Tag Archive for: economics

High Consumer Prices among Top Concerns as Voters Lose Confidence in Biden, Polls Show

As new polls indicate that American voters remain worried about the persistently high cost of goods and have largely lost confidence in President Joe Biden’s handling of the economy, a leading economist is pointing out that the economies in red states that feature free market policies are outpacing the economies of blue states.

An NBC News poll published Sunday revealed that Biden lagged behind former President Donald Trump by over 20 points on the question of “which candidate would better handle the economy.” Overall, the poll found that Biden’s approval rating has reached the lowest point of his presidency at 37%.

The survey comes as voters say that the economy is among their top concerns going into the November elections. A recent Harvard CAPS-Harris poll found that inflation was the primary worry for 32% of respondents, a close second behind the border crisis at 35%.

While inflation has largely leveled off since reaching a high of 9.1% in June 2022, consumers are still worried about the persistent rising costs of virtually all goods since the 2020 pandemic that have not come back down. As reported by CNN, “More than 90% of the items tracked in the Consumer Price Index are more expensive than they were in February 2020, with most price increases landing north of 20% and some (fuel and margarine) approaching 55%.” Overall, food prices have risen almost 25%.

Stephen Moore, distinguished fellow in Economics at The Heritage Foundation, joined “Washington Watch” last week to discuss the current economic outlook in America.

“What’s happening in America today is you’ve got red states with low taxes, less regulation, [and] right-to-work that are doing extraordinarily well,” he explained. “You know, they’re actually booming [in] Texas, Florida, Tennessee, Utah, Idaho. So many of these states, [like] South Carolina, the southern states are doing amazing. … [B]y the way, the South now is the number one leading region in the economy. It used to be the northeast for 100 years. But the northeast is losing its people, its businesses, its capital. And they’re going to states like Florida and Texas and Arizona … because the taxes are lower [and] there’s a more pro-business atmosphere. They follow free market policies. That’s what American businesses want. That’s what workers want.”

Moore, who also serves as a senior economist at FreedomWorks, went on to argue that the Biden administration’s federal spending policies have negatively affected the economy.

“[T]he question becomes, ‘Why don’t we do, on the national level, what works in the states? Why don’t we cut our taxes, reduce our regulations? Why don’t we get our budget under control?’ We’re running a $1.5 trillion debt. … It’s because we’ve got a president who is spending and printing and borrowing a trillion and a half dollars a year — it’s as obvious [as] the sun ris[ing] in the East and set[ting] in the West when you have that kind of out of control spending. You know what? You’re going to get inflation.”

At an event last week, Biden accused grocery stores of “ripping people off” through “price gouging, junk fees, greedflation [and] shrinkflation.”

“That’s the way all these Democrats are,” Moore responded. “They keep saying, ‘Oh, the profits are too high.’ Why don’t you go out there and show you can make a profit? It ain’t so easy to do it. These are businesses that are providing jobs, providing growth for our economy, putting food on our table. I’m sick of him criticizing American businesses.”

AUTHOR

Dan Hart

Dan Hart is senior editor at The Washington Stand.

EDITORS NOTE: This Washington Stand column is republished with permission. All rights reserved. ©2024 Family Research Council.

The Washington Stand is Family Research Council’s outlet for news and commentary from a biblical worldview. The Washington Stand is based in Washington, D.C. and is published by FRC, whose mission is to advance faith, family, and freedom in public policy and the culture from a biblical worldview. We invite you to stand with us by partnering with FRC.

Some Facts about Israel You Might Have Missed

In terms of its natural resources, Saudi Arabia is one of the wealthiest nations on earth. Holding known oil reserves of roughly 265 billion barrels, this nation of 37 million boasts a landmass of 830,000 square miles, and Saudi’s people have a per capita income of about $34,000.

Israel’s total area is about 100 times smaller than Saudi Arabia — 8,600 square miles. The Jewish state has about 14 million barrels worth of proven oil reserves; statistically, this equals to 0% of the total known oil reserves in the world (although Israel is seeking to optimize its oil resources nonetheless). Since its inception as an impoverished nation in the late 1940s, Israel’s per capita income is now better than $53,000 — the highest, by far, in the Middle East.

My point is not to disparage the Arab countries surrounding Israel. Rather, it is to recognize that the people of this tiny nation have taken a historically underdeveloped region and built a thriving country. Writing for Stanford University’s Hoover Institution, scholar Peter Berkowitz notes that since the early years of the 20th century, “Jewish residents of Palestine and then Israeli citizens have planted over 250 million trees, and Israel has become a world leader in desalination and irrigation. A booming wine industry and large offshore gas fields contribute to the diversification of Israel’s economy.”

Additionally, the Bloomberg Innovation Index ranks Israel as having the second-highest level of technological research and development in the world (South Korea is number one). Idan Adler of the consulting and accounting giant Deloitte writes that Israel is “one of the hottest innovation and technology hubs in the world. With over 6,000 active startups and an economy dominated by industrial high-tech and entrepreneurship, Israel certainly [has] earned its nickname ‘The Startup Nation.’”

So far, so good. But what about the 700,000 Palestinian Arabs who, in 1948, either left what is now Israel or were forced to flee? Is it fair of the Jews in Israel not to allow the descendants of those who left, now numbering around six million people, not to return?

First, no one should underestimate the difficulties experienced when people have to flee from their homes, leaving behind what they have known for the uncertainties of exile. At the same time, bear in mind the context of the original flight: Arab military resistance to the new Jewish state was intense. As the U.S. State Department reports, on May 13, 1948 — the day before the State of Israel was formally created — the Jewish people in Israel were attacked by “Arab armies from Lebanon, Syria, Iraq, and Egypt. Saudi Arabia sent a formation that fought under the Egyptian command.” Also, various Arab leaders called on Palestinian Arabs to flee, and many Palestinians left with the defeated Arab armies. And since 1948, Israel has fought several major wars with its Arab neighbors and been under continuous assault from Islamist terrorists on its borders.

So, should Israel allow those who left and their now millions of descendants back in? Consider three essential and generally unacknowledged realities. First, as scholar and journalist Fareed Zakaria has written, “anti-Semitism has spread through the Islamic world like a cancer. … Anti-Semitism is now routine discourse in Muslim populations in the Middle East and also far beyond.” The fact that every Arab nation is virtually Jew-free makes this point vividly. And nowhere was this more evident than in the demonstrations supporting Hamas’s horrific attack on Israel of last month in Lebanon, Iran, Iraq, Turkey, and Yemen, not to mention “people, including children, waving Palestinian and Hamas flags, dancing and singing in the streets” in “major Palestinian cities, including Ramallah, Hebron, Nablus, and Jenin.”

For Israel to invite people possessed by an acute hatred for the Jewish people to enter its territory would be little more than national suicide.

Second, why have the Arab nations all around Israel not thrived as has the Jewish state? Why have the heirs of the Palestinian migration not rebuilt their lives as fully as the Jews of Israel, a ragged and brutalized people who sought only to live in their ancestral homeland after the Holocaust? Could it not be that the Arab cultures in which they live — oppressive, autocratic, religiously constrictive — discourage the kind of personal liberty and economic innovation that have built Israel into the thriving society it now is? Or that erstwhile Palestinian leaders have siphoned-off the billions in aid they have received to line their own pockets?

Finally, the persecuted Jewish people, for centuries driven from pillar to post in many regions of the world, just want a place to call their own. One need not believe in the demonic origin of anti-Semitism, as do I, to simply acknowledge that an irrationally hated people group, the longtime brunt of pathological maltreatment from Germany to Iran, deserve a place where they can breathe easily and live normal lives.

America is such a place — and must always be — but Israel is uniquely and deservedly so. Long may the flags of both nations wave.

AUTHOR

Rob Schwarzwalder

Rob Schwarzwalder, Ph.D., is Senior Lecturer in Regent University’s Honors College.

RELATED ARTICLE: Professor Suspended for Saying “Hamas Are Murderers”

EDITORS NOTE: This Washington Stand column is republished with permission. All rights reserved. ©2023 Family Research Council.


The Washington Stand is Family Research Council’s outlet for news and commentary from a biblical worldview. The Washington Stand is based in Washington, D.C. and is published by FRC, whose mission is to advance faith, family, and freedom in public policy and the culture from a biblical worldview. We invite you to stand with us by partnering with FRC.

As Homeownership Costs Soar and Inflation Persists, Americans Sour on Biden’s Economy

President Joe Biden turned 81 years old on Monday, and he was greeted with the lowest approval rating ever recorded by NBC News at 40%. While a large part of the number is due to Democrats’ disapproval of Biden’s handling of the Israel-Hamas conflict, it’s also likely a reflection of an economy that continues to struggle under the weight of persistent inflation, skyrocketing mortgage rates, a decline in full-time jobs, and ever-expanding federal debt.

The president has continued to tout “Bidenomics” in recent weeks, despite stating last week that he acknowledges there is a “disconnect between the numbers and how people feel about their place in the world right now.” Polls show that the American public is indeed not connecting with the White House’s messaging on a massive scale. A Fox News survey taken last week revealed that almost 80% of Americans rate the economy negatively.

As economists are pointing out, the raw economic numbers are a tremendous cause for concern. Joel Griffith, a research fellow in the Thomas A. Roe Institute for Economic Policy Studies at The Heritage Foundation, joined “Washington Watch” last week to give a snapshot of where things currently stand.

“The typical family has lost more than $4,000 in real inflation, just adjusted income since President Biden took office, and that $4,000 pay cut is not even taking into account the rising home ownership costs,” he observed. “… [A]s [we]’ve seen real income decline, we’ve also seen credit card balances hit an all-time record $1 trillion. That’s about a $3,000 a family increase over the past year and a half, even as savings rates have plunged near all-time lows. Bidenomics has been a disaster for American families.”

Polls show that Americans are continuing to feel economic pain when they compare their income with prices. An Associated Press poll last month found that “three-quarters of respondents described the economy as poor,” with two-thirds saying their expenses have risen and only one quarter saying their income had also gone up. Compounding the problem is that the prices of many of the items that Americans most commonly buy have inflated substantially. Since February of 2020, the average price of a gallon of milk is up 23% ($3.93), a pound of ground beef is up 33% ($5.35), and a gallon of gas is up 53% ($3.78).

As Griffith went on to explain, one of the primary reasons for the decline in real income currently being experienced by Americans is the exploding cost of home ownership.

