Power & Market

Don’t Forget about the TALF!

05/15/2020Robert Aro

Does anyone remember, during the last financial crisis, the “evil bankers” who almost collapsed the entire financial system? Then, in order to save the world, the Fed provided loans and bailouts to those same bankers?

Considering the relatively “small size” of the TALF (Term Asset-Backed Securities Loan Facility) and how most living on main street are not in the business of granting loans, it didn’t garner much attention when the updated TALF term sheet was announced this week. Still, after looking further into the program some may discover, or remember, TALF is not new. It was implemented during the Great Recession over a decade ago. During that time, Matt Taibbi wrote an article in Rolling Stone called The Real Housewives of Wall Street which discussed the original TALF program. Per the article, the wife of then Chairman of Morgan Stanley and the widow of another high-ranking Morgan Stanley employee started a company with close to $15 million, borrowing nine loans for $220 million under the TALF. With these low-interest loans they bought student loans and commercial mortgages. At the time of writing, he noted roughly $150 million had yet to be paid back to the Fed. The public didn’t know how much money the borrowers earned from their dealings, as there was no accountability. But the loans were structured such that 100% of the gains would go to the recipients while 90% of the losses would go to the treasury. Understanding the article was written in an entertainment magazine, and not with Austrian economics in mind, he did capture a very important detail:

Given out as part of a bailout program ostensibly designed to help ordinary people by kick-starting consumer lending, the deals were a classic heads-I-win, tails-you-lose investment.

Without comparing the previous TALF to the current, and assuming control issues have been ameliorated by the Fed, the underlying problem with these programs remains the same. They all require money be created then lent to certain members of society for the supposed purpose of saving society in time of need. If the loans are successful, the gains go to the borrower. When the loans are not repaid or forgiven, the newly created money and its accompanying debt will exist as a cost to be paid by future generations. To the masses, these loans seem palpable when the borrower is not considered “rich.” However, the problem persists regardless of the borrower’s income bracket.

The new TALF follows the same Special Purpose Vehicle (SPV) and US Government equity stake to which we’ve now become accustomed. Under the program, the treasury is only making an initial $10 billion equity investment with a maximum lending limit, thus far of only $100 billion. Eligible borrowers can make loans to the public, then use those loans as collateral to borrow from the SPV. In this program, eligible loans include: auto and student loans, credit card receivables, equipment and floorplan loans, leveraged loans, and commercial mortgages to name a few. Even though the TALF may be smaller than the other Fed programs, the anti-capitalist nature and prior history warrants attention.

The day after the updated term sheet was announced, Chairman Powell gave a speech where he stated:

At the Fed, we will continue to use our tools to their fullest until the crisis has passed and the economic recovery is well under way.

At the week’s end, the Fed’s balance sheet hit a record $6.9 Trillion. With many programs still yet to open, central bankers remain convinced their inflationary tools and ability to judge who needs money most far outweighs the life, liberty and happiness of the many. The programs may be larger, but the narrative and risk to the public remains the same.

When commenting, please post a concise, civil, and informative comment. Full comment policy here

Death and Unemployment

David Flattum by email points out that in the movie The Big Short, it is said that each 1 percent rise in the unemployment rate is associated with forty thousand deaths. Another anonymous emailer suggests that the government authors of shutdowns be held accountable by international tribunals for the deaths they cause.

These comments motivate a brief look at unemployment and death. To that end, a search was conducted using DuckDuckGo on “unemployment relation to death.” The first article, dated February 13, 2015, reports on a study of the 2008 recession:

The analysis, carried out by Carlos Nordt and colleagues at the University of Zurich, explored the link between increases in rates of unemployment and suicide. They attribute 45,000—or one in five—suicides a year worldwide to unemployment, with a further 5,000 deaths caused by the economic crisis.

The suicide numbers across sixty-three countries rival those from this new virus:

The researchers found that there had been an increase in the relative risk of suicide associated with unemployment across all regions of 20% to 30%. There were an estimated 233,000 suicides a year between 2000–11, of which around 45,000 could be attributed to unemployment. In 2007, the year before the crash, there were 41,148 identified cases of suicide. In 2009, this number had risen to 46,131—an increase of 4,983 or 12%.

