The Biden Administration’s Justice Department took Google to a civil trial on Tuesday, beginning the department’s first major monopoly lawsuit since it took on Microsoft in 1998. What’s the allegation? Google supposedly violated U.S. antitrust laws. But it seems the main “violations” are that Google is good at what they do, consumers love their product and Microsoft is mad.
Jonathan Kantor at the Justice Department (and Lina Khan at the Federal Trade Commission) have pushed an endlessly fruitless crusade against “Big Tech.” Now, it has taken issue with Google’s methods of becoming the default browser on popular devices, which they’ve done through legal means that more savvy people might just call “marketing.”
Products like iPhones and MacBooks make it easy for consumers to change their default browser to whatever they prefer. Most of them favor Google because they believe it’s a better search engine.
Herein lies the real crux of the lawsuit.
Antitrust laws were created to preserve competition. The original laws were rightly deemed too broad and vague, so a new guiding principle of the consumer welfare standard for enforcing these laws was implemented to consider whether consumers are better or worse off from the actions of businesses.
In economics, consumer welfare is defined as the “value consumers get from a product less the price they paid.” That value varies from person to person, which is what makes free markets work. Consumers have the ability and the sovereignty to decide which product or service is best for them.
To violate the consumer welfare standard would mean moving toward a monopoly.
This is when a business has a large market share, or even the market share, such that they can raise prices of their goods or services regardless of quality. The outcome would reduce consumer welfare and, therefore, contribute to potential antitrust law violations. Found guilty, a business could be broken up into smaller parts, forced to sell off part of it or face penalties.
In other words, it’s another hindrance to productive activities as targeted employers are forced to beef up on lawyers to deal with federal pushback instead of allocating those resources toward productive means that would help their employees and customers prosper.
Despite what the DOJ claims, antitrust laws are rarely enforced to protect consumer welfare, and this case is no exception. Google is not only Americans’ preferred browser, but the company is consistently rated one of the best places to work. So, it seems most of its consumers find value in the product. If they don’t, they can use Bing, Firefox, DuckDuckGo or any other search engine that competes with Google and is readily accessible.
So, if this case isn’t centered around consumer welfare or targeting monopolies, what is it really about?
If the DOJ wins, which is highly unlikely, American competition and innovation will be stifled. This rent-seeking behavior may win votes with folks on the Left concerned with restricted competition and those on the right concerned about censoring on popular platforms like Google and Meta, but at what cost?
Inhibiting free markets with increased regulations is far more likely to drive up prices and decrease consumer welfare than any part of “Big Tech.”
This pursuit wastes taxpayers’ dollars that would be better spent elsewhere or, better yet, for the federal government to spend less so people have more money in their pockets to improve their own welfare.
At a time when inflation remains too high, the labor market is cooling and Americans are suffering from a bleak economy, this lawsuit is a frustrating misuse of government resources.
Moreover, government attempts like this to manipulate markets will always fail due to what economist Friedrich Hayek identified as the knowledge problem.
He argued that information (knowledge) is decentralized, dispersed across society and not contained within departments of power. Central planners, in this case the DOJ (and FTC), do not have all the knowledge necessary to designate market competition, and they never will.
Free market capitalism cannot be manipulated but must be allowed to work through spontaneous order. This lawsuit attacks free markets and, thereby, free people. Not monopolies or consumer welfare violations, and it’s abundantly clear that neither of those are real problems regarding Google.
It’s time for the DOJ to accept defeat and focus on things that actually matter. Ganging up on Google amid all the problems Americans face today, while understanding legitimate concerns with some of Google’s actions, is out-of-touch, to say the least.
Originally published at Daily Caller.
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Americans say the economy is the most important problem facing the country. But major headlines covering the latest jobs report for August do their best to downplay this concern. The New York Times’ headline covering the news was, “August Jobs Report: U.S. Jobs Growth Forges On,” but the economic reality is far less cheerful.
Sure, the jobs report beat the consensus estimate by economists. But that high-level look at the data fails to address underlying issues keenly felt by many Americans that are apparent with more scrutiny. And these problems won’t be over unless policies out of D.C. substantially and quickly improve.
Last month, 187,000 jobs were added, according to the payroll survey, compared with the anticipated 170,000. But the jobs added in the prior two months were revised lower by a cumulative 110,000 jobs, bringing the net jobs added in August to just 77,000. This extends an ongoing trend of downward revisions over the last several months.
According to the household survey, the unemployment rate, a weak indicator of the labor market’s strength, jumped substantially from 3.5% to 3.8%. Coupled with news of slow wage growth of just 0.2% last month, there is growing concern among Americans trying to make ends meet.
We know the higher unemployment rate isn’t from too few jobs available. The number of job openings has been nearly double that of those unemployed for a long time, though decreasing quickly. Instead, the higher rate suggests a sluggish economy in which there are more unemployed or ghost job openings from companies that do not intend to hire but want to gauge interest and competition.
There is some good news. The labor force increased by 736,000, which raised the participation rate to 62.8% in August. This is the highest rate since February 2020, just before the shutdowns in response to the COVID-19 pandemic.
More people entering the labor force and higher participation rates appear promising. However, the increase in the labor force was a combination of 222,000 more people employed, with the other 514,000 people becoming unemployed. And diving deeper, 4.2 million more adults remain not in the labor force compared with February 2020.
Many of these individuals have been unemployed for years, so obtaining employment could be difficult due to a lack of productivity signals in their resume on top of employers dealing with a stagnant economy.
The rise in the unemployment rate, lackluster wage growth, and the possibility of unfilled job openings all point to a weak labor market. Add in ongoing stagflation, as too-high inflation continues, and Americans are rightly concerned about the future.
Some blame the Federal Reserve for this weakness because of its fight to bring down inflation after creating it. However, Milton Friedman debunked this tradeoff between lower inflation and a higher unemployment rate decades ago. Specifically, there’s no long-run tradeoff between the two, so the Fed must focus on the single mandate of price stability instead.