“If you’re looking to get a mortgage right now on a standard middle class home, that mortgage payment is costing you about $1,000 per month more than it would have cost you just a year and a half ago,” he noted. “… These are the worst economic conditions since the 1970s. … [T]hat was a time when we also had declining real income, and we also had sky high inflation. So arguably, it’s even worse now than it was then because it’s never been less affordable to buy a home. If you look to buy a home, it costs you about half of your income just to make the mortgage payments and the property taxes. It has never been this bad in terms of home ownership.”

Griffith further illustrated how reported job growth numbers are misleading. “[E]very month, the Biden administration loves to tout these jobs growth numbers. But what they fail to tell us is actually that over the last six months, we’ve actually seen a decline in full-time jobs. The only reason why we have seen the top line jobs growth numbers positive is because we’ve seen a surge in part-time jobs, meaning we have a lot more people today working double jobs just to pay the bills.”

As the national debt approaches $34 trillion, Griffith underscored how runaway federal spending is leading to unyielding inflation.

“[S]pending is out of control — it’s been out of control a long time,” he said. “The interest we’re paying right now on the federal debt is $10,000 per family per year. The amount of money that we’ve borrowed over the prior year is $25,000 per family of four. We cannot keep this up. A big part of the reason why families today are suffering from this inflation … is because for the last three years, we have spent wildly beyond our means, and we relied on our central bank to print the dollars to buy that debt.”

“We have to change this trajectory now, and I’m hopeful Congress will actually attempt to do so once they come back from Thanksgiving and Christmas break,” Griffith concluded.

AUTHOR

Dan Hart

Dan Hart is senior editor at The Washington Stand.

RELATED ARTICLE: We Need to Talk about Joe: Dems Show Growing Concern over Aged, Inept Biden

EDITORS NOTE: This Washington Stand column is republished with permission. All rights reserved. ©2023 Family Research Council.


The Washington Stand is Family Research Council’s outlet for news and commentary from a biblical worldview. The Washington Stand is based in Washington, D.C. and is published by FRC, whose mission is to advance faith, family, and freedom in public policy and the culture from a biblical worldview. We invite you to stand with us by partnering with FRC.

Exiled Cuban Journalist: ‘Socialism Is Institutionalized Envy’

Approximately 36% of young Americans, ages 18 to 22, hold a positive view of socialism. However, for exiled Cuban journalist Yoe Suárez, this positive view of socialism is not based on reality. On a recent episode of the Outstanding podcast hosted by Joseph Backholm, Suárez and Washington Stand Editor-in-Chief Jared Bridges discuss their firsthand experiences with socialism and its wide-ranging consequences.

“The first time I ate a tangerine in years was here in [the] USA,” Suárez said. “It’s amazing because Cuba is a tropical island, you know? It should have fruits there. That’s an image that can maybe portray what’s happening in Cuba.” Suárez went on to discuss the various crises Cubans endure, including blackouts, inaccessible medicine, and a lack of necessities like food and milk for families. When Backholm asked Suárez what the government’s objective was, he replied, “The principal goal is political control. And then they have to build a narrative of goodness behind that.”

Bridges shared his experience living under a socialist government in Minsk, Belarus. “At the time, the things I ran into was just seeing how that system for that long a time oppressed people,” he said. He discussed his inability to find prescribed medicine after going to seven different pharmacies. “To put it in perspective today, here in America, I’ll go to the drug store and get upset if I have to wait 15 minutes.” Bridges further noted that his experience shed light on how, rather than everyone being equal in their belongings and opportunities under socialism, people are stripped of basic needs including medicine. “What became evident to me was that something is not what it says it is,” Bridges stated.

Backholm wondered how to change the phenomenon happening “here in the United States where you have a growing number of young people who actually seem enthusiastic about socialism,” with Bridges adding how this enthusiasm takes place amongst Christians as well.

“The saddest thing is that socialism takes a lot from envy,” Suárez said. People want what they can’t have, and, for Suárez, socialism feeds the flame of envy toward those who have more. “Socialism is institutionalized envy. It’s that. Socialism is just that.” He went on to observe that the fundamental issue is when too much power is centralized in one place. Sharing is good, but it must come from a place of voluntary charity. As Suárez stated, “If it’s voluntary, it’s charity. And charity is good.” But as Backholm added, “Compelled generosity is not generosity, it is theft. It is totalitarian. It is robbery.”

Backholm further pointed out how our sinful nature, whether living under capitalism or socialism, leads to the exploitation of others and often manifests into greed. “If our hearts are unregulated, we will take advantage of other people to our own benefit,” Backholm stated. “What a biblical worldview argues for is a decentralization of power. … The free marketplace, by nature, decentralizes power.” In response, Bridges reflected on how a free market society also gives us the ability to speak out.

When the discussion turned to equality, it was noted that the desire for ultimate equality does not have an end because nothing will ever be enough to satisfy. Suárez, for instance, was kicked out of his home country for speaking out against socialism. As Bridges pointed out, this socialist view of equality does not lead to actual equality, but rather a totalitarian sense of political control where the government tells you what you can and cannot do with your goods, needs, and opinions.

For Backholm, Suárez, and Bridges, the ability to distinguish between voluntary charity and compelled generosity is the difference between socialism and capitalism. Neither is without flaw, but as Suárez stated, “The solution to a headache is not cancer.”

AUTHOR

Sarah Holliday

EDITORS NOTE: This Washington Stand column is republished with permission. All rights reserved. ©2023 Family Research Council.


The Washington Stand is Family Research Council’s outlet for news and commentary from a biblical worldview. The Washington Stand is based in Washington, D.C. and is published by FRC, whose mission is to advance faith, family, and freedom in public policy and the culture from a biblical worldview. We invite you to stand with us by partnering with FRC.

No, You Can’t Invoke the 14th Amendment to Raise the Debt Ceiling

Earlier this month, Treasury Secretary Janet Yellen warned the U.S. could run out of money to pay its bills by June 1 if Congress does not raise the debt ceiling. This has led to a game of chicken between the White House and the Republican-controlled House of Representatives.

President Biden has demanded Congress pass legislation that raises the debt ceiling without any changes to the way the federal government spends money. House Republicans passed a budget bill that would raise the debt ceiling but would also return government spending to 2022 levels. In addition, citing the fact that Social Security is on pace to be insolvent by 2035, the Republican spending plan proposes modifications to Social Security that would increase its chances of long-term sustainability. The White House has opposed all of it.

Instead of compromising with the majority of Republicans in the House, some on the Left have come up with a theory that would allow them to act unilaterally. In fact, Senate Democrats held a press conference encouraging President Biden to “invoke the 14th Amendment” so they can raise the debt ceiling without the involvement of the Congress.

As a matter of habit, the U.S. spends more money than we bring in. As a result, we’re forced to borrow money each month to pay the bills, which means that next month’s bill is always higher than last month’s bill. The U.S. debt is now over $31 trillion dollars, which represents more than $94,000 per citizen. It was only $12 trillion in 2010.

Because of our habitual overspending, Congress routinely considers legislation to raise the debt ceiling. In fact, Congress has raised the debt limit 13 times since 2000. Despite our familiarity with debt limit debates, no one has ever proposed “invoking the 14th Amendment” as a way of raising the debt limit before. The reason no one has ever proposed it before is because it’s nonsense.

The 14th Amendment does many things, but the relevant section for this discussion is Section 4, which says:

“The validity of the public debt of the United States, authorized by law, including debts incurred for payment of pensions and bounties for services in suppressing insurrection or rebellion, shall not be questioned. But neither the United States nor any State shall assume or pay any debt or obligation incurred in aid of insurrection or rebellion against the United States, or any claim for the loss or emancipation of any slave; but all such debts, obligations, and claims shall be held illegal and void.”

The 14th Amendment was passed right after the Civil War in 1868 and sought to put the issues of the Civil War in the past in several ways. It clarified that all people, regardless of their skin color, would enjoy equal protection under the law. In addition, to avoid any attempts to revive the struggle, it prohibited civil and military officers who had supported the Confederacy from holding any state or federal office again. Most relevant to this discussion, it also said the debts of the Union “shall not be questioned” but the Union was not going to pay the debts of the Confederacy.

Now, you have most Democrats in the U.S. Senate claiming that this language — which was unambiguously a promise to pay Union debt but not Confederate debt — somehow gives President Biden the power to ignore Congress when it comes to debt ceiling legislation in 2023.

While this interpretation is absurd on its face, it’s worth remembering the Supreme Court was recently convinced the word “sex” actually means “gender identity,” and by extension the word “woman” actually means “anyone who wants to be a woman.” Once you’ve accepted the progressive claim that language can mean anything you want it to mean, the only limits to the Constitution are the limits to your creativity.

To be fair, even if there was an attempt to “invoke the 14th Amendment” to unilaterally raise the debt ceiling, legal challenges would follow and the Supreme Court would likely halt the effort as the unconstitutional abuse of power it would be.

The good news is, there are points of agreement in this debate. Both the president and Congress agree a default on U.S. debt would be terrible. But whatever the problem is, consolidating political power into the hands of one man and destroying the checks and balances our system is built upon is not the solution.

If Democrats doubt this, they would do well to remember that once upon a time, they didn’t love the president, and that guy is trying to be president again. If they don’t want to live in a world where a crazy old guy is doing whatever he wants from the White House, they shouldn’t try to create a world in which a crazy old guy is allowed to do whatever he wants in the White House.

AUTHOR

Joseph Backholm

Joseph Backholm is Senior Fellow for Biblical Worldview and Strategic Engagement at Family Research Council.

RELATED ARTICLE: Yellen: 14th Amendment Can’t Appropriately Be Used to Raise Debt Ceiling

EDITORS NOTE: This Washington Stand column is republished with permission. All rights reserved. ©2023 Family Research Council.


The Washington Stand is Family Research Council’s outlet for news and commentary from a biblical worldview. The Washington Stand is based in Washington, D.C. and is published by FRC, whose mission is to advance faith, family, and freedom in public policy and the culture from a biblical worldview. We invite you to stand with us by partnering with FRC.

What Is Fractional Reserve Banking and Is It Good or Bad?