The next article, “Rising Unemployment Causes Higher Death Rates, Yale Researcher Shows,” is dated May 23, 2002. An epidemiologist conducted this study, and it encompassed advanced economies like America’s:

“Employment is the essential element of social status and it establishes a person as a contributing member of society and also has very important implications for self-esteem,” said Brenner. “When that is taken away, people become susceptible to depression, cardiovascular disease, AIDS and many other illnesses that increase mortality.”

The third article is a National Center for Biotechnology (NCBI) article. The NCBI is a branch of the National Institute of Health (NIH). This article dates from August 26, 2014. It’s titled “What Is the Effect of Unemployment on All-Cause Mortality? A Cohort Study Using Propensity Score Matching.”

Unemployment was associated with a significant all-cause mortality risk relative to employment for men….This effect was robust to controlling for prior health and socio-demographic characteristics. Effects for women were smaller and statistically insignificant…

For men, the findings support the notion that the often observed association between unemployment and mortality may contain a significant causal component though for women there is less support for this conclusion. However, female employment status, as recorded in the census, is more complex than for men and may have served to under-estimate any mortality effect of unemployment.

Conclusion of this blog: it would be highly irresponsible for American governments at all levels to ignore the established knowledge of a positive link between unemployment and mortality. Those who keep insisting on policies like lockdowns and other arbitrary rules that have caused immense unemployment need to change their policies now and change quickly. Otherwise, they will have a great deal to answer for, namely, excess deaths caused by the policies causing unemployment.

Originally published at Lewrockwell.com.

For more, see: "Unemployment Kills: The Longer Lockdowns Last, the Worse It Will Get," by Ryan McMaken.

When commenting, please post a concise, civil, and informative comment. Full comment policy here

Did You Read April’s Beige Book?

04/17/2020Robert Aro

On April 15, the Federal Reserve released its latest Beige Book. This is the third of the eight yearly Beige Books, which are released prior to scheduled Federal Open Market Committee (FOMC) meetings. The book is just under thirty pages long and provides a “summary of commentary of current economic conditions” for the period from February 25 to April 6, 2020. The report does not quantify any of the Fed’s data but instead uses qualitative and anecdotal information from various members of each district's community, such as bank directors, businesses, and economists, as well as “market experts, and other sources,” according to the report.

The FAQ on the Fed’s website answers further questions and explains that this information “supplements the data and analysis used by Federal Reserve economists and staff to assess economic conditions.” See below for two highlights from the national summary that begins the report:

Economic activity declined, and the labor market deteriorated due to COVID-19. Non-labor costs remained stable. Retail sales for non-discretionary products grew as sales of non-essential items fell. Tourism and hospitality contacts reported significant declines in activity. Housing activity softened, and commercial real estate decelerated. Manufacturing declined, but new orders held steady. Banking activity was mixed.

Economic activity declined, but the intensity of decline varied by industry. Consumer spending decreased sharply; business spending, construction and real estate activity, and manufacturing production decreased moderately. Retail and hospitality payrolls plunged. Wages edged up and prices were little changed. Financial conditions deteriorated substantially, as did prospects for agricultural income.

It is interesting to consider these two summaries within the context of the twelve districts, for which there are similar individual summaries and high-level anecdotes, even though the Fed's likely aim was to provide more depth to the analysis.

These excerpts exemplify the tone of the report and are exactly as described in the prefatory remark, both qualitative and anecdotal. How interviews and sentiments help central bankers determine the optimal money supply and interest rate needed, remains unclear. If it is any consolation, at least the Fed's FAQ tries to explain this repetitive nature, noting that in 2017 there was a redesign:

To a degree, the redesign also standardizes the content in the reports from each Federal Reserve district while preserving the ability of each to highlight its regional economy's unique features.

