—-
Georgia Democrats who won Senate in 2021 should remember Dan Mitchell’s words, “Politicians such as Alexandria Ocasio-Cortez and Bernie Sanders would like us to believe the answer involves never-ending tax increases. But such an approach is a recipe for more debt because the economy will weaken and governments will spend more money (look at what’s been happening in Europe, for instance)”
Sadly last night the Democrats won control of Senate!
Historical Evidence on Reducing Large Debt Burdens
The long-run fiscal outlook for most developed nations is very grim thanks to demographic change and poorly designed entitlement programs.
For all intents and purposes, we’re all destined to become Greece according to long-run projections from the International Monetary Fund, Bank for International Settlements, and Organization for Economic Cooperation and Development.
Are there any solutions to this “most predictable crisis“?
Politicians such as Alexandria Ocasio-Cortez and Bernie Sanders would like us to believe the answer involves never-ending tax increases. But such an approach is a recipe for more debt because the economy will weaken and governments will spend more money (look at what’s been happening in Europe, for instance).
A more sensible approach is a spending cap. I’ve pointed out, for instance, how Swiss government debt has plummeted ever since voters imposed annual limits on budgetary growth.
We also can learn lessons from history according to new research from the International Monetary Fund.
The report contains some very interesting economic history and the evolution of government finance, including the Bank of England being created and given a monopoly so the government would have a vehicle for borrowing money (as I observed in my video on central banking).
But it mostly tells the story of how governments and public finance simultaneously evolved.
Although the written record points to instances of public borrowing as long as two thousand years ago, recent scholarship points to 1000-1400 A.D. as when borrowing agreements with states were concluded with regularity and debt contracts entered into by sovereigns were standardized.…The supply of loans from city-states and territorial monarchies was driven by the need to finance military campaigns and secure borders. …From the 16th century, Europe’s political geography coalesced into the nation states recognized at the Peace of Westphalia in 1648. In parallel, many European states evolved from absolutist regimes to more limited government. …Fiscal states thus evolved in response to the efforts of rulers to secure borders, expand territory and survive. After 1650, larger, more centralized states increasingly possessed the fiscal machinery to raise revenue in uniform ways and had a veto player, such as a parliament, to monitor and discipline public expenditure.
There’s also lots of information in the report about how some governments, primarily outside of Europe, began to borrow money.
In many cases, this produced bad results, with defaults and economic crisis. As the authors wrote, “Debasement and restructuring also have a long history.”
But the part of the report that caught my eye was the description of how three advanced nations – the United Kingdom, the United States, and France – successfully dealt with large debt burdens before World War I.
…we describe three notable debt consolidation episodes before World War I: Great Britain after the Napoleonic Wars, the United States in the last third of the 19th century, and France in the decades leading up to 1913. While the colorful debt crises and defaults of the first era of globalization have been much discussed, less attention has been paid to these successful consolidation episodes. We focus on these three cases because they involved three of the largest economies of the period, but also because their debt burdens were among the heaviest. British public debt as a share of GDP was higher in the aftermath of the Napoleonic Wars, for example, than Greek public debt in 2018. But in all three cases, high public debts were successfully reduced relative to GDP.
In each case, war-time spending was the cause of the debt buildup.
The Napoleonic Wars, Franco-Prussian War and U.S. Civil War were the three most expensive conflicts of the 19th century. …debt accounted for the single largest share of wartime financing.
Here’s a table showing that these nations dramatically reduced their debt burdens.
To be sure, there were differences in the three nations.
The reduction in the British debt-GDP ratio was by far the largest and longest: the debt ratio fell from 194 percent in 1822 to 28 percent nine decades later. …The French public-debt-GDP ratio fell from 96 percent in 1896 to 51 percent in 1913… This case ranks second in size but first in pace. U.S. (federal or union) government debt was not as high at the end of the Civil War, and the subsequent consolidation was more leisurely; however, the process is notable for having reduced the debt-GDP ratio to virtually zero by World War I.
When the authors investigated how these nations reduced their debt burdens, they found that limited government was a common answer.
This was true in the United Kingdom.
Britain achieved the impressive feat of maintaining an average primary surplus of 1.6 percent of GDP for nearly a century (the only deficit in Figure 2 is at the time of the Boer War). One of the political legacies of Peel and Gladstone was a fiscal theory or philosophy of “sound finance” emphasizing budget surpluses, low taxes and minimal government expenditure. …demands for spending on welfare relief from the disenfranchised masses were kept in check. In exchange, the self-taxing class of income-tax-paying electors relieved the non-electors from the burden of direct taxation… Budget surpluses then made feasible further reductions in tariffs and taxes, which reduced the cost of living for the working class
It was true in the United States.
In the U.S., primary surpluses were consistently achieved… Southern states opposed an expansive role for the federal government, while entitlements limited to Civil War pensions contained pressure for public spending.
And it was true even in France.
In France, debt reduction was entirely accounted for by primary surpluses. Those surpluses exceeded British levels, reaching 2.5 percent of GDP on average, albeit over a shorter period.