After the collapse of Silicon Valley Bank (SVB), I received several questions related to the collapse. One by Dr. Michael Overfield caught my eye. He says:

“The question I have is about fractional reserve banking. This is more in the news following the failure of the Silicon Valley Bank. [Some] feel we should outlaw fractional reserve banking. This policy would assure that our banks would have our funds secure whenever any of the depositors want them. But the depositors would have to pay a fee, or negative interest rate to get this service. Additionally funds would not be available for loans for business, homes, education and other needs. I have not seen the issue of fractional reserve banking addressed in the FEE newsletter which I read daily. Thank you in advance for your consideration.”

Before I highlight what I think about fractional reserve banking (FRB) we should spend some time dissecting what it is.

Ever wondered what happens to your money when it gets deposited at the bank? Or maybe you’ve just always assumed that the bank keeps it all on hand?

Think again. When you go to the bank and put your money in, economists call this money bank deposits. Today in the United States, banks do not typically keep 100% of deposits on hand. Instead, when you deposit your money, some of it is kept in the bank, but the bank lends the rest out to borrowers looking for funds.

Economists call this system fractional reserve banking because only a fraction of total deposits are kept in the bank’s reserves. This is in contrast to full reserve banking, in which 100 percent of deposits are kept in the bank’s reserves.

To give an example of fractional reserve banking, imagine I deposit $100 in FEEBank. FEEBank can decide they want to keep 20% of my money on hand ($20) and lend out 80% ($80) for a year to earn 5% interest from a borrower.

At the end of the year when the loan expires, FEEBank earns $4 from the loan they gave and pays me 1% interest ($1) for my money.

This is a win-win-win. I earn money while my money is idle. The bank earns money on the loan. The borrower is able to borrow money at an acceptable rate.

Despite the upsides, you may have noticed a potential issue with the above example. Let’s scale the bank up a bit to see this issue manifest in a more realistic example.

Imagine FRB on a larger scale. Ten people put in $100 each for a total of $1,000 in FEEBank’s reserves. If the bank wants to keep 20% in reserves, they keep $200 on hand, and they can lend out $800.

Now imagine one customer goes in and wants to take their $100 out. FEEBank has lent out $800 of the $1000 and they have $200 on hand. They give the first customer $100 of the $200 and are left with $100.

But now say a second customer comes in and wants their $100 back too. You probably see where this is going. If the second customer withdraws all funds, the bank is left with $0 on hand.

If any other depositors come in and ask for money, the bank is in trouble. FEEBank has no way of giving depositors the money they request! They can’t simply call back the $800 loan. If this happens, FEEBank goes under. In our modern economy, regulators would come and take over bank operations and FEEBank owners would lose their investments (unless they get bailed out or can borrow the money).

So FEEBank has a decision to make when engaging in FRB. The larger the percent of deposits kept on hand, the smaller the chance that depositors will clean them out. On the other hand, having a larger percentage of deposits means banks can’t make as much money from lending.

Customers experience a trade off too. Banks are able to hold money and offer the customers interest because the bank lends out their deposits. So customers are more at risk when their banks lend out their funds, but they receive a better return.

So, given the risk to customers, should FRB be prohibited? I don’t think so. But I also think that’s the wrong question.

The bank hypothetically not being able to pay back depositors is no big issue. A lot of our financial system is built on risk. When you loan money, you may not get your money back. When you loan money through an intermediary (like a bank), it’s possible they don’t get paid back. And, so long as customers are made aware of the risk that FRBs may run out of money, I don’t see any problem with letting customers take that risk.

If we think people should be able to turn their money into poker chips at casinos, I think it’d be odd to say they shouldn’t be able to turn it into fractional bank deposits.

But, as I said, I think this is at least partly the wrong question. I do think FRBs would exist in a modern competitive system, but I can’t be sure because our banking system is not competitive.

Government facilitated deposit insurance, depositor bailouts, ballooning regulatory codes, and bailouts for banks deemed “too big to fail” make it difficult to know what the banking system would look like in the modern US absent the visible hand of government.

All of this ignores the even bigger government intervention in the world of finance—a monopoly on the production of currency. Economist Lawrence White has written extensively on both the theory and history of banking in a world with competing monies.

In a freer system, I think it would likely be easier to find banks who keep all money on hand and charge a yearly fee, similar to what Dr. Overfield mentions in his question above.

Similarly, economist Robert Murphy has proposed a full reserve system which doesn’t require yearly fees and allows for lending by having depositors agree to lock in their funds for a specific amount of time which matches with the loan maturity.

Of course, this system still runs the risk of companies not being able to pay back their loans therefore making banks unable to pay back depositors. But it is, at least, an alternative option to the somewhat bland world of banking choices available today.

In summary, I don’t find FRB to be illegitimate, ethically or economically. Businesses constantly manage and weigh risks every day that, under certain circumstances, could blow up in the faces of owners or customers.

So long as customers are not defrauded by promises of it being completely risk free, my assumption is some successful entrepreneur will be able to effectively manage the risk of fractional reserves to provide depositors with a relatively high return.

But I am bothered by how standardized the banking industry is today and how few options there are for customers. It seems unlikely to me that in a world free of layers of subsidization, regulation, and monetary monopoly that our banking system would look like it does today.

AUTHOR

Peter Jacobsen

Peter Jacobsen teaches economics and holds the position of Gwartney Professor of Economics. He received his graduate education at George Mason University.

RELATED ARTICLE: A Billionaire Progressive Has Transformed America—by Destroying It

RELATED VIDEO: How to Survive a Bank Collapse

EDITORS NOTE: This FEE column is republished with permission. ©All rights reserved.

Why We Should Let Bad Banks Fail

Bad banks need consequences. Let them fail.


By now, you’ve likely heard about regulators closing down Silicon Valley Bank (SVB) and now Signature Bank as well.

While I’m not going to go into all the details, the basic story is described well in this article on Seeking Alpha. Essentially, SVB received a large influx of deposits as the Federal Reserve flooded the market with dollars during COVID.

From there, SVB went out and bought government bonds to store that money. But then, the Federal Reserve started enacting policies which moved interest rates up. The problem? As interest rates rose, the bonds SVB purchased in the past declined in value.

Bond prices and the interest rate have an inverse relationship. If interest rates increase, you can earn a higher return on financial assets purchased today. When that happens, bonds issued at a previously lower rate must sell at a discount to compete.

So when rates rose, SVB’s assets (composed largely of old lower-rate government bonds) plummeted in value.

The key question now is, what are we going to do about it?

I have a modest proposal—let them fail.

Allowing banks to fail may sound extreme, but it’s really the most reasonable solution. It’s true there will be some costs if the banks fail. Any time a business fails, other investors tied financially to the company lose.

But here’s the rub—people who invest in bad businesses should lose. SVB’s failure is a reflection of the fact that it was a wealth shredder. It took depositors’ perfectly good cash, and converted it into now severely devalued bonds.

Banks that destroy wealth shouldn’t be allowed to continue to do so indefinitely. And when depositors make a “run” on bad banks, they’re performing a public service.

At this point, a bank bailout not only would mean the taxpayers will be left holding the bag for bankers’ mistakes—it would mean screwing up incentives in the banking industry even more.

To see the incentive problem, consider an example. Imagine a world where, no matter the circumstances, the government will pay to fix cars after every accident. What do you think this would do to the number of car accidents per year? It would sky-rocket.

If you never need fear paying a price for crashing your car, why drive carefully? There is still some incentive to avoid serious accidents due to injury, but the point is this system lowers the cost of risky behavior, and therefore lowers an individual’s incentive to be careful. Economists call this a moral hazard problem.

And this is the primary issue with bank bailouts. If the government sets a precedent that all bank failures will be ameliorated by using taxpayer money, banks will engage in risky behavior which they otherwise would not. Why be cautious with depositors’ money if you get a bailout no matter what?

You cannot have a healthy free market when you privatize the profits and socialize the losses. The taxpayer’s wallet, if treated like common property, will be subject to the tragedy of the commons.

And I don’t just mean that I’m against a formal bailout to save investors. I’m opposed to taxpayer dollars being reallocated to save the bottom line of anyone involved. Some may worry about small depositors, but the FDIC already insures up to $250,000 (regardless of what I or anyone else thinks about that policy), meaning every depositor who has less than that in their account is getting their money back already.

And for the larger depositors? Business deals have risks. We cannot pay people to ignore that fact. If you want to house more than a quarter of a million dollars in any one institution you should be very careful in picking.

If some individual wants to come along and buy SVB or these other failing banks and try to resuscitate them, I invite them to try. Maybe there is a profit opportunity there. But if the choice is between a bailout and letting them fail, the answer is clear to me.

If they can have the profits, they should have the losses as well.

AUTHOR

Peter Jacobsen

Peter Jacobsen teaches economics and holds the position of Gwartney Professor of Economics. He received his graduate education at George Mason University.

EDITORS NOTE: This FEE column is republished with permission. ©All rights reserved.

CBO: Interest on Debt to Triple by 2033, Surpass Defense Spending by 2028

Here’s one ballooning problem the military can’t simply knock out of the sky: net interest payments on the U.S. government’s debt are projected to triple over the next 10 years, totaling 300% of 2022 outlays in 2033, according to a new report published this week by the Congressional Budget Office (CBO).

According to CBO projections, interest on the debt (which claimed 7.5% of federal government spending in 2022) will rise sharply to 10.3% of spending in 2023 and then continue rising steadily, surpassing defense spending (11.9% of spending in 2022) in 2028 and reaching 14.4% of spending by 2033.

This bad news on rising interest costs comes amid another, short-term crisis regarding the debt ceiling. The U.S. government hit its statutory debt limit of $31.4 trillion on January 19 of this year. Treasury Secretary Janet Yellen has resorted to “extraordinary measures” to “borrow additional funds without breaching the debt ceiling,” the CBO explained, but they estimate that “the Treasury would exhaust those measures and run out of cash sometime between July and September of this year” unless Congress acts to raise the debt ceiling. For every penny Congress raises the debt ceiling, it will only aggravate the interest problem more.

The increase in net interest payments has two primary causes: interest rates and deficit spending.

First, the Federal Reserve’s interest rate hikes to fight inflation contribute to higher interest rates the U.S. must pay on preexisting debt, with a small lag in time. The Federal Reserve has raised the federal funds interest rate eight times in the past 12 months, from a targetrange between 0.25%-0.00% in January 2022 to a range between 4.50%-4.25% today.

