nazis at brandenberg gate

The Economic Policy of the Nazis by Ludwig von Mises

The doctrines of Nazism swept the developed world long before the Nazis took power.

[Excerpt from Omnipotent Government: The Rise of Total State and Total War (1944), chapter 7]

Hitler and his clique conquered Germany by brutal violence, by murder and crime. But the doctrines of Nazism had got hold of the German mind long before then. Persuasion, not violence, had converted the immense majority of the nation to the tenets of militant nationalism.

If Hitler had not succeeded in winning the race for dictatorship, somebody else would have won it. There were plenty of candidates whom he had to eclipse: Kapp, General Ludendorff, Captain Ehrhardt, Major Papst, Forstrat Escherich, Strasser, and many more. Hitler had no inhibitions and thus he defeated his better instructed or more scrupulous competitors.

Nazism conquered Germany because it never encountered any adequate intellectual resistance. It would have conquered the whole world if, after the fall of France, Great Britain and the United States had not begun to fight it seriously.

The contemporary criticism of the Nazi program failed to serve the purpose. People were busy dealing with the mere accessories of the Nazi doctrine. They never entered into a full discussion of the essence of National Socialist teachings. The reason is obvious. The fundamental tenets of the Nazi ideology do not differ from the generally accepted social and economic ideologies. The difference concerns only the application of these ideologies to the special problems of Germany.

These are the dogmas of present-day “unorthodox” orthodoxy:

  1. Capitalism is an unfair system of exploitation. It injures the immense majority for the benefit of a small minority. Private ownership of the means of production hinders the full utilization of natural resources and of technical improvements. Profits and interest are tributes which the masses are forced to pay to a class of idle parasites. Capitalism is the cause of poverty and must result in war.
  2. It is therefore the foremost duty of popular government to substitute government control of business for the management of capitalists and entrepreneurs.
  3. Price ceilings and minimum wage rates, whether directly enforced by the administration or indirectly by giving a free hand to trade-unions, are an adequate means for improving the lot of the consumers and permanently raising the standard of living of all wage earners. They are steps on the way toward entirely emancipating the masses (by the final establishment of socialism) from the yoke of capital. (We may note incidentally that Marx in his later years violently opposed these propositions. Present-day Marxism, however, endorses them fully.)
  4. Easy money policy, i.e., credit expansion, is a useful method of lightening the burdens imposed by capital upon the masses and making a country more prosperous. It has nothing to do with the periodical recurrence of economic depression. Economic crises are an evil inherent in unhampered capitalism.
  5. All those who deny the foregoing statements and assert that capitalism best serves the masses and that the only effective method of permanently improving the economic conditions of all strata of society is progressive accumulation of new capital are ill-intentioned and narrow-minded apologists of the selfish class interests of the exploiters. A return to laissez faire, free trade, the gold standard, and economic freedom is out of the question. Mankind will fortunately never go back to the ideas and policies of the nineteenth century and the Victorian age. (Let us note incidentally that both both Marxism and trade-unionism have the fairest claim to the epithets “nineteenth-century” and “Victorian.”)
  6. The advantage derived from foreign trade lies exclusively in exporting. Imports are bad and should be prevented as much as possible. The happiest situation in which a nation can find itself is where it need not depend on any imports from abroad. (The “progressives,” it is true, are not enthusiastic about this dogma and sometimes even reject it as a nationalist error; however, their political acts are thoroughly dictated by it.)

With regard to these dogmas there is no difference between present-day British liberals and the British labor party on the one hand and the Nazis on the other. It does not matter that the British call these principles an outgrowth of liberalism and economic democracy while the Germans, on better grounds, call them antiliberal and antidemocratic. It is not much more important that in Germany nobody is free to utter dissenting views, while in Great Britain a dissenter is only laughed at as a fool and slighted.

We do not need to deal here with the refutation of the fallacies in these six dogmas. This is the task of treatises expounding the basic problems of economic theory. It is a task that has already been fulfilled. We need only emphasize that whoever lacks the courage or the insight to attack these premises is not in a position to find fault with the conclusions drawn from them by the Nazis.

The Nazis also desire government control of business. They also seek autarky for their own nation. The distinctive mark of their policies is that they refuse to acquiesce in the disadvantages which the acceptance of the same system by other nations would impose upon them. They are not prepared to be forever “imprisoned,” as they say, within a comparatively overpopulated area in which the productivity of labor is lower than in other countries.

Both the German and foreign adversaries of Nazism were defeated in the intellectual battle against it because they were enmeshed in the same intransigent and intolerant dogmatism. The British Left and the American progressives want all-round control of business for their own countries. They admire the Soviet methods of economic management.

In rejecting German totalitarianism they contradict themselves. The German intellectuals saw in Great Britain’s abandonment of free trade and of the gold standard a proof of the superiority of German doctrines and methods. Now they see that the Anglo-Saxons imitate their own system of economic management in nearly every respect. They hear eminent citizens of these countries declare that their nations will cling to these policies in the postwar period. Why should not the Nazis be convinced, in the face of all this, that they were the pioneers of a new and better economic and social order?

The chiefs of the Nazi party and their Storm Troopers are sadistic gangsters. But the German intellectuals and German labor tolerated their rule because they agreed with the basic social, economic, and political doctrines of Nazism. Whoever wanted to fight Nazism as such, before the outbreak of the present war and in order to avoid it (and not merely to oust the scum which happens to hold office in present-day Germany), would have had to change the minds of the German people. This was beyond the power of the supporters of etatism.

It is useless to search the Nazi doctrines for contradictions and inconsistencies. They are indeed self-contradictory and inconsistent; but their basic faults are those common to all brands of present-day etatism.

One of the most common objections raised against the Nazis concerned the alleged inconsistency of their population policy. It is contradictory, people used to say, to complain, on the one hand, of the comparative overpopulation of Germany and ask for more Lebensraum and to try, on the other hand, to increase the birth rate. Yet there was in the eyes of the Nazis no inconsistency in these attitudes. The only remedy for the evil of overpopulation that they knew was provided by the fact that the Germans were numerous enough to wage a war for more space, while the small nations laboring under the same evil of comparative overpopulation were too weak to save themselves. The more soldiers Germany could levy, the easier it would be to free the nation from the curse of overpopulation. The underlying doctrine was faulty; but one who did not attack the whole doctrine could not convincingly find fault with the endeavors to rear as much cannon fodder as possible.

One reason why the objections raised to the despotism of the Nazis and the atrocities they committed had so little effect is that many of the critics themselves were inclined to excuse the Soviet methods. Hence the German nationalists could claim that their adversaries—both German and foreign—were being unfair to the Nazis in denouncing them for practices which they judged more mildly in the Russians. And they called it cant and hypocrisy when the Anglo-Saxons attacked their racial doctrines. Do the British and the Americans themselves, they retorted, observe the principle of equality of all races?

The foreign critics condemn the Nazi system as capitalist. In this age of fanatical anticapitalism and enthusiastic support of socialism no reproach seems to discredit a government more thoroughly in the eyes of fashionable opinion than the qualification pro-capitalistic. But this is one charge against the Nazis that is unfounded. We have seen in a previous chapter that the Zwangswirtschaft is a socialist system of all-round government control of business.

It is true that there are still profits in Germany. Some enterprises even make much higher profits than in the last years of the Weimar regime. But the significance of this fact is quite different from what the critics believe. There is strict control of private spending.

No German capitalist or entrepreneur (shop manager) or any one else is free to spend money on his consumption than the government considers adequate to his rank and position in the service of the nation. The surplus must be deposited with the banks or invested in domestic bonds or in the stock of German corporations wholly controlled by the government.

Hoarding of money or banknotes is strictly forbidden and punished as high treason. Even before the war there were no imports of luxury goods from abroad, and their domestic production has long since been discontinued. Nobody is free to buy more food and clothing than the allotted ration. Rents are frozen; furniture and all other goods are unattainable.

Travel abroad is permitted only on government errands. Until a short time ago a limited amount of foreign exchange was allotted to tourists who wanted to spend a holiday in Switzerland or Italy. The Nazi government was anxious not to arouse the anger of its then Italian friends by preventing its citizens from visiting Italy.

The case with Switzerland was different. The Swiss Government, yielding to the demands of one of the most important branches of its economic system, insisted that a part of the payment for German exports to Switzerland should be balanced by the outlays of German tourists. As the total amount of German exports to Switzerland and of Swiss exports to Germany was fixed by a bilateral exchange agreement, it was of no concern to Germany how the Swiss distributed the surplus. The sum allotted to German tourists traveling in Switzerland was deducted from that destined for the repayment of German debts to Swiss banks. Thus the stockholders of the Swiss banks paid the expenses incurred by German tourists.

German corporations are not free to distribute their profits to the shareholders. The amount of the dividends is strictly limited according to a highly complicated legal technique. It has been asserted that this does not constitute a serious check, as the corporations are free to water the stock. This is an error. They are free to increase their nominal stock only out of profits made and declared and taxed as such in previous years but not distributed to the shareholders.

As all private consumption is strictly limited and controlled by the government, and as all unconsumed income must be invested, which means virtually lent to the government, high profits are nothing but a subtle method of taxation.

The consumer has to pay high prices and business is nominally profitable. But the greater the profits are, the more the government funds are swelled. The government gets the money either as taxes or as loans. And everybody must be aware that these loans will one day be repudiated.

For many years German business has not been in a position to replace its equipment. At the end of the war the assets of corporations and private firms will consist mainly of worn-out machinery and various doubtful claims against the government. Warring Germany lives on its capital stock, i.e., on the capital nominally and seemingly owned by its capitalists.

The Nazis interpret the attitudes of other nations with regard to the problem of raw materials as an acknowledgment of the fairness of their own claims. The League of Nations has established that the present state of affairs is unsatisfactory and hurts the interests of those nations calling themselves have-nots.

The fourth point of the Atlantic Declaration of August 14, 1941, in which the chiefs of the governments of the United Kingdom and of the United States made known “certain common principles in the national policies of their respective countries on which they base their hope for a better future of the world,” reads as follows: “They will endeavor, with due respect for their existing obligations, to further the enjoyment by all States, great or small, victor or vanquished, of access, on equal terms, to the trade and to the raw materials of the world which are needed for their economic prosperity.”

