Category Archives: Economics

Profile of Fran Smith

Posted on October 7, 2019 | Comments Off on Profile of Fran Smith

Over at the Independent Women’s Forum, Charlotte Hays has an excellent profile of Fran Smith, who I am proud to call a friend and a colleague. My first published paper, in 2008, was coauthored with Fran, which I consider an honor to this day.

Comments Off on Profile of Fran Smith

Posted in Economics, Uncategorized

Corporate Welfare in Illinois

Posted on October 7, 2019 | Comments Off on Corporate Welfare in Illinois

The state of Illinois is implementing a tax break for new cloud data storage centers located in the state. The Center Square’s Greg Bishop quotes me in a story about it:

A special carve out for data centers is bad policy, Competitive Enterprise Institute Senior Fellow Ryan Young.

“A principle of good policy is that the rules should apply to everyone, not just a select few,” Young said. “By that measure, Illinois’ tax break for cloud data centers is bad policy.”

Young said Illinois’ exemptions applies to one sector and is only available to large companies.

“The sales tax exemption requires a $250 million upfront capital investment, which more or less restricts it to the Googles, Amazons and Oracles of the world,” Young said. “None of these companies need the help.”

He said if the point of the tax break is to make Illinois a better place to do business, then why not apply it to everyone.

“This tax break is corporate welfare, plain and simple,” Young said.

“Given Illinois’ perilous fiscal situation, the state’s taxpayers would be better served if Springfield concentrated its efforts on reducing spending and deficits rather than doing favors for profitable businesses,” Young said.

Read the whole thing here.

Comments Off on Corporate Welfare in Illinois

Posted in Economics, Media Appearances, Taxation, Uncategorized

In the News: Minimum Wage

Posted on October 5, 2019 | Comments Off on In the News: Minimum Wage

Bethany Blankley has a writeup of my recent minimum wage study.

Reason‘s Eric Boehm also included a mention in a daily roundup.

The full paper is here.

Comments Off on In the News: Minimum Wage

Posted in Economics, Media Appearances, Minimum Wage, Uncategorized

James Buchanan Turns 100

Posted on October 3, 2019 | Comments Off on James Buchanan Turns 100

Don Boudreaux and Veronique de Rugy have an excellent tribute over at the American Institute for Economic Research.

And from the archives, here is a remembrance of Buchanan I wrote shortly after he passed away in 2013.

Comments Off on James Buchanan Turns 100

Posted in Economics, Great Thinkers, Uncategorized

New $7.5 Billion Tariffs against European Union

Posted on October 3, 2019 | Comments Off on New $7.5 Billion Tariffs against European Union

The Trump administration has announced tariffs on $7.5 billion of goods from the European Union. This time, it is being done with the World Trade Organization’s blessing. Here is what is different about these tariffs—and what isn’t.

The EU gives subsidies to airplane manufacturer Airbus, giving it an unfair advantage over U.S.-based Boeing. So the U.S. filed a complaint with the WTO. The decision came down yesterday. As expected, it was in the U.S.’s favor, since corporate subsidies are fundamentally unfair. As part of the ruling, the U.S. is allowed to enact tariffs against up to $7.5 billion of EU goods to counteract the Airbus subsidies without violating WTO rules. This being the Trump administration, the new tariffs were announced within hours of the decision coming down. But just because you can do something doesn’t mean you should.

Aside from the usual economic objections to tariffs, the Trump administration’s strategy won’t work in a repeated-play setting. Because America’s relationship with the EU is longer than a one-time interaction, the new tariffs will soon do more harm than simply make some consumer goods more expensive.

Boeing gets subsidies of its own from the U.S. government, and the EU has its own WTO complaint pending about that. Corporate subsidies being fundamentally unfair, the EU will likely win. It will then likely have the option to put up its own additional tariffs against U.S. goods. If this next round of the repeat-play game plays out as expected, both Airbus and Boeing will continue to receive subsidies, same as before. Moreover, two new tariff increases will harm consumers and businesses on both sides of the Atlantic. At this point, the Trump administration’s latest tariffs will have caused double harm. Again, just because they can enact a new tariff doesn’t mean they should.

As has happened in almost every instance of the trade war so far, Trump’s opponents are using a tit-for-tat strategy. His tariff hikes are not met with the reforms he wants. They are responding in kind with their own tariff hikes. Trump’s tariff hikes reliably cost both Americans and our trading partners double.

Also worth noting—Airbus gets about 40 percent of its parts from the U.S. and has a factory in Mobile, Alabama. While all tariffs harm the country that enacts them, this one will cause more direct harm.

