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The Class Warriors Are Wrong. Skyrocketing Inequality Is A Myth.

December 26, 2019/in Articles /by Hunter Hastings (Republished)

Demonizing the rich and condemning disparities of wealth have been pillars of Democratic Party politics for decades. Franklin Delano Roosevelt lambasted wealthy Americans who “did not want to pay a fair share” in 1936. Barack Obama pronounced income inequality “the defining issue of our time” in 2012. Few left-wing tropes are more familiar than the avarice of the well-to-do.

These days, the most fervent bash-the-rich rhetoric comes from Democratic senators Bernie Sanders and Elizabeth Warren, both of whom are proposing steep new taxes on the accumulated wealth of America’s most affluent families. Sanders denounces current levels of wealth inequality as “outrageous,” “grotesque,” and “immoral,” and declares flatly that “billionaires should not exist.” Warren accuses the rich of having “rigged the system” to “hollow out” the middle class, and insists that “runaway wealth concentration” is poisoning American society.

The idea that wealth and income inequality is off the charts — that the “1 percent” has cleaned up at the expense of everyone else — has gotten considerable support from the work of three influential economists, Thomas Piketty, Emmanuel Saez, and Gabriel Zucman. It’s their research that Warren and Sanders rely on when they decry the super-rich for amassing ever more wealth while the vast majority of Americans is losing ground.

But what if Piketty, et al., got it wrong?

“Just as ideas about inequality have completed their march from the academy to the frontlines of politics, researchers have begun to look again,” The Economist reported last month. “And some are wondering whether inequality has in fact risen as much as claimed — or, by some measures, at all.”

Two of those researchers are economists Gerald Auten of the US Treasury and David Splinter of Congress’s Joint Committee on Taxation. In a recent paper that has drawn respectful attention in the profession, they make the case that Piketty, Saez, and Zucman fumbled their data, and that their most explosive conclusions about rising inequality aren’t supported by the facts. They conclude that, once taxes and government transfer payments are properly accounted for, the share of income going to the top 1 percent in the United States has barely changed since the early 1960s.

One point critics have been making for years is that data on wealth and income ought to reflect the nearly $2 trillion paid out by the government each year via Medicare, Medicaid, and other social welfare programs. Since most taxes are paid by upper-income Americans, while most transfer payments go to lower-income Americans, a good deal of inequality is constantly being neutralized by government antipoverty spending.

To that familiar correction, Auten and Splinter add more subtle ones.

They note, for example, that Piketty and his colleagues focused on tax returns filed by households, which show the income reported by the 1 percent outstripping everyone else. But the focus on household income, as opposed to individual income, skews the bottom line. Marriage rates have fallen disproportionately among poorer Americans, which means that income is divided among more lower-income households, though not among more people. When incomes are ranked by individuals, there is a lot less inequality.

Something else those beating the class-warfare drum tend to ignore is the sharp increase in corporate profits flowing to middle-class taxpayers through pension and retirement funds. Thanks to the advent of IRAs and 401(k)s, corporate ownership has been radically democratized. In 1960, Auten and Splinter point out, retirement funds owned just 4 percent of the US stock market. Today that figure is above 50 percent.

Yet another correction has to do with the way US incomes have been reported to the IRS since 1986. A major change in tax law that year encouraged small businesses to operate as “pass-through” entities, meaning that their income — previously included in corporate returns — could henceforth be included in individual tax returns. As a result, high incomes that used to be sheltered within corporate tax filings began getting reported as individual income: a surge in personal wealth on paper, but not in reality.

Academic analyses of taxpayers’ earnings can be “fiendishly complicated,” the Economist acknowledges. Politicians and ideologues generally aren’t interested in nuance; they prefer to treat issues of income, wealth, and inequality as black-and-white morality tales. But the incessant claim by Sanders and Warren that working-class Americans are being impoverished as plutocrats in the “tippy top” grow ever richer is just not plausible.

There is more to wealth, after all, than hourly wages. “If you argue that income has shrunk you also have to claim that four decades’ worth of innovation in goods and services, from mobile phones and video streaming to cholesterol-lowering statins, have not improved middle-earners’ lives,” the Economist comments. As Don Boudreaux of George Mason University points out, the humblest working-class American today enjoys a standard of living and an array of amenities and comforts — from air travel to contact lenses to overnight package delivery — far superior to most of what even a billionaire like John D. Rockefeller could have commanded a century ago.

Perhaps this is why progressive passion for soaking the rich and closing the wealth gap rarely seem to be shared by most voters. When Gallup earlier this year asked Americans to name the “most important problem facing this country today,” just 1 percent cited the gap between rich and poor. When respondents were given a list of a dozen “priorities” for Congress and the president to tackle, “the distribution of income and wealth” tied for last place.

Contrary to progressive belief, America is not divided into rigid economic strata. The incomes of the wealthy often decline, while many taxpayers go from being poor at one point to not-poor at another. Research shows that more than one-tenth of Americans will make it all the way to the top 1 percent for at least one year during their working lives.

The very rich, wrote F. Scott Fitzgerald, “are different from you and me.” Are they, though? You’d never know it to hear Warren and Sanders fulminate, but the gaping inequality they rail against might just be an illusion.

Jeff Jacoby can be reached at jeff.jacoby@globe.com.

Environmentalist Fanatics Believe In The Opposite Of What Economically Aspirational People Want.

December 25, 2019/in Articles /by Hunter Hastings (Republished)

Careful observers often and correctly note that, for many of its adherents, environmentalism is a religion.

