Uncommon Sense

politics and society are, unfortunately, much the same thing

Capitalism and Morality: Walter Williams vs. Pope Francis

original article: Capitalism and Morality: Walter Williams vs. Pope Francis
September 22, 2015 by Daniel J. Mitchell

The biggest mistake of well-meaning leftists is that they place too much value on good intentions and don’t seem to care nearly as much about good results.

Pope Francis is an example of this unfortunate tendency. His concern for the poor presumably is genuine, but he puts ideology above evidence when he argues against capitalism and in favor of coercive government.

Here are some passages from a CNN report on the Pope’s bias.

Pope Francis makes his first official visit to the United States this week. There’s a lot of angst about what he might say, especially when he addresses Congress Thursday morning. …He’ll probably discuss American capitalism’s flaws, a theme he has hit on since the 1990s. Pope Francis wrote a book in 1998 with an entire chapter focused on “the limits of capitalism.” …Francis argued that…capitalism lacks morals and promotes selfish behavior. …He has been especially critical of how capitalism has increased inequality… He’s tweeted: “inequality is the root of all evil.” …he’s a major critic of greed and excessive wealth. …”Capitalism has been the cause of many sufferings…”

Wow, I almost don’t know how to respond. So many bad ideas crammed in so few words.

If you want to know why Pope Francis is wrong about capitalism and human well-being, these videos narrated by Don Boudreaux and Deirdre McCloskey will explain how free markets have generated unimaginable prosperity for ordinary people.

But the Pope isn’t just wrong on facts. He’s also wrong on morality. This video by Walter Williams explains why voluntary exchange in a free-market system is far more ethical than a regime based on government coercion.

Very well stated. And I especially like how Walter explains that markets are a positive-sum game, whereas government-coerced redistribution is a zero-sum game (actually a negative-sum game when you include the negative economic impact of taxes and spending).

Professor Williams wasn’t specifically seeking to counter the muddled economic views of Pope Francis, but others have taken up that challenge.

Writing for the Washington Post, George Will specifically addresses the Pope’s moral preening.

Pope Francis embodies sanctity but comes trailing clouds of sanctimony. With a convert’s indiscriminate zeal, he embraces ideas impeccably fashionable, demonstrably false and deeply reactionary. They would devastate the poor on whose behalf he purports to speak… Francis deplores “compulsive consumerism,” a sin to which the 1.3 billion persons without even electricity can only aspire.

He specifically explains that people with genuine concern for the poor should celebrate industrialization and utilization of natural resources.

Poverty has probably decreased more in the past two centuries than in the preceding three millennia because of industrialization powered by fossil fuels. Only economic growth has ever produced broad amelioration of poverty, and since growth began in the late 18th century, it has depended on such fuels. …The capitalist commerce that Francis disdains is the reason the portion of the planet’s population living in “absolute poverty” ($1.25 a day) declined from 53 percent to 17 percent in three decades after 1981.

So why doesn’t Pope Francis understand economics?

Perhaps because he learned the wrong lesson from his nation’s disastrous experiment with an especially corrupt and cronyist version of statism.

Francis grew up around the rancid political culture of Peronist populism, the sterile redistributionism that has reduced his Argentina from the world’s 14th highest per-capita gross domestic product in 1900 to 63rd today. Francis’s agenda for the planet — “global regulatory norms” — would globalize Argentina’s downward mobility.

Amen (no pun intended).

George Will is right that Argentina is not a good role model.

And he’s even more right about the dangers of “global norms” that inevitably would pressure all nations to impose equally bad levels of taxation and regulation.

Returning to the economic views of Pope Francis, the BBC asked for my thoughts back in 2013 and everything I said still applies today.

bias, capitalism, crisis, cronyism, economics, economy, ethics, ideology, nanny state, poverty, reform, video

Filed under: bias, capitalism, crisis, cronyism, economics, economy, ethics, ideology, nanny state, poverty, reform, video

Federal watchdogs accused of stealing lunch money from needy kids

Federal watchdogs accused of stealing lunch money from needy kids
August 12, 2015 by Fox News

Five employees who work at a federal watchdog agency tasked with rooting out fraud and abuse were indicted Tuesday after investigators say they concocted a plan that stole lunch money from needy children.

Prosecutors say the employees, all working with the Government Accountability Office, as well as the spouse of a separate GAO worker, tried to illegally obtain reduced-price school lunches for their children. They did so by falsely reporting their incomes in order to qualify for the discounted government meals.

“There is no excuse for stealing funds intended to go to children whose parents cannot afford the school lunches,” Maryland’s Prince George’s County State’s Attorney Angela Alsobrooks said in a written statement announcing the news. “Their actions are made even worse by the fact that some of them claimed to have not just low income, but no income at all, even though they were working full-time jobs at the GAO.”

One of the accused is Lynette Mundey, a Prince George’s County school board member. Mundey, along with Barbara Rowley, Jamilah Reid, Tracy Williams, Charlene Savoy and James Pinkney, the spouse of a GAO employee, were charged with filing false applications, fraud and theft.

