Free-Market Economists for Massive Tax Hikes
You know how it’s impossible to buy an airplane ticket, unless your company pays for it? The reason is that businesses can deduct air travel as an expense.
You know how it’s impossible to go out to dinner, unless your company pays for it? The reason is that businesses can deduct meals as an expense.
You know how it’s impossible to afford printer paper and staplers unless your company pays for it? The reason is that–
“OK Bob, you’re making some kind of ‘analogy,’ we get it. What the hell’s your point?”
I’m glad you asked. Look at how Steve Landsburg and Scott Sumner are really mad at Paul Ryan–for refraining from imposing massive new taxes on health insurance. In my new Lara-Murphy.com blog post, I explain why I think their angst is misplaced.
Incidentally, to see just how mixed up Scott ended up getting on EconLog, look at this, when he responded to a critic (Glenn):
Glenn, You said:
“The bill eliminates most (all?) of the new taxes imposed on the sector by ACA. This should translate into lower costs.”
Which taxes are those? Removing the medical devices tax will increase health care costs.
No, taxing a supplier leads to higher prices.
It would be as if Scott were (correctly) arguing for taking away government support for colleges and universities, and then in the trenches ended up arguing, “In order to reduce education costs, the government should impose a tax on colleges for every student enrolled.”
Incidentally, David R. Henderson also had a (less cheeky) complaint against Scott’s post.
Opting Out of Social Security
My new EconLib article. An excerpt:
My suggestion is that the government, before making any major changes to the Social Security formulas, first allow Americans to opt out of the system, thereby avoiding any future payroll taxes but also forfeiting any accrued benefits. However, if the person represents a net asset to the Social Security program from the government’s perspective, then he or she must contribute this amount before being allowed to opt out.5
An opt-out option would improve upon the status quo from the government’s perspective, because Americans can opt out only if they represent a neutral or net liability to Social Security. On the other hand, since it’s voluntary, it would seem that my proposal cannot hurt the Americans who opt out; anyone worried about being hurt by this procedure can choose to remain in Social Security.
The thing that I didn’t fully realize until writing this piece:
The Current System Relies on Forced Loans to the GovernmentHow can allowing an opt out represent a win-win scenario? Why would some Americans—I suspect millions—remove themselves from Social Security if they currently represent a net financial liability to the federal government? The answer depends crucially on the fact that private households have a higher discount rate than the U.S. Treasury.
Currently the U.S. Treasury can borrow money (by issuing Treasury Inflation Protected Securities or TIPS) from bond buyers for very low interest rates, such as 0.9 percent on 30-year loans and 0.4 percent on 10-year loans.7 These are “real” rates of return, meaning that the Treasury adjusts for price inflation when paying back the lenders.
On the other hand, many households currently hold a substantial portion of their wealth in assets that they expect to earn a higher real return than inflation-protected bonds issued by the U.S. Treasury….
The large scope for win-win reform occurs because many participants in Social Security are implicitly being promised a real rate of return on their payroll taxes in between these extremes. For example, Leimer (1994) estimated that people born in 1975 will “earn” an average of 1.9 percent from Social Security, while those born in 2000 will earn 1.7 percent.9
So to me, that’s a critical factor. Rather than viewing Social Security as merely a tax and spend program, it is actually more of a mandatory participation in a pay-go retirement system. Or to put it in other words: By letting today’s workers opt out, the government doesn’t simply lose current tax revenue, but it also reduces its future obligations. This gives rise to “win-win” outcomes that I didn’t fully grasp before starting this project.
NOTE: If you are really a policy nerd, go see if my criticisms of George W. Bush’s Social Security privatization plan are consistent with my present piece. (I think they are, but I understand the issue better now than I did back then.)
Contra Krugman Ep. 76: With Special Guest Oren Cass
This is a special episode in two ways. First, we cover not one, but two, Krugman columns.
But wait, there’s more. We also have special guest Oren Cass, of the Manhattan Institute, join in the fun.
A breakdown of the highlights:
2:15 I shower Oren with love.
