Why the GOP Might Just Squeak Out the 2016 Election — Unless the Nominee is Terrible


Goldman Sachs is out with a note about its political forecasting model, and how the economy might affect the 2016 White House race. According to the Goldman model, the fundamental factors that matter most are real GDP, real consumption, and real personal income. With the 2012 election added to the sample, the change in non-farm payrolls also seems to have acquired more predictive power. And the stock market? Not so much.

Timing matters, too. Goldman: “It is only around the current stage of the presidential cycle (i.e., late in the year before the election) that economic variables tend to become useful in predicting the outcome, and not until Q2 of the election year that many indicators reach their maximum predictive value.” The bank also includes whether the incumbent party has held office for at least two terms, kind of a “fatigue” factor I suppose.

Back to School: Austrian School


What has Government Done to Our Money?Please take this as penance for my recent, and recently-deleted, post regarding the Fed. Out of that regrettable conversation came, I hope, one good thing: an opportunity to open a door for the genuinely curious who wonder what I’m so worked up about. Specifically, let me present a good launching point. It isn’t a massive scholarly tome, but it isn’t (or at least isn’t merely) opinionated handwaving.

What Has Government Done to Our Money? and The Case for the 100 Percent Gold Dollar is Murray Rothbard’s famous manifesto on sound money. First published in 1963 in the style of a pamphlet designed for mass distribution, it is one of his most influential works.

Murray Rothbard needs no introduction in libertarian economic circles. For the rest, Rothbard might best be characterized as an economist analogue of David Horowitz. Raised by parents of the Left, he was intellectually unable to reconcile cant with reality, but sincere in his belief in freedom, both in the abstract as a moral good in itself, and in practice the best vehicle for improving the lot of the less fortunate.

The NLRB’s Labor Market Mischief


shutterstock_62462134Under last week’s decision by the Democratic majority on the National Labor Relations Board, we are about to see a dramatic shift in what constitutes an “employer.” Before this ruling, that term covered firms that hire their own workers, and the NLRB subjected those firms to the collective bargaining obligations under the National Labor Relations Act. Under its new definition, the majority expanded that term to cover any firm that outsources the hiring and management of employees to a second firm over which it retains some oversight function. In its decision, the NLRB refers to such firms and those to whom they outsource the hiring as “joint employers.” No longer, the majority says, must the employer’s control be exercised “directly and immediately.” Now “control exercised indirectly—such as through an intermediary—may establish joint-employer status.” As I note in my new column for Defining Ideas:

…[T]he new joint employer rules will likely batter today’s already grim labor market, as they will not only disrupt the traditional workplace but will completely wreck the well established franchise model for restaurants and hotels. As the majority conceded, the so-called joint employer does not even know so much as the social security number of its ostensible employees. It has no direct control over the way in which the current employer treats its workers, and yet could be hauled into court for its alleged unfair labor practices. That second firm knows little or nothing about the conditions on the ground in the many businesses with which it has forged these alliances, which eases the operations for both. Those advantages will be lost if the joint employer rule holds up in court. At the very least, the majority’s decision would require each and every one of these contracts and business relationships to be reworked to handle the huge new burden that will come as a matter of course, leaving everyone but the union worse off than before.

It would be one thing, perhaps, if the majority saw the light at the end of the tunnel. But over and over again it disclaims any grand pronouncements, making the legal question of who counts as an employer a work in progress that will be finished no time soon. Against this background it is irresponsible to undo the current relationships by a party-line vote. That point should also be clear to the courts and to Congress. The quicker this unfortunate decision is scrubbed from the law books, the better.

Silicon Valley, New York City are Holding Us Back


NYCHA_Logo_480x480Big cities, we’re told, are engines of productivity. And that’s mostly true. Regions with capital and a high concentration of technological innovation — places like California’s Silicon Valley — employ people, drive economic growth, do all sorts of good stuff, right?

Well, not so much. And the reasons they’re lagging are interesting. Thanks to Greg Ferenstein, I found this study, from the University of Chicago, that says that it all comes down to… regulation. Land use regulation, at that. From the study:

We study how growth of cities determines the growth of nations. Using a spatial equilibrium model and data on 220 US metropolitan areas from 1964 to 2009, we first estimate the contribution of each U.S. city to national GDP growth. We show that the contribution of a city to aggregate growth can differ significantly from what one might naively infer from the growth of the city’s GDP. Despite some of the strongest rate of local growth, New York, San Francisco and San Jose were only responsible for a small fraction of U.S. growth in this period.