Remember, this was a period when total government spending only consumed about 10 percent of economic output.
And this was a period when there was no welfare state. Redistribution was virtually nonexistent. Not even in France.
So it shouldn’t be a surprise that debt quickly fell in all three countries.
The common thread was small government.
…in all three of these large-scale debt consolidations, governments and societies went to great lengths to service and repay heavy debts. …it reflected prevailing conceptions of the limited functions of government, and limited popular pressure for public programs, entitlements and transfers.
What’s equally important is to note what didn’t happen.
No default. No inflation. No indirect confiscation.
…there was no restructuring or renegotiation of official or privately-held debts in these cases. Nor was there financial repression, i.e., measures artificially depressing interest rates. …Governments for their part did little to bottle up savings at home or to otherwise use regulation and legislation to artificially depress yields. …None of these three governments undertook involuntary restructurings despite the inheritance of heavy debt.
Now let’s shift from the past to the future
The authors point out how debt is rising today because of the welfare state rather than war.
The end of the last century also saw, for the first time, a secular increase in public-debt-to-GDP ratios in a variety of countries in conjunction not with wars and crises but in response to popular demands on governments for pensions, health care, and other often unfunded social services.
Given the demographic changes I mentioned at the beginning of the column, this does not bode well.
So what are the likely implications? As the authors note, there are two ways of dealing with high debt levels.
Countries have pursued two broad approaches to debt reduction. The orthodox approach relies on growth, primary surpluses, and the privatization of government assets. In turn this encourages long debt duration and non-resident holdings. Heterodox approaches, in contrast, include restructuring debt contracts, generating inflation, taxing wealth and repressing private finance.
At the risk of understatement, I fear Robert Higgs is right and that today’s politicians (and today’s voters!) will choose the latter approach.
Given that those policies will make a bad situation even worse, I’m not overflowing with confidence about the future.
—-
Joe Biden: An Incrementalist Version of Bernie Sanders
Hardly anybody noticed because the nation has been focused on protests about police misbehavior, but Joe Biden officially clinched the Democratic nomination this past week.
And he’s now comfortably ahead in the political betting marketsas well as public polling.
If Biden wins in November, what does that mean for the nation’s economic policy?
According to folks on the left, a Biden presidency means bigger government and more statism.
For instance, opining for the New York Times, Jamelle Bouie applauds Biden’s leftist agenda.
…if the goal is to move America to the left…then a Biden candidacy…represents an opportunity. …If Biden goes on to win the White House, there’s real space for the pro-Sanders left to work its will on policy. …It can fulfill some of its goals under the cover of Biden’s moderation, from raising the minimum wage nationally to pushing the American health care system closer to single-payer. …Biden…is a creature of the party. He doesn’t buck the mainstream, he accommodates it. He doesn’t reject the center, he tries to claim it. …the center of the Democratic Party as far left as it’s been since before Ronald Reagan, then Biden is likely to hew to that center, not challenge it.
His colleague at the NYT, Michelle Goldberg, is similarly enthused about the prospects for bigger government under a Biden Administration.
Biden’s proposals go far beyond his call for a $15 federal minimum wage — a demand some saw as radical when Sanders pushed it four years ago. While it’s illegal for companies to fire employees for trying to organize a union, the penalties are toothless. Biden proposes to make those penalties bite and to hold executives personally liable. …should Biden become president, progressives have the opportunity to make generational gains. …To try to unite the party around him, he’s making serious progressive commitments. …he’s moving leftward. Biden recently came out for tuition-free college for students whose families earn less than $125,000. He endorsed Elizabeth Warren’s bankruptcy plan…His climate plan already went beyond any of Barack Obama’s initiatives, and he’s pledged to make it even more robust.
According to (supposedly) neutral analysts, a Biden presidency means bigger government and more statism.
In an article for Newsweek, Steve Friess discusses Biden’s shift to the left.
Being stuck running for the presidency from the basement of his home in Wilmington, Delaware, had given the former vice president a lot of time to think, he told them, and he wanted bigger ideas. Go forth, he urged his financial brain trust, and bring back the boldest, most ambitious proposals they’d ever dreamed of to reshape the U.S. economy…Biden began issuing a raft of new proposals that move his positions closer to the progressive wing of the Democratic Party, with a promise to unveil an even more transformative economic plan this summer. …It’s a yes to adding $200 a month to Social Security benefits and lowering the qualifying age for Medicare from 65 to 60. Yes to trillions in new spending, yes to new regulations on banks and industry, yes to devil-may-care deficits. …the leader he most often invokes—in interviews, in public addresses, on his podcast—is no longer Barack Obama but Franklin Delano Roosevelt. …Biden has already made a series of significant leftward policy shifts since effectively sewing up the nomination in March.
Perry Bacon, in a piece for fivethirtyeight, analyzes Biden’s statist agenda.