“Net outlays for interest, which rose by 35 percent last year, are projected to increase by 35 percent again this year,” said the CBO. “The projected increase in 2023 occurs primarily because the average interest rate that the Treasury pays on its debt has risen sharply this year and is expected to rise further as maturing securities are refinanced at rates that are higher than those that prevailed when they were initially issued. For example, the interest rate on 10-year Treasury notes averaged 1.3 percent in 2021 and 2.4 percent in 2022; that rate averages 3.8 percent in 2023 in CBO’s current economic forecast.”

Second, continued deficit spending increases the volume of debt on which the U.S. government must pay interest. (To clarify, “debt” is the total, cumulative amount owed, while “deficit” is the difference between expenditures and revenues over a given period of time.) “Debt held by the public (in nominal terms) is on track to increase by 6 percent from 2022 to 2023,” said the CBO, which “projects a federal budget deficit of $1.4 trillion for 2023.”

In fact, the CBO projects the federal government will run an annual deficit of $1.4 trillion-$2.8 trillion (amounting to 5.4%-7.3% of estimated Gross Domestic Product [GDP]) for every year, 2023-2033. In their February report, the CBO added 20% to their projected deficit over the next 10 years, due to changing economic and legislative factors.

Assuming that “current laws governing taxes and spending generally remained unchanged,” CBO projects that “federal debt held by the public is projected to increase in each year of the projection period and to reach 118 percent of GDP in 2033 — higher than it has ever been.”

Rising interest payments will only exacerbate the U.S. government’s budget shortfalls. According to the CBO project, the percentage of the budget devoted to paying interest will nearly double from 2022-2033. Other slices of the pie must get smaller as a result. But, as Figure 1 shows, the decreases won’t come from mandatory spending (it’s mandatory, after all), which is already a majority of federal spending. Instead, the increasing interest payments mean a smaller slice of the pie is left over for discretionary spending — including a vital subset, defense spending. The CBO estimates that defense spending will decline from 13.2% of federal expenditures in 2024 to 11.1% in 2033 (with nondefense spending declining proportionally), as interest payments increase from 11.5% to 14.4% over the same period.

VIEW: Figure 1: CBO Projection – Spending by Category (in Pct.)

Of course, one often overlooked feature of the spending “pie” analogy is that the pie can grow in size — through either expanding revenues or assuming additional debt. As Figure 2 makes clear, the CBO doesn’t predict that discretionary spending — either for defense or nondefense purposes will shrink in absolute terms. Rather, it will grow more slowly than interest payments, mandatory spending (mostly Social Security, Medicaid, and Medicare), and by implication, the whole economy as well.

VIEW: Figure 2: CBO Projection – Spending by Category (in $Billions)

One major asterisk to CBO estimates is their assumption that “current laws governing taxes and spending generally remained unchanged.” There’s nothing wrong with projecting from that assumption — it’s their job at the Congressional Budget Office, actually. But a lot can change over 10 years. For one thing, “forecasting interest rates is particularly challenging,” the CBO admitted in 2020. Three presidential elections and two midterm elections give plenty of time for political coalitions to change “current laws.”

It’s not implausible that America might experience a recession, or even two, over a 10-year period; this, too, could radically alter taxation and spending priorities. Foreign events may also interject themselves; a foreign conflict with, say, China could substantially increase military spending. All these plausible variables could dramatically alter the shape of actual government spending, 10 years down the road.

What the CBO projection can tell us is that our current policies are needlessly backing us into a corner. Just paying the interest on our current national debt will cost more and more, and the government continues to overspend its revenues to the tune of trillions (with a “T”) per year. Meanwhile, the CBO predicts mandatory spending will increase by 60% from 2023 to 2033, primarily due to the population aging into Social Security benefits. The combined pressure of these factors will reduce the federal government’s freedom to spend discretionary funds (on everything else), trimming them from 26.5% of total spending in 2022 (and somehow 29.1% in 2024) to 23.9% of total spending in 2033.

If the CBO’s projection is accurate, when Congress gets around to allocating funds in 2033, they will have less than a quarter to work with out of every dollar that they spend. That quarter must cover all discretionary spending, including defense spending.

Net interest payments are far from the most expensive category of federal spending, as Figures 1 and 2 illustrate, so why do they matter so much? One reason is that they perpetuate the deficit spiral. The CBO called the “net interest outlays increase … a major contributor to the growth of total deficits.” These deficits add to the debt, which then increases the interest the U.S. government must pay even further.

Another reason is the irresponsible folly it implies. The U.S. government is in the situation of a person who has gotten up to their eyeballs in credit card debt. Yet the government not only continues to finance purchases with credit, but only ever pays the interest that comes due, and never pays down the ever-growing principal. Sooner or later, those chickens will come home to roost, and, when they do, everything will smell like chicken houses.

A third reason to worry about the growing interest payments is that it complicates the math for any plan to reach a balanced budget. “Opportunities to trim costs are limited, with only about one-third of federal spending labeled as discretionary,” wrote analysts at The Wall Street Journal. Those opportunities shrink further as discretionary spending is crowded out by interest payments.

A fourth, and related, reason is it leaves us less prepared for any crisis. Apart from possible military crises, the CBO forecasted last month that Social Security will become insolvent in 2033, 10 years away. Analysists have recognized for decades that the entitlements time bomb is most likely to kill us when it finally detonates, but America lacks the political will to address that issue yet.

Still, the U.S. government can be better or worse prepared when that time comes. Our best escape route is to free up some funds to deal with the ultimate insolvency of Social Security. Instead, we continue to spend money we don’t have. It’s as if we are trapped in a corral with a deadly bull lying fast asleep. We could choose to flee before the bull awakes. Yet America has not only remained in the ring, but we have backed ourselves into a corner, limiting our chances to dodge its gory horns. And, on top of that, we occupy ourselves by stringing barbed wire across our best escape route. When the bull finally awakes, we will deserve all the consequences of our folly.

If America’s fiscal situation is dangerous, even desperate, why haven’t we confronted our fiscal irresponsibility yet? One reason is that historically depressed interest rates kept legislators from feeling the consequences of their actions. For 11 out 14 years from 2008-2020, the federal funds effective rate lay under 1% (and most of that time it was under 0.2%). In 2015, the interest rate on a three-month Treasury bill, which averaged almost 5% in 2007, had dropped to 0.03%. This created an era of cheap debt, where Congress could overspend with hardly any consequences. Now, as interest rates rise, as we always knew they would, the U.S. government not only has to shoulder an interest burden to which it is unaccustomed, but it has also lost the habit — or even the façade — of fiscal restraint.

According to the latest CBO report, 2028 represents a shocking threshold: the year when the U.S. government will have to spend more paying the interest on our $31.4 trillion of debt than it will spend on national defense. Whether we reach this landmark a few years early or late, the point is that our profligate legislature is spending our country into a pointless crisis.

Just as no one wants to be the team down by three touchdowns at the two-minute warning, no country should willingly bury itself under so much debt that it’s mathematically impossible to escape. Alas, the only similarity between wisdom and Washington is that both begin with “W.”

AUTHOR

Joshua Arnold

Joshua Arnold is a staff writer at The Washington Stand.

EDITORS NOTE: This Washington Stand column is republished with permission. ©All rights reserved.


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Today’s Anti-Capitalists Want to Regulate What You Can Eat, How Often You Drive, and the Size of Your Home

It may sound cruel to say so, but such thinking closely mirrors that of the Khmer Rouge in Cambodia.


Planned economics is enjoying yet another revival. Climate protection advocates and anti-capitalists are demanding that capitalism be abolished and replaced with a planned economy.

Otherwise, they claim, humanity has no chance of survival.

In Germany, a book called Das Ende des Kapitalismus (English: The End of Capitalism) is a bestseller and its author, Ulrike Hermann, has become a regular guest on all the talk shows. She openly promotes a planned economy, although this has already failed once in Germany—just like everywhere else it has been tried.

Unlike under classical socialism, in a planned economy, companies are not nationalized, they are allowed to remain in private hands. But it is the state that specifies precisely what and how much is produced.

There would be no more flights and no more private motor vehicles. The state would determine almost every facet of daily life—for example, there would no longer be any single-family houses and no one would be allowed to own a second home. New construction would be banned because it is harmful to the environment. Instead, existing land would be distributed “fairly,” with the state deciding how much space is appropriate for each individual. And the consumption of meat would only be allowed as an exception because meat production is harmful to the climate.

In general, people should not eat so much: 2,500 calories a day are enough, says Herrmann, who proposes a daily intake of 500 grams of fruit and vegetables, 232 grams of whole meal cereals or rice, 13 grams of eggs, and 7 grams of pork.

“At first glance, this menu may seem a bit meager, but Germans would be much healthier if they changed their eating habits,” reassures this critic of capitalism. And since people would be equal, they would also be happy: “Rationing sounds unpleasant. But perhaps life would even be more pleasant than it is today, because justice makes people happy.”

Such ideas are by no means new. The popular Canadian critic of capitalism and globalization, Naomi Klein, admits that she initially had no particular interest in climate change. Then, in 2014, she wrote a hefty 500-page tome called This Changes Everything: Capitalism vs. the Climate.

Why did she suddenly become so interested?

Well, prior to writing this book, Klein’s main interest was the fight against free trade and globalization. She says quite openly: “I was propelled into a deeper engagement with it partly because I realized it could be a catalyst for forms of social and economic justice in which I already believed.” She calls for a “carefully planned economy” and government guidelines on “how often we drive, how often we fly, whether our food has to be flown to get to us, whether the goods we buy are built to last … how large our homes are.” She also embraces a suggestion that the most well-off 20 percent of the population should accept the largest cuts in order to create a fairer society.

These quotes – to which many more such statements in Klein’s book could be added – confirm that the most important goal of anti-capitalists such as Herrmann and Klein is not to improve the environment or find solutions for climate change. Their real goal is to eliminate capitalism and establish a state-run, planned economy. In reality, this would involve the abolition of private property, even if, technically, property rights continued to exist. Because all that would be left is the formal legal title of ownership. The “entrepreneur” would still own his factory, but what and how much it produces would be decided by the state alone. He would become an employed manager of the state.

The biggest mistake planned-economy advocates have always made was believing in the illusion that an economic order could be planned on paper; that an authority could sit at a desk and come up with the ideal economic order. All that would be left to do would be to convince enough politicians to implement the economic order in the real world. It may sound cruel, but the Khmer Rouge in Cambodia also thought that way.