The value of this data is questionable not because the collection method is unknown to the public or because it is qualitative and anecdotal, but because this information is used in conjunction with the Tealbooks A and B (formerly the Bluebook and Greenbook) to help central bankers centrally plan the economy. The Tealbooks contains a lot of the valuable quantitative data that the Fed relies upon. According to the Fed’s description, the books are officially titled the “Report to the FOMC on Economic Conditions and Monetary Policy” and “contain in-depth analysis of current economic and financial conditions and projections, along with background and context on monetary policy alternatives.”

If anyone would like to see what’s included in the Tealbook they will likely have to wait a while, considering that the latest release on the Fed’s website is from 2014 and may include redacted information. At that blazing rate, we probably won't know what the Fed considered for this latest Beige Book until sometime around 2026!

When commenting, please post a concise, civil, and informative comment. Full comment policy here

Does the Coronavirus Make the Case for World Government?

02/26/2020Jeff Deist

Sometimes terrible things happen without any human malfeasance, and the novel Wuhan coronavirus may in fact be one of those things. It is entirely plausible the virus emerged from "wet markets" in the Hubei Province of China rather than as a fumbled (or worse, intentionally released) bioweapon cooked up by the Xi Jinping government. 

We may never know, of course. But easy or readily apparent answers to the question of how this could have been avoided should be viewed with the skepticism appropriate to any state propaganda. Crises of all kinds, whether economic, political, military, or health, send ideologues scrambling to explain how such events fit neatly into their worldview. In fact, political partisans often attempt to paint any crisis as having occurred in the first place precisely because their policies and preferences have not been adopted. 

The Wuhan coronavirus seems tailor-made for this. Alarmists who argue for (i) much more robust and comprehensive "public health" measures by national governments and (ii) greater supranational coordination inevitably point to infectious diseases as justification for increased state power over personal medical decisions. Scary and fast-spreading viruses are perfect fodder for their busybody argument that people cannot simply be left to their own devices.

Cross-border outbreaks of illnesses are particularly well suited to the preexisting bureaucratic desire for power over populations: they make the public much more willing to accept forced quarantines and arrests for noncompliance; forced immunizations; involuntary commitments to state facilities; curfews; restrictions on business operations and travel; and import controls. They also allow public health officials to commandeer and manage efforts to find "the cure," who then take credit when the virus eventually relents. 

These are the sorts of things that authoritarian politicians want all the time. Crises simply provide an opportunity to ratchet up their power and also to accustom the public to being ordered around and taking cues from centralized government sources.

Antistate libertarians are not immune to this phenomenon of attempting to place square events into round holes. We tend to explain crises as the result of state (or central bank) interference, either created or made worse by the lack of market discipline, incentives, and property rights lacking due to state action or state regulation. Libertarians think the Food and Drug Administration, for example, kills more people than it saves by approving bad drugs and delaying regulatory approvals for promising treatments. 

Moreover, an individualist libertarian perspective on bodily sovereignty poses an obvious challenge to public health. No individual should be forced to accept quarantine or immunization against his will, and in fact no individual should be forced to consider herd immunity or other collectivist notions when making medical decisions. Just as most libertarians don't think Doritos and Mountain Dew should be banned because their consumption imposes "public" healthcare costs in a statist/fascist system of mandatory insurance and tax-funded Medicaid, most don't think that individual health decisions should be overridden by politicians—even in an "emergency" outbreak situation. 

So how do we reconcile public health with individual rights? Should the latter be sacrificed to protect the former?

Three observations present themselves.

First, even the highly authoritarian Chinese national state has been unable to contain the virus, though it can cordon off whole cities by dictatorial fiat and impose wholesale house arrest over cities in a manner unthinkable in Western countries. Chinese state police literally drag people suspected of carrying the virus out of their cars, forcibly put them handcuffed in hazmat vehicles, and haul them off to what amount to prison hospitals. Chinese citizens who speak out publicly against the Xi government's handling of the crisis are arrested. So, if the Chinese government can't contain it, even with martial law and control over media, how in the world do Western countries expect to do so? Imagine trying to quarantine, say, Dallas and Fort Worth!