…if Biden is elected in November, the left may get a presidency it likes after all…if American politics is moving left, expect Biden to do the same. …Biden’s long record in public office suggests that he is fairly flexible on policy — shifting his positions to whatever is in the mainstream of the Democratic Party at a given moment. …Biden is likely to be a fairly liberal president, no matter how moderate he sounded in the primaries. …Biden’s 2020 primary platform…adopted fairly liberal policies…more liberal than his pre-campaign record suggested. The Democratic Party is more liberal now than it was when Bill Clinton took office, or even when Obama was inaugurated, and Biden’s platform reflects that shift. …Biden and his advisers are now…rolling out more liberal policy plans, speaking in increasingly populist terms and joining forces with the most progressive voices in the party. …“Joe Biden is running on the most progressive platform of any Democratic nominee in recent history. But given the pandemic, he has to look at the New Deal and Great Society traditions in the Democratic Party and go bigger,” said Waleed Shahid, the communications director for Justice Democrats, a left-wing group aligned with Ocasio-Cortez.
Writing for the Washington Post, Sean Sullivan documentsBiden’s leftward drift.
Joe Biden sought to appeal to liberal supporters of Sen. Bernie Sanders on Thursday with a pair of new proposals to expand access to health care and curtail student loan debt. Biden proposed lowering the eligibility age for Medicare coverage from 65 to 60. He also came out in favor of forgiving student loan debt for people who attended public colleges and universities and some private schools and make up to $125,000 a year. …In another peace offering to liberals, Biden proposed paying for his student debt plan by repealing a provision in the recent coronavirus legislation that Congress passed and President Trump enacted. “That tax cut overwhelmingly benefits the richest Americans and is unnecessary for addressing the current COVID-19 economic relief efforts,” he wrote… Biden endorsed a bankruptcy plan put forth by Sen. Elizabeth Warren (D-Mass.), another rival who ran to his left.
And, according to more market-friendly sources, a Biden presidency means bigger government and more statism.
The Wall Street Journal editorialized about Biden’s leftist agenda.
Already Medicare is scheduled to be insolvent by 2026. …In 1970, life expectancy in the U.S. was 70.8. Now it’s about eight years longer. By lowering the age of eligibility instead, Mr. Biden would begin shifting Medicare’s focus from seniors to everybody else.Don’t worry about the funding, he insists, since the extra costs would be “financed out of general revenues.” …Mr. Biden’s new left turn on student loans is equally sharp. …Cancel all federal undergraduate tuition debt for many borrowers who went to public schools, including four-year universities. This forgiveness would be given to anyone who earns $125,000 a year or less. …How much would it cost? There’s no explanation.
Jeff Jacoby analyzed Biden in a column for the Boston Globe.
Biden…is running on a platform far more progressive — i.e., far less moderate — than any Democratic presidential nominee in history. …on issue after issue, Biden has veered sharply from Obama’s path. On health insurance, for example, Obama rejected a public option as part of the Affordable Care Act and repeatedly stressed the importance of maintaining private coverage. But Biden favors a public option open to everyone… Biden supports government-funded health care even for unauthoritzed immigrants, something Obama never came close to proposing. …No Democratic presidential nominee ever endorsed anything like the radical Green New Deal, with its price tag in the tens of trillions of dollars and its goal of eliminating the use of all fossil fuels. But Biden does. No Democratic nominee ever called for a national minimum wage of $15 an hour. But Biden does. …Sanders may not end up on the November ballot, but it will unmistakably reflect his influence. For he and his band of progressives have pushed their party to the left with such success that even the “moderate” in the race would be the most liberal Democrat ever nominated for president.
Here’s some of what Peter Suderman wrote for Reason.
Biden is a moderate compared to Sanders, but he is notably to the left of previous Democratic standard-bearers. …Biden has proposed a significant expansion of the Affordable Care Act that his campaign estimates would cost $750 billion over a decade… Biden has proposed a $1.7 trillion climate planthat is similar in scope to many candidates on his left and a $750 billion education plan… He favors an assault weapons ban and other gun control measures, a national $15 minimum wage, and a raft of subsidies, loans, and other government-granted nudges designed to promote rural economies. Has proposed $3.4 trillion worth of tax hikes—more than double what former Secretary of State Hillary Clinton proposed when she ran in 2016. …Biden’s leftward drift is thus the party’s leftward shift…, a big-government liberal, a candidate whose current incarnation was shaped and informed by progressive politics, if not wholly captured by them.
The Tax Foundation examined the former Vice President’s tax plan and the results are not encouraging.
Former Vice President Joe Biden would enact a number of policies that would raise taxes, including individual income taxes and payroll taxes, on high-income individuals with income above $400,000. …According to the Tax Foundation’s General Equilibrium Model, the Biden tax planwould reduce GDP by 1.51 percent over the long term. …The plan would shrink the capital stock by 3.23 percent and reduce the overall wage rate by 0.98 percent, leading to 585,000 fewer full-time equivalent jobs. …On a dynamic basis, we estimate that Biden’s tax plan would raise about 15 percent less revenue than on a conventional basis over the next decade. …That is because the relatively smaller economy would shrink the tax base for payroll, individual income, and business income taxes. …The plan would lead to lower after-tax income for all income levels.