Teaching Freedom the Bastiat Way


Frederic BastiatFor many years I’ve kept a personal blog. Nothing too big or grand. There I discuss mostly politics and history. From time to time I get e-mails from parents asking for reading lists. What books will best impart an understanding of freedom? Like many parents, they’re unsatisfied with the low-thinking busywork their children get assigned. They’re even less satisfied with the flagrantly statist and collectivist slant of their course material.

What these parents are looking for is something that will inoculate their children from the pernicious ideas that circulate in the public school system. While most of the people I’ve dealt with are devout Christians, a very large number are entirely secular. All of them are thoughtful parents who are terrified of raising unskilled, unemployable children who will whittle away their lives playing revolutionary.

It is the irony of the modern world that the most successful socio-economic system in history, Anglosphere-style capitalism, is the least defended. The times have been worse. Scroll back to the 1930s when, with the exception of men like Friedrich von Hayek and Ludwig von Mises, there were very few serious voices raised in the defense of economic liberty. Today much of the English-speaking world boasts a network for think tanks, endowed chairs, and prominent commentators. Without them we would be in a far worse position than we are.

ICYMI: The Economy Was Just Restructured


capital buildingIn recent years the iconic Capitol building has been draped in scaffolding due to a needed restoration, the first improvements since 1959-1960 to the symbol of American democracy. From afar the dome has always appeared to be a brilliant beacon conveying American exceptionalism. On a closer look, behind the countless coats of paint and patchwork, the age and weather have taken its toll. The repairs to preserve the dome will allow the Capitol to continue to shine for future generations.

For denizens of and visitors to Washington, DC, or news junkies who see the scaffolding in the digital backgrounds of daily newscasts, it’s a stark visual reminder that America itself is under reconstruction. The national “restoration” project is now in its seventh year. The steward of America’s reconstruction is perhaps the most successful President we’ve seen in our lifetimes, if you define success as achieving an agenda.

Historically, the final two years of a two-term Presidency have been the least effective time, filled with scandals and voter apathy. The “lame duck” is simply a placeholder while the country moves its attention to his replacement in the oval office. For this reason, lame ducks can be dangerous. They are old news. The press focuses on shinier, red-hat covered wayward tresses.

As the GOP Plays with Trumpism, Hillary and the Democrats Work to Shape the New American Economy


U.S. Republican presidential candidate Donald Trump hugs a U.S. flag as he takes the stage for a campaign town hall meeting in Derry, New Hampshire August 19, 2015. REUTERS/Brian Snyder

Donald Trump’s policy views have a high degree of plasticity, even for a politician. But the retrograde version he currently espouses — mass deportation, protectionism, maybe even the gold standard — and the harsh way he espouses them have a foothold in the GOP. Columnist George Will may be correct that each “sulfurous belch from the molten interior of the volcanic Trump phenomenon injures the chances of a Republican presidency.”

The Iowa Car Crop


“Looks like the Subarus are coming in great this year.”

According to an argument popularized by Steven Landsburg in The Armchair Economist, we have just discovered an amazing new technology. Some brilliant engineers have designed a big black box with secret, patented machines inside. This machine eats corn, and — after enough corn is consumed — it spits out a brand new car, like magic. You can even choose what kind of car you want: the color, engine, everything. The value of the corn the machine consumes is always less than value of the car it produces, so every time it is used, the wealth of society increases.

Has Congress Gone Deaf on Deficits?


bl18deficit_JPG_552642fIn Applied Economics, one of his many great books, economist Dr. Thomas Sowell explains the incentives politicians face when making decisions:

Elected officials’ top priority is usually getting re-elected, and their time horizon seldom extends beyond the next election. Laws and policies that will produce politically beneficial effects before the next election are usually preferred to policies that will produce even better results some time after the next election.

There is no better model for this than government spending. Politicians love to spend lots of money because it’s the easiest way to make it look like you’re trying to solve real problems. Politicians especially love to spend borrowed money because they can stick future taxpayers, and not current voters, with the bill. When Congress returns from this year’s August recess, it appears we’ll be seeing this irresponsible behavior on full display.

