rich. So instead these critics moderate their demands: they are willing to sacrifice some measure of overall social welfare to obtain greater benefits at the bottom. Their theoretical position is that the substantial gains in utility for the poor will override the relatively small losses in personal satisfaction and living standards that the top income earners will experience as a result of redistribution.
So how goes the Great Kansas Supply-Side Tax Cut Experiment? It has been much criticized by liberals and the national media over the past three years. In the new National Review, Henry Olson also argues the growth impact of the tax cuts — the top personal income tax rate was reduced to 4.9% from 6.45% and eliminated for small business owners who file as individuals — has been iffy at best, the deficit impact great: “Fiscally, Kansas’s supply-side experiment has been lots of pain with little or no gain.” (Olsen prefers the more middle-class-centric approach of Governor Scott Walker in Wisconsin.)
But over the weekend, the Wall Street Journal published a note from Andrew Wilson of the St. Louis-based Show-Me Institute that presented a differed take. While Kansas Governor Sam Brownback said the state’s “new pro-growth tax policy” would be “like a shot of adrenaline into the heart of the Kansas economy,” Wilson offers a positive, though subdued, conclusion, “… if Kansas hasn’t exactly catapulted into the front ranks in economic growth and employment, then it has at least moved a long way from the stagnation of recent decades.”
He points out, for instance, that from 1998-2012, “Kansas ranked 38th in private-sector job growth, according to Bureau of Labor Statistics data crunched by the Kansas Policy Institute. In 2013 — the first year after the tax reform — the state climbed to 27th place, and in 2014 it moved to 21st, placing it in the top half of states.” Also: “In the second half of 2014, hourly wages in Kansas grew 3.5%, according to BLS data, far faster than the national average of 1.9%.”
