The Independent Institute


Both Presidential Candidates Fail Econ 101

60285546_MLThis week we saw the first presidential debate between Democratic nominee Hillary Clinton and Republican nominee Donald Trump. Despite knowing better, I watched the whole thing. For over 90 minutes I watched as the two candidates went back and forth, offering generic, unclear policy prescriptions, took jabs at one another, and offered unnecessary personal anecdotes in an attempt to make themselves relatable to a broader audience. It’s the type of political show that I frankly despise.

But the worst part of the debate for me was listening to the candidates propose patently backward economic policies. The sad truth is that any good economics professor could construct a semester-long course based on the fallacies presented during the debate. To make mattes worse, said professors would have enough material to fill the course within the first five minutes

Mises, Military, and Market

choice_900x1350September 29 is the birthday of Ludwig von Mises, one of the giants of the Austrian School of economics. In my book Choice: Cooperation, Enterprise, and Human Action, I distill the work of Mises as presented in his masterpiece, Human Action. Elsewhere I have summarized his contributions to economic science, so in the present post I will focus on a single topic where Mises fundamentally changed my own worldview: the military and the market.

Before I encountered Mises’s analysis, I was a young conservative/libertarian with a strong affinity for the free market. However, although I knew that (say) minimum wage laws wouldn’t really help unskilled workers, and that rent control laws weren’t effective ways to provide affordable housing, nonetheless I made a big exception for genuine emergencies like a world war. In particular, I was not confident in trusting “market forces” with resource allocation for a major undertaking such as fighting the Nazis. In this situation (so I thought), of course you would need a powerful federal government to override price signals and make sure enough steel, rubber, gasoline, etc. went into the war effort.

(To avoid confusion, in this post I am not commenting on the legitimacy or wisdom of the U.S. government’s entry into World War II. I am merely taking that decision as granted, and then looking at the economics of fighting a war. This is a topic on which I clearly remember learning from Mises’s writings.)

Ban Guns, Come Hell or High Water

HellorHighWater-660x990I didn’t fully recognize the remarkably pervasive anti-gun statement embedded in the well-received film Hell or High Water until my morning jog the following day. The message is so subtle, so nuanced, and so expertly executed, this movie could be used as a textbook case for how narrative filmmaking can promote policy positions. And it could well be an Oscar winner.

Hell or Highwater chronicles Toby and his ex-convict brother as they rob unsophisticated backwater banks in small West Texas towns. Their goal is to steal just enough money to pay off the mortgage on the family farm and Toby’s unpaid child support. The movie has been billed as a modern-day Western.

The anti-gun message is masterfully layered into the story through a parallel structure that builds tension throughout the film, peaking at about the same time as the movie’s climactic scene. Here’s a six point guide to how the anti-gun message is built into Hell or High Water’s story:

One Solution to the EpiPen Crisis: Repeal Durham-Humphrey!

61756233_MLPosturing politicians on Capitol Hill conducted a hearing a few days ago during which they grilled Heather Bresch, CEO of Mylan N.V., maker of EpiPens. Prices of EpiPens have skyrocketed in the past few years (which I have discussed here and here).

The politicians were more interested in wagging their fingers and tut-tutting at Ms. Bresch for the amount of money she has made, than actually figuring out a way to lower the price of EpiPens. (By the way, Ms. Bresch testified she has no intention of reducing prices in response to their badgering.)

If the politicians ever decide to do something serious, here is a proposal: Repeal Durham-Humphrey!

Huh? That doesn’t sound like much of a rallying cry. The Durham-Humphrey Amendment gave the federal government (via the Food and Drug Administration) the power to decide whether a drug is available only by prescription or over-the-counter (OTC). The law passed in 1951, half a century after the FDA was instituted. Even if you believe Congress should keep drugs off the market until the FDA has proven their “safety and efficacy” (which I do not), that does not necessarily imply the FDA should decide whether the drug should be prescribed or dispensed OTC.

The Durham-Humphrey Amendment was passed to increase control over the distribution of amphetamines, but it quickly metastasized to a general federal control over prescribing. Whether it solved the inappropriate consumption of amphetamines is not the topic of this entry, but the continuing flurry of legislation attempting to control the opioid epidemic suggests government has not quite figured out how to deal with drug abuse.