Here’s a table summarizing the findings.
So what does all this mean?
At the risk of oversimplifying, Biden unquestionably would move tax policy to the left (he actually said higher taxes are patriotic, even though he engages in aggressive tax avoidance), and the same thing would happen on regulatory issues.
His spending agenda is terrible, though it’s worth noting that Democrat presidents usually don’t spend as much as Republicans (with the admirable exception of Reagan).
And, to be fair, there’s no way he could be as bad on trade as Trump.
Let’s close by looking at some hard data. Back in January, I sifted through the vote ratings prepared by the National Taxpayers Union and the Club for Growth and showed that Biden was not a Bill Clinton-style moderate.
I went back to those same sources an put together this comparison of Biden and some other well-known Democrats (scores on a 0-100 scale, with zero being statism and 100 being libertarian).
In both measures, he’s worse than Crazy Bernie!
Moreover, a lifetime average of zero from the Club for Growth is rather horrifying. His average from the National Taxpayers Union isn’t quite so bad, but the trend is in the wrong direction. Biden’s post-2000 average was less than 10, while his score for the preceding years averaged more than 23.
That being said, my two cents on this topic is that Biden is a statist, but not overly ideological.
His support for bigger government is largely a strategy of catering to the various interest groups that dominate the Democratic Party.
The good news is that he’s an incrementalist and won’t aggressively push for a horrifying FDR-style agenda if he gets to the White House.
The bad news is that he will probably allow Nancy Pelosi and other statist ideologues to dictate that kind of agenda if he wins the presidency.
P.S. My collection of Biden-oriented humor is rather sparse (see here, here, here, and here), an oversight that I’ll have to address in the near future.
—-
A Victory for Biden, a Defeat for the Left
The day after the election, I wrote that “left-wing goals are now very unlikely” because Republicans almost certainly will retain control of the Senate.
But perhaps I should have been ever bolder and argued that the election was a rejection of the left-wing agenda.
An editorial from the Wall Street Journal points out that voters did not vote for bigger government or more statism.
…the closer we inspect the nationwide election returns, the more the result looks like a defeat…for the progressive agenda. …Democrats lost seats in the House, giving up some of the suburban gains they made in 2018 while continuing to struggle in rural areas. …A GOP Senate may compromise with Mr. Biden around centrist ideas, but the aggressive House agenda of the last two years would die again.This result is all the more remarkable given that Democrats had nearly all of the media, Silicon Valley billionaires, and all of the leading cultural figures and institutions helping them. …The lack of coattails was also evident in the states, where Democrats spent heavily to flip legislatures. …The GOP flipped both legislative bodies in New Hampshire, despite Mr. Trump’s loss in the Granite State, and Republicans protected their advantage nearly everywhere else. …There was no blue wave, and certainly no mandate for progressive change. …in their considerable wisdom, the voters may have elected Mr. Biden but they left his party and its radical ideas behind.
Some readers may think that the Wall Street Journal‘s editors are engaging in spin. In other words, because of their pro-market views, they’re trying to make it seem like a defeat wasn’t really a defeat.
But what about Helaine Olen, a reliably left-wing columnist for the Washington Post, who reached the same conclusion when opining about election results from California.
Proposition 22 — which would allow gig-economy companies such as Uber, Lyft and DoorDash to continue treating drivers as independent contractors — passed handily. On the other hand, Proposition 16, which would have restored affirmative action to California’s public college and university admissions, has gone down in defeat. …Let’s take Proposition 22. Activists have been unhappy with the tech giants of the sharing economy for years, pointing out repeatedly that they are using venture capital to subsidize an unprofitable industry and that, moreover, they offer almost nothing in either the way of labor or consumer protection. The entire business model is designed to get around government regulations. …Voters did not appear particularly concerned that allowing a major employer to override state regulationand effectively set its own working conditions is a terrible precedent — not when a few extra dollars per ride was at stake. When it came down to worker welfare vs. short-term convenience and financial gain, it wasn’t even a contest. …Proposition 16…supporters roundly outspent opponents and hoped the increased attention to issues of systemic racial inequities in the wake of the killing of George Floyd would help them garner support. …The biggest obstacle might have been the traditional antipathy toward affirmative action reasserting itself — a survey last year found that 3 out of 4 Americans opposed using race or ethnicity as a factor in college admissions.
And the New York Times isn’t exactly a bastion of right-wing thinking, yet an article by Thomas Fuller, Shawn Hubler, Tim Arango and Conor Dougherty also acknowledges that the election results were not great for the left.
