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Christy Lynn talks with Juliette Sellgren about Adam Smith and her (Juliette’s) superb podcast, The Great Antidote.

Phil Magness busts the myth that the U.S. government would be acting constitutionally were it to tax unrealized capital gains. A slice:

The Biden Administration’s 2023 budget bill made headlines by proposing a so-called “billionaire tax,” imposing a 25-percent minimum rate on the “unrealized capital gains” of the wealthiest Americans. The Biden measure rests on an economic falsehood. The new proposal rests on the work of far-left academics such as Thomas Piketty and Gabriel Zucman, who erroneously claim that wealthy Americans pay a lower tax rate, on average, than the poor. This assertion arises from a compounding of basic empirical errors, beginning with the blurring of the distinction between income (annual earnings) and wealth (net worth) as well as a fair amount of intentional statistical manipulation.

In addition to being premised on bad economic reasoning and contrived evidence, Biden’s proposed wealth tax will also likely face another obstacle: it is blatantly unconstitutional.

Also writing on the constitutionality – and “un” – of the U.S. government’s power to tax is Steve Charnovitz, in this letter to the Wall Street Journal:

Your editorial raises the important question of what legal limits exist on the power of Congress to redefine “income” to include accretions in the value of assets. The editorial gives examples of wealth not currently subject to federal tax, such as increases in the market value of a house, stock or painting. Let me offer another example of wealth whose value appreciation shouldn’t come within the constitutional meaning of the term “incomes” in the 16th Amendment. That’s money, such as the U.S. dollar. A rise in the market value of the dollar (relative to other currencies) isn’t itself income to the owner of the dollar. The Constitution gives Congress the power to “coin Money,” but not the power to tax as income a rising market value for the coin.

Prof. Steve Charnovitz
George Washington U. Law School

Arnold Kling busts a myth about moral hazard. Two slices:

I’ve seen a lot of commentary, by public officials and pundits, that because shareholders lost everything in the Silicon Valley bank bailout, there is no problem of moral hazard. This is Baloney Sandwich.

Moral hazard in banking is the incentive of owners to take large gambles with depositors’ money. That incentive exists even if the owners lose everything in a bailout.


Suppose that my bank is under water, but you let me pretend that it isn’t by lending me money as if my assets are still worth what I paid for them. What am I going to do? I am going to take your loan and go to Las Vegas. If I win, yes, things will work out fine for me and for the taxpayers. But if I lose, then the taxpayers will have to cover even more losses. That is what happened in the 1980s. Go back and read Mark to Market Sooner, Not Later.

I apologize for putting up two posts in the same day. I apologize for talking about the Current Thing, which I try not to do.

But I am an old man, who remembers how past crises were bungled by authorities who were blind to the moral hazard problem. And it is painful to watch it happening again.

Here’s GMU Econ alum Dominic Pino on John Cochrane on moral hazard and banking risks. Here’s Dominic’s conclusion:

The Fed has spent nearly all of its worrying over the past two years on rate increases causing unemployment. It has said hardly a word on rate increases causing a banking crisis. Yet unemployment remains historically low, and there’s potential for more banking problems in the future, even though SVB was an outlier.

Elizabeth Nolan Brown reports some good news from California.

Roy Mathews reveals why heating costs in New England are so high. A slice:

Multiple energy infrastructure projects have met their demise in New England in recent years, with consumers shouldering the twin burdens of higher rates and worsening emissions. The Northeast Energy Direct pipeline would have delivered 2.2 billion cubic feet of natural gas a day to Western Massachusetts and New Hampshire, helping to slash New England’s emissions. Pipelines emit 61% to 77% less carbon than other overland transport options. But Kinder Morgan, the company behind the project, spiked the pipeline in 2016 in the face of local environmental resistance.