The most radical socialist experiment in history, which took place in Cambodia in the mid to late 1970s, was originally conceived in the universities of Paris. This experiment, which the Khmer Rouge leader Pol Pot (also referred to as “Brother 1”) called the “Super Great Leap Forward,” in honor of Mao’s Great Leap Forward, is most revealing because it offers an extreme demonstration of the belief that a society can be artificially constructed on the drawing board.

Today, it is often claimed that Pol Pot and his comrades wanted to implement a puritan form of “primitive communism,” and their rule is painted as a manifestation of unrestrained irrationality. In fact, this couldn’t be further from the truth. The Khmer Rouge’s masterminds and leaders were intellectuals from upstanding families, who had studied in Paris and were members of the French Communist Party. Two of the masterminds, Khieu Samphan and Hu Nim, had written Marxist and Maoist dissertations in Paris. In fact, the intellectual elite who had studied in Paris occupied almost all of the government’s leading positions after the seizure of power.

They had worked out a detailed Four-Year Plan that listed all the products the country would need in exacting detail (needles, scissors, lighters, cups, combs, etc.). The level of specificity was highly unusual, even for a planned economy. For example, it said, “Eating and drinking are collectivized. Dessert is also collectively prepared. Briefly, raising the people’s living standards in our own country means doing it collectively. In 1977, there are to be two desserts per week. In 1978 there is one dessert every two days. Then in 1979, there is one dessert every day, and so on. So people live collectively with enough to eat; they are nourished with snacks. They are happy to live in this system.”

The party, the sociologist Daniel Bultmann writes in his analysis, “planned the lives of the population as if on a drawing board, fitting them into pre-determined spaces and needs.” Everywhere, gigantic irrigation systems and fields were to be built to a uniform, rectilinear model. All regions were subjected to the same targets, as the Party believed that standardized conditions in fields of exactly the same size would also produce standardized yields. With the new irrigation system and the checkerboard rice fields, nature was to be harnessed to the utopian reality of a fully-collectivist order that eliminated inequality from day one.

Yet the arrangement of irrigation dams in equal squares with equally square fields in their center led to frequent floods, because the system totally ignored natural water flows, and 80 percent of the irrigation systems did not work—in the same way that the small blast furnaces did not work in Mao’s Great Leap Forward.

Throughout history, capitalism has evolved, just as languages have evolved. Languages were not invented, constructed, and conceived, but are the result of uncontrolled spontaneous processes. Although the aptly named “planned language” Esperanto was invented as early as 1887, it has completely failed to establish itself as the world’s most widely spoken foreign language, as its inventors had expected.

Socialism has much in common with a planned language, a system devised by intellectuals. Its adherents strive to gain political power in order to then implement their chosen system. None of these systems have ever worked anywhere—but this apparently does not stop intellectuals from believing that they have found the philosopher’s stone and have finally devised the perfect economic system in their ivory tower. It is pointless to discuss ideas like Herrmann’s or Klein’s in detail because the whole constructivist approach—i.e. the idea that an author can “dream up” an economic system in their heads or on paper—is wrong.

The historian and sociologist Rainer Zitelmann is the author of the book IN DEFENCE OF CAPITALISM which is being published in 30 languages.

AUTHOR

Dr. Rainer Zitelmann

Dr. Rainer Zitelmann is a historian and sociologist. He is also a world-renowned author, successful businessman, and real estate investor. Zitelmann has written more than 20 books. His books are successful all around the world, especially in China, India, and South Korea. His most recent books are The Rich in Public Opinion which was published in May 2020, and The Power of Capitalism which was published in 2019.

RELATED ARTICLE: New Hampshire Bakery Ordered to Remove Mural Because It Depicts Pastries

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Young Montana Entrepreneur Is Being Legally Barred from Hauling Trash Because Established Players Don’t Want the Competition

If it sounds crazy that established players get a say on who is allowed to compete with them, well, it should.


When Parker Noland launched his trash-hauling business at age 20 in the summer of 2021, he was excited about the opportunities that lay before him. After taking out a loan from a local bank, the Montana native bought a truck and some dumpsters and got to work promoting his services. The business plan was simple: he would deliver dumpsters to construction sites looking to get rid of debris and then transport the dumpsters to the county dump once they were full.

Things quickly got complicated for Noland, however. Though he had registered his business, gotten the proper insurance, and complied with all public health and safety standards, he was still missing one thing, a Certificate of Public Convenience and Necessity. As a result, right when he was about to get his business off the ground he was given a cease and desist order by the Montana Public Service Commission, the agency responsible for administering the Certificate law.

Noland applied for the Certificate shortly thereafter on September 8, 2021, but his troubles were just getting started. Two national garbage companies—his would-be competitors—protested his application, which they are allowed to do under the law. The companies issued various demands, such as data requests, and Noland’s legal expenses to fight the protests were soon thousands of dollars and counting.

On November 9, 2021, Noland made the difficult decision to withdraw his Certificate application, seeing as he could not afford the mounting legal expenses involved with fighting the protests. To this day, Noland remains ready and willing to run his trash-hauling business, but he is legally barred from doing so until he gets the Certificate.

On November 15, 2022, Noland teamed up with the Pacific Legal Foundation (PLF) to file an official complaint with Montana’s eleventh judicial district court, seeking a permanent injunction against further enforcement of the law on the ground that it violates his Constitutional rights.

If it sounds crazy that established players in an industry are empowered by the government to bury would-be competitors in unnecessary legal fees, well, it should. As PLF argues, these laws practically amount to a “competitor’s veto.”

“Montana’s Certificate of Public Convenience and Necessity law allows established garbage companies to keep potential competitors like Noland out of the market,” PLF writes in their complaint. “Noland applied for a Certificate, but was forced to withdraw his application after some of the largest garbage companies in the nation protested his application, which imposed massive delays and created enormous financial costs. The Certificate provisions challenged in this case prevent Noland and other would-be entrepreneurs from working—not because they are unfit to operate—but to protect incumbent garbage companies from having to compete fairly.”

“Incumbents can protest for the bare reason that they do not want to face new competition,” PLF continues. “The Montana Public Service Commission is further empowered to reject an applicant because it believes there is no ‘need’ for a new company, and therefore that a new business would take away from the incumbent’s profits. Together these provisions create a Competitor’s Veto over those who wish to exercise their right to earn a living as a Class D hauler. This blatant economic protectionism is prohibited by the Montana and U.S. Constitutions.”

In sum, “the Competitor’s Veto allows existing garbage companies to force an applicant to undergo the time and expense of an administrative hearing that has nothing to do with the applicant’s public safety record, or any other matter related to public health or safety, but instead simply because existing garbage companies seek to restrict market competition.”

Noland is hardly the only entrepreneur running into this problem. As PLF notes, there were eight applications for a Class D (trash hauling) Certificate in Montana between January 1, 2018 and September 8, 2021. All eight faced protests. As a result of the protests, four of the applications were withdrawn, one was denied, and two were granted the Certificate only after agreeing to reduce the scope of their business.

The story of the one successful applicant who didn’t have to reduce their scope is revealing.

“The only applicant who succeeded in securing a Certificate over a protest, and without reducing the scope of its business, was L&L Site Services, Inc., on December 15, 2020,” PLF notes. “After a lengthy legal fight before the Commission, which involved extensive discovery, including 13 supplemental responses to Allied Waste Services’ data requests, a 5-day evidentiary hearing requiring legal representation, and contentious oral argument, L&L’s application was granted on April 29, 2022, over two dissenting votes from Defendants Brad Johnson and Randy Pinocci.”

The garbage company which protested their application has since filed a Motion for Reconsideration, which remains pending.

“Over the past 3 years,” PLF concludes, “the strongest predictor for getting permission to enter the trade of dumpster servicing was agreeing to reduce one’s operating authority to not compete with incumbents. And even though one applicant was able to afford the time and expense of the legal battle required by an incumbent’s protest, the challenged provisions still allowed the incumbent to inflict significant costs and delay on its potential competitor for purely anti-competitive reasons.”

Laws requiring a Certificate of Public Convenience and Necessity (CPCN) cover a variety of industries in different states—from trash collection to telecommunications to natural gas—but they all have similar impacts. They are closely related to Certificate of Need laws (CON laws) which create similar barriers in the healthcare industry (hospitals, nursing homes, ambulances, etc.) and in other industries such as transportation (specifically moving companies).

The justification for these kinds of laws is twofold. For one, proponents argue that allowing businesses to compete without demonstrating a “need” will lead to duplicative services, that is, an overabundance of supply in a given area. The problem, they contend, is that this will lead to higher prices because companies will charge more for the capacity they do use to compensate for the unused capacity. If a company builds a hospital, for example, but realizes it can’t fill half its beds because the market is already saturated with hospitals, it will ostensibly hike prices for the beds it does fill to compensate for its loss.

The other argument is that by restricting entry into “saturated” markets, politicians can use CPCN and CON laws to encourage entrepreneurs to set up shop in areas that tend to have less access to these services, such as rural areas.

These arguments may sound plausible at first glance, but upon closer inspection they are rather spurious. For one, how does a bureaucrat determine when a market is too saturated? There are no objective criteria here. What’s more, the very fact that an entrepreneur is planning to enter a market is evidence that, at least from their perspective, there are needs that are currently not being met by established players.

Another major problem with this analysis is the assumption that businesses can unilaterally raise prices in order to cover their costs. This is not how prices work. Prices are set by supply and demand. If anything, a greater supply in a region will lead to lower prices.

The idea that these laws are needed to push entrepreneurs to “lower access” regions is also dubious. An entrepreneur, almost by definition, is seeking to meet needs that haven’t already been satisfied. Thus, they naturally gravitate to precisely these “low access” regions. If they successfully set up shop in a supposedly “saturated” market, it is evidence that the market wasn’t, in fact, saturated. If their business in that region fails, on the other hand, the market will quickly usher them elsewhere all on its own.

Noland’s story is a case in point on this. As PLF notes, construction companies specifically sought out Noland because the large incumbent companies weren’t picking up bins in a timely manner. In other words, there was a market need that was clearly going unfulfilled. The market was not saturated, and that’s precisely why Noland was setting up shop in the first place. Further, Noland’s more compact truck “allowed him to offer services to areas where the incumbent companies did not,” something he was no doubt planning to take advantage of.

There’s a curious irony here. Though the Certificate law was intended to increase services in underserved areas, its practical impact is to restrict services in evidently underserved areas.

There’s an irony on the price front too. Though the law was intended to keep prices down, by restricting entry it is actually creating opportunities for incumbents to keep prices up!