Federal officials say the group bilked the program designed to benefit needy children out of $13,000 over the course of five years. They did so by either under-reporting their income or in some cases, reporting that they had no income even though their actual salaries ranged from $55,000 to $78,000.

Children who are legally eligible for the reduced-cost lunch program must come from households with incomes at or below 130 percent of the poverty level – or about $30,615 for a family of four.

A reduced-price lunch costs an elementary child 40 cents compared to $2.75 for a full-price meal, according to the Prince George’s County Public Schools Food and Nutrition Services.

“This is a program for people who can’t afford it, but these are people who can,” John Erzen, a spokesman for the Prince George’s County State’s Attorney’s Office told The Washington Post in a statement.

Calls to Mundey as well as the Prince George’s County Board of Education were not immediately returned.

abuse, bureaucracy, children, corruption, criminal, ethics, fraud, funding, government, greed, nanny state, poverty, scandal, spending

Filed under: abuse, bureaucracy, children, corruption, criminal, ethics, fraud, funding, government, greed, nanny state, poverty, scandal, spending

Seattle sees fallout from $15 minimum wage, as other cities follow suit

original article: Seattle sees fallout from $15 minimum wage, as other cities follow suit
July 22, 2015 by Dan Springer

Seattle’s $15 minimum wage law is supposed to lift workers out of poverty and move them off public assistance. But there may be a hitch in the plan.

Evidence is surfacing that some workers are asking their bosses for fewer hours as their wages rise – in a bid to keep overall income down so they don’t lose public subsidies for things like food, child care and rent.

Full Life Care, a home nursing nonprofit, told KIRO-TV in Seattle that several workers want to work less.

“If they cut down their hours to stay on those subsidies because the $15 per hour minimum wage didn’t actually help get them out of poverty, all you’ve done is put a burden on the business and given false hope to a lot of people,” said Jason Rantz, host of the Jason Rantz show on 97.3 KIRO-FM.

The twist is just one apparent side effect of the controversial — yet trendsetting — minimum wage law in Seattle, which is being copied in several other cities despite concerns over prices rising and businesses struggling to keep up.

The notion that employees are intentionally working less to preserve their welfare has been a hot topic on talk radio. While the claims are difficult to track, state stats indeed suggest few are moving off welfare programs under the new wage.

Despite a booming economy throughout western Washington, the state’s welfare caseload has dropped very little since the higher wage phase began in Seattle in April. In March 130,851 people were enrolled in the Basic Food program. In April, the caseload dropped to 130,376.

At the same time, prices appear to be going up on just about everything.

Some restaurants have tacked on a 15 percent surcharge to cover the higher wages. And some managers are no longer encouraging customers to tip, leading to a redistribution of income. Workers in the back of the kitchen, such as dishwashers and cooks, are getting paid more, but servers who rely on tips are seeing a pay cut.

Some long-time Seattle restaurants have closed altogether, though none of the owners publicly blamed the minimum wage law.

“It’s what happens when the government imposes a restriction on the labor market that normally wouldn’t be there, and marginal businesses get hit the hardest, and usually those are small, neighborhood businesses,” said Paul Guppy, of the Washington Policy Center.

Seattle was followed by San Francisco and Los Angeles in passing a $15 minimum wage law. The wage is being phased in over several years to give businesses time to adjust. The current minimum wage in Seattle is $11. In San Francisco, it’s $12.25.

And it is spreading. Beyond the city of Los Angeles, the Los Angeles County Board of Supervisors this week also approved a $15 minimum wage.

New York state could be next, with the state Wage Board on Wednesday backing a $15 wage for fast-food workers, something Gov. Andrew Cuomo has supported.

Already, though, there are unintended consequences in other cities.

Comix Experience, a small book store in downtown San Francisco, has begun selling graphic novel club subscriptions in order to meet payroll. The owner, Brian Hibbs, admits members are not getting all that much for their $25 per month dues, but their “donation” is keeping him in business.

“I was looking at potentially having to close the store down and then how would I make my living?” Hibbs asked.

To date, he’s sold 228 subscriptions. He says he needs 334 to reach his goal of the $80,000 income required to cover higher labor costs. He doesn’t blame San Francisco voters for approving the $15 minimum wage, but he doesn’t think they had all the information needed to make a good decision.

corruption, culture, economics, economy, entitlements, funding, government, nanny state, politics, poverty, progressive, public policy, reform, regulation, socialism, unintended consequences

Filed under: corruption, culture, economics, economy, entitlements, funding, government, nanny state, politics, poverty, progressive, public policy, reform, regulation, socialism, unintended consequences

Unraveling the Poverty Myths Obama Is Promoting

original article: Unraveling the Poverty Myths Obama Is Promoting
May 18, 2015 by Stephen Moore

Our class warrior in chief was at it again last week complaining about our “ideological divides that have prevented us from making progress” in solving problems like poverty. Just when you thought you’d heard it all.