In addition to blocking natural fuel production in the region, New Englanders also prevent the construction of new clean-energy infrastructure. Only two nuclear plants remain in the region, and supply constraints and emissions restrictions limit the future viability of several non-natural-gas power plants across New England. The closure of the Vermont Yankee Nuclear Power Station in 2014 led emissions in the Green Mountain State to increase 16.3%, while wiping out 70% of Vermont’s in-state electricity generation capacity. Pilgrim Nuclear Power Station in Plymouth, Mass., closed in 2019.

New England now depends on expensive imports of natural gas that are subject to supply bottlenecks because of the lack of pipelines. No wonder New Englanders pay nearly twice as much for electricity than the average American household.

Writing in the New York Times, Christopher Caldwell warns Americans against getting accustomed to rule by executive diktat. A slice:

President Biden’s plan would forgive a quarter of the roughly $1.6 trillion in federal student debt held by some 43 million Americans — about $400 billion, or roughly 2 percent of gross domestic product. Unfortunately, for all Mr. Biden’s successes in passing infrastructure and industrial-policy legislation, this part of his agenda never got voted into law. He has simply decreed it.

Americans are getting used to this form of rule, though they probably shouldn’t be. After Mr. Bush declared a terrorist emergency in 2001, his administration took unseemly shortcuts in a variety of policy domains, including interrogating criminal suspects and managing aspects of the economy. Governing in the wake of another emergency, the financial crisis of 2008, Barack Obama acted without Congress to protect immigrant children from deportation in 2012 and to adjust his Affordable Care Act in 2013.

Since 2020, the Covid pandemic has created an even more tangled and undemocratic chain of accountability. Donald Trump declared a national emergency. The Centers for Disease Control and Prevention even imposed a moratorium on evictions. All without Congress weighing in.

When it comes to student loans, Mr. Biden’s people do not believe they are just lawlessly winging it. As they see matters, Mr. Bush’s Higher Education Relief Opportunities for Students Act of 2003, usually called the HEROES Act, gives them a legal basis for clearing out those loans. The law permits the secretary of education to “waive or modify” student loan provisions during a national emergency.

But claiming the vast authority Mr. Biden does is really a stretch. The point of the HEROES Act was to make sure soldiers didn’t get their school finances tangled up in red tape while fighting in Afghanistan and Iraq. It was quite specifically aimed at four classes of people: active-duty military; activated National Guard members; those serving or living in disaster areas; and those who “suffered direct economic hardship as a direct result of a war or other military operation or national emergency, as determined by the secretary.” To a layman, that last category implies war wounds or something just as grave. To the education secretary, Miguel Cardona, it is apparently vague enough to provide interpretive leeway. It cannot have been meant, however, to let him dispose of 2 percent of G.D.P. as he sees fit.

Either way, Trump deserves much blame for covid lockdowns and other restrictions in the U.S.

Christian Parenti explains “how lockdowns primed the current financial crisis.” (HT Jay Bhattacharya) A slice:

Those who advocated an alternative to ham-fisted lockdowns, like the authors of the Great Barrington Declaration, which called for “focused protection” of vulnerable groups like the elderly, were viciously targeted in a reputation destruction campaign covertly orchestrated by former NIH director Francis Collins and de facto Covid czar Anthony Fauci. Never mind that the document’s authors were three eminently qualified scientists: Sunetra Gupta, professor of Theoretical Epidemiology at Oxford University; Jay Bhattacharya, professor of medicine at Stanford; and Martin Kulldorff, formerly a professor of medicine and biostatistics at Harvard. They were portrayed as far-right cranks who were almost eager to see millions die. But now, they have been vindicated.

Ultimately, the federal government spent $4.2 trillion propping up the economy that it was simultaneously choking to death with lockdowns. These two contradictory pressures laid the groundwork for the recent bank failures. Government mandated lockdowns hit the economy like a body blow. Factories closed, small businesses went under, ports and logistic hubs reduced operations, and about 2 million mostly older workers simply resigned. But at the same time, the federal government injected vast amounts of purchasing power into the economy, thus boosting consumption.