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Smothered in Quasi-Socialism

Bernie Sanders Rally in Los Angeles

from Mona Charen at National Review, How Bernie Sanders Became the Conscience of the Democratic Party

The idea that “the rich” sit permanently atop a pyramid of worker drones is false. Consider the companies that were once ubiquitous but are now ailing or gone: The Sharper Image, Borders, Circuit City, Polaroid, Yahoo!, Sears, and Toys-R-Us. Creative new competitors take their places. A U.S. Treasury study in 2006 found that among taxpayers in the highest brackets in 1996, 30 percent had dropped below that ten years later, with 2.6 percent dropping all the way to the bottom. Among those in the lowest income quintile in 1996, more than half had moved up ten years later.

A dynamic economy grows out of respect for free markets, willingness to take risks (which includes tolerance for failure), reliable protection of property rights, future focus, light regulation, and openness to ideas. These traits traditionally made the American economy the most innovative in the world. From aeronautics to computers to medical equipment to energy to retailing to entertainment, U.S. creativity has produced the world’s most prosperous middle class. We still lead the world in patents, and we’re still inventing new business models like Uber and AirBnB. But we’ve layered so many stones onto the shoulders of businesses that the engine of innovation is slowing. For the first time since the 1970s, more businesses are dying than being born. In 2000, the U.S. ranked second in the world in economic freedom according to the CATO Institute. Now, we’ve dropped to 16th.

Contra Sanders, we’ve been smothered in quasi-socialism for the past six years. The U.S. economy desperately needs a shot of capitalism and growth. The middle class stagnates and poverty increases. The rich, as in Venezuela, Cuba, and Sweden, are making out fine in Obama’s America. It’s the middle class and the poor who need capitalism to lift them.

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Localized Regulations

from The Wall Street Journal Encouraged by the Feds, Cities Are Punishing Business by John Ella

The challenge for employers is not only the cost of higher wages or paid sick time. Multistate employers compelled to monitor new developments in thousands of cities instead of 50 states find the task overwhelming. Employers also have to track where each of their employees lives, or moves to, and works. Complying with the three-tiered patchwork of federal, state and local regulation means more opportunity for contradiction, as some laws’ requirements are the opposite of other laws. Changing a national payroll system to comply with the paid sick-leave ordinance in Passaic, N.J., might violate the law in San Francisco.

A backlash is already under way. Twelve states, including Florida, Georgia and Wisconsin, have enacted laws barring local governments from requiring businesses to provide paid sick leave. Fifteen states, including Pennsylvania and Colorado, have banned the enactment of minimum-wage requirements anywhere in the state.


A vibrant local economy is the best bet for workers. Such proliferation of localized mandates is the opposite of what is best for workers.

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Driving Corporations Overseas

from the Wall Street Journal, The Corporate Tax Political Divide

 ‘Why is the tax code making it better for foreign companies to invest in the United States than U.S. companies?” That was the pungent question posed by Pfizer Chairman and CEO Ian Read in an interview last week with this newspaper. Washington has no good answer, and President Obama shows no inclination to reform the worst system of corporate income taxation in the industrialized world. So Mr. Read’s Pfizer, currently located in New York, is considering a merger with Dublin-based Allergan. Basing the combined company in Ireland would free up more cash for shareholders, employees and research.

And yes, moving the business overseas would ironically make it easier to invest in the United States, thanks to the insane tax burden the Treasury now applies when U.S. firms want to bring profits back from overseas and invest them at home.

Mr. Read was speaking in general terms and not discussing the particulars of the potential merger his firm is now discussing with Allergan, but he neatly explained the competitiveness problem faced by U.S. companies. He noted that after paying Irish corporate income taxes, a firm based there still retains roughly 88 cents on each dollar of profits, which it can choose to invest in the U.S.

But if a U.S. company makes the same dollar in Ireland and pays the same local tax to Irish authorities, its 88-cent after-tax profit gets whittled down to 65 cents if the money is invested in the U.S. That’s because the U.S. is one of a small handful of tax collectors worldwide that demands to be paid even after a domestic company has already paid the overseas territory where it made the money.

