Fooling Fifth Graders

Eric Zorn, a writer for the Chicago Tribune, showed up in the La Crosse Tribune with an oddly title op-ed, A Lesson On How Progressive Taxes Really Work.  Our former governor, Scott Walker has taken the Media Darling (MD) to task for her suggestion a top marginal rate of 70 percent.  It is epically foolish for exactly the reason Scott states, it is not fair if you earn ten dollars and you parents take seven dollars.  Here is a more technical explanation.

Eric tries to make two points.  One is technically correct but only a distraction.  He says that marginal rates and average rates are different.  Yup.  The question Eric and the MD don’t address is why they want to give such bad incentives to anyone.

Eric’s second point is that rates in the US and elsewhere have been much higher. George Harrison, as part of the Beatles, sang as part of The Taxman:

There’s one for you, nineteen for me
Cause I’m the taxman

to point out the foolishness of the 95 percent margin rate in the UK.  JFK and Ronald Reagan revived the US economy and the UK was revived by Mrs. Thatcher who recognized the foolishness of such high marginal rates.

Why are such rates foolish?  Because they cause folks to spend their time figuring out ways to avoid such taxes.  Bjorn Borg and others moved to Monaco.  Lots of financial advisors got rich.  Flatter tax rates like we currently have eliminate lots of wasteful activity.  They are also extremely progressive because income is more likely to be reported.  Here is a 2014 report showing that the top one percent pay more in federal income taxes than the bottom 90 percent.

Near the end Eric comes to the real progressive point which is envy:

Conservatives who have pushed down top marginal tax rates and expressed nonchalance about the subsequent massive growth in the wage gap have so far kept such initiatives at bay.

Progressives want to attack the rich.  Conservatives want to enrich everyone.  The envy card has been effective for progressives.  We’ve recently seen that seventeen year-olds can be heroes.  Hopefully the fifth graders and everyone else can see through Eric and MD.

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Stating The Obvious

We have had a hard day enjoying the Grand deGloves (ages 1, 3, and 5) while driving through the Minnesota snow.  It isn’t snowing hard but combining a little snow with some wind and open places makes driving challenging.  Thus, when we saw Kevin D. Williamson give the following obvious solution to Brexit at NRO:

Here, the United Kingdom has an opportunity to reclaim a very old — and very British — solution: unilateral free trade.

Our immediate reaction was: didn’t we say that first?  We’re sure we have made the point that we favor unilateral free trade but we’re not sure about the example of Brexit.  It is just we are too tired to look it all up.  So, we will support Kevin.  Instead of stressing the UK economy by some convoluted agreement the government could improve the UK economy by reducing stress.

Yes, there will be some losers in the new system but there are always losers in the economy.  Always!  By reducing the stress on the UK economy and energizing the growth fairy there will be more resources to help the downtrodden.  Kevin is a noted skeptic of the growth fairy.

Sidebar: Yes, we have very (!) limited cites today.  Trust us or you can do the work and read our previous posts.  End Sidebar

But even he seems to be drinking the Kool-Aid (and we have a previous post on drinking the Kool-Aid without a cite) on the growth fairy:

Great Britain in fact grew vastly wealthy while maintaining trade arrangements that paid relatively little attention to reciprocity even in principle. British territories, notably Hong Kong, grew wealthy while following much the same model.

The way you get vastly wealthy is through economic growth.  We wonder if he is willing to admit to the long-term existence of the growth fairy?  For sure, we are both in agreement on this simple and easy solution to Brexit: Unilateral free trade.

The Green New Deal And 2005

Both Jonah Goldberg and Jim Geraghty’s Jolt are on the Green New Deal this week.  At first glance it seems like a real waste of talent (leave the low hanging fruit for MWG!) to deal with an obscure and silly document from the Green Party of all places.

Sidebar: As Jim says, you should read it.  See the cite above.  It is much worse than you could imagine.  End Sidebar.

But as MWG recently warned, folks are going to try to ignore the important issue of entitlement reform and replace it with climate change.  Jonah and Jim are on the case because of a new press favorites has supported it.

We suppose there is some chance that the Congress could pass something as foolish as the Green New Deal but the more likely problem is that the pressure put on by the crazies will cause Congress to feel that it must do something.  We see a situation similar to 2005 that led to the Energy Policy Act of 2005  and to the ethanol mandate.  Although W and the GOP held both houses (well, they added four in the Senate) of the Congress in 2004, there was pressure to do something about what was then called global warming but we now call climate change.    Evidence of the pressure is Al Gore winning the Nobel Peace Prize in 2007.  We did not make that up.