Too many environmentalists disregard inconvenient truths that would undermine their faith that calamities are percolating just over the horizon. It might well be that humans’ “footprint” on the Earth is larger than ever; it might even be true that this larger footprint creates some health risks for us modern humans that our pre-industrial ancestors never encountered.

But it is undeniably true that we denizens of industrial, market economies live far better and far healthier than did any our pre-industrial ancestors.

Compared to those ancestors, our life expectancies at birth today are about three times higher. Our bodies are cleaner and more free of disease. Our homes are sanitary. We have indoor plumbing and anti-bacterial soap; our ancestors had outhouses. Our clothes are cleaner and, despite recent hysteria, our food supply is safer.

What we almost never hear from self-proclaimed “environmentalists” is recognition of the upside of contemporary life. The commerce and industry that produce all the things that environmentalists ecstatically despise also produce incredible amounts of wealth, health and cleanliness — not to mention the leisure necessary for modern people to reflect upon and enjoy nature.

Also, too many environmentalists condemn people who don’t share their creed. For example, I don’t recycle my trash because my time is too precious for me to spend it sorting such items into different containers. I never criticize those who do recycle, but environmentalists point accusing fingers at us non-recyclers. In environmentalists’ eyes, those who unquestioningly disregard the value of one resource (time) in order to spend it on the conservation of other resources (wood, plastic and glass) are righteous while those of us who value and conserve time are sinners.

And just as religious belief sometimes can inspire adherents to commit acts of cruelty against other human beings, so, too, can environmentalism. Such cruelty is vividly revealed in the new film “Mine Your Own Business.” This movie is a documentary centered on a small Romanian town, Rosia Montana. A poor mountain village, Rosia Montana was chosen by a western mining company as a site for a new mine — an enterprise that would have offered higher-paying jobs to the mostly peasant, rural population.

Environmentalists, though, opposed the mine. Among their chief reasons was their insistence that the mine would “destroy” the way of life of residents of Rosia Montana. On this point, the environmentalists were correct: The mine would indeed change the way of life in that town. But as the film documents, that’s precisely an outcome that the townspeople wanted.

Their rural way of life — with chickens scampering along the dirt roads and outhouses rather than indoor plumbing the norm — was no joy for them. Most of these townspeople welcomed an opportunity to integrate with the modern, industrial, global economy.

The environmental congregation, however, paid no attention. Living in cities far away from Rosia Montana, environmentalists — against all evidence — insisted that the townspeople really don’t want the industry, jobs and greater prosperity that the mine would bring.

One environmentalist, a Belgian woman, confidently shared her revelation that the people of Rosia Montana prefer to travel by horse rather than by automobile, so the added wealth that the mine would bring to enable the townspeople to afford cars would be pointless.

The townspeople, alas, have very different ideas. Being human, they’re capable of thinking for themselves. And when asked if they’d prefer a horse to a car, droves of them looked at the questioner as if he were stupid to ask such a thing. “A car” was the constant and unambiguous answer of each person asked.

In another scene, a local man in his 20s, after expressing his support for the mine, was asked if he shared the environmentalists’ concern that the mine would destroy the town’s beauty. Looking momentarily befuddled, the young man glanced around his hometown — at the dirt streets, the shacks, the ever-present farm animals — and said matter-of-factly that “It is not so beautiful.”

I don’t know if the mine ever will be built in Rosia Montana; environmentalists are still fighting it. If these environmentalists succeed, it will be yet another example of religious zealotry run amok with sad consequences.

Donald J. Boudreaux is chairman of the department of economics at George Mason University.

There Is Inflation Everywhere Government Gets Involved: Housing, Healthcare, Education.

December 24, 2019/in Articles /by Hunter Hastings (Republished)

In my days before I worked for the Mises Institute, I had a colleague who knew I associated with Austrian school economists. In the wake of the bailouts and quantitative easing that followed the 2008 financial crisis, he’d sometimes crack, “Where’s all that inflation you Austrians keep talking about?”

But then, in the very same conversation, he’d remark with dismay on how much housing-price increases had outpaced household income in the region.

He didn’t need an answer from me. He’d found some of “that inflation” all on his own.

Price Changes Are Not Homogeneous

These exchanges illustrated some of the blind spots we repeatedly find among economists and pundits who insist there is no inflation, or that there’s even deflation. (In this article, I’m talking only about price inflation, and not money-supply inflation.) But whether or not one is experiencing an inflationary economy can vary widely on socio-economic status, location, life stage, and age. For those who need higher education services, housing, health care, and savings for retirement, the current inflationary economy could be problematic indeed.

This isn’t to say that price inflation is increasing everywhere. Oil prices are down by nearly half since 2014, for instance, which means lower transportation costs for most of us. Apparel prices have been declining for decades.

Nevertheless, the official measure of inflation — the Consumer Price Index (CPI) — does show an increase over the past decade. Over the ten years from 2009 to 2018, the CPI value rose 15 percent. It has risen 50 percent in the twenty years since 1999.

No Deflation Here: Housing, Healthcare, and Education

Yet, the CPI increase has been significantly outpaced by prices in a number of sectors.

For example, the price of higher education increased 30 percent over the past decade.1At the same time, health care spending per capita increased 27 percent.

Even bigger increases are found in asset prices. According to Case-Shiller, for example, the twenty-city housing index rose 50 percent from 2009 to 2018. During the same period, the Dow Jones rose 108 percent.

Just because price inflation is showing up more in some assets and services than in others doesn’t mean it’s not there.2

Supporters of the status quo tend to defend housing-price increases on the grounds that rising housing prices are good for people who own those assets. This is true. Unfortunately, not everyone is a homeowner.