6:05 I start with my petty pushbacks against Krugman’s throwaway lines. I point out that Krugman inserted an “all” into the CNN coverage that he copied and pasted in a way that made Spicer look worse, and also that Krugman has repeatedly blamed “paid trolls” for leaving comments on his blog.
8:35 I ask Oren about the claim that ObamaCare gave 20 million Americans health insurance.
9:35 Tom asks Oren about the claim that tens of thousands will die annually if ObamaCare is repealed. [Note the crucial part of his response–the estimates of ObamaCare lives saved are actually based on earlier studies about private health insurance, which is *not* what increased under ObamaCare. He also pointed out that mortality went up last year–the first time that has happened in decades.]
12:15 I rephrase Oren’s point about Massachusetts vs. ObamaCare to make sure people get it.
12:35 I make a point about the mortality calculations; Oren points out that my data ended too early–it’s even worse for ObamaCare than I thought. Also he reminded us that insurance expansion didn’t really happen until 2014, so that’s the right time to start looking for the impact of ObamaCare on (age-adjusted) mortality.
16:25 Oren makes the GREAT point about using the states that did, and did not, do Medicaid expansion to set up a decent control group. It comes out bad for ObamaCare and the claims that it is saving lives.
16:40 Oren agrees with Tom that there is an internal consistency to ObamaCare.
19:05 Oren argues that if we want to help a small group of people who have serious pre-existing conditions, then let’s just deal with that separately. I go into my grocery store analogy.
21:50 Tom transitions to a summary of “The Uses of Outrage” column.
26:20 I accuse the “anti-fascists” of projection. It’s Krugman who is politicizing life–he criticizes a guy for golfing with Trump.
28:20 Oren pushes back on Krugman’s claim that Trump is self-evidently a would-be autocrat. Oren speculates that the anti-Trump people have waited their whole lives for the chance to fight against autocracy, and now they’ve convinced themselves that this is it.
29:30 I point out that Krugman says we’ve had a “white nationalist takeover” of our government, and yet the hot topic now is Kellyanne Conway kneeling on the couch during a photo op with black college presidents. Sort of a weird PR move for white nationalists.
34:15 Oren closes on a nice note: Krugman illustrates that the Left is trying to say that being anti-Trump is the only acceptable position, and that in order to be anti-Trump you need to sign up for all of the Left’s policies. E.g. the women against Trump march didn’t want pro-life women. It makes us doubt that they actually believe Trump is an autocrat who threatens democracy itself.
God’s Defining Attribute
…is His goodness.
In Exodus 33, Moses famously asks God to show him His glory. Notice how God responds:
17And the Lord said to Moses, “I will do the very thing you have asked, because I am pleased with you and I know you by name.”
18Then Moses said, “Now show me your glory.”
19And the Lord said, “I will cause all my goodness to pass in front of you, and I will proclaim my name, the Lord, in your presence. I will have mercy on whom I will have mercy, and I will have compassion on whom I will have compassion. 20But,” he said, “you cannot see my face, for no one may see me and live.”
21Then the Lord said, “There is a place near me where you may stand on a rock. 22When my glory passes by, I will put you in a cleft in the rock and cover you with my hand until I have passed by. 23Then I will remove my hand and you will see my back; but my face must not be seen.”
So it is interesting that Moses asked to see God’s “glory” but God responded by saying that all of His “goodness” would pass in front of him. And it is this goodness that would be so overpowering that it would kill Moses if he experienced it full-on.
We noticed these things ourselves in our Bible study, but Guzik also picks it up in his commentary: “God didn’t reveal His justice to Moses, not His power, and not His wrath against sin. All those are truly aspects of God’s nature, but when He showed Himself to Moses He displayed His goodness.”
Now in the Bible study itself we were a bit puzzled by the sudden jump from God talking about His goodness to then saying, “I will have mercy on whom I will have mercy…” It seemed like a bit of a non sequitur.
But then later, when I was talking about the passages with my son, it made more sense. My son had said something like, “It is that God is so good compared to Moses that Moses brain would shut down?” and then that made me remember how I had once tried to explain what heaven and hell might be like. (I think I have touched on this here at the blog.) Suppose that in the afterlife, you are made acutely aware of just how much pain and suffering your actions caused others throughout your life. Faced with the full recognition of how bad you were, it is unspeakable agony, and you live with that for eternity; that’s what Hell is. If you stroll through life thinking you’re a pretty good person–not like one of those bad people–then you are in for a serious shock.