We are of two minds about the 2005 Act.  As a binary choice we would vote against it.  The ethanol mandate interferes with markets.  As we would have predicted, it has caused problems for both gas and corn.  But it wasn’t a binary choice.  There was lots of pressure to do something about climate.  Our view is the the 2005 Act took the wind out of the extremist’s sails.  Without the 2005 act it is possible that something really nasty would have passed Congress.  In 2018, the situation is even more troubling as the Democrats control the House.

Therefore, it is good that Jim and Jonah are out in front giving the Green New Deal the opprobrium it deserves.  It is just as important that Kevin is on the entitlement beat again and again.  MWG tries to help.  We think the events of 2005 are likely to recur and Congress will feel great pressure to do something.  Unfortunately, we have The Donald rather than W.  Conservatives may have some difficult decisions about what is the least worst option.  Our best chance is to make it clear what a really, really bad idea the Green New Deal is and the importance of dealing with debt and entitlements.  Thanks to Jim, Jonah, and Kevin for a good start.

 

Choosing Freedom

Kevin Williamson writing at NRO has a great article on the fruits of economic freedom.  You should read it all twice.  He starts with some of the economic and technological wonders of the modern world and then the other side:

Perhaps you’ve had the experience of clicking a link to a video or a news story and taking a second to realize that what you’re seeing is real life — life as we knew it in 2018: horrifying hunger in Yemen and South Sudan; police-state repression in Venezuela and North Korea; migrants in Libya captured like animals and sold as slaves; monarchies that still take themselves seriously.

The world has made great strides in reducing poverty through economic freedom in the past few decades but when we look at the Heritage map of economic freedom there is much to be done.  Only six countries are classified as free and all are small in population so less than 60 million souls out of seven plus billion are free.  When we look at the list of countries with the largest populations, only one (US) of the top ten makes it on the Heritage list of mostly free.

How come?  Here is where we are not entirely in agreement with Kevin.  He notes that lots of rich folks from other countries come to the US and other places because the risk of staying at home is considerable.  He also pokes W’s statement about everybody wishing to be free.  Then he generalizes:

How proud is Pakistan, really? I guess they showed those Hindus a thing or two, maybe, but nobody gets up in the morning thinking: “I wish my country were more like Pakistan!” Not Pakistanis, surely. [Emphasis added]

We disagree.  We think the Pakistanis (not everyone but as a group) are satisfied with their country.  We admit that the limited political freedom there makes alternative hypotheses possible but we are convinced they are satisfied.

Sidebar: the negative net migrants for China, India, etc compared to the positive net for the US support Kevin’s point that some are voting with they feet but these are small percentages.  And why does mostly unfree Russia (#107 on the Heritage list) have positive net migrants?  End Sidebar.

It is not that Pakistanis wouldn’t like to be free and have the fruits of freedom but their priorities are elsewhere and Pakistan meets those other priorities.  We think W was in part right when he said that everyone yearns to be free but sometimes their first priority is to take away another’s freedom.  So we agree with Kevin’s critique of America (and everywhere else):

And it’s not like we don’t know what made us rich and blessed us with relative domestic tranquility. But we happy Americans are not immune from the darker desires. We have not been liberated from hatred, envy, or resentment, and we are just dumb enough to act on those impulses, politically, every now and then.

It is easy for envy and the rest to become a greater priority than freedom because freedom means everybody is free.  MWG and Kevin come to the same conclusion: It is always a time for choosing and we should choose freedom.  We should choose economic and political freedom.  That’s a good resolution for 2019.

Who To Thank?

On our trip to Tennessee we passed through Williamson County in both Illinois and in our destination state.  Thus (?), we have two posts today connecting Kevin Williamson, now back at NRO and maps.

Kevin has a nice article about clarity, Thanksgiving, and economics, For These Gifts We Are Truly Grateful, at NRO.  In discussing human charity points out the obvious but rarely discussed point:

Here is a truth that almost never is spoken: All of the money that ever has been saved and invested in profit-seeking productive business enterprises has done incalculably more for the poor — more by many orders of magnitude — than has all of the money that ever has been put to charitable uses, formal or informal, mainly by preventing them from ever being poor in the first place. That saving and investment, and the innovation and labor that have gone along with them, are the only thing in the history of this little blue planet that has made its inhabitants less poor.