Specialization and Free Trade Enhance Our Productivity—It’s Just That Simple

5599112 - cargo containerIn most cases people recognize that increasing productivity is a good thing. If we develop new technologies or make organizational changes that allow us to produce more output with the same inputs, we celebrate. If people acquire education or experience that allows them to produce more with their human capital, we regard this payoff as wholly beneficial. And so forth.

Yet in regard to one extremely important means of increasing our productivity, many people actually object strenuously. This bizarre case pertains to open international trade. Such trade is the simple and obvious means by which, for thousands of years, people have produced A, B, and C and exported it to buyers in other lands, using the proceeds to purchase X, Y, and Z from foreigners. Producing A, B, and C and exporting them is an indirect way of acquiring what we value more, namely, X, Y, and Z. For example, Americans produce software and soy beans and use them to acquire computers and automobiles from the Japanese and South Koreans. The process of exchange need not be bilateral, of course. Americans export a great variety of goods and services to many foreign nations and, in exchange, import a great variety of goods and services from many foreign nations. Yet producing and exporting goods is clearly always a means whereby the goods produced abroad and imported into the USA are acquired at lesser total resource cost than would be the case if those goods were produced domestically.

Why Michael Bloomberg’s Pro-Soda-Tax Ad Is Misleading

51773759_MFormer New York City Mayor Michael Bloomberg is helping to bankroll a television-commercial campaign in favor of proposed soda taxes in Oakland and San Francisco, known as Measure HH and Proposition V, respectively, both of which will appear on the November ballot. You can’t miss the commercial if you live in the Bay Area, as it seems to air a thousand times a day on local TV stations. Unfortunately, from an economist’s perspective, the pro-tax commercial is misleading.

The Oakland and San Francisco soda taxes would charge distributors an additional one cent per ounce of soda they sell (or $2.88 per case). The tax would also apply to other sugar-sweetened drinks. The Bloomberg ad, which can be viewed below, says “it’s not a grocery tax, it’s a soda tax.” But this is not entirely true from an economics perspective.

There’s an important difference between the “imposition of a tax,” on the one hand, and the “incidence of a tax,” on the other hand. Imposition is where the tax is technically levied. Incidence refers to who really pays the tax (the tax burden), which is one of the most important questions regarding any tax. Every microeconomics principles textbook covers this topic.

It’s true that the soda tax is levied technically on distributors of sodas, but this is merely the imposition of the tax. Any cost increase to distributors because of the tax can be passed on by them to grocers who, in turn, can pass it on to their customers by increasing the price of any product or products in their store. So the incidence of the tax—who really pays the tax—falls on grocery buyers, whether they drink sodas or not. The tax is also a regressive tax, meaning it would harm low-income families disproportionately more than high-income families. Bloomberg and the pro-tax crowd are misleading the public with the ad.

The ad ends with: “Didn’t anyone tell big soda it’s not nice to lie?” But it’s Michael Bloomberg and soda-tax proponents that are not telling the whole truth: grocery customers will face higher grocery bills as a result of the soda tax.

The soda tax is also akin to telling your child this: “Your classmate Lawrence is not drinking what we think he should. So it’s ok to steal money from Lawrence and all his classmates until Lawrence stops drinking bad things.” Hopefully no parent would tell their child this. Neither should this immoral and flawed logic be the basis of public policy. But it’s the logic behind Measure HH and Prop V. The lesson being taught by the pro-tax side is “It’s ok to steal, as long as you think you’re doing right by it.” Taxation is always theft; “legal” theft, but theft nevertheless. It’s taking money by force from others.

Didn’t anyone tell soda-tax advocates it’s not nice to steal and lie?

Snowden Spotlights Dangers of Privacy-Security Trade-Off

snowden-movie-posterFew figures have been as polarizing as Edward Snowden, the intelligence-agency computer contractor turned whistleblower who leaked national security files to the press and raised global awareness about the breadth of U.S. government spying. Snowden has been in effective exile since 2013, when the government revoked his passport and started pressuring Russia to extradite him to the United States to stand trial for treason and other crimes. He is hailed as a hero in libertarian circles—see this clip from Reason TV on the efforts to promote a pardon—and by others favoring strong protections for civil liberties and privacy.

Given Snowden’s impact, a film about him and his actions was inevitable. The real questions were: who would be responsible for making it, and what story would it tell? We now have the answer in the biopic Snowden, directed by Oliver Stone and based on two books, one by a journalist and the other by a Russian attorney who represented the whistleblower. The story unfolds in flashback as Snowden (Joseph Gordon-Levitt) is interviewed by award-winning documentarian Laura Poitras (Melissa Leo) and journalist Glenn Greenwald (Zachary Quinto) in Hong Kong in 2013.