The Roman Catholic Church is, in a world war, above the fighting parties. There are Catholics in both camps. The Pope is in a position to view the conflict with impartiality. It was, therefore, in the eyes of the Nazis very significant when the Pope discovered the root causes of the war in “that cold and calculating egoism which tends to hoard the economic resources and materials destined for the use of all to such an extent that the nations less favored by nature are not permitted access to them,” and further declared that he saw “admitted the necessity of a participation of all in the natural riches of the earth even on the part of those nations which in the fulfillment of this principle belong to the category of givers and not to that of receivers.”

Well, say the Nazis, everybody admits that our grievances are reasonable. And, they add, in this world which seeks autarky of totalitarian nations, the only way to redress them is to redistribute territorial sovereignty. It was often contended that the dangers of autarky which the Nazis feared were still far away, that Germany could still expand its export trade, and that its per capita income continued to increase. Such objections did not impress the Germans. They wanted to realize economic equality, i.e., a productivity of German labor as high as that of any other nation.

The wage earners of the Anglo-Saxon countries too, they objected, enjoy today a much higher standard of living than in the past. Nevertheless, the “progressives” do not consider this fact a justification of capitalism, but approve of labor’s claims for higher wages and the abolition of the wages system. It is unfair, said the Nazis, to object to the German claims when nobody objects to those of Anglo-Saxon labor.

The weakest argument brought forward against the Nazi doctrine was the pacifist slogan: War does not settle anything. For it cannot be denied that the present state of territorial sovereignty and political organization is the outcome of wars fought in the past. The sword freed France from the rule of the English kings and made it an independent nation, converted America and Australia into white men’s countries, and secured the autonomy of the American republics. Bloody battles made France and Belgium predominantly Catholic and Northern Germany and the Netherlands predominantly Protestant. Civil wars safeguarded the unity of the United States and of Switzerland.

Two efficacious and irrefutable objections could well have been raised against the plans of German aggression. One is that the Germans themselves had contributed as much as they could to the state of affairs that they considered so deplorable. The other is that war is incompatible with the international division of labor. But “progressives” and nationalists were not in a position to challenge Nazism on these grounds. They were not themselves concerned with the maintenance of the international division of labor; they advocated government control of business which must necessarily lead toward protectionism and finally toward autarky.

The fallacious doctrines of Nazism cannot withstand the criticism of sound economics, today disparaged as orthodox. But whoever clings to the dogmas of popular neo-Mercantilism and advocates government control of business is impotent to refute them. Fabian and Keynesian “unorthodoxy” resulted in a confused acceptance of the tenets of Nazism. Its application in practical policies frustrated all endeavors to form a common front of all nations menaced by the aspirations of Nazism.

Ludwig von MisesLudwig von Mises

Ludwig von Mises (1881-1973) taught in Vienna and New York and served as a close adviser to the Foundation for Economic Education. He is considered the leading theorist of the Austrian School of the 20th century.

iceburgs

A Scientific Consensus on What Now? by Robert P. Murphy

Authority versus Science in the Climate Change Debate.

When it comes to the climate change debate, many of the loudest voices are confidently making assertions that are not backed up by the actual evidence — and in this respect, they are behaving very unscientifically.

One obvious sign that many people in the climate change debate are appealing to emotions rather than facts is their reliance on pejorative terminology. For example, rather than make an informative statement that they support subsidies for wind and solar, and taxes on coal and oil, they may instead say they support “clean energy” while their opponents favor “dirty energy.”

The coup de grâce, of course, occurs when partisans in the debate refer to their opponents as “climate deniers.” This is a nonsensical slur that would have impressed Orwell. Obviously, nobody denies climate. Furthermore, nobody denies that the climate is changing. And, when it comes to the serious debate among published climate scientists, people on both sides agree that human activities are contributing to warmer temperatures; the dispute is simply overhow much. (Those who think the change is mild have embraced the label “lukewarmers.”)

To label critics of a carbon tax or EPA regulations on power plants as “climate deniers” is utterly destructive of rational inquiry and tries to link legitimate skepticism to Holocaust denial. Those who use this term without irony demonstrate that they have no interest in scientific discovery.

Related to this lack of nuance, and the appeal to an exaggerated consensus, is the oft-repeated claim that “97 percent of climate scientists agree” on the state of human-generated climate change. Physicist-turned-economist David Friedman (among others) has investigated the methods used to generate such claims, and finds that they are seriously lacking.

Using the very data (on abstracts from published papers) that forms the basis of these headline announcements, Friedman reckons that more like 1.6 percent of the surveyed papers explicitly endorse humans as the main cause of global warming since the 1800s. Friedman further argues that this confusion — where the actual findings of the paper ended up being misinterpreted by the media — appears to have been deliberately produced by the survey’s authors.

“Hottest Year on Record” and “the Pause”

A January 2016 New York Times article epitomizes the advocacy disguised as reporting in the climate change debate. The very title lets you know that a serious case of scientism is coming, for it announces, “2015 Was Hottest Year in Historical Record, Scientists Say.”

Now, we must inquire, what is the purpose of adding “Scientists Say” at the end? Does any reader think that the Times would be quoting plumbers or accountants on whether 2015 was the hottest year on record? The obvious purpose is to contrast what scientists say about global warming with what thosenonscientist deniers are saying. The article goes on to let us know exactly what “the scientists” think about global warming and manmade activities:

Scientists started predicting a global temperature record months ago, in part because an El Niño weather pattern, one of the largest in a century, is releasing an immense amount of heat from the Pacific Ocean into the atmosphere. But the bulk of the record-setting heat, they say, is a consequence of the long-term planetary warming caused by human emissions of greenhouse gases.

“The whole system is warming up, relentlessly,” said Gerald A. Meehl, a scientist at the National Center for Atmospheric Research in Boulder, Colo.

It will take a few more years to know for certain, but the back-to-back records of 2014 and 2015 may have put the world back onto a trajectory of rapid global warming, after a period of relatively slow warming dating to the last powerful El Niño, in 1998.

Politicians attempting to claim that greenhouse gases are not a problem seized on that slow period to argue that “global warming stopped in 1998,” with these claims and similar statements reappearing recently on the Republican presidential campaign trail.

Statistical analysis suggested all along that the claims were false, and that the slowdown was, at most, a minor blip in an inexorable trend, perhaps caused by a temporary increase in the absorption of heat by the Pacific Ocean.

This excerpt is quite fascinating. We have something reported as undeniable fact when it actually relies on assumptions of what might happen in the future (“may have put the world back onto a trajectory of rapid global warming”) and offers conjectures to explain why the measured warming suddenly slowed down (“perhaps caused by a temporary increase in the absorption of heat”).

The “statistical analysis” did not establish that the critics’ claims were false. It is undeniably true that the official NASA GISS records showed, for example, that the average annual global temperature in 2008 was lower than the annual temperature in 1998, and that’s why people at the time were saying, “There has been no global warming in the last ten years.”

Here is a NASA-affiliated scientist arguing that such claims are misleading, and perhaps they were, but it is similarly misleading to turn around and claim that the pause didn’t exist.

If you asked a bunch of Americans whether they gained weight over the last 10 years, their natural interpretation of that question would be, “Do I weigh morenow than I weighed 10 years ago?” They wouldn’t think it involved construction of moving averages since birth. In that sense, the people referring to the pause were not acting dishonestly; they were pointing out to the public a fact about the temperature record that would definitely be news to them, in light of the rhetoric of runaway climate change.

However, the more substantive point here is that the popular climate models predicted much more warming than has in fact occurred. In other words, the question isn’t whether the 2000s were warmer than the 1990s. Rather, the issue is given how much concentrations of greenhouse gases have risen, is the actualtemperature trend consistent with the predicted temperature trend?

To answer this, consider a December 2015 Cato Institute working paper from two climate scientists, Pat Michaels and Paul Knappenberger: “Climate Models and Climate Reality: A Closer Look at a Luke warming World.” They avoid the accusation of cherry-picking by running through trend lengths of varying durations, and they compare 108 model runs with the various data sets on observed temperatures. They conclude, “During all periods from 10 years (2006–2015) to 65 (1951–2015) years in length, the observed temperature trend lies in the lower half of the collection of climate model simulations, and for several periods it lies very close (or even below) the 2.5th percentile of all the model runs.”

Thus we see that the critics arguing about the model projections aren’t simply picking the very warm 1998 as a starting point in order to game the results. The standard models produced warming projections well above what has happened in reality, and for some periods the observed warming was so low (relative to the prediction) that there is less than a 2.5 percent chance that this could be explained by natural volatility. This is the sense in which the current suite of climate models is on the verge of being “rejected” in the statistician’s sense.

To be sure, I am not a climate scientist, and others would no doubt dispute the interpretation of the data that Michaels and Knappenberger give. My point is to show how utterly misleading the New York Times piece is when it leads readers to believe that “scientists” were never troubled by lackluster warming and that only politicians were trying to confuse the public on the matter.

Climate Economists Don’t Believe Their Models?

Finally, consider a December 2015 Vox piece with the title, “Economists Agree: Economic Models Underestimate Climate Change.” Furthermore, the URL for this piece contains the phrase “economists-climate-consensus.” We see the same appeal to authority here as in the natural sciences when it comes to climate policy.

The Vox article refers to a survey of 365 economists who had published in the field of climate economics. Here is the takeaway: “Like scientists, economists agree that climate change is a serious threat and that immediate action is needed to address it” (emphasis added).

Yet, in several respects, the survey reveals facts at odds with the alarmist rhetoric the public hears on the issue. For example, one question asked, “During what time period do you believe the net effects of climate change will first have a negative impact on the global economy?” With President Obama and other important officials discussing the ravages of climate change (allegedly) before our very eyes, one might have expected the vast majority of the survey respondents to say that climate change is having a negative impact right now.

In fact, only 41 percent said that. Twenty-two percent thought the negative impact would be felt by 2025, while an additional 26 percent would only say climate change would have net negative economic effects by 2050. Would anyone have expected that result when reading Vox’s summary that immediate action is needed to address climate change?

To be clear, the Vox statement is not a lie; it can be justified by the responses on two of the other questions. Yet the actual views of these economists are much more nuanced than the pithy summary statements suggest.