Thus, on both issues, these laws are not only unnecessary, but counterproductive. They are hurting the very consumers they were supposed to protect, not to mention the would-be competitors like Noland who are effectively prohibited from entering the market.

The economist Murray Rothbard summarizes the effect of these policies well in his book Power & Market.

Certificates of convenience and necessity are required of firms in industries—such as railroads, airlines, etc.—regulated by governmental commissions. These act as licenses but are generally far more difficult to obtain. This system excludes would-be entrants from a field, granting a monopolistic privilege to the firms remaining; furthermore, it subjects them to the detailed orders of the commission. Since these orders countermand those of the free market, they invariably result in imposed inefficiency and injury to the consumers.”

While the Certificate law in Noland’s story is certainly troubling, the deeper problem this story highlights is the belief that government restrictions of the market can help consumers. The reality is exactly the opposite. The best way for the government to help consumers is to get out of the way, and in particular, to stop enforcing regulations that protect established players from new entrants. Let entrepreneurs compete. Let consumers have choices.

America was built by the Parker Nolands of the world, young entrepreneurs full of dreams and ambitions.

It would be a shame if we strangled that spirit with red tape.

This article was adapted from an issue of the FEE Daily email newsletter. Click here to sign up and get free-market news and analysis like this in your inbox every weekday.

AUTHOR

Patrick Carroll

Patrick Carroll has a degree in Chemical Engineering from the University of Waterloo and is an Editorial Fellow at the Foundation for Economic Education.

RELATED ARTICLE: Cuba’s Bustling Black Markets Hold an Important Economic Lesson

EDITORS NOTE: This FEE column is republished with permission. ©All rights reserved.

U.S. State GDPs Compared to Entire Countries

It’s pretty difficult to even comprehend how ridiculously large the US economy is.


Click here to view the U.S. State GDPs Compared to Entire Countries map.

The map above (click to view and enlarge) matches the economic output (Gross Domestic Product) for each US state (and the District of Columbia) in 2018 to a foreign country with a comparable nominal GDP last year, using data from the BEA for GDP by US state (average of Q2 and Q3 state GDP, since Q4 data aren’t yet available) and data for GDP by country from the International Monetary Fund. Like in past years, for each US state (and the District of Columbia), I’ve identified the country closest in economic size in 2018 (measured by nominal GDP) and those matching countries are displayed in the map above and in the table below. Obviously, in some cases, the closest match was a country that produced slightly more, or slightly less, economic output in 2018 than a given US state.

It’s pretty difficult to even comprehend how ridiculously large the US economy is, and the map above helps put America’s Gross Domestic Product (GDP) of $20.5 trillion ($20,500,000,000,000) in 2018 into perspective by comparing the economic size (GDP) of individual US states to other country’s entire national output. For example:

  1. America’s largest state economy is California, which produced nearly $3 trillion of economic output in 2018, more than the United Kingdom’s GDP last year of $2.8 trillion. Consider this: California has a labor force of 19.6 million compared to the labor force in the UK of 34 million (World Bank data here). Amazingly, it required a labor force 75% larger (and 14.5 million more people) in the UK to produce the same economic output last year as California! That’s a testament to the superior, world-class productivity of the American worker. Further, California as a separate country would have been the 5th largest economy in the world last year, ahead of the UK ($2.81 trillion), France ($2.79 trillion) and India ($2.61 trillion).
  2. America’s second largest state economy—Texas—produced nearly $1.8 trillion of economic output in 2018, which would have ranked the Lone Star State as the world’s 10th largest economy last year. GDP in Texas was slightly higher than Canada’s GDP last year of $1.73 trillion. However, to produce about the same amount of economic output as Texas required a labor force in Canada (20.1 million) that was nearly 50% larger than the labor force in the state of Texas (13.9 million). That is, it required a labor force of 6.2 million more workers in Canada to produce roughly the same output as Texas last year. Another example of the world-class productivity of the American workforce.
  3. America’s third largest state economy—New York with a GDP in 2018 of $1.68 trillion—produced slightly more economic output last year than South Korea ($1.65 trillion). As a separate country, New York would have ranked as the world’s 11th largest economy last year, ahead of No. 12 South Korea, No. 13 Russia ($1.57 trillion) and No. 14 Spain ($1.43 trillion). Amazingly, it required a labor force in South Korea of 28 million that was nearly three times larger than New York’s (9.7 million) to produce roughly the same amount of economic output last year! More evidence of the world-class productivity of American workers.
  4. Other comparisons: Florida (about $1 trillion) produced almost the same amount of GDP in 2018 as Mexico ($1.19  trillion), even though Florida’s labor force of 10.2 million less than 20% of the size of Mexico’s workforce of 59 million.
  5. Even with all of its oil wealth, Saudi Arabia’s GDP in 2018 at $683 billion was below the GDP of US states like Pennsylvania ($793 billion) and Illinois ($863 billion).

Overall, the US produced 24.3% of world GDP in 2017, with only about 4.3% of the world’s population. Four of America’s states (California, Texas, New York and Florida) produced more than $1 trillion in output and as separate countries would have ranked in the world’s top 16 largest economies last year. Together, those four US states produced nearly $7.5 trillion in economic output last year, and as a separate country would have ranked as the world’s third-largest economy.

Adjusted for the size of the workforce, there might not be any country in the world that produces as much output per worker as the US, thanks to the world-class productivity of the American workforce. The map above and the statistics summarized here help remind us of the enormity of the economic powerhouse we live and work in.

So let’s not lose sight of how ridiculously large and powerful the US economy is, and how much wealth, output, and prosperity is being created every day in the largest economic engine there has ever been in human history. This comparison is also a reminder that it was largely free markets, free trade, and capitalism that propelled the US from a minor British colony in the 1700s into a global economic superpower and the world’s largest economy, with individual US states producing the equivalent economic output of entire countries.

This article is reprinted with permission from The American Enterprise Institute.

AUTHOR

Mark J. Perry

Mark J. Perry is a scholar at the American Enterprise Institute and a professor of economics and finance at the University of Michigan’s Flint campus.

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Debunking Hurricane-Season Fallacies—3 Economic Fallacies to Watch Out For

You might be prepared for a hurricane, but are you prepared for a deluge of fallacies?


With hurricane season upon us, many are preparing for the worst. Windows are being boarded up, pantries are being stockpiled with extra food and water, and rescue crews are monitoring weather forecasts closely. Some have already experienced the worst, and are no doubt grateful they were ready when they got hit.

But while many are prepared for the hurricanes that sweep in, few seem prepared for the deluge of economic fallacies that inevitably accompanies these storms. These fallacies rain down from the highest levels of government and can be even more destructive than the hurricanes themselves. At best, the fallacies cause confusion and panic; at worst, shortages and life-threatening miscommunications.

So, in an effort to help us prepare for the storm before it’s too late, let’s explore three common fallacies that can come up during hurricane season.

The broken window fallacy is a classic hurricane-season misstep. “Hurricanes may do damage,” the reasoning goes, “but look on the bright side. Think of how many jobs will be created because of the destruction. Think about all the demand that will be stimulated. Things may look bleak, but this is actually good for the economy.”

Bastiat debunked this reasoning in his 1848 essay That Which Is Seen and that Which Is Not Seen, and countless economists since have echoed his remarks. In the essay, he tells the parable of a shopkeeper whose careless son breaks a window, and he asks the reader whether this is good for the economy. At first glance, it’s tempting to say yes. But as Bastiat shows in the story, this conclusion ignores the unseen effects of the broken window.

“If…you come to the conclusion,” he writes, “as is too often the case, that it is a good thing to break windows, that it causes money to circulate, and that the encouragement of industry in general will be the result of it, you will oblige me to call out, ‘Stop there! your theory is confined to that which is seen; it takes no account of that which is not seen.’”

What is not seen, briefly, is the lost opportunities, the things that could have been done with our resources had they not been needed to replace the broken window. Taking those into account, it becomes clear that the broken window is harmful to the economy. After all, there is now one less window in our stockpile of goods.

The same reasoning applies on a larger scale. There may be plenty of jobs and demand when a hurricane destroys a town, but saying this is “good” for the economy is simply wrong. If this logic were true, the more destruction we experience the better off we’d be! But economic reasoning—and plain common sense—tells us this can’t be right.

Every time a hurricane comes in there is a surge of worry about so-called price gouging—raising prices sharply in response to a supply or demand shock. Hurricane Ian has been no different.

“I want to add one more warning…to the oil and gas industry executives. Do not — let me repeat, do not — use this as an excuse to raise gasoline prices or gouge the American people,” President Biden said on Wednesday. “This small temporary storm impact on oil production provides no excuse, no excuse for price increases at the pump. None.”

“If the gas companies try to use this storm to raise prices at the pump,” he continued, “I will ask officials to look into whether price gouging is going on.” “America is watching,” he added. “The industry should do the right thing.”

According to Biden, the “right thing” for the oil and gas industry is to keep prices right where they are. But if access to gasoline for those who need it most is the goal, keeping the price fixed during a supply disruption will only make matters worse

“[Anti-price-gouging] laws keep prices low during natural disasters but lead to bare shelves, closed stores, and empty gas stations,” explains economics professor Lili Carneglia. “This happens because the low mandated prices push consumers to purchase more water, gas, flashlights, and so on. Yet at the same time, sellers aren’t financially motivated to expend any additional effort to supply more of these necessities. Why would they spend their time or money bringing in additional goods during a disaster only to sell them for the same price they’d get under normal circumstances? This imbalance between the interest of buyers and sellers causes shortages, leaving many without anything at all.”

Laws against price gouging—and the disdainful attitude toward “price-gougers” that pervades our culture—are born from the fallacy that keeping prices low makes goods more accessible for those who need them. In many cases, this simply isn’t true. It’s not a question of having a high price or a low price. It’s a question of having a high price or an empty shelf.

And if someone’s truly in need, you can bet they’ll prefer the high price over the empty shelf any day of the week.

Another policy that sometimes gets discussed in the wake of hurricanes is the Jones Act. Officially called the Merchant Marine Act of 1920, the Jones Act makes it illegal to transport goods by ship between US ports unless the ship is US-built, US-flagged, is owned by Americans, and is at least three-quarters crewed by Americans.

The Jones Act has recently become a hot topic again because of the situation in Puerto Rico. The island is suffering from the damage wrought by Hurricane Fiona and is in desperate need of supplies. As it happens, a ship carrying 300,000 barrels of desperately-needed diesel fuel from Texas was right next to the island on Monday. However, the ship is not Jones Act compliant, so it had to wait until a “temporary and targeted” waiver to the Act was granted Wednesday before it could unload the fuel.