Second, poor countries (and China is quite poor per capita compared to the West, ranking around sixty-fifth internationally) almost invariably suffer from worse public health conditions. Sanitation, nutrition, and access to drugs, facilities, and competent doctors matter a great deal when it comes to incubating infectious diseases. Richer countries are healthier countries, and the West benefits when conditions improve and modernize in the Third World.

Third, we already have de facto supranational bodies such as World Health Organization tasked with preventing and lessening the spread of diseases like the coronavirus. The WHO has been around since 1948 and hasn't prevented a host of modern epidemics like SARS and Zika; excatly what new international agency or organization will do better?

If anything, pandemics call for decentralization of treatment. After all, the best approach is to isolate infected people rather than bringing them into large hospital populations in crowded city centers. What doctor or nurse wants to work in a hospital full of coronavirus cases?

We might wish for a utopian libertarian answer to public health crises like the coronovirus, along the lines of a Rothbardian externality argument for airborne pollution. But sometimes bad things simply happen. The best hope is market incentives, the rapid application of individual human ingenuity and self-interest to the situation. Liberty is better, not perfect. And governments, including the Chinese government, are clueless as always.

When commenting, please post a concise, civil, and informative comment. Full comment policy here

Democrats Ignore Trump's Real Violations

02/12/2020Ron Paul

This week the latest Democratic Party attempt to remove President Trump from office—impeachment over Trump allegedly holding up an arms deal to Ukraine—flopped. Just like “Russiagate” and the Mueller investigation, and a number of other attempts to overturn the 2016 election.

We’ve had three years of accusations and investigations with untold millions of dollars spent in a never-ending Democratic Party effort to remove President Trump from office.

Why do the Democrats keep swinging and missing at Trump? They can’t make a good case for abuse of power, because they don’t really oppose Trump’s most egregious abuses of power. Congress, with a few exceptions, strongly supports the president flouting the Constitution when it comes to overseas aggression and shoveling more money into the military-industrial complex.

In April 2018, President Trump fired one hundred Tomahawk missiles into Syria, allegedly as punishment for a Syrian government chemical attack in Douma. Though the US was not under imminent threat of attack, Trump didn’t wait for a Congressional declaration of war on Syria or even an authorization for a missile strike. In fact, he didn’t even wait for an investigation of the event to find out what actually happened! He just decided to send a hundred missiles—at a cost of hundreds of millions of dollars—into Syria.

We are now finding out from whistle-blowers on the UN team that investigated the alleged attack that the report blaming the Syrian government was falsified and that the whole “attack” was nothing but a false flag operation.

Is such unauthorized aggression against a country with which we are not at war not worth investigating as a potential “high crime” or “misdemeanor”?

Last month, President Trump authorized the assassination of a top Iranian General, Qassim Soleimani, and a top Iraqi military officer inside Iraqi territory while Soleimani was on a diplomatic mission. Trump and his administration tried to claim that the attack was essential because of an “imminent threat” of a Soleimani attack on US troops in the region.

We found out shortly afterward that they had lied about the “imminent threat.” The assassination was not “urgent”—it was planned back in June. Trump then claimed that it didn’t matter whether there was an imminent threat: Soleimani was a bad guy so he deserved to be assassinated.

But the attack was an act of war on Iran without a congressional declaration or authorization for war. Is that not perhaps a “high crime” or “misdemeanor”?

We are finding out that, contrary to what Trump claims, Soleimani was not even behind the December attack on US troops in Iraq. New evidence suggests that it was actually an ISIS operation attempting to goad the US into moving against Iraq’s Shi'a militias.

Fantasies about Trump being an agent of Putin or trying to get Ukraine to help him win the election are presented as urgent reasons Trump must be removed from office. Real-life violations of the Constitution and the reckless militarism that may get us embroiled in another Middle East war are shrugged off as “business as usual” by both Democrats and Republicans in Washington.

Democrats won’t move against Trump for what may be real “high crimes” and “misdemeanors,” because they support his overseas aggression. They just wish they were the ones pulling the trigger.

