Essential Economics for Politicians

After Studying Basic Economics, Mayor Vetoes Minimum Wage Increase

https://fee.org/articles/after-studying-basic-economics-mayor-vetoes-minimum-wage-increase/

Pugh isn’t the first politician to stand up and question the economic logic behind raising the minimum wage.

In fact, last year as he was signing California’s new minimum wage law into effect, which incrementally raises the minimum wage to $15 by the year 2020, California Governor Jerry Brown said:

“Economically, minimum wages may not make sense. But morally, socially, and politically they make every sense because it binds the community together to make sure parents can take care of their kids.”

However, even though Brown openly admitted that raising the minimum wage “may not make economic sense” he proceeded to sign the bill anyway, rather than face public scrutiny for making an economically sound choice.

Just this morning, the Baltimore City Council convened to discuss the Mayor’s actions but failed to get the needed signatures to override her veto.

As it stands currently, Baltimore is safe from the wage crusaders, but this will be an ongoing battle as the utopian rhetoric of higher wages clashes with the economic realities of actually putting those policies into action.
 
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Tax Progressivity and Tax Burden. According to the most recent IRS data, the federal income tax shares by six different income groups are displayed in the chart above. Almost all federal income taxes (97.3%) are paid by the top 50%, more than 2/3 of income taxes are paid for by the top 10% and nearly 40% of taxes are paid by the top 1% of taxpayers. For all of the criticism and negative publicity the “Top 1%” get, I’d like to personally thank that group this year at tax time for shouldering such a disproportionate share of our collective tax burden. It’s a form of “disparate impact” on the 1% that we all benefit from! So, I say “Thank You Top 1%” from all of us in the bottom 99% for your valuable and significant contribution to our nation’s tax burden.
 
This Video Mocked Privatization, but the Free Market Got the Last Laugh

https://fee.org/articles/this-video-mocked-privatization-but-the-free-market-got-the-last-laugh/

And we may see similar progress in the United States. Remarkably, even the Washington Post is supporting this reform.

The United States can and should learn from the experience of other Western democracies… Take the prosaic but crucial function of air traffic control. In the United States, that is still a job for big government: specifically, the Federal Aviation Administration. Overseas, however, countries are turning away from this statist model. Canada spun off its system, Nav Canada, in 1996, to a private entity funded by user fees. Britain privatized in 2000. Australia and New Zealand are also part of the movement; ditto Germany and Switzerland… In all of these countries, safety and innovation have stayed the same or improved, which is not surprising.

The editorial urges something similar for America.

A new corporation, funded by charges on the system’s various users, would manage flights and implement the long-stalled modernization. The FAA would still ensure safety, a regulatory job it already does remarkably well and might do even better if it were free to focus on that exclusively. Major players in the industry would share governance of the new entity, working out their differences within its boardroom rather than through the costlier and more conflictual method of lobbying Congress, as they do now.

Wow, the Washington Post is pointing out that a leaner government with fewer responsibilities would be more effective. I hope in the future they apply that lesson on a consistent basis.

So the bottom line is that there are greater incentives for safety with for-profit firms than there are with governments, where it’s just about impossible to fire someone for doing a bad job.
 
Trump’s Tax Plan Is Brilliant Politics and Even Better Economics

Under Trump's plan, taxes on corporate profits go from 35% to 15%. They should be zero (like the Bahamas), but this is a good start. Taxes on capital gains go from 23.8% to 20%. Again, it should be zero (as with New Zealand), but it is a start. Rates for all individuals are lowered to three: 10%, 25%, and 35%. The standard deduction for individuals is doubled (politically brilliant). The estate tax and the alternative minimum tax is gone. Popular deductions for charitable giving and mortgage interest are preserved. The hare-brained idea of a “border adjustment tax” is toast.
 
https://fee.org/articles/trump-s-tax-plan-is-brilliant-politics-and-even-better-economics/

The crucial institution here is capital. Sorry, anti-capitalists. It’s just true. Capital can be defined as the produced goods for production, not consumption. It is making things for the purpose of making other things. Think about it. Without capital, you can still have markets, creativity, hard work, enterprise. But so long as you have an absence of capital, you are forever floundering around just working to make and sell things for consumption. This is called living hand to mouth.