This isn’t the first time the Jones Act has been waived to facilitate hurricane-relief efforts. It was also temporarily waived following Hurricane Katrina, Hurricane Sandy, Hurricane Harvey, Hurricane Irma, and Hurricane Maria. Coincidentally, the Hurricane Maria waiver also concerned Puerto Rico, also happened in late September (2017), and also took two days before it came through.

So, why does this harmful Act exist in the first place? Essentially, the goal is to create a “strong” domestic shipping industry to ensure the US isn’t too dependent on other countries for its shipping (there’s also a mercantilist argument, but we’ll leave that aside for this discussion). If we require these ships to be all-American, the reasoning goes, US shipping will thrive and can be counted on to facilitate commerce and lend a hand should it be needed for national defense. The fear is that American ports, absent these restrictions, would come to be dominated by foreign ships built in foreign shipyards, and should there be a war, those ships would be called back to their home ports, leaving America with few vessels and little shipyard infrastructure to use for commercial purposes (or to commandeer for war).

The idea that it’s good for a nation to be “self-sufficient” in certain key industries like shipping is a typical protectionist talking point, but it has serious problems. Though it might seem like being “self-sufficient” makes us strong and being “dependent” on other nations makes us weak, the reality is exactly the opposite.

Imagine trying to make your home self-sufficient, or even your city or state. You’d have to grow all your own food, mine your own metal, and make everything yourself. Even if trade were only restricted in a few industries, it wouldn’t be long before you became an economic lightweight compared to what you could have been. Your technology will fall behind and you’ll struggle to accumulate capital. In short, your economy will be severely weakened.

This is the inevitable result of trade restrictions. To the extent that you cut yourself off from the world, you cripple yourself. And this is just as true on a national scale as it is on a more local scale.

“What protection teaches us,” said economist Henry George (1839-1897), “is to do to ourselves in time of peace what enemies seek to do to us in time of war.”

All that to say, hampered disaster relief is but one of the many ways “self-sufficiency” makes us worse off.

As with hurricanes, the key to mitigating the damage of economic fallacies is being prepared for them. If we don’t know even basic economics, we are setting ourselves up to be duped, and there are real consequences when that happens.

So just as we take time to board our windows and stock our pantries, let’s also take time to learn economics and think through some of the more common economic fallacies.

Given the stakes, it’s just the prudent thing to do.

This article was adapted from an issue of the FEE Daily email newsletter. Click here to sign up and get free-market news and analysis like this in your inbox every weekday.

AUTHOR

Patrick Carroll

Patrick Carroll has a degree in Chemical Engineering from the University of Waterloo and is an Editorial Fellow at the Foundation for Economic Education.

EDITORS NOTE: This FEE column is republished with permission. ©All rights reserved.

Not a Single U.S. State Is Requiring Kids to Get Vaccinated to Attend Public School. Why?

Economics may offer a clue as to why not one state is mandating vaccination to attend school in the 2022-2023 school year, even though many government officials support coercive vaccination policies.


September has arrived and many children are back in public schools (though fewer than previous years).

At a recent event, one parent joked to me we’re now officially in “vaccine season.” The comment made me laugh, but there’s at least a kernel of truth to it. It’s not unusual for states to require that children receive an array of vaccinations—from polio, diphtheria, and chickenpox to measles, mumps, and meningitis—to be enrolled in a public school system.

One vaccine that parents will not find on any state’s required list in 2022 are the Covid-19 shots, which have been a source of great debate in the US and other countries.

While a few US cities continue to push vaccine mandates to attend, Pew Charitable Trusts pointed out earlier this year that states have been surprisingly wary of mandating Covid shots for children.

“[Only] two states—California and Louisiana—have added COVID-19 vaccines to the list of immunizations mandated for schoolchildren,” Michael Ollove pointed out in January. “Both requirements would be enforced next school year, and then only if the vaccines receive full authorization by the U.S. Food and Drug Administration.”

Things have changed since then.

In May, Louisiana Gov. John Bel Edwards announced the Louisiana Department of Health would not require children attending the state’s daycares or K-12 schools to provide proof of vaccination. California, which in October 2021 became the first state to announce Covid vaccine requirements for school, announced in April that it would not require vaccination, noting the vaccines had not at that time been approved by the FDA for all school-age children. (They are now.)

The fact that not a single US state is requiring students to be vaccinated against Covid to attend K-12 school is probably a bit surprising to readers. (It was to this author.)

I’d like to think that policymakers and politicians finally woke up to the fact that vaccine mandates are immoral, inhumane, and a clear violation of bodily integrity. But that seems unlikely considering that many vaccine mandates remain in place, particularly at the federal and municipal levels.

It’s also possible that lawmakers have realized vaccinated individuals can still get sick and spread the virus, and therefore concluded vaccinations are a matter of personal health, not public health. Yet once again this theory is undermined by the presence of other vaccine mandates that remain in place. Some may contend that we’ve simply beaten the virus and mandates are no longer necessary, but official statistics show Covid deaths and cases remain stubbornly high.

So what’s the answer?

What’s most likely is that political considerations are at play. Yet this thesis too, at first blush, appears to be undermined by the reality that polls show Americans support Covid vaccine mandates in schools.

Some basic economics, however, can help us see that the politics are more complicated than that.

Public Choice Theory is a field of economics pioneered by the Nobel Prize-winning economist James M. Buchanan and economist Gordon Tullock. It rests on a simple assumption: politicians and bureaucrats make decisions primarily based on self-interest and incentives just like everyone else, not out of an altruistic goal of serving “the public good.” (This is why public choice economists have dubbed it “politics without romance.”)

I’ve previously pointed out that politicians were incentivized during the pandemic to embrace Covid restrictions even if they didn’t work because of the political climate in 2020. The absence of government regulations was viewed as actual violence by some public health experts, and those who didn’t embrace strict interventions were accused of genocide.

Moreover, the costs of these regulations tended to be dispersed, delayed, and hidden from view. Depression, drug overdoses, lost learning, and speech impediments were among the consequences of NPIs (Non-Pharmaceutical Interventions) imposed by governments. But the results of these policies were relatively “unseen” (to use a term from the 19th century economist Frederic Bastiat), at least compared to Covid deaths, which public health officials, the media, and even ordinary citizens tracked obsessively.

The costs of NPIs were quite serious, but they were quite low politically for the reasons stated above. The political costs of keeping a state open were much higher. No politician wants to explain why Mrs. Jackson, the 60-year-old math teacher, died from Covid while schools in your state remained open. (It would be just as tragic if Mrs. Jackson had died at home when schools were closed, but at least no politician would be blamed for her death in this case.)

In other words, the incentive structure early in the pandemic encouraged interventions, even if those interventions were ineffective and ultimately ended up doing more harm than good.

The incentive structure for vaccines is very different, particularly for young people.

Children can and do die from Covid, of course, but their risk is extremely low compared to other age groups. Even more important, perhaps, is that the costs of mandatory vaccination are not delayed, dispersed, or hidden from view. They are immediate, concentrated, and highly visible.

The sad reality is that vaccine injuries, though rare, do occur, as the CDC notes. And when they occur, they are the opposite of “unseen,” which means the political repercussions have the potential to be swift—and severe.

After all, when a young person dies after taking a vaccine designed to protect him, it’s a tragedy. When a young person dies of myocarditis after taking a vaccine he was forced to take to attend school, it’s a tragic event and a political disaster with a wide radius, even if some studies show the risk of myocarditis is greater after Covid infection than after Covid vaccination.

All of this analysis is dark and a bit troubling, of course. Now you see why they call public choice theory “politics without romance.”

But it might help explain why even state leaders comfortable with mandatory vaccination and vaccine passports have been reluctant to compel children to get the shot, even if they truly believe it could save lives.

Whether mandatory vaccination would have done more harm than good is a question we’ll never know, though it’s a debate that will likely continue for years to come. But because vaccines have the power to both save lives and claim lives, the decision to accept or refuse them can only morally be made by one person: the individual (or parents, if the decision concerns a child).

So at least state leaders are getting it right this time, even if they are doing so for the wrong reasons.

AUTHOR

Jon Miltimore

Jonathan Miltimore is the Managing Editor of FEE.org. His writing/reporting has been the subject of articles in TIME magazine, The Wall Street Journal, CNN, Forbes, Fox News, and the Star Tribune. Bylines: Newsweek, The Washington Times, MSN.com, The Washington Examiner, The Daily Caller, The Federalist, the Epoch Times.

EDITORS NOTE: This FEE column is republished with permission. ©All rights reserved.

No, Slavery Did Not Make America Rich

The historical record of the post-war economy demonstrates slavery was neither a central driving force of, or economically necessary for, American economic dominance. 


In 1847, Karl Marx wrote that

Without slavery you have no cotton; without cotton you have no modern industry…cause slavery to disappear and you will have wiped America off the map of nations.

As with most of his postulations concerning economics, Marx was proven wrong.

Following the Civil War and the abolition of slavery in 1865, historical data show there was a recession, but after that, post-war economic growth rates rivaled or surpassed the pre-war growth rates, and America continued on its path to becoming the number one political and economic superpower, ultimately superseding Great Britain (see Appendix Figure 1).

The historical record of the post-war economy, one would think, obviously demonstrated slavery was neither a central driving force of, or economically necessary for, American economic dominance, as Marx thought it was. And yet, somehow, even with the benefit of hindsight, there are many academics and media pundits still echoing Marx today.

For instance, in his essay published by The New York Times’ 1619 Project, Princeton sociologist Matthew Desmond claims the institution of slavery “helped turn a poor, fledgling nation into a financial colossus.”

“The industrial revolution was based on cotton, produced primarily in the slave labor camps of the United States,” Noam Chomsky similarly stated in an interview with the Times. Both claims give the impression that slavery was essential for industrialization and/or American economic hegemony, which is untrue.

The Industrial Revolution paved the way for modern economic development and is widely regarded to have occurred between 1760 and 1830, starting in Great Britain and subsequently spreading to Europe and the US.

As depicted in Figure 1., raw cotton produced by African-American slaves did not become a significant import in the British economy until 1800, decades after the Industrial Revolution had already begun.