The Fed has been working to combat inflation by hiking its interest rate target to a multi-decade high of 5.5% and slowly reducing its bloated balance sheet. This is why you’ve seen car loan and mortgage rates soar to multi-decade highs. These higher rates significantly disrupt the new car and housing markets.
But this is the resulting bust after the artificial post-pandemic “boom” as new money moves throughout the economy and manipulated interest rates create malinvestments. We felt the higher inflation rate last year from the Fed’s actions of close to 9%, and now it’s about one-third of that rate, but this remains about 50% higher than its 2% flexible average inflation target.
The Fed has stated that it may raise interest rates further. And I believe that it will be forced to raise its target rate to about 6% before this hiking cycle is over. But just raising this rate won’t be enough to curb inflation for long if Congress’ deficit spending remains unchecked. This will force the Fed to monetize it to avoid putting more pressure on Congress to get their irresponsible fiscal house in order.
President Biden and Democrats in Congress made this situation worse with the passage of the misnamed Inflation Reduction Act, which is likely to cost about four times the initial $300 billion estimate over a decade. Their wasteful spending, along with Republicans’ excessive spending before them, has led to a fiscal crisis, the most significant national threat.
Congress will unlikely make the needed reforms to the primary drivers of the deficit of mandatory spending programs like Social Security and Medicare because of rent-seeking in politics. This will likely result in the Fed not sufficiently cutting its balance sheet to stop inflation. Rather, the Fed will probably choose to increase its balance sheet, putting more inflationary pressure on the economy when that’s the last thing it needs.
A vital measure of the economy known as real gross domestic output, the real average of gross domestic product and gross domestic income, has declined in three of the last six quarters. While I don’t want there to be a hard landing, this is the situation that central planners by Congress spending and taxing too much, President Biden regulating too much, and the Fed printing too much have left us.
There will be efforts by the government to correct these government failures, but we shouldn’t double down on past mistakes. Let’s learn from these failures and remember the most recent lesson in the 1980s: President Reagan cutting regulations, Congress passing tax cuts (but spending too much), and Fed Chairman Paul Volcker cutting the balance sheet.
Initially, the cuts to the Fed’s balance sheet contributed to soaring double-digit interest rates, and the economy suffered a double-dip recession. However, afterward, the economy was able to heal from the prior hindrances of past presidents, congressional members, and the Fed, resulting in a long period of economic prosperity, which is often called the Great Moderation.
What we have today is an economy where the government is growing, and markets aren’t as much. This must be reversed. When workers, entrepreneurs, and employers are free to engage in voluntary transactions, competition thrives, innovation flourishes, and resources are allocated efficiently.
Moreover, free markets promote consumer choice and personal freedom. When government interventions, such as wasteful spending, excessive regulations, and high taxes, are removed, markets can function more efficiently and respond dynamically to changing economic conditions.
Striking the right balance between constitutionally limited government functions and preserving the freedom of markets is crucial for achieving a vibrant and prosperous economy.
Rising unemployment, stagnant wages, and the specter of inflation require a multifaceted approach. Raising interest rates hasn’t been enough. The government must focus on responsible fiscal and monetary policies, including reducing government spending, addressing burdensome regulations and taxes, and substantially cutting the Fed’s balance sheet.
Americans are still suffering, and there is no time to waste in aggressively assessing these measures that cause economic strain so that people can get back to flourishing instead of merely “making it.”
Originally published at Econlib.
When was the last time you purchased something online?
If you’re like many people, you’ve probably bought something online this week. And more than likely it was from Amazon though many other companies provide online shopping.
In fact, a recent survey found that one out of every four Americans buy items from Amazon at least once per week.
If the Biden administration has its way, Amazon could fall victim to trust-busting by the antitrust radicals as the Federal Trade Commission (FTC) gears up to file a lawsuit that could break up the company. This would put a major damper on the satisfaction that so many people have with purchasing from Amazon.
But there’s more to this perplexing story.
Despite recently trying—yet failing—to stop Microsoft from acquiring Activision, the FTC’s Chair Lina Khan and Assistant Attorney General Jonathan Kanter of the Department of Justice’s antitrust division are doubling down on the administration’s aggressive approach to antitrust enforcement.
Americans are rightfully concerned about these radical moves.
In my recent co-authored paper, we note how antitrust laws were designed to protect consumers and promote fair competition but rarely achieve these goals due to over-politicization and centralized power. Inevitably, businesses become the antitrust enforcement targets, resulting in less economic growth, innovation, and job creation, leading to higher prices and hindered prosperity.
In short, consumers and employers are hurt by antitrust overreach.
Bureaucrats too often use antitrust laws to bully businesses in the name of political agendas or vote-seeking initiatives, including empowering labor over management or breaking up successful companies based solely on their large size.
This includes recent attempts to discourage “big tech” in the case of the trial against Microsoft.
The erratic and changing nature of antitrust laws as power and agendas change leaves employers and innovators uncertain about the future thereby limiting their ability to plan profitable endeavors.
For example, determining what constitutes a "restraint of trade" under Section 1 of the Sherman Act, the first-ever antitrust statute, can be challenging. An overly broad interpretation of this phrase can lead to many unintended consequences.
Following complications in the Sherman Act, the U.S. Supreme Court recognized the consumer welfare standard that has set the precedent for at least the last 50 years, focusing on a simple question: do economic actions make consumers better or worse off?
Protecting consumer welfare, which refers to the value consumers receive above the price they pay for goods and services, should be the driving force behind antitrust enforcement. This concept acknowledges that consumers have the sovereignty to make decisions that support the competitive market process.
This has been the standard until recently.
A much more activist group of antitrust scholars and practitioners have emerged as advocates for a radical transformation of antitrust enforcement. They largely reject the consumer welfare standard and make sweeping claims that failing to enforce antitrust laws has led to market concentration and wealth disparities, or even the flawed claim of “greed inflation.”