Our most ideological president perhaps ever is arguing that there is too much ideology in Washington. Wow. Apparently an ideology is a firmly held belief that is held by other people—especially those on the right.

In a discussion on poverty at Georgetown University, the president managed to blame the slow-growth economy and stagnant wages on everything from Ayn Rand (who promoted “cold hearted policies” and classified everyone as a “moocher”) to California’s Proposition 13 (which is responsible for the Golden State’s dreadful schools). Everything has contributed to our current malaise except for his own failed policies.

Here’s a brief truth squad examination of Obama’s mythologies and misstatements of fact.

President Obama: “The stereotype is that you’ve got folks on the left who just want to pour more money into social programs, and don’t care anything about culture or parenting or family structures … ”

After more than $22 trillion spent on the War on Poverty since 1964 (in inflation adjusted dollars)—how is it a stereotype to say the left only wants to pour money at programs?

Just a few weeks ago the president blamed the Baltimore riots on Republicans for not spending and borrowing even more money on his social programs. He sounded like a parody of himself.

If the left really wants to advance cultural values like work, why do they oppose reforms to a welfare system that requires able-bodied adult Americans to work in exchange for receiving welfare benefits like food stamps?

Obama: “It is a mistake for us to suggest that somehow every effort we make has failed and we are powerless to address poverty. That’s just not true. First of all, just in absolute terms, the poverty rate when you take into account tax and transfer programs, has been reduced about 40 percent since 1967.”

There are two problems with this defense of the welfare state. First, the official poverty was falling before 1965 and at a faster rate than after the Great Society got rolling in the mid-1960s. This official poverty rate has remained virtually stagnant since the War on Poverty began.

Second, the decline in poverty that Obama is boasting about is only after taking into account tax credits and government handouts and welfare benefits. When excluding these programs there has been little progress at all.

Redistribution may have raised the material living standards of some of the poor. But it has not increased self-sufficiency.

The original purpose of the welfare state was to lift people into self-sufficiency, not to create a permanent underclass dependent on taxpayers. Lyndon Johnson told us when he started these programs that “the days of the dole are numbered.” We have passed day 18,000.

Obama also wants it both ways. He says over and over, even in this speech, that the biggest problem with the economy is income inequality because the rich are getting richer and the poor poorer. So if the poor are getting poorer, how have his social programs worked to reduce poverty?

Obama: “In some ways, rather than soften the edges of the market, we’ve turbocharged it.”

Wait, we’ve turbo-charged the free market? When? Where?

Obama: “There are programs that work to provide ladders of opportunity … but we just haven’t figured out how to scale them up.”

Hold on. One of the few programs that has proven to provide “a ladder of opportunity” is the Washington D.C. Opportunity Scholarship Program for roughly 1,500 kids each year to attend private schools. They are all poor and almost all black. The graduation rates for these kids have improved in some cases markedly.

But guess who doesn’t want to “scale up” this successful program (which is, by the way, one of the few programs that would actually be appropriate for the federal government to scale up)? In every budget Obama has submitted, he has proposed eliminating the program.

It’s more than a little hypocritical for a president who sends his own daughters to private schools that cost $30,000 a year to prevent poor children in Washington, D.C., from attending those same schools.

Obama: “And so over time, families frayed. Men who could not get jobs left. Mothers who are single are not able to read as much to their kids.”

The president acts as though “families frayed” by accident. No, there were major cultural shifts that contributed to the major decline in marriage and rise in unwed births, not to mention the introduction of a massive government welfare system that financially took the place of the father.

In 1960, not even one in four black children were born without a father in the home. By 2013 that number had soared, tragically, to nearly three of every four black children being born outside of marriage. As economist Thomas Sowellhas put it: “the black family survived centuries of slavery and generations of Jim Crow, but it disintegrated in the wake of the liberals’ expansion of the welfare state.”

Obama: “You look at state budgets, you look at city budgets, and you look at federal budgets, and we don’t make those same common investments that we used to. … And there’s been a very specific ideological push not to make those investments.”

In 1950 total state, local and federal government spending was just over $500 billion (in constant 2015 dollars) and 22.2 percent of our GDP. Today it is nearly $6 trillion and 33 percent of our GDP. Under Obama federal spending will reach $4 trillion next year and borrowing to finance these “common investments” will have risen by $8 trillion over his tenure.

The only thing that has been underfunded over the last decade is middle-class family incomes, which have stagnated.

Obama: “We don’t dispute that the free market is the greatest producer of wealth in history—it has lifted billions of people out of poverty. We believe in property rights, rule of law, so forth.”