Reprinted with permission from the Ron Paul Institute.

When commenting, please post a concise, civil, and informative comment. Full comment policy here

Draft Concerns Crashed the Selective Service Site

Last week after the military drone strike in Iraq, an influx of young people went to the Selective Service website to find information about the draft. So much so that the draft website reportedly crashed from the surge. Google searches also are said to have increased by 900 percent for searches on “Is there going to be a draft.” While there has not been a draft since the Vietnam War, the reality is a draft could happen at any time and on the government's whim, as Rothbard pointed out:

Every youth is forced to register with the selective service system when he turns eighteen. He is compelled to carry his draft card at all times, and, at whatever time the federal government deems fit, he is seized by the authorities and inducted into the armed forces. There his body and will are no longer his own; he is subject to the dictates of the government, and he can be forced to kill and to place his own life in jeopardy if the authorities so decree. What else is involuntary servitude if not the draft?

Not only are you conscripted to serve your government even against your own free will, but if you refuse or fail to comply you could face a felony, as the Selective Service website points out:

Failing to register or comply with the Military Selective Service Act is a felony punishable by a fine of up to $250,000 or a prison term of up to five years, or a combination of both. Also, a person who knowingly counsels, aids, or abets another to fail to comply with the Act is subject to the same penalties.

The government asks our youth to sign up for the Selective Service on the day they become “adults.” Indeed, they are mandated at the age of eighteen to possibly be called to kill and murder in a war and possibly die themselves, and yet our government also believes our youth are not responsible enough to make the decision to not drink or smoke, since the smoking age has been raised to twenty-one years old. The simple truth is the government thinks that they own our bodies, and they will happily sit behind a desk in safety while they use you as cannon fodder.

However foul the Selective Service is, there is a far more detestable form once you reach the army. As Rothbard noted:

While conscription into the armed forces is a blatant and aggravated form of involuntary servitude, there is another, far more subtle and therefore less detectable form: the structure of the army itself. Consider this: in what other occupations in the country are there severe penalties, including prison and in some cases execution, for “desertion,” i.e., for quitting the particular employment? If someone quits General Motors, is he shot at sunrise?

So why do we subject our youth to our very real Hunger Games, where if their number is called they must fight to the death and may the odds be ever in their favor? Why in 2020 should the military be unable to operate free of involuntary slavery when it has been able to do so since July 1, 1973?

If history is our guide, we might expect a reinstatement of the draft to have profound societal effects. Consider the antiwar movement of the 1960s, during the previous “draft.” Now, consider the antiwar movement of today, during a time of an “all-volunteer” military, when military service is elective and by choice, when people don’t necessarily have skin in the game. Should the draft return, and young people face the prospect of mandatory service, what will the social repercussions be? Further division or people realizing they have very real skin in the game?

The government claims to be a representative government. Yet, how many of us disagree with its policies? How many not only disagree but find its policies and actions illegal? For them, it is bad enough that the government should commit crimes in their name; however, should a draft be enacted, now those same objecting individuals will face the prospect of becoming slaves to what they sincerely perceive to be a criminal enterprise, and thereby helping with their own labor to commit crimes against their own will.

In another article, I noted the use of conscientious objection and once again I ask, “Is Patriotism defined as blind obedience to governmental authority? Can saying ‘no’ be more heroic than saying ‘yes,’ when your conscience tells you it's wrong that the Government requires innocent blood on your hands?” If war is murder, what does this mean for a silently objecting person’s soul to become part of a killing machine rather than consciously objecting? Even if their job is removed from the front lines, at the end of the day the war rages, people are murdered, and they played their part contributing to the war/murder effort.

The obvious answer to all of this is, the draft should be abolished unfortunately, things won’t change until the public demands it. As Jeff Deist said not very long ago,

We need an anti-politics movement just as surely as we need an antiwar movement.

When commenting, please post a concise, civil, and informative comment. Full comment policy here

Dave Smith One-on-One with Jeff Deist

On the latest episode of Part Of The Problem, Dave Smith continues his Wednesday One-on-One interview series with Jeff Deist. Jeff and Dave discuss D.C. as "Hollywood for ugly people," Ancapistan (and how that would work in a real world setting), the future of religion in western society, and how the Fed may be responsible for lower birthrates.