For more, see Iain Murray’s and my paper “Traders of the Lost Ark.” My recent paper on the Export-Import Bank, known around Washington as “Boeing’s Bank,” sheds some light on Boeing’s subsidies that may soon lead indirectly to yet more tariffs on U.S. businesses and consumers.

Comments Off on New $7.5 Billion Tariffs against European Union

Posted in Economics, International, Trade

New Study: Minimum Wages Have Tradeoffs

Posted on October 2, 2019 | Comments Off on New Study: Minimum Wages Have Tradeoffs

Congress nearly increased the federal minimum wage from $7.25 to $15 per hour this year. Though the Raise the Wage Act is unlikely to pass the Senate, 29 states and numerous local governments have passed their own increases. Moreover, the next session of Congress will almost certainly reintroduce the bill. This issue will be alive for a long time to come. Though some workers would benefit from a higher minimum wage, this would only be at other workers’ expense. As I argue in a new paper, minimum wages have tradeoffs.

Moreover, tradeoffs go far beyond the usual complaints of job losses—of which the Congressional Budget Office estimates there would be 1.3 million if the Raise the Wage Act becomes law. The list includes, but is not limited to:

Differing regional impacts, layoffs, reduced non-wage compensation, a tax increase for low-income workers, fewer job openings, longer job searches, reduced hours, stricter policies for arriving late or leaving early, increased automation, higher insurance co-pays, less vacation and personal time, reduced or eliminated on-the-job perks, reduced employee discounts, less flexible hours, higher consumer prices, more outsourcing, higher youth unemployment, fewer minority workers hired, more abusive behavior by bosses, and higher crime rates.

Add them all up, and most economists believe minimum wages are likely a moderate net loss for low-income workers. For an ostensible poverty reduction policy, they are also poorly targeted. Minimum wage earners skew very young, often work part-time, especially if they’re over 25, and mostly live in households above the poverty level. Rather than causing all manner of tradeoffs and distortions by manipulating wages, a policy such as the Earned Income Tax Credit is far more likely to help the people it intends to, and with fewer tradeoffs.

Even assuming minimum wage increases meet the best-case scenario of being zero-sum, there are two ethical factors (beyond the money involved) that tip the scale against an increase. One is the rent-seeking minimum wages enable, and the other is reduced workplace flexibility for workers.

Rent-seeking: big companies including Walmart, Costco, and Amazon often have high internal minimum wages, and that’s great. What isn’t great is when those same companies lobby for legislators to impose higher minimum wages on their competitors. This can stack the deck against smaller businesses that can’t absorb the costs as easily. Worse, many people will actually believe and support the virtuous posturing hiding these rent-seeking grabs, making for a classic Baptists-and-bootleggers story.

Workplace Flexibility: Workers make more than wages. They also receive non-wage compensation ranging from tips to health insurance to employee discounts to free or discounted meals. These don’t always show up on a pay stub, but they still exist. One of the most common tradeoffs to a higher minimum wage is cuts to such non-wage pay. Total compensation doesn’t necessarily increase, it just gets shifted around—and taxed—in ways workers might not prefer.

When Washington, D.C. did away with the “tip credit” in its recent minimum wage increase, workers revolted and the City Council repealed the voter initiative just a few months after it passed. Most servers and bartenders would rather have high tips and a low wage than the package D.C. voters required them to take. Workers should be allowed to make those choices for themselves. Or think of someone who works at a music store or an electronics store in part for the employee discount. They might not like the job very much, but the discount helps to fund a hobby or a side business. For them, that non-wage perk makes the job worthwhile. A higher minimum wage might take that important benefit away.

For more, see my new paper “Minimum Wages Have Tradeoffs: Unintended Consequences of the Fight for 15.” For a shorter version, see the press release.

Comments Off on New Study: Minimum Wages Have Tradeoffs

Posted in Economics, Minimum Wage, Uncategorized

Lawrence Freedman – Strategy: A History

Posted on September 26, 2019 | Comments Off on Lawrence Freedman – Strategy: A History

Lawrence Freedman – Strategy: A History

There are a few subjects I’ve always found uninteresting, despite my best efforts. Most of them involve conflict, rather than cooperation; this may be why I am so drawn to economics, which is the study of human cooperation. Uninteresting (to me) conflicts include theological disputes, most military history, and strategy of the zero-sum variety.

This book didn’t change my mind about military history, but the rest of it is surprisingly engaging. It is also very long—I recommend the audio version. Organized mostly chronologically, the book starts with ancient Greek, Roman, and biblical figures, quickly dispenses with the cliched Machiavelli and Sun Tzu, and gives John Milton’s Paradise Lost a surprising turn.

