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David Henderson asks if California’s government will raise taxes even more [2]. A slice:
To add insult to injury, the bill’s authors say the tax would be imposed “for the privilege of doing business” in California. And here I thought doing business was a right, not a privilege. Silly me.
A basic principle in the economics of taxation is that a tax rarely sticks where it lands. Translation: whoever pays the tax almost never bears the whole burden. The payer passes on at least some, and often much, of the burden to consumers.
That’s especially true for a state tax. The reason: businesses are free to move to other states and they will do so until the before-tax rate of profit rises in California to compensate businesses for staying. That means higher prices.
Also from David Henderson is this new essay busting myths about, and explaining the dangers of, price controls [3]. Two slices:
“This is a great suppressed topic. It was absolutely mainstream from the start of World War II until the Reagan administration.” This is a quote from “Price Controls Set Off Heated Debate as History Gets a Second Look [4],” a January 13 New York Times article by Ben Casselman and Jeanne Smialek. The speaker quoted is James (Jamie) K. Galbraith, a left-wing economist at the University of Texas. The “this” in the quote refers price controls, which Galbraith appears to favor. He comes by it honestly. His father, the late John Kenneth Galbraith, was a high-level official in the Office of Price Administration during World War II, and he sometimes reflected fondly on the power that he exerted over the US economy.
I disagree with Galbraith that the topic has been suppressed. We opponents of price controls have been quite willing to discuss why they’re a bad idea. If he were to be more accurate, Galbraith would have to say that the idea has been rejected. Indeed, the heartening point of the Times article is that the vast majority of economists, including left-wing economists such as Paul Krugman, reject the idea of comprehensive government controls on prices. But sometimes it’s hard for people who are losing a debate to admit that they’ve lost, not because the topic has been suppressed but because their idea has been analytically crushed. It’s worthwhile, therefore, to say why they are such a bad idea. Price controls cause shortages, waste people’s time in line, sometimes lead to favoritism by suppliers, and, as in the case of oil and gasoline in the 1970s, can lead to harmful regulation that lasts for decades.
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Another effect of price controls is to change the product. Imagine that you own an apartment complex on which the government imposes rent controls that force the rent below what you were planning to charge. For a given apartment, you now have more qualified tenants than you would have had with no rent control. So your incentive to maintain the property and to furnish amenities such as parking decreases. Further pushing you in that direction is the fact that you have less revenue to pay for maintenance and amenities. The product changes.
In “Price Controls [5],” published in David R. Henderson, ed., The Concise Encyclopedia of Economics, Rutgers University economist Hugh Rockoff points out that because of US price controls during World War II, “fat was added to hamburger” and “candy bars were made smaller and of inferior ingredients.”
We saw a major change in the product when the Nixon price controls on oil and gasoline, first imposed on August 15, 1971, collided with the world price of oil, which OPEC raised from about $3 per barrel to about $11 per barrel during the fall of 1973. The Nixon price controls set the price of so-called “old oil” at $4.25 and later $5.25 per barrel. Gasoline prices were allowed to rise to reflect that price increase but not to reflect the world price of $11 per barrel. With the United States importing much of its oil, that was a huge problem. At the artificially low price of gasoline that resulted, there were line-ups for gasoline in the fall of 1973 and the winter and spring of 1974. I’m old enough to remember that when you pulled into a gasoline station, a gasoline station attendant washed your windshield and, if you wanted, you could get a high-quality map inside the station for free. Both of those aspects of the product disappeared over a few months.
Tarnell Brown’s contribution to this month’s Liberty Matters discussion about the work of my late, great colleague Walter Williams is available by scrolling down here [6].
The Wall Street Journal‘s Editorial Board decries the ever-expanding federal criminal code [7]. Two slices:
How many federal crimes has Congress created? The question seems like it ought to have a straightforward answer that citizens can look up. In fact it’s more like asking, “how many genes are in the human genome?” The answer is in the many thousands, but despite decades of counting, no one knows for sure.
A new project [8] by the Heritage Foundation and George Mason University’s Mercatus Center says it is “the first effort to ‘count the Code’ since 2008.” The researchers created an algorithm with key phrases like “shall be punished” and “shall be fined or imprisoned” to search tens of thousands of pages in the U.S. Code.
In the 2019 Code, they found 1,510 criminal sections. By examining some of those sections at random, they estimated that they encompass 5,199 crimes in total. The Heritage Foundation report notes that “there is no single place where any citizen can go to learn” all federal criminal laws, and even if there were, some “are so vague that . . . no reasonable person could understand what they mean.”
By running their algorithm on past versions of the U.S. Code going back to 1994, the researchers also estimate the rate at which criminal laws are proliferating. There were about 36% more criminal sections in 2019 than 25 years earlier, for an overall growth rate of 1.27% per year. More than half of the growth took place from 1994 through 1996. Since the mid-1990s, the biggest annual increases were in 2005-2006 (2.48%) and 2011-2012 (2.76%).
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But even when it comes to conduct everyone agrees should be criminal, the inexorable expansion of the Code has serious consequences for justice and federalism. The Constitution envisioned that most lawbreaking would be handled by state governments, while the federal government’s jurisdiction would be narrower.
“Liberties Are Only Kept Safe by the Limitation of Government Power” – so explains Gary Galles [9].