But antitrust radicals diverge from the focus on promoting consumer welfare and safeguarding competition.
Their main argument is that the consumer welfare standard has allowed concentration and enabled firms to limit output and charge higher prices. Moreover, they advocate that antitrust laws should protect various stakeholder groups, not just consumers, making the consumer welfare standard inadequate.
However, evidence suggests the opposite.
According to a study conducted by former FTC Commissioner Joshua Wright, there is no empirical basis to conclude that monopoly power is increasing. Other studies indicate that while markups may be rising, output has increased, and quality-adjusted prices have remained stable.
The radical approach by Khan and Kanter to antitrust enforcement will not help consumers or the economy, no matter their intentions. We should remember the wise words by Milton Friedman: “One of the great mistakes is to judge policies and programs by their intentions rather than their results.”
The key to achieving greater opportunity and prosperity lies in reducing government interference and allowing competition, such as the gains provided by Amazon and Microsoft, to drive better results rather than expanding government. In fact, someone should be addressing the monopolies created by government across the economy, which have questionable at best increases in consumer welfare.
If the Biden administration’s proposed new guidelines for mergers go through or other expansions of antitrust enforcement, expect the already strained economy to endure extended suffering as innovation is stifled and consumers bear the brunt. And the satisfaction you get from shopping online may soon not be an option.
Originally published at Townall.
Fitch Ratings downgraded the US credit rating from AAA to AA+ because they expect fiscal deterioration over the next few years. While the diagnosis seems delayed, they’re right. Irresponsible bipartisan spending for decades is the culprit. With the national debt approaching $33 trillion, the American economy appears unlikely to recover its AAA status any time soon.
Republicans and Democrats have consistently increased spending more than tax revenues, leading to massive debt and unsustainable deficits.
Increased spending under President Biden made a dire situation even worse. For instance, in just five weeks since suspending the debt ceiling, the deficit rose by $1 trillion. Inflation soared once the current administration took office, and still hasn’t leveled off. Real wages are just now catching up with inflation after falling behind for more than two consecutive years. The US dollar’s value has waned.
America is not a safe investment, thus the downgrade.
Fitch Ratings predicts slower economic growth in the coming years due to high regulations, increased taxes, and demographic changes affecting productivity and population. This slower growth means less tax revenue for the federal government. Also, mandatory spending on Social Security and Medicare, which make up the bulk of federal spending, is projected to grow rapidly, contributing to rising deficits that will soon have just net interest payments exceed spending on national defense.
Americans can expect their wallets to be tangibly affected soon.
The downgrade will contribute to even higher interest rates than otherwise, which will have a domino effect on various aspects of the economy, including the stock market. Unless severe corrective measures are taken, the situation will likely deteriorate further, impacting people’s prosperity and perpetuating a debt and stagflationary situation.
The government should focus on fiscal responsibility and better budget management to avoid a deepening spending crisis, exacerbating Americans’ existing economic burden.
First, an approach of zero-based, performance-based budgeting should be implemented throughout the government to identify and eliminate ineffective programs.
Second, independent audits by private entities of government spending for programs would provide transparency and guide decision-making regarding which programs to retain, modify, or cut.
Third, but likely most important, implementing a fiscal rule that has worked at the state level, such as population growth plus inflation for a maximum budget growth rate, could cap the government’s debt accumulation and support more economic growth. Had such a rule been adopted over the last two decades, the national debt increase would have been significantly lower, by just $500 billion instead of the actual $19 trillion, allowing for better debt management.
The US credit downgrade should be a sobering wake-up call that urges Congress and the administration to prioritize fiscal responsibility.
As the nation faces economic challenges and increasing debt burdens, it is crucial to adopt prudent measures to put America back on a path to prosperity. Only through concerted efforts to control spending, implement effective budgeting practices, and consider the long-term economic impact of policy decisions can America chart a sustainable and prosperous course for the future.
Otherwise, buckle up. It’s going to be a bumpy ride.
Originally published at AIER.
It’s an exciting time as millions of students return to schools in Texas this month. The bright young minds are ready to take the next step in their unique paths for a prosperous future.
But what’s depressing is that few students in Texas will attend the best school for them. This is because Texas – the largest red state – has yet to adopt universal school choice.
Why the delay? Mostly misinformation.
School choice is “any policy that allows families to take their children’s education dollars to the approved education provider of their choosing – be it traditional public schools, public charter schools, private schools, virtual learning, or homeschooling.”
The gold standard of school choice is Education Savings Accounts (ESAs). Universal or near-universal ESAs have been adopted by eight states so far: Arkansas, Arizona, Florida, Indiana, Montana, South Carolina, Utah, and West Virginia. Other states have passed limited school choice.
With ESAs, all parents receive an allotted amount for each child that they can use however they wish for approved education-related expenditures. Some parents choose to send their child to their local public school district and use the money for school supplies. Others put it toward private school tuition, and others toward homeschool curriculum and tutoring.
The possibilities of using ESAs are extensive to best meet the unique needs of students.
But Texas trails behind in school choice because voters living in rural areas fear “that any kind of educational competition will decimate rural public schools and drain them of funds.”
This circular concern proves the point that school choice advocates have been making for years: if a school, be it public, private, or charter, fails due to the existence of ESAs, then that school lacks the competition required to keep and attract parents.
And herein lies misinformation.
A recent article from the Dallas Morning News on this subject claimed, “Did you know parents can take their children to any school they desire? If a parent wants their child to attend a charter, private or public school, the parent has the power to choose.”
If only that were true.
But when the average private school tuition in Texas is over $10,000, and the charter school waitlist is over 70,000, asserting that “parents can take their kids to any school they desire” misunderstands how unattainable alternative schooling options are for many children, especially those in lower-income or single-parent households.
I grew up in a lower-income, single mother household in South Houston, Texas, so this limitation hits home.