Authority versus Science

On this particular survey, I personally encountered the height of absurdity in the context of scientism and appeal to authority. For years, in my capacity as an economist for the Institute for Energy Research, I have pointed out that the published results in the United Nations’ official “consensus” documents do not justify even a standard goal of limiting global warming to 2 degrees Celsius, let alone the over-the-top rhetoric of people like Paul Krugman.

In order to push back against my claim, economist Noah Smith pointed to the survey discussed earlier, proudly declaring, “Apparently most climate economists don’t believe their own models.” Thus we have reached the point where partisans on one side of a policy debate rely on surveys of what “the experts say,” in order to knock down the other side who rely on the published results of those very experts.

This is the epitome of elevating appeals to scientific authority over the underlying science itself.

In the climate change debate, legitimate disputes are transformed into a battle between Noble Seekers of Truth versus Unscientific Liars Who Hate Humanity. Time and again, references to “the consensus” are greatly exaggerated, while people pointing out enormous problems with the case for policy action are dismissed as “deniers.”

Robert P. MurphyRobert P. Murphy

Robert P. Murphy is research assistant professor with the Free Market Institute at Texas Tech University.

RELATED ARTICLE: College Professor Advocating Climate Change May Have Mismanaged Millions in Tax Dollars

oregon minimum wage bill signing

Governor of Oregon signs ‘Economic Death Warrant’ for Her State

Without consulting any economists or reviewing the past performance of government interference from the manipulation of wages against labor and productivity, Oregon’s governor Kate Brown on March 2nd 2016 signed a potential economic death warrant for her state.

She picked up her black and gold stylus, with the hammer and sickle engraved in the nib, and signed legislation that will raise the minimum wage to nearly $15 an hour over a six year incremental three tiered system.

Now this has never been tried before anywhere in the United States. Probably for good reason. Even the emerging capitalist nation of the Russian Federation has stayed clear of this type of folly.

The Governor said today the new law “Is a path forward – so working families can catch up, and businesses have time to plan for the increase.”

ERR, no. This is a massive Socialist Marxist mindset economic mistake. Small business owners will stop hiring and families will be left even further behind.

Besides; one DOES not raise a family in a minimum wage job. This is entry level work of none skilled labor. A stepping stone to better things.

When governments artificially raise wages and eliminate competition they suffer massive economic problems.

Increasing the minimum wage this high in Oregon, is way above the threshold for small business owners to sustain employees and this action by the Governor will cut off and eventually block many roads to greater prosperity for many poor families, kids working their way through college and the like.

Kate Brown oregon governor

Governor Kate Brown

This action by Governor Kate Brown the born again Marxist in Oregon will delay if not eliminate the entry of other workers, including youth, into non skilled paid work by needlessly increasing the cost of unskilled labor. Totally un American and Marxist in nature.

Employers; especially small business owners will not be able to afford to hire as many unskilled workers, and will respond by cutting back services or replacing workers with machinery or computers.

The expert matter subjects in this field of study refer to this as the “elasticity” of demand for labor to describe the ratio of jobs gained or lost when wages change.

Increasing wages on low skilled entry level jobs such as those that help college kids get through their growing years in college on Ramon noodle dinners will now be making the kids just heat the water. No job. No more Ramon noodles…..

Economic experts estimate this “elasticity” will vary, but the average estimate is that for a 10 percent increase in the minimum wage, employment crashes by 5 percent.

If the minimum wage is increased from $9.00 to $15.00 per hour, as is now the case in Oregon the demand for unskilled labor could drop by as much as 35 percent in jobs that earn the said current minimum wage.

The outcome of this is the loss of hundreds if not thousands of jobs making it more difficult for small business owners to hire.

It will close down many non skilled entry level workers access to a job and it will put up a road block to people who want escape poverty.

My friend started working at McDonalds making $3.15 an hour flipping burgers. With the knowledge he acquired and as a capitalist risk taker he went on to now 35 years later to own seven McDonald franchises in Baton Rouge. His net worth today exceeds $12 million dollars.

His hard work and his risk taking paid off. The fact he made minimum wage when he first started out did not stop him from achieving financial success. There was no interfering with and artificially manipulating the cost of labor when he was sticking the fryer in the hot oil.

Mom and pop stores will soon stop hiring in Oregon and instead will perhaps just use family members to run the front counter. Large franchise like Wal-Mart and fast food chains will install self check out stations and machines to take burger orders.

This action by the Governor of Oregon will destroy jobs and perhaps force some companies to move across state lines.

Increasing the minimum wage will eliminate entry-level jobs for unskilled workers, more people will become a burden upon the state funded welfare rolls thus reducing productivity, and thus reducing the available job market and making it more difficult for those who want to work to find jobs.

There is no such thing as a dead end job.

Low-wage entry level jobs provide the poor with an escape route from poverty. Now in Oregon the new law means to make an honest living is now much harder and more folks will be unable to get hired will be living off the dole..

Entry level positions will either be eliminated, moved out of state of replaced with technology.

This action by the Governor has done nothing but to bash the working poor over the head with a hammer and has made an escape route from poverty more difficult for them to follow.

RELATED ARTICLES:

An Economist’s 10 Objections to the Minimum Wage by Mark J. Perry

The Minimum Wage Fairy Tale by Donald J. Boudreaux

Low-Skilled Workers Flee the Minimum Wage: How State Lawmakers Exile the Needy by Corey Iacono

The Minimum Wage Hurt the Young and Low-Skilled almost as Much as the Recession by Preston Cooper

EDITORS NOTE: What are the specific objections of economists to the minimum wage and why do they generally favor market wages instead? Here are ten reasons in favor of market wages over a government-mandated minimum wage:

  1. Proposed minimum wages are almost always arbitrary and never based on sound economic analysis. Why $10.10 an hour and not $9.10? Why $15 an hour and not $16 an hour?
  1. A uniform federal minimum wage may be sub-optimal for many states, and uniform state minimum wages may be sub-optimal for many cities. A one-size-fits-all approach to the minimum wage is really a “one-size-fits-none.”
  1. Minimum wage laws require costly taxpayer-funded monitoring and enforcement mechanisms, whereas market wages don’t.
  1. Minimum wage laws discriminate against unskilled workers in favor of skilled workers, and the greatest amount of discrimination takes place against minority groups, like blacks.
  1. Adjustments to total compensation following minimum wage laws will disadvantage workers in the form of reduced hours, reduced fringe benefits, and reduced on-the-job training.
  1. Many unskilled workers will be unable to find work and will be denied valuable on-the-job training and the opportunity to acquire experience and skills.
  1. Minimum wage laws prevent mutually advantageous, voluntary labor agreements between employers and employees from taking place.
  1. To the extent that higher minimum wages result in lower firm profits and higher retail prices, that’s a form of legal plunder by workers from employers and consumers that is objectionable.
  1. Market-determined wages are efficient, whereas government-mandated wages create distortions in the labor markets that prevent labor markets from clearing.
  1. Like all government price controls, minimum wage laws are distortionary. If you trust government officials and politicians to legislate and enforce a minimum wage for unskilled workers, you should logically trust those same bureaucrats to set all prices, wages and interest rates in the economy. Realistically, if you agree that those economy-wide price controls would be undesirable, then you should also agree that the minimum wage law is also undesirable.
deportation

How much would it cost to deport every single illegal alien in the U.S.?

The pro-amnesty American Action Forum (AAF) found it would cost the federal government $400 to $600 billion to remove all illegal aliens currently living in the United States within a two year period and to prevent all future unlawful entry.

In its research paper, AAF examined the personnel and infrastructure implications of removing all 11.3 million illegal aliens in a two-year time frame. In order to remove all illegals, each each one would have to be apprehended, detained, legally processed, and transported to their country of origin. In order to remove all illegals in two years, the U.S. government would have to expand each of those stages of the removal process.

The current annual budget for U.S. Customs and Border Protection is $13.5 billion. This does not include the costs of federal, state and local law enforcement agencies dealing with apprehending, detaining and processing illegals on a daily basis.

Based upon FY 2013 levels it would require:

  • Federal immigration apprehension personnel to increase from 4,844 positions to 90,582 positions;
  • The number of immigration detention beds to increase from 34,000 to 348,831;
  • The number of immigration courts to increase from 58 to 1,316;
  • The number of federal attorneys legally processing undocumented immigrants to increase from 1,430 to 32,445; and
  • A minimum of 17,296 chartered flights and 30,701 chartered bus trips each year.

George Fuller, an expert on immigration issues, notes, “Put in E-Verify and take away Childbirth citizenship and they will self deport. There will be no rounding up necessary. The AAF report is designed to make people think we have to accept them being here because the cost to deport them is high, but that is not true. When they get hungry they will leave. The same goes for visa over stayers!”

The Federation for America Immigration Reform (FAIR) in a 2013 study estimates the annual costs of illegal immigration at the federal, state and local level to be about $113 billion; nearly $29 billion at the federal level and $84 billion at the state and local level.

The FAIR study also estimates tax collections from illegal alien workers, both those in the above-ground economy and those in the underground economy. Those receipts do not come close to the level of expenditures and, in any case, are misleading as an offset because over time unemployed and underemployed U.S. workers would replace illegal alien workers.

Key Findings of the FAIR study:

  • Illegal immigration costs U.S. taxpayers about $113 billion a year at the federal, state and local level. The bulk of the costs — some $84 billion — are absorbed by state and local governments.
  • The annual outlay that illegal aliens cost U.S. taxpayers is an average amount per native-headed household of $1,117. The fiscal impact per household varies considerably because the greatest share of the burden falls on state and local taxpayers whose burden depends on the size of the illegal alien population in that locality
  • Education for the children of illegal aliens constitutes the single largest cost to taxpayers, at an annual price tag of nearly $52 billion. Nearly all of those costs are absorbed by state and local governments.
  • At the federal level, about one-third of outlays are matched by tax collections from illegal aliens. At the state and local level, an average of less than 5 percent of the public costs associated with illegal immigration is recouped through taxes collected from illegal aliens.
  • Most illegal aliens do not pay income taxes. Among those who do, much of the revenues collected are refunded to the illegal aliens when they file tax returns. Many are also claiming tax credits resulting in payments from the U.S. Treasury.

Read the FAIR full report here.

It appears from the two reports that the costs of deporting all illegals would be recouped within 4 to 6 years.

The AFF report notes that, “[I]n just two years it would shrink the labor force by 10.3 million workers and reduce real GDP by $1 trillion.” However, this does not take into account the reduction of payments to those not working by the government, who would now be able to back fill those jobs opened by the mass deportation of illegals.