Brian Albrecht asks: Are there low-skilled workers? [10] Two slices:
Let’s think about the demand side for a second. Firms demand workers. Why? We call this type of demand “derived demand” because the firm doesn’t directly want workers. Instead, the firm wants what the worker “produces” in the most general use of that term. Firms want workers that sell goods, fix IT problems, clean up messes at the office, and do all sorts of things that ultimately help the firm make money.
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Here’s where I disagree with Jerusalem [Demsas]: I’m fine calling the thing that firms demand, whatever it is, “skills.” A quick use of the old Google machine tells me that the definition of skill is “the ability to do something well.” Once we’ve fixed the task we are talking about, we can see that more skilled workers will get paid more.
But even more generally, I stick with the language of skills because I don’t think it is confusing/misleading even for non-economists. If I say something mandate like “high skill workers earn more,” no reasonable person will come back with, “That’s false, since I’m very skilled at rapidly translating Ovid into Klingon and yet don’t make any money doing it.”
Writing in the Wall Street Journal, physicist Lawrence Krauss has fun exposing the absurdity of Google’s “inclusive language” police [11]. A slice:
The list of terms excluded in the name of inclusion often borders on ridiculous. I was amused to picture some millennials, programmed by years of training in diversity, equity and inclusion, sitting around at a sensitivity-training meeting coming up with this list.
.As a “senior citizen,” I was surprised to find that this term isn’t inclusive enough for Google, as is the quaint “80 years young.” Instead, Google says my cohort should be called “older adults.” Apparently the push for inclusion goes beyond people. Google urges developers to replace “older version” when describing computer programs with “earlier version.”
Other terms describing computer programs have also been proscribed. A developer can no longer say that some functionality is “crippled” by a bug or that anomalous data seem “crazy.” And “dummy variable,” a key term in coding, should now be replaced with “placeholder,” which seems no more inclusive to me, and I doubt a dummy variable, even if it could care, would.
My favorite proscription is against the word “smartphone.” Presumably Google assumes other phones will be offended.
This is all rather silly, but there are at least two underlying problems with scrubbing words from language. First, it’s a waste of time. While groups like the Association for Computing Machinery waste time debating whether the term “quantum supremacy”—the threshold where a quantum computer first solves a problem a classical computer cannot solve in any feasible time—should be replaced because it alludes to “crimes against humanity,” computer scientists in China and elsewhere are working to achieve quantum supremacy.
Arnold Kling rightly complains about the careless use of “supply” and “demand.” [12] A slice:
Conventional macroeconomic analysis proceeds as if all economic activity takes place in a single firm. I call this the GDP factory. “Aggregate demand,” meaning the total demand for everything in the economy, can be thought of as demand for the output of this GDP factory. “Aggregate supply” can be thought of as the ability of the GDP factory to supply output.
When there is high unemployment, conventional macro attributes this to a lack of aggregate demand. The GDP factory does not need as many workers, so some workers are told to stay home.
When there is low unemployment and firms have unfilled positions, as has been the case in the United States recently, conventional macro attributes this to a lack of aggregate supply. The GDP factory wants more workers, but the only potential workers are people who prefer to stay home. Conventional economists term this a “supply shock” or a “supply constraint.”
In the macro story, the price mechanism has disappeared. There can be a shortage of jobs. Or there can be a shortage of workers. But nothing that happens to prices, including the price of labor, can change that. So the macroeconomic concept of “supply and demand” utterly disregards the way that supply and demand are supposed to operate.
The conventional view is that instead of prices adjusting to keep aggregate demand and aggregate supply in balance, the task falls on our central bank, the Federal Reserve. The Fed uses its tools to raise aggregate demand to fight unemployment or to lower aggregate demand to fight inflation. Larry Summers, who represents the conventional view, is all over the media these days saying that we have too much demand and the Fed needs to tighten policy in order to bring about balance.
I have a heterodox view that rejects all of this. I consider the GDP factory story misleading, because the actual economy consists of millions of different types of work. To coordinate all of this, markets develop what I call Patterns of Sustainable Specialization and Trade. Individual workers specialize in different productive activities, which means that we need to trade in the market. The patterns of trade that emerge are sustainable only as long as they are efficient relative to overall conditions, including available resources and the state of knowledge in society.
Billy Binion rightly criticizes Virginia governor Glenn Youngkin’s support for qualified immunity for police officers [13]. A slice:
Qualified immunity allows state and local agents to infringe on your rights without fear of civil suits if the precise way in which they violate those rights has not been “clearly established” in a prior court ruling. Buried underneath that legalese are stories that would be comical if they didn’t involve real people who had no recourse after dealing with misbehaving civil servants.
Chris Edwards explains that “federal finances are still badly broken.” [14] A slice:
For years, both parties have increased spending and debt with little regard for the long‐term costs. Accumulated federal borrowing (“debt held by the public”) increased $3.0 trillion under eight years of George W. Bush, $8.1 trillion under eight years of Barack Obama, $7.2 trillion under four years of Donald Trump, and it will about $2.9 trillion under the first two years of Joe Biden. One reason the Republican Party should move beyond Trump is that he was a big spender and the country needs new leadership that takes the debt threat seriously.
Federal debt now stands at almost $24 trillion—the same size as gross domestic product (GDP)—and it amounts to about $187,000 for every household in the nation. Without budget reforms, rising debt will precipitate an economic crisis. Statistical studies show [15] that government debt is likely already slowing our economic growth. Borrowing from the future to spend today also undermines democracy because it ties the hands of future generations and imposes costs on them without their consent.