Without capital, and the private ownership of capital, and security over your property rights, you can’t have economic growth. You can’t have complex production. You can’t raise wages. You can’t live a better life. Every tax on capital, capital formation, capital accumulation, and business profit reduces the security of property rights over capital. This is a sure way to attack economic growth at its source.

And this is precisely what American policy has done. The rest of the world has been wising up about this, reducing taxes on capital for the last 15 years. But the US has languished in the mythology of the past, regarding capital not as a font of prosperity but rather a fund of stagnant resources to be pillaged by planners in government. It is not surprising that this strategy results in slow growth and even permanent recession.
 
Another Reminder that the United States Should Not Become a European-Style Welfare State

One of the more surreal aspects of the 2016 campaign was watching Bernie Sanders argue that the United States should become more like a European welfare state.

Was he not aware that Europe had major problems such as high unemploymentand a fiscal crisis?

Didn’t he know that America’s economy was growing faster (which is a damning indictment since growth in the U.S. was relatively anemicduring the Obama years)?

Perhaps more important, didn’t he know that Americans enjoy much higher living standards than their European counterparts? Was he not aware that European nations, if they were part of America, would be considered poor states?

What about Denmark and Sweden, the two nations that Bernie Sanders said were role models? Well, the United States could copy them, but only if we wanted our living standards to drop by more than 30 percent.

By the way, since the OECD is a left-leaning bureaucracy that is guilty of periodically rigging numbers against the United States, you can be confident that this AIC data isn’t structured to favor America.

So why does the United States have such a big advantage?

In a new study from the National Bureau of Economic Research, Professor Martin Feldstein addresses why Europe is lagging the United States.

Although the official statistics imply that the rate of growth of real GDP in the United States has declined in recent years, it has still been substantially higher than the real growth rates in Europe and the other industrial countries. The sustained higher rate of real GDP growth in the United States over a longer period of time has resulted in a substantially higher level of real GDP per capita in the United States than in other major industrial countries.
 
Mark Perry of the American Enterprise Institute has put together some apples-to-apples data suggesting the answer is no. At least if the goal is more economic output and higher living standards.

European countries (including Germany, Sweden, Denmark and Belgium) if they joined the US, would rank among the poorest one-third of US states on a per-capita GDP basis, and the UK, France, Japan and New Zealand would all rank among America’s very poorest states, below No. 47 West Virginia, and not too far above No. 50 Mississippi. Countries like Italy, S. Korea, Spain, Portugal and Greece would each rank below Mississippi as the poorest states in the country.

And here’s the table Mark prepared:


statesGDPnew-1.png
 
Shifting to a different topic, Mark Perry also takes a shot at Donald Trump, who seems to think that other nations are “winning” over America because of trade.

…maybe we should remind him that Mexico and China, as US states, would both be far below our poorest state — Mississippi — by 51% and 62% respectively for GDP per capita; and Japan would be barely above our poorest state — Mississippi. Using GDP per capita as a measure of both economic output per person and of a country’s standard of living, America is winning quite handsomely.

Excellent point. It’s a sign of American prosperity that we can afford to buy more from other nations than they can afford to buy from us.
 