What unfolds is a somewhat plodding film that is underwhelming as a “political thriller,” its advertised genre. The pace never really builds, and the artistic commitment to faithfully tell the story of Snowden’s ideological drift, from conservative patriot to hardened government skeptic, creates a straight-line narrative that lacks dramatic conflict and tension. The primary suspense involves Snowden’s unsteady relationship with his girlfriend Lindsay Mills (Shailene Woodley), not his personal journey toward surveillance skepticism and his decision to go public with classified information that ultimately upends global relationships. As a biopic, however, Stone’s film crafts an effective chronicle of Snowden’s transformation from a naive army Special Forces recruit to a values-driven surveillance skeptic.

Oliver Stone, of course, is known for making historical narrative films that blur lines between fact and fiction, such as JFK (1991), The Doors (1991), and Nixon (1995). He is also an accomplished documentarian of films that spotlight leftist and progressive political figures such as Fidel Castro, Hugo Chavez, Evo Morales (Bolivia), Rafael Correa (Ecuador), and others, many of whom he praises. Many of his other narrative films carry strong anti-war themes, including Platoon (1986) and Born on the Fourth of the July (1989), both of which won him an Oscar for Best Director. Unfortunately, Stone’s skepticism of government appears directed primarily at capitalist democracies, not left-wing or progressive governments with dismal records on civil liberties and personal freedom.

Hillary Clinton’s Exit Tax

55627485_MLIn the Cold War era, Eastern bloc countries prevented their citizens from leaving. The Berlin Wall was the most iconic symbol of the Eastern bloc’s no exit policy. Hillary Clinton’s proposed exit tax “on the untaxed overseas earnings of multinational companies that leave the U.S.” falls short of being a Berlin Wall for U.S. corporations only because it is not as extreme. Its philosophical foundation is the same: prevent those who want to leave the country for better conditions elsewhere from doing so.

Clinton’s economic plan goes further than that. Some U.S. corporations have merged with overseas corporations and moved their headquarters overseas to avoid higher U.S. tax rates, a move known as corporate inversion. Clinton’s website says, “Clinton will prevent inversions and related transactions driven by tax planning to lower corporate tax bills.” She adds that she will “Entirely block inversions that are likely to be the most abusive through a 50% merger threshold.” That’s sounding more like a Berlin Wall.

The United States has always allowed its citizens to leave if they choose to live elsewhere, and has remained desirable enough that more people want to move in than move out. For corporations, that’s not so much the case.

Rather than follow a Berlin Wall policy of trying to prevent corporations that would rather locate elsewhere from leaving, we should be designing policies that make the U.S. a desirable location for corporations. Design policies that make foreign corporations want to locate here rather than retaining policies that make U.S. corporations want to locate elsewhere.

The policies that make some corporations want to leave also place burdens on those corporations that stay. Those policies slow economic growth and produce a lower standard of living for everyone. It is troubling that Clinton thinks we need a Berlin Wall-style policy to keep corporations from leaving, rather than thinking about how to make the U.S. more attractive for corporations, so they want to stay.

Your Friendly Neighborhood Drone?

37208453 - radio controlled quadcopter drone flying in the cityAs the saying goes, “life imitates art.” Sometimes my research interests pop up in places I don’t expect. Recently it happened close to home.

Really, really close to home.

I’ve written extensively on the use of drones as a tool of U.S. foreign policy. I’ve explored whether or not drones are more cost effective than their manned counterparts, looked at the casualty rates associated with drone strikes, and argued that drones not only fail to eliminate terror targets, but instead serve as a recruiting tool for terror groups.

One area I have yet to study in great detail, however, is the domestic use of drones by private individuals. While I have noted and continue to explore the expanded use of drones domestically by U.S. immigration authorities and state and local police departments, I’ve generally stayed away from looking at private users. To be honest, I just find these questions a lot less interesting.

Well, that may have to change after this past week.

Glorious Democracy

60285546_MLElection campaigns

Painful but worse is to come

Someone’s gonna win

Winner won’t be us

Political class will win

Rest of us, tough luck

Whole thing is great farce

Diverts and entertains us

Thieves make off with loot