Could We Please Stop Calling it “Capitalism?”

 

shutterstock_237930475The moment we call “capitalism” capitalism, I’ve come to believe, we’ve already conceded far too much ground to the other side, which of course portrays capitalism as a coherent system, imposed on economic life, just as socialism represents a system imposed on producers and consumers from the outside. If we’re simply choosing between two systems, the socialists contend, why choose the one imposed on the rest of us by rich cronies, interested only in their own wealth and power, instead of the system imposed by the government on behalf of ordinary people?

In truth, of course, capitalism represents the absence of any imposed economic system. Instead, it is simply what arises in conditions of freedom — the organic order that establishes itself as people come together in markets, pool their capital, respond to price signals, and so forth. Our choice isn’t between two systems, imposed on the rest of us, one by the rich, the other by the government. Not at all. Our choice is between freedom and coercion. The term “capitalism” obscures that absolutely basic point.

Which is why I found myself struck by one phrase in an email from a friend. He was writing about the pope’s visit, but the pontiff isn’t the issue here. Words — that is the issue here:

Greg Corombos of Radio America and Jim Geraghty of National Review are impressed with National Review’s Charles C.W. Cooke for exposing liberals who demand we “do something” to stop mass shootings but don’t actually have any ideas.  They also sigh at another disappointing jobs report.  And they have fun with the news that eight members of the Iranian women’s soccer team were actually men.

Why Tech Thrives

 

shutterstock_55125244A friend, an economist at a big-time university, sends along the following materials, asking, impishly, “Is there a pattern here?” First, from the United States, in “Conversations with Tyler”:

TYLER COWEN: Let’s start with some questions about stagnation, Peter. At any point, if you care to add other topics of your own, please do so. You’re well known for arguing, well, “they promised us flying cars and all we got is 140 characters”; “technological progress has slowed down.” How is it you think that we’re most likely to get out of the great stagnation, when that happens?

PETER THIEL: Yes, I think there are, those three separate things. There’s the question of stagnation, which I think has been a story of stagnation in the world of atoms, not bits. I think we’ve had a lot of innovation in computers, information technology, Internet, mobile Internet in the world of bits. Not so much in the world of atoms, supersonic travel, space travel, new forms of energy, new forms of medicine, new medical devices, etc. It’s sort of been this two-track area of innovation.

Time Preference, Civilization, and the State

 

shutterstock_125764985My husband has always admired certain things about Eastern cultures, particularly their view of time. The Chinese did not sell the island of Hong Kong to the United Kingdom, they leased it for 99 years. When the deal was made, Britain was a superpower and China was unstable, to say the least. A little over a century later, Great Britain is not so great anymore, and Hong Kong — with all its wealth and innovations — is a jewel in the crown of China. A long game, indeed.

The concept of time preference is an interesting one, and one given a lot of credence to in Austrian circles. The Wikipedia article explains the it as “the relative valuation placed on a good at an earlier date compared with its valuation at a later date. […] Someone with a high time preference is focused substantially on his well-being in the present … while someone with low time preference places more emphasis than average on their well-being in the further future.” So, a person with a high time preference wants instant gratification, while someone with a low time preference is willing to delay their pleasure.

There have been studies done on this, such as the one by Walter Mischel, the Stanford professor of psychology. Young kids were given the option of eating a marshmallow immediately or waiting (say, for 15 minutes) to get two marshmallows. Most kids ate the first marshmallow but about 30% were willing to wait to get two. In a follow-up, the researchers found a correlation between those who waited and high SAT scores in later life. Low time preference, then has its rewards.

Why Raising Taxes on the Rich Doesn’t Reduce Inequality

 

shutterstock_107787821_RichTaxThe progressive/left-wing response to the new Brookings study on inequality is obvious, right? From “Would a significant increase in the top income tax rate substantially alter income inequality?”:

The high level of income inequality in the United States is at the forefront of policy attention. This paper focuses on one potential policy response: an increase in the top personal income tax rate. We conduct a simulation analysis using the Tax Policy Center (TPC) microsimulation model to determine how much of a reduction in income inequality would be achieved from increasing the top individual tax rate to as much as 50 percent. We calculate the resulting change in income inequality assuming an explicit redistribution of all new revenue to households in the bottom 20 percent of the income distribution.

The resulting effects on overall income inequality are exceedingly modest. That such a sizable increase in top income tax rates leads to such a limited reduction in income inequality speaks to the limitations of this particular approach to addressing the broader challenge. To be sure, our results do not speak to the general desirability of a more progressive tax-and-transfer schedule, just to the fact that even a significant tax increase on high-income households and corresponding transfer to low-income households has a small effect on overall inequality.

Red Ink Alert: So Donald Trump Wants to Slash Taxes and Leave Medicare Alone?

 
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People holds signs as Republican presidential candidate Donald Trump speaks during a news conference to reveal his tax policy at Trump Tower in Manhattan, New York September 28, 2015. REUTERS/Shannon Stapleton.