Fortunately, I had the opportunity to go to a small private school from kindergarten to second grade because my mother worked there. I attended a government school from third grade to sixth grade. Then my grandparents and father helped my mother fund my home schooling from seventh grade to twelfth grade. I then went on to be a first generation graduate with a doctorate in economics from Texas Tech University.
Unfortunately, too many don’t have those same opportunities that I was blessed to have. This must change.
While ESAs do not remove every barrier, as schools have limited seats and some areas may only have government schools. But they substantially widen the array of options by helping alleviate some of the financial burden by putting tax dollars where they belong: funding students instead of systems.
The states that have adopted universal school choice with ESAs are allowing a more competitive market to work in education, and it will be exciting to see how competition fuels improvements in educational outcomes. Not only are parents in these states more equipped to send their children to the best schooling options for them, but teachers are also empowered with more options for where to take their professional services that best meet their needs.
Are government schools the best option in Texas? Implement universal school choice, and the answer will become apparent. Otherwise, the Lone Star State will lag behind more forward-thinking states that value educational freedom and student achievement.
There is a high likelihood that school choice will be part of a called special session by Texas Gov. Greg Abbott (R) in October. Let’s hope so because the longer Texas waits, the further students will fall behind.
Originally published at The Center Square.
A recent report from the Tax Justice Network (TJN) boldly asserts that “countries will lose $4.7 trillion over the next 10 years…[and] countries around the world collectively spent $4.66 trillion on public health in a single year” due to tax havens. In light of this seemingly shocking discovery, many groups are now campaigning for global tax reform so that nations will avoid “losing out” on tax revenue.
The new idea of the “UN tax convention and to create a global tax body under UN auspices” would do the opposite of creating better economic outcomes.
According to the report, which compiles data from 47 countries, multinational corporations legally avoid paying the highest taxes, mainly by moving to so-called “tax havens.” Tax havens include jurisdictions offering low corporate tax rates, alluring multinational corporations and affluent individuals to seek tax relief by conducting their financial activities there.
A key player in this process is profit shifting, where companies redirect their profits to low-tax jurisdictions, despite earning most of their revenue in high-tax regions. Small countries like the Cayman Islands, with their corporate tax rate of only 6%, are one of these havens, but there are also more prominent countries like Switzerland and Hong Kong that are favorable homes for large corporations, both having rates under 20%.
It’s perfectly legal for a company to move its headquarters and finances to other countries, but these tax havens can pose a threat when many governments depend on taxes to finance government spending. Rather than risk losing these resources, countries are clamoring for centralized taxation with higher tax rates to level the playing field.
But there’s a better way.
While these countries are pointing to tax havens to try and place blame for lost tax revenues, there are three fingers pointing back at them. Instead of centralizing a global tax and empowering politicians and bureaucrats, countries with high corporate taxes, like the U.S., with a corporate tax rate of 21%, should consider domestic tax reforms that prioritize lowering corporate taxes and limiting government spending.
Reduced corporate tax rates, like those in the 2017 Trump tax cuts, can enhance a country’s competitiveness and appeal to businesses instead of driving them to move their money to tax havens. This was the result of those tax cuts as many businesses started moving back to the U.S. or started repatriating their money here. Simultaneously, keeping government spending in check with responsible budgeting prevents escalating the government’s overall burden, reducing the “need” for higher taxes.
While corporate taxes typically pass along the burden to consumers through higher prices, fewer jobs, and lower wages, consumption-based taxes such as final sales and use taxes (not value-added taxes) are less burdensome and more equitable. And these taxes better match economic fluctuations and taxpayers’ ability to pay for spending, which is why more countries (and states) should be moving to them.
Fewer burdensome taxes support more economic growth, resulting in more tax revenue, which many politicians desire. By supporting growth instead of raising taxes and hoping that converts to growth (it won’t), spending can be better balanced, reducing deficits, which is just future taxes.
While the Tax Justice Network’s findings are interesting, they hardly point to the need for global tax reforms because these tax havens are legal ways to avoid paying higher taxes. Instead, the U.S. and elsewhere should reform their tax system if they hope to foster competition and provide more paths for human flourishing.
Originally published at Econlib.
Texas Governor Greg Abbott (R) recently signed into law the tax relief compromise by the Legislature’s second special session. This relief is historic with the country’s largest tax cut and the largest net tax cut in Texas history.
But it falls short of what Texans were promised of the largest property tax cut in the state’s history, as it’s instead the state’s second largest property tax cut because of the largest spending increase in Texas history.
Rather than providing substantial relief and simplifying the property tax system, the package presents a burdensome approach that could hinder the state's progress. By overspending and adopting a convoluted tax relief strategy, Texas risks falling behind states rather than leading the way in addressing real property tax concerns.
The deal provides $12.7 billion in new property tax relief out of the nearly $33 billion surplus as the Legislature increased the upcoming 2024-25 biennial budget by more than 30% in state funds. This is the largest increase in Texas history and well above the the key rate of population growth plus inflation of 16% over the last two years.
The major target for property tax relief was reducing school district maintenance and operations (M&O) property taxes.
These property taxes are essentially a statewide property tax, which is prohibited by the state’s constitution, as they are partially determined by the state’s school finance system that includes redistribution of property taxes from school districts with high-valued property to districts with lower-valued property.
Of the nearly $33 billion in state surplus funds and tens of billions more in new revenue available, the state allocated just $7.1 billion for a modest 10.7-cent reduction per $100 valuation in those property tax rates, called “compression,” which provides long-lasting relief and benefits everyone.
The other $5.6 billion is for raising the homestead exemption by $60,000 to $100,000 for the appraised value of primary residences to determine how much is paid for school district property taxes. But this will be short-lived as valuations rise quickly and has failed to provide long-lasting relief the last three times it’s been tried in Texas since 1997 while benefitting only only homeowners.
The $12.7 billion over the next two years will hardly alleviate the burden of property taxes on Texans and is a far cry from eliminating them altogether as Gov. Abbot initially set out to do.