Part of the Problem is available on YouTube, Google PlayApple Podcasts, and Stitcher.

Part of the Problem #501 - Jeff Deist, of The Mises Institute (Audio Fixed)

When commenting, please post a concise, civil, and informative comment. Full comment policy here

Don't Let Bernie's Craziness Distract from Warren's Radical Tax Plans

Social Security is projected to consume an ever-larger share of America’s national income, mostly thanks to an aging population.

Indeed, demographic change is why the program is bankrupt, with an inflation-adjusted cash-flow deficit of more than $42 trillion.


Yet Senator Elizabeth Warren wants to make a bad situation even worse.

In a blatant effort to buy votes, she is proposing a radical expansion in the old-age entitlement program. Here’s how USA Today describes her proposal.

Warren’s strategy would make major changes to Social Security, boosting benefits for all and imposing new taxes on high-income earners to finance them. …Under the proposal, everyone would get a $200 increase in monthly payments from Social Security, including both retirement and disability benefits. 

…Certain groups would see even larger increases. …In order to cover these benefits and shore up Social Security’s future finances, Warren would impose two new taxes. First, a new payroll tax would apply to wages above $250,000, with employees paying 7.4% and employers matching with 7.4% of their own. This is above the 6.2% employee rate that applies to current wages up to $132,900 in 2019, …Second, individual filers making more than $250,000 or joint filers above $400,000 would owe a heightened net investment income tax at a rate of 14.8%. …The Warren proposal breaks new ground by largely disconnecting the benefits that Social Security pays from the wages on which the program collects taxes.

In a column for the Wall Street Journal, John Cogan of the Hoover Institution explains why the proposal is so irresponsible.

It’s a strange campaign season, loaded with fantastical promises of government handouts for health care, college and even a guaranteed national income. But Sen. Elizabeth Warren ’s Social Security plan takes the cake. With trillion-dollar federal budget deficits and Social Security heading for bankruptcy, Ms. Warren proposes to give every current and future Social Security recipient an additional $2,400 a year. She plans to finance her proposal, which would cost more than $150 billion annually, with a 14.8% tax on high-income individuals. …the majority of Ms. Warren’s proposed Social Security bonanza would go to middle- and upper-income seniors. …The plan would cost taxpayers about $70,000 for each senior citizen lifted out of poverty.

Cogan also explains that Warren’s scheme upends FDR’s notion that Social Security should be an “earned benefit.”

The cornerstone of FDR’s Social Security program is its “earned right” principle, under which benefits are earned through payroll-tax contributions. …in a major break from one of FDR’s main Social Security principles, the plan provides no additional benefits in return for the new taxes. …Such a large revenue stream to fund unearned benefits, aptly called “gratuities” in FDR’s era, would put Social Security on a road to becoming a welfare program. …Ms. Warren’s proposal returns the country to an era when elected officials regularly used Social Security as a vote-buying scheme.

For all intents and purposes, Warren has put forth a more radical version of the plan introduced by Congressman John Larson, along with most of his colleagues in the House Democratic Caucus.

And that plan is plenty bad.

Andrew Biggs of the American Enterprise Institute wrote about the economic damage it would cause.

…the Social Security 2100 Act consists of more than 100% tax increases – because it not only raises payroll taxes to fund currently promised benefits, but increases benefits for all current and future retirees. …Social Security’s 12.4% payroll tax rate would rise to 14.8% while the $132,900 salary ceiling on which Social Security taxes apply would be phased out. Combined with federal income taxes, Medicare taxes and state income taxes, high-earning taxpayers could face marginal tax rates topping 60%. …Economists agree that tax increases reduce labor supply, the only disagreement being whether it’s by a little or a lot. Likewise, various research concludes that middle- and upper-income households factor Social Security into how much they’ll save for retirement on their own. If they expect higher Social Security benefits their personal saving will fall. Since higher labor supply and more saving are the most reliable routes to economic growth, the Social Security 2100 Act’s risk to the economy is obvious. …an economic model created by a team based at the University of Pennsylvania’s Wharton School…projects GDP in 2049 would be 2.0% lower than a hypothetical baseline in which the government borrowed to fund full promised Social Security benefits. The logic is straightforward: when taxes go up people work less; when Social Security benefits go up, people save less. If people work less and save less, the economy grows more slowly.

