In short, price controls have never actually succeeded in combatting inflation. Instead, they have sown the seeds of dangerously anti-competitive markets and structural impediments to economic growth in the medium and long term. As economist Pierre Lemieux explains, price caps cause shortages, increasing the quantity demanded of a good while reducing its supply. As a result, sellers invest less in the production of the good, leading to an inefficient undersupply of the product in the future, to the detriment of consumers.
On the heels of Russia’s aggressive war against Ukraine in early 2022, the Biden administration temporarily exempted Ukrainian steel from the Trump administration’s bogus “national security” tariffs imposed under Section 232 of the Trade Expansion Act of 1962 (at the behest of the domestic steel industry). The exemption was set to expire on June 1, 2023, with tariffs snapping back to 25 percent. Last week, the White House announced it would maintain Ukraine’s exemption from tariffs and expanded it to cover Ukrainian steel processed within the European Union (EU). For free traders battered by ill‐advised protectionism over the last two administrations, this announcement is what constitutes good news these days. As my Cato colleague Scott Lincicome rightly noted on Twitter, “… this exemption is a tacit admission that opening our markets to goods/services from allies & other friendly nations is IN THEIR AND OUR OWN SECURITY INTERESTS, but admitting that wouldn’t be very ‘worker‐centric’,” the latter of which has been a central talking point in the Biden administration’s protectionist trade policy. This (very) minor tariff relief is a positive relative to the status quo, but it also serves as a sad reminder of the domestic steel industry’s stranglehold on U.S. trade policy.
Here’s the abstract of a new paper by Adrián Rodríguez del Valle and Esteban Fernández-Vázquez:
The study of market power has gained a lot of attention by scholars and policy-makers since De Loecker and Eeckhout (Global market power. Working paper 24768, National Bureau of Economic Research, 2018). In their work, they show the temporal evolution of market power worldwide using detailed data from the financial statements of thousands of firms. In this paper, we propose an alternative way of estimating market power using sectoral-based data. By utilizing the aggregates observable in a series of input–output tables and by applying an estimation procedure based on entropy; indicators of market power can be derived without requiring the use of micro-data. We document a heterogeneous evolution of market power across 28 European countries and 14 manufacturing sectors between 2000 and 2014. Market power is found to be rising for several central- and East-European countries, while decreasing in multiple South- and West-European nations. Globalisation and value chain positioning are both seen to have a significantly decreasing impact on markups.
Richard McKenzie offers a reality check on the case for taxing wealth. A slice:
Presidential advisors assert that the wealthy’s capital gains are conceptually the same as worker earnings, except they escape taxation. But that’s not the case. The most prominent difference? The extent to which the two forms of “income” are realized. Workers’ annual earnings are realized in their paychecks—and are spendable and savable, and not subject to future losses! By contrast, the market value of wealth holdings—say, corporate stocks—is best approximated by the present value of market estimates of companies’ ever-changing future and yet unrealized profit streams, appropriately discounted for time and risks that expected future profits will not be realized. And those unrealized gains can’t be realized until… well, the future arrives.
With the future always unrealizable today, shareholders will unavoidably carry risks of their unrealized capital gains evaporating or morphing into losses. And unrealized future profit streams can vary with errant government (say, tax and regulatory) policies and a multitude of ever-changing economic, social, geopolitical, and environmental forces (among others) over which wealth holders have no control.
Risk costs may only be expected and seem ephemeral, but they can become real as products and firms fail. Remember Sears? When Sears was the world’s top retailer in 1969, many shareholders likely had unrealized capital gains, subject to unrealized (and unrecognized) risks. Then, many Sears executives had probably not heard of Walmart expanding in small Southern markets. Walmart was, surely, a force in the emergence of Sears’ losses in the 21st century, with its last store closing in 2021.
Wealth-tax proponents need a reality check: Most firms’ anticipated future profits are never realized, partially because most new firms fail (half in their first five years). Remember Kmart, Radio Shack, and Blockbuster? Their stockholders once had unrealized capital gains. Bed, Bath & and Beyond’s stock price doubled to $35 in 2021, which left some stockholders flush with capital gains—but also with considerable risk that the company’s future was in jeopardy. Its future would have been further jeopardized had the IRS then drawn off some of the shareholders’ capital gains, taking a portion of the failing company’s desperately needed capital. As it was, BBB’s stock plunged after 2021, dipping below a dime at this writing (April 2023).
Also writing about taxing wealth is Mike Munger.
Kyle Pomerleau is no fan of the corporate alternative minimum tax.
Brad Birzer reviews Matt Zwolinski’s and John Tomasi’s new book, The Individualists.
GMU Econ alum Erik Matson and Jordan Ballor write about Adam Smith, liberalism, and Christianity.
Michael Shellenberger tweets: (HT Jay Bhattacharya)
Government-funded “anti-disinformation” groups say they want transparency, but they are refusing to comply with a Congressional subpoena for their data, and they are refusing en masse to answer questions from journalists. Why is that?