Even with dynamic scoring, Donald Trump’s tax plan is likely to lose a ton of money. (And, yes, I am dismissing out of hand Trump’s 6% growth claim. Please.) But Trump isn’t counting entirely on faster economic growth to make the numbers work. As he pointed out in the WSJ yesterday:

The Shutdown Message

 

shutterstock_147022475Nobody really likes government shutdowns, including me. But sometimes you have to make a point. Send a message. Show voters what you really believe. Take a stand.

With John Boehner set to resign at the end of October, many believe the outgoing speaker can team up with House Democrats to avoid a government shutdown on October 1. Ace Washington watcher Dan Clifton of Wall Street firm Strategis reports, “The risk of a government shutdown next week has been eliminated.” And he expects Congress to pass a short-term continuing resolution that will fund government appropriations through December 11.

That would be a clean bill that does not defund Planned Parenthood. More Democrats than Republicans would support it. And Senate majority leader Mitch McConnell stands ready to pass a similar clean resolution.

Private-Sector Solution to Rising College Tuition, Student Debt

 

shutterstock_151974746With the federal Department of Education now overseeing $1.2 trillion in student-loan debt, attention has been driven to the cost of tuition at our institutions of higher education. While it may appear that the causation runs from higher tuition to student debt, it’s more likely that it runs the other way.

When the federal government attempted to increase the number of low-income homeowners by requiring banks to increase the percentage of their loans to low-income households, and by purchasing mortgages through Fannie Mae and Freddie Mac, the result was a sustained increase in housing prices and a vast expansion of mortgage debt. We’re pretty well aware of how that ended up.

We should not be surprised that, as the federal government expanded its role in higher education through Pell Grants and loans to students without regard for their ability to pay the loans back, tuition has risen. Over the past 30 years, tuition has risen by 146 percent at private four-year colleges, to $31,231 (in constant 2014 dollars). The increase for in-state tuition at public four-year institutions has risen 225 percent, to $9,139.

Have We Already Seen Peak America? Actually, America Has Never Been So Awesome

 

shutterstock_290719625Flag_Sunshine-266x131A new Bloomberg survey presents the Trumpian finding that 72% of Americans say the USA isn’t as great as it once was. Which got me to thinking: When was Peak America? What was the last really great year? A good case can be made that is was 1999. The bull market was stampeding — the Nasdaq nearly doubled — as GDP grew by nearly 5%. And rivals … what rivals? Russia was only just recovering from its post-Soviet collapse, while Rising China had a long way to go before catching the American economy. Then came 2000. The tech bubble burst and Bush v. Gore. Then corporate scandals in 2002. The start of the long Iraq War in 2003. Katrina. Housing bust. Great Recession and Financial Crisis. Not-So-Great Recovery.

And consider this: The matrix in The Matrix was created by sentient machines to represent the peak of human civilization. And what year did film debut? 1999.

But all this assumes that America isn’t as great as it once was. I dunno about that. Let me stick just with economics, putting aside the huge expansion in civil rights and the ability for all Americans to lead flourishing lives. We’re looking a lot better today than stagnant Europe, stagnant Japan, and slowing, authoritarian China.

Will Starbucks Cut Wait Times With Mobile Orders?

 

two cups cofeeshop

The following post has been brewing in my mind and I just now realized that was unintentionally bad pun on my part. You’ll see why in a moment. Starbucks is expanding a new mobile order service that lets customers place their drink orders prior to arriving at the coffee shop. The idea is to cut down the wait times by having the drinks ready when you get there. All you have to do is pay when you arrive.

However, I started thinking about the issue from the perspective of a budding economist, which I am. The Starbucks down the street from my office is patronized by the professionals who work in the nearby office buildings and jammed every day at lunch. Now, if everyone placed their order on their phone 20 minutes earlier it seems to me that all you’ve done is shifted the demand to an earlier point in time.

A Fool’s Errand? Attempting to Educate Pope Francis on the Climate and Economics

 
The First Family of the US with the pope at the White House on September 23, 2015.

The First Family of the US with the pope at the White House on September 23, 2015.

Below is a piece that Heartland Senior Fellow James Taylor and I got published at US News and World Report yesterday about how Pope Francis is being misinformed by the bureaucrats at the United Nations about the causes and consequences of climate change. (Hint: It’s not caused by man, and any natural warming that might occur is not bad .. and might be good!)

The Libertarian Podcast, with Richard Epstein: “On Trump and Taxes”

 

Are members of the hedge fund crowd really just getting lucky by pushing paper around? Is the tax treatment of carried interest a national scandal? Is there a principled case for taxing capital gains at a different rate than ordinary income? And what’s the right approach to take towards comprehensive tax reform? Those are some of the questions I explore with Professor Epstein this week as we examine Donald Trump’s criticisms of financial elites. Listen in below or subscribe to The Libertarian podcast via iTunes.