And the Wall Street Journal opined about the adverse impact of the proposal.

Among the many tax increases Democrats are now pushing is the Social Security 2100 Act sponsored by John Larson of House Ways and Means. The plan would raise average benefits by 2% and ties cost-of-living raises to a highly generous and experimental measure of inflation for the elderly known as CPI-E. The payroll tax rate for Social Security would rise steadily over two decades to 14.8% from 12.4% for all workers, and Democrats would also apply the tax to income above $400,000. …The proposal would also further tilt government spending to the elderly, who in general are doing well. …Democrats are also sneaky in the way they lift the income cap on Social Security taxes. The Social Security tax currently applies only on income up to $132,900, an amount that rises each year with inflation. But the new payroll tax on income above $400,000 isn’t indexed to inflation, which means the tax would ensnare ever more taxpayers over time. …The new 14.8% Social Security payroll-tax rate would come on top of the 37% federal income-tax rate, plus 2.9% for Medicare today (split between employer and employee), plus the 0.9% ObamaCare surcharge on income above $200,000 and 3.8% surcharge on investment income. …As lifespans increase, the U.S. needs more working seniors contributing to the economy. Yet higher Social Security benefits can induce earlier retirement if people think they don’t have to save as much. Higher marginal tax rates on Social Security benefits and income also discourage healthy seniors from working.

Now imagine those bad results and add in the economic damage from a 14.8 percentage point increase in the tax burden on saving and investment, which is the main wrinkle that Senator Warren has added.

Last but not least, using Social Security as an excuse to push higher taxes is not a new strategy. Back in 2008 when he was in the Senate and running for the White House, Barack Obama proposed a Warren-style increase in the payroll tax.

Here’s a video I narrated that year, which discusses the adverse economic effect of that type of class-warfare tax hike.

By the way, Hillary Clinton supported a similar tax increase in 2016.

Though it’s worth noting that neither Obama nor Clinton were as radical as Warren since they didn’t propose to exacerbate the tax code’s bias against saving and investment.

And don’t forget she also wants higher capital gains taxes and a punitive wealth tax.


Her overall tax agenda is unquestionably going to be very bad news for job creation and American competitiveness.

The “rich” are the primary targets of her tax hikes, but the rest of us will suffer the collateral damage.

P.S. Instead of huge tax increases, personal retirement accounts are a far better way of addressing Social Security’s long-run problem. I’ve written favorably about the Australian system, the Chilean system, the Hong Kong system, the Swiss system, the Dutch system, the Swedish system. Heck, I even like the system in the Faroe Islands.

Originally published at International Liberty

When commenting, please post a concise, civil, and informative comment. Full comment policy here

Democrats and Republicans Team Up to Send Federal Spending to New All-Time Highs

09/06/2019Ryan McMaken

This summer's budget deal, negotiated by Nancy Pelosi and Donald Trump made few headlines. And that's exactly how these power brokers wanted it.

According to The Hill:

The new law suspends the debt ceiling through July 2021, removing the threat of a default during the 2020 elections, and raises domestic and military spending by more than $320 billion compared to existing law over the next two fiscal years.

Anxious to avoid a budget debate which Trump obviously thought he couldn't win, the President quickly signed a new agreement to keep federal spending growing quickly into the future.

Democrats crowed:

Importantly, Democrats have achieved an agreement that permanently ends the threat of the sequester ... With this agreement, we strive to avoid another government shutdown, which is so harmful to meeting the needs of the American people and honoring the work of our public employees.

Trump, in his usual unwarranted hyperbole, called the deal "phenomenal."