But instead, if you’ve been priming yourself your whole life with the notion that you deserve hell, but are granted access to God through the vicarious redemptive work of Jesus, and spend most of your free time singing praises about God, then when you see Him in the afterlife you don’t dwell on your sins–you bask in His presence. You have already moved beyond your own ego and know that He’s more important a thing to focus on than yourself. So that’s what Heaven is.
So back to my son’s comment on Exodus 33: 19-20: If the specific reason Moses would die in the full juxtaposition of God’s goodness is that Moses (by contrast) is so sinful, then it makes sense that God would immediately mention that He would pick some people to allow in His presence after suitably shielding them.
Let me try to restate the possible interpretation in other words: In this passage, Moses asks to see God. God points out that Moses is not good enough to do that, but God desires to make it possible, so He comes up with a way that God Himself covers up Moses’ shortcomings to allow it.
Likewise, for those of us who seek God, God points out that we are not good enough to do so on our own merits. But He desires to make it possible, so He comes up with a way that God Himself covers up our sins to allow it.
Potpourri
==> I am not a fan of using political courts to punish liars, but it’s pretty amazing what Greenpeace was forced to admit in court as a result of a lawsuit.
==> My latest IER post highlights a new Fraser Institute study (not by me) that shows the British Columbia carbon tax hasn’t been revenue neutral for at least two years, even though the BC government has claimed that it was.
==> Josh Hendrickson tries to defend the Austrian theory of the business cycle from the rational expectations objection.
==> A pretty clever ploy by Uber to evade the h8ers.
Follow-Up On Free Trade and Household Analogy
I think Don Boudreaux would be fine with me quoting his comment from my previous post here in the big lights. So I’ll break his comment up and respond piecemeal.
Bob: Thanks. Your example is valid, but I believe that it doesn’t cast any suspicion on the household analogy (which, of course, was used also by Adam Smith).
Right, it was used by Adam Smith, but look at the different use to which it was put. Here’s Smith:
“It is the maxim of every prudent master of a family, never to attempt to make at home what it will cost him more to make than to buy…What is prudence in the conduct of every private family, can scarce be folly in that of a great kingdom.” –Adam Smith, Wealth of Nations
Exactly. So now when it comes to the conduct of every private family, what would most people consider prudence? To have spending exceed income for thirty years in a row? No, that sounds incredibly imprudent. The prudent thing for a household is to actually have income exceed expenditures. And since the whole point of the van Cott FEE article was to tell us that in international trade, we should think of “exports” as income from our job and “imports” as our spending on consumption, then clearly what is prudence for the household can scarce be folly for the nation. Hence we should agree with Trump that we need to start running trade surpluses and make America great again.
Now back to Don’s comment:
“The argument for free trade – and the use of the household analogy – isn’t that trade is guaranteed to produce only happy outcomes. Just as individuals and households can be irresponsible and profligate, so, too, can larger groups of people (for example, citizens of a country). Just as a household can overspend, so too can the people of a country.”
Right, but that’s not what you would have gotten from van Cott’s article. Here’s what he said:
That the gains associated with exports ultimately trace to imports is no doubt a bitter pill for many to swallow! Nevertheless, virtually all of us organize our own economic lives consistent with this idea. In the marketplace we produce goods and services which we sell (export) to buyers. This is the source of our incomes which we use to buy goods and services from others—that is, import. The more imports, the better.
People who choose to export while importing as little as possible will find themselves ill-clad, ill-housed, ill-fed, and possibly dead in short order. [Bold added.]
I don’t see anything in there about imports possibly hurting you if they’re too high. He explicitly says, “The more imports, the better.” The kind of example I brought up was not even hinted at in his article. The whole point of his article was to tell you that imports were benefits and exports were costs, which is the flip side of how most people (including Trump) think about it.