No, you don’t. And that’s the whole problem.

bias, Democrats, economics, economy, elitism, family, government, hypocrisy, ideology, indoctrination, left wing, liberalism, lies, marxism, nanny state, pandering, philosophy, political correctness, politics, poverty, president, progressive, propaganda, spending, welfare

Filed under: bias, Democrats, economics, economy, elitism, family, government, hypocrisy, ideology, indoctrination, left wing, liberalism, lies, marxism, nanny state, pandering, philosophy, political correctness, politics, poverty, president, progressive, propaganda, spending, welfare

If you want to help the poor take an honest look at the data instead of cherry picking it

So you think you know how the world works? The very popular push to raise the minimum wage to $15/hour is in full swing and gaining ground. But there are many false assumptions at work in this movement. I realize some of you already are aware employees get their paychecks from their employers, the businesses who’ve hired them. But not everyone knows this. And many people don’t realize where businesses get their money; many think all businesses have millions in cash resting safely in the bank, and the only reason workers are paid low wages is because of corporate greed. That’s the sort of enlightened ignorance that governs not only the popular movement for a $15/hr minimum wage, but also the political one.

So instead of reading (or rather listening to someone else talk about) only the things $15/hr advocates want to hear, someone needs to explain how the world really works. These two articles address the flawed studies used to support the high minimum wage.

A $15 minimum wage is a terrible idea
June 22, 2013 by Dylan Matthews

Raising minimum wage won’t lower poverty
September 16, 2011 by Michael Saltsman

The Congressional Budget Office has looked at a higher minimum wage as well, and that office says something very different from what President Obama is saying.

Minimum Wage Hike Could Cost 500K Jobs, CBO Reports
February 18, 2014 by JOHN PARKINSON

Of course, if you’re really a nut job who wants to actually look at a real study instead of just reading news articles journalists have written about the data, you can find one here:
Revisiting the Minimum Wage-Employment Debate: Throwing Out the Baby with the Bathwater?
January 2013 by David Neumark, J.M. Ian Salas, William Wascher

I also recommend considering some dangerously explicit common sense on the matter.

Fast Food Workers: You Don’t Deserve $15 an Hour to Flip Burgers, and That’s OK

culture, economics, economy, government, ideology, left wing, liberalism, nanny state, philosophy, political correctness, poverty, progressive, propaganda, public policy, recession, reform, regulation, socialism, spending, study, unintended consequences

Filed under: culture, economics, economy, government, ideology, left wing, liberalism, nanny state, philosophy, political correctness, poverty, progressive, propaganda, public policy, recession, reform, regulation, socialism, spending, study, unintended consequences

School Choice As a Matter of Social Justice

original article: School Choice As a Matter of Social Justice
April 14, 2015 by Joe Carter

Social justice is a term and concept frequently associated with the political Left, and too often used to champion views that are destructive for society and antithetical to justice. Yet for Christians the term is too valuable to be abandoned. Conservatives need to rescue it from the Left and restore it’s true meaning. True social justice is obtained, as my colleagueDylan Pahman has helpfully explained, “when each member, group, and sphere of society gives to every other what is due.”

A key sphere of society in which social justice is in desperate need of restoration is education. The poor deserve the same freedom to obtain a quality education that is too often reserved for those wealthy enough to rescue their children from failing schools. For this reason school choice should be considered a matter of social justice.

As Archbishop Charles J. Chaput says, lack of a quality education is a common thread among persons in severe poverty. And once stuck in deep poverty it’s very hard for anyone to escape due to the lack of skills needed to secure and hold employment:

Poor parents, like parents everywhere, desire to give their children a quality, safe education; a chance at a fruitful life. They want their children to grow strong and pursue their dreams, to let their talents and interests take them as far as they can go. But without a quality education the dreams will remain unfulfilled and another generation of deep poverty will persist. This is painfully ironic, because at the moment, thousands of seats sit empty in safe, high quality Catholic and private schools throughout the region. Life lines to a good education do exist to help poor families, but, as so often happens, political conflicts stand in the way.

Catholic social teaching is built on a commitment to the poor. Few things are more important to people in poverty than ensuring their children’s education as a path to a better life. If the future of Philadelphia and Pennsylvania depends on an educated, productive public – and it obviously does – then providing every means to ensure a good education system becomes a matter of social justice. Prudent lawmakers from both major parties have understood this for years. They need to feel our support in the voting booth and throughout their public service.

The point is this: Proper funding for public schools is clearly important. But experience has already shown that this can’t be the only strategy because it doesn’t work for many of the students who most urgently need a good education. It’s therefore vital that our elected officials serve the real education needs of the poor by supporting school choice.

Another reason to separate school and state.

bureaucracy, children, conservative, education, freedom, justice, poverty, reform, right wing

Filed under: bureaucracy, children, conservative, education, freedom, justice, poverty, reform, right wing

Raising The Minimum Wage Hurts The Most Vulnerable

November 13,2014 by Elise Hilton

If you’re blessed, your job is more than just a paycheck. It’s a structure for your life, it’s a place of friendship and camaraderie, and a sense of purpose. At least, it was for Stacy Osborn.

Osborn had been working at Tastes of Life, a Hillsdale, MI restaurant that also supported a residential program, Life Challenge of Michigan. The restaurant was owned by Pastor Jack Mosley and his wife, Linda.

Mosley explained that, unlike a typical business that might fire a chef with a hot temper “who breaks dishes,” Tastes of Life managers were more long-suffering and wanted to help employees polish their life skills.