The package also includes a pilot project of an appraisal cap on non-homestead property at 20% per year for three years. This property doesn’t have a cap on it today so this will benefit some but will mean that local governments will just ratchet up property tax rates to bring in the tax revenue they desire to grow spending. There will also now be three elected officials added to county appraisal boards.
Texans are left with this compromise package that unnecessarily complicates the tax system and obstructs efforts to eliminate school M&O property taxes, enabling the government to pick winners and losers. In this case, renters would undoubtedly be among the losers, and they are nearly 40% of households across the state.
A more robust approach is necessary soon to achieve significant, long-lasting property tax relief for Texans.
The best path being discussed is to buy down school district M&O property tax rates with surplus funds starting with limiting government spending, which was lacking this session after years of an improving budget picture. Ways to improve this overall package would have been by institutionalizing the buy-down plan and imposing spending limits on local governments.
The final part of the package is $600 million to raise the exemption of gross receipts to pay franchise taxes from $1 million to $2.47 million, which is important but doesn’t help reduce property taxes and is less effective than cutting the franchise tax rates until they’re zero.
This brings the total amount of new tax relief to $13.3 billion. This amount is lower than the $14.2 billion that the Legislature provided to buy down school property taxes in 2008-09, which would be about $21 billion to have the same purchasing power today. And even if you include the state maintaining its property tax rate reduction in 2019 of $5.3 billion in this year’s budget for a total of about $18.6 billion, it would not equal $21 billion.
But that 2008-09 relief was done by raising bad taxes of the franchise tax, sales tax on motor vehicles, and cigarette tax which this time no taxes are raised as the taxpayer funds come from surplus money. So, this 2023 tax relief package can be called the “largest net tax cut in Texas history” but not the “largest property tax cut,” and is the largest tax cut in the country.
But Texans could have had more relief if the state hadn’t spent so much.
Eliminating school property taxes is a crucial next step for Texans to truly own their homes instead of renting from the government forever. And this will be achieved faster when politicians stop spending so much. So while this historic relief is much appreciated, there’s much more to do next session for Texans to stop renting and start owning.
Originally published at Real Clear Policy.
Inflation might be cooling some, but recent reports suggest many Americans aren’t economically optimistic. Despite President Biden continuing to celebrate the success of his “Bidenomics” approach, the reality is that purchasing power is still down, and job market weaknesses remain. So, why is the current administration so proud? It seems deficit spending is the reason.
A poll from Monmouth University found that only one in four Americans believe the country is headed in the right direction, and a significant 62% disapprove of how Biden is handling inflation. And it’s no wonder, considering that real wages have failed to keep up with inflation for a staggering 26 consecutive months. Understandably, people are becoming weary.
The latest CPI report shows a moderate decline in headline inflation to 3% in June 2023 from the previous month’s 4%. However, core inflation, which excludes food and energy prices, remains stubbornly high at 4.8% year over year.
This improvement shows some relief, but to get the economy back on track, we must address the underlying inflationary pressures caused by deficit-spending of more than $6 trillion funded by a bloated Federal Reserve balance sheet, which is declining too slowly.
Turning to the latest jobs report for June, the figures are disappointing, falling well below expectations. Only 99,000 net jobs were added after accounting for downward revisions in the two prior months. Moreover, many of these jobs were government jobs, straining the productive private sector that pays for those jobs. According to the household survey, employment has remained nearly stagnant since March, indicating a lack of substantial job creation. To make matters worse, the labor force participation rate has yet to return to its pre-pandemic rate, indicating millions of Americans are uncertain about their job prospects.
Even for employed people, their purchasing power is down, and renters and individuals from low socio-economic backgrounds are struggling.
If this is the outcome of “Bidenomics,” it’s clear that a different approach is necessary to restore the American economy. The government must rein in spending, and the Federal Reserve should be more aggressive in cutting its balance sheet.
Despite the lackluster evidence that his initiatives are helping, President Biden continues to approve increased deficit spending through initiatives like the Inflation Reduction Act, which is estimated to cost over $1 trillion. The national debt has surpassed $32 trillion, translating to roughly $95,000 owed per American or almost $250,000 per taxpayer, far exceeding the country’s economic output. This continuous increase in spending, coupled with kicking the problem down the road for future generations to tackle, as seen in the latest debt ceiling deal, won’t effectively lower inflation or provide the economic relief Americans desperately need.
A different direction is essential, involving responsible budgeting to curb excessive spending and align expenditures with means. Congress should consider passing a strict spending limit with a growth rate that better matches the average taxpayer’s ability to fund government spending, calculated based on the maximum rate of population growth plus inflation. If Congress had adhered to this maximum spending growth rate from 2003 to 2022, there could have been a cumulative $500 billion debt increase instead of the actual $19 trillion increase, resulting in $18 trillion in static savings for taxpayers. In essence, restraining spending now is pro-growth and will foster greater economic prosperity.
The latest inflation and jobs reports suggest that the touted “Bidenomics” approach leaves much to be desired. To secure a brighter economic future, current economic strategies need serious reevaluation that focus on fiscal responsibility and sustainable growth.
Originally published at The Daily Caller.
Immigrants founded America, yet the path for immigrants to become U.S. citizens is harder than ever, and getting worse.
Florida’s new law aimed to identify undocumented immigrants and prosecute any who have helped them enter the country will strain the state’s businesses, hospitals, and law enforcement. Meanwhile, the U.S. citizenship test, one of the final steps to becoming an official American, is undergoing changes that could make it more difficult for non-native English speakers to pass.
These types of barriers to legal immigration, including border walls and complicated visa applications, hinder economic prosperity for immigrants and the native-born population. But America keeps discouraging immigration with more red tape because people fail to understand the economic impacts of immigration due to fear-mongering and false messaging.
Thankfully, facts and data tell the true story that the country is overall helped by immigrants.
Perhaps you’ve heard the common concern that immigrants “steal jobs” and “lower wages.” On the surface, it seems intuitive that immigrants increasing the supply of workers would yield these effects. But that’s incomplete as there is no one labor market but many labor markets depending on skills, experiences, and other criteria.