Back to Don:
One additional, small point before signing off: I would remind your readers in light of your example that, while a country-level trade deficit might become all debt for the citizens of that country – and while such debt might be incurred exclusively and irresponsibly to increase consumption today – a country-level trade deficit is not necessarily debt, and in practice much of it is in fact not debt.
Right. In other words, Don is warning readers not to take the household analogy too seriously, because there are important ways that a “US trade deficit” really isn’t analogous to “a household that buys more shoes, houses, and food than it earns in income” (to use the three examples from van Cott).
Since the whole point of my post was to warn free traders in how they are telling people to make analogies with households, the fact that Don signs off by warning about this subtlety is, to me, further evidence that my warning was sound.
DO NOT MISUNDERSTAND ME, I understand the point Don and van Cott were making. It *is* important for people to realize that a country pays for its imports through its exports, and that other things equal it would be a blessing–not a curse–if foreigners for some silly reason decided to send us TVs and cars for free.
However, in the actual FEE article I was (moderately) criticizing, they were lecturing people who think like Trump, and telling them to think of trade like a household with income and expenditures. So I was merely pointing out that that *is* how Trump and his fans on trade think, and that’s why they understandably think it must be a really bad idea to consistently run trade deficits. That’s exactly the conclusion you would draw if you view the country as a household, where its exports are the job and imports are buying things like shoes, shelter, and food.
Free Traders Might Want to Be More Careful With the Household Analogy
I am friends with Don Boudreaux and I love that he is hammering away on free trade. (Check out this cool post showing how much more knowledgeable Reagan was compared to Trump.) But I also get bored and like to make nitpicky remarks. So take this post in that light.
Don favorably links to a FEE article by T. Norman Van Cott. Here’s an excerpt from the opening and conclusion, and readers of this blog can easily fill in the gaps:
Among economics data watchers, a country’s exports enjoy a hallowed status. The ability of producers in country A to sell goods and services to people in other countries is taken as a sign of A’s economic strength, although the underlying metric for economic strength goes unmentioned. In addition, job counters across the spectrum constantly count the number of jobs associated with exports. The more export-related jobs, the better. In a nutshell, exports are intrinsically beneficial—no questions asked.
The problem is that virtually no one, except perhaps for a workaholic, runs their personal economic affairs like this…
That the gains associated with exports ultimately trace to imports is no doubt a bitter pill for many to swallow! Nevertheless, virtually all of us organize our own economic lives consistent with this idea. In the marketplace we produce goods and services which we sell (export) to buyers. This is the source of our incomes which we use to buy goods and services from others—that is, import. The more imports, the better.
People who choose to export while importing as little as possible will find themselves ill-clad, ill-housed, ill-fed, and possibly dead in short order. How can it be that what is economic wisdom for the individual not apply to a nation? Hint: it can’t!
I understand what van Cott / Don are trying to get across with this line of argument. But strictly speaking, if they really want the layperson to think of the country as a household where “exports” is the income and “imports” is the consumption, then you end up with Trump’s worldview.
Don’t believe me? Consider the following conversation.
DAD: Jimmy, it alarms me that you’re living beyond your means. I’m looking over your Excel budget, and last year your income was $40,000 but you spent $60,000.
JIMMY: Right, I did a great job. The whole point of working is to consume. Imagine someone who worked and worked and worked his whole life, but never consumed. What an idiot! That would be confusing costs and benefits.
DAD: Okay Jimmy, it’s not the amount of spending per se that bothers me. It’s that you’re spending more than your income.
JIMMY: Dad, you need to take an accounting class. The reason I was able to spend more than my income is that the credit card companies invested more in me, than I did in them. I ran a capital account surplus last year of $20,000. Far from demonstrating my profligacy, it showed what a great investment opportunity I am.
See what I mean? I think Don should be a little more careful before telling people to think of trade like a household, where exports are income and imports are consumption. In fact it’s precisely that mentality that is tripping Trump up–he’s thinking of the USA as a giant corporation, where a trade deficit signifies unprofitability.
A Proposal for Local Government Reform — Guest Post by Barry Klein
[I’m giving a talk to Barry’s group in Houston, and he asked if he could get his message out through my blog. — Bob]
BY BARRY KLEIN
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