The part titled “Strategy from Below” is mostly about different theories of socialist revolution, which has a wealth of different approaches and strategic philosophies that apply well outside that ideology. One complication is that socialism is a top-down strategy to social organization; “Strategy from Above” would have been a more accurate title. He also could have done more to highlight the differences between Marx’s belief that revolution could only happen in an already-industrialized country; Lenin’s focus on small professional cadres; Mao’s blend of pastoralism and centralized decentralization; and various decentralized anarchist movements. But I still learned a lot from Freedman’s treatment.

Freedman’s discussion of the civil rights movement is excellent, and far more rewarding than the usual black-and-white contrast between Gandhi and Martin Luther King, Jr.’s non-violence versus more radical strategies. As is often the case, there is much more to the story, with many in-between strategies working towards the common goals of equal rights and ending segregation.

The mostly white and middle-class 1960s campus radicals often come off as privileged twits by comparison. Counterculture has great value in moving social norms over in favor of individualism and dynamism, against war. The movement also produced some excellent art, literature, and music. But it fell short in more serious areas such as political philosophy and strategy, and badly failed in staying clear of self-evidently dumb new age philosophy.

The next part, “Strategy from Above,” focuses mainly on business and management, which is more a blend of blending top-down management strategies in firms that are constantly reacting to new developments in bottom-up emergent orders. The section title is poorly chosen, but the content is good.

As the baby boomer generation entered middle age and middle management, some of its members became part of a new management guru movement. It came complete with ghostwritten self-help books, outrageous speaker fees, and power suits with built-in shoulder pads. Freedman calls them these management gurus the snake oil salesmen they are, and shares some amusing behind-the-scenes stories from this movement’s heyday.

But life did not begin with the baby boomers. Freedman begins this movement’s roots to about a century before, while offering an unfortunately conventional and easily disproven account of Standard Oil and the early antitrust movement. At the same time, he is critical of Frederick Taylor and his top-down Taylorite management philosophy, which was espoused by early-20th century thinkers from Rockefeller’s nemesis Ida Tarbell to President Woodrow Wilson.

Freedman doesn’t go into detail about this, but Taylorist thinking grew out of the German Historicist school. Its regimented, top-down ethos inspired much fascist and corporatist public policy, most openly by Mussolini. More bottom-up inclined thinkers such as Mises and Hayek both grew up in Austria when German Historicism was at its peak, and developed their emergent-order liberalism in part as a direct reaction against the Historical School.

Later sections introduce underappreciated figures such as Henry Simon, William Riker (the political scientist, not the Star Trek: The Next Generation character), and Mancur Olson. Freedman also discusses the role of game theory in corporate, military, and government strategies in the post-war era.

Comments Off on Lawrence Freedman – Strategy: A History

Posted in Books, Competition, History

Ex-Im Bank Reauthorization: Lesson in Institutional Design

Posted on September 23, 2019 | Comments Off on Ex-Im Bank Reauthorization: Lesson in Institutional Design

For all its flaws, the Export-Import Bank’s charter gets an important thing right: the agency must be reauthorized every few years, or it will close. This makes Ex-Im an important case study in institutional design. Its reauthorization requirement should be applied to nearly every government agency. Reauthorization offers regularly scheduled opportunities for Congress to enact possible reforms, or close an agency entirely. It also adds a level of democratic accountability to agencies that mostly lack it.

The executive branch has long since become too powerful. The other branches have too few meaningful checks on executive power. The result has been that agencies often face no consequences for abusing their authority, wasting resources, corruption, or ineffectiveness. If an agency has to face reauthorization every so often, it gives agencies more incentive to self-police against problems and reform them proactively, so emerging problems do not metastasize.

More to the point, the burden of proof properly lies on agencies for justifying their existence. If they are going to command resources rather than other agencies or taxpayers, they should have good reasons. If the federal government really needs an Economic Development Administration, a Hass Avocado Board, or a U.S. Board on Geographic Names, that agency should have no problem making its case every few years to Congress. If it has compelling arguments, the agency can continue on. If it does not, reauthorization provides regular opportunities to reform or end wasteful or harmful policies. This is an important part of governmental hygiene. Reauthorization allows Congress to enact reforms an agency cannot, or will not enact on its own.