His observations lead us to the confusion of who to thank and a couple of recent examples.  We are somewhere near the middle of the distribution on modern technical skills.  A text said we could speed checkout at the pharmacy if we downloaded a matrix barcode for each prescription.  We did.  The shock came when the person at the window said we were the first to do it.  The incremental gains necessary to expedite this sale are extensive: two levels of barcodes, cell phones, texting, Internet, etc.

Shortly after that we bought a set of AirPods.  We couldn’t wait for Christmas because we have a trip in December.  First warning: It is likely that we will be unable to post from 12/2-12/23.  We were not sure we needed them but after being a first adopter at the pharmacy we were on a roll.  They are great.  Then through the wonders of cell phone confusion we heard The Offspring.  It turns out that something good musically did come out of the eighties.  It is our second new band this month.  Don’t forget the Brooks Hubbard Band  with its North Middlesex roots.

As this examples point out it is hard to know who to thank for the bounty we have been bestowed.  Here is what Kevin says:

But as you cut into that turkey today, remember that somebody did the hard and dirty work of raising it, butchering it, packing it, driving the truck that brought it to your town, stocking the store shelves — and the very difficult work of figuring out how to get all that done, from domesticating turkeys to fueling that truck, a long unbroken line of human effort and ingenuity stretching back to the first guy who figured out how to chip a piece of stone a certain way to make it more useful.

Markets help us stand on giant’s shoulders and become giants ourselves.  We are so fortunate that the growth fairy came to visit and stayed.

Economic Insight

We don’t know Kevin Williamson’s full resume but he often refers to his English major math.  Yet he has an impressive ability to express economic concepts clearly.  Recently, Kevin was at his best on NRO (and, of course, you should read it all):

A trade deficit is nothing like a budget deficit. Each year’s federal budget deficit adds to the total debt owed by the federal government. Trade deficits don’t do that, which is one reason why “trade deficit” is not a very useful term. A trade deficit is just a bookkeeping entry, not a debt that has to be paid. Countries don’t trade — people do. Americans are no more harmed by the trade deficit with Germany than you are by your trade deficit with Kroger [that is a retailer in case you are not in the 34 states they operate in].

To be clear, you are not harmed because you can get better or cheaper stuff from Kroger (and Wal-Mart, Amazon, etc) than you can produce yourself.  Kevin gives great details about actual tariffs and goes on to identify the real problems that are produced in a trade war:

[The Donald] now proposes to spend $12 billion to bail out U.S. farmers hurt by his batty trade war. That figure will grow if the trade war continues.

The Donald is way wrong in his trade war because it harms everyone.  Elsewhere he has done much to improve economic freedom but he is absolutely wrong here.

Markets Work; Alternatives Don’t

When we allow markets to work we get the Great Enrichment or as Jonah Goldberg calls it, The Miracle.  When we don’t we get the Soviet Union, Zimbabwe, and Venezuela.  The problem is that when we interfere with markets we screw things up and then we need to interfere again and then things get even worse.

We hate to accuse The Donald of having principles but, generally, it has been close to a principle of his to move in the direction of capitalism, for example, Donaldcare and tax reform.  Unfortunately, he has a tariff blind spot that led to this as discussed by Jack Crowe at NRO:

Under the plan, which could be announced as soon as Tuesday, farmers whose livelihoods have been harmed by the retaliatory tariffs resulting from President Trump’s trade war with China, NAFTA and the E.U. will be provided access to three distinct forms of aid: direct assistance, a food-purchase program and a trade-promotion program.

It is the nature screwing up by intervening in the market that one screw up leads to another.  Humans, experts or not, are not an effective replacement for the market. Tho Bishop at the Mises Institute puts it perfectly:

After all, Trump’s tariffs are not only a new tax for Americans, but a policy of directly picking winners and losers in the economy. The interests of steel workers, for example, are being placed above the interest of consumers and farmers. This leads to the government using tax dollars to prop up farmers. Of course this spending means that tax-paying consumers are hit yet again, with their tax dollars being used for this new welfare program.

You should real all of Tho’s article to remind yourself of the joys of capitalism.  If that is not enough to convince you then you need to read Jonah’s appendix in Suicide Of The West.  Capitalism works and alternatives fail.