Back-to-School Trade Quiz


Quiz Trade Cardss1. I am a trade protectionist because:

a. I don’t think people in this country should be able to get cheaper and/or better stuff from overseas. Consumers have too much stuff. Other people here who take cheaper and/or better stuff from overseas and build it into products which they then sell here and overseas are making things way too complicated.

b. I don’t think people who live overseas and who I don’t know and whose languages I probably don’t speak should be able to make a living. I think more people, who I also don’t know but who live closer to my house, should be able to make a living. How increasing the input costs for products a business might make and stifling competition in those products accomplishes this I’m a bit hazy on at the moment. That does not alter the fundamental truth of the proposition.

Donald Trump: A 21st Century Protectionist Herbert Hoover


Hoover-TrumpHere’s a historical fact that Donald Trump, and many voters attracted to him, may not know: The last American president who was a trade protectionist was Republican Herbert Hoover. Obviously that economic strategy didn’t turn out so well — either for the nation or the GOP.

Does Trump aspire to be a 21st century Hoover with a modernized platform of the 1930 Smoot-Hawley tariff that helped send the U.S. and world economy into a decade-long depression and a collapse of the banking system?

We can’t help wondering whether the panic in world financial markets is in part a result of the Trump assault on free trade.

Raising the Federal Minimum Wage Would Be Detrimental


The federal minimum wage has been a topic of growing conversation among liberals, including President Barack Obama and Senator Bernie Sanders, whose support for increasing the federal minimum wage can only be seen as economically naive. As an intern who will soon be looking for a job, I must think of the consequences for my fellow teenagers should the federal minimum wage be dramatically increased like Obama and other liberal left politicians are proposing.

Is Rhetoric Wrecking Our Economy?


Sen. Bernie SandersSticks and stones may break our bones, but there’s good reason to believe words are destroying economic growth.

The usual vital signs we look at to judge economic health are all over the place and don’t exactly paint a positive picture. The unemployment rate is down, but a lot, if not the majority, of that is being caused by a shrinking labor force participation rate. The economy is technically growing, but the growth rates are abysmal. The stock market is way up, at record levels, but much of that is likely being caused by the near-zero interest rates spurred on by the Fed. In effect, we’re not witnessing a surging stock market; we’re just looking at the inflation we expected from easy money policies manifesting itself on Wall Street instead of Main Street. Forget the formal indicators though. The American people are telling us, in survey after survey, that things haven’t improved much, if at all, from the “Great Recession” of 2007-2008. All in all, we’re far from out of the woods. What gives?

There have been all sorts of attempts at explanations. There are the usual partisan objections to specific policies. Then there are the concerns about specific sectors of the economy. Then there are downright weak excuses for sluggish economic growth such as “this winter was pretty cold.” Seriously. There may be a nugget of truth, or a grain for that last one, to all of these things, but most of these discussions seem to ignore the fundamental fact that our economy is incomprehensibly enormous and contains trillions of moving parts. The fact is that little tweaks here and there, plus milder weather, aren’t going to help much. But that hasn’t stopped our politicians, especially our current president, from trying. And what we may be overlooking as we try to identify and solve the relatively minute issues is the biggest problem altogether: Our politicians’ mouths.

Why China Will Never Be As Rich as America


What would the esteemed Chinese Professor make of China’s currency devaluation and plunging stock market? The fictional academic was the star of this fear-mongering viral ad — nearly three million YouTube views — made for the 2010 midterm elections by Citizens Against Government Waste.

A Good Corruption


Taxi Driver - De NiroLast week in New York, seven men were arrested for using common sense:

It might feel like forever, standing in line outside an airport terminal, luggage in tow, waiting for a taxi. But when cabdrivers obey the rules, it is likely that they have waited just as long, if not longer — idling in a lot, awaiting the go-ahead from a dispatcher. Some drivers have found a way around the wait: Hand some cash — usually $5 or $10 — to a dispatcher, and then drive straight to the terminal. It is hardly a new tactic. Over the years, dozens of dispatchers have been caught in sting operations meant to stop the payoffs.

This form of “corruption” is quite routine at La Guardia and other airports. Yet it’s not the dispatchers who are the corrupt villains of this story: it’s the Port Authority of New York and New Jersey. The actions of the dispatchers are the logical outcome of an egalitarian system put in place by the Port Authority itself.