Reauthorization also means that an agency’s window for reform never fully closes. Sometime soon, depending on how the current federal funding fight goes, the Export-Import Bank’s charter will almost certainly be renewed. Some needed reforms might even be part of the deal. Usually, a minor agency like Ex-Im will only garner congressional attention once every few decades, if at all. But charter reauthorization guarantees regular opportunities to enact reforms, or discipline the agency where needed. As happened temporarily in 2014-2015, Congress was able to close Ex-Im by simply declining to vote on reauthorization.

The only agencies that should fear a reauthorization requirement are the ones that do not deserve reauthorization. Policymakers and the public can identify them by their reaction to a potential requirement.

For more on reauthorization and other lessons from Ex-Im’s last five years, my new paper is here. For a short summary of the main findings, a press release is here.

Comments Off on Ex-Im Bank Reauthorization: Lesson in Institutional Design

Posted in Economics, Export-Import Bank, Trade, Uncategorized

Export-Import Bank Fight Not Over Yet

Posted on September 20, 2019 | Comments Off on Export-Import Bank Fight Not Over Yet

The Export-Import Bank’s charter is currently set to expire on September 30. If authorization lapses, the agency will shut down. On Thursday, the House passed a continuing resolution (CR) to fund the government through November 21—specifically including Ex-Im. The Senate will likely pass it next week. This means the Ex-Im fight could drag on for an additional seven weeks, and possibly longer. Here is a breakdown of the current situation.

The most likely reauthorization vehicle is a bill from Sens. Kevin Cramer (R-ND) and Kyrsten Sinema (D-AZ). It contains no positive changes and several bad ones. It would do away with board approval for large projects, increase Ex-Im’s portfolio cap to $175 billion, and would last for ten years, more than double the usual period. It would mainly benefit large companies like Boeing and Caterpillar that don’t need help, plus large state-owned enterprises such as China Air.

Because the bill is so tilted against reform, it would likely have difficulty making it through the standard legislative process without significant amendments. So while an up-or-down vote on the merits is possible, Ex-Im backers will avoid one if they can. The easiest way is to fold the bill into some other piece of must-pass legislation. That way, even Ex-Im opponents will still have to vote to renew Ex-Im on Cramer-Sinema’s terms, possibly without amendment.

The continuing resolution that passed the House yesterday is clean, in that its only Ex-Im language is extending it through November 21. It does not contain Cramer-Sinema or any of its provisions. This will likely remain the case when the Senate takes it up next week.

But—when November 21 approaches, Congress might well punt again and pass a second CR that goes until early next year. If Congress does not separately pass Cramer-Sinema by then, another Ex-Im extension is likely. Maybe it would be another clean extension until CR round 3 (and possibly beyond). Or someone could add in Cramer-Sinema to the bill text.

This complicates matters for reformers. The current 43-page CR was introduced on Wednesday night after working hours, and passed by the House the very next day. If congressional leadership pulls similar last-minute shenanigans with the next CR, Ex-Im reformers will need to have amendments ready in advance to the extent possible. Section numbers and such for amendments to refer to can only be accurately identified once the final text is available, so there would still be plenty of late-night work for reform-minded staffers.

This dynamic could repeat for any number of rounds until Congress can finally pass a budget—and even this budget could be a vehicle for Cramer-Sinema or another Ex-Im bill. Reformers’ job until then is to be both patient and persistent. There might be no rest for the wicked, but the same goes for those of us who oppose cronyism.

For positive reforms for Ex-Im, see my recent paper “How the Ex-Im Bank Enables Cronyism and Wastes Taxpayer Money.” For reasons to shut down Ex-Im entirely, see this paper from Ex-Im’s previous reauthorization fight.

Comments Off on Export-Import Bank Fight Not Over Yet

Posted in Economics, Export-Import Bank, Trade, Uncategorized

Conservatives Should Oppose Ex-Im, Too

Posted on September 19, 2019 | Comments Off on Conservatives Should Oppose Ex-Im, Too

Over at CNS News, I argue that conservatives should favor closing the Export-Import Bank, even though President Trump supports the agency:

Finally, an underappreciated point is how Ex-Im can make some U.S. businesses less competitive. When Ex-Im offers favorable financing for a foreign airline to buy a Boeing plane, that airline often directly competes with U.S. airlines such as American, United, or Southwest. Often, Ex-Im can only help one U.S. business by hurting others. Besides being zero-sum, this opens up a fierce lobbying game with predictable ethical consequences. The Trump administration supports Ex-Im as part of its larger trade agenda. In practice, Ex-Im turns out to undermine it.

Read the whole piece here. My recent paper on Ex-Im is here.

Comments Off on Conservatives Should Oppose Ex-Im, Too

Posted in Economics, Export-Import Bank, Publications, Trade, Uncategorized