Please leave your comments on this column. There are two options, the status quo or deportation. Which would be better for America and American workers?

UPDATE: Robert A King left the following comment on our Facebook page.

The straw man argument against enforcing immigration laws against illegals already here is that we can’t practically deport some 20 Million, illegal aliens. Poppy cock! Don’t fall for it!

Most illegals would go home of their own accord, without having to physically deport them, if we:

1) Build the fence – the WHOLE fence!

2) Make it illegal to hire an illegal, backed by stiff fines escalating to jail time for repeat/multiple offenses, and with culpability extending to corporate officers and board members;

3) Pass mandatory e-Verify in order to implement 2);

4) Make it illegal to provide educational, health (except for emergency care), or social welfare benefits to illegals, backed by stiff fines escalating to jail time for repeat/multiple offenses, and with culpability extending to corporate officers and board members;

5) Revise the visa system to make location recording and check-in tracking mandatory for all here under the various visas. Once expired and not renewed, require mandatory departure enforced by arrest and deportation for violation.

6) Eliminate the law that allows “Birthright Citizenship”, aka “Anchor Babies”. Congress NEVER intended that a person sneaking over the border to have their baby in the US should be allowed to be granted automatic and immediate citizenship. Amend the constitution, if necessary;

7) Make aiding and abetting an illegal itself illegal, backed by stiff fines escalating to jail time for repeat/multiple offenses, and with culpability extending to all involved, especially corporate officers and board members;

8) Illegals wanting to return to the US must apply under the legal immigration system, and follow the law like all other, legal immigrants;

9) Deport all criminal illegal aliens, whom make up over 30% of the federal prison population.

These things alone would cause most illegals to go home of their own accord, due to lack of “goody” incentives and the inability to work.

Next, we must also:

10) Make English our official language. E Pluribus Unum – out of many, one. It’s our national motto.

No more government voting ballots or other forms in anything other than English.

You want to be here? Become an AMERICAN!

bernie sander podium

Will a ‘Socialist’ Government Make Us Freer? by Jason Kuznicki

“Socialism” is a weasel word.

Consider that the adjective “socialist” applies commonly — even plausibly — to countries with vastly different ex ante institutions and with vastly different social and economic outcomes. Yet Canada, Norway, Venezuela, and Cuba can’t all be one thing. Does socialism mean substantial freedom of the press, as in Norway? Or does it mean the vicious suppression of dissent, as in Venezuela?

We need more clarity here before we decide whether socialism is a worthwhile social system, and whether, as Will Wilkinson recommends, we ought to support a socialist candidate for president.

An approach that clearly will not do is to apply the term “socialism” to virtually all foreign countries. Shabby as that definition may be, some do seem to use it, both favorably and not. The result is that “socialism” has grown popular largely because a lot of people have concluded that the American status quo stinks. Maybe it does stink, but that doesn’t endow “socialism” with a proper definition.

Let’s see what happens when we drill down to the level of institutions.

Now, we might personally wish that the word “socialism” meant “the social system in which the state owns the means of production and runs the major industries of the nation.”

This is a workable definition: It has a clear genus and differentia; it includes some systems, while excluding others; and it’s not obviously self-referential. It’s also the definition preferred by many important political actors in the twentieth century, including Vladimir Lenin.

Lenin’s definition was not a bad one. But it’s far from the only current, taxonomically proper definition of socialism. As Will Wilkinson rightly notes, socialism also commonly means “the social system in which the state uses taxation to provide an extensive social safety net.”

And yet, as Will also notes, “ownership of the means of production” and “provision of a social safety net” are logically independent policies. A state can do one, the other, both, or neither. Of these four possibilities, there’s only one that can’t plausibly be called a socialism — and not a single state on earth behaves this way!

Better terms are in order, but I know that whatever I propose here isn’t going to stick, so I’m not going to try. Instead I want to look at some of the consequences that may arise from our fuzzy terminology.

One danger is that we may believe and support one conception of “socialism” —only to find that the agents we’ve tasked with supplying it have had other ideas all along: We may want Norway but get Venezuela. Wittingly or unwittingly.

Before we say “oh please, of course we’ll end up in Norway,” let’s recall how eager our leftist intelligentsia has been to praise Chavez’s Venezuela — and even declare it an “economic miracle” — until the truth became unavoidable: The “miracle” of socialism in Venezuela turned out to be nothing more than a transient oil boom. Yet leftist intellectuals are the very sorts of people who will be drawn, by self-selection, to an administration that is proud to call itself socialist.

There’s some resemblance to a “motte-and-bailey” process here: they cultivate the rich, desirable fields of the bailey, until they are attacked, at which point they retreat to the well-fortified motte. The easily defensible motte is the comfortable social democracy of northern Europe, which we all agree is pretty nice and happens to have quite a few free-market features. The bailey is the Cuban revolution.

This motte-and-bailey process does not need to be deliberate; it may be the result of a genuinely patchwork socialist coalition. No one in the coalition needs to have bad faith. An equivocal word is all that’s needed, and one is already on hand.

Even when we look only at one country, the problem remains: We may only want some institutional parts of Denmark — and we may want them for good reasons, such as Denmark’s relatively loose regulatory environment. But what we get may only be the other institutional parts of Denmark — such as its high personal income taxes. (Worth noting: Bernie Sanders has explicitly promised the higher personal income taxes, while his views on regulation are anything but Danish.)

Will thinks that electing someone on the far left of the American political spectrum could be somewhat good for liberty, but I’m far from convinced. Remember what happened the last time we put just a center-leftist in the White House: By the very same measures of economic freedom that Will uses to tout Denmark’s success, America’s economic freedom ranking sharply declined. And that decline was the direct result of Barack Obama’s left-wing economic policies. We got a larger welfare state and higher taxes, but we also got much more command-and-control regulation.

Faced with similar objections from others, Will has already performed a nice sidestep: He has replied that voting for Sanders is — obviously — just a strategic move: “Obviously,” he writes, “President Bernie Sanders wouldn’t get to implement his economic policy.” Emphasis his.

To which I’d ask: Do you really mean that Sanders would achieve none of his economic agenda? At all? Because I can name at least two items that seem like safe bets: more protectionism and stricter controls on immigration. A lot of Sanders’s ideas will indeed be dead on arrival, but these two won’t, and he would be delighted to make a bipartisan deal that cuts against most everything that Will, the Niskanen Center, and libertarians generally claim to stand for. Cheering for a guy who would happily bury your legislative agenda, and who stands a good chance of actually doing it seems… well, odd.

There is also a frank inconsistency to Will’s argument: The claim that Sanders will make us more like Denmark can’t be squared with the claim that Sanders will be totally ineffective. Arguing both is just throwing spaghetti on the wall — and hoping the result looks like libertarianism.

Would Sanders decriminalize marijuana? Or reform the criminal justice system? Or start fewer wars? Or spend less on defense? Or give us all puppies? I don’t know. Obama promised to close Guantanamo. He promised to be much better on civil liberties. He promised not to start “dumb wars” or bomb new and exotic countries. He even promised accountability for torture.

In 2008, I made the terrible mistake of counting those promises in his favor. We’ve seen how well that worked out.

It’s completely beyond me why I should trust similarly tangential promises this time around — particularly from a candidate like Sanders, whose record on foreign policy is already disturbingly clear. None of the rest of these desiderata have anything to do with state control over our economic life, which would appear to be the one thing the left wants most of all. (Marijuana: illegal in Cuba. Legal in North Korea. Yay freedom?)

Ultimately, I think that electing someone significantly further left than Obama will not help matters in any sense at all, except maybe that it will show how little trust we should put in anyone who willingly wears the socialist label. The only good outcome of a Sanders administration may be that we’ll all say to ourselves afterward: “Well, we won’t be trying that again!”

Now, I am prepared to believe, exactly as Will writes, that “‘social democracy,’ as it actually exists, is sometimes more ‘libertarian’ than the good old U.S. of A.” That’s true, at least in a few senses. Consider, for instance, that Denmark isn’t drone bombing unknown persons in Pakistan using a type of algorithm that can’t seem to deliver interesting Facebook ads. (One could say that, as usual, Denmark is letting us do their dirty work for them, with their full approval, but I won’t press the point.)

Either way, that’s still a pretty low bar, no? Meanwhile, there remains plenty of room for us to imitate some other bad things — things that we aren’t doing now, but that Denmark is doing, like taxing its citizens way, way too much. The fact that these things are a part of the complex conglomerate known as northern European social democracy doesn’t necessarily make them good, exactly as remote control assassination doesn’t become good merely by virtue of being American.

In short: Point taken about social democracy. At times, some of it isn’t completely terrible. But that only gets us so far, and not quite to the Sanders slot in the ballot box.

Jason KuznickiJason Kuznicki

Jason Kuznicki is the editor of Cato Unbound.

girl with phone

The Average American Today Is Richer than John D. Rockefeller by Donald J. Boudreaux

This Atlantic story reveals how Americans lived 100 years ago. By the standards of a middle-class American today, that lifestyle was poor, inconvenient, dreary, and dangerous. (Only a few years later — in 1924 — the 16-year-old son of a sitting US president would die of an infected blister that the boy got on his toe while playing tennis on the White House grounds.)

So here’s a question that I’ve asked in one form or another on earlier occasions, but that is so probing that I ask it again: What is the minimum amount of money that you would demand in exchange for your going back to live even as John D. Rockefeller lived in 1916?

21.7 million 2016 dollars (which are about one million 1916 dollars)? Would that do it? What about a billion 2016 — or 1916 — dollars? Would this sizable sum of dollars be enough to enable you to purchase a quantity of high-quality 1916 goods and services that would at least make you indifferent between living in 1916 America and living (on your current income) in 2016 America?

Think about it. Hard. Carefully.

If you were a 1916 American billionaire you could, of course, afford prime real-estate. You could afford a home on 5th Avenue or one overlooking the Pacific Ocean or one on your own tropical island somewhere (or all three). But when you traveled from your Manhattan digs to your west-coast palace, it would take a few days, and if you made that trip during the summer months, you’d likely not have air-conditioning in your private railroad car.

And while you might have air-conditioning in your New York home, many of the friends’ homes that you visit — as well as restaurants and business offices that you frequent — were not air-conditioned. In the winter, many were also poorly heated by today’s standards.