Although the British later imported large quantities of American cotton, economic historians Alan L. Olmstead and Paul W. Rhode note that “the American South was a late-comer to world cotton markets,” and  “US cotton played no role in kick-starting the Industrial Revolution.”

Nor was the revolution sparked by Britain’s involvement with slavery more broadly, as David Eltis and Stanley L. Engerman assessed that the contribution of British 18th-century slave systems to industrial growth was “not particularly large.”

There is also the theory that the cotton industry, dependent on slavery, triggered industrialization in the northern United States by facilitating the growth of textile industries. But as demonstrated by Kenneth L. Sokoloff, the Northern manufacturing sector was incredibly dynamic, and productivity growth was broad-based and in no way exclusive to cotton textiles.

Eric Holt has further elaborated, pointing out that

the vast literature on the industrial revolution that economic historians have produced shows that it originated in the creation and adoption of a wide range of technologies, such as the steam engine and coke blast furnace, which were not directly connected to textile trading networks.

The bodies of the enslaved served as America’s largest financial asset, and they were forced to maintain America’s most exported commodity… the profits from cotton propelled the US into a position as one of the leading economies in the world and made the South its most prosperous region.

This is the argument made by P.R. Lockhart of Vox.

While slavery was an important part of the antebellum economy, claims about its central role in the Industrial Revolution and in America’s rise to power via export-led growth are exaggerated.

Olmstead and Rhode have observed that although cotton exports comprised a tremendous share of total exports prior to the Civil War, they accounted for only around 5 percent of the nation’s overall gross domestic product, an important contribution but not the backbone of American economic development (see Appendix Figure 2).

One can certainly argue that slavery made the slaveholders and those connected to the cotton trade extremely wealthy in the short run, but the long-run impact of slavery on overall American economic development, particularly in the South, is undeniably and unequivocally negative.

As David Meyer of Brown University explains, in the pre-war South, “investments were heavily concentrated in slaves,” resulting in the failure “to build a deep and broad industrial infrastructure,” such as railroads, public education, and a centralized financial system.

Economic historians have repeatedly emphasized that slavery delayed Southern industrialization, giving the North a tremendous advantage in the Civil War.

Harvard economist Nathan Nunn has shown that across the Americas, the more dependent on slavery a nation was in 1750, the poorer it was in 2000 (see Appendix Figure 3.). He found the same relationship in the US. In 2000, states with more slaves in 1860 were poorer than states with fewer slaves and much poorer than the free Northern states (see Appendix Figure 4.)

According to Nunn,

looking either across countries within the Americas, or across states and counties within the U.S., one finds a strong significant negative relationship between past slave use and current income.

Slavery was an important part of the American economy for some time, but the reality is that it was completely unnecessary and stunted economic development, and it made Americans poorer even over 150 years later.

The historical and empirical evidence is in accordance with the conclusion of Olmstead and Rhode—that slavery was

a national tragedy that…inhibited economic growth over the long run and created social and racial divisions that still haunt the nation.

Figure 1. US share of British Cotton Imports over time

Figure 2. Cotton Exports and Gross Domestic Product

Figure 3. Partial correlation plot between the slave population as a share of the total population in 1750 and national income per capita in 2000 of countries of the Americas

Figure 4. Bivariate plot showing the relationship between the slave population as a share of the total population in 1860 and state incomes per capita in 2000

AUTHOR

Corey Iacono

Corey Iacono is a Master of Business graduate student at the University of Rhode Island with a bachelor’s degree in Pharmaceutical Science and a minor in Economics.

EDITORS NOTE: This FEE column is republished with permission. ©All rights reserved.

CNN Medical Analyst Says Masking Stunted Her Toddler’s Language Development—and Taught Her an Important Lesson about Tradeoffs

A year ago, Dr. Leana Wen was arguing unvaccinated people shouldn’t be allowed to leave their homes. But now she says she’s abandoned her “extremely cautious” Covid views.


During the 1960s, the phrase “the personal is political” became a rallying cry for second-wave feminists challenging the social framework that existed at the time.

There was an unhealthy collectivist undercurrent to this idea—“There are no personal solutions at this time,” wrote Women’s Liberation Movement member Carol Hanisch in an essay on the topic, “There is only collective action for a collective solution”—but the phrase also contains an element of truth.

Personal experience does play an undeniable role in how many humans perceive politics and social structures, which brings me to CNN medical analyst Dr. Leana Wen.

Throughout the pandemic, Wen was in what I’ll call the “pro-mandate” camp.

In March 2021, she excoriated governors who rescinded or failed to pass mask mandates in their states.

“We are not out of the woods. We haven’t reached the end of the pandemic,” Wen said in a pro-mask CNN piece. “It’s counterproductive and truly infuriating these governors are treating this as if the pandemic is over. It’s not true.”

Later that year, she went so far as to argue that unvaccinated people shouldn’t be allowed to leave their homes.

“We need to start looking at the choice to remain unvaccinated the same as we look at driving while intoxicated,” Wen told CNN’s Chris Cuomo. “You have the option to not get vaccinated if you want, but then you can’t go out in public.”

A year later, Wen’s views have changed. In a recent Washington Post article, she explained why she’ll no longer be masking her children and how she shifted away from “being extremely cautious” with Covid protocols.

“I accept the risk that my kids will probably contract covid-19 this school year, just as they could contract the flu, respiratory syncytial virus and other contagious diseases,” she writes. “As for most Americans, covid in our family will almost certainly be mild; and, like most Americans, we’ve made the decision that following precautions strict enough to prevent the highly contagious BA.5 will be very challenging.”

Wen’s observations are not wrong. The new variants are less deadly, and this is particularly true for children, which has always been the case.

A year ago, when Wen was still advocating strict mandates, we pointed out that the CDC’s own data showed small children were at far greater risk of dying from the flu, drowning, vehicle collisions, cancer, and other things than Covid.

This data, for whatever reason, apparently did little to persuade Wen in 2021, however. What does appear to have changed her mind is that her child appears to have suffered from the mandates.

“Masking has harmed our son’s language development,” she bluntly asserts in the article.

Throughout the pandemic, few policies have been debated with more fury than mask mandates. The vast majority of these debates focus on a single point: does masking prevent or even reduce Covid transmission? Some studies say yes, others cast doubt on their efficacy.

For many, however, the efficacy of masking became a sort of dogma that could not even be questioned. (If you doubt this, consider that until a few days ago one faced risk of suspension on YouTube for suggesting that masks don’t play a role in preventing Covid transmission.)

Far less discussion focused on the costs of forcing people to wear masks, and Wen now sees this as a mistake.

“There is a tradeoff,” Wen says.

Many, however, refused to acknowledge this and argued that masking is simply a moral imperative. I recently had a discussion at a family gathering with a person who supports mask mandates. He became indignant when my sister-in-law said she didn’t think it was right to force her children to wear masks at school all day long.

“It’s about protecting others,” he said. “It’s the smallest thing.”

The fact that he was not wearing a mask himself as he said this didn’t seem the least bit ironic to him, but it proved Wen’s point: there are tradeoffs. (If there was not, we’d wear them all the time.)

The idea of tradeoffs is perhaps the most basic principle in all of economics. It’s rooted in a simple idea: in order to have or do one thing, one must sacrifice having or doing something else. All things come with opportunity costs, big and small. (A minor tradeoff with masking is simply being able to breathe more freely.)

For most of the pandemic, many Americans and most public health officials refused to acknowledge the reality of tradeoffs. In 2021, The New York Times described a phenomenon known as “Covid Absolutism.” It consists of two primary factors: 1. Taking every conceivable step that could reduce the spread of Covid regardless of its actual effectiveness; 2. Downplaying or ignoring the unintended consequences and tradeoffs of these policies.

Basic economics, however, teaches us the folly of this thinking.

“There are no solutions, there are only trade-offs,” Thomas Sowell famously observed.

This was the economic lesson Wen learned during the pandemic. She didn’t learn it in a classroom or in a textbook. She learned it in her personal experience when her own child began to struggle with language development (not a minor tradeoff), just like countless other children.

Writing in The Atlantic, Stephanie Murray also wrote about the reality of tradeoffs, stating that many parents with youngsters who are struggling see the potential benefits of masking as a poor trade for what they lose developmentally.

“Children with speech or language disorders offer perhaps the clearest example of these murky trade-offs,” she writes.

This is precisely why decision-making must be left to individuals, not bureaucrats. Nobody is more capable of weighing the pros and cons of a trade or action better than the people who themselves stand to lose or benefit from that trade or action (or in this care, their parents).

Dr. Wen no doubt knows a great deal about public health, just like Anthony Fauci and Rochelle P. Walensky. But even Fauci and Walensky, I suspect, would concede that it’s Wen who knows what’s better for her child.

It must be stressed that it’s not just that Wen wants what’s best for her child. It’s that she actually knows what’s best for her child because she has infinitely more knowledge about her child than any distant bureaucrat or meddling politician could ever possess.

Nobel Prize-winning economist F.A. Hayek detailed this “local knowledge” concept in his work exploring “the knowledge problem,” and he showed why central planners seeking to engineer society through force are capable of producing little beyond “planned chaos.” This is why it’s so important that freedom of decision-making is left to those who have the most local knowledge and can most accurately assess the risks and rewards of any given action.

The good news is that Wen, to her credit, appears to have learned something throughout the tragedy of the Covid pandemic, as have so many others.

The tragedy is that for so long she overlooked tradeoffs and used her platform to advocate coercive policies that deprived individuals of the ability to choose, a tragedy that is compounded by the fact that Wen now finds herself a target of cancellation for advocating a more sensible approach.

It’s an ironic twist considering that only a year ago Wen herself was a proponent of confining unvaccinated people to their homes, and not one we should celebrate.

But hopefully it can be a learning experience for Wen and others, who now recognize the danger in turning what should be individual decisions over to bureaucrats and political tribes.

AUTHOR

Jon Miltimore

Jonathan Miltimore is the Managing Editor of FEE.org. His writing/reporting has been the subject of articles in TIME magazine, The Wall Street Journal, CNN, Forbes, Fox News, and the Star Tribune. Bylines: Newsweek, The Washington Times, MSN.com, The Washington Examiner, The Daily Caller, The Federalist, the Epoch Times.

RELATED ARTICLE: The CDC is Broken and Apologies Can’t Fix It: “We’ve Made Some Mistakes, But NOW You Can Trust Us!”

EDITORS NOTE: This FEE column is republished with permission. ©All rights reserved.