…the nation’s most populous state put up mammoth numbers for the Democrats. But dig a little deeper into the results and a more complex picture of the Golden State voter emerges, of strong libertarian impulses and resistance to some quintessentially liberal ideas. In a series of referendums, voters in California rejected affirmative action, decisively shot down an expansion of rent control and eviscerated a law that gives greater labor protections for ride-share and delivery drivers, a measure that had the strong backing of labor unions. A measure that would have raised taxes on commercial landlords to raise billions for a state that sorely needs revenue also seemed on track for defeat. …said Bob Shrum, a former Democratic strategist…“California is a very liberal state that is now resistant to higher taxes.” …For all their liberal leanings on issues like the environment, California voters have long been less welcoming to new taxes… Proposition 15, would have removed the Proposition 13 tax limits on commercial properties like office buildings and industrial parks, continuing to shield homeowners while raising an estimated $6.5 billion to $11.5 billion a year for public schools and local governments. The measure was trailing on Thursday.. More than $100 million was also spent on another hot-button measure, rent control. Polls showed that the housing crisis was the No. 1 concern for state voters… And yet voters up and down the state resoundingly rejected efforts to expand tenants’ rights and rent control. …What do voters think about voting for Democrats and at the same time not supporting Democratic-led initiatives? José Legaspi, a Los Angeles resident…voted for Mr. Biden and did not think twice about opposing the measure that would raise taxes on commercial properties. “I truly believe in paying taxes,” he said. “However there is a point at which one should limit how much more in taxes one should personally pay.”
The bottom line is that Joe Biden won the White House (barring some dramatic and unexpected developments), but not because of his statist agenda.
It’s more accurate to say that voters wanted to end the sturm and drang of Trump, but without embracing bigger government.
P.S. I’m not going to pretend that voters are rabid libertarians who are clamoring for my preferred policies (such as shutting down departments, genuine entitlement reform, etc). But I also think that it’s safe to say that they don’t want the left’s agenda (class warfare, Medicare for all, green new deal, etc) of bigger government and more dependency
Daniel Mitchell quotes Milton Friedman on minimum wage and contrasts Trump a d Biden approach!
Trump vs. Biden on the Minimum Wage
In another display of selfless masochism, I watched the Trump–Biden debate last night.
The candidates behaved better, for whatever that’s worth, but I was disappointed that there so little time (and even less substance) devoted to economic issues.
One of the few exceptions was the brief tussle regarding the minimum wage. Trump waffled on the issue, so I don’t give him any points, but Biden fully embraced the Bernie Sanders policyof basically doubling the minimum wage to $15 per hour.
This is very bad news for low-skilled workers and very bad news to low-margin businesses.
The economic of this issue are very simple. If a worker generates, say, $9 of revenue per hour, and politicians say that worker can’t be employed for less than $15 per hour, that’s a recipe for unemployment.
Earlier this month, Professor Steven Landsburg on the University of Rochester opined for the Wall Street Journal on Biden’s minimum-wage policy.
It isn’t only that I think Mr. Biden is frequently wrong. It’s that he tends to be wrong in ways that suggest he never cared about being right. He makes no attempt to defend many of his policies with logic or evidence, and he deals with objections by ignoring or misrepresenting them. …Take Mr. Biden’s stance on the federal minimum wage, which he wants to increase to $15 an hour from $7.25. …So why does Mr. Biden want to raise the minimum wage…?He hasn’t said, so I have two guesses, neither of which reflects well on him. Guess No. 1: He’s dissembling about the cost. …The minimum wage…comes directly from employers but indirectly (after firms shrink and prices rise) from consumers. A minimum wage is a stealth tax on eating at McDonald’s or shopping at Walmart. …Mr. Biden should acknowledge the cost of wage hikes and argue for accepting it. Instead he’s silent about the cost, hoping he can foist it on people who won’t realize they’re footing this bill. Guess No. 2: He’s rewarding his friends and punishing his enemies. New York is going to vote for Mr. Biden. The state also has a high cost of living and high wages—so New Yorkers would be largely unaffected by the minimum-wage hike. Alabama is going to vote against Mr. Biden. Alabama has a low cost of living and relatively low wages—so under the Biden plan Alabama firms would shrink, to the benefit of competitors in New York. Alabama workers and consumers would pay a greater price than New Yorkers.
And Mark Perry of the American Enterprise Institute recently highlighted some of the adverse effects for unskilled workers.
It’s an economic reality that workers compete against other workers, not against employers, for jobs, and higher wages in the labor market. And it’s also true that lower-skilled, limited-experience, less-educated workers compete against higher-skilled, more experienced, more educated workers for jobs. …If the minimum wage is increased…, that will…take away from unskilled workers the one advantage they currently have to compete against skilled workers – the ability to offer to work for a significantly lower wage than what skilled workers can command. …Result of a minimum wage hike to $15 an hour? Demand for skilled workers goes up, demand for unskilled workers goes down, and employment opportunities for unskilled workers are reduced.
Since I recently shared videos with Milton Friedman’s wisdom on both taxes and spending, here’s what he said about the minimum wage.
Let’s share one last bit of evidence. Mark Perry’s article referenced some new research by Jeffrey Clemens, Lisa Kahn, and Jonathan Meer.
Here’s what those scholars found in a study published by the National Bureau of Economic Research.