To travel to Europe took you several days. To get to foreign lands beyond Europe took you even longer.

Might you want to deliver a package or letter overnight from New York City to someone in Los Angeles? Sorry. Impossible.

You could neither listen to radio (the first commercial radio broadcast occurred in 1920) nor watch television. You could, however, afford the state-of-the-art phonograph of the era. (It wasn’t stereo, though. And — I feel certain — even today’s vinylphiles would prefer listening to music played off of a modern compact disc to listening to music played off of a 1916 phonograph record.) Obviously, you could not download music.

There really wasn’t very much in the way of movies for you to watch, even though you could afford to build your own home movie theater.

Your telephone was attached to a wall. You could not use it to Skype.

Your luxury limo was far more likely to break down while you were being chauffeured about town than is your car today to break down while you are driving yourself to your yoga class. While broken down and waiting patiently in the back seat for your chauffeur to finish fixing your limo, you could not telephone anyone to inform that person that you’ll be late for your meeting.

Even when in residence at your Manhattan home, if you had a hankering for some Thai red curry or Vindaloo chicken or Vietnamese Pho or a falafel, you were out of luck: even in the unlikely event that you even knew of such exquisite dishes, your chef likely had no idea how to prepare them, and New York’s restaurant scene had yet to feature such exotic fare. And while you might have had the money in 1916 to afford to supply yourself with a daily bowlful of blueberries at your New York home in January, even for mighty-rich you the expense was likely not worthwhile.

Your wi-fi connection was painfully slow — oh, wait, right: it didn’t exist. No matter, because you had neither computer nor access to the Internet. (My gosh, there weren’t even any blogs for you to read!)

Even the best medical care back then was horrid by today’s standards: it was much more painful and much less effective. (Remember young Coolidge.) Antibiotics weren’t available. Erectile dysfunction? Bipolar disorder? Live with ailments such as these. That was your only option.

You (if you are a woman) or (if you are a man) your wife and, in either case, your daughter and your sister had a much higher chance of dying as a result of giving birth than is the case today. The child herself or himself was much less likely to survive infancy than is the typical American newborn today.

Dental care wasn’t any better. Your money didn’t buy you a toothbrush with vibrating bristles. (You could, however, afford the very finest dentures.)

Despite your vanity, you couldn’t have purchased contact lenses, reliable hair restoration, or modern, safe breast augmentation. And forget about liposuction to vacuum away the results of your having dined on far too many cream-sauce-covered terrapin.

Birth control was primitive: it was less reliable and far more disruptive of pleasure than are any of the many inexpensive and widely available birth-control methods of today.

Of course, you adore precious-weacious little Rover, but your riches probably could not buy for Rover veterinary care of the sort that is routine in every burgh throughout the land today.

You were completely cut off from the cultural richness that globalization has spawned over the past century. There was no American-inspired, British-generated rock’n’roll played on electric guitars. And no reggae. Jazz was still a toddler, with only few recordings of it.

You could afford to buy the finest Swiss watches and clocks, but even they couldn’t keep time as accurately as does a cheap Timex today (not to mention the accuracy of the time kept by your smartphone).

Honestly, I wouldn’t be remotely tempted to quit the 2016 me so that I could be a one-billion-dollar-richer me in 1916. This fact means that, by 1916 standards, I am today more than a billionaire. It means, at least given my preferences, I am today materially richer than was John D. Rockefeller in 1916. And if, as I think is true, my preferences here are not unusual, then nearly every middle-class American today is richer than was America’s richest man a mere 100 years ago.

This post first appeared at Cafe Hayek.

Donald J. BoudreauxDonald J. Boudreaux

Donald Boudreaux is asenior fellow with the F.A. Hayek Program for Advanced Study in Philosophy, Politics, and Economics at the Mercatus Center at George Mason University, a Mercatus Center Board Member, a professor of economics and former economics-department chair at George Mason University and, a former FEE president.

punch bowl with hand made of ice

Housing Finance’s Two Punch Bowls by the Federal Government Should Be Removed

As famously stated by Fed Chairman William McChesney Martin in 1955: “The Federal Reserve, after the recent increase in the discount rate, is in the position of the chaperon who has ordered the punch bowl removed just when the party was really warming up.”

As the Fed is now finding out, removing the punch bowl can be problematic if the party is already past warming up. Since it announced a ¼ point increase in the Fed funds rate on December 16, 2015, the two year and ten year Treasury notes have dropped 33 basis and 54 basis points respectively. The ten year rate is at 1.76%, near its all-time low of 1.58%. 30-year mortgage rates, which are priced off of it, have declined to 3.72%, the lowest level in 9 months and only marginally above the all-time low of 3.35% set in November 2012. Clearly the interest rate punch bowl has not been removed.

But housing finance benefits from a second punch bowl spiked by a plethora of federal housing guarantee agencies— Federal Housing Administration, Fannie Mae, Ginnie Mae, Freddie Mac, Federal Housing Finance Agency, etc. Today these agencies guarantee 85% of all primary home purchase loans. Loan leverage, as measured by the Pinto-Oliner National Mortgage Risk Index (NMRI) for agency home purchase loans, has been steadily increasing on a year-over-year basis since January 2014. Increases in first-time home buyer leverage have led the way, benefiting from the particularly liberal lending standards of the Federal Housing Administration (FHA). Seven in eight FHA loans to first-time buyers have an NMRI rating of high risk. Add in the fact that the FHA, to a great extent, neither prices nor underwrites for loan risk, making this is a punch bowl that can give quite a hangover.

The result has been a rapid increase in real (inflation adjusted) home prices, with prices up nationally about 16.5% since the home price trough in 2012. History teaches us that once the divergence hits 20% or more, the process of reverting to the mean becomes quite painful, as it is achieved through a drop in home prices. Such divergence can continue for a long time—in the recent boom it lasted 12 years and resulted in a 62% increase in real home prices. Of equal concern is that real prices since the 2012 trough have gone up even more—up 19% for entry-level homes. This makes it harder for low-income borrowers to buy without taking out a high risk loan.

It is well known why this phenomenon occurs. Liberalization of credit terms such as lower downpayments, increasing debt-to-income ratios, or declining interest rates increases demand. When undertaken in a seller’s market where supply is constrained (defined as an inventory relative to sales of six months or less), there is a tendency for this liberalization to be absorbed in price increases rather than increased access. The National Association of Realtors has reported an existing home seller’s market for 40 straight months.

The housing market, like others, is subject to the law of supply and demand. In the same 1955 speech Chairman Martin observed: “It is true that in a great emergency we have been willing to make a departure from our market structure…. The law of supply and demand is suspended temporarily, but it cannot be permanently repealed. It is always with us just as is the law of gravity.”

While this situation is bullish in the near term for continued housing price gains, in the end the taxpayer and low income buyers are the ones taking on the risk. It is time for the Fed and federal guarantee agencies to start removing the punch bowls and acknowledge that home prices are subject to the law of gravity—what goes up must come down.

EDITORS NOTE: This column originally appeared om InsideSources.com.

S

Progress Will Hurt Blameless People by Aaron Ross Powell

There’s an unfortunate tendency among some free market advocates to blame the victim: If you can’t find work, it’s because you’re lazy or you somehow screwed up. Hard work’s all that’s necessary to succeed. But of course that’s not true. It’s quite easy to think of counterexamples. We know creative destruction is a necessary part of a well-functioning economy. Market churn means people lose their jobs through no fault of their own, and shifts in technology and consumer preferences mean that skills once lucrative can suddenly become relatively worthless. Markets are overwhelmingly good, yes, and are responsible for the astonishing amelioration of poverty we’ve seen since the Industrial Revolution, but they have their victims.

A changing global economy has meant a changing American economy and a changing American economy has meant that some people who did well in the old pattern are having a harder time in the new. This harder time is felt by, among others, a segment of America’s lower-middle class who used to be able to find decent-paying jobs that demanded physical labor and the kinds of skills you don’t learn in school.

That segment increasingly faces a fact about the modern economy: Unless you’re a knowledge worker, it’s become a whole lot harder to find a well-paying, stable, long-term job because the skills you bring to an employer aren’t as in demand as they used to be.

And that’s awful for the people going through it. We can say that free markets change over time and that those changes lead to more prosperity in the long term, and that’s true. But it doesn’t make life better for the machinist or construction worker without a college degree and without much retirement savings. Empathy seems an appropriate response by those of us not facing such hardship.

That even well-functioning markets hurt some people some of the time makes selling market solutions to policy problems often a difficult task. We know that the solution to unemployment or underemployment is more economic freedom. Get rid of the barriers to entry and the protectionist policies keeping afloat what would otherwise be failing firms. Enable private schools to create a robust and successful educational system so more people have the skills needed to succeed in a modern economy. Open trade with the rest of the world, so we can grow our economy, buy goods at lower prices, and sell into more markets.

But here’s the thing. Every one of those solutions ends up sounding, to the person economically hurting now, like saying, “Leave it alone and things will work themselves out. Don’t know quite how or when, but they will.”

Market solutions are emergent solutions, and emergence takes time and can’t be planned or predicted. In fact, it’s the attempt to plan and predict that leads so many non-market-based policies to fail. Economists understand this and so largely trust markets. But most Americans aren’t economists.

I think this explains, in part, the appeal of people like Donald Trump or Bernie Sanders. We see them as misdiagnosing the problems and offering counter-productive, and sometimes abhorrent, “solutions.” Immigrants are taking your jobs. (They aren’t.) So let’s fix it right now by closing the borders. Trade with China is making us poor. (It isn’t.) So let’s fix it now by establishing quotas and tariffs.

But to people hurting right now, people like Trump or Sanders offer something free markets can’t: certainty, even if illusory. These people right here are the cause of your problems. Punish or stop them and your problems will go away. America will go back to being great, with “great” meaning the way it was when low-information, low-skill Americans could spend their lives comfortably in the middle class. In other words, before America’s economy became modern.

We don’t want that, of course. The economic visions of Trump and Sanders aren’t just backwards, but are dangerously retrograde policies that will hurt everyone without doing much to improve the lives of those who support such policies.

