Brian Albrecht exposes the errors of Daron Acemoglu’s recent repetition of an old argument – namely, that with access to goo-gobs amount of computer power, central planners can overcome – can ‘solve’ – the knowledge problem as identified by Hayek. (HT Vernon Smith)
Let’s be clear: America’s debt problem isn’t the result of former President Donald Trump’s tax cuts. While I believe these tax cuts should have been offset by closing some of our many loopholes and reducing government spending, they didn’t cause our fiscal problems. The fiscal imbalance is not because of reduced revenues. Last year, federal revenue as a share of the economy was a full percentage point above the historical average.
As the Cato Institute’s Adam Michel reminded Congress recently, “It’s new spending that drives the deficit. For example, President Biden has added about $5 trillion in unnecessary spending to the national debt. That’s more than three times the 10-year revenue reduction of the 2017 tax cuts.” Trump was no better. Before the pandemic, I often lamented ballooning budget deficits under the Trump administration. And there’s also plenty of justified blame for presidents before Trump.
Maybe more importantly, trying to reduce the deficit by raising taxes on the rich is unfair and ineffective. Rich people in America already pay a large amount of taxes. That is true regardless of whether you look at the total amounts they pay or relative amounts. That’s because the federal tax system is extremely progressive, even compared to European countries.
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The belief that we can reduce the deficit by taxing more revenue also overlooks the actual spending behavior of politicians. Regardless of how they justify a tax hike, when politicians get their hands on more revenue, they often use it to spend more. The result is rising, not reduced, deficits. Economist Richard Vedder and his co-authors, for instance, found that in the 1980s, every $1 raised by additional taxes generated $1.58 of additional spending. This study was revised at least three times (in 1991, 2007, and 2010) and each time produced the same results.
Given, however, Deaton’s focus on inequality, I was puzzled by the absence of a specified normative standpoint by which he assesses the justice or otherwise of varying forms of inequality. Simply stating that one or more inequalities exist between two or more groups isn’t enough to indicate whether they are just or unjust. Issues of merit, need, rights, process, intentionality, and obligations require attention.
Deaton tends to circle around these matters without directly coming to grips with them in the way that other Nobel economists like Amartya Sen and F. A. Hayek certainly did. Deaton notes that reducing economic inequalities was a major preoccupation of the Cambridge School of economics, and contrasts this with the Chicago school. The latter was, he argues, far less focused on such matters, with Milton Friedman in particular seeing many inequalities as natural or merited because they resulted from hard work. Deaton doesn’t, however, offer many thoughts about the normative rightness or wrongness of the respective foci of these schools or the philosophical apparatus underlying them.
Kevin Corinth’s op-ed “Will Biden Cross a Line on Poverty?” (May 23) highlights the Biden administration’s attempt to increase government spending by arbitrarily changing the definition of poverty. Using his regulatory authority, the president would define the poverty rate as the bottom third of income recipients and, without legislative authority, increase welfare spending by $124 billion over the next decade.
Under that new definition, economic growth that doubled incomes across the board wouldn’t reduce the poverty rate—even though families counted as poor would have seen a doubling of their incomes. Only a dramatic redistribution of income could ever lower the poverty rate.
With Congress beginning to consider legislation to force the Census to count all transfer payments as income to the recipients, an action shown in our book, “The Myth of American Inequality,” to reduce the official poverty rate by over 75%, the administration’s effort to redefine poverty is no surprise. If Congress forces the Census to stop overstating poverty by not counting food stamps, refundable tax credits and some 100 other transfer payments, the administration can keep poverty rates elevated by changing the definition.
No wonder Americans are cynical about their government. As a nation, we need to get our facts straight.
Phil Gramm and John Early
Helotes, Texas, and Mount Pleasant, S.C.
Here’s more from David Henderson on the late Nobel-laureate economist Robert Lucas.
Wall Street Journal columnist Kimberly Strassel explains that the “IRS needs a cage, not more cash.” A slice:
No agency with this track record deserves last year’s $80 billion reward, especially as the IRS is openly promising to use the cash to hire tens of thousands of new agents for draconian enforcement activity. If Democrats are so concerned about discretionary spending cuts, they ought to be forced to choose between a cash infusion aimed at taxpayer harassment and the domestic handouts they claim are vital.
Scott Lincicome identifies “the worst possible reason to support new AI regulation.” A slice:
Surely, not every regulation is embraced by large businesses, but there are obvious reasons why many are. Indeed, regardless of one’s views of a specific regulation or regulation more broadly, it’s hardly controversial to acknowledge that government economic rules can favor large, incumbent organizations (also known as “big business”) over new market entrants and thus act as an innovation-crippling “moat” between the latter and market viability. As George Mason University’s Tyler Cowen noted in a recent column, some of this is just common sense: Big firms “have more employees, bigger legal departments and are better suited to deal with governments,” whereas startups typically lack those resources. Thus, “as regulatory costs rise, the comparative advantage shifts to the larger firms” who can more easily handle the new costs.
The Wall Street Journal‘s Editorial Board applauds the U.S. Supreme Court’s ruling in Sackett v. EPA. A slice:
The Supreme Court issued another landmark decision pruning back an overgrown administrative state on Thursday in Sackett v. EPA. Don’t believe the cries that the 5-4 decision will despoil America’s precious wetlands. The majority simply stopped a regulatory land grab.
Michael and Chantell Sackett’s ordeal reveals how rule by an unfettered administrative state can cause significant cost and hardship. For 16 years the couple has been battling the bureaucracy to build a home. The Environmental Protection Agency and U.S. Army Corps of Engineers claim their dry property is a wetland subject to federal regulation.
The Clean Water Act (CWA) authorizes EPA to regulate only “navigable waters” in interstate commerce. Yet the EPA said the Sacketts’ property was connected to a wetland some 30 feet away, which was connected to a ditch that connected to a nonnavigable creek that connected to a lake. Follow that?
