Last month, Michael Strain defended people who earn billions of dollars in markets. Two slices:
Unsurprisingly, the economic populists and nationalists on the political right find themselves in agreement with the progressive left. A few months ago, Steve Bannon, former US President Donald Trump’s former chief strategist, called for “massive tax increases on billionaires” because too few of them are “MAGA.”
Billionaire innovators create enormous value for society. In a 2004 paper, the Nobel laureate economist William D. Nordhaus found “that only a minuscule fraction” – about 2.2% – “of the social returns from technological advances” accrued to innovators themselves. The rest of the benefits (which is to say, almost all of them) went to consumers.
According to the Bloomberg Billionaires Index, Amazon founder Jeff Bezos is worth $170 billion. Extrapolating from Nordhaus’s findings, one could conclude that Bezos has created over $8 trillion – more than one-third of the United States’ annual GDP – in value for society. For example, Amazon has reduced the price of many consumer goods and freed up an enormous amount of time for millions of Americans by eliminating the need to visit brick-and-mortar retailers. Bezos, meanwhile, has received only a tiny slice of those social benefits.
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Similarly, the furor over billionaires is misplaced in the debate about income inequality, which assumes that income is distributed to households and questions the share going to the top. But in a market economy, income is earned, not distributed. Moreover, when measured using the income of all households – not just billionaires – inequality has been stagnant or declining for well over a decade.
More fundamentally, billionaire-bashing sends young people the terrible and perverse message that success is bad. This could lead them to lower their aspirations, put in less effort, and become less tolerant of risk. Precisely because hard work pays off – productivity drives compensation – such a message could exacerbate inequality, the problem that anti-billionaire advocates purportedly want to fix.
Doug Bandow reports that “China is scaring away investors.” Three slices:
Only Mao’s death in 1976 brought relief. China’s subsequent liberalization demonstrated the power of private enterprise and free markets. “Paramount leader” Deng Xiaoping’s modest deregulation yielded tremendous growth by loosing the entrepreneurship of hundreds of millions of people. For years the PRC’s economy expanded explosively. The poverty rate dropped dramatically. Although CCP officials took credit for China’s growth, the critical factor was reversing their earlier collectivist nostrums, which treated the Chinese people as veritable human automatons.
A dozen years ago, the colorless apparatchik Xi Jinping, who had carefully ascended the PRC’s political hierarchy, took control, becoming both CCP general secretary and Chinese president. There was much hope that he would be a reformer, clearing away state economic controls and encouraging international trade.
He proved, however, to be Mikhail Gorbachev in reverse, disguising his true intentions to recommunize the economy and rest of society. In fact, the nature of his rule was presaged during the final days of his vice presidency, when he disappeared from public view, apparently busy combating an insurgent reach for power by the charismatic Bo Xilai, a provincial governor. Having elevated Xi with the responsibility to strengthen party unity in a crisis, CCP paladins should not have been surprised when he accelerated his campaign after being installed.
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The PRC’s return to political totalitarianism has weakened the economy. Beijing already faced strong headwinds. Although companies are not pulling out in great numbers, surveys reveal that firms around the world are less willing to invest in China. Last year foreign investment turned negative. Bloomberg reported “less willingness by foreign companies to re-invest profits made in China in the country.” Moreover, Chinese outflows exceeded foreign inflows in 2023 for the first time in five years.
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Political activists often accept the risk of arrest for their cause. Businessmen, not so much. At the very time economic conditions are deteriorating in the PRC, foreign investors are less able to accurately assess markets. Some expatriates express the desire to return home. The Wall Street Journal found: “Some Western firms have paused research work in China, especially when related to technology and other sensitive areas, according to business executives. Analysts at Wall Street firms, including those specializing in recommendations of Chinese stocks, said they are worried about getting their contacts in China in trouble because of the heightened government scrutiny over foreign connections.”
No wonder foreign investors have soured on the PRC and are pulling their funds.
Scott Alexander explains that “the most fragile thing in the world is a social consensus in favor of freedom.” (HT Arnold Kling)
Robby Soave is correct: “Claudine Gay’s defenders shot the messenger.”
My GMU Econ colleague Bryan Caplan talks with Vance Ginn.
Here’s the abstract of a December 2023 paper by Ryan Kellogg and Richard Sweeney:
We study how the Jones Act — a 100-year-old U.S. regulation that constrains domestic waterborne shipping — affects U.S. markets for crude oil and petroleum products. We collect data on U.S. Gulf Coast and East Coast fuel prices, movements, and consumption, and we estimate domestic non-Jones shipping costs using freight rates for Gulf Coast exports. We then model counterfactual prices and product movements absent the Jones Act, allowing shippers to arbitrage price differences between the Gulf and East Coasts when they exceed transport costs. Eliminating the Jones Act would have reduced average East Coast gasoline, jet fuel, and diesel prices by $0.63, $0.80, and $0.82 per barrel, respectively, during 2018–2019, with the largest price decreases occurring in the Lower Atlantic. The Gulf Coast gasoline price would increase by $0.30 per barrel. U.S. consumers’ surplus would increase by $769 million per year, and producers’ surplus would decrease by $367 million per year.