Fed Right, Trump Wrong


shutterstock_273355862Just-published minutes from the Fed’s July 28-29 meeting indicate that most officials saw conditions for a rate liftoff as “not yet” achieved. They may be approaching a rate-hike moment, but they’re not there yet.

Good call. That’s right: Good call.

As I noted in my most-recent column, important forward-looking, inflation-sensitive market indicators are actually heading down, not up. These include soft commodities, sinking oil, weak gold, a strong dollar, declining Treasury break-even inflation spreads, and a flattening yield curve. Add to that slow nominal GDP, a sluggish money supply, and falling velocity.

The Hollow Men of the NLRB


NLRBlogoT.S. Eliot’s remarkable 1925 poem, “The Hollow Men,” ends with these oft-quoted lines: “This is the way the world ends—Not with a bang, but a whimper.“ Those words capture, in a far less grand context, this week’s decision by the National Labor Relations Board involving the efforts of some Northwestern University varsity football players to organize athletes on scholarship as “statutory employees” protected by the National Labor Relations Act.

Last year, a regional NLRB ruling took the side of the players, a decision that, as I wrote here at the time, was on the shakiest of grounds. There is no reason to rehash those legal arguments, because no one wanted a decision on the merits this week. The key task now is to explore the political forces behind the decision.

NLRB rulings are normally split sharply along party lines. In this case, however, the Board issued a unanimous decision that “it would not effectuate the policies of the Act to assert jurisdiction in this case … even if we assume, without deciding, that the grant-in-aid scholarship players are employees within the meaning of Section 2(3)” of the Act. Their reasoning: because it is clear that the definition of an “employer” under Section 2(2) excludes any state (including any state-run university), any ensuing regulations would apply to teams like Northwestern but not to their public university counterparts, upsetting the competitive balance in college sports. And so it is that a widely heralded decision that gave rise to both great hopes and fears has ended with a jurisdictional whimper.

Women’s Wages and the ’77 Cents’ Myth — Again and Again and Again


Screen Shot 2015-08-17 at 12.27.26 PM

Eventually, liberals/progressives/Democrats might stop using the “women make 77 cents for every dollar a man makes” factoid. This is a two “Pinocchio” claim, according to the Washington Post, by the way. I also recommend this critical note from my AEI colleagues Andrew Bigg and Mark Perry, which concludes, “Once education, marital status and occupations are considered, the ‘gender wage gap’ all but disappears.” And now we have this new study from the New York Fed, which also finds a relatively tiny gap:

Among recent college graduates as a whole, women earn about 97 cents on the dollar compared with men. That said, within this group, women tend to out-earn men in a number of college majors, sometimes by a substantial margin. We find these early career patterns fascinating, in part because they seem to present counter examples to the well-established male wage premium, but mostly because it is not entirely clear why we observe these patterns. To the extent that a wage premium for one gender represents discrimination, it may be that discrimination can occur in favor of either men or women, depending on college major, at least among recent college graduates. By mid-career, however, any wage premium earned by women completely disappears. As we grapple with the issue of gender pay equity, it is vital that we continue to examine these trends in more detail so that we can better understand their sources.

Move at the Pace of an Injured Snail


shutterstock_76996180Pretty much everyone in the world wants the Federal Reserve to begin its “rate liftoff.” September is the latest target date for this market consensus. But permit me one dissenting question: Are you sure?

Or as the saying goes: Be careful what you wish for.

Take a look at a bunch of forward-looking, inflation-sensitive market indicators. They’re flashing deflation, not inflation. In the past year or so, gold has dropped from $1,300 to $1,100, spot commodities have fallen 16 percent on the CRB index and commodity futures are off 22 percent. Of course, oil has plunged to $42 a barrel, which amounts to a 56 percent price drop.

The Lie Upon Which Rubio’s Social Security Plan is Built


Social-Security-CardMarco Rubio has laid out his plan to save Social Security in the 21st century at National Review Online. As with pretty much every other Republican candidate’s plan save Huckabee’s, it basically entails three steps.

The first: Raise the retirement age for receipt of Social Security benefits:

With Americans now living longer than ever before, the strain on Social Security’s finances is steadily increasing. … First, we must gradually increase the retirement age for individuals under 55.