Liberty struggles when confronted with this combination of widespread economic ignorance and the political incentive for politicians to pander and promise solutions that are anything but. And I don’t know how to solve that. Nor do I believe there’s an easy solution. The incentives in politics run against us, and so we somehow need to get better at articulating the story of markets, of the voluntary and the emergent, and do it in a way that’s as compelling and hopeful in its rhetoric as the false hopes sold by those pitching meretricious intervention.

Part of that means consciously avoiding a panglossian picture of markets, and recognizing that sometimes people get hurt by them, and that often that hurt is blameless.

Cross-posted from Libertarianism.org.

Aaron Ross PowellAaron Ross Powell

Aaron Ross Powell is a research fellow and editor of Libertarianism.org.

usaspending gov logo

Have some fun at USA Spending.gov: $296 million went to Lutherans since Obama took office!

The other day I suggested that each and every one of you can be an investigative reporter, see that post by clicking here.

So here we are, a winter weekend, can’t do much outdoors, and maybe you aren’t into the Super Bowl, so how about having fun searching for how much of your hard earned tax dollars are going to charities—especially to ‘religious’ charities pretending to be doing the Lord’s work while spending your money!

USA Spending graphicI haven’t written about USA Spending.gov for awhile, so last night when a reader asked about a local Catholic Charity, I tried that government website again.  It is much improved because it now contains the sub-grants in addition to the amounts that are direct grants.  I think there was a grace period for grantees to get their information on sub-grants to USA Spending.gov, but they are there now.  (Here is a bit of information about how grantees need to be ready to provide sub-grant information.)

So back to the USA Spending.gov website I looked up the specific Catholic Charities my reader was interested in and was blown away when I saw the millions of dollars just one little local Catholic Charities was getting.

I then decided to just pick one of the nine federal refugee resettlement contractors (which have in the vicinity of 350 sub-grantees or sub-contractors), to see what the biggies were getting.  Here (below) is Lutheran Immigration and Refugee Service which resettles refugees in your towns and cities and also agitates for amnesty for illegal aliens.

LIRS is lobbying (with your money!) as we speak for 100,000 Syrians to be admitted to the U.S. before Obama leaves office.

Prepare to be shocked!  Since August 2008, this one ‘religious’ non-profit received $296 MILLION dollars from you in 143 transactions with federal agencies.(And, I will bet you LIRS is not the wealthiest!)

Click here and see for yourself!  (Sorry the screenshot isn’t very clear!)

Screenshot (22)

I urge you all to try the website.  Unfortunately for PRO-Open Borders Catholic agencies, there are too many of them and they aren’t all in one place. So try your local Catholic Diocese first.  Then think of all the other non-profits that have their hands in your wallet and see how much and from where their grants are flowing.

They will all say they help the poor with your money, but I repeat, they are also lobbying for more (poor) migrants to be admitted to the US!  Our founding fathers must be rolling in their graves to see the federal treasury used in this way.

Then you must get the information you learn out to others beyond your circle. Maybe take your facts and write a letter to the editor. Ask to write an Op-ed for your local paper. Go on talk radio. Write a blog!  Send what you learn to your elected officials and ask why on earth they are giving your money to Open Borders Leftwing organizations masquerading as religious charities.

Come to think of it, where is the ACLU on the separation of church and state?

And, while you are there, be sure to see yesterday’s post about Marco Rubio and his fan boy Grover Norquist (or is it the other way around?).

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Federal Budget Survey: Republicans and Democrats Agree on Changes Reducing Deficit By $52 billion

WASHINGTON, D.C. /PRNewswire-USNewswire/ — As the announcement of President Obama’s FY2017 budget draws near, a new, national survey finds majorities of Republicans and Democrats agreeing on cuts in spending and increases in revenues that would reduce the projected deficit by $52 billion. In the in-depth ‘Citizen Cabinet’ survey, respondents were presented the President’s FY 2016 budget and sources of general revenues, and then given the opportunity to propose their own federal budget. The probability-based online sample included nearly 7,000 registered voters, with subsamples for California, Florida, Maryland, New York,Ohio, Oklahoma, Texas and Virginia. The results were released today by Voice Of the People.

“Many members of Congress are quick to blame the public when they fail to make hard choices,” said Steven Kull, director of the University of Maryland’s Program for Public Consultation and the survey’s director. “However this in-depth survey shows that voters in both parties can make hard choices and that Republicans and Democrats can find common ground.”

Majorities converged on $10 billion in spending cuts including cuts to subsidies to agricultural corporations ($3 billion), the space program ($1 billion), and cuts of $1 billion each to defense intelligence, operations in Iraq andAfghanistan, military aid, the State Department, aid to countries of strategic interest, and enforcement of Federal laws. No spending areas were increased by majorities from both parties.

The biggest deficit reductions came from revenue increases totaling $41.9 billion.

  • Sixty-five percent approved of a 5 percent increase in income taxes on income over $200k including 52 percent of Republicans, 74 percent of Democrats and 64 percent of independents, yielding $34.1 billionin deficit reduction.
  • Seventy-six percent approved of taxing carried interest like ordinary income – repealing the special tax treatment that has benefited hedge fund managers – including 74 percent of Republicans, 79 percent of Democrats and 73 percent of independents. This would yield $1.8 billion.
  • Seventy-seven percent approved of requiring large financial institutions (roughly the 100 largest firms) paying a fee of seven-tenths of a percent on their uninsured debt, including 67 percent of Republicans, 86 percent of Democrats and 75 percent of independents, generating $6 billion.

Additional revenue increases totaling $28.4 billion were recommended by majorities overall, by Democrats and independents, and by half of Republicans. These included another proposal from the President’s FY 2016 budget to raise the top tax rate on capital gains and dividends from 23.8 to 28 percent (65 percent overall, 80 percent Democrats, 50 percent Republicans) yielding $22 billion in deficit reduction. Increasing the alcohol tax to 25 cents per ounce was endorsed by 56 percent (Democrats 62 percent, Republicans 50 percent), yielding$6.4 billion.

While both Democrats and Republicans in Congress are planning for increases in spending on national defense, neither Democratic nor Republican voters favored such increases. The majority overall, including Democrats and independents reduced it $38 billion while Republicans reduced it $1 billion.

The survey was conducted by the Program for Public Consultation, School of Public Policy, University of Maryland and was fielded September 17December 14, 2015.

The Citizen Cabinet panel was drawn from Nielsen-Scarborough’s probability-based national panel, which was recruited by mail and telephone using a random sample of households. Additional panelists were recruited by Communications for Research. The margin of error for the national sample was +/- 1.4 percent; for the states it ranged from +/- 4.0 percent to +/- 5.1 percent.

Unlike a standard poll, Citizen Cabinet surveys take respondents through an online process called a ‘policymaking simulation’ that gives respondents information and seeks to put them in the shoes of a policymaker. The content of the simulation was vetted for accuracy and balance by both minority and majority congressional staffers from the budget committees in the House and Senate.

In this simulation, a representative panel of 6,949 registered voters were presented the administration’s proposed 2016 discretionary budget (broken into 31 line items), and actual and proposed sources of federal general revenue and the projected deficit. They were given the opportunity to make changes to spending and revenues as they saw fit. A bubble followed them giving constant feedback about the effects of their changes on the projected budget deficit.

Changes proposed by the overall majority went much further than the areas of bipartisan convergence. The overall majority reduced the deficit by $277.6 billion, led by Democrats and even more so independents. In addition to cuts in defense spending and some small cuts in a number of other areas, majorities increased taxes by 10 percent on income over $1 million (54 percent), a tax on sugary drinks (54 percent), a financial transactions tax (55 percent), and a 5 percent increase in corporate taxes (51 percent).

The largest revenue increase came from a new tax on carbon dioxide emissions that has been developed by the Office of Management and Budget that would increase energy costs $5 a month for the average household and generate $100 billion in revenue. This plan was endorsed by 56 percent including majorities of Democrats (75 percent) and independents (52 percent), but not Republicans (36 percent).

Though they were not asked to try to address the limits of the Budget Control Act (which triggers sequestration in the event of overages), changes endorsed by the overall majority would easily eliminate the $75 billionoverage of the president’s proposed FY2016 budget, while the changes agreed on by majorities of both parties would eliminate most, but not all, of the sequester overages.

The budgets proposed by supporters of various presidential candidates revealed striking differences. The deepest deficit cuts come from supporters of Sanders ($402 billion) and Clinton ($285 billion) as their revenue increases and defense spending cuts were much greater than for supporters of Republican candidates. Among Republicans, Trump supporters made the largest deficit cut ($129 billion) as they made substantial revenue increases and significant non-defense cuts. While Cruz supporters produced a smaller deficit cut ($105 billion) their non-defense cuts were the deepest and most varied, but they were the only ones to produce a net reduction in revenues as a result of making tax cuts. Rubio supporters made the smallest deficit cut ($80 billion) as they made modest revenue increases, modest spending cuts and were the only group to not cut defense at all.

Anyone can try the survey at: http://research.cfrinc.net/vop15265pub/

The report can be found at: http://vop.org/wp-content/uploads/2016/02/Federal_Budget_Report.pdf

The questionnaire can be found at: http://vop.org/wp-content/uploads/2016/02/Federal_Budget_Quaire.pdf

rocks balanced

Capitalism Promotes Equality: Equality in Consumption Is Now the Norm by Barry Brownstein

Highway traffic began to slow outside of Boston as we made our way to the airport. My wife was driving, so I took out my $100 Android phone and opened Google Maps. Google Traffic instantly showed me, in real time, the best route to avoid delays and estimated the number of minutes we’d save by altering our route. Thanks to Google, there was no threat of missing our flight.

It was not too long ago that we relied on traffic reporters in helicopters, and their advice was often useless by the time we heard their updates.

Have you wondered how Google Traffic does it? The answer is crowdsourcing. If you are among the two-thirds of American adults who own a smartphone, and if the GPS locator on your phone is enabled, you are generating real-time traffic information. Google Traffic measures how fast cars are moving compared to normal speeds and generates location-specific reports.

Rich or poor, most of the drivers on the highway that day had access to the same miraculous traffic report and the same opportunity to make better driving decisions. This is just one example of how the marketplace generates equality in consumption.

The cars we drive are another indicator of consumption equality. We were driving an inexpensive Subaru Outback. There are more expensive, comfortable, and bigger cars on the market, but the Insurance Institute for Highway Safety says that there are none safer than the Outback.