Alex Nowrasteh, vice president for economic and social policy studies with the Cato Institute and author of Wretched Refuse?, states, “To substitute natives, immigrants would have to be similar. But the competition is not even, so that doesn’t apply. Immigrants tend to have either high or low levels of education, while Americans are in the middle. There are also language differences. For immigrants who do not yet know English, they will not be selected for jobs that require verbal communication with the public.”
Immigrants are more likely to find themselves competing for jobs against other immigrants instead of native-born workers for this reason.
When immigrants move to the United States, the wages of native-born workers actually tend to increase. This is because immigrants contribute to increased demand by purchasing goods and services. As a result, businesses expand, leading to higher labor demand and wage growth for native workers.
Studies have shown that immigrants are twice as likely as native-born Americans to start businesses, ranging from small enterprises to large-scale ventures. This entrepreneurial spirit increases labor demand for immigrants and contributes to greater opportunities for everyone else.
As Nowrasteh puts it, “Every argument against immigration could be an argument against native-born Americans having babies.”
When a child is born, that’s a new future worker who will grow up, enter the labor market, and could “steal” someone’s wages. Thankfully, it doesn’t work like that, and most people recognize that having children is adding to the labor market in the long term and not posing a threat to someone else’s job or wages.
Another fear often promoted to discourage easier immigration is that immigrants cost us more tax dollars. Again, it sounds believable, but studies show differently.
Not only are new immigrants barred from using safety-net programs in most instances, but also, the average immigrant consumes 27% less welfare than the average native-born American. Making immigrants the scapegoat when assessing the cost of government programs distracts from the much more prominent concern of how many U.S. citizens depend on these programs, noting the need for safety net reforms for everyone.
Regarding taxes, immigrants pay more on average and generate more federal tax revenue. Due to the varying state tax codes, immigrants may or may not pay more taxes than citizens depending on which state they live. Moreover, most immigrants enter the country in their early twenties and immediately join the workforce, making them fiscally positive contributors who don’t rely on education subsidies.
Recognizing how immigration is often misunderstood as a threat when it is actually a huge benefit is critical if Americans hope to cultivate a prosperous economy where native-born and legal migrant workers can thrive.
Restricting immigration limits the ability to work with individuals who possess the skills and talents that could enhance productivity and innovation in the long run, and the whole country suffers as a result. State and federal resources that discourage immigration would be better invested by reforming the path to immigration so that individuals who want to contribute to American society can do so with relative ease.
While reasonable exclusions for national security threats may be necessary, beyond that, discouraging immigration harms the American economy. Physical barriers like the Texas-Mexico border wall are costly to build, maintain, and patrol, are ineffective at deterring people from entering the country, and represent the illogical fear of immigration leading to worse outcomes.
Instead, reforming the visa system with a market-based approach to expand legal immigration opportunities would alleviate border chaos, reduce the black market, and enhance economic growth. New anti-immigration laws like the one in Florida will move America backward.
Originally published by Econlib.
Mark Zuckerberg’s new social media platform, Threads, designed by Meta to compete against Twitter, has been the most rapidly downloaded app ever. Receiving more than 30 million downloads in less than 24 hours with more than 150 million downloads to date, Threads is a resounding testament to how innovation and growth are fostered by competition in free markets.
Twitter has seen its ups and downs over the past decade, but things have become more volatile since Elon Musk bought the company last year.
By imposing fees for blue check mark verification, a formerly cost-free symbol of authority reserved for authenticated public figures (rightly or wrongly, and I pay for the verification to receive the included benefits), Twitter became more pay-to-play, alienating some of its user base in the process. Then, recently, Musk implemented another paywall limiting tweet visibility, sparking widespread outrage. Combined with the app's roller coaster of breaks and bugs, these changes revealed ample opportunity for more competition.
Following a mass exodus of Twitter users, the app’s former users have a new platform to use, and they’re eagerly taking advantage. Recognizing the desire for a less-restricted social media platform, Zuckerburg created Threads.
Twitter’s decline parallels regulations that hinder voluntary exchange, frustrate consumers, and stifle economic growth. Sure, this result was self-imposed by Twitter, so it’s not as bad as government-imposed regulations, but similar privately-determined restrictions yield costly results.
Entrepreneurs struggle to thrive when the natural flow of the market is restricted by bureaucratic red tape.
Just as Twitter’s users were compelled to leave and the app suffered from feature problems, so are consumers and entrepreneurs in the free market discouraged to contribute when there are more hoops to jump through. When markets are allowed freedom to function, competition is encouraged, innovation is rewarded, and economic prosperity is propelled.
Striking the balance between necessary oversight and a flourishing free market is essential. But on the whole, regulations give more power to the government and less to the people. This results in less opportunity for innovation and human flourishing.
Is Thread’s early success due to Zuckerberg’s reputation and credibility? Possibly. But without the U.S. free market system of capitalism that makes it easier for entrepreneurs to start new ventures compared with anywhere else in the world, Threads’ popularity would not be possible.
Capitalism rewards ingenuity, empowers individuals, and enables transformative innovations.
As we witness the unfolding journey of Threads, it is an opportune moment to show gratitude for our free market system and recognize the importance of preserving that liberty. When we champion these values and discourage their inhibitors, including regulations and barriers to innovation, we’re keeping America’s entrepreneurial spirit alive.
Threads is the current hot topic among inventions, but in the free market system of the U.S., who knows what could be next? Competition should be encouraged to improve customer satisfaction and provide more job opportunities.
Originally published by Real Clear Policy.
On September 11, 1960, a group of young conservatives gathered in the home of William F. Buckley, Jr., in Sharon, Connecticut. For decades, the timeless ideals embodied in the document they produced animated the American conservative movement.
Today’s public policy challenges are different than the ones faced by the Sharon Statement signatories in 1960. Authoritarianism is on the rise both at home and abroad. More and more people on the left and right reject the distinctive creed that made America great: that individual liberty is essential to the moral and physical strength of the nation.