Those who wish to dismiss the possibility to significant price inflation might also claim the CPI is reflective of the real-world situation because not everyone buys a college education, and not everyone needs sizable medical services. That’s true, and averages could be used in these cases to portray that increases in spending in these areas are more muted than the experience of many individuals suggests.

But this ultimately just shows the problem with using broad aggregate numbers and averages to represent the cost of living.

In practice, increases in asset prices hurts first-time homebuyers, and low income households who have so far been unable to afford a down payment and the elevated asset prices we’re now seeing. Nor is everyone in the market to buy real estate soon. Or ever. Real estate price increases drive up rents as well, and this is a problem for both young consumers and low-income ones. Over the past decade in the metro Denver area the average rent increased 60 percent in contrast to the CPI increase of 16 percent. In Phoenix, the average rent increased 7 percent from 2018 to 2019.

The CPI might tell us that inflation is “subdued,” or “muted,” there are plenty of people whose budgets are taking big hits anyway. Moreover, home prices are a big part of most households’ monthly expenses. Combined with healthcare spending and higher education, the increases in the cost of living — reflected in price increases — we’ve seen over the past decade are hardly something we could describe as “deflationary.”

Defenders of the there’s-no-inflation position might claim “but these price increases are moderated by price declines in other places!” That may be true, but housing, healthcare, and education make up a pretty sizable portion of a family’s expenses. Are declines in prices for apparel and gasoline so sizable that they cancel out increases in housing and medicine? This appears to be unlikely for an average person. Thus, we can’t simply assume the CPI’s basket of goods necessarily reflect the day-to-day economic realities that ordinary people face. For many people who don’t fit the profile of the “average,” generic, or aggregated American, the official numbers may not reflect reality at all. Indeed, it appears that lower-income, younger, and more elderly consumers are the ones who suffer the most. For example, elderly retirees on fixed incomes can’t just increase their incomes by working more to keep up with price increases. And young people with no assets will have a much harder time acquiring assets if prices are relentlessly speeding upward. Mid-career people with flexible incomes and with assets are one thing. Everyone else is more likely to encounter trouble.

Low Inflation Is Not “No” Inflation

Finally, it’s important to keep in mind that what’s routinely touted as “low inflation” isn’t all that low.

For example, even though we’re told we live in an age of exceptionally low inflation, the CPI measure shows that a dollar’s worth of goods and services twenty years ago requires about $1.50 today. Even over just the past decade, what one dollar once bought then requires $1.17 today.

The much-vaunted 2 percent inflation standard shows similar results. If central banks are able to nail the “low” 2 percent inflation level, we’d still end up with a dollar that loses nearly half its value in 20 years. In this scenario, a dollar would lose nearly one-fifth of its value in just a decade.

For regular people who can’t count on a 4 percent return on their investments, and who rely on banks which pay around 1 percent, this means a lot of lost wealth in spite of these households’ best efforts at saving.

Although central bankers insist a 2 percent inflation rate offers “price stability” the reality is one of significant depreciation in wealth for those who are struggling to acquire assets and who may be facing medical problems, high rent, and college bills.

This may account for some of the growing divide between higher-income investors and middle- to low-income Americans. They often can’t take advantage of the higher-yield options enjoyed by those who already have high incomes and portfolios packed with assets.

As shown by Karen Petrou in recent research, many regular people have placed more of their wealth in real estate, but often real estate in less inflationary markets in middle America. The result has been a class of wealthier investors in expensive coastal cities who own a lot of stocks and own real estate in stylish markets. But there are also many Americans who have smaller portfolios and own real estate in markets that have seen far less appreciation. Inflation is by no means uniform nationwide and it’s more benign in some places — and in some socioeconomic groups — than in others.

None of this shows up in the official aggregate data, but the results are real. Some benefit greatly from the asset price inflation. Others aren’t benefiting nearly as much.

Professor Arthur Diamond Praises The Creativity In Creative Destruction, And Teaches Us To Welcome The Destruction, Too.

December 23, 2019/in Articles /by Hunter Hastings (Republished)

Arthur Diamond’s Openness to Creative Destruction: Sustaining Innovative Dynamism joins a growing pile of books that seek to explain what the economic historian Deirdre McCloskey calls the Great Fact: the mind-boggling increases in per capita income in the last two and a half centuries that started in Northwestern Europe and spread around the world. Diamond joins very good company: McCloskey, for example, as well as Joel Mokyr (A Culture of Growth, 2016), Steven Pinker (Enlightenment Now, 2018), Hans Rosling (Factfulness, 2018), Calestous Juma (Innovation and Its Enemies, 2016), David Rose (Why Culture Matters Most, 2019). And that’s just to name a few.

It’s a story we don’t really appreciate: Dennis, the constitutionally enlightened peasant from Arthurian Britain, would have found much with which he was familiar if he were transported to the ancient Roman Empire or anywhere else in medieval Europe. He would find our world bewildering, but perhaps more than anything, he would be surprised at how we just expect everything to get better. This year’s cars and cell phones are nice and all, but we just expect next year’s models to be even better. We embrace — or at least side-hug — creative destruction.

“Creative destruction” is a term popularized by the mid-20th-century economist Joseph Schumpeter. Economic progress, Schumpeter argues, happens when we substitute new ways of doing things — the creative part — for old ways of doing things (the destruction part). Diamond follows the aforementioned authors and adds new evidence and illustrations to the larger thesis that a wider embrace of creatively destroying innovation explains how we went from a world in which nearly everyone was poor to a world in which even those of modest means struggle with first-world problems like too many calories and too much stuff (parenthetically, his book also provides a nice source for my forthcoming book with McCloskey, provisionally titled Leave Me Alone and I’ll Make You Rich: How the Bourgeois Deal Enriched the World — you can download a short version here).