Like Denmarks Health Care? I like their labor flexibility better


Wage Formation in the Private Sector

Wage formation in the Danish labor market is undertaken at two levels: sectoral and enterprise levels. At the sectoral level, unions representing both employers and employees negotiate wage increases as well as other benefits. However, it should be noted that, at the sectoral level, only minimum wages are agreed upon. Actual wages are negotiated at the company level and are, in most cases, higher than the sectoral minimum wages agreed on the collective bargaining. As stated by Eurofound,

Wages negotiated on enterprise level are usually higher than the minimum gross wage settled through collective bargaining. Even starting salaries are often higher than the minimum. Half of all newly employed in the private sector receive a starting salary that is considerably higher (18% or more) than the required minimum of the collective agreement […] actual wage increases are determined at company level and it is probably only few employees that are paid the minimum wage.

In fact, negotiations at the enterprise level have gained importance over past decades, revealed by the percentage of employees covered by the standard-wage system as opposed to the minimum-wage system, which went from 34% in 1989 to only 16% in 1994, and has remained at that level ever since. Under the increasingly less relevant standard-wage system, salaries are negotiated at the sectoral level and individual companies are not allowed to modify the sectoral agreements. In contrast, the minimum-wage system, which is predominant nowadays, allows companies to use the sectoral agreement just as a reference to set their wages, with the company acting as the epicenter of this wage-formation process.

What is the role of the Danish government in this process? None. The government does not interfere in how wages are determined. This is obvious in that there is no legislation that establishes a minimum wage on a national level.

Flexibility + Security = Flexicurity


https://fee.org/articles/labor-flex...a-closer-look-at-the-labor-market-in-denmark/
 
When looking more closely, Denmark excels at two specific economic indicators: business freedom and labor freedom. Business freedom measures the impact of government regulation on businesses. This indicator places Denmark at the top of the ranking, only behind Hong Kong. As for labor freedom, which examines the legal framework that regulates the labor market in a country, Denmark finds itself in the top six. The strong correlation between labor freedom and low unemployment ratesseems to explain why Denmark has one of the lowest unemployment rates in the EU. In the following lines, I aim to explore the specific characteristics that make the Danish labor market an example to follow in many ways.
 
Is the Fed Deadly, Life-Saving, or Just Useless?

https://fee.org/articles/is-the-fed-deadly-life-saving-or-just-useless/

The Fed is Useless

Much more than the Fed’s critics and supporters would like us to believe, the Fed quite simply isn’t that relevant. It deals with massively overregulated and antiquated banks that represent a small – and declining (15%) – percentage of total credit in the U.S. economy, not to mention that banks are easily the least dynamic source of credit for what is the most dynamic economy in the world.

As for the popular notion that the Fed creates credit, let’s be serious. The pursuit of credit isn’t the pursuit of dollars created by the Fed as much as it’s the pursuit of real resources like trucks, tractors, computers, desks, chairs, buildings, labor, etc. The Fed can’t create, increase, or shrink what borrowers of dollars are in need of as much as it can distort the direction of credit.

Booth thinks that the Fed is “the most important, powerful institution in the world,” but spends much of the book pointing to the incompetence of the economists in the middle and at the top of the central bank. Ok, but incompetence combined with world-leading power would logically signal a “banana republic” U.S. economy, as opposed to the world’s largest. If the Fed mattered and were as powerful as Booth presumes, the U.S. economy wouldn’t matter. But it does.
 
Essentially, governments hasten to not waste a crisis or a disaster. Governments use these crises as pretext for upping control and power over people and resources.

Eventually, when the problem subsides or is answered, governments cannot maintain crises’ levels of control(s), and so they cede back some power. Some.

The salient point, and Mr. Higgs’ masterful analysis is the trend this reveals. Graphed Cartesian style, the line of government power-grabs jut ever upward with slight dips, but the rate of increase remains and never glides back to pre-crisis levels.

Not unlike a particularly pernicious cancer, government metastasizes, ratcheting up its power a click at a time.
 
Lion Eyes said:
You know Bruddah, this is gonna freak some of the lefties completely out of their freakin' safezone...
Brilliant.
Click to expand...
My last editor said the same of me when I cut and paste. But I am very pleased with the repeal of Title II Regs over the internet at the FCC under Ajit Pai.
 
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