In order to ensure that America’s best days are ahead, we affirm the following principles:
See full list of signatories and the original post at Freedom Conservatism.
The Federal Reserve decided at its recent meeting to pause hiking its target interest rate at 5.25% after raising it at 10 consecutive meetings from 0%. But don’t expect the relief to last long as the Fed will likely raise this rate in July and future meetings up to 6% by the end of the year.
The Fed’s current pause has been met with a flurry of hikes in interest rates in other countries, which could mean trouble for Americans.
The European Central Bank increased its main rate to 4%; Bank of England hiked its rate to 5%, Turkey raised its rate to 15%, and Argentina hiked its rate to a staggering 97%.
Now that higher returns are available in other countries with rising or higher interest rates than in the U.S., the value of the U.S. dollar will fall having a domino effect that would further burden struggling Americans.
The Fed will soon have to raise its target interest rate again and likely further than what could have been the case had it not paused. This is because the resulting decline in the value of the dollar will lead to more expensive imports contributing to higher inflation, economic hindrances, and the need for further tightening by the Fed.
And financial conditions remain loose as there’s much money sloshing around in the markets, which is why the Fed should be more aggressively cutting its balance sheet instead of focusing so much on its target interest rate.
Investors will be drawn to the higher returns available in these high-interest rate countries, which will increase demand for their currencies relative to the U.S. dollar thereby appreciating the foreign currency and depreciating the dollar. This will raise the cost of imports from those countries, leading to more domestic inflation or fewer purchases to satisfy one’s desires.
The last thing Americans need is for their purchasing power to be further reduced because we’ve paused our interest rate hikes while so much of the world is doing the opposite. Recent reports reveal that Americans are still struggling because of inflation, which remains hot at about 4% over the last year.
Food prices increased in May at home and away from home, and shelter and new vehicle prices are up. While wages are rising slightly, they still aren’t keeping pace with inflation year-over-year for 26 straight months.
Times are tough, which is why the Fed needs to cut the one policy tool it can control which is its balance sheet. And by a lot.
While the money supply known as M2 and the Fed’s monetary base are declining year-over-year at some of the fastest paces on record because of recent Fed actions, these declines follow the most rapid increases on record, which left their levels extraordinarily high.
These extreme increases resulted in persistent inflation and massive distortions across the marketplace.
Just as the markets were hurt by the Fed increasing its monetary base, so can the markets improve with fewer distortions by the Fed decreasing its balance sheet. By relying less on government intervention and artificial liquidity, markets can get closer to being free markets.
Specifically, the Fed should start cutting its balance sheet by at least 12% year-over-year instead of the current 6% annual rate and removing its injections in mortgage-backed securities and long-term Treasury securities. The result will be a harder economic landing but one that’s necessary given how the government failures over the last couple of years have propped up many areas of the economy with malinvestments that can’t last when cheap credit and loose financial conditions collapse.
The resulting recession will be tough, though it was avoidable without these government interventions. But if the government lets markets work, the economy would stabilize more quickly. The long-term result would be that wages keep pace or grow faster than inflation again, cooking at home would be cheaper than eating out, and debts would decrease.
Unfortunately, fiscal policy by Congress continues to run amok with massive deficits that must be partially financed by the Fed or risk soaring interest rates, massive net interest payments on the debt, unsustainable budgets, and further soaring inflation and interest rates. This isn’t a pretty scenario but it’s one that officials in D.C. put us in and we must face the difficult choices to get out of it.
When the balance sheet is cut and interest rates go up in the U.S., money will flow back into the U.S. helping to appreciate the dollar and reduce the cost of imports. There’s nothing particularly important about trade deficits or surpluses as those are equal to capital account surpluses or deficits, respectively, but the hit to the purchasing power of the dollar for Americans is highly important.
Now more than ever, the Fed needs to take drastic measures to improve our economy before it’s choked out by international currencies strengthening. Will it act before it’s too late?
Originally published at Daily Caller.
Recent reports show that annual inflation rose 4% in May, down from 4.9% in April. In response to this and recent bank failures, the Federal Reserve announced that it’s pausing raising its target interest rate in June after approving 10 consecutive rate hikes, raising its target from nearly zero to a high of 5.25%.
But prices remain elevated and inflation is double the average 2% rate that the Fed prefers, which is making it challenging for Americans to get by. Food prices increased in May at home and away from home faster than 5% year-over-year, and shelter and new vehicle prices are up well above 4%. While wages are rising slightly, they still aren’t keeping pace with inflation year-over-year for 26 straight months.
Simply put, times are tough. This is why the Fed needs to use the one policy tool in its box that it directly controls and has the most significant influence on inflation: cutting its balance sheet.
Measures of the money supply are declining. The broader money supply known as M2 is down about 5% over the last year, which is the fastest pace since the Great Depression. And the Fed’s monetary base has declined by about 6% over the last year, which is the fastest pace since 2019.
But these are after some of the most rapid increases in these measures on record, which leaves their amounts extraordinarily high and manipulative in the marketplace.
These extreme increases in measures of the money supply resulted in artificial market distortion as more money was created out of thin air while available goods and services remained stifled by shutdowns, government spending, taxes, and regulations. As this made it more difficult to discern the true value of goods and services, price signals were thwarted. None of these ramifications will be abetted by declining interest rates or pausing rate hikes.
Just as the markets were hurt by the Fed increasing its monetary base, so can the markets improve with fewer distortions by the Fed decreasing its balance sheet. By relying less on government intervention and artificial liquidity, markets can get closer to being free markets and clear based on market fundamentals rather than government failures.
The Fed should at least double its rate of current cuts to achieve market sanity, meaning at least 12% year-over-year, until it gets to less than 10% of gross domestic product rather than the nearly 50% today. This would be aggressive and result in a harder economic landing but is necessary given the severe market distortions after many markets have been propped up on false strength for years.