We investigate whether changes in firms’ skill requirements are channels through which labor markets respond to minimum wage increases. …Data from the American Community Survey show that recent minimum wage changes resulted in increases in the average age and education of the individuals employed in low-wage jobs. Data on job vacancy postings show that the prevalence of a high school diploma requirement increases at the same time. The shift in skill requirements begins within the first quarter of a minimum wage hike. Further, it results from both within-firm shifts in postings and across-firms shifts towards firms that sought more-skilled workers at baseline. Given the poor labor market outcomes of individuals without high school diplomas, these findings have substantial policy relevance. This possibility was recognized well over a century ago by Smith (1907), who noted that the “enactment of a minimum wage involves the possibility of creating a class prevented by the State from obtaining employment.” Further, negative effects may be exacerbated for minority groups in the presence of labor market discrimination.
So why do politicians push for higher minimum wages, when all the evidence suggests that vulnerable workers bear the heaviest cost?
Part of the answer is that they don’t understand economics and don’t care about evidence.
But there’s also a more reprehensible answer, which is that they do understand, but they want to curry favor with union bosses, and those union bosses push for higher minimum wages as a way of reducing competition from lower-skilled workers.
P.S. Here’s my CNBC debate with Joe Biden’s top economic advisor on this issue.
P.P.S. Here’s a rather frustrating discussion I had on the minimum wage with Yahoo Finance.
P.P.P.S. But if you’re pressed for time, don’t listen to me pontificate. Instead, watch this video.
—-
Milton Friedman on Taxation
October 4, 2020 by Dan Mitchell
Yesterday’s column featured some of Milton Friedman’s wisdom from 50 years ago on how a high level of societal capital (work ethic, spirit of self-reliance, etc) is needed if we want to limit government.
Today, let’s look at what he said back then about that era’s high tax rates.
His core argument is that high marginal tax rates are self-defeating because the affected taxpayers (like Trump and Biden) will change their behavior to protect themselves from being pillaged.
This was in the pre-Reagan era, when the top federal tax rate was 70 percent, and notice that Friedman made a Laffer Curve-type prediction that a flat tax of 19 percent would collect more revenue than the so-called progressive system.
We actually don’t know if that specific prediction would have been accurate, but we do know that Reagan successfully lowered the top tax rate on the rich from 70 percent in 1980 to 28 percent in 1988.
So, by looking at what happened to tax revenues from these taxpayers, we can get a pretty good idea whether Friedman’s prediction was correct.
Well, here’s the IRS data from 1980 and 1988 for taxpayers impacted by the highest tax rate. I’ve circled (in red) the relevant data showing how we got more rich people, more taxable income, and more tax revenue.
The bottom line is that Friedman was right.
Good tax policy (i.e., lower rates on productive behavior) can be a win-win situation. Taxpayers earn more and keep more, while politicians also wind up with more because the economic pie expands.
Something to keep in mind since some politicians in Washington want a return to confiscatory taxes on work, saving, investment, and entrepreneurship.
—-
Why Milton Friedman Saw School Choice as a First Step, Not a Final One
On his birthday, let’s celebrate Milton Friedman’s vision of enabling parents, not government, to be in control of a child’s education.
Wednesday, July 31, 2019
Kerry McDonald
EducationMilton FriedmanSchool ChoiceSchooling
Libertarians and others are often torn about school choice. They may wish to see the government schooling monopoly weakened, but they may resist supporting choice mechanisms, like vouchers and education savings accounts, because they don’t go far enough. Indeed, most current choice programs continue to rely on taxpayer funding of education and don’t address the underlying compulsory nature of elementary and secondary schooling.
Skeptics may also have legitimate fears that taxpayer-funded education choice programs will lead to over-regulation of previously independent and parochial schooling options, making all schooling mirror compulsory mass schooling, with no substantive variation.
Friedman Challenged Compulsory Schooling Laws
Milton Friedman had these same concerns. The Nobel prize-winning economist is widely considered to be the one to popularize the idea of vouchers and school choice beginning with his 1955 paper, “The Role of Government in Education.” His vision continues to be realized through the important work of EdChoice, formerly the Friedman Foundation for Education Choice, that Friedman and his economist wife, Rose, founded in 1996.
July 31 is Milton Friedman’s birthday. He died in 2006 at the age of 94, but his ideas continue to have an impact, particularly in education policy.
Friedman saw vouchers and other choice programs as half-measures. He recognized the larger problems of taxpayer funding and compulsion, but saw vouchers as an important starting point in allowing parents to regain control of their children’s education. In their popular book, Free To Choose, first published in 1980, the Friedmans wrote:
We regard the voucher plan as a partial solution because it affects neither the financing of schooling nor the compulsory attendance laws. We favor going much farther. (p.161)
They continued:
The compulsory attendance laws are the justification for government control over the standards of private schools. But it is far from clear that there is any justification for the compulsory attendance laws themselves. (p. 162)
The Friedmans admitted that their “own views on this have changed over time,” as they realized that “compulsory attendance at schools is not necessary to achieve that minimum standard of literacy and knowledge,” and that “schooling was well-nigh universal in the United States before either compulsory attendance or government financing of schooling existed. Like most laws, compulsory attendance laws have costs as well as benefits. We no longer believe the benefits justify the costs.” (pp. 162-3)
Still, they felt that vouchers would be the essential starting point toward chipping away at monopoly mass schooling by putting parents back in charge. School choice, in other words, would be a necessary but not sufficient policy approach toward addressing the underlying issue of government control of education.