“Life has issues,” Mosley said. “This was a place to shore them up, and help them cope and get through.”

So why isn’t Osborn working there anymore? Because Tastes of Life couldn’t afford to stay open after the state of Michigan raised its minimum wage. Mosley said he figured he’d have to bring in 200 more customers a week in order to stay open.

Michigan unions threatened they’d sponsor a ballot initiative to raise the minimum wage to $10.10 an hour. To keep the question off the ballot, the Republican-controlled legislature passed a compromise. Before September 1, 2014, the minimum wage in Michigan for regular employees was $7.40 and for tipped workers was $2.65. The new law raised the wage to $8.15 and $3.10, respectively. It will increase incrementally until 2018, when it will be $9.25 and $3.52.

“I did the math and realized I would need 200 more customers a week to stay open,” Mosley said.

That, accompanied by the fact that many of their customers go south for the winter and food prices have risen dramatically, forced Mosley to close doors. Twelve people lost their jobs.

Other businesses in the area have put a freeze on hiring and have raised prices in order to compensate for the minimum wage hike. Some, like the Mosleys, simply can’t compete. And that means those with the most to lose are left with fewer options. Some lose their jobs. Those who keep their jobs have a pay increase, but may have their hours cut. They also have to deal with the increase in the cost of consumer goods that comes along with the minimum wage hike.

Tell us again, who was the minimum wage hike supposed to help?

original article: In Michigan, Raising The Minimum Wage Hurts The Most Vulnerable

Read “Low-Income Workers: Raising The Minimum Wage Ruined Our Lives” at The Federalist.

bureaucracy, capitalism, economics, economy, government, left wing, liberalism, nanny state, poverty, progressive, public policy, regulation, socialism, tragedy, unintended consequences

Filed under: bureaucracy, capitalism, economics, economy, government, left wing, liberalism, nanny state, poverty, progressive, public policy, regulation, socialism, tragedy, unintended consequences

How Much Does Poverty Drive Crime?

August 22, 2014 by JOE CARTER

I’m about to make a prediction that is incontrovertible — a claim that cannot be controverted because (a) I am absolutely right in my prediction, and (b) because I will be long dead before my rightness can be proven.

Here’s what I predict: By the year 2114 social scientists will have established with 90 percent confidence that the “root cause” of the majority of the social maladies we experienced in the early twenty-first century (i.e., right now) were attributable to family structure, family dynamics, or family culture.

A trend in that direction appears to already be underway. Consider, for example, research recently published in the British Journal of Psychiatry that studied more than half a million children born in Sweden between 1989 and 1993. The results of the study showed that children of parents in the lowest income quintile experienced an increased risk of being convicted of violent criminality and substance abuse compared with peers in the highest quintile. No real surprise there. What was unexpected was the conclusion: “There were no associations between childhood family income and subsequent violent criminality and substance misuse once we had adjusted for unobserved familial risk factors.”

As The Economist explains, for “families which had started poor and got richer, the younger children—those born into relative affluence—were just as likely to misbehave when they were teenagers as their elder siblings had been. Family income was not, per se, the determining factor.”

This finding shouldn’t be all that surprising for anyone who has spent much time around people in poverty. Lack of money is certainly a problem for those on the lower rungs of the economic ladder, but it’s rarely the cause of people engaging in criminal behavior. All poor people share a common trait — they lack sufficient income and/or wealth — but they don’t all share a propensity for criminality. Why then is crime more prevalent in poverty-stricken areas?

The reason is that people in areas of high poverty tend to lack access to strong institutions that can compensate for broken family structures, dysfunctional family dynamics, or pathological family cultures. Overcoming the effects of a having a messed up family are difficult enough when you have both money and institutional resources, like functioning school systems and locally-engaging churches. But if you have nothing else to rely on but family and that fails, you are likely to fail too.

While I’m generally a believer in self-determination, I believe family is the one factor that is more likely than any other to determine whether an individual flourishes or fails. It’ll likely take another hundred years before social science confirms my conviction. But I’m hoping by then our society — or at least the subset who consider themselves to be conservatives — will finally recognize that the most important institution in need of conservation is the family.

original article: How Much Does Poverty Drive Crime?

children, criminal, crisis, culture, demographics, economics, education, ethics, family, ideology, poverty, study, victimization

Filed under: children, criminal, crisis, culture, demographics, economics, education, ethics, family, ideology, poverty, study, victimization

The Democrats embrace trickle-down economics

August 26, 2014 by Kevin D. Williamson

Approximately 99.44 percent of the time, it is a safe assumption that when you disagree with Thomas Sowell, you are wrong. But on the issue of the “trickle-down” theory of economics, Professor Sowell is in fact wrong to claim that “trickle-down” is a nonexistent theory, absent from “even the most voluminous and learned histories of economic theories.” Trickle-down is there — just not where its critics are looking for it.

Getting to the bottom of this will require a little background.