In the event of a hard landing, spending, employment, and investment would likely be affected as economic activity would be forced to slow down. But if the government lets markets work, the economy would stabilize more quickly. The long-term result would be that wages keep pace or grow faster than inflation again, cooking at home would be cheaper than eating out, and debts would decrease.
Unfortunately, since overspending is a bi-partisan problem, political pushback would likely ensue if the Fed goes this route as it will mean a higher cost of funding the massive national debt. Although cutting the balance sheet is the solution, a cultural shift among politicians that favors less spending must preclude it because the Fed is implicitly and explicitly helping the federal government from blowing up the budget more with even higher net interest payments.
Ultimately, the path toward a stronger and more prosperous economy lies in the Fed's willingness to take bold actions and the political will to embrace responsible spending and balance sheet practices. A brighter economic future can be achieved by prioritizing market stability over short-term political considerations.
Originally published at The Center Square.
OP-ED: The “New Right” Illusion: Oren Cass's Flawed Vision of Top-Down Governance and the Betrayal of Capitalism
Oren Cass, founder of the think tank American Compass, presents a vision of the “new right” in his recently released book, Rebuilding American Capitalism. In it, he advocates for a top-down approach to governance in response to what he perceives as free-market failures.
He tends to believe that certain politicians can and should shape markets to achieve desired outcomes rather than letting free markets, which are free people, work. This attempt to rebrand not only the right but capitalism itself is flawed, as history and sound economics prove.
Cass pinpoints growing concerns in the economy to help bolster his arguments, like poor inflation-adjusted wage growth and lack of strong social and family units. These are problems making it harder for people to prosper, but they are not, as he suggests, evidence that free-market capitalism has failed.
But these problems–if they are problems, as Scott Winship and Jeremy Horpedahl recently found that people are thriving–aren’t the results of free markets but are driven instead by government failures.
These failures include bloated government spending, restrictive regulations, high tax burdens, excessive safety net programs, costly tariffs, and other barriers to entry in the marketplace. They are imposed by politicians and government bureaucrats, hindering competition, disrupting entrepreneurial endeavors, impeding wage growth, and destroying human flourishing.
Cass contends that capitalism only works under the right conditions, which must be facilitated by the government to keep the labor market and the economy strong. Rather than what he calls the “Old Right’s market fundamentalism” of fewer regulations and less government intervention being best, he welcomes more government with certain politicians in power. He proudly makes markets the scapegoat and, with it, globalization and financialization.
In the book’s foreword, Cass writes:
"Globalization must be replaced with a bounded market that restores the mutual dependence of American capital and labor and invites the trade and immigration that benefit American workers. Financialization must be reversed so that both talent and capital in pursuit of profit find their best opportunities in productive investment rather than extraction and speculation."
Believing that more opportunities in the form of globalization inhibit rather than help Americans is the same faulty basis with which people discourage immigration and trade, which are central to thriving economies.
But the crux of Cass’s theory is that he believes markets must be molded, even referring to work by the father of modern economics Adam Smith. Conveniently, he fails to cite the economist Frederick Hayek, who built on Smith’s ideas, to identify spontaneous order, the basis of free-market capitalism that argues economic growth and prosperity arise from voluntary transactions by free people, not government guidance and control.
This “new right” idea was debunked long before Cass came along by Hayek (and others), who also highlighted the “knowledge problem” associated with central planning. He argued that no central authority can possess the information necessary to make efficient decisions for an entire economy. The complexity of economic interactions and the constant flux of information require decentralized decision-making and market mechanisms to aggregate and incorporate local knowledge effectively.
Hayek’s insights emphasize the limitations of top-down control and the importance of allowing market forces and individual actors to shape economic outcomes based on their localized knowledge and preferences from the bottom-up. But Cass would have it that government is heralded as the keeper of knowledge and the arbiter of good decisions rather than encouraging freedom and liberty in individuals, i.e., the essence of capitalism.
Capitalism allows individuals to pursue their economic aspirations and make decisions based on their knowledge and preferences through voluntary exchange within rules of the game set by limited government. Through this freedom, innovation, entrepreneurship, and competition thrive, leading to greater prosperity for all.
History is full of successful economic transformations driven by leaders who championed limited government and free markets.
Former President Calvin Coolidge cut government spending, cut taxes, and reduced the national debt, providing more paths for human flourishing. Likewise, former President Ronald Reagan cut taxes, tried to rein in government spending, and reduced regulations, unleashing economic growth and job creation.
Both of them understood that cutting spending, reducing taxes, and removing excessive regulations create an environment where businesses thrive and workers can benefit. Their approaches embraced the power of individual freedom and self-determination, not top-down control that breeds the opposite.
Oren Cass’s theory of the “new right” and its embrace of government fundamentalism misunderstands the principles of capitalism and human behavior. Top-down approaches, rooted in centralized control and regulation, do not lead to economic prosperity or personal freedom no matter who is in charge but do distort the efficient allocation of resources, undermine the adaptability of markets, and reduce opportunities to let people prosper.
To achieve a thriving and prosperous economy, we must adhere to and strengthen the principles of free-market capitalism, which too much of our economy today is deprived of when considering healthcare, education, transportation, manufacturing, and the labor market. This should include embracing limited government, voluntary exchange, and individual freedom as the pillars of strong families, productive workers, and profitable employers.
Economist Milton Friedman noted what this debate is about decades ago. “The problem of social organization is how to set up an arrangement under which greed will do the least harm; capitalism is that kind of a system.” And while “history suggests that capitalism is a necessary condition for political freedom,” it’s clearly “not a sufficient condition.”
But capitalism is the best system yet that has supported economic prosperity and political freedom. The problem is that we have had too little free-market capitalism for people to thrive because of too much government.
There’s no need for a “new right” of big-government progressive policies offered by Cass and others when free-market capitalism of the “old right” is too often missing in our lives.
Originally published at Econlib.
Vance Ginn, Ph.D.