Vouchers as a First Step
In their book, the Friedmans presented the potential outcomes of their proposed voucher plan, which would give parents access to some or all of the average per-pupil expenditures of a child enrolled in public school. They believed that vouchers would help create a more competitive education market, encouraging education entrepreneurship. They felt that parents would be more empowered with greater control over their children’s education and have a stronger desire to contribute some of their own money toward education. They asserted that in many places “the public school has fostered residential stratification, by tying the kind and cost of schooling to residential location” and suggested that voucher programs would lead to increased integration and heterogeneity. (pp. 166-7)
To the critics who said, and still say, that school choice programs would destroy the public schools, the Friedmans replied that these critics fail to
explain why, if the public school system is doing such a splendid job, it needs to fear competition from nongovernmental, competitive schools or, if it isn’t, why anyone should object to its “destruction.” (p. 170)
What I appreciate most about the Friedmans discussion of vouchers and the promise of school choice is their unrelenting support of parents. They believed that parents, not government bureaucrats and intellectuals, know what is best for their children’s education and well-being and are fully capable of choosing wisely for their children—when they have the opportunity to do so.
They wrote:
Parents generally have both greater interest in their children’s schooling and more intimate knowledge of their capacities and needs than anyone else. Social reformers, and educational reformers in particular, often self-righteously take for granted that parents, especially those who are poor and have little education themselves, have little interest in their children’s education and no competence to choose for them. That is a gratuitous insult. Such parents have frequently had limited opportunity to choose. However, U.S. history has demonstrated that, given the opportunity, they have often been willing to sacrifice a great deal, and have done so wisely, for their children’s welfare. (p. 160).
Sign-Up: Receive Kerry’s Weekly Parenting and Education Newsletter!
Voucher Programs Today
Today, school voucher programs exist in 15 states plus the District of Columbia. These programs have consistently shown that when parents are given the choice to opt-out of an assigned district school, many will take advantage of the opportunity. In Washington, D.C., low-income parents who win a voucher lottery send their children to private schools.
The most recent three-year federal evaluationof voucher program participants found that while student academic achievement was comparable to achievement for non-voucher students remaining in public schools, there were statistically significant improvements in other important areas. For instance, voucher participants had lower rates of chronic absenteeism than the control groups, as well as higher student satisfaction scores. There were also tremendous cost-savings.
In Wisconsin, the Milwaukee Parental Choice Program has served over 28,000 low-income students attending 129 participating private schools.
According to Corey DeAngelis, Director of School Choice at the Reason Foundation and a prolific researcher on the topic, the recent analysis of the D.C. voucher program “reveals that private schools produce the same academic outcomes for only a third of the cost of the public schools. In other words, school choice is a great investment.”
In Wisconsin, the Milwaukee Parental Choice Program was created in 1990 and is the nation’s oldest voucher program. It currently serves over 28,000 low-income students attending 129 participating private schools. Like the D.C. voucher program, data on test scores of Milwaukee voucher students show similar results to public school students, but non-academic results are promising.
Increased Access and Decreased Crime
Recent research found voucher recipients had lower crime rates and lower incidences of unplanned pregnancies in young adulthood. On his birthday, let’s celebrate Milton Friedman’s vision of enabling parents, not government, to be in control of a child’s education.
According to Howard Fuller, an education professor at Marquette University, founder of the Black Alliance for Educational Options, and one of the developers of the Milwaukee voucher program, the key is parent empowerment—particularly for low-income minority families.
In an interview with NPR, Fuller said: “What I’m saying to you is that there are thousands of black children whose lives are much better today because of the Milwaukee parental choice program,” he says.
“They were able to access better schools than they would have without a voucher.”
Putting parents back in charge of their child’s education through school choice measures was Milton Friedman’s goal. It was not his ultimate goal, as it would not fully address the funding and compulsion components of government schooling; but it was, and remains, an important first step. As the Friedmans wrote in Free To Choose:
The strong American tradition of voluntary action has provided many excellent examples that demonstrate what can be done when parents have greater choice. (p. 159).
On his birthday, let’s celebrate Milton Friedman’s vision of enabling parents, not government, to be in control of a child’s education.