Professor Sowell is correct that trickle-down functions in our current discourse mainly as a caricature of certain conservative, supply-side, and/or free-market economic ideas, mostly pertaining to taxes: “Repeatedly, over the years,” he writes,

the arguments of the proponents and opponents of tax rate reductions have been arguments about two fundamentally different things. Proponents of tax rate cuts base their arguments on anticipated changes in behavior by investors in response to reduced income tax rates. Opponents of tax cuts attribute to the proponents a desire to see higher income taxpayers have more after-tax income, so that their prosperity will somehow “trickle down” to others, which opponents of tax cuts deny will happen. One side is talking about behavioral changes that can change the total output of the economy, while the other side is talking about changing the direction of existing after-tax income flows among people of differing income levels at existing levels of output. These have been arguments about very different things, and the two arguments have largely gone past each other untouched.

What sort of “behavioral changes” do the tax-cutters expect? In Andrew Mellon’s day, tax cuts were intended to lure wealthy investors out of tax-free government securities, which Mellon had proposed abolishing, into more-productive private-sector investments, which he believed would raise overall economic output. As Professor Sowell points out, the aggregate reported income of those earning $300,000 a year or more in 1916, back when three hundred grand meant something, was cut in half by 1918, and it probably was not because Scrooge McMoneybags actually was earning less: The consensus is that the very rich shifted their investments into tax-free securities as taxes went up and tax shelters became more attractive. Most of a century later, billionaire presidential candidate Ross Perot would be criticized for keeping his copious loot in tax-free munis. The more things change . . .

President Woodrow Wilson and others argued at the time that the combination of high taxes on income and zero taxes on certain government securities created a situation that discouraged private investment and encouraged profligate government spending, while lowering the tax burden on the wealthy and thus necessarily increasing the burden on everybody else. Presidents Calvin Coolidge and John Kennedy would make similar arguments.

The cartoon version of conservative economic thinking — that we should subsidize gazillionaires in order to create work opportunities for yacht painters, monocle polishers, and truffle graters — is fundamentally at odds with the facts. The supply-siders may have wrong economic ideas, but they do not have those wrong economic ideas. President Ronald Reagan, for example, loved to boast of the number of poor and modestly-off Americans his policies had removed from the federal tax rolls entirely. George W. Bush promised that he’d take the poorest fifth of taxpaying U.S. households off the federal tax rolls; Heritage estimates that he succeeded in doing so for about 10 million low-income households.

One of the perverse consequences of conservatives’ success in lowering the federal income-tax burdens of those on the left half of the earnings bell curve is that we have finally arrived at the point where our critics are partly correct: Most conservative plans for tax cuts at this point in history do disproportionately favor the wealthy and the high-income, for the mathematically unavoidable reason that they pay a steeply disproportionate share of federal income taxes, making it very difficult to design a tax-cut plan that does not disproportionately benefit them. It’s hard to cut taxes without cutting them for the taxpayers.

I myself am mostly neutral on the question of tax cuts, on the grounds that cutting taxes while the government is running significant deficits is not inadvisable but impossible — in that situation, taxes are not cut but merely deferred. All accounts must in the end be settled, so the real rate of taxation is the rate of spending.

The point of rehearsing this history is not to determine whether traditional supply-side thinking on economic policy is true or false, but rather to show that it is something fundamentallydifferent from the trickle-down caricature offered by the progressives and others generally hostile to the idea of a smaller federal financial footprint. But that is not to say that “trickle-down” is an idea without adherents, a banner without partisans marching under it. Perversely, those advancing trickle-down ideas are mostly the same ideologues who denounce “trickle-down.” But they do not call it trickle-down — they call it “stimulus.”

There are three main ways in which the federal government goes about trying to stimulate the economy. Traditionally, the most popular and most bipartisan method has been tax cuts. The popular if intellectually dodgy Keynesian analysis holds that during periods of economic weakness, there is a glut of underutilized productive capacity — capital and labor both — and that government can help clear it by increasing “aggregate demand,” i.e., stimulating consumption. As President Obama put it, “For businesses across the country, it would mean customers with more money in their pockets.” If you want Republicans on board, then the easiest way to put money in consumers’ pockets is with tax cuts, but you can achieve much the same thing with various kinds of welfare spending, the second form of stimulus, as seen with the bump in food-stamp and unemployment spending under President Obama’s American Recovery and Reinvestment Act. You can also sometimes forcibly deputize others to do some spending for you — in the speech above, President Obama was talking about raising the minimum wage.

The president and congressional Democrats treat tax cuts and spending as though they were the same thing, and from a federal accounting point of view, they are not entirely wrong: Cutting a $50,000-a-year household’s taxes by $1,000 a year is functionally identical to cutting them a check for $1,000 every year. Cutting an unemployed worker’s taxes by $1,000 a year is functionally the same thing as giving him an extra $1,000 in unemployment benefits. On the question of economic stimulus through tax cuts vs. through targeted social-welfare spending, the real dispute is about the method of targeting those distributions — and that’s about nothing but politics. Democrats do not want to do too much to establish the precedent that tax cuts might be good for the economy in some circumstances, lest it come back to bite them, and Republicans do not want to establish the precedent that some welfare spending might be good for the economy.