Diamond makes a compelling case for what a lot of commentators call “capitalism” but which he would rather call “creative destruction” or “innovative dynamism,” as what we really want to describe has very little to do with capital or capitalists as such. For all the talk about how capitalism (a word that will probably stick, unfortunately) or creative destruction or innovative dynamism leaves us unrooted, unmoored, alienated, and demoralized, people overwhelmingly vote with their feet for civilization and prosperity when given the chance.

Diamond cites the example of the Nukak people of Colombia, who “have settled near civilization and apparently have no plans to return to the jungle” (p. 37). By our (admittedly constrained) choices, we have revealed a preference for the fruits of modernity — and this is even in the face of things like the so-called “paradox of choice,” which holds that we are made worse off by the surfeit of choices with which the wealthy modern world confronts us day in and day out. Apparently, Diamond argues, people tend to prefer (and choose) variety over time (p. 73).

Over the course of a relatively short book — the main text is under 200 pages — Diamond helps readers understand where new ideas come from, how they diffuse, and importantly, how they can be throttled by regulators, special interests, and even cultural commentators.

Diamond will likely take the most heat from libertarian critics for his defense of patents and intellectual property; this was certainly a point of contention at a panel discussion of his manuscript at the 2018 Association of Private Enterprise Education conference in which I had the good fortune to participate. Diamond meets challenges from scholars like Michele Boldrin and David Levine, authors of the 2008 book Against Intellectual Monopoly. He argues that criticisms of so-called “patent trolls” might be misplaced because a lot of people might be good at inventing things but not good at commercializing them, and patent revenue is one way to finance further innovation (pp. 143ff.).

I agree with Diamond that innovative ideas should be front and center in any attempt to explain long-term economic progress. I am as yet not persuaded that intellectual property rules are necessary or sufficient to increase their supply, in part due to the very problem he points out in chapter 12 related to regulation, where government regulators can’t keep up with innovative businesses. I’m willing to be persuaded, though, and I plan to explore this particular aspect of Diamond’s argument with my students soon.

It is particularly in the “destruction” part of creative destruction that economics, culture, and politics come together. This is the part that is bound to be resisted by those with a special interest in the status quo. This interest need not be material. Calestous Juma points out the special interests who opposed things like margarine, coffee, and recorded music. Diamond complements Juma’s work in noting how a lot of things we take for granted, like lightning rods, greenhouses, stored ice for cool summer drinks, and air conditioning were at various times challenged as affronts to God’s design (p. 130). The challengers won a lot of battles, but fortunately, they lost enough that we were able to get sustained economic growth.

For all our progress, it is important to remember that critics and regulators have still won a lot of battles. They could win more. It is easy to chuckle at the idea that air conditioning is an affront to almighty God, but many in the environmental movement would say that air conditioning is an affront to the environment. People used to criticize efforts to fly (and flight itself) by claiming that “if God had intended for man to fly, he would have given us wings.” The modern conviction that air travel is a sin against the climate is simply a secularized version of the theological argument.

I am glad to see Openness to Creative Destruction appear in print. It strikes a fine balance between detail and a big-picture perspective that, I think, can be read profitably by specialists and students alike. Anyone who wants to understand how the world grew rich and, importantly, what will sustain our enrichment would do well to have this book on the shelf.

Art Carden is a Senior Fellow at the American Institute for Economic Research.

Here Are The Top Ten Economic Trends Of Our Time – And They’re All Bad For Government.

December 22, 2019/in Articles /by Hunter Hastings (Republished)

It’s been a remarkable year in economics. Here are my personal picks for the top ten economic trends of this year and next.

1. The Chinese model of political economy is under pressure. Two years ago, there was a growing consensus that China had it right: free enterprise with totalitarian political control. Matters of changed. The protests in Hong Kong, the cruel treatment of political dissidents, the massive industrial subsidies, and the implacable rule of the communists have raised serious doubts that the mix is sustainable. Even AIER’s Mises/Marx video went viral in China, despite every ban.

2. The socialist left gets pummelled. The US Democrats swung far to the left, and electoral betting odds turned fiercely against them. In Britain, the Labour Party has been devastated. The contradictions, the anomalies, and the trust in government inherent in progressivism seem no longer to have compelling power.

3. The nationalist right is unable to rule either. Public protests have turned against the new nationalist wave in Europe and, to some extent, in the US too. It turns out that big government under any label is not popular.

4. The failure of protectionism is palpably obvious. For the first time in human history, 60% of global productivity is attributable to international trade. Trump did his best to turn back that tide. The result was domestically disastrous: loss of markets for agriculture products, decline in manufacturing, decline in investment, universal retaliation, no new impressive trade deals, and protests from both producers and consumers. We are lucky to have narrowly avoided recession.

5. People are getting fed up with regulations wrecking their quality of life. It’s glorious that Trump gets cheers when denouncing government-mandated lightbulbs, toilets, faucets, and dishwashers. Finally people are making the connection between government and their bad plumbing and lighting in their very own houses.

6. Media power in the past depending on near-monopoly conditions. No more. It’s been completely shattered. Through startups and mergers, the rise of competitive media is one of the most astonishing trends of our time. We no longer even know what the “news” is, and while that can sometimes feel alarming, it is the reality. Now and in the future, everyone is in a position to curate his or her own understanding of the world.