Would a rich individual, on this same drive to the airport, have any noticeable advantages over me? He or she could hire a driver and use the drive time for something more productive, but even that advantage will dwindle as driverless cars become the norm.

In his Wall Street Journal commentary “The Rise of Consumption Equality,” former hedge fund manager Andy Kessler writes:

Just about every product or service that makes our lives better requires a mass market or it’s not economic to bother offering. Those who invent and produce for the mass market get rich. And the more these innovators better the rest of our lives, the richer they get but the less they can differentiate themselves from the masses whose wants they serve.

“What does Google founder Larry Page have that you don’t have?” Kessler asks pointedly.

Page’s income is unimaginably larger than most of ours. But in terms of consumption, the differences are negligible — which is remarkable, given how much Page and Google have improved our lives.

All-time football great Tom Brady earns roughly $10 million a year. His diet made the news recently. Does Brady enjoy health advantages not available to Americans with a fraction of his income? Brady hires a cook. Our family doesn’t do that, but we eat much like Brady — organic vegetables, fruits, whole grains, beans, and fish make up the bulk of our diet. From May to October, a local organic farmer provides an abundance of vegetables that are picked fresh for us based on an order we place the day before. In the summertime, our produce may be fresher than Brady’s. Compared to any of us, what real dietary advantage does Tom Brady’s income afford him? It is his commitment to a healthy lifestyle, not his income, that makes the difference.

In 1900, Americans spent approximately 50 percent of their household income on food and clothing; today, we spend closer to 20 percent. Today, fresh produce from all over the world, not even available to a king a century ago, awaits common consumers when they enter the supermarket.

In 1900, only 25 percent of households had running water; fewer still had flush toilets. It would be decades before such wonders as electricity, automobiles, and indoor plumbing were ubiquitous. The faucets in the famed Hearst Castle in California may have been gold plated, but was the water any better than what the average household received? The water running in my home comes from an artesian well over 400 feet deep. More evidence of consumption equality: my water is every bit as good, if not better, than a billionaire’s in a big city penthouse.

Wealth is not a good predictor of a rich life. Psychology professor Sonja Lyubomirsky found that only 10 percent of the variance in Americans’ happiness is due to income and other circumstances. “Happiness more than anything,” she writes in her book The How of Happiness, ”is a state-of-mind, a way of perceiving and approaching ourselves and the world in which we reside.”

And what of the elements of emotional intelligence that make life richer? In the book Big Magic, best-selling author Elizabeth Gilbert observes:

If money were the only thing people needed to live rich creative lives, then the mega-rich would be the most imaginative, generative, and original thinkers among us, and they simply are not. The essential ingredients for creativity remain exactly the same for everybody: courage, enchantment, permission, persistence, trust — and those elements are universally accessible. Which does not mean that creative living is always easy; it merely means that creative living is always possible.

The same universally accessible elements are essential ingredients for entrepreneurship. Entrepreneurs persist, driven by their vision and by the equality of opportunity that capitalism affords. The entrepreneur’s choice to be persistent and courageous is the not-so-secret engine that drives success.

The essential consumption goods we couldn’t even imagine a hundred years ago are almost universally available in the United States today. The marketplace, aided by many creative, pioneering entrepreneurs and every person who strives to put in a good day’s work, is generating consumption equality.

Barry BrownsteinBarry Brownstein

Barry Brownstein is professor emeritus of economics and leadership at the University of Baltimore. He is the author of The Inner-Work of Leadership. He blogs at BarryBrownstein.com, Giving up Control, and America’s Highest Purpose.

recession

What Every American Should Know

Every American should already be familiar with Rule No. 1 in the Democrat Party playbook, a rule that tells Democrats that whenever they are caught doing something that is either illegal or unethical… or whenever party policies or favored programs result in unpleasant consequences for the American people… they should always begin by blaming Republicans.  At the very least, they should complain that Republicans are guilty of the same offense.  But there is much more that every American needs to understand about Democrats, especially now that Hillary Clinton and Bernie Sanders are left to defend what has been a disastrous economic performance, grossly mismanaged by the most incompetent president in U.S. history.

This column is a rewrite of a column published in January 2012 which attempted to explain the 2008 recession and the anemic Obama recovery in simple but understandable terms.  It is being republished because, as we prepare to elect a president to clean up the Obama mess, Democrats continue to lay blame for the nation’s economic ills at the feet of George W. Bush.  So if we are to avoid a Hillary Clinton presidency in 2016, we must all have a good basic understanding of our economic morass… one that even rank-and-file Democrats can understand.

First, it must be understood that the Community Reinvestment Act of 1977 (CRA), a Carter administration initiative, was a laudable and timely idea.  It encouraged lenders to make home loans to qualified borrowers who had previously been denied solely on the basis of the color of their skin. The CRA was intended to reduce or eliminate a practice known as “redlining,” in which lenders discriminated against potential buyers, approving home loans for lower-income whites but not for middle or upper-income blacks.

Throughout the Reagan and Bush (41) years, between 1981 and 1993, the CRA was enforced in

an even-handed and straightforward manner.  Lenders were required to abandon “redlining” and to meet the credit needs of all members of the community, consistent with sound lending criteria.  However, no sooner had the Clintons occupied the White House in 1993, than Democrats began to act like Democrats.  They decided that the CRA, if strategically enforced with a political end in mind, provided a unique opportunity to solidify the votes of the poor, especially minorities.

Under the Clinton administration, regulators paid particularly close attention to the lending practices of banks and savings & loan associations.  In other words, were lenders meeting the credit needs of all borrowers in their local communities, regardless of borrowers’ ability to repay their loans?  Accordingly, they began to use the results of those examinations to decide whether or not to approve bank mergers and acquisitions, and whether or not to approve applications for new branch banks. Mortgage lenders soon found that the CRA was more stick than carrot.

As a result, lenders abandoned traditional lending criteria and made mortgage loans to almost anyone who applied, regardless of their income level or credit worthiness.  Under normal circumstances, no prudent lender would ever lend money to those with little or no ability to repay the loans, but these were not normal circumstances.  Two of the Democratic Party’s favorite patronage cesspools… Fannie Mae and Freddie Mac… were standing ready to buy up any and all mortgages.  And why should Fannie and Freddie worry about the quality of the mortgages they acquired?  They had no reason to worry because, as quasi-public institutions, they had the entire cash assets of the American taxpayer… the U.S. Treasury… at their disposal.

Here’s how it worked.  When a home buyer took out a home loan from a bank or a savings & loan association, the mortgage was then sold to what was known as a Government Sponsored Enterprise (GSE), i.e. Fannie Mae or Freddie Mac.  Fannie and Freddie then bundled the loan with other sub-prime mortgages and sold the bundles to private investors… promising not only attractive returns, but a high degree of security as well.  By year end 2010, Fannie and Freddie had acquired more than half of the $11 trillion mortgage loan market in the United States.

However, the sale of mortgages to private investors was not a totally arms-length proposition because, even though Fannie and Freddie had sold the bundled mortgages to private investors, they continued to have a financial interest in them.  They guaranteed the securities for the investors, promising to continue making payments on mortgages even if homeowners stopped making payments.  In 2008, when the overheated real estate market collapsed and a great many homeowners stopped paying all at once, the cash reserves of Fannie and Freddie were soon depleted, forcing them to default on their guarantees and precipitating a major economic crisis.

One might ask, how could something like this happen directly under the noses of our political leaders without anyone taking notice?  The fact is, shortly after taking office in 2001, the Bush administration did notice and took steps to reform Fannie Mae and Freddie Mac.  What they apparently failed to understand was that Fannie and Freddie existed in a world of their own, a world in which Democrats who were either owed big favors, or who were being paid to keep their mouths shut for one reason or another, were well taken care of.

Among these was Franklin Raines, former Clinton White House budget director, who served as chairman and chief executive officer of Fannie Mae.  Raines took “early retirement” from Fannie Mae on December 21, 2004 after the Office of Federal Housing Enterprise Oversight (OFHEO) accused him of participating in widespread accounting irregularities, including the shifting of losses so that senior Fannie Mae executives could earn large bonuses.  Some $90 million was paid to Raines based on overstated earnings… earnings initially reported at $9 billion but later found to be in the neighborhood of $6.3 billion.

Tim Howard, Chief Financial Officer under Raines, was a former Senior Economic Advisor to Barack Obama.  When Howard was terminated at Fannie Mae he walked away with a “golden parachute” reported to be worth approximately $20 million.  Jim Johnson, a former Lehman Brothers executive who headed Obama’s vice presidential search committee, was also a former Fannie Mae CEO who was forced to resign.  Johnson’s 1998 Fannie Mae compensation was reported at between $6-7 million.  In truth, it was $21 million.  And last, but not least, we have former Deputy Attorney General in the Clinton administration, Jamie Gorelick, the woman who erected the infamous “Gorelick Wall” which prevented the CIA and the FBI from sharing intelligence that could have prevented the 9/11 attacks on the World Trade Center and the Pentagon.  After leaving the Justice Department under fire, Gorelick resurfaced as Vice Chairman of Fannie Mae from 1997 to 2003.  And although she had no training or experience in finance, whatsoever, during the six years she worked at Fannie Mae she earned over $26 million.  Even in Democratic circles, that seems to be an excessive amount of “hush” money.

While serving as Vice Chairman of Fannie Mae, Gorelick participated in the development of an accounting scheme which allowed Fannie’s Mae’s top executives – whose bonuses were tied to earnings-per-share – to meet the target for maximum bonus payouts.  For example, in 1998, the target earnings for maximum bonus payout at Fannie Mae was $3.23 per share.  Fannie Mae reported earnings of exactly $3.2309.  (Don’t you just hate it when that happens?)

So how was this arranged?  When Fannie Mae found itself facing an extraordinary expense in 1998, estimated at $400 million, Johnson, Franklin, and Gorelick decided to recognize only $200 million of the $400 million expense, deferring the remainder to the next fiscal year.  This fortuitous “coincidence” resulted in maximum bonus payouts: $1.932 million to then-CEO Jim Johnson, $1.19 million to CEO-designate Franklin Raines, and $779,625 to accounting whiz Jamie Gorelick.  Democrats do have an uncanny way of taking care of their own.