For what it’s worth, I’m not convinced that either approach does much more than provide a short-term sugar rush at the expense of the economy’s long-term health, and the Congressional Budget Office shares that suspicion, estimating that in the long run the Recovery Act will decrease economic output for reasons that would have been familiar to Andrew Mellon back in his day:

To the extent that people hold their wealth in government securities rather than in a form that can be used to finance private investment, the increased debt tends to reduce the stock of productive private capital. In the long run, each dollar of additional debt crowds out about a third of a dollar’s worth of private domestic capital, CBO estimates.

One of the problems with the traditional Keynesian view of stimulus is that it assumes that the increased aggregate demand in the economy will be matched by a mirror image of underutilized productive capacity. But we know from experience that this is not always the case. For example, we spent years around the turn of the century stimulating the economy with lower interest rates, tax cuts, and welfare spending, and the result wasn’t general prosperity — it was a housing bubble. These things tend to be unpredictable, and it is as likely that such efforts will deepen the misalignment between production and consumption as it is that they will mitigate it.

The third way that government attempts to stimulate the economy is through project spending, i.e. the so-called infrastructure investments that politicians always are nattering on about. From the politicians’ point of view, infrastructure spending has one important advantage over tax cuts or welfare outlays: They get to control what the money is spent on and where. Cut somebody’s taxes, and he might put the money toward his children’s college tuition — or he might put it toward a few lines of cocaine. Additional welfare dollars might find their way to the grocery store — or a casino. But if you spend a billion dollars on a bridge, you can be pretty sure that you’re going to get a bridge out of the deal, and a bridge right where you wanted one.

Needless to say, that’s not the same as building a bridge where a bridge is needed — but if we buy the traditional model of stimulus, that shouldn’t matter. Through the magic of the multiplier effect, $1 spent on a bridge works its way through the economy, creating $1.25, or $2, or $22 in value, depending on whom you ask. (All of which assumes that the multiplier generally is greater than 1, rather than less than 1, which has not been established, but never you mind. And if this looks to you like nothing other than the contemporary supply-siders’ self-financing tax cut in drag, then you’re on the right track.)

The important point here is this: The argument that the government should spend on infrastructure because a certain piece of infrastructure is needed is one kind of argument; the argument that government should spend on infrastructure because doing so is good for the economy is a different kind of argument — specifically, it is a trickle-down argument.

If you doubt that, ask yourself: What kind of firms get federal contracts? Do you think any of those unhappy people in Ferguson, Mo., own firms that are in line for Department of Defense or Department of Energy contracts? Do you think impoverished Appalachian pillbillies are in the running for upgrading Treasury’s computer networks? If so, I have a bridge I’d like to build you at a very reasonable price.

Federal contracting is dominated, as one would expect, by large firms, often the dreaded multinational corporations of angsty soy-latte-liberal legend. Call the roll: In first place, we have Lockheed Martin, followed by those poor, Dickensian waifs at Boeing, who would be bereft without the support of the Export-Import Bank. Then we have the plucky upstarts at Northrop Grumman, General Dynamics, and Raytheon. And, lest Wall Street feel left out, Cerberus Capital Management comes in at No. 11. Deloitte, Rolls-Royce, and our friends at the Kuwait Petroleum Corporation all make the list — because federal spending is all about Main Street, albeit Main Street in Abu Dhabi, where the national oil company does nearly $2 billion a year in business as a federal contractor.

That’s a non-issue if your argument is that Uncle Stupid needs to build a spur on I-35 because it is having trouble getting trucks to Fort Sam Houston, or if you believe that it should buy its oil from whoever has the best price. Jim Bob’s Mom-and-Pop Interstate Highways, Aircraft Carriers, and Bait Shop (“No Job Too Small!”) is not a thing that exists.

But that is a big, hairy Gordian knot of an issue if your argument is that infrastructure spending, and other federal project outlays, are a desirable form of economic stimulus in and of themselves. If the latter is your argument, then you have to believe something far stronger than even the cartoon trickle-down version of supply-side tax cuts: You have to believe that having the federal government literally write enormous checks to gigantic international conglomerates and the rich guys who own and operate them will create prosperity by, forgive me for noticing, trickling down through the economy to the guys who spread asphalt and the guys who sell those guys work boots and burritos and bass boats. “Deep voodoo,” as Paul Krugman would put it in another context.

Inevitably, there are federal rules setting aside a portion of contracts and subcontracts — 23 percent, in fact — for small businesses. This works about as well as you’d expect: Large firms simply organize subsidiaries or make other arrangements to meet small-business ruleswhich are pretty flexible to begin with — or they fraudulently misrepresent themselves. And so “small business” awards to go firms with 150 employees and $400 million a year in revenue — or, in some cases, a hell of a lot more. By the American Small Business League’s count, 16 of the top 100 small-business contractors in 2013 were actually small businesses. It finds that many small-business contracts are in effect awarded to Apple, Bank of America, PepsiCo, General Electric, and all the usual suspects, through arrangements that made small businesses the names on the contracts while the majority of the revenues went to Fortune 500 companies.