Related posts:
“Friedman Friday” (“Free to Choose” episode 1 – Power of the Market. part 7 of 7)
Michael Harrington: If you don’t have the expertise, the knowledge technology today, you’re out of the debate. And I think that we have to democratize information and government as well as the economy and society. FRIEDMAN: I am sorry to say Michael Harrington’s solution is not a solution to it. He wants minority rule, I […] By Everette Hatcher III | Posted in Current Events, Milton Friedman | Edit | Comments (0)
“Friedman Friday” (“Free to Choose” episode 1 – Power of the Market. part 6 of 7)
PETERSON: Well, let me ask you how you would cope with this problem, Dr. Friedman. The people decided that they wanted cool air, and there was tremendous need, and so we built a huge industry, the air conditioning industry, hundreds of thousands of jobs, tremendous earnings opportunities and nearly all of us now have air […] By Everette Hatcher III | Posted in Current Events, Milton Friedman | Edit | Comments (0)
“Friedman Friday” (“Free to Choose” episode 1 – Power of the Market. part 5 of 7)
Part 5 Milton Friedman: I do not believe it’s proper to put the situation in terms of industrialist versus government. On the contrary, one of the reasons why I am in favor of less government is because when you have more government industrialists take it over, and the two together form a coalition against the ordinary […] By Everette Hatcher III | Posted in Current Events, Milton Friedman | Edit | Comments (0)
“Friedman Friday” (“Free to Choose” episode 1 – Power of the Market. part 4 of 7)
The fundamental principal of the free society is voluntary cooperation. The economic market, buying and selling, is one example. But it’s only one example. Voluntary cooperation is far broader than that. To take an example that at first sight seems about as far away as you can get __ the language we speak; the words […] By Everette Hatcher III | Posted in Current Events, Milton Friedman | Edit | Comments (0)
“Friedman Friday” (“Free to Choose” episode 1 – Power of the Market. part 3 of 7)
_________________________ Pt3 Nowadays there’s a considerable amount of traffic at this border. People cross a little more freely than they use to. Many people from Hong Kong trade in China and the market has helped bring the two countries closer together, but the barriers between them are still very real. On this side […] By Everette Hatcher III | Posted in Current Events, Milton Friedman | Edit | Comments (0)
“Friedman Friday” (“Free to Choose” episode 1 – Power of the Market. part 2 of 7)
Aside from its harbor, the only other important resource of Hong Kong is people __ over 4_ million of them. Like America a century ago, Hong Kong in the past few decades has been a haven for people who sought the freedom to make the most of their own abilities. Many of them are […] By Everette Hatcher III | Posted in Current Events, Milton Friedman | Edit | Comments (0)
“Friedman Friday” (“Free to Choose” episode 1 – Power of the Market. part 1of 7)
“FREE TO CHOOSE” 1: The Power of the Market (Milton Friedman) Free to Choose ^ | 1980 | Milton Friedman Posted on Monday, July 17, 2006 4:20:46 PM by Choose Ye This Day FREE TO CHOOSE: The Power of the Market Friedman: Once all of this was a swamp, covered with forest. The Canarce Indians […]
Milton Friedman The Power of the Market 1-5
Debate on Milton Friedman’s cure for inflation
If you would like to see the first three episodes on inflation in Milton Friedman’s film series “Free to Choose” then go to a previous post I did. Ep. 9 – How to Cure Inflation [4/7]. Milton Friedman’s Free to Choose (1980) Uploaded by investbligurucom on Jun 16, 2010 While many people have a fairly […]
By Everette Hatcher III | Also posted in Current Events | Tagged dr friedman, expansion history, income tax brackets, political courage, www youtube | Edit | Comments (0)
“Friedman Friday” Milton Friedman believed in liberty (Interview by Charlie Rose of Milton Friedman part 1)
Charlie Rose interview of Milton Friedman My favorite economist: Milton Friedman : A Great Champion of Liberty by V. Sundaram Milton Friedman, the Nobel Prize-winning economist who advocated an unfettered free market and had the ear of three US Presidents – Nixon, Ford and Reagan – died last Thursday (16 November, 2006 ) in San Francisco […] By Everette Hatcher III | Posted in Milton Friedman | Edit | Comments (0)
What were the main proposals of Milton Friedman?
Stearns Speaks on House Floor in Support of Balanced Budget Amendment Uploaded by RepCliffStearns on Nov 18, 2011 Speaking on House floor in support of Balanced Budget Resolution, 11/18/2011 ___________ Below are some of the main proposals of Milton Friedman. I highly respected his work. David J. Theroux said this about Milton Friedman’s view concerning […] By Everette Hatcher III | Posted in Milton Friedman | Edit | Comments (0)
“Friedman Friday,” EPISODE “The Failure of Socialism” of Free to Choose in 1990 by Milton Friedman (Part 1)
Milton Friedman: Free To Choose – The Failure Of Socialism With Ronald Reagan (Full) Published on Mar 19, 2012 by NoNationalityNeeded Milton Friedman’s writings affected me greatly when I first discovered them and I wanted to share with you. We must not head down the path of socialism like Greece has done. Abstract: Ronald Reagan […] By Everette Hatcher III | Posted in Milton Friedman, President Obama | Edit | Comments (1)
Defending Milton Friedman
What a great defense of Milton Friedman!!!! Defaming Milton Friedman by Johan Norberg This article appeared in Reason Online on September 26, 2008 PRINT PAGE CITE THIS Sans Serif Serif Share with your friends: ShareThis In the future, if you tell a student or a journalist that you favor free markets and limited government, there is […]
The Daily Hatch 