Real Growth

from National Review and Kevin Williamson, Don’t Count On the Growth Fairy

The powers that be in Washington dream of stronger growth, because stronger growth would mean that they could put off some hard and unpleasant decisions. Stronger growth would raise revenue without raising tax rates, bolster Social Security and our other wobbly entitlement programs, and potentially lower deficits. And while stronger growth helps on the revenue side of the budget, it also helps on the spending side: When growth is strong, unemployment tends to be lower and wages tend to be higher, which relieves pressure on welfare programs. You can understand the economist Robert Lucas’s maxim: “Once you start thinking about economic growth, it’s hard to think about anything else.”

People associated with the Trump administration have taken up 3.5 percent economic growth as a goal. It’s a fine goal, but it probably is not going to happen.


To balance budgets governments overestimate revenues and underestimate expenses.

It seems preposterous that we treat our economy like a machine that needs precise adjustments from an expert mechanic to deliver precise outputs. This is delusional.  We should reduce friction costs where ever we can including the the removal of special privileges granted to rent seeking lobbyists. As long as the growth is real we should not worry about it being too high.  Real growth comes from ideas and work rather than targeted stimulus.

We have resorted to economic growth as a last effort to reduce the deficit rather than face the hard spending cuts that will remain when the growth projection falls short.

Jobs are a Means, Not an End

from Kevin Williamson in National Review, The Social Machine:

The purpose of an automobile factory is not to “create jobs,” as the politicians like to say. Its function is not to add to the employment rolls with good wages and UAW benefits, adding to the local tax base and helping to sustain the community — as desirable as all those things are. The purpose of an automobile factory is not to create jobs — it is to create automobiles. Jobs are a means, not an end. Human labor is valuable to the extent that it contributes to human prosperity and human flourishing, not in and of itself as a matter of abstraction.

There are cases in which this is so obvious that practically everybody understands it. When we talk about building new pipelines (and good on the Trump administration for getting out of the way of getting that done), our progressive friends sometimes sniff that many of the new jobs associated with that work are “temporary.” (“Temporary jobs” is a phrase usually delivered with a distinct sniff.) Here is a little something to consider: Unless you are building the Second Avenue Subway in New York City, all construction jobs are temporary — buildings get built. Projects come to completion, and work gets finished. It is in the nature of construction jobs to come to an end. And it is not only construction: A technology-industry friend attending the recent National Review Ideas Summit in Washington bluntly shared the view from Silicon Valley: “All jobs are temporary.”


Every job that is “created” by government  comes at the expense of another job that is not.  We see the job that is created, we never see the one that is not. This is the essence of Bastiat’s broken  window fallacy made immensely popular by Henry Hazlitt; another great economics writer I compare to Kevin Williamson.

Jobs are created by ideas that increase productivity and wealth.

When Did an Increase in Efficiency Become a Bad Thing?

from Kevin Williamson in National Review, The Social Machine:

American factories are one of the wonders of the world, and, in spite of what President Donald Trump, Senator Bernie Sanders, and other lightly informed populists claim, they are humming. U.S. manufacturing output is about 68 percent higher today in real terms (meaning inflation-adjusted terms) than it was before NAFTA was enacted; manufacturing output is about double in real terms what it was in the 1980s and more than three times what it was in the 1950s. As our factories grow more efficient, output per man-hour has grown, too, which is what troubles the populists and demagogues: Our factories employ a much smaller share of the U.S. work force than they once did.

But it is important to keep in mind: That growth in manufacturing output did not come in spite of the decline in factory employment but partly because of it. Automation not only makes current production more efficient but also makes it easier to improve efficiency in the future: More heavily automated factory processes are much easier to upgrade than are those heavily dependent on human labor.


Venezuelan Pragmatism

From National Review’s Jonah Goldberg, Throw Away the New Playbook:

What he meant by this is that sometimes you can’t be told something, you have to see it or experience it for yourself. I could write a dozen different columns on this quote (actually, I think I have). This insight dovetails with my conviction that reality is conservative. Wisdom is the accumulation of insights into how the world actually works — as opposed to how we would like it to work.

Venezuela was the richest country in South America a decade ago. Then it followed policies based on how some people wanted the world to work. Now it’s the poorest country in South America and people are fighting over bread and toilet paper. If Venezuela makes it through this mess, a lot of people will likely have learned some things from example that they’d probably never have learned from a textbook.


The policies that sunk Venezuela we rationalized as pragmatic and fair.  Reality is not optional.

Tax Psychotherapy

Another gem  from Kevin Williamson at National Review, Bad Medicine on ‘Carried Interest’

Nobody in Washington wants to face that particular angry mob of IRA investors with torches and pitchforks. What we are talking about is singling out a particular class of businessmen for punitive tax treatment because we resent how much money some of them make, and because what they do seems like voodoo to people who do not understand it.

As a matter of policy, changing the tax treatment of private-equity income would not raise a great deal of tax revenue relative to federal spending and liabilities, and it probably would not have as much of a flattening effect as our class warriors hope. For one thing, if we convert those investment managers’ income to salaries and bonuses, then the firms that employ them are going to deduct those salaries and bonuses as ordinary business expenses, which they would be entitled to do. For another, investors will respond to economic incentives. The people who run these kinds of businesses are pretty clever about moving money around. The gentlemen in Congress are not going to outsmart them.

The broader discussion about taxes and fairness and — odious phrase — “social justice” is a waste of time. Taxes are not an instrument of justice: They are an instrument of revenue. The federal government requires x dollars to do the things we demand of it, and the only end of tax policy should be raising those dollars in a way that causes as little economic disruption as possible and invades our privacy as little as possible. At the moment, our model is lots of disruption and maximal invasion of privacy — and all of it handled by the incompetent, corrupt, politicized agents of the Internal Revenue Service.

Those are the tax-code problems we should be addressing. Instead, we are addressing some unhappy Americans’ envy and resentment. That isn’t tax policy — it’s psychotherapy.


I confess to falling for the appeal of the ‘carried interest’ loophole canard. Given the lower rate, a businessman or investor will certainly overweight capital gains over earned income if he has the opportunity.  The lower rate is reflective of the risk.  Warren Buffet only draws a salary of $150,000. That is not how he became one of the wealthiest men in America.

Like so many solutions to unfairness and social justice, the cure stands a good chance of being worse than the disease.  Hillary complained about the short term thinking of American business. Her solution was a six tiered capital gains system that was the worse part of her awful economic plan. The greatest harm in short term thinking is from legislators who voice another change in tax policy whenever they walk past a microphone. The ink is still wet on the last tax increase when hear a new speech of how the the rich are not paying their fair share.  Who would invest in such a environment?

The economy and financial community is a very dynamic system and constantly adjusts to conditions much faster than any social justice legislator can match. Caps on executive pay led to stock options that made executives richer.  The Sarbanes Oxley Act passed in the shadows of the Enron scandal discouraged companies from going public and created opportunities for private equity, that now the ‘carried interest’ demonizers wish to address.

Regulators are often tasked to solve a problem created by the last round of regulations.  New sources of wealth and unfairness are often generated by the previous attempt to equalize them in a previous form.

Great kudos for Kevin for shedding light on this ruse in a way that few other media sources even attempt.