7. Across the world, whole peoples have shifted their own view of government from trust to disgust. This has profound implications for the status of any ideology that longs for central control and command. It also raises the question: if not government, then what? Eventually we have to revisit the philosophical outlook of liberalism as the only real viable way of managing society – which is to say, we need to admit that society does not need exogenous managers.

8. Exhaustion has set in on the war on drugs and the war on alcohol. Some states in the US have nearly gone full laissez faire, such as New York state where in some areas it seems like every third house has been turned into a distillery, winery, cidery, or brewery. The taboos have broken down over cannabis too and we can only hope that this eventually turns into fewer arrests and jailings for the non-crime of consuming plants.

9. The price of cryptos has softened. So much for “to the moon.” The use case of the top performer Bitcoin (Core) continued to decline and the claim that it can be a “store of value” without consumer use is not viable. In addition, the underlying technology is being widely adopted by mainstream financial markets. We are waiting for the next generation of private currencies.

10. The dollar can be unseated as a world-reserve currency. That process might already have begun. Since the Second World War, the status of the dollar has been unquestioned, but that is due in part to the US commitment to ever freer trade around the world and for generally being a trusted partner in trade. But Trump has pulled out of trade agreements, battered supply chains, tossed around tariffs in tweets, and undermined world confidence in regime stability. To top it off, we now know how to make private currencies that manage themselves. That competition could eventually unseat the dollar.

Jeffrey A. Tucker is Editorial Director for the American Institute for Economic Research.

Economic Growth Is Good For Everyone. Why Can’t The Anti-Capitalist Left Recognize This Simple Fact?

December 21, 2019/in Articles /by Hunter Hastings (Republished)

In his 2018 book Stubborn Attachments, Tyler Cowen defends a thesis that is likely to be as unpopular as it is misunderstood: over the long run, differences in growth rates swamp just about everything. Therefore, increased economic growth is a moral imperative. At the very least, more economic growth should be more of a priority for policy makers and concerned observers than it is now. Nothing less than the fate of the future is at stake. Here’s the summary that begins the book, before we even get to the acknowledgments and table of contents:

Growth is good. Through history, economic growth in particular has alleviated human misery, improved human happiness and opportunity, and lengthened human lives. Wealthier societies are more stable, offer better living standards, produce better medicines, and ensure greater autonomy, greater fulfillment, and more sources of fun. If we want to sustain out trends of growth, and the overwhelmingly positive outcomes for societies that come with it, every individual must become more concerned with the welfare of those around us.

Cowen’s claims remind me of these words from Nobel laureate Robert Lucas, who wrote in 2004:

Of the tendencies that are harmful to sound economics, the most seductive, and in my opinion the most poisonous, is to focus on questions of distribution. In this very minute, a child is being born to an American family and another child, equally valued by God, is being born to a family in India. The resources of all kinds that will be at the disposal of this new American will be on the order of 15 times the resources available to his Indian brother. This seems to us a terrible wrong, justifying direct corrective action, and perhaps some actions of this kind can and should be taken. But of the vast increase in the well-being of hundreds of millions of people that has occurred in the 200-year course of the Industrial Revolution to date, virtually none of it can be attributed to the direct redistribution of resources from rich to poor. The potential for improving the lives of poor people by finding different ways of distributing current production is nothingcompared to the apparently limitless potential of increasing production.

“The apparently limitless potential of increasing production” is Cowen’s subject. It’s an exercise in “becom(ing) more concerned with the welfare of those around us,” and Cowen is specifically trying to get people to think of future generations as being “around us” in a lot of morally important ways. If Cowen is right and the proper social discount rate is zero (or at least very, very, very low), then the way we think about what we owe to one another has to change.

He notes that a lot of observers tend to dismiss the huge effects of seemingly small differences in economic growth rates. The difference between 1 percent growth and 2 percent growth is the difference between having grandchildren who, in 70 years, have twice our incomes and having grandchildren who, in 70 years, have four times our incomes. When I think about a lot of the immediate problems our family faces, a lot of them — the occasional leaking faucet, for example — would basically go away with higher incomes. Even experiences that cultivate the mind and spirit, like the visits to the Van Gogh museum and the Heineken brewery in Amsterdam that are on our bucket lists, would be a lot easier if we had more money. Material wealth cannot buy us inner peace, and it cannot solve our deepest and most fundamental problems, but it helps.

Cowen, in any case, is unimpressed with the ascetic aesthetic of professional chin-strokers and finger-waggers who are forever prophesying doom and decrying the shallowness of bourgeois modernity. First, he accounts for this by talking not simply in terms of wealth but in terms of what he calls wealth plus, which includes leisure time and environmental amenities. In Cowen’s framework, he wants us all to be able to buy more roses, but he also wants to make sure they are grown and harvested sustainably and that we have time to stop and smell them. Second, Cowen acknowledges that the world has a lot of very serious problems but denies that making people poorer will fix them. As I tell my students, per capita gross domestic product is not all there is to life, but it is very highly correlated with the things we think are important (health, longevity, literacy, and a host of other things). As Deirdre McCloskey and I argue, good societies get rich, and rich societies can be good.

Cowen imports a mental device, the Crusonia plant, from Frank Knight’s discussions of capital and investment. The Crusonia plant grows and bears fruit, which germinates and bears fruit, which germinates and bears even more fruit. An innovation or change that raises the economic growth rate is akin to a Crusonia plant. If we aren’t discounting the future, finding Crusonia plants dominates pretty much everything.