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The Accumulation of Friction Costs


from the Wall Street Journal, The Golden Goose is on the Run by Bob Funk:

There is a disconnect today between what government experts say about the economy when they crunch the numbers and what employers throughout America say when they make hiring and wage decisions. Businesses, small and large, are holding back. Six years after the Great Recession officially ended, many worry about another downturn and fear new governmental intrusions.

For decades, most businesses operated, innovated and expanded despite what was happening in the nation’s capital, or perhaps even oblivious to it. But now the goose that laid the golden egg is on the run. Free enterprise, which made the economy grow and produced rising wages for middle-income Americans, is under assault.

Too many policy makers evaluate new interventions—labor rules, wage laws, environmental regulations—only by what they hope to accomplish. They do not consider the consequences, the unintended effects, and the trouble that their policies will cause for employers and workers, especially when the burdens are placed one on top of another.


Regulation are often considered, rationalized and justified in a vaccuum.  Funk is correct to look at the accumulated effect of a steady stream of regulations. Like bricks in a pick up truck and Stanislaw Lec’s admonition, “every snowflake pleads innocent but it is still an avalanche.”

Regulations and rules roll out for years after its authorizing laws have been passed and forgotten. The difficulties and frustration faced by the businesses affected rarely attract a fraction of the attention the legislation did. There is often a chasm between the intentions and the enactment and results of the legislation.

The first rule of economics is scarcity. The first rule of politics is to ignore the first rule of economics. Money spent to comply with regulations is money not available to hire and raise wages. The stifling effect of the accumulation, uncertainty, and cost of regulation means businesses never start.  It is no coincidence that more businesses are closing that starting.

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Order and Liberty


From Barron’s, Chinese Puzzle by Thomas Donlan:

Worldly wise investors and sophisticated geopoliticians sometimes forget that Chinese markets reflect the power of the country’s government more than its economy. The price of stocks in state-owned and state-funded corporations has too little to do with their profits and too much to do with their political connections.

Just as admirers of Maoist communism ignored murder and starvation on a scale that overwhelmed the evils of Hitler and Stalin, admirers of Chinese economic reform have often ignored the chain-mail authoritarian fist inside the velvet economic glove.

In a famous comment in 2009, Thomas Friedman of the New York Times acknowledged the fist and ignored it: “One-party autocracy certainly has its drawbacks,” he said. “But when it is led by a reasonably enlightened group of people, as China is today, it can also have great advantages.”

Growth and prosperity in China have been handed down from governmental heaven through the diktats of central planners, and financed through manipulation of money and exchange rates.

Central planning that is intended to eliminate chaos eventually creates it. As Friedrich Hayek wrote in The Road to Serfdom, state economic planning is unavoidably arbitrary: “The more the state plans, the more difficult planning becomes for the individual.”

Among many examples of this principle: If a government tweaks money supply to hit targets for interest rates and exchange rates, it will provide stability in those things, but the economy will fluctuate. Or, if the government tries to guarantee general economic growth, as measured by employment, gross domestic product, consumer confidence, business investment, or all of them, rates of interest and exchange will fluctuate. Either way, the economy will be under control of an unstable, unpredictable thing that seeks order instead of liberty, and so can deliver neither.

All over the world, there are people who imagine themselves to be masters of the material universe. They are the greatest threat to liberty and prosperity.


Read the entire Donlan link.

Historian Paul Johnson laments the history of trying political solutions to economic problems.  (I would add the poor record of trying political and economic solutions to cultural deficiencies.)

In today’s Wall Street Journal, Ben Bernanke reviews the success of the Fed in managing the 2008 collapse.  How The Fed Saved the Economy.  I agree that he deserves much credit, but managing a crisis is distinct from managing an economy. The problem with the use of many Keynesian concepts lies in  making that distinction.  Bernanke also notes the limits of Fed policy; at some point fiscal policy clearly matters.

For years the Fed has bailed out poor fiscal policy. Faced with zero interest rates they are out of ammo. It makes one shudder when one of the justifications for raising rates is being able to cut them again in case we lapse back into a recession.