On Free Lunches and the Government Mandating Benefits

 

shutterstock_201202373_free_lunchMandating companies pay this or that benefit may seem like a free lunch to policymakers. Workers are helped, and taxpayers don’t bear the burden. Yet as Larry Summers wrote in “Some Simple Economics of Mandated Benefits” back in 1989: “If policymakers fail to recognize the costs of mandated benefits because they do not appear in the government budget, then mandated benefit programs could lead to excessive spending on social programs. There is no sense in which benefits become ‘free’ just because the government mandates that employers offer them to workers. … Mandated benefit programs can work against the interests of those who most require the benefit being offered.”

The Economist looks at this issue, in the context of part-timers, freelancers, and independent contract. Gig economy alert!

The main benefits associated with employment fall into three broad categories: public pensions, health care, and unemployment insurance. In the case of pensions, governments usually levy payroll taxes on firms in proportion to their workforce, and use the proceeds to support pensioners. Hire a worker as a contractor, and firms need not pay the levy; in America, the self-employed must instead pay it themselves. Workers’ advocates claim this means contractors face higher tax rates than employees.

Anatomy of a Market Failure

 

ShkreliDespite all the pushback Pope Francis has been getting from free-marketeers, two important stipulations are in order: markets are not equally good at solving all problems, and many of their best features can be undermined by the greedy or immoral. They can work miracles like nothing else, but they’re also somewhat dependent on flawed human beings

As David Sussman notes on the Member Feed, the Interwebs are currently awash with news of alleged price gouging by Turing Pharmaceuticals. The drug in question, Daraprim, was developed decades ago and is used to treat toxoplasmosis, a parasitic infection that’s a minor problem (at worst) for the healthy, but a serious one for the immunodeficient or babies whose mothers were infected while pregnant. The drug was developed decades ago and has a tiny market — currently, under 9,000 prescriptions per year. It had been available for as little as $50 per prescription as recently as five years ago. After being sold to another company, the price of the drug rose to $500 per prescription in 2011, then to $1,100 last year. Assuming everything remains constant, the same prescription under the newly-announced price would cost just shy of $63,000. I’m not sure about babies, but the Mayo Clinic reports that the immunodeficient may need treatment for life.

As Megan McArdle wrote a few weeks ago, drugs that are in fierce demand by a small number of people are an inherently difficult problem for markets — or, really, any system — to solve. When you also factor in the regulatory costs, the fact that most drugs are actually purchased by third parties, and the fact that drug manufacturing is relatively inexpensive, you’ve got what looks like a perfect storm of grossly unfair and exploitative price gouging. Even if it’s genuinely the best a market can do under difficult circumstances, it sure looks bad.

If You Think the Cabbies Are Mad Now…

 

shutterstock_148830743Buckle your seat belts, everybody. We’ve reached peak disruption: a story of the gig economy intersecting with the rise of the robots. From Thomas Lee in the San Francisco Chronicle:

From taxicab unions and package couriers to politicians and regulators, a growing crowd of people would like to destroy Uber. Add one more name to the list: Uber founder and CEO Travis Kalanick.

Somewhere lost in the scrum over whether Uber drivers are employees or contractors, or whether the company conducts proper background checks, is the simple fact that Kalanick wants to eventually replace all Uber drivers with software and computers. Like Google and Tesla, Uber is trying to develop a car that can drive without a human operator.

Defending the “Hedge Fund Guys” from Donald Trump

 

shutterstock_85839379Donald Trump has made financial elites one of his latest targets, recently declaring on Face the Nation that, “I have hedge fund guys that are making a lot of money that aren’t paying anything [in taxes]. They’re paying nothing and it’s ridiculous. I want to save the middle class. The hedge fund guys didn’t build this country. These are guys that shift paper around and they get lucky.” As I note in my new column for Defining Ideas, that considerably misstates the case:

The reality is the opposite of what Trump claims. When these hedge fund guys trade, they are not just haphazardly shifting paper around. They are shifting paper as a means to transfer wealth and reallocate risk. Nor do they do it in a self-contained universe. They have paying clients who need accurate information and reliable execution to enter into transactions essential to their business survival.

In countless ways, the financial system—and the bankers and hedge funders that are participating in it—supports the so-called real economy. Start with the simple notion of liquidity. People need to have access to cash and cash equivalents all the time to pay bills and to make investments and gifts. It is those hedge funders who organize complex payment systems—credit, debit, electronic funds transfers, and more—that allow for literally billions of small and large financial transactions to take place every second of every day.

Flyover 42 – Soto Returns!

 

Frank Soto joins us this week; pessimistic about the pope, optimistic about conservatives’ political future. Is Marco Rubio out of the race? We’re done talking about Trump, and — given the prescience of Flyover Country — let us simply assume that this is the start of something. Speaking of which, Rob Long points out an article in which Newsmax declares Flyover Country to be the #1 conservative podcast in the Multiverse. You’ve got to read between the lines, but that’s essentially what they’re saying.

Intro includes a song from Ronald Jenkees; closing music this week comes from Public Service Broadcasting; h/t Ricochet member Lance.