Cowen describes himself (with tongue in cheek) as a “two-thirds utilitarian,” where Crusonia plants and the prospect thereof resolve a lot of otherwise-sticky moral questions. Rights and rules are nonetheless of paramount importance, and they are especially important as we try to navigate a future of radical uncertainty filled with “unknown unknowns.” In light of the incomprehensible “froth” confronting us as we try to look into the future, a lot of small changes to the moral calculus are not decisive. In this paper, which was published in Utilitas in 2006 and which forms part of the basis for his argument, Cowen defines what he calls “The Principle of Roughness”:

Some of our choice options will differ in complex ways. We might nonetheless, ex ante, make a reasoned judgment that they are roughly equal in value, and that we should be roughly indifferent across the two options. After making a small improvement to one of these choices, we still might be roughly indifferent to which option is better.

Eventually, an accretion of small changes will be decisive, but the addition of a tiny bit of information to an otherwise radically uncertain process need not be sufficient to cause us to depart from conventionally understood rules and conventionally understood ideas of rights.

People nonetheless decry “economic growth” and say that the notion of endless economic growth is preposterous. I think this stems from a misunderstanding. A lot of these criticisms, it seems, think of economic growth as the piling up of stuff for stuff’s sake. Growth is synonymous with more, measured materially. However, I think we would do better to follow the lead of Florida State University economist Randall Holcombe, who in his 2006 book Entrepreneurship and Economic Progressdistinguished “economic progress” from “economic growth” by defining the former as better stuff whereas economic growth is simply more stuff. As I’ve argued a couple of times, economic progress is unlimited. I think we could resolve at least a few sources of confusion by changing our terminology slightly.

Stubborn Attachments is Cowen at his best, and he makes a brief but tight argument that reinforces my conviction that “Why are people in some places very rich while people in other places are very poor?” is the most important question in the social sciences. Cowen works to bring economic growth back to the front and center of the conversation. He does so in a book that, in my opinion, deserves your careful, thoughtful attention.

Cowen recently explained his argument while giving the Kenneth Arrow Lecture at Stanford University. It is a good place to start: https://youtu.be/EO5jJFpbJvg

Minimum Wage Legislation Cost This Foodservice Worker A Job, And Threatens To Destroy An Entire Industry.

December 20, 2019/in Articles /by Hunter Hastings (Republished)

Seattle

This city’s minimum wage is rising to $16.39 an hour on Jan. 1. Instead of receiving a bigger paycheck, I’m left without any pay at all due to the policy change. That’s because the restaurant where I’ve worked for six years is closing as a consequence of the city’s harmful minimum-wage experiment.

I work for Tom Douglas, one of the best-known restaurateurs in Seattle. Mr. Douglas is in many ways responsible for the city’s reputation as a foodie paradise, and he recently celebrated his 30th anniversary in business. He’s a great boss, and his employees tend to stay at the company for a long time.

But being an established chef and a good employer doesn’t save you from the burden of a sharp minimum-wage increase, up 73% from $9.47 in 2015. For large-scale employers like Mr. Douglas, there’s no separate rate for workers who earn tips. In Washington and a handful of other states, tips aren’t counted as income earned on the job. That means restaurateurs are expected to pay servers like me the full minimum wage in addition to our considerable tip income.

When rent is too high, labor costs too much, and customers don’t want to pay $40 for a roast-chicken entree, the only way for many operators to ease the pain is to close.

So now, after six years working at Mr. Douglas’s restaurant Tanakasan, I need to find a new work home. My first thought was to go back to Sitka & Spruce, a restaurant where I had once worked. (I previously had to take on a second job there after the rising minimum wage forced Tanakasan to adopt a no-tipping payment model, drastically reducing my income.)

As it turns out, I can’t return to Sitka & Spruce. Its James Beard Award-winning owner, Matt Dillon, is closing Sitka after 14 years, defeated by the one-two punch of rising rents and labor costs.

As a worker, you’re attracted to restaurateurs like Messrs. Douglas and Dillon because they offer job security and you know you’ll make money. That’s no longer the case here with a high minimum wage that ignores tip income. I often hear people in Seattle lament that it’s becoming “more corporate.” The truth is that the city has made it nearly impossible for many small businesses to survive.

Mr. Douglas is trying to find a role for my co-workers and me at another restaurant in his group, but I’ve started applying for other open positions around town. I landed an interview at a restaurant called Super Bueno, owned by another established chef, Ethan Stowell. Before I could even confirm the interview, Mr. Stowell announced that he will close down Super Bueno at the end of the year. He’s also closing or restructuring two other restaurants.

I’ve lived in this city for almost 20 years, supporting my family thanks to the full-service-restaurant industry. Today I’m struggling because of a policy meant to help me. I’m proudly progressive in my politics, but my experience shows that progressives should reconsider minimum-wage laws that hurt the very workers they’re trying to protect.

Ms. Barron is a restaurant worker and co-founder of the Full Service Workers Alliance.

Is This The End Of The Gig Economy In California?

December 19, 2019/in Articles /by Hunter Hastings (Republished)

Beginning January 1, 2020, all independent contractors in California, including Uber and Lyft drivers, will become statutory employees and receive the full range of benefits that come with being one.

Earlier this year, Gov. Gavin Newsom signed into law California Assembly Bill 5, which entitles most independent contractors and freelance workers in California to minimum wage, overtime pay, workers’ compensation, paid sick leave, and unemployment benefits, among other things. The law is a response to the California Supreme Court decision in Dynamex Operations West, Inc. v. Superior Court. The Dynamex decision issued strict guidelines for independent contractors and the businesses hiring them on what classifies a worker as an “employee.”

However, when you look at the available data, laws like AB 5 can actually bring more harm than good to freelance workers and rideshare drivers, and can raise consumer costs as well.