In nominal terms, spending has gone up relentlessly since Republicans gained control of both the White House in Congress in 2016. The Democratic takeover of the House has, not surprisingly, done nothing to stop the spending juggernaut.1


The budget deal ensures defense spending will go up for the sixth year in a row.2 Spending will hit a new all-time high in 2019, and will surpass a trillion dollars in 2020.

Growth is less impressive when adjusted ot the CPI. In 2018 dollars, defense spending will be just about back to the previous all-time high reached in 2011, hitting 989 billion in 2020. Welfare programs such as Medicare and Social Security all continue to reach new all-time highs nearly every year, with the exception of non-Medicaid poverty programs, such as TANF. Those programs have seen cuts in recent years.


From 2017 to 2020, the OMB estimates (in 2018 dollars) growth rates in each area as:

  • Defense: 16 percent
  • Soc Sec: 10.4 percent
  • Medicare: 8.1 percent
  • Healthcare such as Medicaid: 8.9 percent
  • Other Poverty-Related Programs: -3.7 percent

Not surprisingly, the Trump administration has shown little inclination toward cutting or even moderating federal spending. Republicans had total control of Congress and White House during 2017 through early 2019, but total federal spending increased at sizable rates.


In fact, the sort of spending we saw in the 2019 fiscal year (which ends this month) and which is expected in 2020, is the type of spending we haven't seen since the wake of the 2008 financial crisis when the federal government greatly expanded spending in the name of "stimulus."

But, as I noted here, the Trump administration's budgets are huge — with growing deficits — during a period of economic expansion. That is, even orthodox Keynesians might counsel slowing spending growth under current conditions, because stimulus is expected when recession hits. But the federal government is now going full bore into recession-type spending, even though there's no recession (yet.)

So, expect spending growth and deficits to become even more astronomical when the economy shows greater signs of slowing.

  • 1. See table 3.2 covering federal functions and subfunctions from the Office of Management and Budget. Functions included in this article include 050, 550, 570, 600, 650, 700, and 750.  https://www.whitehouse.gov/omb/historical-tables/.
  • 2. Defense spending here includes all "national defense" spending, plus veterans benefits, plus "Administration of Justice" funds, such as those going to the FBI which now describes itself as a national security organization. See Table 3.2 in OMB estimates.
When commenting, please post a concise, civil, and informative comment. Full comment policy here

Debunking Vox's Article on "Debunking Economic Laws"

08/07/2019Per Bylund

Vox is a never-ending fountain of ignorance. Like this piece about four 'laws' of economics that are simply wrong. Some of these claims are indeed wrong, but it's also wrong to claim that economists make them.

Let's look at each one.

1) Going below the natural rate of unemployment could spark an inflationary spiral.

I have no idea how the writer could think this is an "iron law" (his term) yet includes the words "could spark." How is that a law at all?

2) Everybody wins with globalization.

No, economists don't claim this. Globalization is a win, but there are transitional pains and reallocations of resources. Jobs in inefficient industries go away, jobs are created where labor is more valuable.

3) Deep budget deficits will crowd out private investment.

Another strange misrepresentation. Why would anyone think budget deficits crowd out private investment? It's not the deficit doing this, but government investments--whether or not financed by budget deficits.

4) A higher minimum wage will only hurt workers.

Of course the author refers to the one study that found a case where this appears to not have happened. Yet it's still a misunderstanding, because minimum wage laws (set above the market wage) cause fewer jobs than there otherwise would have been. It doesn't mean people will be laid off en masse, only that jobs aren't created in such numbers as would otherwise have happened. You have to be a progressive to not see this. And then, of course, you will refer to (widely criticized) study by Alan Krueger as though there are not hundreds, if not thousands, studies showing exactly what theory tells us: that forcing employers to pay workers more than they contribute to the bottom line means those workers won't get the jobs. (If this logic seems odd, it's because you're not thinking logically.)

Formatted from Twitter @PerBylund
When commenting, please post a concise, civil, and informative comment. Full comment policy here
Shield icon power-market-v2