But still, might this stimulate the economy, create jobs, raise wages? There is reason to be skeptical about that proposition. Under the Recovery Act, stimulus spending went to doomed firms such as Solyndra, Evergreen Solar, and SpectraWatt, all of which took the money and ran into bankruptcy. The Export-Import Bank’s defenders make a very conventional case that its subsidies stimulate the economy, but there is no evidence that they do. Even hard infrastructure projects are not always obviously good ideas: roads to nowhere, bridges to nowhere. Such projects likely are net losses for the economy once everything is accounted for: the opportunity cost of the labor and capital that went into them, their effect on the debt and interest expenses, long-term maintenance costs, etc.

If the federal government needs a nuclear submarine or an upgraded computer system, so be it. (Although maybe not the kind of information technology that the stimulus bill bought for the Veterans Administration.) But if you think that dumping another billion dollars into the pockets of General Electric or Raytheon is going to produce trickle-down prosperity for the general public, you’re subscribing to an economic theory that makes Arthur Laffer look like Chairman Mao.

original article: Blue Voodoo

bias, budget, bureaucracy, cronyism, Democrats, economics, economy, funding, government, ideology, left wing, liberalism, nanny state, philosophy, politics, poverty, propaganda, public policy, reaganomics, socialism, spending, taxes, wealthy, welfare

Filed under: bias, budget, bureaucracy, cronyism, Democrats, economics, economy, funding, government, ideology, left wing, liberalism, nanny state, philosophy, politics, poverty, propaganda, public policy, socialism, spending, taxes, wealthy, welfare

IMF study: Government spending doesn’t make poor countries rich

August 12, 2014 by James Pethokoukis

New research from the International Monetary Fund undercuts the idea that “big push” infrastructure and other public investment projects can create accelerating economic growth and higher productivity in low-income countries:

This paper has examined whether major public investment drives in the past have served to promote or accelerate national economic growth. It is not about whether in theory public investment drives could accelerate growth, but rather whether in practice, with real governments deciding how to spend the funds and implementing investments, they have in fact accelerated growth.

The answer appears to be “probably very little”. This conclusion pertains to the drives – the big increases in public capital  spending – not necessarily to routine levels of public investment. And furthermore the evidence here  is not about whether public capital can promote growth by averting the emergence of bottlenecks. Major public investment campaigns continue to be advocated in several countries as a major trigger for economic growth, and on this issue, whether they have in fact triggered growth, the evidence for a positive effect of public capital on GDP or GDP growth is weak. … It is difficult to find a clear-cut example that fits the oft-repeated narrative of a public investment boom followed by acceleration in GDP growth. If anything the cases of clear-cut booms illustrate the opposite – major drives in the past have been followed by slumps rather than booms.

The FT’s Matthew Klein has an excellent write-up of the report. But as it so happens, the FT also features a commentary by Deirdre McCloskey outlining a different path to prosperity:

“Making men and women all equal. That I take to be the gist of our political theory.” This rejoinder to rightwingers who delight in rank and privilege is spoken by Lady Glencora Palliser, the free-spirited Liberal heroine of Anthony Trollope’s Phineas Finn. It encapsulates the cardinal error of much of the left.

Joshua Monk, one of the novel’s Radicals, sees through it. “Equality is an ugly word . . . and frightens,” he says. The aim of the true Liberal should not be equality but “lifting up those below him”. It is to be achieved not by redistribution but by free trade, compulsory education and women’s rights.

And so it came to pass. In the UK since 1800, or Italy since 1900, or Hong Kong since 1950, real income per head has increased by a factor of anywhere from 15 to 100, depending on how one allows for the improved quality of steel girders and plate glass, medicine and economics. …

All the foreign aid to Africa or South and Central America, for example, is dwarfed by the amount that nations in these areas would gain if the rich world abandoned tariffs and other protections for their agriculture industries. There are ways to help the poor – let the Great Enrichment proceed, as it has in China and India – but charity or expropriation are not the ways.

The Great Enrichment came from innovation, not from accumulating capital or exploiting the working classes or lording it over the colonies. Capital had little to do with it, despite the unhappy fact that we call the system “capitalism”. Capital is necessary. But so are water, labour, oxygen and pencils. The path to prosperity involves betterment, not piling brick on brick.

original article: IMF study: Government spending doesn’t make poor countries rich

bureaucracy, capitalism, charity, economics, fairness doctrine, foreign affairs, freedom, funding, government, liberalism, marxism, nanny state, philosophy, politics, poverty, public policy, socialism, spending, study, unintended consequences, welfare

Filed under: bureaucracy, capitalism, charity, economics, fairness doctrine, foreign affairs, freedom, funding, government, liberalism, marxism, nanny state, philosophy, politics, poverty, public policy, socialism, spending, study, unintended consequences, welfare

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