Do you remember the not-so-good old days of standing on street corners trying to get a cab? Those days are now a thing of the past, thanks to the advent of rideshare platforms. With Uber and Lyft, you can easily get a ride with just a few taps on your smartphone.

Even more important is the reduced cost being offered by Uber and Lyft. Compared to traditional taxi rides, you pay, on average, $5 to $10 less with rideshare platforms, according to the RideGuru forum. Rates vary across the United States based on geographic region.

What makes these lower rates possible is the fact that both Uber and Lyft present a very flexible and unique business model that allows individuals to offer rideshare services when they want to. They can drive as often or as sparingly as they like, and they can do it as independent contractors.

This setup and the flexibility and ease of participation the platform offers are what attract people to become Uber or Lyft drivers. A Pew study says 42% of people who earn money from Uber, Lyft, Airbnb, or other online platforms do it as a side gig to supplement their income.

However, hundreds of thousands of these “gig workers” will be impacted by AB 5 in a big way. Under AB 5, full employee status will be forced not only on rideshare drivers, but on truck drivers, independent health and psychology care workers, and local musicians as well.

As conventional employees, the flexibility that has allowed contractors and entrepreneurs to flourish in the so-called “gig economy” will be gone. Replacing it would be rigid statutory standards that the newly regarded employees will have to follow. The rideshare companies also face the rising cost of employing an individual driver. With the full implementation of AB 5 in 2020, drivers in California will end up having limited options.

AB 5 will also enable powerful labor unions to influence and coerce the millions of individuals it will deem as new employees. People have the right and freedom to join unions, but the government should not enact public policy that essentially increases the number of people who will potentially pay union dues.

While some of California’s Uber and Lyft drivers might support AB 5, they’re not being forced to drive for either rideshare company. It is their choice to become Uber or Lyft drivers, a flexibility considered one of the benefits of living in a free-market economy.

As far as Californians are concerned, the government seems to be always trying to protect them from some boogeyman, real or imagined. Lawmakers there also seem to care less about actually helping consumers and entrepreneurs and instead are congratulating themselves for dealing with a “problem” that doesn’t really exist in the first place.

No matter how good your intentions, what matters most is results. That’s the first law of public policy-making, and it looks like California’s legislators and Gov. Newsom have forgotten all about it.

And from the looks of things, AB 5 is poised to yield disastrous results.

About The Author
Timothy Snowball is an attorney at Pacific Legal Foundation. His practice spans PLF’s issue areas, with a particular focus on individual rights, including Americans’ Fourth Amendment right to be free from arbitrary warrantless searches in the comfort and safety of their homes. He regularly delivers speeches and presentations on the U.S. Constitution, individual liberty, and the rule of law.

The Modern Poetic Justice Warrior’s Relentless Defense Of The Soul Of Civilization – Alan Charles Kors

December 18, 2019/in Articles /by Mark Shupe

The Christmas season frequently includes comments on the rise of materialism, the decline of religion, and their effects on the meaning of life in our postmodern world. As Christmas commemorates the birth of Jesus Christ, it is a celebration of life itself, and the promise of eternal life in the Christian tradition. For many, it should be a divinely solemn occasion with minimal earthly manifestations. Yet the giving of gifts to loved ones and charitable organizations, symbolic of God’s gift of his Son, is widely practiced. Naturally, this leads to gift buying, retail promotion, and the mass production and distribution of earthly presentations that drive the economic viability of entire industries.

So what is this materialism that infects our celebration of Christ’s birth? At its core, materialism is the scientifically derived absolute that matter is the stuff of existence. As Christianity is monotheistic (there is only one God), materialism is philosophical monism (the universe is all that exists). It is matter and its energy that are the root cause of our natural environment. For human survival, knowledge is required to perceive nature and transform a dangerous world for the production of food and shelter.

The creation of physical values is not only necessary, but essential to the sparkling decorations and gift giving that is symbolic of benevolence, peace and the celebration of life that is the Christmas spirit. The integration of the mind and body are essential to achieve these values, they are not separate things. Ideas turned into reality on a mass scale are central to the Western celebration of Christmas because they also require empathy, peaceful exchange, and life-enhancing productivity. They are the integration of mind and matter as captured in the video lecture series The Birth of the Modern Mind, created by our singularly accomplished Poetic Justice Warrior Alan Charles Kors.

F. I. R. E.

As co-founder of the Foundation for Individual Rights in Education, Kors recalled the genesis of his career fighting for free expression on college campuses,

The book was Friedrich Hayek’s The Road to Serfdom. It changed my own intellectual and moral life. I cannot imagine my colleagues doing the same in American academic life today.

Founded in 1999, the foundation was their response to outcries for help after the publication of their book The Shadow University: The Betrayal of Liberty on America’s Campuses. From the book’s introduction:

The result has been an emerging tyranny over all aspects of student life. It is a tyranny that seeks to assert absolute control over the souls, the consciences, and the individuality of our students. In short, a tyranny over the essence of liberty itself.

Saving the souls of college students is no exaggeration. As philosopher Allan Bloom declares in the conclusion to his 1987 book The Closing of the American Mind,

By the late 60s, students no longer turn to the printed word for counsel, inspiration, or joy. Deprived of literary guidance, they no longer have any image of a perfect soul, and hence do not long to have one. They do not even imagine there is such a thing.

An Ivy League professor since the age of 24, Kors is a leading historian of Europe’s Enlightenment. To thrive as he does in the milieu of postmodern America’s university system, Kors must be a man of extraordinary courage and integrity.