In the seven years that Barack Obama has been in office, Democrats have waged an unrelenting attack on George W. Bush, insisting that he did nothing to forestall the Fannie and Freddie disasters that still weigh like a wet blanket on our economy.  However, the facts are these: the record shows that the Bush administration warned Congress of impending insolvency at Fannie Mae and Freddie Mac in April 2001, May 2002, November 2003, February 2004, August 2007, December 2007, March 2008, April 2008, May 2008, and June 2008.  In addition, officials of the Bush administration testified before Congress, calling for reform of Fannie and Freddie, in September 2003, June 2004, April 2005, and February 2008.

In each instance, their warnings were either ignored or were subjected to strong push-back from leading Democrats, who charged Republicans with opposing home ownership by the poor and minorities.  In each instance, the principal push-back came from former Senator Chris Dodd (D-CT), a subcommittee chairman of the Senate Banking Committee, the recipient of “sweetheart” loans from now-defunct Countrywide Financial Corporation; and former Rep. Barney Frank (D-MA), Ranking Member of a subcommittee of the House Financial Services Committee.  Not surprisingly, one of Frank’s homosexual partners, Herb Moses, was a high-ranking official of Fannie Mae at a time when he and Frank played house together on Capitol Hill.

In short, the financial crisis that our country has faced since 2008 is exclusively the product of Democratic political excess.  It is further proof that, when government interferes in the private economy in order to guarantee what liberals and Democrats see as “fairness” and “equal outcomes,” the unintended consequences are always predictable, but never pretty.  What would be pretty would be to see Chris Dodd, Barney Frank, Franklin Raines, Jim Johnson, Jamie Gorelick, and other Obama cronies being led away in handcuffs.

As Obama enters his final year in office he continues to blame the nation’s financial difficulties on George W. Bush.  If we all understand the root causes of the crisis and how it was engineered by Democrats, we will have all the ammunition we need to defeat them at the polls in November.

RELATED ARTICLE: The House That Uncle Sam Built by Peter J. Boettke & Steven Horwitz

middle class man sittong on steps to house

Better than You Think: The Middle Class, 1971-2014 by Chelsea German

We’ve all heard it said that the “rich are getting richer” while the middle class suffers. Political figures on both the right and left frequently speak about the need to “bring back” or “restore” the “disappearing” middle class. Pew Research Center just put out a report that calls those ideas into question, according to a recent Washington Post opinion piece.

The report shows that from 1971 to 2014, middle-income households (meaning three-person households making from $41,869 to $125,608 annually in inflation-adjusted dollars) decreased from 61 to 50 percent of U.S. households. Why the 11 percentage point difference?

Seven of those 11 percentage points can be explained by households moving into a higher income bracket. High-income households grew from 14 percent to 21 percent of all households during the same period.

The Pew report also stated that all income groups have typically made double-digit pre-tax income gains since the 1970s:

Middle-income household income increased by 13% in the 1970s, 11% in the 1980s, and 12% in the 1990s. Lower-income households had gains of 13% in the 1970s, 8% in the 1980s and 15% in the 1990s. Upper-income households registered a 10% gain in the 1970s [and] 18% in both the 1980s and 1990s.

Then the Great Recession struck in the late 2000s. But even the Great Recession only removed 6 percentage points from the gains made by the middle class. In 2000, an average middle-income household earned 40 percent more than in 1970. In 2014, an average middle-income household earned 34 percent more than in 1970.

The Washington Post piece opines that “We’ve mistaken what is plausibly a one-time setback — the response to the Great Recession — for long-term stagnation. People have understandably but wrongly taken their recent experience and projected it onto the past.”

We cannot predict the future, but it certainly seems as though the middle class has fared better than many people believe.

Cross-posted from HumanProgress.org.

Chelsea GermanChelsea German

Chelsea German works at the Cato Institute as a Researcher and Managing Editor of HumanProgress.org.

uber eats

Ssshh! Nobody Tell the Government about UberEATS by Jared Meyer

UberEATS is delicious. You pull up the Uber app, choose among three to five menu options (usually between $8 and $12), and your meal is delivered within 10 minutes. Payment is through Uber, and there is no delivery fee. Service is rapidly expanding, and slow-to-catch-up regulators have yet to devise a way to stymie its growth.

In stark contrast to UberEATS and other on-demand food delivery services, burdensome restrictions on another way to get lunch — street vendors — are common across the nation.

Chicago does not allow food trucks to operate within 200 feet of any brick-and-mortar eatery. Miami only allows roaming vendors, as they are prohibited from staying in one place any longer than it takes to make a sale. Los Angeles completely bans sidewalk vending. New York City has an arbitrary cap of 3,100 on year-round food vendor permits, creating a costly secondary market that puts this line of work out of reach for average New Yorkers as the supply of city approvals fails to meet vendor demand.

Though street vending has always been a staple of American cities, its regulations are receiving more attention because the quality and number of food trucks has increased dramatically over the past few years. Even famed world traveler and chef Anthony Bourdain plans to open a market of 100 food vendors in New York City in 2017. To provide some data on this trend, a recent Institute for Justice report shows who street vendors are and how they contribute to the economy of the 50 largest U.S. cities.

The main reasons why city street vendors (78 percent of whom sell food) face opposition is that more dining options means increased competition for brick-and-mortar restaurants. Most office workers are accustomed to seeing long lines of people waiting to order at food trucks outside of their buildings. Indeed, 43 percent of street vendors operate in business districts, where other dining options are not as prevalent and are more expensive, due to high rental prices.

Some restaurant owners who choose to fight this change try to convince city government to place additional restrictions on street vendors. However, embracing mobile vending would be a smart move for restaurants who are struggling to stay competitive.

Not only do street vending and on-demand food services present opportunities for restaurants to reach more customers, they also provide ways to cut back on costs. Due to a combination of zoning laws, food service building requirements, limits on franchising, and labor regulations, brick-and-mortar restaurants face an uphill battle against their mobile, slim-staffed competitors.

Street vendors are not currently contractors for larger restaurants — 94 percent of vendors own their business and the structure they use to sell goods. Though most vendors do not have any employees, the 39 percent that do employ an average of 2.3 full-time workers and 2.7 part-time workers. This light staff lowers costs, especially when the venue is mobile and customers seem to be willing to spend half of their lunch breaks waiting in line.

Restrictions on vendors harm low-income individuals, both those who want to work and those who want to eat. The average year-round, full-time vendor earns just $18,000 a year working around 60 hours a week. Street vending also offers opportunities for modest earnings and upward mobility for those with low levels of education. Nearly 3 in 10 vendors do not have a high school degree (compared with 18 percent of all workers in large U.S. cities). In a time where the unemployment rate for those without a high school degree remains at 6.9 percent and labor force participation is just 45.7 percent, additional work options are sorely needed.

Veterans make up a disproportionate level of street vendors. Whereas veterans are 6 percent of the workforce in large U.S. cities, 10 percent of vendors are veterans. And a third of street vendor veterans are disabled — double the rate of non-vendor veterans.

In addition to employment opportunities, street vending offers a chance at upward mobility. District Taco in the Washington, D.C. Metro Area started as a simple $25,000 hot dog cart in 2009, but the business is in the process of opening its ninth brick-and-mortar restaurant. The chain, started by immigrant entrepreneur Osiris Hoil, now employs over 300 local workers.

One positive sign is that the licensing burden for street vendors does not seem to be too onerous. The Institute for Justice found that 72 percent of vendors were able to open by securing the appropriate permit. The other 28 percent needed to complete an average of 5 months of training to open their shops.

Even though there is some justification to require a course in sanitation for certain food vendors, it should be noted that an evaluation of 260,000 food safety inspection reports in seven cities found that food vendors did as well or better in terms of compliance than did brick-and-mortar restaurants. They certainly outperform Chipotle. In an age where it takes an average of 12 months to get government certification to trim trees, 14 months to be allowed to work as a door repair contractor, and 18 months to become a government-certified security alarm instructor, the requirements street vendors face seem to be lighter than the licensing burdens for other occupations.

As the IJ report concluded, “For cities looking to expand economic opportunities, facilitate job growth and realize greater tax revenue, welcoming street vendors is a low-cost and potentially high-reward option.”

Hungry consumers are fortunate that entrepreneurs are always able to find ways to outmaneuver regulators and provide lunch through innovations such as UberEATS.

This post first appeared at CapX.

Jared MeyerJared Meyer

Jared Meyer is a fellow at the Manhattan Institute for Policy Research.

eye with dollar sign

What Are Your Odds of Making It to the 1%? by Chelsea German

Your odds of “making it to the top” might be better than you think, although it’s tough to stay on top once you get there.

According to research from Cornell University, over 50 percent of Americans find themselves among the top 10 percent of income-earners for at least one year during their working lives. Over 11 percent of Americans will be counted among the top 1 percent of income-earners (i.e., people making at minimum $332,000) for at least one year.

How is this possible? Simple: the rate of turnover in these groups is extremely high.

Just how high? Some 94 percent of Americans who reach “top 1 percent” income status will enjoy it for only a single year. Approximately 99 percent will lose their “top 1 percent” status within a decade.

Now consider the top 400 U.S. income-earners — a far more exclusive club than the top 1 percent. Between 1992 and 2013, 72 percent of the top 400 retained that title for no more than a year. Over 97 percent retained it for no more than a decade.

HumanProgress.org advisory board member Mark Perry put it well in his recent blog post on this subject:

Whenever we hear commentary about the top or bottom income quintiles, or the top or bottom X% of Americans by income (or the Top 400 taxpayers), a common assumption is that those are static, closed, private clubs with very little dynamic turnover. …

But economic reality is very different — people move up and down the income quintiles and percentile groups throughout their careers and lives.

What if we look at economic mobility in terms of accumulated wealth, instead of just annual income (as the latter tends to fluctuate more)?

The Forbes 400 lists the wealthiest Americans by total estimated net worth, regardless of their income during any given year. Over 71 percent of Forbes 400 listees — and their heirs — lost their top 400 status between 1982 and 2014.

So, the next time you find yourself discussing the very richest Americans, whether by wealth or income, keep in mind the extraordinarily high rate of turnover among them.

And even if you never become one of the 11.1 percent of Americans who fleetingly find themselves in the “top 1 percent” of US income-earners, you’re still quite possibly part of the global top 1 percent.

Cross-posted from HumanProgress.org.

Chelsea German

Chelsea German

Chelsea German works at the Cato Institute as a Researcher and Managing Editor of HumanProgress.org.