Socialism’s Legacy

As a prolific leader and teacher of young minds herself, Lisa VanDamme talks about the epiphany she had while listening to a Kors seminar titled Socialism’s Legacy, Lest We Forget, and she summarizes Kors message as follows:

Intellectuals continue to disavow the connection between socialism in theory and the unimaginably evil communist regimes in practice. At the same time, they loudly decry the fault of our society. One that in practice, has “raised human beings to a dignified free life protected as never before from hopelessness before nature and men.”

The dignified free life Kors refers to, the one we celebrate at Christmas, reached critical mass during the 19th century. The birth of the modern mind led to the stunning victory of personal liberty, free markets, and romantic art over 6000 years of anarchy and despotism. However, 19th century philosophers such as Immanuel Kant, Georg Hegel, and Karl Marx degraded these achievements. Their anti-Enlightenment ideas separated logic from reality and people from each other, thereby promoting irreconcilable differences among groups. Their repudiation of human reason, universal truth, and existence itself gave 20th century totalitarians their academic cover. Kors explains,

Hayek’s Road to Serfdom was a sustained argument that even democratic socialism could only be an ineluctable transition for the total abolition of economic, intellectual and moral liberty. At the heart of his argument laid Hayek’s chilling, historically correct, and prescient chapter, Why the Worst Get On Top.

Instead of demonizing World War I and the communist holocausts of Josef Stalin, Chairman Mao, and Pol Pot that followed in its wake, “progressive” Western intellectuals used Hitler’s crimes as a distraction. The fall of the Berlin Wall should have been the event that ripped open Western academia’s tyrannical cover-up. VanDamme asserts it “should have triggered a flood of Western romantic art and compassion.”

It didn’t happen. As Kors observes, “our society is guilty of a scandal of ignorance. Our children do not know about the bodies. They do not know.” Yet as Bloom confirms, “they have powerful images for what a perfect body is, and pursue it incessantly.” Instead, America’s students are taught the easy floating concepts of collectivism’s social justice (woke), not the challenging principles of individualism’s self-creation (classical liberalism).

The Birth of the Modern Mind

In this lecture series, Kors examines the awakening of the modern mind, “The 18th century sought to take the models of Newton and Locke and apply them to the fullest possible range of human inquiry and endeavor. By the end of the 18th century, the prestige of ancient thought and of the inherited system was a thing of the past.” The materialism of the universe was becoming understood and applied to values.

He also teaches the behaviors motivated by the revolutionary mind: “Educated Europeans believed that they had a new understanding of the human mind, of method, of nature, and of the uses of knowledge. They could come to know the world correctly for the first time in human history. They could rewrite the possibilities of human life. Soon, under the weight of these new ideas, all over the globe, monarchs fell.” Valid propositions, those supported by evidence and logic, were integrated into the Declaration of Independence.

As poetic justice would have it, the author of the book America’s Revolutionary Mind, C. Bradley Thompson, was invited to give the toast introducing Poetic Justice Warrior Alan Charles Kors at a recent banquet celebrating his career and achievements, and witnessed –

Alan is a moral force of nature. He is one of our great intellectuals. He is a warrior. Alan’s warrior spirit is not driven entirely by what the Greeks called thymos or spiritedness. To me, it is driven by something much rarer: common decency and his respect for the notion that all men and women should be given the freedom to fulfill their highest purposes, dreams, and aspirations.

This is the joyful time of year to wish friend and stranger alike the greeting that originated during humanity’s Renaissance in 16th century England, Merry Christmas!

The Politicians Who Rig Our System Learn How To Make “The System Is Rigged” Trend On Social Media.

December 17, 2019/in Articles /by Hunter Hastings (Republished)

It’s crazy season, that special time on the American calendar when aspiring candidates for the nation’s highest office try to outdo each other in an effort to attract more voters to their platforms. This time around, background support is provided by a virtual anvil chorus of anti-capitalism clatter. Senator Elizabeth Warren, for example, frequently unleashes criticism of American capitalism by asserting that the “system is rigged,” a complaint that seems to resonate with meaningful populist appeal. It’s an old refrain that has echoed across the years from Karl Marx onward.

Nobel Laureate Robert J. Shiller explains why this may be the case in his new book, “Narrative Economics.” As Shiller points out, when a story is repeated enough, the viral message may be accepted as conventional wisdom, more like an article of belief than a matter of reason.

I’ll also emphasize that for a message to prevail, it helps if its content rests on a preexisting and inherently moral foundation that reflects our tribal instincts as an evolved human species. And what works for a small tribe doesn’t necessarily work so well for a huge industrialized nation.

Consider this: Some may inquire, “Do you believe in capitalism?” almost as if the position one takes is a matter of religion. When answering, we reflect on our tribal preferences, and cooperating and sharing with our family and neighbors is often a key to success. Thus, many people will almost instinctively answer “no,” or at least “yes, but …” followed by some serious caveats and exceptions.

Yes, the beneficial-but-invisible hand of commerce driven by self-interest has never been an instinctually lovable idea. Gains from trade, while well-documented since the days of Adam Smith, can be more elusive than we may first realize. Given the widespread negative views on the subject, politicians’ calls for greater accountability and government intervention may not be welcomed by all, but they’re understandable.

Shiller adds another dimension to his narrative economics story by using data from Google’s Ngram Viewer. The viewer produces charts based on the frequency of particular words and phrases in Google Books, which include some 8 million downloaded volumes in various languages.

Consider an Ngram we might apply to Senator Warren’s comments. The nearby figure contains one for “system is rigged” that shows the frequency of the phrase’s occurrence from 1940 through 2008, the final year in the database. I have smoothed the data by using a three-year running average: